Akzo Nobel India Ltd

NSE:AKZOINDIA

Earnings Call Analysis

Challenging Market Conditions Impact Performance

The company experienced a change of narrative with a shift from expected double-digit growth to restrained demand influenced by erratic rainfall, a credit squeeze, and slower market demand, especially in September and the eastern regions. The Paints business faced a slight decline in metros but saw growth in rural markets, driving distribution-led gains with a focus on smaller towns and tier 2-5 cities. The company's B2B project business, constituting 40% of their business, grew by high double digits, counteracting a flattish Decorative retail segment performance. Portfolio gains are expected from recent launches, contributing to around 10% of the revenue. Their strategic focus includes increasing market share, particularly in the economy and mass market segments. The company aims to improve by 2% points in Paints and 1% points in Coatings over the next three years, even as competition intensifies. Significant growth from new store sales compensates for flat to slight declines in existing stores.

Revenue and Growth Dynamics

The company reported a revenue growth of 3%, totaling INR 956.3 crores, primarily driven by the business-to-business (B2B) segment that includes projects in the Paints and Coatings businesses. However, retail sales remained relatively flat. Despite a modest revenue increase, significant strides were made in profitability with a robust 33% growth in EBITDA and a noteworthy 44% jump in profit after tax, which stood at INR 94.2 crores.

Improvement in Gross Margins

Gross margins saw a substantial enhancement, improving by 600 basis points (or 6%). This improvement was largely attributable to a decrease in raw material costs and a favorable product mix, which together demonstrate the company's growing scalability and execution efficiency.

Working Capital and Cash Flow Health

The company has maintained a strong position in the industry with its operational working capital to revenue percentage dropping from 9.6% to 5.7%. Particularly in the Paints business, they have achieved a negative working capital, which is rare in the industry and contributes to healthy cash flow, supporting capital expenditures (CapEx) and dividends. Ending the year, the company boasts a liquidity reserve of nearly INR 612 crores.

Segment Performance and Outlook

Paint sales stayed essentially flat, reflective of a broader market trend, while the Coatings business reported high single-digit growth. Within the Paints segment, the project business, making up 40% of the segment, experienced high double-digit growth. Looking forward, the company expects continued growth in real estate and infrastructure sectors until early next year, followed by an anticipated slowdown around the election period.

Long-Term Growth and Competitive Landscape

The management remains optimistic about the long-term growth prospects of the Paints industry in India, believing it to be in line with the overall GDP growth trajectory. Despite the prospect of increased competition, they feel well-prepared to maintain their growth story.

Acknowledgments and Leadership

The Managing Director, reelected for a second term, extended gratitude to investors and employees for their support, which has been critical in steering the company through its growth phases and maintaining strong investor relations.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Akzo Nobel Limited, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nilesh Patel from ICC Securities. Over to you.

[Nilesh Patel, analyst]

Thanks, [ Saraswati ]. On behalf of ICICI Securities, we welcome you all to Q2 FY '24 Results Conference Call of Akzo Nobel Limited. We have with us Mr. Rajiv Rajgopal, Managing Director; Mr. R. Krishna, Chief Financial Officer and Whole-Time Director, along with Mr. Rajiv Jha.

Now I hand over the call to management team for their initial comments on quarterly performance, and then we will open the floor for question-and-answer session. Thanks, and over to you, sir.

[Rajiv Rajgopal, executive]

Good evening to everyone. This is Rajiv Rajgopal, joined by Krishna, my CFO; and Rajiv Jha, who is the Company Secretary.

[Operator]

Sir, I request you to be a little bit louder, please.

[Rajiv Rajgopal, executive]

Can you hear me now? Is it better?

[Operator]

It is better, sir, yes.

[Rajiv Rajgopal, executive]

So good evening to everyone, joined by Krishna, CFO; and Rajiv Jha, Company Secretary. What we will try and do in the next 5, 10 minutes -- and I'm not going to use the deck, the deck that we intended to use is already loaded on the website, I thought we will keep it more for Q&A and any questions that any of you may have. But I just thought I'll just quickly outline how the quarter has been.

