Berger Paints India Limited (509480) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '20 Results Conference Call of Berger Paints India Limited hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashit Desai from Emkay Global. Thank you, and over to you, sir.

Yes. Thanks, Nirav. Good evening, everyone. We'd like to welcome the management of Berger Paints India Limited and also thank them for giving us this opportunity. From the management, we have with us today Mr. Srijit Dasgupta, Director, Finance and CFO; and Mr. Sujyoti Mukherjee, Vice President, Finance and Accounts. Now handing over the call to the management for opening remarks. Over to you, Srijit.

Thanks, Ashit. Good afternoon, ladies and gentlemen, and welcome to the BPIL Q4 FY '20 Earnings Call. This time, I have the somewhat unenviable task of presenting and discussing numbers, which are really a degrowth in terms of the quarterly top line and earnings numbers after a very long time. Of course, these are unnatural and unusual times, but we hope that along with the challenges that are presented, there are some opportunities and therefore, we are trying to assess and respond to all of the challenges and opportunities as best as possible. As is customary, I would like to start by sharing the growth numbers or rather degrowth numbers in the case of Q4 for both stand-alone and consolidated basis for both quarterly and full year results. On a stand-alone basis, the total income from operations for the quarter degrew, went down, by 13.2% approximately. For the 12 months, that's the full year, it grew by 3.2%. The PBDIT before other income went down by 11.8% and grew in the full year by 11%. PBT, which was helped by the fact that on a stand-alone basis, some dividend came in from our subsidiaries, grew by 63.3% and on a full year basis by 31.7%. PAT was, of course, helped additionally by the lower taxes that we opted for in FY '20, and this grew by 125.4%, and for the full year at 60.4%. On a consolidated basis, the equivalent numbers are as follows: total income from operations went down by 8% for the quarter and grew by 5% for 12 months; PBDIT, excluding other income, of course, went down by 7.6% and grew by 13.4%; PBT went down by 12.5% in the quarter and went up by 15.4% for the 12 months; PAT went down by 6.5% for the quarter and went up by 32.8% for the full year. Some comments, I think, are due for the performance for the quarter. On a stand-alone basis, the top line degrowth is, of course, affected by the COVID-related lockdown, which was imposed on 23rd March, but I think everybody will agree that things started slowing down pretty much after the 15th or 16th. There was a gross margin expansion of approximately 3.7%. This was largely on account of reduction of raw material prices, consistent with reduction in crude prices, also, of course, somewhat offset by the price decreases that happened mainly in solvent-based products, starting May 2019. Other income included approximately INR 100 crores of dividend from subsidiaries. Provision for taxation was, of course, lower on account of the lowered applicable rate of tax at 25.17%. This compounded with the recalculation of deferred liability meant that the effective rate of tax for the quarter was even lower. For consolidated financials, it includes, of course, the operations of STP Limited, which is an acquisition that we did in November 2019. As I had -- as you probably already know and we had discussed last time at the Q3 call that STP is in the waterproofing and construction chemicals space and should be a synergistic acquisition as far as Berger is concerned. There were strong performances in the quarter from Bolix Poland, BJN-Nepal, and Saboo Coatings, of course, this is now renamed Saboo Berger Specialty Coatings Private Limited. The combination of all these strong performances helped the consolidated numbers show a relatively better performance at the top line and operating profit levels. I now invite questions from participants. I must also add that we are restricted for compliance and governance reasons to discuss essentially the Q4 FY '20 numbers and the full year FY '20 numbers, if there are any such questions. Over to the participants, please.

[Operator Instructions] First question is from the line of Abneesh Roy from Edelweiss.

Sir, my first question is, 7, 8 years back, Berger was more of a lower-end player. You have successfully transitioned towards a better mix balance. In FY '20 for the full year, how would you say this mix has improved? So mid and premium, how has been the growth? Because other paint companies are seeing much faster growth in the lower end. So has the mix deteriorated for you also in FY '20?

Thanks, Abneesh, for the questions. To answer, yes, to some extent, we are not seeing the net effect of premiumization as much as we did in earlier years, not that the premium products are not growing, they are growing very well. But what is also happening is that the entry-level products or the low-end products, as you said, putties, for example, have also grown in this year, very clearly. So that has kind of offset the beneficial effect of the upgrading in the premium products.

So related question to that. Now putty has been growing strongly for many quarters now. So how is the headroom there? And second, market leaders said that they may, in fact, cut prices in the lower end to drive demand. So would you also do that?

