Pidilite Industries Limited (PIDILITIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Pidilite Industries Q4 FY '21 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jigar Shah from ICICI Securities. Thank you. And over to you, sir.

Thank you, Latoya. Hello and welcome, everyone, to Pidilite Industries Q4 FY '21 Earnings Conference Call. We have with us today Mr. Apurva Parekh, Executive Director; Mr. Bharat Puri, Management -- Managing Director; and Mr. Pradip Menon, CFO, to take us through this result. I have -- without much ado, I would like to hand over the call to Mr. Pradip Menon for his opening remarks. Thank you.

Thank you, Jigar. Good evening, everybody. This quarter witnessed robust broad-based growth across all businesses and geography. Despite significant challenges in FY '21, we have displayed adaptability and resilience while building capability and capacity. I'll begin with a summary of the financial performance for the quarter and year ended 31st March 2021. On consolidated basis, net sales at INR 2,230 crores for the quarter grew by 45.3%. Excluding the newly acquired Huntsman subsidiary, PAPL, growth was at 38.2%. This was driven by a 50% growth in Consumer and Bazaar segment and an excess of 20% growth in the B2B segment. Full year 2021 net sales at INR 7,251 crore was flat over last year. Gross margins for the quarter were impacted due to significant inflation in input costs. Material cost as a percentage to net sales is higher by 440 basis points versus same quarter last year and 390 basis points versus previous quarter. EBITDA before nonoperating income at INR 460 crores grew by 52% over the same quarter last year. EBITDA for the year ended stood at INR 1,683 crore and grew by 7% over last year. On a like-to-like basis, excluding the newly acquired subsidiaries, EBITDA in Q4 grew by 41% and 3% for the full year. Moving on to stand-alone performance. Net sales at INR 1,851 crore grew by 42% over the same quarter last year with underlying volume and mix growth of 40%. There was a 45% growth in sales and volume mix of Consumer and Bazaar segment and 26% growth in sales and volume of B2B segment. Robust growth was registered across all major categories like adhesives, construction chemicals and DIY segment driven by continued momentum -- demand momentum in both rural and urban geographies. B2B segment posted sequential volume and value growth in excess of 26% aided by gradual and consistent pickup in economic activities. Net sales for the year ended at INR 6,187 crore, declined by 2% year-on-year. Our key raw material, vinyl acetate monomer, procurement rates over the last few months have increased from around $930 all the way up to $2,000. There has also been significant increase in other input costs. Capacity disruption at manufacturing site and overall pickup in global recovery and strong domestic demand have led to this inflation. Consumption cost for quarter 4 '21 of VAM is approximately USD 1,200 compared to USD 925 in quarter 4 '20. And $875 per tonne in the previous quarter. Material cost as a percentage of net sales increased by 388 basis points over the same quarter last year and 317 bps versus previous quarter. EBITDA before nonoperating income at INR 408 crores grew by 43% over the same quarter last year. EBITDA for the year ended 2021 was at INR 1,550 crore and grew by 4% over last year. PBT before exceptional items at INR 376 crores grew by 43% over the same quarter last year. PBT for the year ended 2021 was INR 1,457 crores and declined by 3% over last year. Moving on to subsidiaries. Domestic subsidiaries in the C&B segment have shown healthy growth. Subsidiaries in the B2B segment have shown early signs of recovery. However, with current inflationary trend in input costs and construction activity being impacted due to extended lockdown in many parts of the country, timing of recovery is uncertain. Our newly acquired subsidiary, Pidilite Adhesives Pvt Ltd, formerly known as HAMSPL, has shown sequential monthly improvement in sales and business is growing in well over double digits during the quarter. Our business and financial integration has progressed smoothly as per the plan. We expect better realization in margins after the current raw material cycle is settled and growth momentum expected to continue. In terms of way forward, the current second wave of pandemic poses challenges and demand outlook remains uncertain. Despite pricing and cost actions, we expect margins to remain under pressure in the coming quarters. Our focus is to ensure supply, service and customer end user connects when markets are operating. Pidilite remains committed to working with our partners to overcome this crisis. I'll now hand this back to Jigar and the hosting team.

Thank you, sir. [indiscernible], go forward with the question and answer.

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

My first question is on vinyl acetate monomer. So INR 2,000 -- $2,000 pricing is absolutely unheard of. Last quarter, you had said you have not taken price increase, and you said that you will try to manage the product mix rather than taking price hike. What is the situation now? And what is the view on VAM? Is it just a very short-term, the price hike?

Sure. So I think -- yes, sorry, please go ahead, Apurva.

I -- do you want me to go ahead, Bharat?

Sure. Bharat, please go ahead.

So Abneesh, good to hear from you. See, $2,000 a tonne is anticipated for vinyl acetate monomer. So we have already taken price at the end of March, in the last week of March. And we are taking price again in this month, which is in the month of May. We will cover to the extent of about 75% of inflation. Our belief is that this is not due to a demand situation, but due to supply constraints as a result of a number of factors, which includes the U.S. storms and therefore, closures in the U.S.; Europe buying from Asia; increased demand; and close -- plant closures in Asia. We believe in the second half of the year, this will moderate. We will keep a close watch. But yes, as far as the first 6 months is concerned, this is definitely going to have a substantial impact on our operations, and therefore, we've had to take price.

