Berger Paints India Limited ($509480)

Good evening, everyone. This is Rajesh Kumar from Emkay Global. I'd like to welcome all to the Berger Paints India Limited Q4 FY '26 Results Conference Call. I thank Berger Paints management for allowing us to host. We have with us today Mr. Abhijit Roy, Managing Director and CEO; Mr. Kaushik Ghosh, CFO; Mr. Sayantan Sarkar, GM, Finance and Accounts. I shall now hand over the call to the management for the opening remarks, post which we will proceed with the Q&A session. Over to you, sir.

Thank you, and a very warm welcome to all of you to today's earnings call for quarter 4 of financial year '26. I'll take you through a short presentation, giving the details of this quarter's presentation and the annual presentation and then subsequently open it up for question and answer. So the first part is dealing with the stand-alone results of quarter 4 financial year '26. Volume growth of 11.8%, driven by healthy traction across key business segments. Value growth stood at 6.7% during the quarter. Indian operations market share amongst listed peers remained strong at slightly above 20%. Gross and operating margins expanded to a 12-quarter and 10-quarter high, respectively, supported by favorable mix, operating leverage and, of course, reduced raw material cost. Operating profit grew 18% nearly with both sequential and year-on-year margin expansion. PAT before exceptional items increased 23%, while PAT after exceptional items grew 38%, aided by insurance claim recognition during quarter 4. Now if we look at the decorative business line delivered strong double-digit volume growth with sequential improvement in value performance, supported by pre-price hike channel pickup and premium emulsion traction. Construction chemicals and waterproofing continue to outperform, sustaining robust momentum across key markets. Protective Coatings registered healthy high single-digit volume and value growth on a strong base. Automotive Coatings delivered strong double-digit volume and high single-digit value growth driven by healthy demand in 2- and 3-wheelers, supported by lower financing costs and GST cuts. GI business posted robust double-digit volume and value growth, while Powder Coatings witnessed sequential and year-on-year recovery. On a CAGR basis, if we look at the 2-year, 3-year and 5-year, for the quarter, if we look at the 2, 3, 5-year volume, it is more or less at that level of 9% to 11% in terms of the volume growth. In value growth, again, it hovers between 5% and 7%. So it's 5.5% for a 2-year CAGR, 4.6% and 6.9%. And an operating profit level growth, 18.8% for 2 years; 3 years, it is 10.2%; and 5 years, it is 8.7% for the quarter. So quarter seems to be -- quarter 4 is much stronger in terms of operating profit growth, whether you look at the 2-year figure and even in the volume value, it is pretty comfortable. On annualized basis, however, though the volume growth is similar in 2, 3 and 5 year, the value growth reduces. One was -- the primary reason was, of course, the price drop, which we had about 2.5 years back, and that has impacted both the 3-year and 2-year CAGR. The operating profit also shrunk in the last 2 years a little bit. So the CAGR has been at 0.1% for the 2-year CAGR. Now the trend for gross margin has been very encouraging this quarter. It has been the highest in the last 12 quarters. In fact, in the last 16 quarters, this was the highest at 42.3%. Margin trajectory remained resilient despite elevated competitive intensity and sharp rupee depreciation. So we lost some profit element because of the rupee depreciation. But in spite of that, our gross margin was at 42.3%. Gross margin improved sequentially and year-on-year, aided by favorable mix enrichment, waning impact of economy segment price cuts and partial benefit from withdrawal of antidumping duty on titanium dioxide. In terms of operating margin also, it was one of the highest in the last 10 quarters, it was the highest, in fact, at 18.3%. The robust operating profit was driven -- growth of 17.8%. Gross margin expansion by 110 basis points and operating leverage and sustained cost optimization measures continue to support margin expansion amid competitive market conditions. If we look at the trend quarter-on-quarter, beginning from quarter 3 of financial year '24, this is the highest at 18.3%, so 10-quarter highest operating margin was achieved this quarter. Decorative business -- the decorative segment delivered double-digit volume growth, while value growth was supported by improved product mix across premium and economy emulsions. New offerings in premium emulsion categories such as Kolor Plus and Kolor Plus Glow performed well, while WeatherCoat Anti Dustt in exterior segment continued to outperform with double-digit growth. Construction chemicals and waterproofing continued to perform well. Wood coatings business continued to witness robust double-digit growth across markets. Retail footprint expanded to 1,900 stores with over 700 additions during the year, while printing machine installations crossed 10,000 units with 2,600-plus deployments in quarter 4 alone. Industrial business, Protective Coatings delivered strong volume and value performance during the quarter, while operating margins remained at high teens. Automotive Coatings registered healthy growth in both volume and value, driven by sustained traction in the 2-wheeler segment. If we look at the financial results, this is how it looks. Total income from operations had a growth of 6.7%. Operating profit, 17.8%. PBT -- PBIT is 23.6% growth. Profit before exceptional item and tax, 25% growth. PBT grew at 36.6% and PAT at 38%. There is one exceptional item, which is in terms of the insurance cost due to the fire which we had in our Barasat warehouse. We have taken a provision in quarter 1 of this year, which got reversed when we got the money in quarter 4. So that's about INR 36 crores, which came in, which took up, therefore, the profit PBIT from 25% to PBT at 36.6%. But overall, a good sales growth and a very strong operating profit and PBT growth. In terms of the stand-alone annual performance highlight, it is a high single-digit volume growth. The value growth was relatively muted. The value/volume gap was due to higher contribution from construction chemicals, textiles and tile adhesives, which I had mentioned in my last call as well. Economic segment price cuts and some impact of extended monsoon when this year had been quite bad, and we lost out a significant