Pidilite Industries Limited (PIDILITIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Pidilite Industries Limited Q4 FY '20 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Shah of Axis Capital. Thank you, and over to you, sir.

Yes. Thank you, Aisha, and good evening, everyone. And on behalf of Axis Capital, I welcome you all to Pidilite Industries Q4 FY '20 Earnings Conference Call. We have with us the senior management of the company, represented by Mr. Apurva Parekh, Executive Director; and Mr. Pradip Menon, Chief Financial Officer. With this, I would like to hand over the call to the management for opening remarks. Thanks, and over to you, sir.

Thank you, Anand. Good evening, everybody. The quarter performance was significantly impacted by the lockdown account of the pandemic as well as related disruptions in the supply chain. While top line growth remains subdued, earnings have improved substantially, primarily as a result of softer input costs. COVID-19 is a significant challenge, and Pidilite remains committed to working with our partners to overcome this crisis. As normalcy returns slowly across various markets, we remain cautious and focused on restoring volumes enabled by investments in brand building, growth categories, capabilities and sales and distribution. I'll begin with a summary of the financial performance for the quarter and year ended 31st March '20 for the stand-alone business. As a result of the nation-wide lockdown declared in March 2020, the stand-alone net sales in the last 10 days of the quarter and of the year were lower than the same period last year by around INR 150 crores. This is equivalent to around 11% of Q4 net sales last year. Lower sales in the last 10 days of the quarter and the year resulted in Q4 stand-alone net sales growth reducing from around 9.6% as on 21st March 2020, to a negative 4.3% as on quarter end. Full year stand-alone net sales growth reduced from around 7.1% as on 21st March 2020 to 4% as on year-end. The consequent impact on stand-alone EBITDA growth is estimated at 29% for Q4 and 6% for full year. The operations at all our factories, warehouses and branches have started in a phased manner during May and June and all requisite safety protocols being adhered to in a stringent manner. Most of the employees are working from home and necessary office connectivity is in place. While April '20 sales ground to a halt due to closure of most markets, in May and June, we have seen the country open up for business gradually with rural markets restarting quicker vis-à-vis urban markets. We observed the markets in the South and the East have opened up gradually with North and West being slower to open up. Large cities continue to be constrained, especially those in West, North and Central India. We continue to see challenges around labor availability in our own units, warehouses and factories as well as at users and customers. As normalcy returns slowly across various markets, we remain cautious and focused on restoring volumes enabled by investments in brand building, growth categories, capabilities and sales and distribution. Moving on, in case of stand-alone performance, net sales at INR 1,308 crores, declined by 4% over the same quarter last year. Net sales for the year ended stood at INR 6,290 crore and grew by 4% over last year with sales volume and mix growth of 2%. This was driven by 2% growth in sales volume and mix of Consumer & Bazaar and 4% growth in sales volume and mix of business to business. Material cost as a percentage of net sales is lower by 471 basis points versus the same quarter last year and 192 basis points versus previous quarter. It is also lower by 408 basis points when compared to prior year. The consumption cost for Q4 '20 is around $845 as compared to Q4 '19 consumption cost of $1,100. There have been benefits versus prior quarter in dollars, neutralized by adverse currency movements. Current spot price of our major raw material vinyl acetate monomer, we call VAM, is around $650 to $700 on account of low demand and stressed market conditions. We do not believe prices at these levels are sustainable. EBITDA before nonoperating income stood at INR 286 crores and grew by 8% over the same quarter last year on account of softening input costs. EBITDA for YTD March '20 stood at INR 1,485 crores and grew by 14% over last year. Profit before tax and exceptional items at INR 262 crores, declined by 7% over the same quarter last year, mainly due to lower income from investments in current year due to falling interest rates and higher mark-to-market gains last year. PBT for the year ended stood at INR 1,496 crores and grew by 9%, excluding exceptional items in current year and income from intercompany transfer of intangible assets and dividend income from subsidiaries in last year. And this grew by 13% over last year. PAT at INR 160 crore declined by 34%, excluding exceptional items plus previous year write-back growth of 3%. For the year ended, PAT at INR 1,102 crores grew by 13%, excluding exceptional items in current year and income from intercompany transfer of intangible assets and dividend income from subsidiaries and effect of tax thereon last -- versus last year grew by 23%. Effective tax rate for the year has been reduced from 28.8% to 22.4% due to reduction in corporate tax rate. Exceptional item represents impairment loss on plant and machinery at Dahej Elastomer Project amounting to INR 33 crore for current quarter and INR 55 crore for current year and impairment in value of investments of a subsidiary amounting to INR 4 crores for current quarter. Current tax for the same quarter last year includes INR 53 crore being excess provision of earlier years written back and therefore, a one-off in the prior year. Consolidated performance, the quarter and year-end performance was significantly impacted on account of COVID pandemic in India as well as the growth. Net sales at INR 1,535 crores declined by 6% over the same quarter last year. Material cost as a percentage to net sales is lower by 505 basis points over the same quarter last year and 155 basis points versus prior quarter. EBITDA before profit -- before nonoperating income stood at INR 303 crores, a growth of 9% over the same quarter last year. Profit after tax at INR 157 crores declined by 34% over the same quarter last year. And excluding exceptional items in previous year, write-backs declined by 3%. Moving on to our domestic subsidiary performance. Performance of subsidiaries were impacted on account of nationwide lockdown due to COVID-19. Nina Percept and Cipy continue to face a challenging market condition in the wake of economic slowdown in real estate, auto and engineering industry. This was further impacted due to the COVID-19 conditions. ICA Pidilite has delivered EBITDA growth on account of improved margins due to scaled-up local manufacturing. During the quarter, company through its subsidiary, Madhumala Ventures has made an investment of INR 71.5 crore in TrendSutra Platform Services Private Limited, also known as Pepperfry. Pepperfry is an online furniture marketplace and has operations in India across multiple sites. As an organization, we continuously track the development of the startup ecosystem in adjacent areas and relevant geographies. We intend to support and collaborate with start-ups for mutual benefits. The company had entered into a definitive agreement with Tenax S.p.A. Italy also called Tenax Italy for acquiring 70% of the share capital of Tenax India Stone Products Private Limited for cash consideration of approximately INR 80 crores. We have -- this was -- this particular agreement was entered into in February '20. Tenax Italy is the leading manufacturer of adhesives, coatings, service treatment, chemicals and abrasives for the marble, granite and stone industry. Tenax India is a subsidiary of Tenax Italy engaged in the sales and distribution of Tenex Italy products for the retail market in India. This transaction was completed in May '20. Now moving on to international subsidiary. Subsidiary Bangladesh reported higher sales and EBITDA growth for the quarter. Sales for subsidiaries in Sri Lanka, U.S.A. and Brazil got severely impacted in March '20 due to lockdown in respective geographies. For full year, good sales growth and EBITDA across subsidiaries, except for U.S.A., which is impacted due to onetime tax expense of INR 6.3 crores. With that, I end my opening statement, and we'll now open the floor for questions.

