Akzo Nobel India Ltd

NSE:AKZOINDIA

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Akzo Nobel India Q4 FY '23 Earnings Webinar, hosted by ICICI Securities. [Operator Instructions]

[Rajiv Rajgopal, executive]

Faizan, is there an audio issue? Or Manoj, is there [indiscernible] audio?

[Manoj Menon, analyst]

Rajiv, can you hear me? Manoj here, sir. I think you're on mute. Rajiv, I think you're on mute.

[Operator]

Sir, were you able to hear my opening? Sir, we are not able to hear you.

[Technical Difficulty]

[Rajiv Rajgopal, executive]

Can you hear us now?

[Operator]

Now I can hear you, sir.

[Manoj Menon, analyst]

Absolutely. Yes. Yes, sir. Okay. Faizan, leave it to me now. Hi, everyone. It's a wonderful morning, afternoon, evening, depending on the part of the world you're joining this call from. Representing ICICI Securities, this is Manoj Menon here. I cover consumer sector here.

It's our absolute pleasure to host the -- as usual, the quarterly results conference call of Akzo Nobel India. It is Q4 FY '23 results webinar today the management is represented by Mr. Rajiv Rajgopal, Managing Director; Mr. Krishna R., Chief Financial Officer and Whole Time Director; and Ms. Harshi Rastogi, Chief Compliance Officer. As usual, we'll have a brief presentation by the team, the management team, post which we'll open up the floor for Q&A.

Rajiv, Krishna, Harshi, over to you, sir.

[Rajiv Rajgopal, executive]

Hi. Good evening. Good evening. Can you hear me, Manoj?

[Operator]

Sir, you're audible. Please go ahead.

[Rajiv Rajgopal, executive]

Thank you. So good evening to all our investors. Delighted to be here for the quarter 4 and the full year results. We've just announced our results of Board meeting and delighted to be here along with Krishna and Harshi to walk you through the numbers.

Harshi, could we up the slides, please? Yes, can you see the slides now? Anirudh, can you -- Manoj, can you see it, please?

[Operator]

Yes, sir.

[Rajiv Rajgopal, executive]

Lovely. Okay. So the first slide is really the visit of our global CEO, Greg Poux-Guillaume, who had visited India just a few months back. And you are seeing him along with other senior members of the region and India to sort of walk him through the Thane factory, right? So that's really what the video -- this frame is about, the photo is about, right?

Really what you can see is the fact that Greg had come to India in a 2-day or 3-day visit with India, with meeting customers, meeting different markets. And really, this entire story is about saying how we can invest in India. What really delights me is the fact we've got a CEO who is absolutely delighted, and he is really wanting to drive India to the next level.

So quickly on the slides. For the benefit of those people who joined for the first time, a little about us. Akzo Nobel India is a listed entity, part of the Akzo Nobel N.V. Group. We've got about 1,500 employees, 5 offices. We've got 5 manufacturing sites. And we are doing a lot of work on capacity augmentation as we see and expansion plans to make sure that we are seen as a serious player in the paint industry.

We are focused on scaling our distribution, both online and off-line channels. And really, our intent is to try and see how we can increase our coverage. When I joined this company in 2020, we were available in less than 2,000 towns. As of today, we are almost in 5,000 towns. And really, our intent is to see that how we really start becoming a very significant player as we move forward, right?

We today cover almost about 20,000 paint retailers and about 4,000 B2B customers. We've got a world-class innovation center. We support the global automotive and specialty colleagues who are working in Bangalore. And we have also inaugurated 2 years ago what we call the Low-cost Innovation Centre in Thane R&D. What is Low-cost Innovation Centre? To create differentiated products that we'll start bringing to South India, South Asia, Southeast Asia, markets like that, where we will have innovations, where we can start differentiating, and also focus on driving sustainability as we start moving forward, right?

On the business environment, I think all of us sort of read the same newspapers [indiscernible]. You've seen that as far as the world is concerned, India continues to be [indiscernible]. So I must say that, obviously, if I want to look at the predictions or projections about a year ago for the year right now, it's slightly contrasted and that we are seeing it. However, suffice to say that we are seeing a good uptick.

