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

Ladies and gentlemen, welcome to the Q3 FY '22 results conference call of Berger Paints India Limited, hosted by Emkay Global Financial Services. We have with us today Mr. Srijit Dasgupta, Director, Finance and CFO; and Mr. Sujyoti Mukherjee, Vice President Finance and Accounts. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ashit Desai from Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Rutuja. Good evening, everyone. We'd like to welcome the management of Berger Paints, and thank them for this opportunity. It's a pleasure to host them for this Q3 earnings call. I'll now hand over the call to the management for the opening remarks. So over to you, Srijit.

Thanks, Ashit. Good afternoon, ladies and gentlemen, and a warm welcome to all of you to the Q3 FY '22 Earnings Conference Call for Berger Paints India Limited. As usual, commence with a few statements or remarks about the stand-alone and consolidated quarterly performance, and then invite questions from the participants. So the stand-alone numbers look like this. For the quarter, total income from operations grew by 21.2%. PBDIT degrew by 9.1%, PAT degrew by 13.1%. Some remarks on the factors which influenced the performance. Quarter was characterized by sustained growth in the top line for all businesses. The growth in the automotive business was a little muted compared to the other business lines, mainly because of the 2-wheeler business, which was significantly affected by a significant drop in the production numbers in the industry for the quarter. The quarter also saw, as everyone has known by now, a significant raw material price increases, which found its way into the P&L since the inventory effect of carrying lower cost raw materials and finished goods, pretty much played out by the end of the last quarter, meaning Q2 of FY '22. The increases were seen mainly in monomers, methyl acrylate in particular. This goes into emulsion production for water-based products and emulsions, solvents, phthalic anhydride, vegetable oils, et cetera. The raw material price effect was also partially offset by finished goods price increases in the decorative deep protective coatings and powder businesses. The cumulative price increases taken till December 2021 in decorative business was approximately 24%, and we are calculating this from January of 2021. Even though the bulk of the increases came only in the second half of the quarter, meaning Q3 FY '22, and therefore, had only a partial impact on the quarter numbers. Going forward, the full effect of the price increases should be visible both in top line and profit numbers, barring any further spike in raw material prices. The price increases in other business lines like general industrial and automotive, did lag behind, however, more than decorative. And therefore, more prices -- price increases will be taken in Q4 of FY '22. The general industrial and automotive business, in particular, suffered the most in terms of gross margin contraction in this quarter, but should improve in terms of margins from Q4 onwards. Raw materials continue to rule firm at the end of the quarter and into January of 2022. The company also managed to offset some impact of the raw material price increases through vendor development and reformulation activity, some of these initiatives we've already spoken about in earlier calls. The initiatives have been taken earlier, but the effects of -- which are now playing out. There was also some effect of a better product mix, particularly in decorative business through higher growth or better contributing products. Newer products like the higher-end water-based primers, admixtures, did very well in the quarter in terms of sales as did the construction chemical warhorses mainly the ceiling compounds and the damp proofing products. As usual, the advertised product showed significant growth well above the business line average. In this quarter, the metros in larger towns showed a good. We think festival demand and indicative of a strong post-COVID bounce back as with the institutional project and of the decorative business. This concludes my remarks for the stand-alone business. I'll now move on to the consolidated numbers. In the quarter, the total income from operations grew by 20.4%, PBDIT degrew by minus 5.3% and PAT degrew by minus 8%. BJN-Nepal, that's our Nepal subsidiary, and SCPL, we are trying some coatings to very strongly in the top line, though SCPL was impacted at the gross margin level by sharp increases in raw materials. This is essentially in general industrial type of business. Bolix Poland, [ STP ], that's the construction chemical subsidiary, and Saboo Coatings all suffered gross margin contraction on account of raw material price increases. Though the effect of this was more than offset by the reduced mark-to-market foreign exchange fluctuation losses in BPOL Russia in this quarter, compared to Q3 of FY '21, meaning that there were little or no fluctuation losses in Q3 of FY '22. So the comparison is more favorable when we look at the numbers versus Q3 FY '21. Price increases are being taken for all these businesses, and margins will improve going forward. The [ GME, the MPSC ] and Berger Becker also had very strong top line growth, though both predictably suffered on account of raw material price increases. However, price increases have already been taken, and more price increases are planned for Q4, and therefore, margins should improve for both. This concludes my opening remarks. I now invite questions from the participants on the results.