Indeed, as all of you have seen, both the industry numbers and our numbers that it has been a relatively tougher quarter. But despite the headwinds of the [ rapid rein ] in new consumer sentiment, we continued our journey on profitable growth. We reported a revenue of close to INR 956.3 crores, a 3% growth, coming largely from the B2B segment, projects in Paints and the Coatings businesses. The retail sales was relatively muted.

The gross margin percentage improved by 600 bps, which was mainly attributed to raw material cost [ seasoning ], coupled with favorable mix. With increasing scale and efficiency, we continue to deliver on our double-digit growth profitability with a 33% growth in EBITDA. And our profit after tax was INR 94.2 crores, up 44%, right?

So really, for me, I believe that as far as the first half is concerned, we continue to be in the top [ 2 ] in incremental growth. We've achieved new records across most parameters in absolute terms. All the strategic drivers, including product portfolio, is reached. And efficiencies are working well.

The PAT for the 6-month period has grown 43%, strong -- obviously supported by stronger EBIT, operating profit and other income, yes. Our [ OWC-to-revenue ] percent remains one of the strongest in the industry, reducing from 9.6% in September '22 to 5.7% in September '23.

In fact, I must be proudly say that our Paints business is almost now on a negative working capital, perhaps something that I had only achieved during my [ FMCG ] days. This has contributed to a healthier cash flow, which is supported by our CapEx and dividends. We ended the year with liquidity of almost INR 612 crores, yes.

So that's what I have to say in substance on behalf of Krishna and myself. I thought we will use this time to take your questions and answer any specifics. I'm also mindful of the fact that this is an open call. And hence, when in an open call, you have a lot of open -- people who are openly invited, so bear with me that I will not be able to share any competitive details. I think that's the nature of our business.

And given the fact that there are a lot of people who are making a lot of inquiry, you would appreciate the fact that I will be a little guarded in some of the comments that I make, yes?

I want to -- before I hand it over for the Q&A, I want to deeply thank our investors, who stayed -- had been a great support. And thank you to all of you. As all of you know, I've been reelected for the second term as Managing Director, and this would not have been without the support of all of you and all the employees at Akzo Nobel. So once again, a big thank you, and back to you, [ Yashasvi ], Manoj and team -- [ Nilesh ] and team for the Q&A. Yes. So over to you.

[Operator]

[Operator Instructions] We have a question from Atharva Bhutada from Purnartha.

[Atharva Bhutada, analyst]

Hello?

[Operator]

Yes, we can hear you.

[Atharva Bhutada, analyst]

So actually, I had two questions. One was regarding that all paint companies did have a slowdown in rural spending and downgrading in paints in the rural sector. So have we seen any uptick in demand in rural after the September quarter? Or has the market share been lost to local players?

[Rajiv Rajgopal, executive]

Okay. So let me answer your two questions. First, as far as we are concerned, and I said it perhaps also in some of the interviews in the morning, we've actually grown in rural in our Paints portfolio, and I assume you're talking largely Paints here, right, which is 50% of our overall sales. Yes.

So yes, in Paints, we've grown in rural in Q3, and this was largely coming out of our distribution efforts, which has been now going for the last almost 1.5 years, right? So that's the first.

But remember that we are starting at a much smaller base than some of our larger competitors. So I just want to be fair that yes, if you look at an aggregate level, rural is -- because of the erratic rainfall and [ spend ], et cetera, having a bit of a challenge. But we have seen a growth because of the distribution gains that we've made in [ Paints ].

Your second question, I think you're seeing the -- last full year, we were the second fastest-growing player the Paints business. And even if you look at the first half, there are still -- even if I keep [indiscernible] aside for a minute, I see no reason why we've sort of...

Yes, if you look at specifics, we would have lost some market share in mass market, which constitutes about for 35% of the market. But in all the others, we significantly gained. So at that, we would be gaining about 0.1 to 0.2 because the market size is so big.

But for me, I'm between, [ holding ] to 0.1, 0.2 gain, largely coming out of our premium. Because our premium grew quite significantly in the last quarter, very high single-digit growth in premium. Yes. Hopefully, I answered your question.

[Operator]

Atharva? We can't hear you. [Operator Instructions].

[Manoj Menon, analyst]

This is Manoj. Can you hear me? Can I ask a question?

[Operator]

Yes, please go ahead.