portion of our exterior emulsion and roof coating sales, which is high-value items in quarter 2 and partly in quarter 3 as well, which is why the annual value growth was slightly depressed. Automotive Coatings outperformed on improved demand post GST cuts, while Protective Coatings witnessed recovery towards the end of the year. Gross margins improved year-on-year driven by favorable mix, muted RM prices despite competitive intensity and sharp rupee depreciation. Operating margins moderated slightly in FY '26 due to muted value growth impacting operating leverage and mark-to-market impact from rupee depreciation. YTD margins, however, remains within the guided range of 15% to 17%, which we have always maintained. On a 12-month basis, therefore, if we look at it, our income from operations grew at 2.5%, operating profit at 0.7% and PAT at 1.7%. We introduced a few interesting innovative products. One of them is the kool range, Roof Kool & Seal, Tank Kool and WeatherCoat Anti Dustt Kool in the summer months when in this heat, these are products which will probably be very, very useful for the Indian consumer, especially in the North where the heat is very strong this time. And so we expect good sales coming out of this set of products. Another product which we have is the Roof Kool & Seal, which is doing very well. In fact, in April, it had a record sale. And this product continues to go from strength to strength. This is a product applied on the roof, which protects it from the heat and also seals it from water leakage, which is why the name Roof Kool & Seal. There is a set of products which we introduced in quarter 4 called Kolor Plus Glow and then we had introduced earlier Kolor Plus, both of these products in the mid-premium segment, actually in the premium segment is where it is placed. We had a brand called Rangoli. In that segment itself, this has been introduced, is doing quite well and very well accepted in the market today. It is getting spread across the country, and we have good expectation from this particular brand this year. We introduced Metallics and both Silk Metallics, which was introduced in quarter 4. And before that, in quarter 2, we had introduced Luxol Metallics for metals. And the Silk Metallics is for the walls, both of which have started doing very well. We had again a record sale of these 2 products in the month of April. So this is Luxol Metallics, which was introduced in quarter 2. We have, of course, many stores across the country in the urban area specifically where we have this different model with SIS stores coming up in good numbers in the weak urban markets of us. In terms of consolidated results, Bolix, the top line and operating profit growth was strong, partly aided by the P&L appreciation, the local currency of Poland. BJN-Nepal revenue growth and profitability remained subdued during the quarter due to the inefficient and the resultant turmoil there. However, improvement in political stability, along with recent price increases is expected to support recovery in the coming quarters. We have already seen robust double-digit growth in the recent 1, 2 months. And therefore, Nepal is back in growth path. STP Limited top line continued to be impacted. Operating profit muted due to scale. We had consciously -- there was an incident in our Jamshedpur factory in STP, and we had to close it down for 2, 3 months to get it repaired and running again. However, we are slowly gaining back the customers in this particular -- it used to supply to some OEMs. And therefore, it had a little bit of an issue last year, but we are expecting to come to the growth path in STP again. We are growing at a very fast pace, and we expect the growth rate to be restored. However, gross margins improved on account of the mix change which happened due to the closure of that factory. SBL Specialty Coatings revenue growth at mid-single digit, improved sequentially and year-on-year. Profitability, however, was affected by scale, high RM prices and some impact of mix. Berger Becker Coatings, robust sales growth on a low base and strong profitability driven by scale and margin expansion. So it did very well coming back from the fire incident the year before, and it had a slightly weak base, but it had strong double-digit value and profit growth. Berger Nippon Paint Automotive Coatings, strong double-digit revenue and profit growth backed by buoyant demand in the passenger car and SUV auto space. Both Becker Coatings and Nippon Coatings, of course, are joint ventures where we have 49%, so it doesn't get added to our sales, but the profit is added to the extent of 49%. Now if we look at the results, total income from operations, 6.1%. Operating profit growth, 12.6%, largely impacted by underperformance of STP and Nepal, both of this should do much better this year. PBIT 13.1%. Profit before tax grew at 25.3%, PAT at 27.5% and total comprehensive income for the period grew at 38.4%. On the 12-month basis, again, slightly muted, but growing at 2.9%, operating profit marginally negative at 1.2% and PAT at minus 4.6%. Total comprehensive income for the period growing at 1.7%. The net cash position is positive, has been growing. As you can see in financial year '24, we were at INR 351 crores. It has moved to INR 689 crores last year -- last to last year and then last year '25-'26, it has improved further to INR 1,198 crores. Group continues to remain net cash positive. Business outlook for financial year '27. Demand conditions continue to be closely monitored with gradual recovery expected across decorative and industrial businesses. Staggered price hikes from March onwards expected to support gross margins and rising raw material costs while sustained cost optimization initiatives likely to keep operating margins within the guided range, which we have always maintained. Competitive intensity expected to remain elevated. Growth momentum expected to be led by strong traction in construction chemicals, waterproofing and wood coating segment and upcoming product launches. Continued investments in branding, distribution expansion and stores-led urban market initiatives should yield positive results. Protective Coatings business outlook remains positive, supported by expected increase in government CapEx spending. West Asian disturbances, volatility in crude-based derivatives, rupee depreciation, supply side disruptions and potential inflationary pressures remain key monitorables for the sector. Thank you. We can open up for questions.