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

My first question is on the discounting and promotions. So in Q2, we have seen other players were very aggressive on discounting promotions. In Q3, all the paint companies took price hike, but has the high promotions and discount reduced, the abnormality has that gone away? And when I see on a 2-year basis, stand-alone numbers for you and the market leader, EBITDA growth is very similar on a 2-year basis. But on a sales growth, you are lagging the market leader significantly. Would you be worried on that? I'm comparing stand-alone numbers here.

Thanks, Abneesh. Good question. I should clarify the position by saying that our numbers, both from the volume and value perspective for the quarter are in the context of a mixed business line perspective, meaning 20% of our numbers are industrial businesses. So on the decorative front, I think that would be a further comparison with the market leader and competition. We are not that far behind. That's one. Secondly, in Q3 of FY '21, we did have a fair number of supply and apply contracts. These were -- these are like typically feast and famine type of businesses which did shore up the Q3 FY '21 numbers a little bit. So if we apply these 2 normalizing factors and talk only of our decorative business, we are not that far behind. Perhaps a little bit, but really not that much and not a matter of concern, certainly for this quarter. Of course, going forward, we have our eyes on the cumulative numbers, YTD number, and we certainly don't want to give up market share. So that's a point that I think we should make. If whatever it takes, we will have to do. So I think that point should be made clear. But I thought I should just explain the overall growth numbers for the quarter in the context of our industrial business and the suppliers like contracts.

Sure. That's useful. My question on the discounting bit. So the 18% or the 17%, whatever cumulative price hike the industry has taken, is it being actually effective also? Or is there a fair bit of discounting on that? So are we looking at a good mid-teens kind of a price growth effective?

Yes. I did refer meaning that we will do what it takes. But I think the discounting has been a little abnormal in certain product categories. I won't go into details. And we have responded a little less actively or aggressively in those product categories. But going forward, we will do what it takes to retain market share.

Sure. My second and essentially last question, and there are 2 parts to this. You mentioned in 2-wheelers because of the significant slowdown because of the various reasons, you were impacted. So how significant a player are you in 2-wheeler painting? And second, you also mentioned whichever products were advertised, they did well, much better than company average. So could you elaborate on that? Which product, which brand?

Two-wheelers is a significant part of our auto business. The bulk of it is essentially 2-wheelers. You might recall, that if we give up our 3-wheeler and auto passenger car business into the JV with Nippon Paint. So the stand-alone numbers really deal with commercial vehicles and 2-wheelers. So obviously, we did suffer significantly. We did grow in the automotive business in the stand-alone company, but not nearly as much as deco or protective coatings. So that's a point that we probably need to explain. But going forward, this will unwind for sure. And so this is I thought something that needs a little explanation.

And on the advertising bit you said -- products which are advertised?

No, no. So on the advertised products, it's expected that these are premium products, and will get the better growth. And that's been consistent over -- it's not something unusual or new we always outperform the other products when it came to the advertised products.

The next question is from the line of Avi Mehta from Macquarie.

I had a few questions. First on this -- essentially on the margins. So we did see price increase in November and December. With that, would it be fair to expect gross margin to normalize to that 40-odd percent mark in stand-alone and 41%-odd margin control as most of the inflation is broadly behind us. Obviously, at current levels. I'm not seeing what happens further, you don't really know. It's an uncertain environment.

Absolutely. But I think I'll just qualify that session with one remark that we are in the process of taking up prices in our industrial business. It's not a whole lot of -- in terms of percentage, it's only about 19% or 20% of our total business. But the raw material price increases have actually impacted this business a little more than decorative and therefore, they need to take up prices further in Q4. So if that is successfully concluded and done, we should be somewhere near the earlier years gross contributions.

Okay. Okay. And the second part on that was essentially on the supply/apply contracts. Now if I remember correctly, they tend to weigh down on the gross margin -- sorry, be more on the other expenses and aid on the gross margin? Or was it the other way round if you could help us understand how does it flow on the accounting?