[Manoj Menon, analyst]

Rajiv, Krishna, apologies, I had some connectivity issues initially, I'm sorry for that. Yes. So sir, a few clarifications. One, when you mentioned you're the second fastest. So in that calculation which you do internally, are you counting non-Paints also? Let's say, the putty and other sales kind of -- is it a Decorative comment or it's a Paints comment?

[Rajiv Rajgopal, executive]

No, it's a Paints comment, but we don't include anything which is non-Paint -- it includes waterproofing, it includes putty. But it does not include fabric, furnishing, [ lighting ], kitchen [indiscernible] because we don't participate. In our portfolio, this is not there, so we look at addressable market because otherwise, it's not a core paint and coating from our perspective, so we only look at those.

[Manoj Menon, analyst]

Sure. So that was very helpful, actually, and good luck. Sir, and secondly, it's not really about urban and rural. But generally, there has been stress in consumption on the bottom of the pyramid, which you had observed in the last, let's say, a couple of years. And there's a comment that it is bottomed out.

While it's a short term -- what I'm trying to understand from you is that we started seeing some stress in the restaurants and the [ airports ] a year back; apparel retail, maybe 6 months back. What's your sense on Paints business, whichever way you cut it actually, urban, rural, premium, mass?

[Rajiv Rajgopal, executive]

Yes. So look, firstly, the overall -- I'm also a little surprised as much as the rest of the industry. When we started the quarter that went by to what ended, obviously, the narrative was slightly changed. If you were to ask me in the June, July, we were looking at least a good double-digit growth because we said it's an extended season.

But two things that dramatically changed: One, the erratic rainfall, but that's not the bigger reason. I think the bigger reason is, like you rightly say, a bit of slow demand. And we started seeing this from -- more pronounced in September than we saw it in July and August, right? So I think that's the 2 where we started seeing credit in some of the markets, particularly in the eastern part of the country, really coming under credit -- huge squeeze.

So that's the way we see it. It's something which is -- Manoj, I just said it, we actually, in the Paints part of the business, had a slight decline in the metros last quarter. We actually grew very well in the rural markets. Now obviously, it doesn't compare with the larger peers because they already have a significant high base in the rural compared to us. And obviously, our contribution was smaller.

But that said, nevertheless, this has been an effort of the last 1.5 to 2 years, where we've driven distribution-led gains. And obviously, the acceptance of the brand in some of the smaller towns, Tier 2, 3, 4, 5, is obviously starting to pay dividends. And obviously, Dulux is getting some -- significant market share in those markets because we are starting also from a smaller base, right?

So in [ net-net ], to answer your question, how do I see it going forward, look, I see Paints, obviously, this quarter will have a bit of festive tailwind. But I need to wait and watch till December to see how much of the tailwind is going to translate to getting back to 1.2 to 1.5x GDP.

What we see is, if you remember, in Paints, I always used to present in all the investor shows that we are about 1.2 to 1.5x GDP. What's happened now is, if you look at the last quarter, we've come to half of GDP. If you ask me, I've done some stochastic analysis with Krishna, and we see that this current is moving toward [ 1/3 ] before gearing back to 1.2 to 1.5.

Now what's the time frame? That's something that we will take a little 3 to 6 months before coming in, but it will take a bit of time before we really get back to the heady good growth days. Also, the competitive intensity is going to increase early next year, and you know for what reason right?

So we're just still being mindful. However, it doesn't mean that the industry is going to see low growth, not at all. I still think it's a pretty growth -- high-growth industry. It's just that the [ contours ] will change this election next year in May. And as we've seen in the past, during the election year, particularly the infra work was slightly slowed down from March, April. So those are things that we have to be [ meandering ].

Today, if you look at business in the last quarter, just to give you some highlights, Paints sales was pretty much flat or literally flat. And the Coatings business grew high single digit. Not only Coatings, even within Paints, our B2B business, project business, which constitutes [ 40% ] of our business, actually grew very high double digits.

So that clearly tells you what's happening is it's reflected in the core sector index of the country, where you're seeing the companies which are real estates, infrastructure like L&T, et cetera, so people we work with and all, doing very well; you are going to see that continuing, in my view, until March, April next year.

