Akzo Nobel India Ltd

NSE:AKZOINDIA

Earnings Call Transcript 2023-Q1

[Manoj Menon, analyst]

Hello, everyone. And it's a wonderful good afternoon. Good evening to you on a Tuesday afternoon evening. Representing ISEC, it's our absolute pleasure once again to host the Akzo Nobel India management to discuss the 1Q FY '23 results, updates and the views about the industry, et cetera.

From the management side, we have Mr. Rajiv Rajgopal, Managing Director; Mr. R. Krishna, Whole-Time Director and CFO; and Ms. Harshi Rastogi, Company Secretary and Chief Compliance Officer.

Now Rajiv, over to you, after your initial remarks. So we'll open up the floor for questions and answers, sir. Thank you.

[Rajiv Rajgopal, executive]

Yes. So good afternoon to all of you. Good afternoon, ladies and gentlemen. I'm delighted to be back on the investor call today. Deepest apologies. We are working here in Gurugram. Didn't realize that it is also a holiday for some of you, and I believe some of you have been on some other calls, which was also scheduled. So a big thank you for taking time out and joining the call.

I think between me and Krishna, our endeavor today is to quickly run you through how the performance of the company has been and what are the sort of things that we are planning to do and then really take a lot of it on the Q&A. We won't take too much time because we had AGM. And to be honest, it's just back to back. So we are just sort of explaining the bit of the quarter, and some of it we had explained in the AGM. So I know many of you would not have been on the AGM call, so just quickly run you through some of the thoughts, yes?

So first, just quickly, just to remind us about Akzo. AkzoNobel globally has -- is now almost about a EUR 10 billion company. This does not include some recent acquisitions announced, which is obviously -- so I'm -- so I take the 2021 number, third largest in paints and coatings. Return on sales now of approximately 11.4%. We operate in more than 150 countries with about 33,000 employees. We are also the only recipient of the Terra Carta seal, which for sustainability, as all of you know, is awarded by the royalty in the U.K. So Prince Charles handed it over to our CEO. And we are the only paint and coatings company to receive that honor.

We are actually, at this point of time, expanding our positions across different markets, whether it's Grupo Orbis that we've acquired in South America or some of the Lackfabrik, which is a wheel powder coating in Germany or also the Kansai's Africa business that we've acquired. We also have a change in leadership. So we've got Gregoire Poux-Guillaume, who joins us as the CEO from November 1. He is joining the company in October. And in October, there would be a transition between him and Thierry Vanlancker and then he takes over the company. And most of you would have read about this.

So quickly, next about AkzoNobel in India. Once again, just to remind yourself, we are headquartered here in Gurugram. We've got approximately now about 1,460 employees. We've got 5 offices. We've also got 5 manufacturing sites. We are busy right now augmenting our capacity and also driving expansion. For example, we have announced that we are going to expand our Gwalior site for expansion for both powder coating and for paints as we move forward.

We are busy scaling both online and offline channels with some of the launches, and I'll refer to it a little later. We've expanded our network quite significantly. We are now more than 5,000 towns as a broad sort of mark. We are now catering to over 20,000 dealers and our post machine is more than 16,000 dealers, which basically tells you the active customers we have. We cater to about 4,000 B2B customers, 60 -- now about 66%, 67% of our business comes from paints and the balance comes from our coatings business.

We've got a world-class ASC center where we actually support the global -- it's a global color center that is sort of driven out of Bangalore. We also inaugurated what's called a low-cost innovation center. As all of you know, India is the hub of what's called -- and to use the term, it's called jugaad innovation. Basically, low-cost innovation. And we are using this to build a lot of differentiated products and also certain products that can cater to Asia and -- more specifically as we move forward. So this is something that we ended up doing about less than 6, 8 months ago. But a little -- I just want to mention it. Some of the work that's coming out of this, you will really see impact in 2023, yes? So that's really about us.

Quickly now in terms of -- see, we've gone through 2 phases of the journey. And if I were to look at -- we started with the 15 by 20 frame. As a company, we were driving profitability, and the reason was because that's what attained freedom after one of our competitors tried to acquire us globally. And India had to play its part of 15 by 20, and that's what we did.

The second part of the journey was to really see how can you drive top line growth to drive profitability and really focus on absolute contribution margin and absolute commercial results driving the operating income and [ head thereafter. ]

Now in India, what are the things that we are doing to deliver this? I think there are 6 steps that we've taken. First is obviously to really -- can we enhance the customer experience, and while doing so, we said, what are the 6 drivers of the business that we need to focus on? The first one was really on differentiation, on consumer-centric differentiation and looking on customer-focused solutions. Indian consumers are now getting quite savvy. There are a lot of climatic changes that are requiring paints not just to provide aesthetics, but really also things like sustainability as we move forward.

The second was what I have alluded to in my earlier quarterly calls called Distribution 2.0, which is how can we expand our distribution as we start wanting to become a pan-India player. The third is digitization. Here, ultimately, given COVID, I think that was a driver for most companies. But really, what we've done is we've improved our engagement with consumers, painters. We've also driven things like IoT in our sites to really try and make sure that we are able to leverage technology and automation of a significantly different size and scale as we move forward.

We will continue to drive value creation and to ensure that we continue to deliver double-digit profitability. For us, we are a paints and coatings or a people business. And really how can we sort of become far more people centric, how can we embrace diversity? And we'll talk about it as we move forward, yes? And finally, about how can we really translate the power of science into the magic of paint. Really, for me, Dulux in India is about bringing together the power of science into the magic of paint. Being a chemical engineer myself, that is one of the things we really said, how can you use the chemistry of science -- of the paint to really bring in or transform people's lives, yes. And that's really what brand Dulux is about. So really, these are the 6 pillars that are going to enhance customer experience.