And sir, this kind of a sharp inflation, do you see regional smaller players losing market share?

Without any doubt. What tends to happen in a situation like this is this is unprecedented and therefore, the domestic market shoots up much more. People like us, obviously, have larger inventories. And it takes time for us to work through, in a sense, lower-priced inventory. For the smaller and regional players, it hits much harder and supplies itself was a constraint for some period of time. So If I look at the last 4 months, I believe we would have also gained market share.

My second question is on 2 of your underperforming segments. Essentially, if I see Nina and if I see Middle East and Africa, they have 2 very similar traits, hardly any sales growth, EBITDA loss this quarter, base quarter, full year for both the businesses. So if you could tell us what is the way forward and what is the plan here. Do you plan to kind of consolidate and maybe reduce exposure in these 2 businesses?

See, very different. Let me give you overall picture. As far as Nina Percept is concerned, this is our waterproofing higher-end contracting arm, which suffered massively as a result of the country-wide lockdown last year. And by the time labor, et cetera, came back, it was probably 6 to 7 months. Actually, in the last quarter of this year, the business started picking up fairly well, and it's unfortunate that we got into wave 2. On a structural basis, the business is a strong profitable one as you've seen in the past. Actually, in the last 5 months, our order book has actually become quite healthy because as the government is putting in infrastructure projects, we have gained a fair amount of these projects. But in the short run, again, because of closure, because of lockdown and also this unprecedented raw material situation, it's almost a perfect storm for Nina. But over a period of time, whether that will be 6 or 9 months, the business will come back to its normal shape. As far as Middle East, Africa is concerned, we're only, I suspect, looking at the Pidilite Middle East subsidiary, you're not looking at the overall -- as an overall picture, actually, in the Middle East, Africa, we've grown this year. Africa, actually, far more substantially because that also includes exports from here. In the 9 months of -- actually, even for a 12-month period, our export business has grown. So really, therefore, as far as Middle East and Africa is concerned, it is back in action and actually, fortunately, even the current period, it continues to do well because there are no lockdowns happening either in the Middle East or Africa. So 2 different businesses and therefore, different answer.

But what is the issue with that business, sir, which is having losses, Middle East, Africa?

That is a very small manufacturing part of the business, which was manufacturing powder. Given the situation again in the Middle East last year where they also closed down a substantial period, labor went back, et cetera. Therefore, we suffered with the specific subsidiary. But if I aggregate my Middle East, Africa business, it is a very healthy business.

That's very helpful. And just one small last question. So on Huntsman, you have given the numbers, thanks for that. So INR 34 crores EBITDA on INR 109 crores sales, that's an extremely good EBITDA margin of 31%. Obviously, far superior than the reported stand-alone, et cetera. My question is, is this the real sustainable margins here? Also, my sense is raw material will impact. But if I compare Huntsman to your own segment, is it comparable margins? Or currently, some costs in Huntsman are not there. You're not advertising.

No. See, at an overall level, we always maintain. Even when we took over the Huntsman business, we had signaled that actually you said the EBITDA margin higher than our business. Having said that, the 2 raw materials that have seen the sharpest increase in the chemical sector are VAM and the epoxy resin. So this is -- again, this is another business, which, over the next 3 to 6 months, epoxy resin impacts. Even here, we've taken substantial pricing, but not to the extent of the raw material increases. And therefore, overall, structurally, this is a solid profitable business. In a steady state, it will probably be at higher than the aggregate margin of Pidilite, but equivalent to Pidilite good businesses. Here, in the next 6 months, again, because of the epoxy resin situation where epoxy resin prices are pretty much -- Pradip will give us the details, but it has pretty much doubled. So therefore, as a result of that, next 3 to 6 months, you will see some moderation of margins. But structurally, we're -- it's like a star Pidilite business and therefore, it will be at the higher than the aggregate Pidilite aggregated margin.

Abneesh, just to close the point which Bharat was talking about. So epoxy, actually, the prices have gone to almost INR 400 a kg versus about between INR 160 to INR 200 a kg. So there, again, you know that prices have indeed doubled. So that is another category where we've had to take price hike, just to close that point.

The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

Congrats on a very strong sales performance. What I understand, sir, it's a little difficult to say at this point of time how things might be at this point of time from a demand standpoint. But generally, just looking at how the recovery happened and the pent-up happened pretty soon as far as our categories are concerned last time. And also in terms of the impact that you're probably hearing across the board, construction activity in general seems to be slightly better off. So is there a little bit of optimism over here that the recovery would be much more faster when it comes to a lot of our categories are concerned? That's just the only one question which I had in terms of your thoughts.

Thank you, Prashant. I wish what you were saying was to true. Frankly, the answer to that is we don't know. As of now, pretty much 70% of the country is closed down. And while there is some construction activity, it is at a much lesser level. How soon it will bounce back? Frankly, it will be directly proportional to the reduction of the pandemic. And very difficult to say as to will it bounce back as quickly, go far quicker. Last year was encouraging, but I would not hazard any guesses of how it's going to play out this time.

Just if I can probably extend this, even in terms of, let's say, even the last 3 months, how they've gone, they've been pretty strong. Would these trends kind of happen to continue in terms of April until the lockdown happened? And why I'm asking about most of construction activity is, specifically, we do a lot of project business as well. So are those projects still continuing despite the pandemic going on? That was the context more so.