Sure, sure. So typically, what happens is the other expenses get inflated by the extent of the contractual labor and expense element. And the raw materials is naturally forming a lower percentage of the overall contract value tends to get pushed down. That happens when there are significant supply/apply contracts. So you're very right. The raw materials tend to get -- as a percentage to sales, the ratio tends to get depressed or reduced, and the other expenses tend to get shored up. So if you see our numbers this quarter, one has to take that into account, meaning what looks like a significant saving in other expenses ratio to sales is not actually so.

So the other expenses are lower and then what...

For the Q3 FY '22, yes.

Yes. Yes. So what is being reported is actually lower than what is actually the case because of supply/apply as a percentage of sales?

Meaning the -- it depends is on advertisement, sales promotion, all the other inputs, which go into -- the sales support expenses, those are actually increasing healthily. And any cap or a reduction that you might notice in terms of ratios, at least, is mainly on account of the supply/apply contracts.

Okay. Perfect. And lastly, if it's okay, I just wanted to understand the industrial a bit a little better. You did highlight some price increases required. Would it be able to quantify how much is already done? And how much is remaining? So we get a sense on what's the journey we are looking for -- looking at -- I mean...

This is a little complicated.

I know. I know. It's a mix of a lot of things, but just...

The price increases taken are in a phased manner. So price increases which were taken in the second half of December, for example, in the industrial business would have had little or no impact on the quarter 4 -- quarter 3 numbers. And there are, of course, some more prices in -- price increases to be taken. So there is a -- maybe it's suffice us to say that there is a significant amount of price increase effect that should come in, in Q4 for the industrial business.

The next question is from the line of Tejash Shah from Spark Capital.

Yes. My first question pertains to demand in channels. So this quarter has been slightly challenging and confusing for us analysts also because different baskets of demand have -- has responded differently to the quarter. So just wanted to get a sense that as is a category, if you can give some sense on rural, urban and regional read-through on the demand for this quarter and then also in coming quarters.

Sure. I think I mentioned in the opening remarks that the metros did better in terms of growth rates, surely for us and for everybody else, I'm sure. So that's probably a sort of post-COVID recovery situation before the third wave kind of kicked in really, and post the second wave. So there was a period of recovery, some festival demand surely. So I think that probably goes towards the explanation of the rural and urban kind of balance, which went in favor of urban this time in this quarter. But probably also needs to be seen in the context of a 2-year or a 3-year CAGR kind of situation. And of course, there were quarters when Tier 1 really did very badly.

Okay. That's very helpful. The second question pertains to the phenomena that we started seeing in FMCG which is B2C is now gradually picking up in paints also not in a similar fashion, but we are hearing that many of resellers are being now bypassed as the leader is actually expanding its footprint in rural areas directly, and then that's why they're adding some unprecedented numbers of dealer in the network. So any similar expansion aggression -- you usually have past -- in past have done 10% additions. So any aggression or change in number that we also want to do there? And then any comment you can offer on that going deep rural directly rather than going through wholesale or -- not wholesale but resellers that we used to have.

Absolutely. I think that's consistent with our strategies as well. So expand the network, particularly in rural as much as possible, even in the cities in the suburbs as well. I mean rather than a hammer away at established positions. So that's absolutely -- and we are very optimistic that this can be done. Maybe that reflects part of what FMCG is saying or suggesting in terms of feedback to you.

So any number you can give on distribution expansion that we are doing, dealership expansion?

Not really. We'll come up with more numbers after Q4. But again, to help you I might say, this year after -- of course, a relatively weaker COVID affected last year, we had fantastic growth rates in distribution and network. So -- and we hope that next year will be even better.

Great. And the last one, so you briefly touched upon while answering a couple of questions earlier that pricing discipline in the industry is back, and Abneesh also asked on the rebate part. But are you seeing any discipline going away in industry on credit period as well in terms of receivables, and people are pushing or offering lenient terms to deliver growth in the industry?

I'll respond to that by saying that we haven't done very much. I can't respond on behalf of my colleagues in the other companies. But we haven't done very much to move away from our established principles. So we still hang on to the credit limits offered earlier and the slabs and the policy.

