Grasim Industries Limited (GRASIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call for discussion on new business foray, hosted by Grasim Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Adukia, Chief Financial Officer of Grasim Industries Limited. Thank you, and over to you, sir.

Thank you. Good morning, everyone. This is Ashish Adukia, CFO of Grasim. Grasim, as you know, has a long and successful history of incubating large new businesses for the group. While we started as a textiles company 74 years back, but since then we have incubated many leadership businesses under Grasim. We entered into chemicals business as backward integration to VSF. And now we've made it into an independent business, which is the largest player in the country. We entered into cement when market was entrenched with incumbents, but over time, we created the #1 cement company with commanding presence across the country supported by a strong brand that resonates with customers and trade. We also have experience in incubating consumer-oriented business in a very, very different sector through fashion and retail and financial services. There are a couple of reasons why we are now entering into this new sector. First of all, Grasim, today, has an extremely strong balance sheet, which would get further strengthened with the proceeds coming in from sale of fertilizer business. Second reason is that the stand-alone business of VSF and chemicals are established market leaders. They're already in the process of completing their large CapEx cycle. In this backdrop, it is an opportune time to add a high growth, high ROCE business, providing growth and, importantly, consistency to its earnings. The foray into paints is a strategic portfolio choice for Grasim. Entry into this B2C business will provide scale and growth to the existing portfolio of the company. Within paints, decorative paints will be our focus area. It is a large INR 40,000 crore market with unorganized players having a surprisingly 1/4 market share. Decorative Paints segment has grown about 11% during the last 5 years ending 2019 and is expected to grow even faster owing to demographics-led demand, urbanization, shortening of repainting cycles and other important factor like housing-for-all vision of our prime minister. There will be a shift of demand from unorganized players to organized players, which will likely be catalyzed or accelerated with our entry into the segment. We strongly believe that we have all the ingredients of being successful in executing our paint strategy. Our strategy includes becoming a strong #2 player over a period of time. To be successful in paints, you need strong distribution and brand. Grasim has an inherent advantage of having access to pan-India distribution presence through Birla White and significant brand equity that it has in the existing channel. And this will provide us with a meaningful head start, and speed is going to be important out here. To clarify now that we -- now that we have the Board approval, we will engage in discussions more formally with UltraTech to discuss the ways to synergize and gain access to this distribution network through a win-win arrangement on an arm's length basis. We will target pan-India market with multi-locational plants. We are likely to incur CapEx of around INR 5,000 crores over next 3 years in the initial phase. The overall project will be funded through internal accruals and debt. We believe that this sector will be value-accretive to all our stakeholders. Our plan is oriented to achieve 20-plus IRR through this project. I would now like to introduce Himanshu Kapania, who is now the business head for Birla White. He's putting together a team of sector veterans who have prepared the strategic plan which has been approved by the Board. Eventually, the business will be run in a focused manner with an independent [ management ] and talent with the relevant experience. We also have Dilip Gaur, Managing Director of Grasim, on the call. We'll now take the questions. I would like to highlight that we may not be able to answer some of the questions which are competitively sensitive. So I'll just want to hand over to the operator now to take the questions. Thank you.

The first question is from the line of Manoj Menon from ICICI Securities.

Team, congratulations on this foray and all the very best. It's actually the first time I'm actually attending a Grasim call. So I actually cover consumer sector at I-Sec and also [indiscernible]. So just a couple of questions to begin with and then I'll come back in the queue. The first is, some comments from you, a little bit more on the synergies front. And also, is there any technology angle there? I know that kind of you just indicated that you don't want to talk anything which is competitively sensitive, but do you think that technology is a differentiator is what I would just want to ask. That's one. The second aspect, what we have observed in paints, is that given that the consumer decides once in maybe 4 or 5 years to paint, the brand decisions are probably made over decades because it takes -- it's an extremely long gestation consumer recall value investment what is needed. So just some thoughts from you on how quickly you believe you could ramp up organically? Or would you think there is an inorganic opportunity also you would look at, at some point in time? Those would be the first 2.

Sure, sure. Thank you. I'm going to start off and then I will request Himanshu to step in, okay? So on the synergy bit, right, Birla White, as you're aware, is a market leader in white cement and putty distribution and market, right? And they have access to pretty much the same influences as paints. So the whole idea would be to discuss with UltraTech to figure out how paints team can work together with Birla White to access that distribution setup that exists. Of course, it has to be done in collaboration with them. There has to be a formal arrangement. We will have to have it on arm's length basis. But that is something that is available within the Grasim group to access. So -- and that's the main challenge for any new player which is to set up a large distribution setup. The second question that you had on technology. See, I think any new business today, if you're trying to set up, okay, the importance of technology is very, very important, right? The -- you have to have product differentiation, et cetera. So we will look at latest technology. We have the benefit of being a new player. We will look at latest technology that is available to foray into our paints business. You had a question on brand. You're absolutely right, the brand takes time to build. Fortunately, out here, we already have touch point with our influencers to whom the brand matters, and they understand the Birla and Aditya Birla brands. So we will leverage our existing brand equity to also accelerate our brand for the entry. Himanshu, could I hand over to you if you would like to add further?

Thank you so much, Ashish. First and foremost, good morning to all the participants. And maybe it could be late night for some of the participants overseas. Secondly, I wish all of you are safe in this COVID era. I just want to firstly reiterate what Ashish has said that we -- the journey for us now begins. Board has given us approval to foray into paints. They have identified the quantum of CapEx. They would like to invest in the first 3 years. And the foray has just begun. We have been, as a team -- a set of team identified within the group and from outside who have significant experience on the industry, have been working on multiple topics, both on the product, the technology front and the work that we need to do on R&D for a reasonable period of time almost a year and above. We also have been carrying out consumer research, trade partner research as well as influencers research to be able to understand what are the present practices as well as to understand what are the gaps in the marketplace. So we are -- we have a broad strategy which is ready at this point of time. We now get into the execution phase. Beyond that, I think it would be unfair for me to be able to talk at this point of time. But we just want to reiterate that we are going to be serious into the Decorative Paints business. Back to you, Ashish.