Thank you, sir. I hand over the call to colleague, Mohit, to moderate the question-and-answer session. Over to you, Mohit.

[Operator Instructions] The first question is from the line of Mihir Shah.

So firstly, congrats on a great set of numbers. So the step-up in volume growth that we are seeing, what according to you would be the impact of prebuying before the price increases? And how should one think about the 1Q volumes? Will this prebuying have any impact on 1Q volumes? So that's my first question.

So there is some impact, but obviously, the volume growth was improving month-on-month. We saw an improvement in January from December and February from January. And then March, it was slightly better than February as well. So it's not fully as if it is because of the price increase. The second is that in quarter 1 as well, there have been actually 3 price increases. And the fourth one is coming up on the 15th of May for us. So there will be a healthy growth in quarter 1 as well.

Any level of secondary sales for 4Q that you think that you can share?

Secondary sales had improved from what it was, as I said, Q3 was better than Q2 and Q4 was better than Q3 in terms of secondary sales also. So if we saw, say, 11.5% or 12% approximately in terms of volume growth, then I would say that the secondary would be around 8% to 9% and 3% to 4% would have been the bunching up of purchasing, which would have happened due to the price increases.

Secondly, sir, given the cost inflation, what is the level of cost increase that you are seeing in RMs currently? And what is the cumulative price increase of these 4 price hikes that will sit in 1Q? And should one expect margins given the timing issue to compress in 1Q and to what level?

So more or less, whatever has been the raw material price increase so far, unless the prices again start shooting up, you never know these things. But as of now, we are more or less covered. So except for solvents where there might be still a gap, almost every other product category, we are more than adequately covered as far as price increases are concerned compared to the raw material price. So of course, the timing, a little bit of delayed price increases would have happened. But then we were carrying some stock as well from earlier period. And therefore, more or less, it should neutralize each other. So I don't see any major impact in the profitability that way. That holds true for decorative. But for industrial, there might be a little bit of a delayed price increase because there you need to negotiate and sometimes -- but that's a smaller portion of our business, primarily in automotive where this is there that you need to negotiate. But normally, they give from prior period, the price increases. And hence, that might impact a bit, but otherwise, it's fine.

So B2B, usually, we understand that it will take a bit of... Sir, lastly, I wanted to check on the level of volume growth that one should expect in FY '27, given '26 has a favorable base. Also, it is an El Nino year. So do you think that there can be more painting days and it can lead to higher volume growth? Can one expect double-digit volumes or full of FY '27 with no impact on margins?