And let me quickly run through the next slide. Some of the work that we've done recently where I think consumers and our customers seem to acknowledge. First is on the decorative side, it's really about taking world-class products and propositions to India market. Of course, brand VT, Velvet Touch is a flagship brand. It's known. I think what we try to do when we used the 2 celebrities are really to try and see how we can have a sort of advertising that endears to the customer. We've done research. This advertising has got the highest -- almost 4.1 out of 5, right? It's higher than the average category, paint category sort of scores that have come through, and it's one of the top in FMCG. So really feels like home with both Ronit Roy and Mrunal Thakur -- really lifted the brand starting from April.

We've seen a huge shift in trajectory on our premium interior where we've seen humongous growth in the category, thanks to the advertising. The second was we have started looking at our exterior portfolio. We've started using the PU technology to redefine crackproof. We've launched our brand called Max, and you will hear further news just before Diwali as we move forward in this category.

The next is on waterproofing. We created a fantastic digital ad called Parul aur Painter, which is quite humorous. And really, this has also started getting highly noticed and in fact, even getting recognized early, but hopefully, through a lot of recognition is just coming in on the way of the marketing team and the agency that worked on it.

Finally, we launched FloorPlus. And clearly, what the dealers have told us is, "The quality of paint that you've used is significantly superior to other offerings in the market". So these are some of the innovations. I'm just naming a few that we've sort of done in the last quarter.

Things that I'm truly proud of. First is something which is very small: DIY is a trend that's really catching more even in India, you would be surprised to know that among the younger age groups, people like to paint or express themselves on one wall. India is a market which is called have it done. So we use painters, largely: 50% of the buying occasion is done through consumers and 50% through painters. And most of us normally get our painter and like to supervise them. But what we've seen is the younger generation likes to experience themselves. And hence, we brought in our best brand, which is a globally recognized brand called Simply Refresh, and we've launched an array of products in this.

We've just launched it in Delhi. We were trying it because it's the first entry into categories like spray paint. We are the first player and the only player which has launched a multisurface paint. A multisurface paint can be used across any surface, right? And again, grouts and those are things, as we move -- brushes. We are also selling it on Amazon, and we have started seeing and if you Google Dulux Simply Refresh on Amazon, many of you can try, you can order the products.

Early days, we've -- we are not in a hurry to really scale up and drive volumes because we want to get this right. So we are focusing on making sure that the customer experience is good. So we are getting a back end sort of really done. We tested it for more than 10 weeks in Delhi. There were some challenges, including certain pricing challenges versus local players in the market. So we've taken those on board and just moved into Kolkata. Over the period of next 3, 4 months, we will expand our footprint. And by middle of next year, we will be across the country, and that's truly when, I think, Simply Refresh -- we will also use digital videos, et cetera, to explain to consumers.

It's like when you order anything on Amazon, say a table, you have to have a do it yourself video to explain how to assemble it. So pretty much we are putting all those tools right now. It's our first experience and our first time that we are doing something like this, and we are going to make it world class and best in class.

The second thing that I'm truly excited about, again, which is going to add, remember, we are a challenger brand in this business. So there will always be constraints when you handle a challenger brand. And as a result, we said, look, why don't we do one thing, which is why don't we take the ecosystem that's got a lot of bright young people -- sometimes even brighter than us, to be honest, to help us to Paint The Future. So this is a global challenge, which has been running across. It was done in Europe. It was done as a supply chain challenge and as a business challenge in Europe and also later we tried it out in the entire Latin America. They were looking at China, then they moved to China. But they said, finally, India is a country of start-ups and really digital.

And so we moved this to India as to just test it. I'm so grateful to our Global Chief Technology Officer, Klaas, who has just retired for taking a bet on India. Where are we right now? We've had about 200 entries into this, yes? Because remember that our objective or the problem to solve for is about digital experience on the brand dealer. We are right now sorting it out. We will be shortlisting about 30 entries and then we will be running a 2- or 3-day workshop in the month of September, and we'll finally select the top 10 entries and then we will see, depending on the entries and the sort of suggestions that will come in, we've got -- Krishna and I have got permission from the Board to also look at investments into some of these startups as we move forward.

So really, to me, this is going to be clutter-breaking. However, again, let's recognize this is not for tomorrow's volumes, but this is about really how can you build thought leadership as you start moving forward, in an industry which is now going to be crowded or heated as we move forward.

On the coating side, I'm delighted to inform all of you that we've had some very good performance. And Krishna will talk about it, but both our paints and our coating business have done extraordinarily well. Automotive did very well, the refinish part of the brand, because of the recovery in the auto segment, which all of you cover. We've also seen very strong orders from Coastal and Navy in both our Marine & Protective segments. We -- our Packaging business continues to do very well, focused on both architectural, the Architectural segment and also on the Industrial part of it. To my mind, I think the Powder Coating business has now been growing the high double digits for almost about 5 to 6 quarters.

So all in all, even our Industrial Coatings business did well. So all businesses have done reasonably well last quarter, and that's after a very long time that we've seen actually all the businesses, both on the paints and coating side, do extremely well.

What I will do now is to quickly hand it over to Krishna. Krishna will walk you through the financials, and then I'll come back at the end. Krishna, over to you.