Thank you. Thank you very much.

The next question is from the line of Gunjan Prithyani from JPMorgan.

Just 2 questions. Firstly, on the related point, which was brought up earlier. Clearly, this is a very oligopolistic industry with strong brand recall. And there are definitely barriers to entry. So with the kind of investments we are calling out, INR 5,000 crores, we seem to be going really all out. Would you think it would have made sense to, like, test the waters initially, go with relatively modest investment and then take it this big? I mean INR 5,000 crores at the outset probably puts you second largest in capacity. I mean it will be bigger than the second largest in the industry, right? So any thoughts there?

See, I think we've been studying this sector, like Himanshu said, for long, right? It's a very attractive sector. We would like to enter into this sector and capture the value with speed. So I think it's important that we set up the infrastructure to be a strong #2 player as soon as it is possible for us to do. So -- and there are other advantages, operational advantages that we have, due to which we are looking at this kind of a CapEx plan. Himanshu, would you like to add anything here?

Yes. So Gunjan, first and foremost, we have to keep reminding everybody that Birla White has been in this business for decades. And the product, white cement and putty are distinct from UltraTech products, which is in the gray cement space. And almost entire distribution of Birla White reaches to the paint outlets. And we have a pan-India presence. So there is a connect with trade partners for decades. We are not discussing a short period, but for decades. Similarly, it has a great association with influencers, lakhs of influencers in the applicators and painters. And so there is -- it's a brand which is well-known and the brand of Aditya Birla Group is well-known in the paint industry. Though not from the topcoat, it is well-known in the undercoat segment, but it is an important component in the paint industry, especially for influencers and trade partners. And we believe that is going to be an important element for us for our entry. So both brand as well as our distribution presence are going to give us a head start, as Ashish was mentioning. And if we have to do it, then we have to make sure that our multi-location outlets can serve the entire country. If you have to do it on a regional basis, then we won't be able to do justice to the shareholders, which we believe, and the sector that we are entering in is a huge potential, and we will miss out the potential if we delay going through multi-steps.

Okay. Got it. I mean just to get this whole CapEx thing right, if you can just tell us by when the capacity -- I mean what is the timeline for the capacity commissioning? And when you talk about this being the second largest player in the industry, is there any time horizon that you're looking at, given the -- already -- you're talking about a head start and the aggressive CapEx commitment here.

Ashish, may I?

Yes, yes, please, go ahead, Himanshu.

Gunjan, first and foremost, the journey has just begun. So we are -- this CapEx has been primarily given to -- for us to be able to set up multi-locational plants. And we are in discussion with multiple state governments, and they're all vying for us to be able to set up our places. So the current focus will be to get our manufacturing in place. And as we are ready for launch, we will be -- we'll definitely come back to you and start sharing details of our launch. As regards how long we expect, I think we expect a reasonable period of time to be able to reach the #2 position. But the focus I keep reminding everybody, it is -- the operative word is #2 profitable operations.

Okay. Got it. Just last one from my side on -- more on the business structure now. I mean, Grasim, Ashish, every 3 years, we have been seeing this structure change a lot, right? I mean being a holdco of cement and NBFC and then we have this whole telco issue. I mean to that extent, can you just share your thoughts as to how should we think about next 3 to 5 years given that this is a very sizable business, which comes at the stand-alone level? Is there a case to look at the simplification of the business structure from next 3- to 5-year perspective?

So I think if you look at Grasim over a period of time, what we had tried to do is create large, focused stand-alone businesses within Grasim, right? And that's how we created viscose as one segment and chemicals as a second segment, okay? And now that we feel that there is a need for a third large business to sit within Grasim so that the relative size of Grasim stand-alone in comparison to the consolidated Grasim is meaningful, okay? So the third leg of growth we have identified is paints, which is a significant business. It's not a small business that we can add. And this changes the profile of stand-alone Grasim in terms of scale, in terms of its value. Also, it reduces the volatility because if you look at chemicals and VSF, it's still prone to some price volatility, though we have certain inherent advantages of costs, et cetera, in those businesses. So adding something like paints, a consumer-oriented business, will remove that volatility as well, plus, at the same time, like I said, hopefully, the holding company discounts will reduce over a period of time when there's heft added to the stand-alone Grasim. In fact, I feel that this entry actually gives more clarity to the capital allocation that we are going with high IRR business and plus there is more focus on stand-alone business of Grasim.

Sure. No, it makes sense. At least it takes away that idea of fund infusion to that...

Absolutely.

The next question is from the line of Madhav Marda from Fidelity Investment.

The question I had was, we are talking about the overlap in the distribution with Birla White. How much of an overlap would be there in the paints business versus white cement? If you could give any broad -- just like a broad sense?

Yes. Himanshu, would you like to take that?

Madhav, if I have understood your question, you are asking, is there an overlap in the paints business with the Birla White business.

No. I understand that there is an overlap. I wanted to understand how much of an overlap is that. Like does every shop that sells white cement can sell paint? And today, the people who are in the paint business, I understand that it's sold through hardware shops, et cetera, as well. So I just wanted to understand that.

Okay. So I'll give you a history of Birla White. It was originally a white cement manufacturer, but the applications of white cement has, over a period of time, changed from -- requirement from the consumer end has reduced and requirement for putty manufacturers has increased. A very large consumption of white cement goes for putty manufacturers. No doubt, there is still a requirement of white cement. The second largest application is white cement wash. White cement wash is in the lower end category of the paint. And the -- obviously, the largest segment now for them is putty in absolute size. So on overall trade partners that is present on a pan-India basis, from pure hardware outlets -- white cement doesn't get sold from a gray cement outlets, it gets sold from hardware outlets. Over a period of time, most of it is migrated to the paints outlets. The paint outlets are the most aggressive, and they stock putty of multiple brands as well as they stock white cement for -- especially in the small towns, in the rural areas and midsize towns for whitewash [indiscernible] white cement whitewash. So I would put, between 70% to 80% of the outlets sell paints.

