Kansai Nerolac Paints Limited (500165) Earnings Call Transcript & Summary

Thanks, Karuna. On behalf of ICICI Securities, we welcome you all to Q1 FY '22 results conference call of Kansai Nerolac Paints Limited. We have with us senior management represented by Mr. Anuj Jain, Executive Director; Mr. Prashant Pai, Director Finance; and Mr. Jason Gonsalves, Director, Corporate Planning, IT and Materials. As everybody knows that the paint sector has revived very fast from COVID wave 1, and there is again -- even after COVID wave 2, there is a strong growth visible in June month onwards. However, the input prices continue to remain impacted, but we see [Audio Gap] able to report strong numbers aggressively leading by the industrial and automotive recovery too as well as strong performance in decorative paints. So we continue to remain positive on Kansai, and we have a [A/D rating] on the stock. Now I hand over the call to the management for their initial comments, and then we will open the floor for question and answers. Thanks, and over to you, sir.

Thank you, Anirudh. Thank you, Nimit. Good morning, everyone. It is nice to connect with all of you. Hearty welcome to this Kansai Nerolac investor call for Q1 of financial year '21/'22. I'll give some brief about the quarter 1, and then we'll open the forum for the questions. So during first quarter, we recorded top line growth of 117.6%. All businesses, divisions did well. Industrial growth was higher on account of low base. Decorative specific, the value growth was ahead of volume growth. Therefore, we improved our product mix. Demand was, this time, better in urban towns. So if we compare with the last year, last year the demand was better in the upcountry market. This time, it was better in the local towns. And some of the key highlights for the Q1 for decorative is that, as I said, emulsions we did well and therefore, the product mix improved. We increased the number of machine counter, tinting machine counter because emulsion sale is dependent on the penetration of machine counters. There are multiple new products, which we started launching last year, and we kept on expanding this to new and new geographies and therefore, our contribution from the new products has increased. Most of these new products are in the emulsions and the new businesses like construction chemicals and the premium wood finishes. The Beauty Gold Washable, which is one of our little different offering to the market that has a proposition of anti-bacteria and washable with consumer proposition of Saaf bhi and Safe bhi, which is in line with our approach of paint plus offering -- paint plus to the market, was accepted very well, and we are getting a good traction and trending in this product. In new businesses, where we were a little late in terms of introducing construction chemicals, premium wood finishes, but we got a good traction. I think our range of products we completed in the last quarter, and the remaining geographies also we expanded in the first quarter. So these businesses have picked up and trending well in our portfolio. In terms of price increase, we took 3 price increases. One was in the last week of March and then 2 during the quarter. So 3 price increases we have taken so far in decorative. Our focus continue to be on paint, emulsions and distribution, new products and new segments, like construction chemical and premium wood for decorative. Coming to industrial. The overall growth was good, higher on account of low base. But still there are challenges as passenger vehicle is facing some shortages of semiconductor chips and therefore, the production is still not going to the earlier level. Our 2-wheelers demand was sluggish, mainly the demands are lower from the rural sector. Commercial vehicle and tractor demand was better. Our area of focus in industrial is new business, niche segments like coil coating, functional powder, high-performance coatings, and we are increasing our traction here in all these new businesses or niche segments. Even in the existing accounts, we continue to put focus on increasing our share wherever it is possible. And also the approvals related to taking price increases, because the inflation has been high, is higher. Coming to subsidiaries. If you look at local subsidiaries, Marpol, which is powder coating; Perma, which is construction chemicals; Nerofix, which is adhesive, all these businesses recorded high growth in quarter 1. In international, Bangladesh did well, but Nepal and Sri Lanka was impacted -- relatively impacted the most because the lockdown was for a longer period in Nepal and Sri Lanka. While in Bangladesh, till June, it was going fine and only in the last week of June, there was a lockdown, which was announced in Bangladesh. Some of the other highlights. As the inflationary trend continues, our focus is continued on cost reductions, formation management and judicious overhead management. So that's one area where our entire team is working pretty hard to see that how can we improve on that. The customer visits, which we started sometime around January, February and then again because of this lockdown, there was some gap. But it has restarted now, and the entire team and the management has started going to the market. While we are going, we are still following all the precautions and guidelines in our factory, offices and whenever we are visiting the markets. Recently, there was a rating on ESG by CRISIL, and they have rated the Indian companies on ESG. So there are a total of 225 companies, and we are rated in the top quartile. So in the overall companies also, which include banking, IT, manufacturing, all kind of sector, we are rated in the top quartile. And even in the specific paint industry, we are rated in the top quartile. Coming to financial for the quarter. The net revenue was INR 1,301.2 crores, a growth of 117.6% over the corresponding quarter of the previous year. In terms of EBITDA, the absolute figure was INR 187.1 crores, which is a growth of 132.4% over the same quarter of the previous year. And PAT was 118.7%, a growth of 177% over the same quarter. So even if you look at EBITDA in terms of percentage, we have a little improvement to be -- compared with the corresponding quarter of the last year. Looking forward, we feel that the vaccination program, which is underway and hopefully, it has picked up some traction on a month-on-month basis, and we feel that with the vaccinations going up, also forecast a good monsoon, demand should recover. But there's always uncertainty related to when we started the first quarter, we never thought that we'll have to face the lockdowns again. That uncertainty will always remain. On the company side, because there's a high-inflation period, we would be aggressive in seeking price increases, and our focus will continue to be on new segment, where we have picked up the traction, new products, which we have expanded, and we'll continue to do that, digitalization and cost optimization. So that's a brief on our side on the Q1, and now we'll welcome the questions.