So it's a difficult question to answer, Mihir, at this stage. As it is it is so volatile that -- so there are negatives and there are positives. As you said, there is this favorable base and at the same time, more stability in the competitive intensity. These 2 factors are in our favor. And the third is, of course, there is no price decrease happening, which tends to depress the value. On the other hand, in terms of the volume getting impacted a bit, inflation will be on the higher side. That might soften the demand a little bit. At the same time, the El Nino effect that you mentioned, we don't know how much of it the impact it will have in the upcountry areas. So -- and the uncertainty which is there overall might also impact the demand. So it's a mixed equation, very difficult to project at this stage what will happen. But we assume that it will be a fairly decent volume growth in spite of all of these challenges.

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

Sir, am I audible?

Yes, you are.

Sir, I wanted to kind of check with you on 2 things. One, conceptually, this cumulative price hikes, I don't know if you could kind of give us a number for it. And would it be -- do you see it kind of improving the growth trajectory from the 6%? Basically, is the volume impact likely to be lower than the price hikes is what I wanted to kind of understand based on what we've seen historically.

Right. So the growth rate is likely to -- the price increase that we have taken is about 11% to 12% depending on the mix of the products that we sell actually, but should be around that point. Now in terms of what will happen to the volume/value equation, this time, it will reverse, which means that the volume growth, there used to be a differential of about 4%, 5% between the volume and the value. It might go the other way around, which means the value growth will be higher than the volume growth. We expect the volume growth to marginally reduce or be at the levels at which it was earlier, but the value growth will be -- definitely be significantly higher than what it was last year.

The second bit was just a follow-up to what you kind of clarified to the earlier participant to that we have taken price hikes to offset the input inflation till date. When you say this offset, is this an absolute inflation number in rupees that has been passed on? Or is it percentage margin? How should we look at that?

It neutralizes the percentage margin sort of absolute.

So on a percentage margin basis, we should -- we have maintained it...

The next question is from the line of Percy Panthaki.

Yes. So just wanted to understand, I mean, in terms of volume, see, in the last crude up cycle, which happened during COVID times, we actually saw even volumes doing very, very well, even better than what it was earlier. But this was because -- I think it was a very special case where people were spending times at home and they wanted to spend money on home improvement because they could not spend it on many other things. And that's why the volume growth was very strong. But this time, the environment is different. If we take significant pricing, don't you think there could be a sort of backlash in terms of volume? And how do we sort of figure out whether this will happen or not? I mean, do we have any previous experience in this apart from the COVID period? Or I mean, how do you try and look at this question internally? That is my first question.

Right. Okay. So you are right that after the COVID, though there was a significant price increase, the volume growth also went up, and that was largely -- a part of it was due to the pent-up demand of the COVID period, which came into play after the COVID. That will not hold true this year. Though there was some depressed situation there in quarter 2, quarter 3 of last year due to the extensive monsoon. This time, it will be lesser monsoon. And hence, we may get a much better situation there in quarter 2 and quarter 3 of this year. So difficult to comment these things as to how it will pan out. Earlier in previous reports, we have studied whenever these price increases have happened, this has happened. But in fact, every 3, 4 years, this type of a situation arises. The prices do go up and then 1, 1.5 years down the line, it tends to slide downwards. That has been the record for every time the oil prices have gone up. It always slides down in a period of 1.5 years. Sometimes it happens in 8 to 10 months, sometimes it happens in 1 to 1.5 years, but it will always slide. But the issue is that at the time when it goes up, raw material prices do go up for the paint industry and prices also are taken up, typically, with a little bit of a lag. This time, we have been slightly more proactive and increased the prices because the price increase of raw materials was much higher. We were forced to increase the prices. There was no choice there. We believe that of the total paint cost, only 40% is the paint cost and 60% is labor cost. Hence, the inflation to the customer is only 4% to 5% of the total paint job. And I think given the current inflationary situation across product categories, this type of inflation can be absorbed. It may have a little bit of an impact of the demand. But then as I said, the bases are favorable. The competitive intensity or the strength at which it was growing has reduced, and therefore, those 2 are in our favor. Therefore, more or less, we should be able to hold on to the volume growth that we had last year, and that implies the value growth will be stronger.

The second question I have is on inflation. So crude is up 40%, 50% versus pre-war. I'm assuming crude derivatives, which you use would be up in a similar fashion. TiO2, of course, is up to a lesser extent. So on your overall COGS basket, what is the inflation today compared to the pre-war situation?

It's about 22%, 23%, and that's more or less covered through the price increase.

So how is it covered? Because if you want to protect your margin, you will have to take a 22% price increase also, which is not taken, right?

No, no, no. It is raw material is at 60% of the total cost or 58% of the total cost, the way you look at it.

So you have covered the rupee impact, not the percentage margin impact, right, with the -- 12% price increase, your gross margin will still fall, right?