Okay. That's great. And sir, the other question I had was, would you be able to share anything on the brand positioning or the branding that we would have for the paints business? Anything that we've decided there?

I think it's very premature. We would have to keep reminding that Aditya Birla brand has been built over decades. It stands for trust. It stands for loyalty. And Birla White, as a brand, has a very strong association in the paint sector. And we would try to -- we will try to take the benefits of what currently exists. I think it's premature to be able to start defining [ image's ] positioning at this point of time. We will definitely share closer to the launch.

Understood. Understood. And sir, just last question from my side. How far are we from the launch? Like, is it more like 1 year, 6 months? Any broad sense?

As we mentioned, we've -- yesterday, what happened was memorandum of understanding has been modified, allowing us to be able to enter into paints. So we couldn't have done anything till the actual Board approval for [indiscernible] has been received yesterday. We have been doing most of our thinking and pre-preparatory work over the last 9 to 12 months. And all the plans are ready. Now we get into execution mode. Exact timeline, it's a little too early to be able to start sharing timelines, but we would, over a period of time, give you more formal timelines as we go forward.

The next question is from the line of Gaurav Rateria from Morgan Stanley.

Congratulations on the welcome move and all the best, first of all. My question is, this investment of INR 50 billion, you would have kept in mind a certain scale in terms of capacity. So what would be that capacity which you have in mind in terms of volume front over the next few years?

As in you're talking about paint capacity?

Yes. What is the capacity which you're going to set up with these investments?

Yes. I think -- let me repeat, you have the amount in front of you, okay? And we have said that we would like to be a strong #2 player. In this very attractive sector. So that should give you some sense. Again, it's a little early. We are looking at the configurations of plants, et cetera, and CapEx has many elements, as you know. It could be backward integration in line with Atmanirbhar Bharat. It could be front-end CapEx. So maybe I'll leave it to that, that it's early, but Himanshu, if you have anything to add, please.

Yes. You're absolutely right. It is premature to be able to start sharing absolute details. It's all on the drawing board. We are going to get into action. And we will, in due course, definitely share this. But I think it is not so complicated or difficult for analysts who cover the sector to be able to calculate the broad capacity based on the CapEx guidance that we've given.

Okay. Secondly, with this business getting funded from internal accruals in it, does it change anything from a capital structure perspective for Grasim? It stays within that stated back of whatever capital structure you have always said in the past?

Yes. No, I'm glad you asked that question. I think Grasim, like I keep saying, is a AAA-rated entity. It has a strong balance sheet. We have further improved it with fertilizer sales. It's very important that we retain this strength of Grasim plus we have access to all kinds of debt at best rates possible in the corporate side. And we've got the new capacities of viscose and chemicals coming this year or next year, which will help us improve the EBITDA profile further. So I think we are closely going to watch our stand-alone net debt to EBITDA. And we are not changing the thresholds of not crossing around 3x, 3.5x -- 3x more likely.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Best of luck to the management team for entry into this high-growth business. Sir, just a few questions. Regarding the CapEx, you said you would be putting up pan-India multi-location plant. So are there any plans to use your existing locations itself to put up this manufacturing capacity, that is one, so that the CapEx and the capacity can happen much earlier? And would you be looking at the outsourcing model? Or is this business plan purely on 100% in-house manufacturing?

Himanshu?

Okay. So yes, we are in discussion with multiple divisions and companies within the Aditya Birla Group for them -- whether they have locations available. And the process is currently on. We are looking both outside and within the group. And going forward, we will take the most appropriate call which is value-accretive to the paints business. As regards -- our current focus is in-house manufacturing of water-based paint and oil-based paint as well as the important components of the raw material. Some of this we will -- we are evaluating doing backward integration. So the process of backward integration and manufacturing of these is the current focus. There would be -- if we are -- if the current capacity that we set up needs any incremental support, then we also are aware that there is a sufficient opportunity from outsource. But that's not our key strategy.

Okay. And just to clarify, this INR 5,000 crores is purely on putting up capacity and a gross block CapEx, right? Or this includes a component of working capital and advertisement spend, which may be required to launch this business?

Let me clarify. See, this is an entry into a business line, right? It's a new business that we are entering into. It's not a greenfield or a brownfield expansion, where it is a pretty concretized CapEx plan with identified plant and equipment, et cetera, right? So therefore, what I would like to say is that we've identified and taken approval for INR 5,000 crores over next 3 years, which is the initial amount. There can be further CapEx as we go along in our journey beyond that as well. So it's more of what is the fund requirement as well. So there is CapEx element, backward integration element, front-end CapEx element that is involved out there. But it's mainly CapEx in nature this INR 5,000 crores amount that we're talking about.

Sure. And last one on white cement and wall care putty business. Obviously, you want to leverage the Birla brand -- Birla White brand equity, as you said. So can you throw some light on the existing distribution and retail footprint of that business, obviously, which is now easily available to scale up this business? And are you looking beyond that distribution network? And if yes, what kind of distribution and retail footprint you would be targeting beyond already which is existing in Birla White brand?

Sure. Himanshu, would you like to give some sense of Birla White distribution?