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

Sir, my first question is on the 3 countries where you are doing well. So Bangladesh, Egypt and UAE, not just Q4, entire year also, you have done well and much better than the India business. So what's driving there, if you could discuss a bit of strategy, what is driving there, just the small size, which is entering into a more distribution or new products or market share?

Yes. Thank you, Abneesh for the questions. So actually, it's a variety of reasons. As you know, if you start with Bangladesh, we had -- we started off as a fairly small player in those markets, and we have achieved over a period of time quite strong position across divisions. The performance is driven by strong activities in the market, the ability to leverage the experience in India -- very similar markets to India. And therefore, the experience of working in India, we have essentially transplanted those same experiences in those markets, and we are seeing the benefits of it. Obviously, the fact that when you have a momentum of sales, that automatically also leads to a better improvement in profitability. And these are essentially the factors driving both Bangladesh and also to an extent in Dubai and Egypt. Some of the key products in domestic markets have grown well. And we, of course, made sure that we have the right product range for the requirements in these markets.

Second question is the investment you spoke in your initial remarks also. So why I'm asking this is there is a history behind your investment in elastomer project. And then you had to write-off almost the entire investment. So now if I see the investment, these are extremely new business, which carries very high risk. You can see a lot of these in that segment, many that have closed down, especially post COVID, it becomes that much more difficult. So could you elaborate what really is the reason on Pepperfry? Earlier there was news flow on Livspace and HomeLane. so these are a big amount, INR 70 crores just in Pepperfry, wherein most of the revenues just because of discounting, whether the business will survive 3 years down the line, a big question mark. So what is driving here, is it just the product usage, which Pidilite can get better by these relationships, which you can get beyond equity also, right? You don't need to have equity to get Fevicol sales or any other product sales.

Yes. So I'll, of course, give a perspective, and I'm sure Apurva will have additional remarks to make on this one. It is like this: what we are -- what we would ideally like to be as a company is be present in the areas where there is, obviously, growth opportunity. And frankly speaking, the online marketplace has done well. And going forward, in the current conditions that we have here, COVID and so on, it is even possible that these conversions could be accelerated. And therefore, being present in these segments gives us an opportunity to be very close. Having an equity stake, obviously, means that we will have, in a way, a very close collaboration with these platforms and therefore, bring those insights to our organization and which can firm up our strategy as the market moves, gradually, albeit in a very small manner to sort of a platform were ready-to-make furniture, et cetera, becomes more popular. So we want to be there. Obviously, with COVID having set in and the new developments which are happening, we'll be cautious. We will obviously look at these opportunities much more carefully going forward. But obviously, the investments we have made have been made with the right set of strategies in place and some of these points have elaborated. Apurva, would you like to add on to these points?

Yes. Abneesh, just a couple of points on this. The investment that we have made are in companies which are reasonably established. They are still early stage companies. Well however, all of them have had 4, 5 years of operation, and they have reached certain size and scale. The purpose of this investment, one is to collaborate with them, which could result in to increase usage of our products and services. And second is also to get a very close view of the evolving ecosystem. Our view is that as this ecosystem evolves, if you have a close view and if we collaborate closely with them, it could result into benefit with us. And by the -- and as we are investing in companies which are a little ahead in the race, and they are not pure startups. They have proven a certain business case, and we want to work with them to see how it will work further. So in that process, we have made this investment, and we very carefully evaluate investment in this space and very selectively, if any investment, further investment we will make.