No, it won't. So that's exactly what I'm trying to explain that if you take 20% increase in raw material prices, which is in terms of 60%, it will become approximately 12% because 60% or 20% is 12%. We have taken up price increases of 12%. And there are savings elsewhere which we have to bring on the table, which we work on always. So therefore, we will be able to maintain our gross margin.

Because whenever there has been such a big cost inflation in the past, at least temporarily for 3, 4 quarters, all the industry players, including yourself, have seen gross margins go down. So I'm a little surprised when you're saying that even temporarily we do not see...

Previously it happened that way. You are right, absolutely, because it used to be in -- the price increases used to be in a more staggered manner. This time, because of the suddenness and the quantum of increase that has happened, we were left with no choice but to increase the prices very rapidly. And that is why I'm saying that it will not impact to that extent.

The next question is from the line of Abneesh Roy.

Congrats on excellent numbers. My first question is on your home state where your headquarters are. So we have seen government change. Obviously, Double Engine Ki Sarkar generally works. So specific question is, how big is the Bengal market for you as a percentage of revenue? And last 2, 3 years, is there a slowdown? Related question is a lot of Bengali workforce came back to Bengal to work, absolutely unprecedented levels. Does that impact painter availability in April or -- yes, April month in any way across India?

Yes. So let me answer the first question. It is a good thing that has happened in terms of having a government in the state, which is of the same party as that in the center. This has happened after 49 years in West Bengal. So we expect less permits and more cooperation and hence, the growth rate is likely to accelerate. And that will be quite evident, especially in the infrastructure segment, quick completions of projects will happen. And therefore, also the central money for the various schemes, which were stalled will come into existence. We expect, therefore, the growth rate to accelerate in the state of West Bengal for sure. We have a significant stake in West Bengal. In fact, we are over-indexed in West Bengal compared to the entire industry. Our headquarters is here. We have 2 factories here. We have a very strong brand equity. Our presence is extremely strong in this particular state. Last 2 years, we have been, especially last year has been a weak year in West Bengal. It was suffering a bit. And as a result, our performance was also getting impacted. We expect that this time, there will be significant growth coming out of West Bengal. Combination of 2 factors. One is that the economy is likely to do well and we are much better placed in this state. So we'll gain from this as far as West Bengal is concerned. The second is in terms of the infrastructure also, we are a leader in any case in Protective Coatings across India. So therefore, that will also help us in growing faster in the state of West Bengal. On the question of the painter -- yes, they did come back, a large number of them, in fact, almost reaching 1 crore number is what I'm told across -- in terms of population, total population. Of course, the workers would have been in lakhs. And they did come back, the painters. And now I think most of them have gone back. But it did impact a little bit in some areas. There was this crisis of painters, but not so much that it impacted sales.

One thing you didn't answer, Bengal will be high single-digit as a percentage of sales for you?

No, it is double-digit actually.

My second question is on your commentary on slight moderation on the competitive intensity. Now when I see any metric, for example, gross margin, 3-year high, EBITDA margin close to 2.5 year high. And you said volume growth ex of the price increase behavior is also reasonably good. But if you could explain then why is the competitive intensity high? Ultimately, it has to reflect in any of these numbers because in December quarter also, your margins did expand. Second related question is -- when I see media as a consumer, I see outsized presence of obviously, the market leader, which is always there. But the new player is also very aggressive. I don't see Berger with 20% market share in the legacy paint players having that kind of a media presence as a customer. So if you could tell us what is your media share when we take the new player also into account? And why are you underinvesting if you are?

Right. So competitive intensity, why I have said is that because it is still quite strong. And the figures may indicate a different scenario altogether. The leader also might exhibit very strong figures because the bases are muted for them and for us as well. We had a good base, but yet we did well. And part of it would be the price increase impact, which would have helped. But the intensity exists on the ground, there is no doubt on that count. Though, as I said, it is -- the growth which was there has completely tapered off. And so now it is there in the form of any other competitor like who's relatively doing well. So one more competitor has been added. And therefore, some share which had gone to them remains with them. So that is how it is, I would place it in that manner. The other question which you said was -- what was the second part which you asked?

Media.