Yes. As far as Birla White is concerned, we believe Birla White distribution is the second largest in the paint industry. And the reason for that is that we are a pan-India operator and are present across not only metro and Tier 1 towns, but also deep into rural, stretching to 6,000 towns. As I mentioned earlier, the focus of the distribution has been on the paint industry, and we continue to expand our distribution. The process is a continuous process. Birla White is aggressively growing its business, its current business and continuously expands its overall presence. So our current belief is we are far -- we are -- with a pan-India distribution, we are, clearly, currently the #2 in terms of presence across the paint industry in terms of distribution size. Will we expand distribution? Definitely, we will expand distribution once we're ready for launch. This would be the starting point. And we would, obviously, like to go to other outlets, which are currently not stocking our brand because our portfolio is not complete. Once our portfolio is complete, there would be dealers who have been -- want to keep the entire portfolio from a single brand. And once we have the entire portfolio, we'll obviously feel that those dealers will also like to stock our products.

The next question is from the line of Amit Murarka from Motilal Oswal Financial Services.

So my question is around actually the Birla White business. So while it seems like you were banking on that network and the strength of the business, which no doubt has a strong standing in the market, but like if you look at the last 6, 7 years, actually, the volumes in that business have largely stagnated. In the last 6 years, there's not been much volume growth, while I believe the industry has been growing. So it seems you're having some loss of market share. So do you think that, like, we would be able to win back some of the market share as well as pose challenges to the paint companies, which have been taking away this market share from you?

So I'm in a silent period...

Yes, and I...

I understand that. My question is more broader because as it looks to me and seems to me that the market share is getting lost there. So the paint industry has, in fact, caused a dent in that market which you have been the leader of. So like, I was just wondering like how confident you are that we would be able to turn it around and pose -- I mean, basically, [ taking the ride ] back to them and say that now I'm entering your segment and I'm going to take market share away from your segment. How comfortable do you think you are on that?

Amit, let me answer that question. First of all, on the performance of Birla White itself, okay, I think you should have that discussion with UltraTech who's likely to have the earnings call soon, okay? This -- from paint's perspective, what we can say is that the distribution network of Birla White, as Himanshu was saying, is when you superimpose that on paint, okay, that's the second strongest distribution network that exists today for us to tap into, okay? And there is no weakening or -- there's no weakness in that infrastructure that is available to us. So I think that should suffice your question.

The next question is from the line of Ritesh Shah from Investec.

Sir, I would just like to take a step back. I would just like to understand why is it that the capital allocation is at Grasim level. Now UltraTech, I think the company has done nothing wrong. It has a solid balance sheet. Probably it will be net cash by FY '23. It has UltraTech Building Solutions. It has waterproofing construction chemicals. And probably one was expecting putty and cement capacity to actually double. So just wanted to understand the sense why is it not at UltraTech level and at Grasim level? I appreciate you said that the holdco discount would reduce, but don't you think this is something which will take the sheen away from UltraTech level or the multiple [indiscernible]? That's the first question.

I think it's this is our view, okay, not UltraTech's view. It's our view that UltraTech is a pure-play cement company. And it's a large cement company. As you can see the capacity, as you can see the EBITDA size of UltraTech, it's a pretty large pure-play cement company, okay? UltraTech has already got some expansion plan, et cetera, that they have announced. So their priority of capital is towards those plants that they are looking at. And I think the third piece, which is an important piece, is that selling cement and selling paints, it requires different skill sets, okay? So paints is a more consumer-oriented brand, distribution-oriented kind of a business, as you may know. So that's why we have a history of incubating businesses, which are consumer-oriented. It gets -- if the paints gets important in our stand-alone business because of the stand-alone profile that improves for Grasim and the size that it addresses. And whatever synergies that we need to obtain from Birla White distribution, which is a small business in UltraTech, that synergy we can easily achieve by having a discussion with them and getting into some arrangement which is on an arm's length basis and have access to that distribution.

But if I had to look at -- they are actually seeking exposure into construction chemicals, waterproofing. I understand on INR 10,000 crores of EBITDA, new businesses would hardly contribute anything. And you also did touch up on backward integration. So does it mean that from a capital allocation point of view or from a group structuring point of view, one can expect these businesses, say, white cement and putty, which are, again, non-gray cement, they can be actually moved out of UltraTech core business and it can be put into Grasim? It will do away with the issues on probably, to some extent, distribution and backward integration as well? I'm just trying to allocate -- just trying to understand it from a capital allocation versus value unlocking point of view.

Sure, sure, sure. No. So we are not looking at those kind of structures, like you said, where you move Birla White into Grasim. I think we will evaluate, like I said, ways to -- see, for paints industry, for paints -- our entry into paint sector, what is important is the access to that distribution, right? And that is something we will achieve in the best possible way, okay? So I'll leave it at that. It's pretty premature to say what...

Ashish, can I make one comment?

Yes, yes, please, Himanshu.

Yes. So thank you, Ritesh, for your question. First and foremost, UltraTech is an independent company, and we are -- on behalf of Grasim, we are sharing our point of view. Now I'm sharing our point of view as an outsider, not as a representative of 2 companies, whereas the distribution of gray cement is in construction [ equipment ] and has a completely different distribution. Distribution of paint and distribution of gray cement does not overlap. I wanted to register number one point. Number two point, I also want to clarify is backward integration that we're talking about. Backward integration we're talking about is regarding paint. So paint has a mixing process, and there are certain components which can be bought from outside or we can build it in-house. And that is what we are talking about. There is no correlation with what work the gray cement team does. Number three, white cement and the other businesses are very, very small components of a very large UltraTech. So it is for them to decide how they wish to grow. As regards the arrangement that we will now start discussing, we could not have discussed until Grasim Board would have given us a go ahead. Now we've had informal discussion, then we will engage into formal discussion between UltraTech. And once we engage on a formal basis, we will -- as correctly pointed out by Ashish, we will work out a proper arrangement, which will have 2 Boards approvals, and it will be on an arm's length basis. And it is going to be value-accretive for both the companies. There is no need for any other structure that's required at this point of time. We believe we can tap into the strength of distribution of Birla White as well as their putty business. And it will be clearly very-accretive to shareholders of both the companies. So I would leave it at that. But I just wanted to clarify so you are -- they were 2 independent topics. Backward integration is not linked at all to the UltraTech business. I hope I clarified.