And these are obviously very long-term investment, right? There's no plan to exit at some stage.

No, no. These are long-term investments, and they are quite interesting. And as our partnership with them evolves, you will get a better idea of what are the overall benefits that we are getting. Our product usage is one of the benefits. But certainly, these are very long-term investment, and they are very strategic in nature.

The next question from the line of Avi Mehta from IIFL.

I just wanted to get an update on how this first quarter, I mean, has been post COVID, post lockdown, you have said, but would it be possible to kind of give a sense on what production levels are at versus pre-COVID levels? How has that played out? Because you've mentioned there is a labor challenge. So is supply disruption still an issue or is it still a demand? If you could give some clarity with this, sir?

Yes. So obviously, some of the points that I would say would be sort of repetitive from my opening statement, but I think it's important to highlight it again. So obviously, since April was virtually when sales ground to a halt, we are talking about May and June where markets have gradually come back. In a way, production is sort of linked to the demand. And therefore, it is not just we open our factories because the availability of production or labor. So broadly, I would say that broadly between April where there was virtually sales ground to a halt and May where broadly 50% of the markets were working, we would broadly be in the range of about 75% to 80% in terms of the capacity at which our factories are operating. And therefore, that would be, again, dependent on -- it will vary by factory by factory, but broadly, that would be the kind of level at which we will be operating today.

Perfect. Okay. The second bit was on the input cost. While you highlighted the current prices around USD 750 -- USD 650 to USD 700 in band, what was the average for the fourth quarter? And linked, is there any high cost in -- I mean, is the inventory high cost, which could delay the pass-through of this benefit?

Yes. Good question. So our current quarter 4 levels were at $845 -- roughly $850. And you must remember that when we look at the dollar price, there is also, of course, the currency factor to be considered, depends on the currency impact. Going forward, we typically have a coverage between -- again, in a way, it's a difficult question to answer because they also link with demand. Typically, we would have at least a 3-month kind of a period where we will be covered, whether with raw materials or with finished goods. So these will not really get: a, immediately passed on; and b, in terms of passed on in terms of benefits: and b, we don't know whether these are, as we said, sustainable as we enter the following quarter. So these are the 2 data points.

Sorry, sir, this 3-month is based on the pre-COVID or you're essentially adjusting for the changed environment? I just wanted to kind of confirm or clarify.

Yes, yes. I'm just adjusting now. I'm just taking it from here on -- I mean, from here on, broadly about 2 months, we will be covered.

Okay. 2 months we will be covered from -- sorry, from here on, you would be covered?

From here on, from here on.

Okay. And a bookkeeping question, if I may, on the employee cost, why was there a reduction QoQ basis? And that's all from my side.

So employee cost, the point here is that we -- the employee cost, obviously, is a combination of the fixed cost as well as the performance-linked pays or the variable pay. What we do is we accrue costs as the year progresses. And at the end of the year, we true it up for the actual performance of the company. And therefore, there have been some adjustments we have taken in the quarter 4 to true up for the actual performance and what we will really pay out in terms of variable pay. So the adjustment that you see are on that account. So there is no underlying difference or change in the costs.

The next question is from the line of Latika Chopra from JPMorgan.

I just wanted to check if you could comment on some growth trends you're witnessing across categories. And I have a very specific focus on how are the trends panning out for the waterproofing business from product portfolio segment for you through FY '20? And how do you expect the growth outlook to look like? And in the same context, how do you think the competitive landscape is shaping up in this strategy?

Sure. So I'd give a sort of a color. I already gave you one color from a -- the type of -- or the areas in the country where growth is sort of returning a little faster. So it's more the rural and smaller towns, which are returning to growth faster than the urban town. That's one point. The second point is that from a category perspective, wherever there are people staying in-house -- within the house, there are certain categories where there is a trend of greater usage. For example, things to do with where self-help can be done, for example a Fevikwik or a Feviseal, or a M-Seal, which is more like a maintenance kind of product which can be also a do-it-yourself set of products. Those are the ones which are coming back faster. We are also seeing in pockets, because of the fact that monsoons are going to set in pretty quickly, in some places these have already set in, there is a tendency to do the repair part of the waterproofing. And therefore, there is a sort of a demand coming in there. Because we already lost April and May in that space, but very difficult to make out a trend because this kind of a current environment, unless you wait for all of these various factors to settle in, is difficult to give a sort of a perspective. The new construction piece, obviously, as far as waterproofing is concerned, was already going through some challenges because of the real estate sector. Even within that, we see greater opportunity in the smaller towns rather than the large metro cities, et cetera. So that's the broad perspective. Apurva, do you want to add anything from a competitive and other lens on the Cipy detail?

No, I think despite the difficulties last year, still our construction and paint chemical business grew double-digit in value last year. So there were challenges in real estate and construction segment, but we had reasonable growth rate.