Then you will see a bit of a high [ pitch ] until the elections are done. And irrespective of what happens, hopefully, it will all be positive for Indian economy, and I think then we'll start picking up again in June, July next year.

So long term, I don't see an issue. I'm still seeing India, the GDP growth story and the Paints growth story being intact. Yes, there will be intensifying competition, but we are there, we are ready.

[Manoj Menon, analyst]

Interesting. Interesting. Thank you for the detailed response, Rajiv. The third one -- before that, let me make an announcement. [Operator Instructions]. Rajiv, another one, your observation on the negative [ working ] capital, that's a brilliant achievement. Is it fair to say that your first probably the first Indian paint company to achieve this in history?

[Rajiv Rajgopal, executive]

See, Manoj, don't -- I mean, look, it's not to compare with others. Everybody has got their strengths. There is -- let's be honest, there's leader with a 55% market share. So I mean let's give accolades to all the people who deserve it. From our perspective, the negative working capital, being a challenger brand and #4 player, enables us to -- give us the license to be on a profitable growth journey, right?

Are we the only one? Yes, possibly. When you look at the numbers that I've got reported, yes, we're at about 5% in my last into -- we've run you through some of the [ news ]. But what are we focusing on? We are focusing mainly [ collecting overdue ], keeping our slow-and-obsolete inventory, et cetera.

And so running the, what I call, integrated business planning process in a pristine manner is what we are really focusing on. I think that's our strength as Akzo Nobel. Krishna, do want to add some numbers?

[R. Krishna, executive]

Just an additional clarification, Manoj. In terms of the negative working comment -- negative working capital comment is pertaining to the Paints...

[Rajiv Rajgopal, executive]

Yes. [indiscernible] overall about 5%, 6%.

[Manoj Menon, analyst]

Yes, yes, yes. Sir, within paints, actually, what has been the key drivers for this? Is it that your distributor-led business has now reached the significant size, which is mitigating the working capital, otherwise positive working capital as well?

[Rajiv Rajgopal, executive]

No, it is. It is. It is. But let's be honest, one of the things I always work and we always work as a team is to make sure our distributor stickiness is very high, right? So obviously, we keep [ to ] inventory by distributors, typical FMCG model, right?

So to that extent, it's also, I think, good credit management that given our distributors have managed to [ upend ]. It's also making sure the [ right portfolio ], et cetera, comes.

I think it's a suite of stuff. A lot of what we've done supply chain management, actually, where we've used iconic -- marquee people to help us to put the right agenda, and then Krishna and the team, leveraging on what I call ways of working and war on waste to make sure that we are able to drive our costs efficiently. Yes.

[Manoj Menon, analyst]

Understood, sir. One clarification on this from the other side of the table is that any -- which way, let's say, working with positive working capital constrains or constricts growth?

[Rajiv Rajgopal, executive]

Well, as long as the working capital are [ directly ] deployed, Manoj, look, I think what it helps us in return on capital employed. Look, this industry has got a 20%, 22%, if you look at the market leaders, 25% return on capital. We may be at about 30%, 33% right now. [ 35% ], right?

Now look, I think beyond a point of time, ultimately, it's about how you use it to unleash growth, right? So we'll take it one step at a time. I think we've -- from where Akzo is coming when I came in back into the business in 2018 to now, I think the focus has been to how do you really accelerate growth, right?

I remember many of the investors, who were today on the call, really telling me get -- it's not about what you say, it's what you do. So I think hopefully, in the last couple of years, we had -- this quarter and the quarter gone by, we've demonstrated what we can do.

[Manoj Menon, analyst]

Understood, sir. Let me take a question which has come in the text window -- sorry, sorry, sir.

[Rajiv Rajgopal, executive]

Krishna, you want to say something?

[R. Krishna, executive]

Just to add on, Manoj. The working capital management and growth, we are treading it carefully. We are not doing anything crazy to hinder the growth.

[Rajiv Rajgopal, executive]

Yes, that's right.

[Manoj Menon, analyst]

Fair enough. Absolutely. Understood. So let me read a question that just came in the text window. This is from Dhiraj [ Dave ] from Samvad Financial. He's asking, I'm just reading it out verbatim, what is the share of new products launched in the last 24 months during the second quarter of FY '24?