[Operator Instructions] The first question is from the line of Prachi from Bay Capital.

This is Prachi here from Bay Capital. Sir, I just wanted to understand, in the last quarter, you mentioned that you had been negotiating for price increases with OEMs and weren't very successful. So what has been the case this quarter? Have you been able to take any price increases with the auto OEM segment?

Yes. So we made some progress. Some price increases we have been able to get in the first quarter. But as we discussed earlier also, there's a little longer lag when it comes to the OEM customers, and you make a progress customer by customer. But yes, we made some progress in the quarter 1.

Is it possible to quantify what sort of price increases we have taken?

No. Generally, we don't quantify that because customer by customer, so we don't quantify that, but we made some progress.

Okay. Okay. Got it, got it. My second question was on ad spend. So last year, we did see some cut on your ad budget. So how are we thinking about this -- the ad spend for this quarter and for the whole year?

So last year, one that -- earlier, we have been spending quite high, and it was part of our plan that slowly that we'll have some recent of the percentage. But last year was specific because first quarter, there was hardly any activities. Even in the next quarter, there were certain activities which were not possible. Now as the market is opening up, there is an open space to do activity. So obviously, to some extent, the marketing expenditure will go up.

Okay. But do we see them going up to whatever maybe in FY '19 levels or no? As a percentage...

So as I said, that was a specific plan for 2, 3 years where we did specifically related to increase our brand, and now our mind share is quite at the good level. So at that time, we were spending more in terms of advertising and communication. Having reached to a particular mind share, the focus would be on some other activities, which is also part of marketing. To a certain extent, it will go up, but it may not go to that level.

Got it. Got it. And sir, just one last question. What would have been our capacity utilization for the last -- for this quarter that has passed?

Jason?

In June, basically, we reached around 60% plus. I mean the quarter is actually irrelevant because there was no demand in the month of May. So I think what we need to look at is how we have exited the quarter, and that is around 60% plus.

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

This is Abneesh from Edelweiss. My question is on the chip shortage. So globally, auto companies are seeing big chip shortage. We've already seen a big impact of that, at least globally in the high end. For your customers, is it a big problem? I have seen the monthly sales data, which has come strong. So on the outlook front, chip shortage will impact your B2B sales, OEM sales?

So this is what we have been hearing from our customers that there has been shortages and because of which, even if they have a better demand to produce more, they're not able to do it. In terms of outlook, I think they seems to be on the track in terms of able to manage it. But I guess they know better that how much. But as of now, it is being reported that because of chip shortages, they have not been able to ramp up their production.

So any more color to that? So that's a more general answer. In your kind of volume, is the chip shortage also as big a problem because you do a lot of mass volumes also? And that also is the chip shortage equally a big problem?

So your question is from our customers' point of view, right?

Yes. And that will impact you also?

I understand. But as I said, that this has been the trend. But I guess that whatever we get the information from their side, there's an improvement. How much they will be able to improve, how far they will be able to improve because ultimately, when they have the demand, so they are much concerned, and they're making the arrangement to see that how they cover it up. So we'll have to live with it. So ultimately, our business is dependent on the customer business. So as of now, I can only say that there is a shortage, and this is what is being reported. How long it will continue for us is difficult to comment upon.

And last question, we have seen those news reports on JSW Paint. So they are planning to get more aggressive, and they plan to get market share from across the board, maybe from the #3 and #4 ecoplayers. So any comment you can make on JSW in particular or from the market leader also because price hike has been delayed this time by Asian Paints versus earlier? So is that a concern? Or do you see that this is just a lag effect, and ultimately, price hikes will happen [indiscernible]?