Sure. Just 1 last. If you could give us some color of your domestic portfolio, how much of the wholesale sales in your view, broadly will be linked to new construction and also how much of sales will be linked to semi-urban and rural areas? Any rough sense on that on an aggregate basis for domestic portfolio?

So I'll take a shot at the urban rural one. Again, it's not easy because we have got several products distributed through wholesale and so on and so forth, which then turn up in the rural areas. So broadly, we believe that around 30% of the -- 30% to 35% of the sales would be semi-urban or rural, and the balance would be in the -- the urban exposure. And Apurva, do you want to take the call on the other one, new construction ones?

Yes. I think as far as OEM and this -- as far as new construction versus repair and maintenance, it's difficult to estimate. It varies very widely from product to product category. A number of our product categories, adhesives -- consumer adhesive and all, they are not linked to that at all. So it's difficult to give a figure at a company level on how much would that segment be. But one thing which I want to stress to you is that even within construction, there is a big difference, means what we see as a traditional construction, which is large building, is much smaller part of our business. A much larger business is the individual construction, the individual buildings. And traditionally, they are less impacted by the real estate stress. So as far as Pidilite standalone goes, lot of business is from the standalone, what we call as individual housing. That is a much larger component of even new construction.

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

Just one clarification on a comment you had made earlier. So in the month of June, when I think the supply chain issues are behind and the country is fully opened up, did you mean that the business is at a 75%, 80% of normative levels now when you made that percentage comment? I just wanted to clarify that in terms of the recovery.

No. What I meant was that 75% -- 75% to 80% of our factories are in a position to operate and at a normal capacity. Whether we will operate, whether it will be operating at that capacity, it all depends on the demand situation. And therefore, frankly speaking, we will have to wait for another 2 months to get a sense of the new normal or the new demand sort of picture.

Right. And any comment on what level of normative business you would possibly be now on a run rate basis, not for the full quarter, but on an ongoing run rate basis now that the country has opened up? If any kind of ballpark number you could give us on that?

So I would hesitate to say that because the -- as I said, there are so many factors playing in. We have got an April which was shut. We have got May, which was like half of the country was not opening up. So if you look at June, you may see suddenly some particular category, as I said, let's say, where somebody wants to do a waterproofing urgently because monsoon is in. That doesn't mean that that's the new norm. So as I said, it's impossible for us at this stage to give that kind of a firm number. We got to wait for a couple of months. Only then we'll be able to get a sense that -- after it evens out, we'll then be able to give you a picture. So we got to wait, unfortunately.

Sure. Completely appreciate that. The second point was on the -- you've highlighted in your opening comments also that the bigger problem is in the larger cities. So while you gave a rural urban mix, any sense of how much the metros would be contributing? Because that's where it seems that the activity level recovery is very, very slow because of COVID.

I'm afraid I don't have a number to give you, and we don't really track it in that manner. So maybe we'll have to give you that offline or something.

And one thing to add on that about metro is, lot of sale in metro is through wholesale market. Wholesale market in metro still are traditionally very strong. And what we are finding is already a lot of that demand because some of the wholesale markets in metros are shut, some of this demand is already coming from rural area, semi-urban area. And with our deep distribution once that demand comes, we are able to cater to it.

Understood. And just one last bit, if I may. In terms of carpenters and masons, who are the executors, is there any problem of availability of people given the migration that we have heard? Or is there sufficient workforce there to execute waterproofing and woodworking?

Yes, Apurva, do you want to take that?

Yes, I'll take that. Yes. So I think, yes, there is -- currently, there is a shortage of labor availability. Many -- as all of you know that a lot of migrant labors have gone back to their villages. But some of them are coming back as well. So overall, what our view is that as demand starts coming up, the labor will come back. There may be some temporary gap, which always happens. In fact, traditionally, every summer, or if you recall, last year also post election, lot of labor had gone back, and it does create a temporary impact. But our view is that as the economy opens up and as the demand starts happening, the labor also will start coming back. But as of right now, yes, there is some shortage.

The next question is from the line of [ Yang Ming ] from Tokio Marine.

Can I just ask for the revenue up to 21st March, 9.6% year-on-year, what's the volume growth and the ASP breakdown? Would you be able to give us that?

Yes. So I think the -- I'll just -- give me a second. Yes. So if you look at our performance or even for a full year basis, the volume growth was broadly around half -- roughly half of the total net sales for the full year. If you look at our full year growth of what we reported of 4%, broadly 2% was volume and mix. So I would expect that broadly around -- out of the 9.6% about 3%, maybe 3% odd will be volume, but we have not really done our working up to 21st March to do the working -- to arrive at the numbers. I'm just taking a differential to give you a sense.

Okay. Okay. That's all right. And can I ask what is the current primary inventory compared to the secondary inventory in the channel? Are you able to give us a sense of that? How many days of inventory is in the channel? And how many days of inventory you have at your factories or warehouses?