There is a softening of raw material prices, which all goes well as we move ahead. But again, there is still a lot of volatility and uncertainty given the sort of gloom that exists because of the Ukraine war, et cetera.

Yes, FX volatilities continue to persist. As all of you know, that currency, besides the entire crude oil price, plays a huge role in designing our pricing.

To quickly remind all of us on the strategic drivers so that in the AGM I will cover in terms of what next. Yes, really, we've been focusing around 6 pillars.

Focus on brand building. Maybe we need to invest more. We'll start seeing that as we start moving there, as I've told you, this is the outlook, significantly over a period from now to 2026.

Yes, so looking downward, in the right, focus on the core, how you create differentiation, how we win in adjacencies, likely to see the work [indiscernible].

[R. Krishna, executive]

[Foreign Language]

[Rajiv Rajgopal, executive]

Yes. And if I could request all the participants to be on mute, please. After the presentation, we'll open it up.

On distribution, we've been sort of looking at both online and off-line. Off-line, as I mentioned to you, we will increase our footprint. Well, the good news is, in the first 5 months of the year, our distribution, we've almost covered the number of retailers we did the whole of last year. It is the first time we've achieved this feat, so it's a fantastic achievement, augurs very well as we enter into the season, which I believe will be quite a swing this year compared to the prior years because of the later Diwali.

We're also seeing a good buildup on our e-commerce platform, digitization. As all of you've seen, we are working on global CRM tools, IoT in our manufacturing sites and also digital-first approach for consumers and printers in order to create readiness as more players get into the market.

Yes, initiatives on value creation to continue our double-digit profitability. You've seen the results of the full year. Yes, our profit -- EBIT margins have been significantly ahead of [ previous years ].

And on people, we are a people business, so we really imbibe people-centric culture. One of the things that I'm committed to has been to move a lot of my team members into larger roles, both in Akzo Nobel and also make sure that people are doing roles they get [indiscernible]. That's the true value what we imbibe, individuals who work in this team. And innovation, really how do we bring the power of science to the magic of paint, yes.

Quickly on the quarter gone by before I -- Krishna runs through the financials [indiscernible]. Yes, so we had a good quarter, a 10-digit -- sorry, double-digit growth, almost 10% growth. The B2B arena saw a little sharper growth, nevertheless, both Paints and Coatings together delivered 10% across different businesses, likely differently. And in the retail business, we saw faster growth this time in the smaller towns than in the large urban towns. Premium has grown significantly high double digit for us. Yes, we had some challenges in some of the economy segments which we're addressing as we move forward.

Marine & Protective, phenomenal orders from coastal and navy. And also oil, gas and infrastructure segments have done well. Power coatings, we've seen strong growth in automotive GTC segments and Interpon Stone Effect range just got launched.

In our Industrial Coatings, yes, we've seen coil which was impacted this quarter because of a high base and also lower exports, largely Sri Lanka and a little bit of APAC. Packaging segment was driven by our consumer FCG and ink business. And in automotive, we've seen premium growth. And the OEMs accelerated, as you've seen the OEM results, but we have a subdued commercial vehicle over the quarter. Yes, so that's really on it.

On the next slide, you can see some of the launches. I've talked about it in many of the -- sort of each quarter results, some of our growth drivers. As we speak, we are just launching our PU Satin products. We are bringing a lot of products between now and Diwali, which I mentioned to you.

We've also seen our DIY products, which has started getting a good [indiscernible], right? And we obviously partnered with [indiscernible], as you know. And you can see some of the work that we did. Proud of the fact that we are associated with [indiscernible]. We are associated with the Statue of Unity. We are associated with the entire coating of the warship that sort of were designed, right, INS Vikrant, right, where we play a role. It just goes to show that -- and we are also coating -- we are also a large player in coating essential stuff, right?

So clearly, I think our products are world-class, and that's been the power of it, of why we believe we can stay ahead. And we also start now playing for segments where growth is coming in, yes.

So I'll hand it over to Krishna and then come back. So Krishna, just sort of high level before I hand it over to you. So revenue saw 10% growth and EBIT margin growth of 32% and a PAT growth of 28%.