See, 2 things. One is wherever business was opened in April, what we saw in April is whenever business was not locked down, it was continuing at a good rate. Whenever we started closing out, it started with Maharashtra, then parts of Gujarat [ market today ]. So it was all pretty much proportional to the pandemic. Even on projects, right now, what we are seeing is there are very few projects that are declared in essential services. And therefore, even projects are impacted, though there is at least some basic construction activity still on, but not at the same pace as it was on earlier. But yes, I mean projects you still have some activity, whereas in the retail market, pretty much 75% of the country today is closed.

And just if I could probably squeeze in one more in terms of a follow-up. You highlighted that obviously because of VAM, a lot of the unorganized would probably struggle. And again, the pandemic too coming in -- the second wave coming in, it is going to be even more of a struggle this time for them. Any sense in terms of how much -- are we hearing instances that probably a normalized kind of -- any section is probably kind of getting shut or probably you feel that they really don't have a chance to come back in both the scenarios where demand is also bad and even my cost scenario is also really bad. So could we actually see very sharp gains in our -- as far as organized or unorganized to organized is concerned? Is that a fair assumption?

I don't think so. I think it happened more substantially. We saw them slowly coming back. Yes, they will struggle. But see, they have a reason to exist. And that reason while today, it's more difficult because of both the raw material situation, the pandemic can actually also -- it will start impacting liquidity. So in our view, they will continue to exist. We do believe that at least in the shorter period, we will continue to gain market share because, a, our supply chain is far more adapted and resilient and therefore has far more sources of supply. The other thing is consumers also tend to turn to trusted brands whenever there is adversity. And I think both those things benefit us.

[Operator Instructions] The next question is from the line of Percy Panthaki from IIFL.

A couple of questions from my side. One is on the costing and pricing. So firstly, could you give me an idea of what is the weighted average price increase that you have taken for the portfolio? And secondly, these input costs, as you said, the inflation is very unprecedented. So what is the call or view you're taking in terms of where these prices are going to stabilize because your pricing -- your future pricing is going to be based on some kind of view that you will take on these commodities right now?

Great questions, Percy. I mean the first part is the key. Given the breadth of our portfolio and its different sizes, it's very difficult to look at weighted -- what is our weighted price increase because we just have 2 large gains across too many divisions. At a broad level, what I can tell you is currently, we are pricing at 75% of inflation. Our belief, therefore, is that in a worst-case scenario over the 6-month period, the current raw material prices will come down to at least the 75% level, which will, in a sense, enable us to come back to normalcy. And that's what we are planning on, but we will have to play this in a sense week by fortnight by month and keep a close watch and then see as to what's the action we need to take.

So if I understand you correctly, what you're saying is if VAM is at INR 2,000, your current pricing is sort of assuming that if it comes down to INR 1,500, you should be okay.

It comes down to be between INR 1,200 and INR 1,500 is where we assume it should come down at least in a 6-month period.

Right. And I understand it's difficult to give a weighted average pricing. So in that case, could you just give us a couple of examples in your largest selling products, what kind of pricing you have taken without averaging it?

See, again, difficult to do this thing. But like take, for example, and Fevicol, again, remember because even brand Fevicol in wood working has a large number of SKUs and the pricing is different across SKUs. Pradip, would it be fair to say that the aggregate price increase between March and May for Fevicol would be in the range of between 4% to 6%?

Yes. That will be correct.

Okay. Got you, sir. Second question is on the demand scenario, and I know it's very difficult to forecast out. But just wanted to get a sense on what is the situation right now. You mentioned that 75% of the shops are completely closed. Did I hear that correctly?

Yes. Pretty much 75% of the country today is under lockdown, which means shops are closed because a large part of our shops with the exception of very few are not classified as essential services.

Right. And construction is I think classified as essential. So even -- I mean there would be some amount of direct sales that might be happening to construction. So what kind of percentage of your portfolio is exposed to that, which would not be affected?

There is some amount of sales happening, but again, it is less than 20% of the overall portfolio.

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

I just had two questions. First, I wanted to clarify this $2,000 essentially, is there a very wide range? Is there a lot of volatility in the VAM price that you're witnessing? Or is it like it's broadly going to be remaining impacted? And b, is the -- is mix going to be a lever that you will use again in this quarter to kind of offset this impact, the product portfolio mix, product mix?

I mean yes. I mean the 2 -- there is a substantial amount of volatility in VAM prices, but unfortunately, volatility is only in one direction, which is of now because of the various problems we saw. We saw it started $800, and it is in instant way up to $2000. We haven't seen it start moderating yet. We believe by June, it will start moderating in our belief. So that's the situation on VAM. And the second part of your question was?

Was essentially mix. Do you -- would you look to kind of play the product portfolio like SKU...

That is a matter of strategy we keep doing, which is the whole game around premiumization, innovation. But in a situation where currently demand itself is strained, very difficult. But that is -- I mean the mix and improving mix is anyway part of our regular strategy.

Okay. And just the last bit, just a clarification, if I may. I was a little surprised to see the FY '21 performance, basically, positively surprising the [ business ] segment and a little bit kind of surprised to see the waterproofing segment performance. So we have seen quite healthy growth while waterproofing is more or less flattish. Just wanted to understand -- my expectation is waterproofing will actually continue to do well. So what am I missing?