[R. Krishna, executive]

Thanks, Rajiv. And the slide which you are seeing is -- most of you must have been quite familiar by this time. And let me take you through what is driving the performance.

I'm happy to report that we continued our strong momentum on the Grow & Deliver strategy. And in the Q1 of the current fiscal, looking at the growth, we reported our highest our revenue -- quarterly revenue at INR 937.7 crores with high double-digit growth for both paints and coating businesses. Of course, we have seen -- we know that there is some sort of COVID disruption in the baseline. The underlying business is still reporting a strong organic growth there.

Growth in our paints business is across all the channels and the categories. As Rajiv explained, this quarter was characterized by many launches and campaigns, which aided the top line growth. In the Coatings business, the business has maintained the good traction with strong order books across the Infrastructure, Marine, Auto and the Consumer segments. With this, we are also able to achieve our highest ever gross margin with 38% growth.

Moving to -- moving to the next slide. We balance this with an equal focus on the Deliver aspect of our ambition. Despite the inflationary headwinds, we sustained the double-digit profitability for the eighth quarter in a row. Our EBIT has -- EBIT from the operations was up at 40% and stood at INR 101.8 crores. Profit after tax was at INR 76.9 crores. Last year numbers of the profit after tax includes a onetime tax provision reversal of INR 16.8 crores. On a like-for-like growth, PAT effectively translates into 30%.

As we see, the inflationary trend is persisting and we continue to improve our calculated price increases. As Rajiv said, we had one taken in July. These have helped us to combat the inflation in absolute terms, while the pressure on the margins have been limited. We stay vigilant on the commodity prices and the FX volatility in this -- in this, we supported by some of the advanced analytic centers, solid collaboration with our vendors. [indiscernible] challenges. We shall continue to stay on the course and on our Grow & Deliver journey. Rajiv?

[Rajiv Rajgopal, executive]

Yes. So really, for us, winning in business is one part. I think really winning it in a sustainable business is what we are here for. So really, just to give all of you a quick update on ESG. I think on the environment, really, we are a member of the TfS. We have 50% of our raw materials -- more than 50% actually, almost touching 65% -- which are procured sustainably. We have more than 30% of our energy coming through renewable sources. We perhaps are the only company which has got zero liquid discharge across any site. We've got our own rainwater harvesting. So most of our factories are self-equipped so that we do not borrow from the future and also impact future generations. All our sites are covered by one of the most stringent assessments called Lloyd's Assessment.

On the social side, I'm really proud because, finally, it's not just about numbers and performance. It's also about how employees feel about this organization. We've been consistently top decile. So AkzoNobel runs a survey, which is called Organizational Health Index. We are top decile now for many quarters, but really the fact that we have sustained with such a large team, I think, is quite remarkable and my compliments to the leaders for really enabling it. We have a diversity. We were single -- low single digits. We moved to almost 11%, 17% for the Board of Directors and 33% for the KMPs are really sort of -- and so this is an area of focus we have. Even in the commercial side, on our sales organization now inducted management trainees, all the management trainees that we've taken this year, we've taken ladies because we really want to drive this -- because we genuinely believe that equitable distribution is what's going to create a sustainable organization.

The other thing which I'm really proud of, which Harshi and team sort of do, is really skill training. We train about 2,000 youth a year. Also, what's not mentioned here, we ran something called Project Indradhanush in the northeastern part of the country where we actually trained more than 100 women on painting. And eventually, a few of them have started their own store, and I'm delighted to hear that they've also started getting good value sales of the brand coming from the store. So really, we are now very thrilled with what has happened in Assam, and we want to now move it to 2 other states. So we are going to be taking it to -- not with any other sort of intentional reference, but just from a landscaping perspective, we are taking it to 2 other states, which Harshi and team are working on.

We have no major fatalities, thank God, and high or work-related injury in the past 2 years.

In terms of governance, I think I don't need to really talk about it. We believe that we've got a very strong overarching policies because we are a strong global company. We've got good corporate governance. 100% Board attendance. We have got an independent audit committee and 50% independent Board. But more importantly, I think the value that comes to Krishna and me from our Board is quite unique. We've also got the benefit of making sure that we've got now experience across B2C and B2B in the Board, yes? So that's really from our end.

I just wanted to make a few concluding remarks before I hand it over to you. I think for us, right now, I genuinely think -- many of you may have seen the last quarterly call where our global CEO mentioned about South Asia and India and Vietnam in specific. I think we are really blessed to be a part of this country because we believe that while there are macroeconomic uncertainties and a volatile environment, we believe that we are on course to Grow & Deliver -- at least our part of Grow & Deliver, and perhaps we'll be asked to do a little bit more in the coming year. We continue our focus on our brand innovation, distribution and digitization. And while doing this, make sure that we leave a sustainable future for the generations ahead.

One of the things I'm also proud of is the fact that we've I think since -- ever since I've taken over the role, we've continuously added investor engagements and make sure that we stand in front of you irrespective of the performance and answer all your questions.

So with this, Manoj, let me hand it over to you. I just thought it may be better now to really open it for Q&A and to take any questions any of you may have for us.

[Manoj Menon, analyst]

[Operator Instructions] Mr. Atman Shah was the first to raise hands long back.

[Atman Shah]

Yes. So I wanted to know which are the states where we can say that we are market leaders or not market leaders, #2 player in the decorative category?