Krishna, why don't you have the numbers [indiscernible]?

[R. Krishna, executive]

Thanks, Rajiv. The whole performance centers [indiscernible] strong order. We reported around INR 951.4 crores for the quarter as top line, which is 10% year-on-year...

[Operator]

Sorry to interrupt you, sir. The audio is not clear from your line, sir.

[R. Krishna, executive]

Okay. So 10% Y-o-Y growth is coming from robust demand in both the B2B and -- B2B segments and Paints and Coatings. Our gross margin for the quarter was the highest ever, attributed to our timely pricing actions which we took earlier last year and supported by the RM prices, which we have seen a downward trend. And this, coupled with our controls on the cost -- judicious cost management and the controls on that, translated into 32% EBIT growth. Both GM percentage and EBIT percentage improved on a year-on-year as well as sequential.

Profit after tax was at INR 95.4 crores, which is up by around 28%. If I exclude the last year exceptional income of INR 2 crores in the Q4 of '21-'22, the PAT growth would have been around 31%.

Coming to the full year performance, it was a stellar year for us with record performance in absolute terms across the revenue, gross margin and EBIT. Steady drivers, as alluded by Rajiv earlier, enabled us to bring strong product portfolio, increase in reach and improved efficiencies. Decorative Paints growth largely from many launches this year as well as the projects business. Coatings growth has been -- was a key beneficiary of growth in the core sector, industries and the auto sector.

While RM price softening started earlier part of this year, earlier part of the calendar year, benefits on margins was slow to come. Nonetheless, we continue to maintain a double-digit profit level of 11.6%. PAT growth for the year was around 16%. However, if I exclude last year exceptional items of, what, around -- tax benefit of INR 16.8 crores, like-to-like basis, PAT growth was at 24%.

Moving to the next slide. Happy to report that whatever you see as a percentage of revenue remains one of the strongest in the industry and reducing from 10% in March '22 to 6.8% in March '23. Our focus remain on the cash and the improvement in the cash generation cycles. And with this cash generation cycle, under where we see controls, we were able to -- or we ended the year with a liquidity of around INR 314 crores.

Our record performance has also translated into the stronger shareholder returns. For the current year, the final dividend of INR 14 per share was proposed, which aggregates to the total dividend of INR 65 per share.

[Rajiv Rajgopal, executive]

Yes. So first and foremost, big thank you to the entire team for a fantastic performance. But clearly, one of the strongest years we've had and laying the foundation for what I call is going to be establishing us as not just a serious player or serious contender but making sure that all our investors understand the sort of work that we are putting in ahead of the serious competition that we see ahead.

On ESG, again, another area that we take with great seriousness and pride. We've already moved to 10% recycled plastics in containers, ahead of the PWN Rules. We are progressing towards 50% renewable. And we are trying to get our targets by 2025, 34% currently. We are already zero liquid discharge and zero waste to landfill.

We are -- as you all know, we are certified as a Great Place to Work. We've come among the top manufacturing companies. We've also worked very closely in our CSR and great work being done by the team there, led by Harshi. 3,700-plus youth and painters trained in 2022. We provide education for 6,000-plus children. It's something that I'm really passionate about, which is not mentioned on the slide, is the fact that we are empowering women through a project that we've talked about or in the news, where we've really started moving into 3 states where we started providing livelihood to women through our paints and painting opportunity services, right? We've been conferred and commended for significant achievement in CSR at the CSI-ITC (sic) [ CII-ITC ] Sustainability Awards 2022. And you can see Harshi, along with the colleague, receiving the award from Mr. Nitin Gadkari.

In terms of governance, we pride ourselves of having the highest standards of corporate governance. For those of you who've seen our results today, and you see some of the initiatives, you clearly see that we will -- and auditor that we have, we eventually bring it in a very transparent manner. We are -- I think our auditors also love that. We challenge ourselves in terms of saying how we're building a safer model and how we're creating stronger governance for making sure the organization is sustainable. And some of the questions that investors ask me when I got into the role are behind because, ultimately, processes have to drive results. So 50% we've got independent directors, 100% independent audit committee, and we are governed by the AkzoNobel Code of Conduct, which in my view is gold standard, right?