The one -- what you're looking at is only the organized, high-end institutional waterproofing, which is by Nina Percept, right?

No. No. I'm not with a share. So what I'm doing then with the shares that you give out? The FY '21 shares that you've given, if I compare it with the FY '20 share, they are more flattish in the waterproofing side, which suggests that waterproofing is close to 0 minus [indiscernible].

That is because you've seen a substantial decline in the Nina Percept business last year given that the high-end waterproofing was closed pretty much for 6 months in the year.

Yes.

So the -- one large part of waterproofing, which is institutional waterproofing is where everybody suffered. When I look at my overall waterproofing portfolio, actually, waterproofing has grown at a rate much higher than the average. So actually, one of our big growth drivers over a 9-month period has been waterproofing. So actually, waterproofing is leading the growth other than lagging.

Okay. And adhesives would be a little bit of a lag out? Is that the way I should -- would that be a fair...

I think adhesives have remained very close to the averages last year because of all of the issues, B2B would be a little bit of a lag out.

Okay. And so where I was going with this is for the second wave -- I mean the first lockdown, while it may not be an exact mirror image, it gives you a sense on how you can expect. Would that -- would you -- what would you say the risks to kind of that assumption?

I would say there are 3 risks to that assumption. The first is last time, rural and small town India was not impacted pretty much through the whole pandemic. This time, we are clearly seeing signs of that being impacted. And therefore, will that leave the growth or not is to be seen, that is typical. The other thing is last time, because it is a full lockdown with everything closed, B2B tended to suffer a lot more. Right now, we are actually seeing the B2B suffering far less than retail because B2B, in the large cases, manufacturing is open, et cetera, and therefore, B2B this time is suffering less rather than more. And the third thing is last time, the pandemic was worldwide and the world was closed. Unfortunate for us, but in the second wave, we are amongst the worst impacted. So for example, when I look at April and I even look at May, our export sales is pretty much going as per plan.

Okay. Okay. So...

It's only our neighbors like Nepal, et cetera, that are impacted. Middle East, Africa, et cetera, is not.

Sir, can you hear me?

Yes. I can hear you.

Yes. Sorry, sorry. Sir, from a product portfolio side also, it would be busy. I was essentially looking from that aspect as well. Sorry, that was the last question.

I would say so. I think in this time, retail will be impacted, B2B will be better, exports will be better.

And waterproofing would be better than some of these buckets.

I would think so. See, by the very nature of the waterproofing product, even if you take a city like Bombay right now, pre-monsoon work is allowed. So there is urgent repair and renovation work in waterproofing that is allowed, whereas regular retail shops are closed or renovation is not allowed.

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

My question was again on your price increases. So given the extent of inflation in VAM and some of your other commodities, I'm a little surprised that the price increase is still 4% to 6% because what we've seen in the past, and this is almost 10 years back where inflation was very high, in some of the commodities, you've put in double-digit price hikes. And we are seeing that kind of price hikes in many consumer categories where inflation is actually much lower. So is it just that you feel this is a transient phase and you don't want to kind of disturb the market? Or there is some worry of compression of demand due to elasticity why your price hikes are not more aggressive than what -- that good 6% level?

See, two things, Arnab. One is, remember when you're comparing with 10 years back, our operating margin used to be 10% lower, right? So therefore, the need for us keeping our head above the water and therefore taking aggressive price is different as it is now. You would also appreciate that if you look at the second quarter or the third quarter of last year, normally, we indicate a margin range of 20% to 24%. We were way above that margin range, right? So therefore, we anyway sensed there was a need to moderate margin. Otherwise, we're actually opening our back doors to a lot more of competition. So it's a mixture of 2 things. One is we believe that we had a certain amount of compression in the margin that we intended to do anyway given the situation that we were in and therefore, our margins were at a high. The second is, yes, we do believe that these raw material prices, the trends are transient, these are not permanent because there are no permanent -- there are no demand-based factors. These are all related to disruptions in supply. And therefore, we believe that it is far better for us to be the -- while we may moderate margin for, say, 2 or 3 quarters, it's far more sensible rather than us to take price and actually impact the demand on a longer-term basis as well as, in a sense, also disturb the market.

Sure. Sure. That's very helpful. And just one follow-up question on your subsidiaries. So ICA, you've had a good ramp-up last year towards the second half. So in the wood finish market, how do you see the prospects here? I mean in terms of growth, is there a lot more growth now in a sense that you've had a couple of years in this business? I just wanted your thoughts on that.

See, ICA remains one of our strong growth drivers. It is -- we believe the premiumization trend in wood finishes has got a long way to play out yet. And we are -- in the super premium finishes, we are the #1 player. And now that we have local manufacturing, we have seen the advantages of that. So we see a fairly long runway for the ICA business and where it's going to book.

The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal.

Congratulations on a great set of numbers. My question is more structural, Bharat. The broad guidance was the growth in pioneer categories. Over the medium term would -- are -- were expected to grow from 1/3 of sales to half of sales. Now I understand some of these categories, so the growth would have -- may have been disrupted in FY '21. A, what was the proportion of -- broad proportion of pioneer and those categories in FY '21 and the time lines by which you are expecting it to be about half of this now?