[Rajiv Rajgopal, executive]

I think that's [Audio Gap] quite similar [Audio Gap] most people, it's around 10%. 10% is the revenue contribution coming from new products in the last 3, 4 months. I think it won't be very different for any player, Manoj. We are there. I think I'm pretty proud of some of the work that we've worked on the new product and portfolios. So we are currently at about close to 10%, 11% of the portfolio.

[Manoj Menon, analyst]

[Operator Instructions].

[Operator]

[Operator Instructions] We have a question from Nirav Savai from Abakkus.

[Nirav Savai, analyst]

My question is more on the project side of the business here. We have said that we have grown by higher double digits and have a significant contribution to our overall Decorative revenue. So am I right in understanding that it contributes about 40% of our Decorative business?

[Rajiv Rajgopal, executive]

20%.

[Nirav Savai, analyst]

20%. And we have grown high double digits with -- in this 20% of the business?

[Rajiv Rajgopal, executive]

Yes.

[Nirav Savai, analyst]

So despite that, we have seen a flattish kind of a Y-o-Y growth on the Decorative business. The retail part has actually declined.

[Rajiv Rajgopal, executive]

That's right. That's a very low single digit. I mean maybe, basically, almost flattish to low single digit. Very low, decline, yes.

[Nirav Savai, analyst]

Right. And on the industrial side, how do we see demand panning out for the second half? Or do we see improvement there? Or this is something...

[Rajiv Rajgopal, executive]

We [ did ] grow high single digit in the last quarter in the industrial businesses pretty much. I see that continuing. Yes, can we get to double digits? Yes, I do think so. It also depends on the execution of a few orders, stability, et cetera. If everything's going good, I think we should be looking at close to early double-digit numbers in the -- for the second half in our businesses.

[Nirav Savai, analyst]

Right. And in Paints side, do we see acceleration in the second half? Or would it be more or less similar to what it was in the first half?

[Rajiv Rajgopal, executive]

You tell me, I hope you're working [indiscernible] matches on the cricket...

[Nirav Savai, analyst]

No, I mean you have your internal assessment in terms of demand and...

[Rajiv Rajgopal, executive]

My internal assessment is okay. So look -- so let me just tell you. I think we were at about 1.5% of the revenue. We said we'll take it to 3.5% year on that journey. And we are now slowly moving in 3% to 5%.

Look, I think what I've not said and perhaps even to -- when Manoj asked the question, last quarter, we grew volume at a high single digit in both our Paints and Coatings business. And we have taken some small price corrections in some parts of the portfolio because Dulux is one of the more expensive paints in the market, right?

So we had to do it because in some of the categories that I mentioned in mass specifically, et cetera, obviously, when you come with a lower share, you were able to -- you are not able to sustain the premium, so we decided that we need to [ price corrections ].

So a combination of that is what has happened. And volume growth is a good way because net of putty also, our volume growth is pretty high single digit. So all I would say is, I think we seem to be going in the right direction. Let's see. We'll have to keep our fingers crossed, even taking one step at a time. No point predicting how it's going to be ahead because you don't know whether -- what the steps ahead are going to entail.

[Nirav Savai, analyst]

Right. So 3.5% to -- or 5% kind of spend is over a period of time...

[Rajiv Rajgopal, executive]

Yes, and we are pretty active on workup [ a bit ]. For those of you who are seeing it across, it's omnichannel stuff. We are also on [ Hotstar ]. Now if you are watching it, you'll obviously agree that you've seen a lot of Dulux. At least the TV anchors in the morning seem to suggest that we are the most visible brand.

[Operator]

Mr. Menon, would you like to read the text question? Or should I go ahead?

[Manoj Menon, analyst]

Yes, you can -- I'll take it, actually. There's a question from Laxmi Narayan [ K. G. ] from Tunga Investments. Laxmi is asking, sir, since the start of the year, we are halfway right now, which aspects of your business performance has positively surprised you ahead of your expectations and why?

And there's further, which aspects of the business have disappointed you? And what are you going to reinforce the positives and address the disappointments?

[Rajiv Rajgopal, executive]

Very good question. Thank you, Laxmi. I think that's a very good question. Look, what is really the positive part? First, look, in our sort of a business in Paints and Coatings, we are a people business. We just recently finished global survey, done across all countries, called [ Voices ].