So with this, I would just like to conclude. But before I conclude, I also would like to take this opportunity to give a big thank you to Harshi Rastogi. Harshi Rastogi has been our Company Secretary, as all of you must have read. She has a personal ambition of moving back into the finance area and also has got a fantastic opportunity. And as we believe that we like individuals to grow and fly, sad for us, yes, but we are right now looking at a successor. And we will try and find, make sure that we find someone to fill Harshi's shoes, though they're very big. So a big thank you, Harshi, for all the wonderful work that you have done.

And really happy to take any questions that all of you will have now. So back to you for the Q&A.

[Operator]

[Operator Instructions]

[Manoj Menon, analyst]

Faizan, Manoj here. I'll take a couple of questions which we have in text option. Team, there's a question from Mr. [ Heman Shah ]. How was the demand in T1, T2, T3 towns in Q4?

[Rajiv Rajgopal, executive]

Yes. So as I mentioned to you, Manoj, if you look at for us this time, normally, our growth historically for the full year, the first 2, 3 quarters are very strong in T1, T2. But in the quarter that's gone by, the quarter 4, with the results that have been declared, we saw a sharper demand come also most likely because of the base effect coming from the T3, T4, T5 towns.

Manoj, have I answered your question? Manoj, am I audible?

[Operator]

Sir, you're audible. Manoj, sir, we are not able to hear you.

[Manoj Menon, analyst]

Yes, yes, Rajiv. Actually, I think -- For [ Heman ], I think you probably got the response what you wanted from the management. Let me move on to the next question in the text option, which is from [ Rahul Kumar Paliwal ]. He says, Akzo -- so I'm just reading it out. It's a long one.

Akzo Nobel is considered the finest paint in India and the world. But the brand image, particularly in India, Asian paint has an edge with reach, distribution and reference points. What is stopping Akzo Nobel from cracking the code? Why is that super quality having relatively low mind share and market share? And how, as a leader, you are handling it?

Sir, I just read it verbatim.

[Rajiv Rajgopal, executive]

Yes, no problem. Thank you for that, [ Rahul ]. well, if I had the secret mantra, trust me, I would have already deployed it. But suffice to say, look, I think we share to the leader in the market, it's a journey over the last 2, 3 decades. I joined in 2013. Market shares are pretty much where they are, maybe a couple of points lower, 50%, 52%, right?

So I think the question which is in our mind is really how do you get that back. Now the strength of this brand, since you are referring to Dulux, is about quality. So we started a program called Dulux Assurance 1.0, where we gave a money-back guarantee to consumers. We've got some fantastic response. And after launching that program, we've not seen that. We are going to bring a 2.0 very shortly, and I don't want to talk about it because it is not material. But suffice to say, in a few months, we are coming with even more [ profitable ], right?

Now when we do that, and you are absolutely right, our A&P as a percent of our revenue had dipped over the years to almost 1.7%, whereas the other players are about 3% or 3.5%, right? I think our intent is to get back to 3%, 3.5% immediately so that we are seeing, we are visible and not just on media spend but also on visibility in the market; and then over the next 2, 3 years, try and sizably grow it.

The third is 70% of the growth over the last many quarters, last 2, 3 years, have come in from 3 categories, is coming from mass market, waterproofing and economy. If you look at -- if I take 5 years ago, we were not really playing aggressively in mass. We have not even started with waterproofing really. And we were very weak in economy, right?

In 2018, when I got back, we put the waterproofing range. And yes, I've started some [indiscernible] but really started seriously. And now we have serious with the economy with exact numbers. But suffice to say that we are rolling at almost 40% CAGR in that category.

Mass market, we've had good growth. But in the last quarter gone by, it does not mean to my expectation. Yes, we could -- I think we could have done a little better, which is where some of our competitors are a bit better. And on economy range, honestly, I think there's a lot of growth here.

So we are working on this plan. We are clear in terms of where the growth is coming from, which is the segments it's coming from, which are the players which are relatively doing well. We've been troubling ourselves as a management team and also keeping our ears to the ground.