What I can only say is that, generally, for any industry, the more, the merrier. It is always better for the industry. There have been very limited number of organized players in paint, and it's always welcome that if the new company comes in because the paint -- one reason that why the paint industry has been growing consistently in double digit for the last so many years is the penetration of the paint, the per-capita consumption of the paint is still about 4 kg in India, which if you compare with the other countries, it is 15 kg, 20 kg. And even if we consider rural population, I think still -- even if we double it, it is about 8 kg. So that's very less. So when more companies are there, the more communication happens, the more awareness happens. And it always helps industry to grow because industry still has a good scope in terms of increasing the penetration. So more, the merrier, because then the innovation happens. The -- we always know that there is benefit to the customer. So it's a welcome from -- this is really what I can comment on.

And pricing bit by the market?

Sorry?

Pricing aggression by the market, whether taking delayed price hikes, taking less price hikes?

Pricing aggression, I don't think -- as of now, in fact, the pricing aggression is more there in the lower-end products, you can say, which is patti or some of the other items. There it is -- there one of the reason is that during lockdown period, sometimes the product mix gets skewed. You don't know that what exactly the market would be demanded. So as of now, the pricing aggression is in the lower-end product. It is not there in the high-end product.

The next question is from the line of Amnish Aggarwal from PL India.

I have a couple of questions. My first question is, as you stated that the demand rebounded in June. Now we are, I think, already through with the month of July. So has the demand sustained in the month of July? And any change in the -- whether it is geographical or rural, urban trends you are witnessing in the month of July? That is my first question.

So generally, we don't talk about the future. But June demand was there because May demand destruction happened. And we have a learning from the last year that -- last year also the first quarter demand was down. But then later, every quarter a part of the pent-up demand got compensated. And that's the same trend we are expecting.

Okay. Sir, my second question is that as our gross margins now, they have dipped already quite significantly. And there have been some price increases also. So what's the quantum of inflation currently? And would it be, you can say, fine to presume that the margins have more or less bottomed out now?

Inflation is high double digit, and if you look at the margins, obviously, in the quarter 1, we should not compare it with the last year because last year was a very different kind of mix, a very skewed mix. So if we compare on the quarter-to-quarter basis, which means that if we compare margins with the last quarter Jan to March, a slight improvement, maybe at par with that. And inflation, as I said, is in high double digits. And obviously, the action is the price increase partly we have taken in the first quarter, and then we'll continue to seek for more price increases to mitigate that inflation.

Okay. And sir, just finally, one bookkeeping questions. In your PPT, you have indicated that 10% of your revenue came from new businesses. So does it refer only to construction chemicals, adhesives and wood coatings? Or does it also include new launches on the paint side?

That includes -- it's all new products basically. So it includes the paint side products also.

Okay. So excluding paints, how much that could be, if you can share, please?

No. That generally we don't share because it's the new businesses. The only thing is that we started last year. Probably, we're a little late to start in the industry, but we are getting a good traction. Till we reach to a critical mass, now that we don't talk about those figures as of now.

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

Sir, I just wanted to understand on the industrial side, especially in the auto space, now in deco, I can clear -- you have clearly showed the ability to use mix as a lever. Is there any lever in the auto side also, sir, to do the same? Or it has to be only price increases, sir?

No. So auto -- in fact, that is how we are maintaining our position in specifically auto, where we are market leader, is always based on the technological improvements. So there, in fact, we always work with our partner -- parent Kansai to see that what technological breakthrough products can be provided to the customer. So it's an ongoing thing, and we are making a good progress there. In fact, we are working on a lot of technology products, which help consumers to increase their productivity, efficiency. And also, maybe in terms of per-liter cost, it is higher. But overall, it helps in terms of achieving their objectives also. So that's a very key thing. Pricing is mainly we are talking about because when the inflation is there and obviously, the process in the OEM is longer. But otherwise, our entire focus is on the technology products, which we keep doing, and we are doing that.

And sir, any quantum of the increase that we need to kind of get industrial margins back to earlier levels?

Well, obviously, it is there, but we don't want to talk about it. As I said that because of this situation, the business situation, we are aggressively seeking for the price increases because obviously, everybody understands, we also understand the customer problem that how do they give so much of increase. But the situation is very much understandable. So it's kind of mature discussion in terms of that win-win situation, and that is what we do and alongside that we work on the cost reduction also. So therefore, how much can be managed is something which is a one-to-one discussion, which happens with the customer.