[Operator Instructions] The next question is from the line of Ajit Motwani from Pinpoint Asset Management.

Team, congratulations on the foray of the business. I just wanted to understand, would you be sort of seeding the market before the manufacturing setups are sort of up and running? That's my first question. And in terms of -- IRR, you indicated, is about 20-odd percent. So from the day you foray into the business, when are we sort of looking to be in black, in which year of operation?

Sure. I'll request Himanshu to take the first question on seeding the market before, I think, incurring CapEx, as I understood your first question is. On this second question, it's a new line of business again, right? So initial years, there will be negative cash flows that will be there. So it's not the forum to share the business plan for us right now currently what it is. But I think the business plan is quite robust, and we are looking at 20-plus percent IRR easily in this project. I'll leave it at that. Ajit, on your first question, I'll request Himanshu to come in.

Ajit. And thank you, Ashish. Would we launch the product before we are satisfied with the quality of the product? Answer is a clear no. We are going to launch -- we are there for a long haul. It's not important that we rush to launch. We will -- the current work parallelly as the manufacturing gets ready, our teams will start the formulation, and we want to carry out thorough testing. We are not in a hurry to launch the product through an outsourced model. We want to make sure that when we enter the market, the quality of our product is in line with what is available and, in the end, better, and we are able to bring in differentiated products. So clearly, this is -- we are not going to take any shortcuts.

Okay. Himanshu, one more question. Apart from the balance sheet strength and the Birla White brand that you alluded to are your sort of building blocks or maybe, say, the right to win, can you also highlight more on the distribution fact? Because what I understand is that this distribution of paint is more direct factory to dealer, whereas if I understand, Birla White is more through distributed to dealers. So there is this channel difference of distribution. So if you can allude to more right to wins or building blocks that makes you feel confident about the success, that should help us understand your strategy.

Okay. Thanks so much. I understood your question. You are focusing on distribution, but I want to -- before I give you a little depth answer on the distribution part, I just want you to register that our strategy has a multi-pronged strategy. And it includes -- we make sure that the brand launch is strong, and we are able to capture the imagination of the consumers, make sure that our products are differentiated and extremely high quality and meet not only current aspirational people, but bring in some differentiated products, which are probably available around the globe, but not in India, and make sure that the costs are kept well in control and significant cost control through a combination of, a, synergy; b, automation; and c, make sure that given the fact that we have the hindsight benefit of coming in at this point of time, we don't have a legacy cost, which is applicable there. So I just want to register -- while we will dwell deep onto distribution, I want to register, it's not a single-prong strategy only on the distribution side. Now your question is very simplistically put in. Yes, we -- our -- we use the stockists to be able to deliver material to the retailers. Does that mean that we have no relationship with retailers? Absolutely not right. We have an IT system today where we register all the paint retailers and hardware retailers, and we have a direct relationship with them. In terms of -- most of our promotions are directly handed over to the dealers. So currently, there are multiple models. Some company uses C&F where they stock and then probably use their own transporter or C&F transporters who deliver to dealers. We use our stockists to be able to do that, a combination of stock and sale, some cash advantage there. But that doesn't mean that we have no relationship with dealers. We have strong relationship. We register dealer. We have -- the current promotions are directly credited to their bank accounts. We have a very strong profile details of them and relationship of the sales team directly with them. And how is it that I'm able to talk about all of this? Because I am the business head of Birla White. So I closely work with Birla White and completely familiar with it. I hope that's satisfied you.

[Operator Instructions] The next question is from the line of Sanjay Parekh from Nippon India Mutual Fund.

Yes. So my question on paint is answered. Only one question I have. In terms of the team, the management team to Himanshu sir, are we -- I mean, so in the next -- when can we get to know the management team, the entire team that you'd build it for this? That is the first question. The second question is a recommendation on the structure. And Ashish did allude on that point that the capital allocation actually gets more focused, but only one thing is once the business is properly on its own like Aditya Birla Capital is now, at the right time to unlock by a proper vertical split, would go quite well with the existing shareholders. And that would be value-accretive to all of them, and that's just a suggestion that I have.

Sure, sure. Sanjay, point noted. On the first point, I would obviously defer to Himanshu. Just one point I want to make is that ABG has been amongst the best employer because of all the reasons earlier that Himanshu had mentioned. So we will never have an issue of attracting the best talent in this industry. But over to you, Himanshu, to add about the management team.

Thank you, Ashish. And Sanjay, so first and foremost, Grasim standalone business is management style is that we have a dedicated team for each of the businesses who the main focus is to be able -- on their markets through a end-to-end business. And the model that we are going to follow within Grasim as a paint business is concerned, that there will be a well-defined team, which will run the paint business within the overall Grasim portfolio. And this has been the model which has been successful for decades. As has been correctly pointed out by Ashish. Now we have the benefit first before I talk about external hires. We have the benefit of Aditya Birla Group, which is a very strong manufacturing company in terms of projects. In terms of talent that is available on manufacturing, in supply chain, logistics, all of that. And we are intending to tap the benefit -- the talent that exists within the Aditya Birla Group. But there is obviously need to be able to attract the talent in from the paint industry, who have experienced the paint industry. We already have a Chief Operating Officer. His name is Ajith Kumar, who has between 26 to 28 years of experience in the paint industry. And he is working closely with us about the strategy for the company for launch of these services. We are in the process of recruiting multiple people and each team member will join at an appropriate point of time. So the current focus is to get our product and manufacturing act in place. And that is where the recruitment is in full swing for that. The key management team will be introduced to all the analysts in due course, especially when we are ready to launch.

The next question is from the line of Arnab Mitra from Crédit Suisse.