We haven't yet considered this. I think it's a combination of market forces as well as the effect of raw material prices. We are in negotiations, as with most corporates, of trying to renegotiate. We have been successful in some RMs, but still some ways to go. And then definitely, if the RM reductions come through in these products, of course, we will look at it, but we have not considered anything currently.

My second question was on the pandemic. So are you also charging extra for the PPE, more safety, et cetera? And are you also running a very strong safety campaign on this?

Very, very . We've kind of redesignated our motto for Express Painting into faster, cleaner and instead of better, we've made it safer. I think the focus is really on safety. Of course, there -- it's probably not sort of the forum to really go into details of how that safety and efficiency is ensured. But we have taken steps immediately to assure that the consumer and the house owner feel safe and is not threatened by the pandemic or the fact that people are coming into work in the houses. So this is something that we've reacted from day 1.

No. But are you charging extra because market leader is charging INR 1,500 extra wherever customer...

No. [Technical Difficulty] our cost in any case compared to the cost of the construction. So very marginal. It shouldn't make a difference to the homeowner at all.

But I think -- but you're not charging extra for that?

As I said, marginal, yes.

Okay. And sir, last question. Other paint companies have already said that their current sales is now back to almost 60%, 70% of the pre-COVID. So can you also clarify, are you also seeing similar?

We can't give numbers, and it's not our policy to give specific numbers. But yes, I think you may have -- we may be mentioning the market leader. Of course, that's how the market is shaping up. And we are encouraged by the fact that we are coming very, very close to a pre-COVID situation. But obviously, I can't give you numbers.

Next question is from the line of Avi Mehta from India Infoline.

Sir, essentially, wanted to kind of just delve into the input cost scenario. How exactly are -- how is the situation right now and versus you know -- just if you could -- if you want to kind of give it in terms of absolute numbers or in terms of comparison with 4Q levels, if you could kind of help us understand that?

See, we can't talk about Q1, obviously. I mean that's something that's out of the scope of this discussion. But if you wanted to know the way Q4 RMs have fared in terms of pricing, yes, we saw sharp declines in certain RMs. Essentially, it was monomers, solvent-based products, mineral turpentine oil. And that sustained right through the end of the Q4 period. And looks like it will only improve. Of course, there are issues like the USD-INR rate, which will have an impact on the final pricing. Some of the products are, of course, imported. So I think we're looking at a fairly stable raw material situation currently. And of course, the China situation is unfolding. We don't expect that raw materials from China would be affected immediately. But if they do, I don't think it will impact our overall cost by much.

Sir, on that, just understanding this a little more. In 4Q, you said that it had already modulated towards the start of 4Q, and its current -- would you say that most of the correction has now been reflected in -- or has there been further correction since the end of fourth quarter?

I think most of the corrections have taken place. It would be, again, a little premature to go into Q1 of FY '21. But to help you out, yes, the -- most of the corrections have taken place. As I said, the combination of the price cuts and the increase in the dollar kind of -- sort of ruled or canceled each other out a little bit. So we expect the situation to not change by much, at least downwards.

Okay. So 4Q is broadly seen the best friend, it's kind of remaining at that level, that's how I should read it, that'd be of help. I just wanted to kind of clarify that part of it.

Close enough. Close enough.

And sir, second bit is essentially on inventory. I mean, typically, given that the situation that was and given how we've all been caught suddenly because of this lockdown, how -- what is the cost of inventory that we have? Because it will take some time for us to see the lower cost or the new cost of inventory to start reflecting. Is that a fair understanding? And if yes -- or if you could kind of clarify?

Yes. You're absolutely right. We had -- I think the whole industry looks forward to April as a big month, at least for the decor part of the business. And I think everybody was caught out a little bit. So it will take some time for all of that to filter out of the system and the new costs to come in. So yes, you can expect. That's to be expected, this -- the fact that we did carry quite a bit of inventory into Q1 of FY '21.

And that's typically, sir, at -- for a 2-, 3-month period more or how does that work? Just wanted to...

Again, that would be premature. That would make my commenting on the fortunes of Q1. I can't talk more so with any greater clarity on that. But you know what I mean. I mean you have a fair idea of how the industry has fared in April.

Okay, sir. Okay. And sir, second bit is just on the volume growth front. I mean, unfortunately, we have -- there are different ways of calculating, but just would like to understand, there is one number of 11.2% for the year, how would we be there on the decorative side, if you could share any thoughts?

Again, we don't align ourselves along the same method of calculation. As I've said before in earlier earnings calls, it doesn't really make sense to us to add liters to kgs. But I think I would again request all of you to kind of look at the value growth numbers. I think that's easier to interpret and easier to kind of follow and track. So please, excuse me if I don't get into the calculation and explanation for volume growth numbers. Thanks.