No. I agree, sir. Sir, but when we look at, for example, the input cost parts that you highlighted double digit, would it be fair to argue that a double-digit inflation essentially corresponds to a double-digit price increase at the minimum? Is that correct way to look at the thing? Or that would not be right, sir?

Inflation is on the raw material cost, and the raw material cost is some percentage of the revenue.

Yes, sir. But we see the numbers, they're high double digits. I'm asking they're not even -- and that is where I was coming from, sir. Is that in -- a simple message is that even if I take a rough percentage, it means a double-digit increase is needed? So essentially, that's why I was trying to understand what is the -- how much...

Well, you can make your calculation. But from our side, what we can say is that, as I said that in the industrial, it is very difficult to pass on the complete in fees. But we have to see that, depending on the customer to customer, that how do you manage and how do you maximize that and parallelly work on your cost optimization so that you are able to mitigate the inflation.

Okay, sir. And sir, does that entail a change in royalty as well, sir, because we are using a lot more of our parent's health or royalty rates remain unchanged? How does that work, sir?

No change.

No change, right? I mean overall percentage of products using royalty will kind of go up, nothing like that happens?

Yes. No change. In fact, the percentage is fixed.

Okay, sir. And sir, lastly, last -- for the last few quarters, you've been kind of -- you have done a strong push on digital. I mean we can see already healthy kind of pickup as well. Could you share how is that kind of helping us on the cost control side? And how much gains can we kind of assume, say, going forward to sustain? Any quantum or any thought that you could share that's needed. That's all from my side.

Jason, can you take this question?

Yes. So see, digital initiatives basically are of 3 kinds. They are -- one is trying to aid the convenience of the consumer. And maybe to that extent, at some point, it may help in gaining revenue. Second is optimizing cost, and third is improving productivity. So initiatives which are there, if you look at it more from a market side, like we have introduced app for the dealers, app for the influencers. So if you look at these COVID times, it is more -- actually has been more of an aid to business, not necessarily at this point of time, it is resulting in any extra revenue growth. But there are a lot of analytics, which are going on at the back end, a lot of, I would say, process automation, which is going on at the back end, which is helping the company control its cost and improve its productivity. So to that extent, digital is aiding at least the back end as of now. So intent, I think it's a matter of time as the markets open up. And as these apps gain more and more traction in the marketplace, we would see positive gains coming from it.

Okay. So any target, sir, on cost savings that we can share? Any -- I mean, if it is possible to share. I understand some -- these are difficult, but if it is possible to get a sense on how much of that can be sustained or how much margin benefit can come from that, if any?

Prashant?

Avi, if you look at our expenses or as a part of net sales, right, or the overhead percent of net sales, we have been trying our best to be best in the industry, right? And our endure is to maintain this trend going forward also. And as I said earlier, in the last meeting also, that we -- every department has been given targets, and they're working to achieve this goal of cost reduction.

[Operator Instructions] The next question is from the line of Aniruddha Joshi.

Sir, 2 questions from my side. How do you see the region-wise recovery across, let's say, Northeast, Southwest? I guess North India is the key region for us. So how is the recovery in that region? Also, if you can update on the new businesses, the way you explained about the international geographies. So how is the powder footing, adhesive and the waterproofing segments doing? Any update on the growth and also the profitability in these businesses? And lastly, how do you see the price hikes going forward? So do you see the industry as well as Kansai taking price hikes again in this quarter? Or it will be maybe [Audio Gap] after a point after the trade digest the current set of price hikes? Yes, that's it from my side.

Multiple questions.

Okay. So in terms of region, I think the recovery is West, North, East and South, in this order. West, North, East and South, in that order. So that's the answer to your question. Then you asked about -- what was the second question? The new businesses, I think.

New businesses.