This is a survey which any -- all our 1,500 people can take it; and all the line managers, about 250 of them, can see the results immediately. It's not like you have to wait for 2 months to get all the results and share it. People get online.

What I'm pleased is that India has got one of the highest scores in the [ Voices ] survey globally. And our team leaders have got -- we need to give them a huge pat on the back.

Why is this important? Because you talk of results and business, but if people are intrinsically not happy and not doing -- feeling stifled, then I think it's a very short-term growth that we are talking about. So to me, that's the first. The second, it was a positive surprise because I did expect a reasonable number but not as high as what eventually happened.

Second, I think on the B2B businesses, while, yes, the core sector index is a reflection of the fact that B2B business is all across, you can see it in infra, you can see in the real estate company, results are doing well. I think the upsides sort of helped in some of the innovations that we put over the last couple of years, and the investments that we put sort of were gratifying, and I was pleasantly surprised to see that there's a bit of a tailwind.

And what has really been a bit of a disappointment? I think on the retail side, of course, there is a bit of a demand uptick. But given our market share, I keep telling the team there's only one way to go, which is up, right? So execution in certain geographies should still be world-class. That's what is a bit disappointing, and we're working on it.

Second is in our portfolio, I think mass market and economy needs to be readjusted. As you've seen the commentary of all our competitors, obviously, they've been there longer and they've got a higher share and higher wallet share, et cetera. But I think about driving the brand there, building customer intimacy, making sure the painter engagement, et cetera, stronger order is something that we are working on. We are mindful of it. I think these are the places.

The last but not the least is in new categories we've entered. These categories have now started contributing to almost 10% of our revenue, waterproofing, wood care, et cetera, which is significant from our side, given that we've not made any M&A unlike any of our bigger peers, maybe except one, the market leader, we've not made any M&A.

So it's all in-house done. I've not fired or hired anybody for it. It's basically using the existing set of people we've got in our R&D center from IIT, [ UDCD ], et cetera, some of the best engineers we've got to deliver the results. So to me, I think we need to continue that.

So yes, there are lots of things that we need to work on because when you are a challenger brand, you got to run faster, right, and you got to make sure that you solve customer issues and you are on top of things.

So I think, obviously, in many parts, there are challenges. In the Eastern part, for example, Manipur, there was relatively a large business in the paint industry there. And unfortunately, it's almost zero for the last few months, right, because of the challenges there. But hopefully, it should start bouncing back this month or in a couple of months, right?

So I think there are some internal challenges, too, that we faced. I don't want to illustrate everything here. But suffice to say, the team is working on it. We, as a leadership team, are committed to making sure that we start then slowly building it back brick by brick to deliver double-digit growth. Manoj, hopefully, I've answered the question.

[Manoj Menon, analyst]

Yes. Yes. Yes, sir. [Operator Instructions] There's a question or a comment actually from [ Utkarsh Solapurwala] from [ Damos ] Capital. Congratulations, sir, on your reappointment. What are some of the key strategic objectives that you would like to achieve in your second term?

[Rajiv Rajgopal, executive]

Thank you. I think the strategic objective is single minded. I think that's the brief that I've got from the global parent. And I'm hoping that as [Audio Gap] India more and more, which I'm seeing with the new CEO, I think that's something very exciting, really is how can I start getting market share in a -- continue to gain market share significantly in a profitable manner.

So really, the focus is around building around, working around the adjacencies, working on our gaps on distribution, working on our portfolio and making sure the brand is far more visible, right? So that's broadly it.

I think for me, the personal milestone will be to really say how can I build scale because I think we've got the right cost structure now. And with scale, we'll be able to make it accretive. Of course, we'll continue to reinvest in our brands, but the single-minded objective is how can I drive market share gains in the second term.

[Manoj Menon, analyst]

[ Saraswati ], if you can announce and hold for a minute or two, please?

[Operator]

[Operator Instructions].

[Unknown Analyst]

Manoj, while the question queue assembles, I think I probably have one question, so if I can go ahead?

[Manoj Menon, analyst]

Yes, yes. Go ahead. Go ahead.

[Unknown Analyst]

So I just wanted a clarification that at Akzo, we have [ streamlined ] our strategic priorities on margin, supply chain and working capital management. So just wanted to hear more about on that front.