See, we had always said -- Krishnan, firstly, good to hear from you and great question. We had always said that listen, this is going to change over a 5-year period. In many years -- in many ways, last year, it's -- somebody has pressed the pause button on everything. And therefore, for example, we were building 3 factories for pioneer products across Litokol, Tenax and Grupo Puma, those have obviously got delayed by 6 months as a result of this, too. Actually, the plan has got [indiscernible] and best pushed forward by a year. But when I look at my 9 months sales, it is still the growth in pioneer categories that are behaving as growth in pioneer. They've grown much faster than the core category. So we know that the core strategy that we have or all the basic strategy we put in place is the right one. Frankly, 3 or 6 months in this unprecedented time, frankly, is something that we can live with.

Sure. Anything that you'd like to point out where you are particularly pleased with the performance on the pioneer categories? And any category where you think the scale up has been lower than expectation, excluding, of course, the current environment that led [ to those factors ]?

See, for example, we've always maintained that irrespective of competition, the waterproofing category is a growth category, and we've seen that evidence. We continue to be strong leaders and grow strongly in that market. We are now finding a great amount of traction and initial success in the whole area of tile adhesives, which we called out as a pioneer category. So pretty much what we said last year in terms of our strategy has been playing out despite the pandemic.

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

I have two questions. My first question is on the working capital. If I look at the receivable days, it's the highest one we see in the last 20 years, that's what model end up, too. I don't have beyond that. So I wanted to understand why the reason for receivables to jump up sharply. And secondly, also, basically, inventory days have also moved up both at stand-alone as well as control. I think it will be a good thing if more of it is on the cost side. So that's the first question, sir. I would like to understand this. [ Can you give us... ]

Yes. I think...

Pradip, you want to take that? I mean...

Yes. Yes. Sure. Sure. I will take it. So I think maybe we should connect off-line. Frankly speaking, on working capital, on debtors, actually, in fact, because we've done that review, our debtor days have sharply come down over the last 1 year. In fact, our overdues are at an all-time low. So I guess we should pick that up and have a conversation. Certainly, between the last 2 to 3 years, our debtor days at the end of March was the lowest. Even on inventory, whether it is inventories which are beyond a certain period of time because we keep a very close watch on our undesired -- we call it undesirable inventory, those have also sharply come down in the last 1 year. So maybe we should pick this up. Frankly, we've done -- we believe we've done a pretty decent job in the -- in a fairly tumultuous year to manage both, yes. So I'll reconnect with you separately.

Sure. Sure. Sure. My second question is we have given numbers on PAPL separately on the slide. I just wanted to understand when we had done the transition, I think the number which was indicated was around INR 500 crores, if I'm not mistaken. And that number actually looks like a pretty steep growth on a year-on-year basis. So sir, can you give some more color on what it means on a year-on-year basis? Secondly, is it on back of market share improvement? And what it also implies to the existing products that we had in the same chemistry?

Sure. Apurva, you want to answer that?

Yes. So I think what we had indicated at the time of acquisition was that the business size was close to INR 400 crore. And our annualized number, if you see for this quarter, is about 20% higher. So the business has got off to a good start. And during the last quarter, our other epoxy brands have also done reasonably well. So overall, as a portfolio, we have done quite well in the last quarter.

Sir, would we have grown on the market share side as compared to the past?

Yes. There may have been some market share gain. But as you know, it's only first 5 months since the acquisition. So we may have gained some market share. But as our integration happens -- full integration happens with Pidilite, then we would expect better market share gain in the future.

That's great and quite encouraging. And sir, last question, you did indicate about the price increases. Just wanted to touch upon, have we changed around the discounting of the incentive schemes given the demand is a bit subdued in the current scenario.

See, we keep doing that. On a consistent basis, we keep flexing and so on and so forth based on the market, but there's no substantial change. But yes, on a regular basis, like, for example, demand is subdued. Right now, a dealer's concern really is safety, security and servicing what orders he has. He's not really worried about who's giving him a greater discount. So obviously, in periods like this, that's not the focus. That -- we, on a regular basis, keep flexing that.

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

Congrats on good set of numbers in this context. So now inflation across board, across commodity basket is deep and obviously, VAM is slightly unprecedented, but otherwise also it looks deep across. So in a hypothetical scenario of inflation staying where it is, what would be your pricing strategy, let's say, for second half of the year? Would you prefer to pass on the pressure to customers or would you prefer to let go margins for a while?

See, we have always maintained stages that we manage margins in the range and the range is between 20% to 24%. When we are lucky or when we have a great run like we had, say, in parts of last year, it may go up to 25%, 26%, 27%. Hopefully, there should not be a time, but it could in 1 or 2 quarters even go below 20%. But at an overall yearly basis, we'd like to keep our margin range between 20% to 24%. We believe that is a sustainable range. That's also a range that allows us to focus on volume and volume growth rather than just purely value. And we're fairly confident that over a larger period of time, we should be able to maintain that range. Now if pricing was to sustain and therefore to be in the range we need to take greater pricing, we will do that. But my push always is that every inflation situation is an opportunity for us to become a little more efficient. So therefore, we will keep looking at all harder. So if you look at our cost management last year, you would see that we've upped the game substantially. As far as our own cost management is concerned, the challenge will always be can we keep getting more efficient and therefore, not pricing at 100% of inflation, but maybe at 75% or 80% or 85%, but at least getting some out of cost will be -- is the objective we would work with.