So new businesses, I think I spoke about it. So we cannot talk about growth because these are like when you say new, we just started. Maybe we started last year. The base is very, very low. So therefore, you talk about the growth does not make much of a sense as of now. What is important is that, yes, specifically construction chemical, if you really look at it, which is the waterproofing and the other products like sealants and all, so we have completed the range, completed the range means that construction chemical has a very large range. And you know that we have taken this company, Perma, and Perma has a good range of products. Now whatever range is possible to place in the retail market because for the institutional project business, there is a -- the range of products are more than 100. But whatever is the retail-specific products, those products we have started placing through our network in Nerolac where we are getting a good traction. And in paint, typically, it happens that good percentage of your network is always exclusive network, so they give you a support. So that's why I mentioned that once you reach to a critical mark, then only it probably makes sense to talk about the figures. So as of now, the traction is good. And since we were late entering into that, it was important for us to place right product and the right strategy in the market so that we start getting traction. So we are doing well. In adhesives, so again, we have our subsidiary, Nerofix. And Nerofix products, some of the products we are trying to sell through Nerolac. Specifically, we are targeting Northern India as of now because we do not want to get into all India and then able to spread our resources so thin. So these are like geographical focuses we are doing so that we are able to just do justice with that, and that is what we're doing. So that is your second question. And third question, you spoke about the profitability of these new businesses. So there primarily, you can say that similar to paint. But initially, it happens that when you get into the market maybe you try to become more aggressive. But otherwise, in terms of margin, they are quite similar to paints. I think I covered all your questions.

Sir, lastly, on price hikes. How do you see the industry working on the price hikes going forward? Because still there is need to raise prices, but how will the industry and Kansai planning ahead? Yes, that's it from my side.

You're right in terms of price increase. In fact, one price increase has also happened recently. So there will be more price increases because obviously, the industry wait and see that whether the prices are softening or not softening, but inflation continues to be high and obviously demands more price increase. And according to the industry, we're working on that.

But sir, isn't it can be issuing trade because the trade would be ordering goods on a regular basis and if there are prices, so then one stock of older prices, one stock of new prices. Will that not be a...

What happens is that if you see maybe because the price increases have come in parts, so therefore, the absorption has been better. And maybe in the last quarter, because there has been uncertainty of the demand, so the demand is more certain and then you have a festive season. The absorption happen a little faster. Obviously, the -- as a industry, always the choice is that you try to stabilize the demand in the market, but in this kind of inflationary period, there's more choice also. So I think what is important is that how do you stagger it so that the market is also not impacted. And you stagger it and know you are able to get the price increase also, and then you are able to stabilize the demand. I think that's the approach which the industry has taken. And to that extent, I think it's reasonably okay to take the price increase.

The next question is from the line of Percy Panthaki from IIFL Securities.

My first question is more of a housekeeping question. Apologies if you've already given this. I joined a little late. What is the volume growth for this quarter?

So I guess you are talking specifically about decorative. So as I said -- I said earlier that the value growth is ahead of volume growth. So this quarter has been different for us because our focus was on the product mix and this quarter's growth was led by emulsions. And therefore, our product mix improved, value growth is ahead of volume growth.

Okay. Okay. Secondly, I just wanted to know in terms of your distribution expansion. If you can give some data on your tinting machines currently and how they've expanded over the last year or over the last 3 months? Any kind of data you can give on this will be useful.

Approximately, we have about 26,000 of dealers. And last year, not much of expansion. Generally, every year, there's expansion in the network. But last year, there was not much of expansion because of this demand up and down continued and the visits to the market were also -- for safety reasons, the visits to the markets were limited. In terms of machine, we have a penetration of around 75% to 80% penetration of the machine. And now this year, from the April because when April started from, say, last quarter, the market movements have started. So we are seeing expansion in the distribution. In between, again, there was a lag because of this May lockdowns. But I guess now since the markets are open, I think that story of expansion in the distribution will be followed in this year.

And what would be your target, sir, for expansion?

Target always is higher than [indiscernible] but it is -- we keep in mind that we should be able to increase our reach. So internally, our target are always -- you look at the universe and then whatever reach we have, and we try to increase the reach. I'll not talk to the number, but increasing the reach is the target.

And lastly, I just wanted to know, see, there is, of course, margin pressure in both decorative as well as industrial, there is cost inflation in both segments, and there is some amount of price increase in both segments. So at an overall basis, I mean, if you sort of look at the cost inflation versus the price increase in each of the segments, where is the margin pressure more acute for you? Is it in the industrial segment currently after the price increases you have seen this quarter partially? Or is it in the decorative segment?

Pressure is on both, but it is higher in industrial.

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

I have a couple of questions. First question pertains to nature [indiscernible] intensity versus past. So just wanted to get your observation that are you seeing any change in agility or intervention, the flexibility, which we have seen for the last many years whenever inflation comes, has been compromised this time or this observation slight misplaced? Because we are not seeing the kind of fast intervention that the industry used to make. And then my comment is mostly on decorative wins. We are not seeing it this time, so I just wanted to know your thoughts on the same.

Can you, again, maybe in a simpler way, if you can just -- I have not understood.