Media. So we spend about -- we have not increased or decreased our spends. Our spends remained at our market share sort of, which is 20%. And since Asian, the market leader is at 52-odd percentage. So they spend 2.6x our, so they are much more visible. We are also not so present in the sports, which is where some of you might be seeing. And hence, we are less present there. We were much more present in the news channels. We are correcting that media mix a bit this year. We were there also in the GECs more. We have reduced the spends there and increased our spend on the sports this year. So you'll get to see much more visibly our brand in that -- in the sports channels as well. But the new entrant actually spend far, far beyond their market share. So that's something which is their choice. We have always maintained our share of voice at a similar level as to our share of market. We don't go overboard. We don't underspend as well. And we maintained our profitability at the band at which we maintain. We have no surprises. Therefore, on any of these. We are slightly boring but consistent.

The next question is from the line of Akshen Thakkar.

Just wanted to double click on the point that you made on margins. So just roughly 100 is your sales, 60 is your raw materials. Just for the sake of argument, you said that 60 has got 20% inflation. So your raw material cost will go up by 12%, and which is the price increase that you've taken. Now I get that the absolute gross margin in this scenario doesn't change. But in an accounting sense, the percentage gross margins would be lower, sir? I'm just sort of hoping to be on the same page here.

Yes, you are right. It will have an impact slightly on the gross margin. We have, however, initiated certain measures, which we believe will give us some savings on the gross margin on account of the formulation efficiency and at the same time in terms of sourcing efficiency that we bring to the table. So that we have done last year as well. And this year also, we believe that some of those advantages that we got last year will continue this year, plus we will add a few more. So that's one impact. It will still have possibly a 1.5% impact on the gross margin. But that will get neutralized in the EBITDA margin because of the scale efficiency which will come into play.

Fair. So percentage gross margin is lower and then whatever efficiencies we get on cost and operating leverage will drive the EBITDA the same. Now we've not seen a period where we had 10%, 15% price hikes only a few times in the past. You mentioned that elasticity is lower. I mean, what's giving you that confidence? Because see, discretionary spend could be under pressure given where inflation is. So do you see downtrading as a risk? Do you see volume as a risk? I know it's a little bit of an unknown, but just wanted to pick your brains over there because you would have seen more cycles than us.

No, true. So we have gone through this type of a cycle many times. And we have not seen this type of increase of 12%, 13%. But we have definitely seen 7%, 8% price increases, at least 4, 5x earlier, which is a very similar type of, okay, 3%, 4% more maybe in terms of inflation, in terms of prices, but that's very fairly similar. And whenever that had happened, the expectation was that it will impact volumes somewhat. It did impact, but very marginal on the margins. So sort of really those who will paint will paint. 3%, 4% inflation in overall painting cost, if a person is willing to spend INR 1 lakh, I'm sure he is willing to spend INR 105,000. And instead of saying that no, INR 1 lakh got 105,000 and therefore, I will not spend anything, that rarely happens. So that is why I'm saying. More or less, it doesn't impact so much the volume.

One very last question, sir, is on your comments on competitive intensity. We've discussed what the strategy for the new entrant has been and how in the past you've seen that as unsustainable. We've also seen one more player become a little more serious towards the paint listing. Just generally, your comments on what is giving you the confidence that it's not increasing any further. Your comments seem to be stability.

Right. No. So I'll just explain why I said through 2 things. One, as far as the new entrant is concerned, it has increased the dealer price list much more than what we have done or what the leader has done. So in fact, it used to operate at 5% discount. Now except for the low-end economy emulsions where it has a 2% advantage in price. Everywhere else, the prices are same. In fact, 1 or 2 cases, they are higher. So therefore, that price advantage, which they were giving in the marketplace does not exist anymore. The second is in terms of the painter amount that they were giving to their painters in terms of various types of schemes. There also, there has been a substantial reduction announced this year. So overall, they are trying to shore up their profit. As I said, it was not sustainable. So it's evident from the current actions that they are trying to correct the situation and make the operation profitable. So from that perspective, it will have an impact on their volumes and the growth that they were registering. So that's one, which is why. And then we have seen for the last almost 5, 6 months, our report from the market says that it's more or less stable sales for them. It's not growing at the pace at which it had initially started growing. So it's month-on-month, quarter-on-quarter, if you track their figures, more or less, it is at similar levels as it was in the previous month or the previous quarter. So this is how it has been. In March, they did well because I think their quarter- and year-end schemes ended. So suddenly, there was some amount of sales which would have happened at that period because most of the dealers that we spoke to said that they have stocked up a little bit. So from that perspective, it would have gone up a bit. But otherwise, it has been relatively stable sales. And now with these price increases in the DTL of dealer price list and reduction in expenses on painters, I don't think the growth rates will be the way it was in the first year. So this is why I said competitive intensity remains, but is stable. It's not growing at a faster pace. As far as the other new player is concerned, yes, they have plans. But we have -- both these players existed in the market. We know what they have done or what they can do. So it's not something that they are coming from 0 base or something. So even if they grow, it won't impact so much the overall market.