But are you seeing this being done by competition at large?

Yes. Yes. To answer your question, yes.

The next question is from the line of Varun Singh from IDBI Capital.

So Srijit sir, on the new emerging competition which is coming up in twin sectors, sir, any comments that you wish to offer?

Not yet, but I think we have actively watching all the markets. One of these players has become a little aggressive in the last couple of quarters, and we're watching them very carefully. And the other one, perhaps you are indicating is not yet fully into operations. So that will take some -- they will take a little more time. But for sure, we are keeping an eye on them. The most recent entrant in terms of this particular -- the decorative business has also become quite aggressive. So we're keeping an eye on these 2 competitors, of course. And the third one to follow shortly.

Right. Right. Sure, sir. And sir, in third quarter, there has been aggressive inventory loading at dealer distributor level due to the fear of price hike. So I mean, are you expecting as a consequence, demand in next quarter, which is fourth quarter to be relatively impacted because of this inventory loading, which has already happened. Any commentary over there?

Not really, it may have affected the January numbers to some extent. But for the quarter, it should get averaged out. I don't expect any significant dents.

Right. Right. Right. Sure, sir. And sir, just last -- one last question, if I may. Sir, is there any change in the -- I think Tejash has already asked on distribution. I just wanted to have a clear cut understanding on this that is there any change in our strategy to handle this entire distribution of paint products, for example, going through a wholesaler or instead of supplying paint directly to retailers, primarily to aggressively grow our distribution in the rural inter land?

We try everything. I mean I can't say that we exclude any particular strategy that would be wrong for me. So we do try in selected markets. This may work in some markets where we are not strong. So we try all possible strategies.

The next question is from the line of Shirish Pardeshi from Centrum Capital.

Just 2 questions. Can we see that -- you did mention that the volume growth was in the domestic decorative at 28%. Would you be able to help me explain which segment has grown faster and which segment was laggard?

Within decorative?

Yes. Within decorative.

I think I mentioned that the advertised products grew very well. So all the quality emulsions and associated primers and all the putties and the powder paints grew less. I think that's an overall remark I can make.

Sir, the reason why I'm asking while speaking to channel partners. I think [indiscernible] has shown a lot of problems in terms of the mass end of the product, maybe because of inflation or any other things or slow down. How did it fare for us in the quarter?

I can't be specific about regions. I'm sorry, I can't be -- I can't tell you, but I'll do indicate that, yes, in 1 or 2 areas or locations is the north. We did have our share of issues, but hopefully being sorted out, and Q4 will be better. But you're right, there were some isolated pockets which had problems.

My specific question, I mean, you can say yes or no. The reason why I'm asking, I mean the quarter which has gone by, we have seen. But is there a recovery which has happened in the last 45, 50 days in this quarter? I mean quarter 4, when you want to?

I can't comment on this quarter, sorry.

Okay. My last question is on the year-to-date since April. What is the price increase has gone in? And maybe if you can help me what is the current inflation? I'm sure we don't know what's going to come in quarter 4 in next time. But then if you can help me, what is the current inflation averaging, and how much price increases we have taken to mitigate the cost inflation?

Are you talking of decorative or industrial businesses?

If you can split both, or maybe more importantly, decorative at least.

I think decorative has seen, as I mentioned in my opening remarks, nearly 24%, 25% of increases since January 2021. So that's a hefty chunk, and should barring any further raw material price increase help restore margins. So that's the decorative part of the business. Having said that, crude has jumped a bit in January by about $6 or $7 per barrel. And even though it doesn't affect all the decorative raw materials, but there is an impact on things like solvents and phthalic anhydride, maybe a delayed effect on monomers as well at some point of time. So that's a little bit of a concern, and we're keeping an eye on that. In terms of the industrial businesses, the price increases have lagged behind the decorative business. I think it would be fair to make that comment. So the need for further price increases to be taken beyond what we've taken in decorative.

Okay. So what I need to understand that whatever we have taken so far in decorative is largely sufficient to save our margin in decorative. While you did mention that in the industrial, we will try and make an attempt to match it in the maybe next couple of months. Is that the fair understanding?