My first question was on the distribution side. So what I understand, having covered the industry paint side is that the biggest challenge has been not just the contact with the dealers, but the ability to get a tinting machine installed, which is where space constraints and things like that come in. And that has been a big barrier for many companies in the past who have tried this. So how do you think about that barrier in terms of having to install a tinting machine shop which would have lower space? And do you have any kind of thought [indiscernible]?

I think, Arnab, see, this is, again, premature, and these are competitively sensitive plans that can't be shared. Himanshu, if there's anything that you would want to add, please.

Arnab, I completely agree with Ashish, but I just want to reconfirm to everybody on the call that we are aware of the entry barriers on distribution and the role of tinting machine. And we are making -- as a part of our strategy, we are trying to find a solution for the same, but it's premature to be able to share the same at this point of time.

And the second and the last question was on the Birla White business. Your applicator is, of course, quite common with the paints business here. But like the paint companies, which over decades, have had a lot of contact programs, training, relationship, can you help us understand what kind of relationship or what kind of engagement you have with them, which could help you in this foray as we try to move the influencer? That will be the last question.

Okay. Just to clarify, besides the sales team, we have a very strong team of service team, which are -- whose primary role is the launch of new products, training of applicators and painters and updating all trade partners on a range of products. This is an ingrained system within Birla White, and it has been -- being followed for a very long period of time. That is the reason we believe that a white cement-based putty which actually got launched much later than acrylic-based putty, now is the first choice for all the applicators and painters. So we have a history of contact program, not only with the trade partners. But with a long -- with the painters and the applicators. And it is not only contact program, we have direct access to them through multiple loyalty programs.

The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.

Yes. I think most of my questions have been answered. Just one question which I had was, is there any case study globally where any company has used the cement distribution to enter into the paint business and has been successful? Or probably will be the first one to create that history? Just wanted to hear your thoughts on that.

So I think it's not cement distribution, let me clarify. It's the distribution of undercoat already. So Himanshu can explain that better, but putty or -- and primer are undercoat. It's like an adhesive to the wall and paint, right, between the 2. So -- and the applicator of that is the same person, right, the painter. So therefore, it is possible to have an overlap in that distribution, not necessarily with the gray cement.

So Ashish, I will just take -- I'll just incrementally add to the Pankaj question. There are 2 channels which UltraTech has for the 2 sets of businesses. One is the UltraTech brand and the other allied brands that they have for gray cement business, which is a channel which is -- which serves the construction industry and where the cement is sold. In various cement outlets, there is no paint sale or there is a limited paint sale. So there is now attempt by paint companies to be able to reach that channel. But we are not relying on that channel. There is a second channel, which is a paint outlet channel, which sells the entire portfolio of consumer needs for the paint. Now paint, where does the paint start, after you plaster the wall, the next element is undercoat. And that you will require -- you could do -- at the completely lower end, you could do a line wash or a white wash, then there is nothing else, but the topcoat or you could do an undercoat in the form of putty and this is sold primarily from the paint outlets, which is independent outlet. And which company within UltraTech does that? The company name is Birla White under the Birla White brand name, which is independent distribution. So there is almost negligible overlap between the gray cement distribution and the distribution of putty, which Birla White has, which is a maximum distribution. And there is -- and white cement also gets stored by the paint outlets and some to the hardware outlets as well, who also store paints, but not so much. So I hope it's clarified that there are 2 independent distribution outlets. It's not a common outlet.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

Sir, my question is regarding -- I mean, a few months back, like we were like sort of contemplating like trimming our more than half of our INR 7,000 crores business, which we are planning for '20 to '22 period -- 2021 period. So I just wanted to understand when this idea of like entering into this business would have originated in the team's mind like the post -- with the segment, like sort of excited the team or is it something which you are working on for 2 years, and we just wanted to conclude VSF chemical CapEx and then probably launch this new segment? That's my first question.

I think, Prateek, let me take the more relevant part of the question, right? I think it's irrelevant on how we had planned our CapEx in light of this paints plan, right? If you look at -- each business is important to us, right? Chemicals is important. VSF is important. Paint's plan is also important. It's not that paints is going to necessarily cannibalize the important critical CapEx of chemicals or VSF. Okay? So I'm just taking the opportunity to clarify that point. What I said in the beginning of the call is that VSF has increased its capacity or in the process of increasing its capacity by almost 35%, 40%, right, which will come to fruition in August/September. So it is a large capacity that is adding already. So for them to add the next step change, okay, will give some headroom to us and chemical -- likewise, chemicals also has added capacity in caustic side or in the process of adding in Balabhadrapuram, Rehla as well as Vilayat. Okay. They will focus on WAP, which has been our strategy. So there is no such compromise on the current CapEx. In the COVID quarter or year, we had reduced our CapEx guidance because of obvious reasons. And a lot of our INR 7,000 crore plan will be executed once we finish Rehla will -- both chemical as well as VSF plants. So I hope that the clarity is now -- answers your question. And we have -- I don't know if Dilip is still there on the call, but we have Dilip as well. Anything you would like to add, Dilip, on this front?

I think you have covered it well, Ashish. It wouldn't be at the cost of what we are doing in VSF and chemicals. So I think these are all strong verticals.

So I just -- so just for the modeling purpose, so we should build this INR 5,000 crore CapEx for '22 to '24 over above INR 7,000 crores which we expect to complete by '22?

Yes. And see, I think we are now in the whole planning and budgeting exercise for the next year, which we will take to the Board. And once the Board approves, we will give the guidance for this year, the coming year, that is. Okay? So you'll have more clarity when we come back with our guidance for the year. But as of now, how it stands is that ongoing CapEx continues. And on top of that, we'll be having paints.

Sure. And what is the number of dealers Birla White network has, like, for example, Asian Paints have 70,000 dealers, so what will be the network of Birla White by dealers?

Yes. Himanshu, you want to take that?

Okay. There are nearly 54,000 dealers of Birla White, and 70% of them are in the paint industry.