Sir, then would you be able to share a value growth number that would help us understand how the -- you or the industry, how would it be?

So the value growth numbers, I can't share business line wise. I mean, obviously, that's something that's not in the public domain. But you have the Q4 numbers. And certainly, we know that -- and everybody knows that the industry is now limping back towards normal. Everybody had a horrid April, but things are coming back to normal. I think we'll need to sit out a couple of quarters to fully understand the effect of the pandemic. But I should say that we are encouraged by the quicker recovery than we'd hoped for earlier.

Okay. And with your permission, the last question, would you be able to share what are the ad spend levels for FY '20? And any kind of comments on...

The only thing I can say is, we did not cut back at all in Q4. I can't give you specific numbers, but if that helps you, I think that it might, we have not used advertisements as a means of cost reduction, not in Q4, at least.

So then maybe you could kind of highlight what levers are there for cost reduction that you're kind of playing out as we move forward? Or any comment on that, that would be helpful.

More for FY '21, I can talk about some general areas of reduction and not specifically in number terms. So definitely, the largest one would be RM or raw materials. Of course, there would be areas of reduction like we are trying to offset diesel price increases with further negotiation in freight prices so that we are not hit hard and kind of remain at an even keel as far as freight and carriage costs are concerned. Definitely, cost reduction in terms of traveling, in terms of conferencing, in terms of AMCs and manual contracts and maintenance. So a whole lot of areas that we are working on, and we expect to get material benefit.

[Operator Instructions] Next question is from the line of Tejash Shah from Spark Capital Advisors.

I hope all the team members at Berger is keeping -- are keeping safe and healthy.

Yes. Thanks, Tejash, for your thoughts and concern. Yes, we are so far, yes. Happy to say that.

And you survived a cyclone as well.

That was a bad one. That kind of really had us beat for a few days, but we've recovered. Thanks, thanks.

Yes. Sir, sitting in Mumbai or metros, perhaps, we are wondering why someone would dare to call painters or anonymous people at home in this environment. But whatever commentary we have picked up from paint majors after the results on media, it seems that rural seems to be doing better. So is it that this concern is largely restricted to metros and misplaced for rural economy?

It's a relative thing, Tejash. So yes, we are seeing not all metros, but certainly, some metros are taking longer to come back to normal, possibly because the Tier 3, Tier 4 towns were less affected by the pandemic. I think the fear, paranoia, isolation issues that were there in metros were there to a lesser extent. And therefore, people felt less worried about coming back to normal, getting their houses painted. It's a relative thing. It's not that there was no effect, but a relatively lower effect in smaller towns.

And sir, any regional flavor to recovery in terms of Northeast, Southwest?

I think, basically, like other people would have said, I'm sure, I don't know, but obviously, places like Chennai or Mumbai or even Ahmedabad would be somewhat slow in coming back from the effects of the pandemic or the lockdown, specifically, and other towns less so. Delhi also is affected. So this is probably how it looks to us. Certainly, as you said yourself, Northeast would have been largely unaffected or much less affected than the rest of the country. So it's a bit of a relative thing, but we are hoping that at least 90%, 95% of the country comes back to normal fairly quickly.

Sure. And sir, a couple of bookkeepings, if I may? Sir, what was the dealer count at the end of last year, March?

That becomes a little bit of academic figure, Tejash. I can help you out by saying that the growth numbers were roughly at between 10% to 12%. So if that gives you some kind of help. We are still kind of grappling with the issue of what do we call a dealer who hasn't picked up the requisite qualifying amount in March, for example. So a little bit of a puzzle for us, but I think growth of 10% to 12% is fair to assume.

And sir, lastly, on Jejuri plant update, is the CapEx done and what will be the CapEx plan for this year?

Absolutely done. Of course, commissioning and all of that were a little delayed because of the imposition of lockdown. It was due to go onstream from April. So a little bit of delay there, but no harm done. We haven't lost any business for obvious reasons because everything was under lockdown. But for 2021, FY '21, again, we are looking at a similar INR 200 crores or INR 250 crores of CapEx spend. It may be necessary to kind of revise the time lines for our Sandila plant for obvious reasons because construction cannot resume to the fullest extent until there is a relaxation of lockdown to a fairly large extent. But I think it will only mean a partial delay. No great revision in overall CapEx plans.

Next question is from the line of Pulkit Singhal from Motilal Oswal.