Yes. So I'll give it a shot. And of course, Apurva will chip in. So I think the first is that the quantum of inventory is in days, depends, obviously, on the demand situation and what is the sale in terms of days that we are talking about. So obviously, when you are in a April situation, the inventory is different. And now with the markets having opened up, we typically don't have a significant amount of inventory in the trade. As you know that if you look at our dealer who deal with our products, I mean, these are not like -- they have large warehouses where they store products. So relatively limited kind of coverage they would have. And therefore, it is not that there is a significant set of stocks lying with the trade. So that's the kind of color I can give you. Apurva, do you want to add any specifics to this? Yes. I can't hear any other point. So is there any other question you want to follow up?

Yes. No, I didn't hear the answer -- the second part of answer in terms of [Technical Difficulty]

I'll just say -- Pradip Paaji is trying to actually -- hello? Yes. So what I was just trying to say that, for us, our primary customer is a distributor or a stockist. And our sale to them is on a replenishment basis. And typically, the inventory with our distributor and stockist is 7 to 15 days, and that doesn't change pre-COVID, post-COVID in terms of number of days, it remains more or less constant. And Pidilite's inventory, depending on the product range, it's around 30 days plus/minus. So that's the kind of inventory we keep with us and we replenish the stock to distributor and stockist. We don't have direct visibility of inventory at dealer level, but they are fairly careful in terms of kind of inventory they keep and they adjust as per the demand situation in the market.

Okay. Great. And my last question on the synthetic elastomer impairment. Is there any more to impair or this investment is fully written down? Because this has been a project that's been for some years that you've been writing down. I'm just curious if there's any more left or this is fully written off now?

Yes. So I can confirm with -- we can -- that this is a complete write-off. There's nothing else left to be written off. There is a small value, which we are transferring to our internal other business for utilization. But as far as the project is concerned, there's nothing left to use.

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

I hope the whole Pidilite team is keeping safe and healthy in this crisis. First question, sir, if you can give some directional comment on market share movement on annual basis in adhesives?

Apurva, would you like to?

Market share? Is the question on market share?

Yes, sir. Even directional movement will help, if not the number.

Directionally, I think we have maintained or strengthened our market share in last year. I don't believe that there is any significant movement in any of our major product categories.

Yes. Sir, second, from the supply chain perspective, there's a lot of concern around sourcing of chemical from China for many other categories. And last week, border crisis is an additional hurdle now. So do you see any supply side disruption of late? And then for that, raw material prices are hardening in certain divisions?

Yes. So we, of course, have done a review of our portfolio. We have all the raw materials, all the key raw materials that we source. We do have alternative locations as far as servicing is concerned. And therefore, we do not see a risk from that perspective in terms of -- anything in terms of China sourcing at this stage. And we have got multiple vendors, and we continue to evaluate opportunities so that if there are any supply disruptions, we have alternative sources in place.

Sure. And sir, a couple of clarification. So there is a reclassification in our consolidated segment where INR 635 crore of Consumer & Bazaar revenue has been shifted to B2B division. So this pertains to which segment or which subsidiary?

No, this is not a subsidiary. See, what we have done here is that we have reviewed the way the information is presented, and it is reviewed by our chief operating decision-maker, which is, in this case, the MD. And for that purpose, we have moved certain businesses in specifically joinery and construction chemicals, which are in the project space from B2 -- what a -- C&B to B2B. And this is essentially a change which will align with the way the information is reviewed by the CODM and in line with our internal reporting requirements. And the numbers are -- the numbers are not as big as INR 635 crores, the movement is around INR 228-odd crores. That's the kind of movement.

So Pradip, I think he may be referring to consolidated. So...

Consolidated, yes.

We have also moved the waterproofing services and flooring business also to B2B.

Yes. So that is true for the -- what I spoke was on standalone. And what Apurva is talking also about the consolidated entities, which is in waterproofing and also on our floor -- or the floor paint segment like Cipy.

Flooring.

Flooring, yes.

Yes. Got it. Got it. That is very helpful. And sir, one more question, last one. This INR 71.5 crore n TrendSutra is for how much stake?

It's for 2.04% stake.

2.04. That's all from my side.

[Operator Instructions] The next question is from the line of Nikunj Doshi from Bay Capital.

Just wanted to ask a question on the innovation front. You were -- you have tied up or you would enter into strategic ventures with a few other partners for the new categories. But organically, are we looking at any new category or any new segment to drive the future growth?

Apurva, do you want to take this?

Yes. So for Pidilite, innovation has been always very important and almost entire sale of Pidilite is from product and technologies developed in-house. So on a very regular and continuous basis, we develop new products and innovation in all our core category and some adjacent categories. So within even say, for example, within construction chemical, last year, we introduced several new products in terms of tiling, for coating and for several other applications for waterproofing. So within each product category, we have introduced new product, even within adhesive, there are new substrates which are getting developed. We have developed new products for those applications. So across all product category, new products are introduced on a regular basis.

And do we have a number as to what percentage of turnover comes from the products introduced in last 2 years or something -- index kind of number?

No. That number we do not share because sometimes it may replace some other products, and it's very difficult to estimate. And also, we do not see [Technical Difficulty] back sometime it doesn't give the right picture. For some of our product category, even gestation period is long. So for us, innovation is a very continuous exercise, and we don't see it as a separate need to track, but it should drive the overall growth, that is the main objective.