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

Yes, sir, thanks and congrats on this diversification. My first question is why now? Paint sector has been a secular growth story for many years, plus we have not seen any new player succeed in the last 30 to 40 years, except maybe the new IPO, which came -- which got over yesterday. So is the decision anyway linked to what paint players are doing in terms of market share to your own segment, is that a retaliation to that? Or if that's not the reason why now? Because the growth has been very good in this industry for so many years, but no new player has managed to have a success. We saw the JSW Paints file a lawsuit against the market leader that they are not getting to distribute, et cetera. So what can you do different? I understand those 35,000 dealers, et cetera, but tinting machine you will have to put, right? It is not that just because you have access the tinting machine automatically comes. It doesn't work that way. So if you could answer these 2, 3 things. You have answered some of those, but these are specific questions.

Sure. I think I'll defer to Himanshu on the question on distribution and how we lack the -- how can we win versus others, et cetera. Okay? I think from the point of view of why now in terms of timing and the growth that has already happened, I think we see this growth, like I said earlier, to actually continue or to be better as well with whole aspirant demand, the demographic change, urbanization, there is also -- amongst the younger population, there is also more rental demand that is likely to go up. And that's why you have the repainting demand that is likely to go up because the cycles will shorten. So there are many reasons why we feel paints industry story is far from over, and there is a lot of demand that is going to come from Tier 2, Tier 3, rural areas, if you see, they're still using a very old traditional techniques for painting their houses, and there is huge potential there as well. I think not just paints industry, through cement industry, we've also seen how the rural demand has actually picked up and is picking, it's further expected to go higher. So for all these reasons, I think there is perfect timing to get into paints industry and tap this opportunity. I would like Himanshu to comment on the question of new players, why reasons for their not being successful and how can we differentiate out there.

Thanks, Ashish. I'll just reiterate what Ashish has said and important that the way we are thinking about it is there. Number one, the overall paint industry, as Ashish mentioned, in his opening speech is INR 40,000 crores. And out of this, 1/4 of the paint industry is under unorganized sector. Number two, as you correctly pointed out yourself, there is -- literally, it's concentrated in the top 4 and 1 player happens to have a dominant share in this. So this gives us an opportunity to be able to fit in, if we are able to build reasonably large capacities to be bel to look at a position of #2, solid #2, which can have a profitable operations. Now what gives us the confidence that we will have a profitable operations that I just want to reiterate what we've been saying for the last 1 hour that we are not new to the paint industry. We may not have paint as a portfolio in our business, but it is adjacency, it is not a business line, which is not known to us. We are extremely strong on the construction piece. We are in the homes of consumers through the cement, but that's not the model that we are talking about. We have been in the homes of the consumer through our white cement, which is a major application, goes through the paint market because of whitewash in a white cement, especially in the midsized towns. Earlier in the urban towns, now in the midsize and the small towns and rural markets, and we are there in the undercoat segment in the putty business. So we have been -- we have an understanding of the consumer, deeply understanding of influencers, the paint, as well as understanding the trade partner. So it's not new to us there. I think it's not fair why others didn't succeed. It's not fair for me to comment about what was their strategy and why they did not succeed. But what we can say is our -- at this point of time, we have our plans in place. And that comes in the central question is, great, you have your plans in place, you have access to these trade partners, but how are you going to sort out the tinting machine issue. All I can tell you at this point of time was, as correctly pointed by Ashish, that we will not like to share sensitive information. But I can assure you that we have a robust thoughts and clarity of mind how we will solve the tinting machine issue. So I can assure every participant in this call that tinting machine issue has been addressed by us. How it is going to address us is competitively sensitive information, and you will -- we will see it unfold when we launch our services. We are completely cognizant of this. And I can understand your anxiety to get the answers today, but it will be unfair from our side, you will understand from our own side to share it at this point in time when we're not ready for launch.

Sir, very useful. Just one for clarification. You said that your ambition is to be the second best profitable player. Now you are a very late entrant, maybe 50, 70 years later than many of the players, which means your ad spend and your distributor margins, et cetera, need to be superior. Otherwise, how do you make headway because product-wise, it's not a rocket science, it is not a high-technology category. So when you say second most profitable player, is it different from second highest market share necessarily or you were saying second highest market share will lead to second highest profits? If you could clarify that.

Yes, the second -- second one, we believe profitable route is through scale. And clearly, that was one of the key topics that has been mentioned by Ashish. Scale to us is extremely important. And that is the reason our initial CapEx announced is INR 5,000 crores for a period of 3 years. I just want to remember that we will gain profitability. Your questions -- all these questions are relevant for any company which want to enter into any sector as later than once the improvement are present. And there are sufficient and many examples in Indian economy, I'm not going to go to global economy, where improvements have been dislodged by entry of new companies. And we have full faith in Aditya Birla, its brand, its processes, project skills, its ability to be able to execute and there -- and I want to register in your mind because you are just adding 2 plus 2. So here 2 plus 2 doesn't add up because important component is the cost structure. And we are missing out the last component as the cost structure. We will be -- it is possible for us to be able to deliver these products at significantly at lower cost, with currently some of the incumbents have because of traditional legacy costs, which we will not be bond with. So it's easy to just add and have the current practices and say, everything which is current, we will have and over the top of it, we will have to incur some additional. Yes, we will have to make certain investment in the market. I think there is no doubt about it. And Ashish alluded to the fact that there we'll need some cash to do that. But that's okay. But we are -- I just want to convey a single point. We are serious in the business and the announcement of this CapEx is to be able to give that indication that we are there to stay. And this is a long haul. Let's not be driven by quarter-on-quarter, let's be driven on the long-haul that we want to build this business for future.

The next question is from the line of Vivek Maheshwari from Jefferies.

So 2 questions. First is just curious that it's part of Grasim Industries, if you had put it in a subsidiary, wouldn't you have gotten 115 [ BAB ], which is 15% tax rate for new manufacturing companies, did you not explore that aspect? Or if you did, why did you not go into that?