Yes.

The next question is from the line of Mihir Shah from Nomura.

Mr. Dasgupta, I wanted to just check on -- if you can just throw some more light on the gross margins and the impact of supply/apply contracts. Essentially, sequentially, we have seen margins contracting despite sharp price hikes. I understand the increase in raw materials and the delayed effect of price hikes taken. But sequentially, margins contracting is -- and you did mention it's also because of supply/apply contracts. So a broad range as a percentage of sales, how much of these contracts would be as a percentage of sales? And in the first 2 quarters also, if you can throw some light of where our margins -- so versus peers, our margins have been a little better in the earlier quarters. However, in this quarter, there has been a deviation in trend while peers have seen a sequential improvement, we have not. But earlier quarters, we were doing much better in margin. So were -- supply/apply contracts were also a function of your margin -- better margins in earlier quarters?

No, not really. I think my comments on supply/apply were only meant to explain the top line growth, A, and the relatively lower percentage of other expenses to sales in this quarter. So that is the only comment I offered. In terms of overall margins, the supply/apply contracts are not a sufficiently large component to really affect the -- all company margins. So I think I should make myself quite clear there. So that's one. And so if we were to explain the comparison with peers, your second remark was that there's been a bit of an up and down in terms of competitors who've actually seen some very -- one competitor really who've seen fairly significant improvements in margin. I can't speak on behalf of them, but I think you're better to look at the YTD number, the 9-month numbers, where you will see a gradual reduction in the gap between the relative net margins of the 2 companies. So that's all I can offer in reply. I'm not really privy to what was the compulsion for them in terms of lower margins in Q2.

Right. no. I get that point. I get that point. According to you, sir, what would you kind of really put emphasis to on the sequential contraction of margins for your company for getting peers and their performance?

So purely raw materials, I mean that's the net story really and which has been restored to a large extent. I mean we've had hefty price increases. So hopefully, going forward, that situation will be rectified.

Okay. Yes. Because you did mention that you have seen a better mix. So earlier before your opening comments, I thought mix might have been at play which impacted, but maybe since you clarified mix was not, and you would put raw material as a key culprit for the contraction on a sequential basis.

Yes. Yes.

The next question is from the line of Praful Kumar from Dymon Asia. [Operator Instructions] The next question is from the line of Mihir Shah from Nomura.

Sorry, sir. One more follow-up. With respect to inventory, would we still have 3 months inventory of raw materials with us? Earlier -- would it be that -- in the earlier quarters, we had higher inventory as you would have foreseen a linear increase in raw materials, so you might have kind of increased your inventory, and that low-cost inventory would have depleted. Can that be also one of the key reasons?

I did mention in my opening remarks that, that did play out in Q2 fully. So Q3, we didn't have the benefit of those buffers. Maybe you missed that. But I did say in my opening remarks that, that has something to do with the increase in raw material prices as far as the P&L is concerned. So you are absolutely right, that did happen. Obviously, in a really inflationary situation there's a limit to how much inventory you can -- and it's always a -- we have to take a call as to whether it will dip or flatten out or peak. And so that call is sometimes difficult to take. We did get the benefit of higher low-cost inventories in Q2, to some extent in Q1. But that played out -- that story played out fully by the end of Q2. So Q3, we bore the full brunt of the price increases.

Understood. And inventory would be about 1.5 to 2 months or more than that as well, sir?

Between raw material and finished goods together, would be close to a little less than 2 months, yes.

The next question is from the line of Praful Kumar from Dymon Asia.

Just one question, given the competitive landscape and intensity heating up, are you [indiscernible] or how are you ensuring the volume retention at the [indiscernible].

It's very [ indistinct ]. Can you be a little closer to the mic, please? I couldn't quite get all of it.

So given that competitive intensity is heating up and we are looking at a formidable large player coming in, about volume retention...

I'm sorry, Mr. Kumar, but your voice is sounding muffled, sir. It is not clearly audible.

Is it audible now? Is it still not audible?

It's better.