Sure. This is helpful, sir. Sir, second, you touched upon waterproofing demand. So considering that at least in some markets, we are seeing that waterproofing and other construction work has been allowed. So -- and this demand seems much more nondiscretionary in nature versus, let's say, [ discretionary ] or other good working demand. So are we seeing any divergent trend in that part of the portfolio versus the rest of the business?

See, right now, given that the lockdown is pretty much just less than a month, very difficult to see a larger-term trend. But if I was to look at last year, the first business that came back was actually waterproofing. We suggested that if consumers are spending more time at home, then they want to address their home the first. So if this -- depending on how long the lockdowns persist, I suspect we will see a repeat of that this year also.

Sure. And sir, last one, bookkeeping. Our portfolio business has also expanded in different direction in last many years. So VAM as a percentage of total RM basket, is it still very high? Or what would the number be now?

It is -- let me just simply put it into -- it is still our #1 raw material by a long distance. And therefore, it is still critical to our success.

The next question is from the line of Anand Shah from Axis Capital.

Just a couple of questions. Sir, firstly, on waterproofing segment, I mean you have done pretty well this year, and we are picking up the same from a lot of paint companies as well. So I mean are we seeing a big market expansion sort of happening? And I mean is this driven by sort of more consumer awareness or sort of the usage increase or consumers are sort of sticking up for you and protecting their under core and all these? So I mean what is really driving because we're seeing multiple entries as well as significant growth rates for all players, including you.

See, the simple answer to that is we've always maintained that as far as waterproofing is concerned, if you compare equivalent markets, which are similar to India, whether it's a Brazil, a Thailand, a China, the proportion of waterproofing to paint, for example, is amongst the lowest in India, which suggests that India's penetration of waterproofing is extremely low. Now at best, proper waterproofing is done by 4 out of 10 new homes that are built in India. Thus, as a result, is this a growth segment for the future? Absolutely, yes, and over a large period of time. And we've always said that just a certain amount of competition will actually help this segment because more the people, greater the awareness and therefore, it becomes an essential part of actually construction activity. And we're seeing the first signs of that. I can't say that it has already happened. It is still a long distance to go. But yes, the waterproofing market, we see the market itself growing substantially. Our objective remains to hopefully get the larger share of that growth.

Got it. And within the waterproofing segment, I mean is it possible to share what would be unorganized or these regional local players? And is it that just organized by gaining quite a bit of share from that segment as well?

See, unorganized is not so large. Actually, in waterproofing, you're competing against nonconsumption because the consumer doesn't know. So they do very basic or no waterproofing. So actually, it's not so much about unorganized and small scale sector as it is about nonconsumption itself. People aren't doing anything. And therefore, then suffering leakages and problems later.

Got it. Got it. That's very clear. And my second question on this waterproofing, the trading channels that you are developing are, essentially, very relevant in these times. I mean you've seen big pickups in e-com or in trade [indiscernible]. I mean any color you can share on the salience of this, what particular portfolios are working for you in this?

Absolutely. You see, the simple thing that we have done last year in a sense is focusing on making ourselves stronger. And one of the things that we've done very aggressively is both aggressively expanding in rural and small town India. For many years, we have called that out, for example, as an opportunity. So like, for example, in the year like last year, while most people who are holding their manpower constant, if not cutting down, we actually added people in rural and small town because we saw that growing. We added about 700 new substockists in rural India. We added about 60,000 new outlets. We're covering 7,000 new villages. So therefore, at an overall level, we are clear that we're -- we have to keep strengthening ourselves. And rural, small town, e-commerce, for example, obviously, growth rates don't matter because the business has gone up for 5x, but we focused on that. Modern trade has come back very strongly. We are clear that as part of our strategy, making sure that we continuously access what we, at Pidilite, call sales excellence, which includes, therefore, visibility, availability and the quality of availability across different channels. We are pushing it that hard. And frankly, that has given us good results. One of the reasons why we believe we've grown faster than the market is because we've accessed a much larger part of the market than we had.

The next question is from the line of Nitin Shakdher from Green Capital Single Family Office.

My question is more for Mr. Menon. I noticed in the stand-alone statement of assets and liabilities, 31/3/2020 versus 31/3/2021, so financial assets investments is down from INR 750 crores to INR 169 and trade receivables is up from INR 869.99 and cash equivalent position is down from INR 564 crores to INR 109. And so I just wanted to understand why the cash position and cash equivalent position down. And why is it that in the financial assets of investments, we are showcasing INR 1,108 and the end of the year, INR 3,312 crores. Can you just explain the fine numbers behind the cash provision on the bank balances and the investment differences?