Sure. See, I think there are advantages and disadvantages of being a division versus a subsidiary, okay? I think the whole cash fungibility, et cetera, is lost when you create a subsidiary rather than having part of the company itself. At the same time, there could be some additional costs that you may have to incur for it to be a subsidiary. And another point that you have to bear in mind is that some of these initial losses that will be there in the business due to the CapEx period can be utilized by Grasim overall. So there are -- you have to look at different -- many different reasons before you decide which path to take on a new SPV or not.

I see. Okay. Second question is since I have been Grasim analyst, UltraTech analyst as well as I cover paints. So as I look at whatever you have articulated, it looks like distribution of Birla White is the biggest piece over here. So doesn't this investment in Grasim actually ends up being -- since you mentioned about arm's length actually UltraTech shareholders actually come out as the biggest beneficiary, distribution the most important thing over here. And if you are going to use Birla White channel, which is housed under UltraTech. What are your thoughts on that? Because this, again, is going to create a bit of a challenge, something that we have seen with Grasim at different points of time given some of the pieces are in the mother company, some are in the subsidiary. So would be keen to know your view, from Grasim -- I mean, UltraTech shareholder perspective, given that investment is like by Grasim, but the biggest mode is sitting in UltraTech Cement.

Yes. So see, I think like we said, that critical success factor out here would be to see how we can leverage that distribution that exists in UltraTech. And UltraTech, by the way, as you know, it is our subsidiary, right? Now if you look at the value that it creates it not only creates value for paints business in Grasim, but even Birla White gets the benefit out of that, right? One is on arm's length basis, but at the same time, when you launch paints and sell it through that distribution channel, there's going to be a positive rub off on putty and wide cement, et cetera, as well because there will be overlap in the dealership, et cetera. So any such collaboration is actually clearly a win-win collaboration. And it has to be -- if there is value created for both, the value needs to be to both -- accrue to both parties, and that has to be at arm's length basis, both commercially as well as regulatory. So I don't think there is any, call it, compromise or anything of that sort in the value creation that's happening to both parties due to this common network synergy that we want to achieve. Himanshu, if -- please feel free if you want to add anything.

Yes. So you're absolutely right. I just want to incrementally add while UltraTech will independently respond, but it's publicly known that UltraTech has declared itself to be a pure cement play company. And will continue to expand and has had a significant capital allocation on expanding its capacity for the gray cement. The paint business and under UltraTech would be a very small component of the large mammoth size UltraTech is. And it works well in a model like Grasim where from a -- on a standalone basis, paint will be along VSF and chemicals, a significant portfolio for a standalone business. So please look at that because you need focus, you need a single-minded pursuit to able to grow the business. We are entering into a new business, a new line of business. And the focus of the team has to be clearly to grow this business. So it makes a lot more sense as far as where we need to house a paint business. Now the question that you're asking the second question is as there is synergy with Birla White, are we -- what happens to shareholders? Clearly, we have said it, and we're going to repeat it multiple times that we have now got the Board approval, we will start the engagement process with Birla White through UltraTech and we will, at arm's length basis, approved by both the boards, draw out the synergy. And we believe synergy is going to be value-accretive for both shareholders. To give you a sense that currently Birla White is an x number of distribution outlets, it will allow them to enter large number of retail outlets, which currently do not stock them primarily because they didn't have the entire portfolio. So they will help you to grow. It will also help to grow with the sales organization of the paint business to help grow their current range of products as this. So it is going to be clearly value-accretive for both the companies and the shareholders as well.

We take the last question from Swagato Ghosh from Franklin Templeton.

Sir, I have one very pointed question on your application. The second largest market share that you aspire to get by which year? And like a ballpark year? Is it like the fifth year or the next year?

Reasonable period.

Sorry.

Is the reasonable period -- in a reasonable period.

Okay, reasonable period. Okay. And what would be in that particular year or like a year to that on that year, not like you mentioned...

I think as correctly pointed out by Ashish, competitive sensitive information, it is not fair for us to share business model at this point of time. As the business unfolds, this is not our first -- this is not the only conversation where we're starting a journey, and we'll continue to engage with you and keep sharing with you.

Yes. Swagato, I think it's a new line of business. We'll grow in a calibrated way. I think it's tough to -- I think what we could give, we've given to you today. And as Himanshu is saying, this is a significant development for Grasim, right? And as we progress, there has to be more updates coming to you on how we are progressing.

Yes. Fair, fair. I just wanted to have like a time-based milestone at the outset, but I understand the limitations of you sharing more than what you did. Second question is on Grasim. So we have the standalone CapEx plus now we have this outgrow of INR 5,000 crores. So is it fair to assume that we do not have room to actually do any other major capital allocation in the next 3 years?

So, see, I think it's a combination of EBITDA profile, the cash generation that we can do internally as well. There is -- Grasim is like I keep saying, it's a strong balance sheet. It has headroom. I think you go by the merit of what the proposal is rather than just looking at the capability alone, right? And the merit of proposal out here is 20% plus. We're going for it. Ongoing chemical and VSF is very clearly an important CapEx that we need to complete, okay? What is very clear is that capital allocation now will be more focused on the standalone business, clearly. And definitely Vodafone-Idea concerns that has been there for shareholders gets addressed through this large share project.

That was the last question. I would now like to hand the conference over to Mr. Ashish Adukia for closing comments.

Sure. Thank you. I think these were very high-quality questions. I'm glad that we had this opportunity to clarify a lot of operational points that we did not capture otherwise in any presentation or the press release. So we hope that we've been able to satisfy your queries. Sorry about some of the questions, which we couldn't answer because of competition sensitivity, like I mentioned. We will stay in touch and update you as we go along. So thanks, and wish you all, all the best. Thank you.

Thank you. On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.