[Rajiv Rajgopal, executive]

So look, we don't normally divulge such information for reasons you know, but suffice it to say many of the eastern, northern states, let's put it this way. There are 640 districts in India. In more than 50 districts, we've got a market share of more than 35%. And our challenge historically has been for more than 300 districts, we had a very limited or we have less than 1, even in many places, 0 market share because the brand was simply not available. And the purpose of Distribution 2.0 when I took over the job, right, and I had 2 stints, Mr. Atman. So first, I run the Paints business, then I went to Dubai for a couple of years and came back as a Managing Director. So I've had the benefit of also during the earlier stint in Paints, right, is the fact that we are underserved.

And one of the reasons we needed our distribution to start really aggressively moving forward was really that I think even starting from ICI times, we had looked at various models. That's why we move to a distributor system, as you know, we announced sixth year into our distributor system, seventh year into our distributor system, and we are doing fairly well. And when I say distributor, I mean, there are large parts, more than 75% of our turnover in Paint is covered through distributor. So we are doing fairly well.

Well, to your question, yes, there is more than about 253 districts as of now where we've still got a lot of work where we're starting becoming available, and that's why we put in hub and spoke about a year ago. But I still think that we've still got a lot more to drive. And the reason we have to drive was about a year ago -- see, remember that the parts of the business which was growing was really the mass economy and [ party ] and waterproofing. And we were very, very miniscule in all these 4 segments, which constitute to a large part of the category. So with the launch of our economy segment, we can now drive distribution further and, hence, enhance our market share. So hopefully, Mr. Atman Shah, with that, I've attempted to answer your question.

[Atman Shah]

Yes, including, I think we need to do a lot more in Bombay because when we speak to painters, out of, say, maybe 100 painters, 90, 95 painters, recommend the #1 market leader as a choice...

[Rajiv Rajgopal, executive]

Yes. Yes, right. You're right. So let me break Bombay into 2 parts. So in projects, we are clearly #2. And I think, if you speak to the market leader, there's one person who really is bothered -- they are bothered about [indiscernible] in Bombay. So we do all the developers, we do all the large players. There are unfortunate parts in the historic, Mr. Atman, it started with some trust issues in ICI time, and we've been working at it, and we are growing. Obviously, the pace of growth, even if you grow at 40%, 50% on a very small base, it really doesn't matter. So I agree with you, right?

While Pune, if you just travel from Bombay to Pune, you'll see it's a very different story, yes? So Pune, we've got a much higher presence. We've got a much higher -- our emulsions are really doing well, et cetera. But yes, I acknowledge, in Bombay, that's an area that we still have got to work. We take your feedback and that's something we are continuously going to do. And hopefully, we get a chance to paint many of your homes and then you will start recommending it to friends and family.

[Manoj Menon, analyst]

[ Shirish, ] over to you next.

[Unknown Analyst]

Yes. Rajiv, first of all, I want to say that I have seen the ad that you were mentioning in the presentation. And quite a clutter-breaking and I'm pleased emotionally. So congratulations on that basically.

So a little weird question, and I'll be okay with it if you don't want to answer. If you were a CEO of a start-up with $1 billion in funding, and you had all the intention to succeed, what would you do?

[Rajiv Rajgopal, executive]

I assume you're talking about the paint industry.

[Unknown Analyst]

Yes, yes. I also do I also do what -- so yes, no, no. I'm not talking -- I'm talking about paints, yes.

[Rajiv Rajgopal, executive]

Look, I would -- first, let me put it this way. I would first study the market. I would look at what are the opportunities? So I would do a swat of all the players. I would really look at what are the opportunities for me. Where can my brand or what I'm going to create, bring in differentiated value propositions to the market and then start defining the purpose of what really we want to do, right? So even if it's dramatic top line growth, how do you get it? Which are the sectors where it's growing, for example? And what are the chinks in your competitors armor that you can exploit? Broadly, that's what most strategists will start doing in a very simple. Strategy is about making choices.

Remember, that if you are a start-up with $1 billion, also the expectations from you of the multiples of what is going to invest is going to be very high. So I think I would craft a journey, which is really going to drive aggressive growth because that's the mantra in India, while making sure that I do not beat the business while growing the business. So that's what I would do, [ Shirish. ]

I would really focus on the high-growth areas. I would really focus in terms of opportunities, which I think I can win. And most importantly, I would have -- ultimately, any business is a function of the team that you onboard. How do you empower them? How do you really make sure that they are doing it? Because let's be honest, I've seen poster boy CEOs. I don't think individuals can drive things beyond a point. I'm always acknowledging the fact that my team -- all the good work that's been done by the team is what sort of we all get recognized for. So really, that's what I would focus for, [ Shirish. ] If you have any specific things that you're alluding to, I'm more than happy to answer.

[Unknown Analyst]

Yes, yes. So the follow-up on that is, if I have to think from a customer's perspective, and so we are of late like maybe 5 years or so that we are hearing about differentiated or paint plus or very specific application problem solution kind of paint. Do consumers really value these attributes? Or what does consumer really -- like in shampoo, we can understand, right, like sensory or how smooth your hair will feel is what consumer kind of appreciate. But for paints, what is the attribute that a consumer values the most? Or what are the top 2 or 3?

[Rajiv Rajgopal, executive]

So look, I think what has happened in the last decade -- because I joined in area of sales and marketing for -- when Dulux in the paint side of the business in 2013, when I joined, leaving a CEO job with Airtel. Was really, it was all about aesthetics, right? Consumers really looked at paints from an aesthetic color point of view. But what has changed in the last decade is really the functionality has started picking up. But consumers, if you really look at -- they understand sustainability, but the believability is what they have a bit of a challenge for.