The next question is from the line of Amit Sinha from Macquarie Capital.

Yes. My first question was on your overall -- basically the overall cost saving program, especially in the current environment. Most of the companies have talked about their cost-saving program because of the lower demand, et cetera. So how do you see the expense going forward, including the A&P spend? And any particular program which you are running for other costs?

Yes. So thank you for the question. I think like any sort of responsible sort of prudent corporate, we had obviously taken measures to make sure that we conserve cash. So in terms of deferring CapExs, which are not really urgently required or they don't have any immediate sort of benefits in terms of meeting demand requirements and so on and so forth. Similarly, we also look at our costs -- our discretionary costs and made appropriate adjustments, deferring spend where it is appropriate. Even in the area of advertising and promotions, we will be looking -- because many of the expenses are actually not possible. For example, many of our spends are in the region of -- are relating to spends in physical meetings with our users, which are not possible in this current environment. So some of those spends are automatically getting deferred. The idea here is to make sure that we have the ammunition in place when market returns and the demand returns to meet the requirements and at that stage. Having said that, we have not shied away from making investments like for example, digital spend. Even during this period of lockdown, you may have seen some fairly interesting digital ads from Pidilite. And therefore, those leveraging the right technology in the current environment, we continue to do. In terms of costs, we're obviously making sure that, for example, on people costs, we have taken a step to defer increments to the latter part of the year based on how the current few months progress. So those kind of typical sort of prudent actions we have taken and no structural action at this stage because we are still believing that -- we are a long-term believer in the India story, and we are positive long term. So no structural action as of now. Apurva, do you want to add anything?

No, I think you have covered all the right points. I think as the year unfolds, we will get a better idea. And then we will decide.

Sure. Okay. Secondly, sorry to again, hop on the same demand-related question. And I know it is not easy for any of us, including -- I mean you to give a kind of -- any kind of indication when there will be the recovery and what kind of a recovery we'll see now, let's say, in the next 6 months or so. But some of the companies have given their guesses in terms of a sort of a normalization and basically in that direction, any view will be -- so whether the recovery in the entire portfolio, especially the domestic business will be there in third quarter? Or do you think it will -- the recovery can be much faster than the third quarter? Any color there will be helpful.

See, I'll again make an attempt and Apurva will chip in. See, this is a black swan event, okay? And in this kind of an environment, it's very difficult for us to even estimate how things are panning out. We -- as you said, I gave you a color in terms of how things have worked within April to June. And we are not confident that whatever we are seeing in May and June is actually a new normal. And you must understand that we are not really in that essential commodity category or essential product category where people are going to use it every day like some of the other categories. So at this stage, it's very difficult to give a sense. And we really would like to study and look at it for the next couple of months before really making -- taking a call. Obviously, when we talk next time around for the Q1 results, certainly, we will be in a better position to give you a view. But at this stage, we are not able to give any further color. I also gave you some color in terms of the categories where we see spurt in demand, but some of that demand could be pent up. So again, very difficult to estimate at this stage.

See, what I would like to add to it is, of course, we all know how the situation was in April, which was a complete -- yes, sorry. So compared to what we were in April and May, a lot of things have opened up in India, as all of you know. A lot of small town semi-urban and rural areas have opened up. A lot of parts of South barring Chennai has opened up. So there has been a good progress in June compared to April to May. So -- but going forward, what will happen, it's very difficult for us to say or we are not in any position to say better than a lot of other experts. So we need to see how economy performs over the next few months, how GDP performs over the next few months that we have to see. But clearly, June, lot many more things are open as compared to April and May. And the trend in semi-urban and rural area is encouraging.

And any kind of the difference between the semi-urban and rural area versus, let's say, some of the areas which are still under sort of a lockdown, like Chennai and to some extent, the other metros, is the difference very stark in terms of the recovery at the current stocking?

The difference is, obviously, for a very short period. So we can't comment on it, but yes, cities like Chennai and Mumbai still, they have not fully opened up, a lot of markets remain closed. A lot of users are not actively working. So there is a fair amount of difference between cities like, say, Chennai and Mumbai, which are significantly impacted as compared to semi-urban and rural area. South, if you -- in our note, we have covered a lot of things. We have tried to give as much detail as possible about what is opening and not. So as I said, in South barring Chennai, a lot of business has opened up. But the rest of the India continues to be slow, but semi-urban and rural area almost across India has started opening up. But I think it's too early. And I think as just Pradip said, we need to see how next 1 or 2 months go to get a better sense of the demand conditions. And you will also have a sense by looking at how other companies are performing and how markets are opening up.

I completely understand. Just one last booking -- bookkeeping question, if I may. The other income this quarter was significantly lower compared to the run rate of fourth quarter. If you can give some kind of details there?

Yes, yes. So I think the primary reason is just briefly covered in my opening remarks also. So there are 2 parts to it: one, the significant drop in interest rates versus the prior year. So that is one factor. So on the portfolio, obviously, we are earning much less. And all of you know the interest rates, which have happened in Q4, the kind of reductions, which have happened. And the second is, last year, we did have certain mark-to-market gains in the treasury portfolio, which are sitting in the base. Obviously, these are not repeated itself this quarter this year. And that's primarily explaining the difference between last year and this year, quarter-on-quarter.