Sir, most of the paint companies' management have come on the media and talked about how demand in June is back to the extent of 80% to 100% kind of levels. Now obviously, it seems quite counterintuitive as even Tejash alluded to because of the whole social distancing thing. But how do you read it internally? I mean how much of this do you really think is pent-up demand or should we say because May -- I mean, May should have been pent-up demand and June shouldn't. So how do you look at this demand factor? Is it sustainable? Is it the last on pent-up? Can you throw -- share some light on this, please?

I think you answered the question yourself. I mean, essentially, it's deferred demand or postponed demand, which is playing out. I mean, obviously, April was a horrible month for everybody. So unlike some industries where lost revenue is lost forever. In paint, it kind of gets deferred a little bit. So I think you're absolutely right that some of it is pent-up demand, which is kind of unlocking. I think it is too premature to make any great predictions about how -- what is the permanent effect of the pandemic. It will need maybe a month or 2 to kind of find out and study whether there's repeat demand, whether there's repeat pickup of sales from dealers. And as you said, whether it's a sustainable demand or not. But I think to be, again, fair and the risk of sounding less conservative, we are definitely encouraged by the recovery.

Right. Right. And to that extent, when I look at the -- on the upcoming Diwali season this time, it is much later, and last year it was earlier and there was late monsoons and that kind of impacted the show as well. So this year, are you kind of gearing up for a much better Diwali also because of the low base and there could be further postponement? And in certain locations, it could have been just postponed to the second half of the year. So I was just wondering how do you look at it in that stage?

It's still, again, very premature. As I said, we are encouraged by all these facts that we are seeing resurgence of demand and a faster pickup than we thought would be possible. So this is something that looks -- we'd be optimistic about, but it will be very difficult to hazard any kind of guess regarding the impact of a late Diwali, monsoon sort of exhausting itself well before and therefore, a good painting season. We hope it happens. And -- but that's all that I can say from my side at this point of time.

Sure, sir. And sir, lastly, on your -- I mean, obviously, last quarter, we've seen most of the paint companies suddenly have a huge jump up in the gross margin. And it's quite significant from a trend now. Even if I look at it from a last 2-year perspective, despite a more adverse mix, gross margins have trended up. So how do we look at this aspect going ahead? I mean should 4Q be more of a representative? Because even the market leader mentioned that price cuts have not been taken since December last year. So how should we look at gross margins going ahead, given the current RM scenario and where we are?

Exactly. I mean the question on everybody's lips is, will there be another price decrease? The case for that depends on 2 things: any further renegotiation of RM prices or any further fall in crude or any further stability or shoring up of the rupee versus USD. It's a combination of different things. But largely, I think it's also dependent on the demand situation. And typically, at the lower end of the market, there's a little more price competition. So we'll have to see how things pan out.

So should we look at 4Q or the full year gross margins as a more representative things to kind of go with?

Probably 4Q would be more kind of representative. But as I said, it has to be offset with these other confounding factors like the rupee kind of going down a little bit at the end of Q4 as well as the impact of selling low end products.

[Operator Instructions] Next question is from the line of Anand Shah from Axis Capital.

Sir, my first question is essentially that we've heard even that some of the metros and the larger cities are obviously not doing well and still most paint companies, including you, at least indicatively are back to the 80%, 90%, 100% level in June. I mean -- so I mean, is rural or the smaller towns actually more than 90%, 100% plus or -- and back to a growth trajectory? And are they able to compensate enough for the loss in the smaller towns? And how would your mix be in terms of the larger towns, especially the troubled ones that remain in the...

As I said at the beginning of the -- my opening remarks that, unfortunately, I have to stay away from specific number guidelines for Q1. That is not our policy to share specific achievement numbers for any month, for example.

No. Sir, I don't want any specific number. I'm just saying is rural, to that extent, able to compensate for the loss you are seeing in some of the troubled cities, the larger cities to that extent or maybe you still are a bit to some extent...

To some extent. Yes. It's a relative thing, to some extent.

And some of these metros like Chennai, Mumbai, Delhi, Ahmedabad, which are commonly quoted as the markets which are struggling right now because of the COVID issue, there, let's say, the percentage, very rough ballpark, would be what percentage of the revenues for decor?

We can't comment on that. But I can say it's -- probably, our share of these markets is a little lower than the industry average.

Okay. Okay. So relatively, you're lesser impacted versus other peers to that extent there?

Yes.

Okay. And secondly, any comments you can share on how industrial has performed in this quarter? And how things are looking roughly qualitatively?

Again, industry, if you mean -- see, at the technical end or technology end of that -- of the business, which is automotive, I don't have to tell you how the numbers are faring. But we are encouraged a little bit by recovery in the corrosion-resistant coatings segment, which is our Protective Coatings division. So that seems to kind of recover hand-in-hand with the decor business.

Okay, and which is the larger part for you versus in the industry.