For example, let me give you, when COVID started, we saw a lot of our competitors putting claims of COVID. It's a separate thing. I'm not getting into that topic of what's come in the newspapers of some of these claims not being right. That's not where I want to go. But what I want to say is consumers started -- you look at that point of time, anything that came as a deterrent to sort of hold COVID, make sure your family is not impacted is what people started doing. They care a dime about the money they pay, right? Because it's your family, you earn, you protect -- you want to protect your family. So with protection, the aesthetics started moving towards a very protectionish sort of a format, right?

And on top of that, layer it, when Delhi has pollution, et cetera, people don't like paying for antipollution traditionally because they want to use purifiers, et cetera. But what has changed is that if there is a paint which comes with a proposition, why not? Because if my -- I'm anyway using it and aesthetics is reasonably guaranteed, then they start looking at functionality and say that, what is the differentiator that I'm going to get, right? And how different it is?

So that's what I would say, [ Shirish. ] Look, it's difficult beyond a point to sort of you may look at -- I mean, these are not paints -- we've got paints that can change color also. Those are [ wood and wood stuff. ] Our belief is can we bring in what consumers really want? And really, sustainability is becoming very big on people's agenda. I know you may have to say that, look, Rajiv, from a paint point of view, maybe it's a little distant. Yes. But there is a value for it. Consumers still say, look, when I'm painting a home. If I've got a mother who's got asthma or a family member or anybody -- if you've got a paint which has got a solution for it, good, right?

Of late, [ Shirish, ] there have been a few homes which have caught fire, right? It's not that we don't have paints with anti-retardant properties. There are -- a lot of our competitors have launched it. But they generally came back to us saying, "Look, Dulux, we believe that when you say something, you will only give us a product that you -- that will meet the specification standard." So we are right now at our innovation center, going to look at something. We have that in our Coatings business.

Remember, our brand Chartek, we actually coat oil rigs. And I'm talking of Aramco, ONGC, that's what we really quote on one end, right? Or even our Marine coat, which has also got similar properties are used for submarine. And we quote Indian Navy, British Navy, US Navy. So I think people realize the value of what Dulux international -- all our brands, Interpon -- bring into the market. I think when we give a quality certification, it's of the most stringent standards. So [ Shirish, ] I hope I've answered your question.

[Unknown Analyst]

Am I allowed to ask one more, Manoj or should I call back?

[Manoj Menon, analyst]

Yes. Okay.

[Unknown Analyst]

Yes. So one more question on this. So what is -- how important is having a complete range of could be primer and color -- how important has that become? Because like -- so in a way, we kind of criticized some companies for selling [ to peel ], but -- but I don't see anything wrong with it. I mean, if it works.

[Rajiv Rajgopal, executive]

Yes. So I think -- I get what you're coming to. Look, I don't think it's fair to criticize any particular company for selling any particular thing. Ultimately, in a paint, you've got to look at the suite of products that are going to give you the perfect finish of the wall. Or whatever you desire from the paint. So all the ingredients that go into it should be a part of the basket, right?

So a fair point. Just to let you guys know, because otherwise, it will be wrong disclosure. From a true disclosure, I launched putty in Akzo India. I know if Amit were on the call -- he was the MD then, he would have sort of -- he literally used to hit me on the knuckle. But look, if you know how to make putty profitably, then I think it's a good proposition, yes? The problem you've got to realize is you're going to be competing with companies who are also selling it and who are able to add higher value in it, who've got manufacturing process, et cetera, where the value creation will be significant. That's the point you want us to remember.

But I agree with you. I think in paint, the idea is to sell a range, but you've got to be very conscious when you sell the range. What are you trying to do with the range? Yes, that's what we, for example, a player like us asks ourselves. Endeavor not to drive only one part of the business. And there have been countries where, for example, we launched putty and lost focus on some of the other categories, and that should not happen. As long as that doesn't happen, [ Shirish, ] I think I agree with you that we should launch the complete -- we should play in the complete portfolio.

[Manoj Menon, analyst]

Mr. Joshi, you want to go ahead next please.

[Aniruddha Joshi, analyst]

Yes, sir, so first of all, I have also seen Parul aur Painter, and it has really come out very well, a very differentiated effort to connect and I really congratulate you for that.

So one question is, we have already done the products. We have also done the distribution expansion now. So what should we think as the next key driver for growth? And what are the 3 key initiatives that we are working on to connect more with the painters and which are relatively differentiated compared to the peers? So that is one question.

And secondly, can you share more info on Weathershield, the crack filling product. So what exactly is it? A combination product between paint and waterproofing? And means basically target market -- how should we think about the prospects over the next few years for that product?

[Rajiv Rajgopal, executive]

Yes, Anirudh. So the first part, look, I would be naive if I think that we've completed our distribution effort. Remember that when I joined in 2013, we were covering less than 2,000 towns in the country. India has got 11,000 in towns, right? Today, when I say 5,000, I'm not very proud of myself and the team. I think, frankly, for a company and a brand of our size, we should be more in the region of about 7,500 to 8,000, which is our target for next year, by end of next year, right?

So to me, I think distribution has to be a continued sustained effort. As I explained to you, we are measuring market share by district. 640 districts, I can tell you district-by-district what our market share is. Obviously, we don't do that in public domain, but suffice it to say that more than 250 districts, we've got a lot of work to do. So clearly, you will agree with me that, that's the first area because whatever else you might do, if your distribution is limited, even your brand, if you make it strengthen, if your distribution strength is not bigger than your brand strength, then all the advertising you do on air, et cetera is wasted.