Sure. Sure. See, I think one of the big -- yes, I think the first thing I'll call out is the cash part. I think, as you know, we had the significant acquisition during the year of the Huntsman subsidiary, which was worth about INR 2,100 crores. We funded that from our own internal investments. So obviously, the investment position at the end of the -- if you compare March '20 versus March '21, there will be significant difference because there was -- the entire payout happened in November '20. And therefore, that's not really strictly comparable. So that is one part. As far as the individual current assets numbers are concerned, again, if you recollect, March '20, we had lockdown in the last 5 or 6 days of the year or 6 to 7 days in a year. So things like debtors, et cetera, would not reflect a full completed month of business. Here, we have a period of March '21 where we are going at a certain growth rate, and we've seen the growth rates of an extra 40%. So when you have the -- when you compare absolutes, you'll always see the numbers are higher. But if you look at the number of days, I mean I'm just trying to respond back on the other question which came during the meeting. If you look at the number of days of trade receivables as an example,or the number of days of inventory, we have actually had a significant reduction on both number of days of inventory and the number of days of receivables. So I think you have to look at that in terms of the sales that you're doing rather than the absolute numbers.

Okay.

I don't know, if it is not clear, we can obviously again keep it...

Sure. Yes.

Firstly, other invitation I'll have for you is that because we had funded the full acquisition out of internal accruals, in a sense, what we've also done is improved our return substantially because all of you know that currently, treasury returns are fairly minimal. The fact that we've been able to use that money in a business which we believe is obviously already generating a far higher rate of return is something that is advantageous in sort of the long run.

The next question is from the line of Sunita Sachdev from UBS Securities.

Sir, my question was more adjacent to the construction chemicals industry per se. You've obviously been a very strong part of most of the areas. But just trying to understand, do you have any admixtures or any particular strategy where you would kind of address that part of the market as well?

See, we have looked admixtures. In the initial stages, we did have them. However, we believe that's a commodity business. And Pidilite is a value-added branded player. And therefore, we exited admixture years back in [indiscernible]. It's a pure commodity -- its [ site stinks ]. I mean I hope I'm not on the offense. It's almost like selling cement. It is not where we want to be. And therefore, we exited. We don't believe it is critical to our construction business [ so we had to ] go up a new chain and we get far more value-added [ products ].

So that part of the market being commoditized, you've kind of decided not to be part of it. But overall, because you do construction chemicals, if you could just -- is it like INR 10,000 crores? Or how big would that market be overall on construction chem?

It is very, very difficult to estimate because of the -- everybody has a different idea itself of what is a construction chemical. So therefore, very, very hard to say as to -- because there are various kinds of chemicals that go into construction. They could be for different purposes altogether. So I -- my own advice would be, Sunita, I would not hazard a guess because we first have to define what are construction chemicals, then look at the size of the market. If you were to look at just the waterproofing part of the market, no, it would definitely be much smaller than INR 10,000 crores.

Right. Absolutely. And lastly, if I may, I just wanted to kind of ask you in terms of within construction chem -- for the construction chemical industry, obviously, having a rock solid real estate sector and real estate sector being -- doing well is important. And given the second wave, can I get any insights from you as to where are we in terms of the real estate upswing that we have seen last year? And how are they managing now on the current?

See, very early to -- it's just too early to say. We did see real estate going through a certain amount of resurgence, if I may put it, in the 6 months between September and March until we ran into the second wave. Also, I think it is -- in a sense, there is a pause [indiscernible] and we don't know where it's going to play out. But just remember, Sunita, we think the overall waterproofing of construction markets, there are 4 big buckets we claim. There is 2 homes -- individual homes [indiscernible] in real estate, which is [indiscernible] which is largely the [ lockdowns ]. There is [ age limiting the home ], which is pretty much 70% of India. This [indiscernible] market, which could be, for example, the [indiscernible] house in Delhi or it could be new taxation for new headquarters of company, IT centers, et cetera. And then there is repair and renovation. [ Some of these businesses ] suffered with -- 1 of the 4 class [indiscernible] had suffered. [indiscernible] some of the product is the fortune of the waterproofing market.

The next question is from the line of [indiscernible] from [indiscernible].

So I just have two small questions. In terms of the waterproofing business, is it possible to quantify what is the contribution to the overall portfolio? And are we losing market share to the paint companies here? Because every quarter, we get to know from the paint companies that they are gaining in the organized sector. So...

I can answer the second part. The first part is very difficult because it depends on the proportion of what -- those numbers are available. I can tell you definitely that we are not -- we know our growth rates, and we see the thing in the marketplace. Remember, as I said, please remember that waterproofing is these 4 segments that I just referred to Sunita, which is organized real estate, individual new home, repair and renovation and institutional. Remember, the paint companies tend to play a large part in only 2 of these 4 segments, not all 4. But having said that, frankly, our own belief is we're -- by no stretch of imagination do we believe we are losing market share. We believe that, yes, the market is growing fast. We think we are maintaining and at times in certain markets we may be gaining. But let's say, at an overall level, we believe we are maintaining our share in a fast-growing market. And yes, I mean in any market that is growing fast, you will see a lot of entrants. But frankly, I would look at their staying for over a larger period of time rather than look at 1-year periods.

Okay. And my follow-up is regarding the Pidilite in India stores. So they seemed to have shown a really good growth there. So what is the overall strategy here for like the growth plan for the next 3 years or so? If you can...

See, we are very clear that rural India offers Pidilite a great amount of stores equalized. Even for income, we believe that there is a lot of runway for us in rural India. One of the things, therefore -- however, in the categories that we operate, just making our product available doesn't help. We have to make our product available and then we have to train people in the usage of the product and, in a sense, create the categories. [ PKBs ] are one avenue of doing that. And like this, we have a number of plans, which we are doing in rural India, and that's working very well for us. One of the reasons why our growth rates are higher than the average is that in rural and small towns, we are doing much better than most.