Yes. So I'll put it this way that earlier, for example, the similar period, we had seen in somewhere around 2009, '10 when industry had taken some 6 price hikes in a span of some 6, 7 months, led by -- and then somehow it appeared from outside that the whole decorative industry behaves similarly in terms of the intensity of the price hike. This time, we have seen staggered price hikes, not necessarily everybody is taking at the same time and in the same proportion. So just wanted to understand, is there any change in the competitive nature of competitive intensity?

So I think that period is different because today, what is happening is because of COVID and demand up and down. So you have to strike a balance between that. But as I mentioned that already 3 price increases have been taken. The company taking their own price increase, different prices. I think that's a good sign because that way you can say that every company is established in the market and whatever market share they have, they've been able to establish themselves. And to that extent, they have the pricing power to decide on what they want to take. But otherwise, it is just getting staggered and it's the balance between the demand and the price increase. Otherwise, the approach in terms of approach of the industries remain same, that whatever inflation is there, you have to mitigate that with the efforts of price increase or the cost reduction. That continues.

So sir, this time, it is not that well communicated by other players. So just wanted to know, would your price increase be higher than the industry average? Or the relative price index, would you be -- would you have bridged the gap between, let's say, you versus the second guy or the first guy in the industry?

Likely, here or there, because the pricing means pricing plus discount, so they are never saying they are always different, let's say, from one company to the other company. I think what different you have seen is that the periods were different. Maybe this time like we announced the price increase earlier, and then everybody is doing it with their own approach. So that's the reference. Right now, for pricing, it never same because the pricing also include discounts. So it is different from company to company.

Sure. And sir, second question pertains to construction chemical. You said that you have now completed the whole range of product which is acquired. But there's also a very natural efficacy-led gestation period of the business. So usually, we have seen in the other launches also that we need to wait for 2, 3 monsoons to get that confidence on the efficacy part before they extend warranty. So where are we on that cycle in terms of going that aggressive on warranties and efficacy part?

We are late starter to a certain extent, that time we'll have to wait. You are right that business always takes 2 to 3 years to scale up to that particular level. But I think what is important is that some of these products, based on your accelerated test, you can still claim. And that is what we are doing. But yes, comparatively, it will take some time because in waterproofing, unless you pass 2, 3 monsoon, and then you see the performance. But technologically, I think that we have -- as we have good access to the technology, so there's no problem. But in terms of tactical experience, we'll have to wait and watch for that period. Since that our technology also or some of the products, which we've taken over from the Perma, and the Perma has been there in the market for many, many years. So those products are well tested and that way giving warranty is not a problem.

Sir, this is for both wall and ceiling as well, right, the whole range?

Yes. Wall, sealing, roof, oriental, vertical, all kind of surfaces. Excellent products. In fact, some of the recent products what we introduced, which goes on the horizontal surface is also, they reduce the temperature by minus 8 degrees and also in addition to that, they give waterproofing properties. And the advantage is that it becomes the full system along with the paint because probably earlier also, the -- if there's a defect in the paint, the customer used to say, even if the defect is because of the waterproofing, which is applied under the paint. But now when it goes as a system, I think it is working well. And hopefully, this will help in expanding the market also for construction chemicals.

The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.

Sir, in your annual report, you have mentioned about revisiting the approach towards decorative paint market and restructuring the B2C business into 4 things, like Nerolac Paint and Berger Paints institution and new businesses. Can you throw some more light on what you meant by all these things? And I mean, what are the interventions in terms of products, distribution or allocating resources?

So traditionally, if you look at it, this was paint. And now there are many segments. There are paint, there are construction chemical, adhesives, wood premium, patti. Patti in itself is a separate segment, which did not exist in the past in the paint. So it is a recent thing. So if you look at the history, our expertise is there in the paint. So when we talk about relooking at this, ultimately, we're looking at different segments, which we need to focus upon. So the first segment is paint and then the segment of, say, construction chemical, adhesives, wood premium and patti also we consider as a separate segment because it is a very low-value, low-margin product and different kind of reach, started by not the paint company, nonpaint company. So this is -- these are the 4 business lines. And accordingly, what we have done in terms of structure is that we have now business structure, business division for each of these. So paint, construction chemical, adhesives, wood finishes. So that is what we have created. And earlier, everything was looked together in a same manner. Now it is all business lines. And in terms of resources, separate resources are allocated to paint, construction chemical, adhesives. So each and every business is an independent in that form and being run by the business heads. And independently, the resources are allocated to them.