Yes.

Okay. Okay. And sir, lastly, on the international business, I mean, you did refer that Bolix, Nepal and all have done a little bit better in Q4. Is that the trend, which is continuing in Q1 as well to that extent? And qualitatively, I'm not again asking this...

Yes. So I can only answer qualitatively. Yes, Poland, which is probably our largest subsidiary now even larger than BJN-Nepal, so they were less affected by the pandemic compared to other European countries. I think the fact is that we are in the insulation business there, which is driven by construction projects, and construction projects actually were not subject to lockdown in Poland, except for 1 or 2 major cities. So we actually did quite a good bit of business at the end of Q4, certainly in Poland, we've had healthy growth. We were also helped by an improved performance of our U.K. subsidiary, which is a subsidiary of our Polish company. And I might have shared in earlier earnings calls that we have now, in large, expanded our operations to the U.K., which is really the emerging external insulation market in Europe. And performance there was good. Of course, U.K. was unfortunately more heavily affected or largely affected by the lockdown than Poland. But we're expecting that in a week or so, some construction activity will resume, and we'll be able to get back very quickly to pre-COVID numbers for U.K. as well. As I mentioned, Poland is continuing to do reasonably well. And of course, Nepal kind of mirrors the fortunes of India in many ways, and definitely, so for -- as far as the pandemic is concerned. So unfortunately, 2021 will be a little bit challenging initially for Nepal.

Okay. And any color you can share how much did STP contribute in the Q4?

A little over -- well, annually, it would be about INR 160 crores or INR 170 crores.

As a run rate, yes.

But we only had 5 months of business and that too the last month went -- was shot to pieces because of COVID. So I don't think it's fair to read the synergies of STP only in terms of the 5 months. But as I said, the annual contribution, typically, we are hoping for is about INR 160 crores to INR 170 crores.

Okay. Okay. Perfect. And yes, just the last one from me is, essentially, we've seen this value differential as you have discussed broadly between the volume and value for the decor business. And we keep hearing the low end, obviously, is still doing well and may pick up even further, given down trading, given the environment. So I mean your sense is also the same that you will continue to see this volume value differential even in FY '21?

Absolutely. But I should kind of also point out, I've done that earlier in today's conversation, that part of the volume drop was also on account of the price decreases, if you're comparing Q4 to Q4 year-on-year.

Yes. Okay. But you know broadly, I mean, for the full year, this, say, overall, may still continue to that extent? I mean are you seeing very significant activity even increasing more so in the lower end because we are seeing more product launches from how we...

I think so. But whether it will be sustained through FY '21 remains to be seen. This is really a fact of the -- little bit of the polarization towards the smaller towns. And the fact that painting activity at the lower end is naturally higher there. So to what extent it will be true for the full year, I can't hazard a guess. But right now, yes, lower end is doing better.

Next question is from the line of Jeetu Panjabi from EM Capital Advisors.

Yes. What I wanted to understand was, over the next 6 months, as we go through various ups and downs, what do you think would be the most significant challenge in the path for normalization? And would it be fair to say that you'll come back -- I mean, let's assume the COVID scenario comes to a near-normal in the next 6 months. So would it be fair to say that you'd come back to whatever near-normal back at the end of the year?

Again, it's a very difficult question to answer. I wish I knew. I could certainly plan better. But let me mention a couple of things, both positive and negative, which will influence the outcome. Let's talk about the positive aspects first. The positive aspects are that there are new lines of business that we can look at or new product segments or that we can -- already looking at and we think will add to top line and profits. The other positive is that this gives an opportunity to kind of completely reconstruct our operating models in terms of, say, for example, something as simple as traveling costs or something as simple as conferencing and sort of maintenance costs, facility costs for want of better word. So those opportunities are there. The possible negatives, which we can't kind of fully appreciate today, is the impact of the overall economy slowing down and what it does to people's disposable income. We are encouraged by the fact that paint is always seem to be an expense, which can be deferred, but which cannot be dropped. And with people taking a greater interest in their homes, they will because they're spending more time in it -- in them, it also presents an opportunity to kind of use this greater home involvement for most people to perhaps be interested in painting their houses. So all of this is very difficult to kind of translate into a clear revenue line or business outlook. I only mentioned these things so that we can keep an eye on these things and then look at how things pan out in terms of these things. The greatest one negative is, of course, the paranoia that may be present -- or the perceived paranoia that may be present at least temporarily for some -- for -- in the short-term for people not to paint their houses because other people are coming in into their houses. So but we are, I think, able to effectively counter this by ensuring and assuring homeowners that our services will be safe, clean and we'll leave a perfectly sanitized home when the job is over. So all of that will require good communication, a little bit of demonstration and sort of experience as well. And hopefully, we'll come out of this stronger.