The second is really how can you come with compelling propositions communicated in a very simple and effective manner. So really, this is what we've done. We've started some good work. We've got some good marketing hires in the team now, and we really started -- we're working on our flagship brands to make sure that consumers notice our brand and are able to do it. You'll see more of it when -- as the time goes.

Our DIY, for example, I just saw the advertising of our videos, which are going to be seen on -- through the digital media and Amazon very shortly. It's looking fantastic. So really, I think there is a step up there. That's something that we'll continue to do. We'll continue to work on our portfolio, both on a Paint side and also on our Coating side because also I believe that India with becoming far more conscious, health conscious, I think our coatings businesses also have solutions globally, which we can render locally to try and do it.

I just want to remind all of you that a few years ago, more than -- we only used to manufacture in our Coatings business, about 55% of our -- produced locally. It's now almost 75% to 80%, right? And that was the reason why we had to work with [ Globe Gate Technologies ] in, et cetera, so that we are able to reach our customers faster. So that will be the second.

The third is really driving digital, right? So if you look at from a front-end perspective, we are on CRM now. The ability to look at data at a very granular manner is very key for a challenger brand to win in the marketplace, yes? So that's the 3.

On the painter part, let me tell you, we are doing a lot of stuff. Unfortunately, having worked in telecom, as you know, one of the good things of working in telecom is that you get offers which our competitors cannot see. And I was very blessed to work for Airtel. So that's something that we brought along in terms of thinking because individual targeted offers which people cannot see because it's not very individual, you cannot get 1 lakh painters to figure out what offers they've got, right? It's something that we've started testing last year. It's doing wonders for us and that's been also the response -- the reason why we've been able to move up trajectory very quickly yes.

In terms of your second question, it was about Weathershield. Look, PU is -- polyurethane is not just a border proofing, yes? See, the proposition of Weathershield Max was about crack bridge. So you remember when I came in 2013, we came with this slogan called crackproof, right, because we wanted to really bring about saying, what is the unique benefit of brand Weathershield. Now we've updated -- they've got 2 brands in the portfolio, you got Weathershield Max, which we wanted to enhance crackproof. And so PU lends itself to that proposition becoming stronger. And you will see some work happening on our flagship brand, which is the most premium Ultra brand, which is called Weathershield Powerflexx, which comes later this year, where we are going to combine technologies, where we are going to make sure that we are able to face -- because the external facade, it has a lot of challenges against the environment. Dust, rain, heat, right?

So you need ingredients which are able to address it, and that's what I call the power of science into magic of paint. And that's what all my chemical engineers and all my -- the scientists working in across my centers are currently working on. So that's something I'll come back to you. I will not be able to share with you because these are slightly what would I call -- technologies, which are pretty principal and close to us, so we don't share the formula of what exactly it is, but at a broad level, I would speak to you what this is about.

[Aniruddha Joshi, analyst]

Yes. Sure, sir. Just last question from my side. We have multiple subsegments in industrial paints like automotive, auto refinish, outer coating, marine, et cetera. So just in terms of EBITDA margins, can we rank the various subsegments? I mean, is automotive highest margin than which are the...

[Rajiv Rajgopal, executive]

Automotive will always -- automotive will always be one. But I think, look, I would say about 2, 3 of the business are very close to each other in terms of EBITDA margin, not very different, right? I think the one business which is not -- which is slightly lower is our coil coating business. I mean, there are [ one point year plus, minus ranking, ] et cetera, because there are a lot of variables in these things, honestly, Anirudh. I mean to be very [ digital. ] For example, refresh brands at some point of time, there are reasons why it goes up and down. But suffice it to say, these business are all within ambit of each other -- not hugely, but our coil coating business, of course, is significantly lower.

[Manoj Menon, analyst]

[Operator Instructions] In the meanwhile, [ Shirish, Sharpa ] if you have a follow-up, I can't really find a queue at this point. I've got a few questions, but I will ask them last. [ Shirish, ] if you have something, please go ahead right away.

[Unknown Analyst]

Yes. So just one question. Basically, distributors like the incentivizing of distributors who are already selling 1 or 2 brands -- because beyond the point, you can't really incentivize more and more. So what is it that you guys are doing different?

[Rajiv Rajgopal, executive]

Look, I think the incentives -- it's a traditional FMCG model, [ Shirish ], right? So they sell our entire range of paint brands. And in terms of incentives, there's nothing unique. Suffice it to say that our focus is to drive distribution, and that's where we place a lot of emphasis and some of the incentives towards. So it's driving the enablers of the business.

[Manoj Menon, analyst]

[Operator Instructions] Until then, Rajiv, Krishna and Harshi, there's one thing which I wanted to understand was -- it appears from the performance and the commentaries of most of the paint companies, excluding Indigo, who is a decorative specialized player, that there is a recovery in the non-deco part of it in the last 3 months. So 2 questions there, what would you attribute that to? Because it was not -- at least in my understanding, visible in the fourth quarter. Suddenly, what has changed in the last 3 months at an industry level? And some comments about your outlook on this particular line of business, which is non-decorative, which is auto, industrials different segments. Whatever color you can talk.

[Rajiv Rajgopal, executive]

Manoj, ultimately, growth is growth, wherever it comes from. I think, I'm more than happy to agree. I mean I think in Grow & Deliver, it's about delivering a balance and while doing so just making sure that you continue to deliver on the biggest promise which I've given to all of you shareholders, analysts, people I have also met, which is that we continue to deliver strong double-digit profitability. So that's the baseline.