Okay. Okay. Understood. Second question, you mentioned that in this quarter, value growth is higher than volume growth. Now this is because of the way market behaved? Or this is a conscious effort and this would be the strategy going ahead and we should continue to see this trend going ahead also?

So this is -- as I just spoke about the structure, so paint and paint does not include patti. So that's one focus area. And so this was a conscious effort, definitely. So in terms of paint, the growth was led by emulsion, and that's why the value growth is ahead of that. Followed by these new businesses, construction chemicals, adhesives, which also give you a relatively higher average selling price, ASP. And patti is a little different in the market because market is seeing a good aggression in the patti. So it depends on because we feel that currently, it's not a right time and you have a margin pressure. So we have to strike a balance between revenue and the profitability. So patti is something that where one can decide at the appropriate stage that when you want to go aggressive because it's more of a pricing game. So maybe as of now, we are not very aggressive when it comes to the patti segment in the market.

Okay. Understood. Sir, last question on industrial side. You mentioned that, I mean, interest in -- so pricing impact is there on both industrial and decorative. Within industrial, can we bifurcate between the auto and non-auto that it is easier to pass on inflation in non-auto versus auto players? Or in any other way can we differentiate our pricing power within industrials also?

Yes. Yes, definitely. So auto and non-auto, non-auto include outer coatings, general industrial and high-performance coating. And there, the progress traction on the price increase is also better. Because it takes a longer time in terms of automotive, but automotive is a bigger business. But in the other businesses, definitely, the pricing power is better. We'll be able to do it sooner than -- yes.

Okay. Sir, last question. On these new categories where we talk about construction chemicals, adhesives, so how are we trying to tap this opportunity in terms of -- as you mentioned, do we need different skill set of people as well as probably different distribution and different influencers as well, especially in adhesives? So what is our right to win in these 2 categories and initiatives taken by the company?

So one is that strength, which we borrowed from, say, Perma, because they were like technical expert. And there's a -- as I said, the business structure, there is the dedicated team, which is purely focused on the demand generation with the audience. So basically going and showcasing your product, demonstrating your product, getting product approved. And all these people are -- because construction chemical is a little different from paint, where as you rightly said, it's more of a techno-commercial kind of thing. So the skill set we borrowed from Perma and further than with the help we have created the business structure, and there, our team is focusing on providing the right kind of training to this dedicated team. Parallelly, the effort what we are putting is because we also have a demand generation team, our painters in the market, that the painters are being trained for correctly using the waterproofing product. Because for painter also, it's a business expansion. So earlier, they were doing only paint, and now they know that along with the paint they can do waterproofing. So one side, the effort in terms of training the painter to rightly apply the construction chemicals; the other side, the techno-commercial team of the construction chemical to meet the right audience.

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

Sorry, I joined a bit late, so if the question was already answered. My first question is, in decorative paints, for the April to June 2021 quarter, has revenue -- is revenue higher than April to June 2019 or is it still lower than April to June 2019?

So we are generally tracking on a 3-year basis. The last year also, there were kind of up and down. So on the 3-year basis, we are tracking. And on the 3-year basis, it is positive, 3 areas.

Understood. Got it. And second question is over the past 2 or 3 years, ad spend -- A&P spend as a percentage of sales have come off. And if I look at your FY '21 numbers, there's about 40% cut as against maybe 15% cut that you've seen from the market leader. So how should we think about A&P spend as a percentage of sales going forward in view of likely sort of increase in intensity as the new entrant enters the market?

Actually, I answered this question, but okay. So what happens is that in the past for a few years, we went aggressive in terms of creating the brand mind share. And that time also, our approach was that once we are able to reach to that level of mind share, then probably as a percentage, it may start coming down. But last year was abnormal in the sense because there were first quarter, second quarter, there's not much possibility in the market to do the activity because even if you are doing it, it may not be much impactful. So therefore, maybe it came down more than what it could have been otherwise. And going forward, obviously, because this goes with the market requirement, market need. As of now, because our mind share is quite good, we are having a very strong mind share. But the other activities, marketing activities, whatever is required in terms of below-the-line activation, the printer activities, training, all those things will continue. And to certain extent, you may see that advertising may go up, but it may not be to that level what we were doing earlier because that was a specific objective to create mind share.

The next question is from the line of Hitesh Taunk from ICICIdirect.

Sir, I just wanted to know one thing. During this disruption period where the supply chain has been disrupted severely and we believe like we would have gained some market share from the unorganized segments also. So I just wanted to know how the unorganized segments have performed during this period. I mean how -- are we seeing kind of market share gains from that segment? And going forward, that segment will still be hard due to this pandemic?