Okay. Great. One -- the second question I'd ask, sir, is that, as we look out 6 or 12 months out, do you foresee any permanent structural changes in the business?

Yes. Of course, as I said, there are cost reduction opportunities, which may be permanent in nature. I don't see us ever traveling at the levels that we were doing in FY '20, for example. Video conferencing is a factor -- is something that's come to stay. We probably waste less time traveling. We spend more time doing valuable work in terms of discussions and decision making, hopefully. And these things will stay. And there will be different models for distribution, perhaps even for communications, logistics all of that will have a certain amount of impact. But of course, the core activity like production, distribution, channels, I can't see e-commerce kind of rushing in and filling the gap, not while paint is still far away from a DIY product in India. So -- but we are encouraged by the changes and the potential for reduction in costs and structure. So let's -- I think we need a month or 2 to figure out clearly.

Next question is from the line of Bharat Shah from ASK Investment Managers.

My question is more about the long-term competitive dynamics of the industry and Berger in particular? So when I look at over the last decade, Berger has made steady gains in terms of improving operating its margins, it has improved its relative competitive positioning as well. And we can see it from the relatively stronger business growth that it has witnessed. But when we -- when I look at it from a broader perspective in this industry, the key competitor's dynamics, so this is not a business where technology is of a great -- I mean, products are simple, technologically not really complex and therefore, branding, distribution, logistics and working capital management occupies central place. When we take all of these into account, we still see the leader remaining very strongly -- strong leader, continuing to be in the saddle in a firm way. Berger has relatively improved its positioning over a period of time, but Berger firmly remains like a challenge with a distance, while the leader continues to remain in the saddle in a strong way. So how do you see -- how does any player who hope to challenge the leader and to occupy a greater meaningful space?

Thank you, Mr. Shah. This is a very, very valid question and a very, very interesting one. Can I respond to it by saying that I think the path ahead of us remains very clear. We cannot hope to challenge the #1 or get closer to him by doing the normal things. By normal things, I mean, make the same products, sell to the same dealers, use the same raw materials, things like that. Therefore, our path has to be a path of innovation, innovation not only in terms of products, most certainly in the form of products and services. And that is where we rest our -- the bulk of our strategic initiatives. Do things a little differently whether it be in the channels, whether it be in terms of the products and the attributes in the products, whether it be in the approach to the way we do business in terms of the dealers or the distributors, so all of that must be the focus. It must be that we come out with better products. We must be able to add value faster in terms of attributes and properties of our products. And I think it will not be incorrect of us -- of me to say that perhaps in the last decade or a couple of decades, we have been able to demonstrate that we are innovating a little faster than competition. It's a tough challenge. It's a tough examination that we have to kind of prepare for, but this is the only way. And we have to be leaner, we have to shave off working capital days faster, we have to have efficiencies of production and lower wastages and achieve them more quickly. So I think a combination of all this, but the key is obviously innovation in all spheres. I think that is the only answer I can give you, Mr. Shah. I hope I am convincing.

No. I just have one additional point to offer because I have some inside view of the top player in the industry. So one of the most distinguishing things about them is that they have continuously focused on not just attracting, but retaining and nurturing some of the most outstanding managers and the intellectual capital into the business. And not today, but over decades, they've been very progressive about not running business in the usual ways, but about attracting consistently a lot of leadership, good people from top institutes, nurturing their talent well and continuously remaining on that curve. Even in terms of, not the technology of production, but even using technology per se in order to manage working capital efficiency and better, they've been very progressing well ahead when most of the corporate India did not think of many of these issues. I thought I'll just put this additional. I have some idea I thought, so I wanted to put it on the table.

Very much appreciated and very relevant, Mr. Shah.

Next question is from the line of Kuldeep Gangwar from ASK Investment Managers.

Like, you have acquired the STP and consolidating your position in these new businesses, so margin profile would be similar to your group averages or what to expect? Like, how you would be different from the incumbents in those areas?

I can't go into, again, specifics because these numbers are not in the public domain yet. But the idea of an acquisition is to kind of pick up an opportunity and to improve it in terms of post-acquisition performance. So definitely, we should look forward to an increase in the profitability and in the, let's say, contribution to the overall consolidated numbers in a more meaningful way. Of course, like-for-like, at the time of acquisition, it would have been slightly lower in terms of profitability. But the idea is that with the brand, with the channels, with the additional markets that we might be able to bring in a scenario where these products can be channeled into, I think we can look forward to an improvement in the profitability and therefore, something which is closer to the similar business within Berger.