Yes. So my question is given that competitive intensity is heating up in the sector and a large player is coming in. In terms of volume retention, any key measures that you have taken any [ attrition ] that you have seen lately at the [ com ] mid-level. Just some thoughts on that.

I can only respond in broad terms. I think I can't talk specifically about strategies, that would not be right. So yes, I think our focus on innovation, new products and network expansion continues.

The next question is from the line of Varun Singh from IDBI Capital.

Srijit sir, at the company level, what is the policy that we follow for tinting machine distribution? Are we -- do we charge to the retailer? Or we offer them for free in exchange of sales target? If you can give some highlight on that side.

Yes. So, so far as the color bank machines are concerned, I think it's a mix of both. Of course, we do offer certain credits in respect of achievement of certain volumes.

And what would be the typical amount that we are charging to retailers when we offer our tinting machine?

There is nothing specific about it. I mean, as I said, that it depends upon, I mean, the volume achieved. And there are, I think, slabs as per the volume achieved by the dealer.

The next question is from the line of Abneesh Roy from Edelweiss.

Sir, a few follow-ups. So one is on distribution. Have you tried, or do you think it is possible to sell paint via the cement shop, specifically asking because the new player, obviously, the Cement Behemoth. So is it possible to sell paint through the cement shop?

Yes, good question, Abneesh. And this is something that everybody is grappling with. Let's see over the next few quarters tell us.

But you have never evaluated?

No. No, we have. Of course, we have. Yes. Yes, we have.

So what is the feedback?

Difficult. Because the nature of the product is different from paint and the as opposed to the builder here, it is the painter who is going. So -- but definitely, there's an opportunity there, and it is being tried for sure as we speak.

Sir, In a INR 5, INR 10 FMCG also, Indian consumer currently is down trading towards more [indiscernible]. In your case, consumer has to spend INR 40,000, INR 70,000. And now what has happened across a range of products, the features, which you offer are fairly good. It is not that in the lower end, the product benefits are bad. So do you see down-trading happening because there is a slowdown in rural big time, 18% price growth. There are other kind of challenges, [ drop ] challenge, salary challenge, everything kind of a challenge is there. I'm not saying it is a gloom and doom scenario. I'm just saying in the current context, downtrading, can it happen? I'm not asking on Q3 because Q3 price growth was still transitory. But Q4 and onwards, do you see that as a risk?

No. Nothing so far, Abneesh. I mean rather on the contrary, we've seen our mix improved in all markets. So this is something that gives us hope that the market has recovered from the COVID scenario. So let's keep our fingers crossed. To answer your question, no, we don't see anything, yet.

Okay. Final question. In FMCG, whenever sharp inflation happens, there is some product reengineering, some savings in packaging, some ingredient swapping and all that which keeps happening. In your case, obviously, it's a 40-year high inflation. I'm not asking about specifics because that will be too sensitive. But have you done some kind of product reengineering, some kind of a packaging change to cut costs?

Not packaging, but for sure, we do formulation improvements, which also includes cost reduction activity. But very clearly, the brief is that quality has to be the same, if not better. And that's the principle on which we work on. So, of course, I spoke about formulation and reformulation savings. But for sure, not at the cost of quality.

The next question is from the line of Gaurang from Haitong Securities.

So sir, my question is regarding the industrial price increases. So you indicated that the price increases are not in tandem with decorative, and bulk of price increase will happen in Q4. So sir, one of the peers who is the heavyweight in the industrial business for them, the price increase for both deco as well as industrial is almost similar. So why is this disparity for us? Because largely the customers for industrial business, say, auto or even non-auto would be similar for us as well as for them. So just wanted your thoughts on this part.

I can't speak on behalf of competitors. I hope I can only clarify my position. Yes, we have a more widespread number of customers, particularly in our general industrial. We have taken significant price increases in our powders business, in our Protective Coatings business, the 2 elements of industrial business where the price increases have crept up, perhaps with decorative. My comments were limited mainly to the automotive part of the business, and that too really the 2-wheelers.

Okay. Okay. So for 2-wheeler, we would take price increases in Q4. Largely, for nonautos, we are at par in terms of pricing?

Absolutely. And also to clarify, the price increases and the effect of the price increases, there may be a lag, meaning if we take price increases in December, the full effect will only be achieved in Q4.