The next question is from the line of Prasad Deshmukh from Bank of America.

2 questions. One, in terms of geography -- or revival in different geographies. There have been certain comments in your press release. What kind of revival trends do you see in, say, East, West, North, South? I mean, if you leave aside a couple of metro comments -- metro-related comments that you have given, what kind of revival trends are there?

So, Apurva, do you want to take this further -- question?

No. I think as what we have said, I think, Pradip, you want to sort of repeat what we have said. I think we have not much to add. I think we have said as much detail, which is available to us.

Yes.

But you can maybe repeat that.

Yes. So I'll just add, see, it's there in our release as well. See, I think if you want to put a further color to, all I can say is that certain markets in the West, like example, Maharashtra, Gujarat, in particular, the opening has been much slower. So that is one color I can give you. In particular, the cities, Surat, Maharashtra -- Mumbai, Pune and so on and so forth. So those are the -- that's the further color I can give you. But other than that, pretty much what we are seeing is rural. Basically, we believe now that the demand will be led by rural and semi-urban markets in this environment. And metro cities will follow. That's the kind of broad trend that we are seeing so far.

Got it. And sir, on the balance sheet, there is a sharp jump in the cash on books. I don't know if this is just because the investments have gone down. Just wanted to check if there is any -- I mean are you keeping powder dry for any acquisition possibilities? Or is it just a movement from investments to cash?

Yes. So obviously, what we have done, the overall investments between end of last quarter and this quarter has come down because, as you know, we declared an interim dividend, which we paid out in March. And that was about INR 428 crores because all that happened well before the pandemic happened. So the overall investments between last quarter and quarter is lower. We have moved some part of our portfolio in a prudent manner to fixed deposits, which are around INR 500-odd crores. And therefore, you see the cash balance looking larger. But if you look at it from an overall investment perspective, the differential between December and now is broadly the movement in the interim dividend that we paid out.

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

Sir, just wanted to understand in front of INR 70 crore investment that you have done in Pepperfry, what kind of revenue are we expecting from product sales on a normalized basis, maybe over 2, 3 years, please?

Apurva, would you like to?

Yes, I will take that. Yes. No, I think it is not only for the sale of our products. It is not about that revenue, which is relevant. As I said earlier, Pepperfry is a leader in this segment. And we have a number of different sort of collaboration and partnership initiative, which is planned, which is across various products, services and joint marketing activities. So I would not like to put a figure in terms of related to consumption of our product. That is just one of the benefits of the association between that.

In that case, sir, what is the...

They are clearly the largest player in this space, and they are the largest player in this space at this moment. And hence, the overall collaboration with multiple initiative is the purpose of the investment.

So, sir, what do we expect from Pepperfry then, if not revenue?

No, we will have revenue. We will have some joint marketing activity, just some common services that we may offer. So a number of other things, but it's an investment in a space, which will allow us to have a very close access and view on how this ecosystem is developing, which would allow us to also develop strategy and products which may be applicable to other customers in this space. So overall, it is an investment for which, of course, we get a part of the stake in that company. And we can see very closely in terms of how this -- the new start-up companies are operating and growing. And along with that, we will have some associated benefit in terms of use of our products and the core developing certain solutions.

Sir, I mean, are we saying that our employees will be at their place and we will be observing the way they are doing things and how this will be new categories or ..?

Our employees -- you don't have our -- you don't need to have employees at their place. Yes, we will be closely working with them at a very senior level to understand how the business is developing and how the overall ecosystem and market is developing. As we all know, that the new age economy is developing well and lot of business is growing in this space. And hence, it's important for a company like us to get a better understanding of this. But yes, our teams would closely collaborate together.

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

I have just 2 questions. So the question earlier participant asked, so I would ask in different way. So basically, what would be the key monitorables that you would be tracking to track the progress of these investments, which you are doing in new generation companies? So what would be the key monitorable, that is one. Probably internal monitorables, not only in financial terms. And second question is, so as we divide our products in growth and pioneer category. So those growth and pioneer categories are those sort of products, which we need to reach to the channel as well as to the consumer, how they are supposed to be used. So because of this entire relatively complex process, do you think that the growth rate of growth and pioneer category can be slower for the near-term because I mean, it is not easy to teach everyone in this kind of constrained environment. Is it a right assumption?

So I'll just make a very generic comment. Of course, Apurva will give a more detailed one. See, I don't think we should just go by a few months or a few weeks of COVID to completely relook at growth versus pioneering category. So we are not really looking at it that way. Some of these categories that we are talking about, we have a long-term belief in the growth in those areas, which is why we are invested. And in many of the categories that Pidilite has got growth has come with some lag and with some -- it takes time for some of these categories to develop. And we have got the benefits out of those investments. So we don't believe that we should change our strategy for 2, 3 months. But Apurva, please feel free to ...

No, I think I didn't fully understand. What was the second question? The first question was what are the monitorables related to some of these early-stage investment, right? And what was the second question?