It's very difficult to comment upon that because there's no way to track it. The only thing is, in the disruption period, it happens that maybe some companies are able to manage their logistics and supply chain better than the others. And because within the unorganized sector also, there are good companies. There are good -- reasonably good companies. So it will not be right to call them unorganized. So because some companies are able to manage, some companies are not able to manage and ultimately, market has a demand plate. So if somebody is not able to manage, automatically it happens that, that business goes to them. So I say that in the small scale, there are a lot of good companies, regional companies, niche companies who have this strength. They understand the customer better for that particular market. And I don't see any reason that why they would lose out. So even if something is happening, it may be on a temporary basis. But having said that, it is true with any industry that part of small scale always shift to the large scale and over a period of time, the small scale also become themselves a large scale. So that's a very natural trend which happens.

Okay. And sir, my next question pertains to a new product segment. So out of the total dealer network, how much dealer growth is covered by this -- our new products and...

Mr. Taunk, sorry to interrupt you, This is the operator. Can you please check your line? There's a lot of disturbance from your line. [Technical Difficulty]

Okay. Sir, I just wanted to know how much dealers out of total dealer network are covered for our new product category?

As of now, the numbers are not very high. But I can say potentially, more than 50% can be covered, potentially. As of now, because it's a new start. Then slowly you start. So basically, you first cross the first milestone then second milestone. But potentially, I would say that more than 50% can be covered.

Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Joshi [Audio Gap]

Sir, just 1, 2 questions again from my side. So one, how do you see the new portfolio shaping as a percent of total turnover over a period of, let's say, 3-year to 5-year time frame? Do you see all that entire new product portfolio moving beyond 25% of the total sales? And also secondly, currently, the business -- entire new product business is in investment mode. So how do you see it starting contributing to coming back to our, let's say, normal EBITDA level with the rest of the business in 1 year or maybe it will take more time for these investments?

So actually, the contribution would not be that high what you're talking about. Because if you look at construction chemical as a market, I think the size of that market is INR 5,000 crore. And if you compare with the paint industry, paint industry is INR 55,000 crore, but if you look at decrepitude specific, it would be INR 30,000 crore. So again, INR 30,000 crore, the size of the construction chemical market still is INR 5,000 crore. So from there, you can guess what best percentage any paint company can achieve from that. And the adhesives and wood finish, they are very niche business. And so even in the wood premium, though the growth rate is faster, but it's a very premium and it is not the entire wood finish what we're talking about, very premium and niche business, but still it's a very important. So the contribution would not be that high. But as I said, that's the size of the industry. So the larger business size here is the construction chemical where I spelled out what is the market size, and that is what best any company can achieve over a period of time. In terms of EBITDA margin, as I said, these margins are not -- actually, they are good. So it is in line with the paint. Initially, it happens for any category that you go a little aggressive. But since we have the distribution strength, so it is not that it is -- you are damaging the margin. But typically, in the newer business, initially, you spend some higher than over a period of time and you are able to set up your range, then you are able to stabilize that. So not much of a challenge I see there.

Okay. Sir, one more question. How do you see the B2B customers accounting for the new businesses? Because there is a fairly large B2B portion in the waterproofing construction chemical industry even in large industrial, this seems as a business. So what [Audio Gap] all these new segments, whether we will go for projects and B2B customers? Or it will be more of a B2C business for us?

So it's like when we took over Perma, so Perma is basically largely B2B, okay? So that is a business which is established business. And one side that they have the team, which is B2B, they have that customer, which is B2B. And that business focus is given separately. And what we are additionally trying to do is basically get into the retail. The retail business was not there, which we are adding. And the B2B business is already there in the Perma, which is now taking that particular base. From there, we are trying to strengthen. Both the sides would be a part of our radar.

Okay. Okay. So these are my questions. On behalf of ICICI Securities, we thank all of you for being on the call, Anuj sir, Prashant sir and Jason sir, we [Audio Gap] for the call and answering the questions of the investors and analysts. Now I hand over back to you for your closing comments on the performance. Thank you, sir.

Thank you so much for connecting, and it was nice talking to you all, and thank you for all the questions, and I hope that we have been able to do a justice with the answer. And the business situation last 2 years, not business -- or all the businesses continue to be uncertain with this COVID impact and all this thing. Hopefully, as mankind will come out of it, and I hope the situation becomes better and better. So all the best from all of us to all of you. Keep yourself safe, keep taking care of yourself and your family and your friends. And thank you for joining. All the very best.

Thank you.