Question is from the line of Aditya Bhartia.

Sir, again, harping on the same point as margins and raw material price increases that have been taken. So fair to assume that there may be a slight percentage reduction in gross margins or at least gross profit that we'll be having on a per liter basis should be remaining the same or possibly expanding a little because of formulation benefits. And at the EBITDA margin side, at the EBITDA margin line, even percentage margin should be remaining broadly similar. Is that...

Right. Absolutely. Your understanding is correct.

Perfect, sir. And sir, historically, what we have seen is that when raw material prices start cooling off, paint companies have been able to retain a part of the advantage. Of course, every time that this had happened. It was before the Birla Opus era. But given the kind of pricing discipline that the industry has shown in this hyperinflationary environment. Is it fair to assume that a similar kind of a theme may play out once crude prices start correct? Is that what your approach is likely to be?

Well, it might happen. It all depends on what happens to the prices of the raw material. Typically, you are right that partly it is kept to some extent, depending on the brand strength and some of the products where we might have an advantage. We don't tend to pass on the full price decrease benefit at that point of time as and when the situation arises. So we will have to wait and see what happens. There are 2 new competitors now. So it may not hold true completely. But at the same time, wherever the brands are strong for any individual player, this may hold true. So some of the commodities, it may not -- it may get passed on fully. Some of the branded items where there is a possibility of retention, there it might be retained.

Historically, you have guided for roughly 15% to 13% kind of an EBITDA range. Is that the range that you'll stick with even in this inflationary environment and as raw material costs cool off? Or do you think maybe we should be at the upper end of that range?

No, we stick to that 15% to 17%. Like this quarter, we did exceed that. We went up to 18.3%. But more or less, our track record has shown that we typically remain in that 15% to 17%. Sometimes when it goes up, consistently, if it is remaining at those higher levels, we will spend more on advertisement and brand building rather than go up to 18%, 19% or something.

[Operator Instructions] The next question is from the line of Jay Doshi.

Just a clarification on your previous question -- previous response. So 15% to 17% that you guide, is it always on stand-alone? Or is it at the consol level? Because was consol this quarter is 16.8%, if I'm not mistaken.

Correct. That's true. It was on the slightly lower side compared to the stand-alone.

But your guidance is at a stand-alone level or consol, when you generally talk about 15% to 17%?

Primarily, I talk about standalone. But in the consol also, it remains at because more or less consol follows the stand-alone. So it should be somewhere around the same level.

Perfect. Second is, you did mention that the dealer price list of Birla Opus has gone up by higher percentages than, let's say, Berger or Asian Paints. So they have narrowed the gap. After rebates and trade schemes, do you think that net of all those schemes and rebates also the gap has narrowed?

Yes, that's right. Similar.

By how many percentage points, ballpark, do you think the gap would have narrowed?

3% to 4%.

Last one is, you did mention that material cost is only 40% of the total project cost. So INR 1 lakh budget goes to INR 1 lakh goes to INR 105,000. What we have seen in the past is that in an inflationary environment, painters also actually increased their labor charges and basically per square feet painting cost at a similar kind of inflation. So do you think this time around also, it would be same? Or you think this time it will be different? Or if you can share your experience from the last inflationary cycle where the industry had taken almost 24%, 25% price increase over a 4 to 6-quarter period. So how did labor cost move then?

So it does move up a little bit. It's not as if it remains completely static, but not to the extent of the material cost. So typically -- because there is competition there in that segment, a lot of the players, a lot of the painters may not raise the prices. Some of them may. And therefore, the competitive intensity is much stronger there. So you cannot charge a much higher amount, therefore, and get business. So the tendency is that there is a little bit of an increase because the overall cost for them also goes up, but it doesn't increase to the level of the material cost. The material cost, as I said, it suppose it has gone up by 11%, 12%. The labor cost may go up by 3%, 4%. So therefore, the impact will be much lesser as far as the labor is concerned.

One final one, please. So see, if we look at the history of the industry, historically, in all inflationary cycles, all the players took gradual price increases. And at the end of -- in a deflationary cycle, it resulted in improvement in profitability for the industry and it was quite a rational competitive environment. We saw similar trends in 2022-'23 pricing -- inflationary cycle as well. But then subsequently, after entry of Birla Opus, because of higher rebates, discounts, competitive pressures, that discipline of went away, right? So this time around, do you expect that what we had seen in the previous cycles will continue? Or are you very comfortable and confident?