So if I -- so for example, our product cycle. I mean every -- the channel as well as the user, everyone knows how to use it. Whereas growth -- products in growth and pioneer categories, they need some kind of teaching for the channel as well as for the consumer. So basically it's a evolving process. So do you think the growth can be slower in those kind of categories [indiscernible]

No, I think as Pradip said...

Yes. Despite being lower -- despite, I mean, lower level of penetration just because of the awareness issue, that process slows down.

Okay. I don't think I fully understood the question. But overall, I think our growth and pioneering categories, obviously, we expect them to grow at a faster than the rate than established products. And obviously, we put lot of initiatives in those categories. So tomorrow, they become larger and established categories. As far as our established categories goes, we still -- we believe there is -- India, there is a lot of growth and consumption, which is likely to happen for them. They continue to remain products of our focus, and we expect a good growth rate in them as well. I couldn't fully understand your question, so I hope I've answered it. On the first point, as far as the investment goes into the start-up, first of all, the key purpose of this investment is to get -- these are strategic investments, it is to get the right insight of how the user behavior is changing, how online interior decor is changing, how the consumption pattern will change is primarily very important for us. And by making this investment, which are not very large, we get very close eye in terms of what is happening in that space. And it allows us to develop products and services, which will have application with them as well as application outside of them to other customers. And hence, tracking cannot be in terms of only what they use, the tracking is a number of criteria. It would depend on how we are able to evolve our product and services in medium to long term for usages by such strategic customers as well as others. And normal consumption, someone asked before, yes, you don't need to invest in a company for them to use. Most of the customer in India would use our products. Some of them were already using our product. However, our strategic investment allows us to operate and collaborate very well. I think in today's time, also you have heard in other places where companies make strategic investment into other companies and you have heard of number of cases in India, where this has happened, where companies make these strategic investments so that they can collaborate and work closely together. And our strategy and approach is similar.

The last question is from the line of Shirish Pardeshi from Centrum Broking.

I have 2 questions. The first question is, like you have given some understanding on India business, can you throw some light how the international business is panning out and which are the geographies has not opened or still in the lockdown period?

Pradip, I will take this one.

Yes, yes, yes, sure.

Yes. So as far as international market, many of them were in lockdown and slowly, they were opening up. For example, U.S. was completely shut in April and May but now has opened up. But while they were closed, a lot of the sale was happening through e-commerce and retail channel, but the manufacturing and warehouse was closed. Brazil was semi-operational. Bangladesh and Nepal, I guess, was similar to India in terms of -- they also had a fairly strict lockdown. So lot of countries had a different period, but most of them had lockdown. I think barring Middle East and Egypt, where lockdown was not as strict. But in most other markets, manufacturing and warehouses was impacted but in most places, it has started opening up. So most like India, there could be a gap here and there. But many of the markets have started sort of opening up and normalcy is returning; in some places, faster than others. Pradip, do you want to add anything to that?

No. I think only one point is that I think one of the markets of course small, in Nepal, for example, I don't think the lockdown has yet been lifted. So there are some pockets like that. But largely, there have been like in India situation.

Okay. And my last question is on -- you earlier mentioned that South is working -- I mean South is up to the mark and even North, some buckets are up to the mark. So would you be able to quantify what kind of business we get South and North markets?

No, I don't think we share that level of data in that sense. So I don't think we'll be able to give that info on the call, but I don't know, Apurva, you want to give any other color?

No, I think what we would like to say is clearly South and East have opened up much faster than North and West. In South, barring Chennai and few districts around it, bulk of South has opened up. So basically, that means that the business has opened up, consumption has started happening. And the market has opened up largely other than in Chennai and few districts. East is also much better. North West, and Center is taking a little bit longer time. Percentage right now, I think it's too early to share because we are just about 15, 18 days in June month. So quarter end would be an appropriate time to reflect on it. But even within that, it would be very difficult to differentiate on what is the pent-up demand and what is sort of a normal demand. So I guess we will have to wait and watch but with company like us, obviously, as the market opens up, GDP starts to respond, we will certainly be prepared to benefit from it.

Yes. What I was trying to understand, is the Consumer Bazaar business is taking a lead? Or is the Project business is taking a lead?

No, Consumer & Bazaar both the business has started responding, our B2B business -- our B2B business also is linked to the consumption with a lot of end users. So our B2B business has also started responding. As far as construction goes, as I said earlier, the individual housing segment has started responding in this geography, which I just talked about. But in larger metro, the larger construction still will take a longer time to open up. So a lot of large construction, which is mainly in bigger cities, the multistory building or large -- which greatly impacts our companies like Nina Percept, they are still impacted because the activities has not really geared up. A lot of individual housing, especially in areas like South and East and some parts of North and West have started responding. Construction activities in smaller areas, rural area, lot of construction, which was in pipeline has started. But it's too -- we won't be able to give you any numbers, if that is what you are looking for. It would be very early, and it would be misleading.

I now hand the conference over to the management for closing comments.

Apurva, do you want to close?

Thank you, everybody. Thank you for the call and questions. Thank you all.

Yes. Thank you very much.

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