Yes. Yes. That's fine. Okay. And secondly, on the RM index number, if you can share versus, say, last year Q3 or FY '21, what would be the weighted average RM cost index, currently?

In terms of increases, I think it's been very, very, very hefty. So the RM price increases have somewhere in the region of 28% to 29% over the last year in terms of increases. But this is at the RM level. So as a ratio to sales, that would be somewhere in the region of 15%, 16% or thereabouts.

Okay. And this would be -- this 28%, 29% would be similar for deco as well as non-deco, right?

Pretty much. Less so in deco for the water base maybe, though water base also suffered very significant increases because of monomer price increases. But the impact on industrial businesses will be a little more.

[Operator Instructions] The next question is from the line of Avi Mehta from Macquarie.

Just one bit I wanted to clarify, the comment that you've made in the presentation that demand was sustained even after significant price increases. It implies that the volume decline is equal to the price increase that has happened. Is that understanding is correct, right, sir?

In terms of -- our comment was limited to the observation that even though we had price increases, say, in the middle of November, there was -- the sales continued, meaning the growth continued into November and December. I think that was the intention.

That was the value, right? That's what I wanted to kind of reaffirm. I mean it seems that it is value growth that you're talking about has continued and...

No. Also volume, meaning it was not significantly dented by the fact that we had a significant price increase in the middle of November.

So the volume growth -- sorry, the volume growth also has not been impacted. The volume growth has sustained. That's what it means?

Yes. Yes. Volume was roughly -- if we normalize it for deco, I mean, we'll have to talk about...

Yes, yes. For deco, yes. Correct.

Yes, yes. So that was not significantly impacted because of the price increases is what we are saying, meaning sales continued.

The next question is from the line of Ashit Desai from Emkay Global Financial Services.

Can you hear me now?

Yes. Ashit, go ahead.

Yes. Srijit, wanted to know the network expansion that you guys are doing, what's the mix aspect of that? How much is it in metros? Or if you can give some split as to urban, Tier 3, Tier 4, et cetera? And in your assessment, how much of the growth is coming to this incremental network expansion?

I can't give you numbers, Ashit, but I can say that the network expansion is mainly in the non-Tier 1 non-metro cities. That is where the opportunity is the most. And I think we are quite happy with our performance in FY '22. As I mentioned earlier, FY '21 was a bit of an outlier because of the COVID situation. But even with the second and third waves, we've done reasonably well in FY '22 in terms of network expansion.

Okay. Is it fair to assume that -- I mean we've seen a very solid expansion across paint players. Is it fair to assume that the quantum of growth coming from network expansion is much higher than the last [ 3 ideas ]?

Maybe in Q3. We still have to see how the year plays out. Q3, yes, I think I mentioned this earlier, the larger cities did contribute more. But let's see how that pans out. I hope this is sustained, and we are able to -- this is not just some -- only a purely pent-up demand, which is in a sort of unleashed.

Okay. All right. And lastly, any update that you can share on the UP plant. I think it was expected to be up by this time. So...

By the UP plant? You mean the UP plant?

Right, right.

Yes. So we are on track, as you might have known, the sunset clause for the plant in terms of the subsidies and benefits is January of 2023. But we will be operational well -- the operational well before that. So we're expecting by middle of the calendar year, we should be operational.

Okay. Okay. And how fast can you ramp up this plant? It's a fairly large plant. So would you expect some impact of higher overheads?

Yes, it is. But the infrastructure will all be in place because one of the terms of the subsidies is that the infrastructure has to be in place before the commercial production is announced. So that gives us a little more impetus in terms of managing the plant project more effectively. And therefore, really, all the facilities will be in place on the day of commercial production. So it's only a question of balancing manpower from time-to-time to ramp up.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments. .

Yes. On behalf of Berger Paints, I thank all of you for your participation and your insightful questions. And hopefully, with the third wave of Omicron behind us, we would see better times going ahead, and that's what has been projected by most of the institutions [ that regard ] the GDP growth of more than 7%. Hopefully, things are going to look better going ahead. Let's hope for the best. Thank you.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.