And I just wanted to clarify or you can say that more information on the point that in your first phase, sir, you had achieved distribution and portfolio expansion, in your first term. So just wanted -- will it be the second kind of part 2 where you are trying to achieve a more on margin, supply chain and working capital management? So will it be kind of part 2 for you? And are there any internal targets or timelines for the same?

[Rajiv Rajgopal, executive]

So yes, it's a part 2 because for -- making sure distribution 3.0, which is I'm currently on 2.0, which is really going into smaller towns, absolute smaller towns, right? And we are doing some pilots on something which is really going to be -- what's good for India is going to be good for Akzo Nobel India, right, if I were to borrow one of my ex-mentor's, who run a fairly large FMCG companies, phrase, right?

So just want to say that, look, I think we are testing some pilots, where we are trying to do something very different in the industry. I can't talk about it now, but that is going to be the third leg. But to do that, our supply chain needs to be efficient, so that we cater to our customers in 2.0, right?

So you're right. I think building an efficient supply chain using AI, using the latest tools, digital to try and make sure supply chain is ready for the next -- 2030 and beyond is one of the things that I'm focusing on.

And on working capital, I think we are pretty good. I think on working capital, it's fine-tuning it, understanding the drivers and levers of growth and saying how can I deploy working capital and sweat my assets with good return on investment, right? So -- because my focus is that how do I put money where my shareholder value can significantly get enhanced in a specific time period, right?

Now what are we looking at? Look, some of the supply chain projects will take at least about 2 to 3 years because we are doing it in 2 or 3 phases. We are right now in the design phase, then we get into a planning phase, planning and preparation phase; and then into an execution phase.

Each phase typically takes about 8 months, 7 to 8 months if you want to make it world class. And India is going to be the pilot for some of the world-class thinking and projects that we unveil for Akzo Nobel.

So that's the way I'm approaching it. I'm not in a rush, because when you want to also attend to the smallest towns, you want to make sure that you do it in a very digitally, cost-effective manner. So that's really where we are driving it. Hopefully, I've answered your question.

[Operator]

Mr. Menon, we do have one more text question. Should I read that?

[Manoj Menon, analyst]

I'm just going there, just a second, yes. So this is from Atharva -- two questions rather. So first is, again, a follow-up from Atharva Bhutada. He says, can you please explain how did we manage to get a negative working capital in the Paints business?

[Rajiv Rajgopal, executive]

So, Manoj, I think you already, in a way, answered that question, and I answered that question. But beyond that, the day Atharva tells me how Coke -- what is the secret formula of Coke. I will tell them the secret formula of negative working capital.

[Manoj Menon, analyst]

Okay. Fair enough. Okay. There's a follow-up from Laxmi Narayan [ K. G. ] from Tunga Investments. In terms of portfolio gaps in the Decorative and home Coatings, which are the areas you are indexed lower? If one takes the leader at 100%, where are you now? And what is the plan for the next 3 years? He's asking for Decorative and home Coatings, separately. Yes.

[Rajiv Rajgopal, executive]

No. So look, let me focus on Decorative, room Coatings. We are not -- I don't -- so I mean, I assume you're talking of the performance in the Coatings business, I'll talk about it.

See, in Decorative, it's basically underindexed because we've got a -- imagine our share is about 4.75% and we have got about a 17%, 18% share in premium, this is what drives our profitability of our business. And despite a lot of people try to pinch along shares, obviously, the brand Velvet Touch is still India and Weathershield is still India in the minds of -- and hearts of the consumer.

So really, that's -- where we have the challenge is in the mass market and the economy. We've introduced a brand for Dulux, Promise Smart Choice in 2020. We've significantly gained market share from some of the players in the industry, including local players, as we did it. But it's plateaued, because when the price hike [ vented ], perhaps we took a little more aggressive price hikes compared to the rest of the industry. And these were selling at premiums.

As you know in that economy, you cannot be at premiums, particularly if you're a challenger brand. So we are resetting that base. Hopefully, we should start seeing some gains. But it will take 2, 3 months, 2 months of distributor stock, et cetera, to try and do that, right? So we're not doing a price drop, but we are [ driving ] tweaks of how to get that issue addressed.