According to your specific question, look, even in the last quarter when we grew double digits, right, our Coatings business had grown. So I would say it's not 1, 2 months, right? I think in my mind, it's a little more than that, right. I frankly think what has happened is, look, I think this is where India is an outlier. And my reading -- because I was in the U.S. for my daughter's graduation and I spent about 5 days just immersing myself in the country to see how different because I was not as fortunate as my daughter to sort of be accepted by some of the colleges there. And when I got it, I had some personal family exigency, because of which I had to [ be out. ]

So one of the things I really realized is I think we're in a wonderful spot. Whether you like it or not, the consumption is not just limited to FMCG, the traditional FMCG businesses, but also beneficiaries like our business, like paints and coatings in particular are huge beneficiaries. Because remember, when a person drinks multiple cans of Coke, right? You're consuming AkzoNobel because we coat the inner and outer surface of the can, right? When you drink -- consume a lot of Nestle products, we coat the Nestle can, right? So I'm just giving you examples of our customers. And when they grow, we grow, right?

Infrastructure. You've seen outstanding results now coming from the infrastructure big players. Some of our largest customers, whether it's L&T, et cetera, are all doing brilliantly.

So I think for us, the focus is to be dissatisfied with the solutions we give to our customers and say, how can we help our customer's business grow, either in top line or we give solutions which give them better value for them to deliver better bottom line. That's really our focus. And hence, in my view, I think gives us what we are driving. All our coatings business, Manoj. So I read this [ tough of chip. ] If you look at my order business, now we have grown and Krishna is driving that across the entire South Asia, right, including China.

Krishna will tell you that India has been the top performer in his region for almost about 5, 6 quarters, yes?

[R. Krishna, executive]

Yes.

[Rajiv Rajgopal, executive]

And so you would see that some of our businesses have been growing well. We've not -- I think an area of improvement has been a little bit on businesses which had lower profitability and also certain cyclical moves like Marine and protective is very cyclical, right? So we -- for example, all the logistics challenges which sort of we went through during the COVID period till very recently and still or occasionally, I think that's where some of the businesses get impacted.

So in my view, look, let's face it. We have a 65% to 67% of our revenue coming from Paints, yes? So -- and the balance is from Coatings. So it's not that we are largely only a coatings player. Some of our competitors and India's largest player is almost about 90% of his revenue is coming from paints, right? So look, I think all the players -- I truly am blessed to be in an industry which is seeing some humongous growth despite the fact that more and more are going to join the bandwagon and that's the -- I think the area that we still need to do a bit of strategic planning. We are in the progress, but I think of the level of satisfaction that I would like.

But to answer your question, our customers are growing, and we are seeing good growth, Manoj. And I don't think -- it could be a bit choppy in the near term, and when I mean choppy, it is to say that, look, don't get eluded by the absolute 50% growth, et cetera, that we've reported because remember, last year, this week, about of week was down because of COVID, right? So I think -- but still the underlying growth is still very strong double digits for most of the players.

[Manoj Menon, analyst]

Okay. So I find -- okay, [ Ashit ] [indiscernible]. So I'll just take the questions, and then I have one more actually about profit pools and -- but I'll come back, sir, in the queue. [ Ashit, ] you want to go ahead, please.

[Unknown Analyst]

Rajiv, so on the distribution part, could you elaborate a little bit more as to how this FMCG kind of distribution addresses the serviceability part as well as the push element? And does it mean that having one more intermediary that your trade margins will always be higher than competition over here? So does it allow you to have, say, lesser number of depots versus what competition operates with?

[Rajiv Rajgopal, executive]

I think fantastic, [ Ashit, ] I think you answered the most important part by asking the last part. So the answer on that is when I came in with the traditional, I was told that look at this because you're ex-Unilever, you've done this in Castrol, when you moved -- that's why I was hired in Castrol between '03 and '06. Airtel also had all distributors. "Are you sure? Because in paint it has never succeeded." I always believed when [ I built ] through the category that it would succeed, it will require a lot of will and determination and the ability and resilience to stay put, right? And not change strategy when something is not working, but try again and again.

So to answer your last part, if you look at our working capital from 2011 to now, we've had years in which our working capital recently, which are negative working capital. And perhaps we are the only company globally, which is a negative working capital, which clearly tells you that we unlock huge amount of value, right? And that's what's resulted in some good cash flows et cetera eventually.

To answer your first 2 parts. Look, when I say traditional FMCG ultimately, what does an FMCG intermediate do? You enable or make the brand available in a wider set of outlets, right? Finally, the brand must have strength to be able to get consumer or customer demand. So our teams were doing a lot of push, and at the same point of time trying to generate. And obviously, over the years, we were seeing that we were becoming an underperformer. And it took a while, let's -- it's easy for me today to talk about it, right? Because it's 7 to 8 quarters of now sustained growth. But I can tell you the journey here is quite an insidious one. In all humility, I must say that, right?

So now our job was, hence, to really start saying how can we drive offtake as compared to drive selling-in, right? Now what has happened? We had 130 depots, we are now down to about 30 depots.

So to answer your question, yes, and we are doing some program now. We've taken some expert help where we are trying to still see how we can operationally intensify in the next couple of years, right? So -- and using more of leverage and technology. Look, ultimately, the purpose of the intermediary is to make the product available and to make sure that they handle the collections in the local market because they are best done. With the sort of attrition we are seeing, particularly for a challenger brand across industries, right? Or even leadership brands in many cases, it's humongously impossible for the sales guy who is our sales officer not to be chasing a multitude of things that the company expects. So really, how can you get a local entrepreneur to drive it. And I think reasonably now, after about 6, 7 years, I can tell you I think we've now moved that needle. So that's a done thing. It's rolling across South Asia. It's a testimony to me that Akzo now is taking the best model from India and rolling it right? And you will see some announcement on [ man people ] very shortly on that.