And regarding the price cut, whether you have taken anything this calendar year from January till now? And what would have been the overall price cuts, as you highlighted, it was primarily in the solvent business, so what would have been the overall price cut at portfolio level in FY '20?

Yes. As I think somebody mentioned, the price cuts were limited to the first 3 quarters of the year. And approximately, it would be perhaps a little over 2% on the overall basket for decorative paints.

And last, but like from supply chain perspective, whether it will be possible to highlight what portion of the imports will be coming from China? And whether the alternative sources are available for the same?

It's not a very large number. I think in sum -- in total, it may be around 10% of the total RM basket, I mean, the imports from China. But there are all, of course, substitutes which are available from other countries. It's not that they're unique to China in terms of source. It may mean some small impact in prices of raw materials. Hopefully, it should not worry us that much.

Just one clarification. It's a 10% of the import or 10% of overall raw material for you?

Overall raw material.

Next question is from the line of Avi Mehta from India Infoline.

Sir, just some bookkeeping. You highlighted there was a dividend from subsidiaries, I missed that part, could you repeat that, please, sir?

Yes. We got dividends in from Nepal subsidiary and one of our other subsidiary to the tune of approximately INR 100 crores in Q4.

Okay. And sir, the second bit was on the profitability increase, was that because of any of the subsidiaries or was it because of STP in FY '20?

You mean in the consolidated numbers?

Yes, yes, sir.

Well, the core profitability improved because the stand-alone company improved in terms of...

The divergence. Yes, I meant like if I were to split it further and say that consolidated...

Yes. So the profitability improved because of the fortunes of both BJN-Nepal and the Bolix subsidiary. These -- both have higher contributions than our core business in India, gross margins, I mean.

Okay. And sir, I am sorry, I -- to the earlier participant, you were highlighting the STP is expected to be annual about INR 160 crores to INR 170 crores annual run rate and steady state...

Yes. It is difficult. Again, these are numbers, which are in the context of COVID will have to be seen. But I don't -- obviously, I'm not talking about specific FY '21 numbers or anything. I meant sort of the moderate or a fair idea of the size of the operation.

Correct. So in a way, FY '20 full year STP, whether we had acquired it, we would have been around INR 160 crores, INR 170 crores sales, give or take?

Again, the impact of Q4 is a little more than what we -- would have been in a normal course of things. So perhaps a little lower than that.

And sir, if I may, what would -- the margin profile of this business currently is at what level?

Again, I can't be very specific. These numbers are not public. But as I said, there are a little -- today, they are marginally lower than equivalent businesses in Berger.

So there will -- when we say lower than the Berger average is what I would kind of assume, right, Berger current player.

Yes. Berger makes similar products. So that's what I meant.

Okay. And lastly, sir, there is a comment in the media outlets about quoting the CEO stating that June was -- has witnessed an increase on a Y-o-Y basis. I just wanted to kind of take your comments, was that misquoted or was that...

See, June is not yet over. So it's -- I don't know how -- I'm not sure what the media reporting on that one was. In any case, I think you will have to excuse me, I would not be able to comment on June certainly in this forum. Well, let's wait for the Q1 to pan out.

[Operator Instructions] Next question is from the line of Abneesh Roy from Edelweiss Financial Service.

Sir, to follow-up, you mentioned in India now situation is coming close to pre-COVID, and you have been positively surprised by the turn of the events. On your international part of the business, say Nepal or Poland or other key geographies, how is the situation there?

I did mention, I think -- I don't know whether you got my comments, I did mention about Poland, U.K. and Nepal. These are the 3 largest pieces in our international business. Nepal pretty much mirrors the Indian experience as far as pandemic is concerned. And they took a little longer to have the pick up in the COVID cases and in the sort of testing statistics. So the lockdown impact may be a little longer in Nepal than in India. But that's a relative thing, and I don't think we should dwell too much on month's or a quarter's fortunes. Suffice to say that it will possibly mirror the Indian experience. In terms of Poland, thus far they are relatively untouched. I did mention that the type of business we are in, which is external insulation in homes and construction sites, the experience so far has been that it is less affected than other parts of Europe. U.K., unfortunately, were hit hard by the lockdown in April and May and certainly June as well. But they are coming out of it, and hopefully, will come back to pre-COVID levels because, again, this is a construction site business, this is not retail selling, this is not walking into people's homes and applying paint. So the risks are lower, and hopefully, the recovery will be faster.

Sir, are you seeing this crisis as an opportunity, for example, a FMCG company in Chennai, they are surrendering the headquarter and putting it on lease, et cetera. So are you also seeing some saving or some automation in your sales force or in any of your regional/headquarter office you can cut costs...