Okay. And sir, are these like excluded stores or multi-brand outlets?

No. These are multi-brand outlets where we train the fellow in our outlets. But remember, given that these are all in diligence with populations of 5,000 to 8,000. So in most cases, we are only -- amongst the only people who access these people. Most of the other fellows, they end up buying the product from wholesale. We're -- ours is the only company that actually reaches there and then does work with masons, with carpenters and plumbers and training the product and then building it. But these are multi-brand. These are not Pidilite outlets.

The next question is from the line of [indiscernible] from [indiscernible] Group.

Congratulations on a good set of results. My question was on the waterproofing segment. You mentioned that this is a future growth driver and you are also focusing a lot on that. So given that the competition is going to increase, a lot of the paint companies are also entering. So do you think it will have a pressure on your margins and pricing you have to have a different strategy. So I just wanted your view on that.

See, this question gets asked all the time. See, firstly, remember the paint companies are not entering now. I mean, for example, the paint companies have been in waterproofing over the last 5 years. They're not something new. And it's only that newer paint companies as the -- the smaller ones see the bigger fellows and they also want to make an entry. At an overall level, we don't see our margins being hit. This is not price competition here. When you're trying to protect your home for a period of time, you want a trusted brand which does the job rather than look at price. And therefore, we have not seen our margins being hit and we don't see them being hit over a -- it's not a price competition game. It's about brand and service and stroke, the products that we offer, product superiority.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Mr. Jigar Shah for closing comments.

Thank you, everyone, for joining the call. And thank you, management, for presenting an opportunity to hold the call. And now I hand over to management for closing comments.

Okay. I'll just give a set of closing comments. I think a lot of -- had been answered. So what had been answered in questions, I won't focus on. I just wanted to give an overall view of how does Pidilite view the overall market stroke situation. We said this last year and we said the same thing this year. As far as we are concerned, we are focused on the India story over a longer period of time. The pandemic is extremely unfortunate, but it's a reality. And obviously, therefore, our first priority becomes safety and security of our people and of our extended business ecosystem, whether it's our dealers, whether it's our users, et cetera, and we've actually taken a lot of steps to try and help them. We actually did COVID insurance for our carpenter community, for our masons community, et cetera. So step one is in this situation, focus on agility, resilience via, first, ensuring safety and security of the network. The second thing is we've continued to substantially invest in getting our supply chain to be agile and be much closer to the customer. So something that doesn't get talked about a lot. Over the last 1 year, we've actually completed 7 brownfield projects, 1 greenfield project in buyback. As we speak, in progress, our 10 new greenfield projects, 10 new factories that Pidilite's coming up for different product ranges across. Our CapEx remains at the same INR 300 to INR 350 crores a year. We've actually upgraded added space or added new warehouses in 10 of our warehouses, again, in terms of getting closer to the customer. We've made a substantial amount of expansion and substantial amount of investment in the rural small town, and I talked about that, so I won't repeat that. The other thing that I'd like to mention is digital. I think Pidilite has always been a digitally adept company, but we are trying to push the envelope. Today, we've got all of our distributor force, all of our sales force, everybody operating digitally. 87% of our dealers are on a pure auto replenishment. Therefore, there is no need for us to take orders and so on. All our major end users now have loyalty apps which are being regularly scanned. Our field marketing has got totally automated. We now have for the retailer, we have a dealer, Genie app, and we already have more than 3,00,000 dealers who are actually dealing with us on that app. So a whole set of measures, which I can take you through. But one of the reasons of our competitive edge has been digital and this is something we are pushing substantially. The other, obviously, is innovation. All of you know that Pidilite is known for innovation, not just innovation in communication and advertising, but also in products. So we've had a whole set of ranges of products, whether it be in the construction chemicals or waterproofing area, whether it be in the sealants area, which we continue to introduce the moment the markets came back. And that's, again, been a significant driver of growth. And in the end, I think there is this amorphous thing, which we all call culture. I think at Pidilite, we've always said that it is crises that test the character of a company. And if you look at the last 12 months, Pidilite's culture has really, in a sense, been one of our factors that is we were voted as one of the great places to work, so on. But more than that, it is just that people putting up their hands, owning their consumer, owning their customer and therefore, ensuring that even in these times, we deliver service that is hopefully an edge better than others, has been the overall Pidilite picture. So I thought let me just give you an overall picture. Apurva, Pradip, would you like to add anything?

No. I think you've covered it well, Bharat, nothing more to add. Thank you.

Maybe the only other thing is, we had always said that we believe that Huntsman is an accretive and a very strategic acquisition for us. As you can see in the 6 months of the results that we are already on that road very strongly. Pradip, over to you, sorry.

No. No. I think, Bharat, that all points are covered. I just wanted to -- if you have no other point, I just wanted to end the call by wishing everybody on the call to stay safe. And hopefully, you and your extended families are able to get through the situation absolutely fine. And hopefully, we'll come out all stronger at the end of it.

Perfect. Completely.

Thank you.

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

Thank you.

Thank you.

Thank you. Thank you.