Jay, to answer, it is self-evident from this price increase itself that -- Birla has actually increased more than what the industry has done. In fact, they were increasing from the month of January itself to narrow the gap between the industry and themselves. So obviously, they are behaving in a very responsible -- as a responsible player within the industry and maintaining parity with the industry. So no reason for us to believe that suddenly they will change behavior and create a gap for themselves when they have narrowed it down completely. So I think it will behave in a similar fashion as it has happened in the industry, whatever I has seen earlier should repeat itself.

The next question is from the line of Amit Purohit.

Sir, just on your comment on industry growth. I just wanted to know one on the trends with respect to luxury, premium and economy. Any changes like -- I mean, for some quarters, we've been hearing that consumers are downgrading and the economy segment or the lower-end segments have been doing well. Any trend change that you have seen with the growth gradually improving? That was the question.

No. So as far as the trend is concerned, typically, what happens is in the second and the third quarter due to the rains and this time, it was excessive. The premium emulsion for exteriors and luxury emulsions for exteriors and the roof paint, the Roof Kool & Seal type of product does not sell much. So typically, the second quarter has a poorer mix for all paint companies. And it improves in the third quarter and fourth quarter it improves further. So that was a trend which was seen and that is why you see our operating margin has moved up. A part of the reason is because of better sell of premium and luxury emulsions comparatively this quarter. So it is not a trend shift sort of seasonality is a factor there. And every time, typically, the third and the fourth quarter seems to do much better and it continues in the first quarter as well.

So suffice to say that this year, given the fact that rains are -- I mean, we have an and more premium segments will end and have you seen similar signs in April month? I just wanted to one...

Yes, that's correct. Similar signs in April as well.

Okay. And what would be the -- like you indicated that this -- I mean, if the trend in April would have been very strong in terms of primary, right, because much of the price increase are happening now. Is the secondary also decent enough during the April month?

Yes, this question was asked and I did answer that, yes, not to the tune of the primary that we did, but the secondary was strong enough.

Last question on the painters that you indicated on the price increases. Typically, I just want to understand in markets like metros and all we understand it's all per square feet. Is it the same phenomena across the country or it is material cost is bought and then labor is appointed? How do you...

No. So it changes from city to city. It is location to location. Some places, they leave it to the contractors. Some places, it is that the consumer goes and buys himself and the labor is provided by the contractor. It changes. And so there is no hard and fixed rule like that. Typically, in the urban centers, it used to be mostly -- it still is that the contractors play a larger role. And in the upcountry areas, they have a little bit more time on hand and they go and pick up the material along with the contractor. That's how it happens.

We take the last question from the line of Aniruddha Joshi.

Sir, most of my questions are answered. But now I guess you have already crossed the age of 60 and you have been in the role for 15 years. And you have spectacularly led Berger to very strong market share gains with strong profitability. So how should we think about next 5 years, 10 years as such? So whether you -- whether there will be continuity from your side itself or how the leadership roles will change emerge. If you can provide any clarity on that, it will be very helpful.

So I'm there. And in fact, probably you'll get to hear soon that I'm there till '31. So 5 more years to go, you'll have to bear with me. So that's how it is.

No, you have been doing probably the best work. Sure, sir. So that answers the question. In terms of last question, is the channel inventory really at a high level right now? At least whatever checks we would have done, it seems to have gone up materially. So is that a fair understanding? Because if the entire industry has 10% price hike is taken. And for example, let's say, a dealer is keeping inventory worth INR 5 lakh in each shop, now he cannot suddenly change his budget. So he would have reduced -- he will reduce the volume actually because the paint prices have gone up by 10%. But we still don't see the reduction in volumes. In fact, volumes are also higher. So is there a material increase in the trade channel inventory? Or is there a reduction in the trade inventory for multiple smaller stroke unorganized players?

So both are happening. So there is a little bit of stocking up happening. So they're putting in more money from their kitty because this type of large price increase gives them an enhanced margin for themselves because they can sell and make good margins. So they tend to stock up a bit more. So that's one thing which is definitely happening. The second part is some of the marginal players will get squeezed out in the process because they know that the branded items will -- it will be easier for them to sell. And since the price increase is happening, they tend to concentrate on the branded items, stock them up more. And so the leaders in respective categories wherever they are, will tend to gain more.

That was the last question for the day. I now hand over the call to the management for the closing remarks.

Right. So thank you, everyone, for coming and joining for this quarter 4 results analysis. Have a great day and see you. Thank you.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you all for joining us.