For example, the first thing we've done is to renegotiate all our rentals, first thing. And the second thing we've done is -- we did was to approach our raw material supplies -- suppliers and seek renegotiated rates, annual maintenance contracts. Everything is part and parcel of this, let's say, COVID opportunity.

And sir, last question, you said we should not compare the volume growth calculation by other players. But when I see the stand-alone sales, the market leader has done better this quarter than you, what could be the reason for this? Is it higher focus by them on the lower end, sir?

I can't really offer -- I'm not privy to their numbers, I can only analyze my numbers.

Sir, stand-alone sales for both companies?

Well, [ I don't have a similar ] guess unfortunately.

No. No, I'm comparing stand-alone sales, which is a public number, for both companies. There is a 5% to 6% difference.

You are asking me to compare with my competition.

Yes. But you are in the same space.

Yes. So I'm confessing that I cannot offer an explanation. We know how we have done and what are the reasons. It's difficult to kind of compare against -- for that, I have to know, for example, periodicity of sales for him, what is his mix, I don't know.

No. No. My question is not that. My question is, are you also aggressive on the lower end just like some of the other players in the market?

Absolutely. That's a different question. Yes, of course, we are because that's how the demand is panning out unfortunately or fortunately.

We would like to use the opportunity.

Next question is from the line of [ Vineet Prasad from Investec Capital ].

Just continuing question from the previous participant. We have seen a sharp mix deterioration, not only for our company but for the industry, so to say, organized players maybe over the last 6 quarters or so. I think that should largely be on account of GST rate cut, which happened. Is my thought process correct? It was largely on account of GST reduction or was it more to do with companies now focusing more on lower end, or unorganized, unable to operate at the levels what they were?

To answer your question, no, I don't think it's much to do with GST and the rate cuts. It was more to do with mopping up every available opportunity at every level of business. And we did see an opportunity in the lower end of the market. And because that demand was picking up a little more than the strong sort of middle or mass market demand in these markets. And therefore, we didn't want to give up these businesses. I think you may have heard the discussions on putty and on primers and on distempers, which went on in this earnings call earlier, and all of that is a reflection of that opportunity.

Okay. Sir, just one more thing, not specific only to quarter 4, but over the last maybe 4 to 6 quarters, can you give an indication whether our mix deterioration or change would have been similar to our other peers or the large companies, which we are competing with?

I can only get indications from the marketplace. Unfortunately, I'm not privy to their numbers. But I think a little too much is read into the mix deterioration as such. What I think we should read into the numbers, at least for our company is that the premium product growth was largely offset by the lower end product growth as well. It's not to say that the premium end did not grow, but the positive effect of the margin there was a little bit offset by the low end product growth, which obviously have lower margins. So it was not a net-net, a very disastrous thing to happen. I should clarify that because the discussions may be pointing to that. But it was the expected benefit of upgrading or higher premium end products selling was offset. So net-net, not much improvement happened.

The last question is from the line of Ashit Desai.

My question is on the Express Painting service, if you could give us some idea as to how large this service, in how many cities we offer, what has been the ramp up in this over years? And also I mean consumers that use this service, I mean what percentage of sales they form for us?

In terms of percentage to sales, it's still a modest percentage. But in terms of absolute numbers, it's fairly significant. These numbers are not unfortunately public. So I can't share specific numbers. But this is the highest growing, let's say, segment for us, this home painting through the Express Painting route. So -- and it also acts as a sort of positive publicity for us and a demand driver. It also helps us in preparing a large bank of trained painters, which come through this route and are not necessarily restricted to Express Painting service in the future. So net-net, it's a very positive thing. In percentage terms, it's not a very big number. But in terms of the qualitative benefits and impact, I think significant.

Okay. In how many cities would this be available?

As of this point of time, I think it would be in the region of about 25 to 26 cities.

Okay. Okay. And since, I mean, there are only a few competitors, which also offer similar services, would it be -- would you be able to give an industry [ break out ] of this, how much this accounts for the industry or something?

It's a small number. So I don't think it's really relevant that way. But I think it's relevant in the brand building and goodwill building exercise, which is also important.

And it's more of an application. So I mean, it cannot be a separate industry figure for that.

Thank you very much. I will now hand the conference over to the management for closing comments.

Yes. I would like to thank everybody for their participation. Wish all of you are safe and hopeful that next time when we meet, we would see things normalized much -- or maybe in a much better shape. Thank you. Thank you all.

Thank you very much. On behalf of Emkay Global Financial Service Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.