I think India is also going to give a huge amount of talent to add to Akzo Nobel to drive this at a regional level. So that's the second.

The third, I think the best thing is when I work the markets -- and that's something that I regularly do, go to the smaller towns. We did it recently when our President of Asia was down in MP. You go to smallest towns and ask, the smaller retailers think that has availability improved, and the answer is yes. Yes. So to answer, I hope I have answered your question, [ Ashit. ] I think, the there are certain nuances. So when you look at traditional FMCG, we fine-tuned it to cater it to the needs of the paints market.

[Unknown Analyst]

I'm sorry, I missed how many depots you have, you said?

[Rajiv Rajgopal, executive]

We used to have 123-odd depots at one point of time. Now we've got 30 depots.

[Unknown Analyst]

Okay. So the distributor stocks as well as has the capability of the painting machines as well.

[Rajiv Rajgopal, executive]

Yes. But remember, for me, I have not -- one of the things in India, which we have done successfully is we don't keep more than 21 days of stock at distributor, 21, 25 days of stock at an distributor. And look, distributor is not supposed to be a stock but yes. The stock is for making sure faster service to market. But really, it is about making sure that the person there is able to sort of act as a local loan entrepreneur and drive reach.

[Manoj Menon, analyst]

[ Amit, ] over to you, sir.

[Unknown Analyst]

Rajiv, thanks for your time today. I just had 2 quick questions. I wanted to understand your profitability trajectory for the full year. I mean, if you have anything -- any comments there. You have done, I think, amongst all the peers, I think your performance compared to your historical numbers stands out. So congratulations on that. So just wanted to understand how should we look at your EBITDA margin in the -- in FY '23 in the next 12 months or so?

And any commentary on Deco market share. These are the 2 questions.

[Rajiv Rajgopal, executive]

So let me first answer your second part. [ Amit, I ] think, I'll also request Krishna to chip in. So on the market share in look, we -- if you take the listed players, we are about 6% to 7%. If you take the total market, we are at about 5% to 6%, right? I think we were losing market share -- '17, '18, we lost the market share and a bit of '19 market share quite a bit. But I think post-COVID, I think the recovery has been pretty strong. And you can see that quarter-on-quarter I think it's about 5, 6 quarters in our understanding at a district level, out of 640 districts. Then more than about 350 districts, we are getting market share. And these are -- it's a weighted industry and these are districts that count. So I think, we are -- now am I happy with it? The answer is very clearly no, [ Amit. ].

Frankly, we've got a long journey because from where we should be given the strength of the brand, I think our intent is to add at least a 1 point market share, which is a very ambitious plan, on an annual basis going forward, right? So that's really on the market share. We are getting market shares, but we still are realizing that there are certain areas that we need to plug from a portfolio perspective and from a distribution perspective and move it dramatically as we move forward.

Yes, on the EBITDA margin question, Krishna, can I hand it over to you first and then I'll comment?

[R. Krishna, executive]

Thanks, [ Amit, ] for the question. But as you know, we don't give a forward view -- statement about the margin [indiscernible]. However, having said this, as we explained as a part of our strategy [indiscernible], we are focused on the accelerated growth in India. At the same time, our [ aim ] is to maintain and grow the margin firstly, and we have been constantly demonstrating that.

[Rajiv Rajgopal, executive]

Yes, I'll just add to that, [ Amit. ] Look, I think suffice it to say that we've got a certain trajectory profile on EBITDA margins and EBIT margins, right? As I always said that our endeavor is that we should not drop double-digit margins. That's really been the endeavor, and we are doing a lot of back-end work on value creation without affecting consumer experience on our products on that. We don't allow any of our products to have a poor experience with the customer. So for example, we do not compromise on our color, coverage and quality. And that's one of the reasons why we launched Dulux Assurance because we believe that that's the thing when even you as a customer, whatever your wallet can allow, once you buy, you must get the assurance of a brand. We've tried to answer your question, [ Amit. ]

[Manoj Menon, analyst]

So you're pretty much at 4:00. Anyone who's got a last question, just feel free to raise else we could close and reconvene next quarter. Rajiv, Krishna, [indiscernible], I'll probably give 5 seconds.

[Rajiv Rajgopal, executive]

So once again, a big thank you to all our investors who have taken their time to join us. Perhaps many of you -- some of you got even a holiday today. If you do, please free, if you have any further questions, do not hesitate to ask Harshi. Drop an e-mail to Harshi, and we are more than happy to sort of answer any question. And we also, at some point of time during the next few months, we will work it out and try and make sure we physically meet our investors because it's important for me to ensure that Krishna personally gets to meet all of you, and all of you have to meet him personally. I think Harshi and me you all have seen for a period of time. So once again, big thank you. Stay safe and wish all of you a wonderful Diwali, yes? Thank you very much. Thank you, all. Thank you, Manoj.

[R. Krishna, executive]

Thank you.

[Manoj Menon, analyst]

Thank you both. Next time, we'll [indiscernible]. Thank you, guys. Have a nice evening.

[Harshi Rastogi, executive]

Thank you.

[Rajiv Rajgopal, executive]

Bye.

[R. Krishna, executive]

Bye.

[Harshi Rastogi, executive]

You too.