Now if you look at the Coatings business, we've got strong positions in automotive, very strong positions in [ marine ] and connective. And we are now building our position in powder. We are very strong in powder in the premium part, but not so much in the mass part. As you heard our CEO -- global CEO say, I think what we are trying to do is we are trying to see that can we start becoming more significant in mass across all businesses, right?

So it's not an easy one. It's something that we have to work through because the expectation is how do we do it in a profitable manner. And you've got players with great positions, who will also not easily surrender the [ solutions ].

So we are looking at innovations. We are working on certain things, quite dramatic stuff, with some of which we are leading the thought process. So we will need time because these are not things I can share in public domain or even for a minute here because we don't know what takes off and what doesn't because in our pilots, some of these have taken already 16 months and still not yielding results even in a pilot lab.

So it will take time. But we are clear, Laxmi, that we know what are the gaps. And I think in the next 3 years, I believe that our market share will be significantly higher than what we have, right? At least 2% points is what I want to add in Paints and at least 1% points in the Coatings business.

And I think we are here. I think if you see our performance on 2021, it's giving -- we are taking baby steps and we are not worried about it. But we want to do the right thing and make sure we'll become a meaningful player in the country. Manoj, hopefully, I answered the question.

[Manoj Menon, analyst]

Yes, yes. Yes, sir, largely. Let me just check if -- any other question in the Q&A? I can't find any.

[Operator]

No, sir.

[Manoj Menon, analyst]

Okay. Rajiv and team, so maybe there's one last question from my side. Would you be able to give some color on, let's say, the concept of same-store growth versus new-store growth? Within new businesses, essentially the new geographies, how much of, let's say, the growth has come from the [ numeric reach ] expansion, geographic expansion, et cetera?

[Rajiv Rajgopal, executive]

So typically, the same-store growth. Let me first give you -- if I take a 3, 4 years view, right, there's approximately about 3% to 4% and about -- on our 10% growth, about 5%, 6% comes from the new store. That's the sort of ratio, 3, 4 and the balance 6, 7 coming from the new stores.

I think what we've seen in the last quarter and if you're talking about the quarter that went by, obviously, we've seen flattish in some markets, even decline in the same store. But we've seen significant uptick in the new store. Because, obviously, our distribution gains over the last 2 years are paying huge dividends.

And that basically is a premise in which -- which also addresses my point that we need to really look at mass and economy significantly because discounting has gone up significantly in the market and we are very prudent in these categories because we are much smaller. We want to make sure that we are doing it the right way.

These are the fundamentals in which we work. We believe in creating a sustainable business model and also [ carry ] development in these categories.

So that's this answer, Manoj. From a long-term perspective, I see us getting back to our CAGR growth, so hopefully, about 3% to 4% and then 6%, 7% coming from a new store, right? But at this point of time, in the quarter that went by, we were flat to a slight decline in the existing stores, and we grew largely in the new stores.

[Manoj Menon, analyst]

Very clear, sir. Just checking Q&A again, there's nothing. Yes, Rajiv, any closing comments, Rajiv and team, before we close?

[Rajiv Rajgopal, executive]

No, firstly, thank you to -- I'm really thankful because I'm aware of the multiple calls that you guys are doing at this point of time on multiple companies. And I know all of you -- I envy to -- don't envy to be in your position.

But really, firstly, thank you all for the support, the unstinted support that you've given us. We are on a journey. We are on a journey, as you can see. I've been repeating that since I started the first investor meeting call. I think we want to be a meaningful player.

We want to be in the top 2 and then slowly [Audio Gap] once we are confident that we've got the right footprint and what we are doing is sustained, then slowly start becoming -- moving to becoming the fastest-growing paint player in the industry. And hopefully, that Laxmi, in other words, since you asked a number of questions on that, in this term, right? So that's what we are looking at.

But till then, thank you. We are mindful of the fact that we are playing in an industry which has got multiple leaders, who also move with great speed. So it's an interesting time. Thank you.

[Manoj Menon, analyst]

Thank you, sir. Thank you, everyone. Have a wonderful evening and a great weekend. Thank you.

[Rajiv Rajgopal, executive]

Thank you, everyone. Bye.

[Operator]

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now exit the meeting. Thank you, sir.