So we believe that, we will have the sort of winning formula. But again, we are going to grow given the fact that we are #4 player. And for us, as we do it, as you've seen over the last many years, profitability is an important parameter. One of the things I don't want to do here is the fact that I dilute significantly the profitability.

When I joined the business in 2013, the return on sales was 5%. Currently it's almost 12.5% including [indiscernible], right? When you compare that with some of the other players in the market, you'd see what I'm seeing. We want to remain profitable because that's what will give us the energy and power to be able to reinvest in our brands and business.

So I think it's not an easy answer particularly when you're coming from a position that you were. But what I can suffice and say is I've got great confidence as I have in the past many quarters. And you've seen in our full year results that we are a serious player. And you will see us bouncing back with all the ingredients that you say we have, right, really coming back, yes. So that's what I want to really say.

[Manoj Menon, analyst]

Thank you, Rajiv. Faizan, I find Chanchal there on the question queue. Can we take the questions in the audio, and then we can step back to anything in the text. Thank you.

[Operator]

The next question is from the line of Chanchal Khandelwal from Birla.

[Chanchal Khandelwal, analyst]

Hi. Am I audible?

[Operator]

Yes, sir, you're audible.

[Rajiv Rajgopal, executive]

Yes, you're audible.

[Chanchal Khandelwal, analyst]

Firstly, let me congratulate you because the company, at what position it is today, is basically because of the best people make the company. That's my family. So congrats on a good set of numbers which you have been delivering and the turnaround is actionable that you've seen.

Now my question, Rajiv, is that, firstly, in public domain, so your contract with Akzo continues still how long? It is important for us to know. You are here for the next 5 years or how long it is, important for us to know.

Secondly, on the growth part, you spoke about economy and value segment and waterproofing. All this put together is how much as a percentage of sale? How much is the industrial business as a percentage of sales? Because where I'm coming from is that given the increase in competition in decorative, a lot of people eye industrial as a market, including your MNC competitor. So I'm just trying to understand how -- because that market is growing well, industrial is doing well for now, how big you are and what is your right to win there?

That's the second part of the question. And third question is that the support from the parent, has it changed in the last 3, 4 years? Or you are getting that more confident that you are getting big support from the parent?

[Rajiv Rajgopal, executive]

Yes. So let me start in the reverse order. If it's okay with all of you, so I'll start in the reverse order. First, in a more local market, your parents doesn't message you or you don't have the message of your parent. It's easy to [indiscernible], right?

I want to start to be facing people that Akzo had a journey well before Thierry joined, our previous CEO, Thierry Vanlancker. And no doubt he was committed to it because when he took over, his predecessor left the position because of ill health. And as a result, some of the actions we took between 2019, 2018 and 2020 were action of 15% by '20 of how to move the company to a 15% [ growth ] by 2020, something that the company achieved superlatively.

Now coming to your second one. As I mentioned to you, Greg was in India for a couple of days. He is the first CEO who has chosen to come to India before visiting Europe or even China, I think that sends a message. If not to the Street, at least to me, right? He spent 2 days. I must tell I was with him except for the time Greg went to his room to sleep at night, almost virtually with him. I've never seen a person who's been so excited to run a business in India.

By the way, just for the record, Greg used to be the CEO of what is called GE Alstom business, which is the power business of GE in India. So Greg knows inside and out of India. My biggest challenge was what do I tell him about India, which he doesn't know because he seemed to know the big business houses, he seemed to know cities, he seemed to know what is doing well and he seemed to know that in a very detailed manner, very granular manner.

His message for me was, Rajiv, you asked me the money I'm going give you this. It's very different in terms of tonality from what I've heard in the past, or whatever constraints they were because of the strategic options that Akzo Nobel was perceiving. Greg is taking time around [indiscernible] strategy. He believes that India, we can play a serious role and before really looking at a massive M&A or any other option, he wants us to demonstrate that we are able to invest in our business and grow our business which is something that we are also committed to. So that's the last question.

Second, in terms of the reverse order, Industrial business accounts for about 35% to 38%, almost 40% of our overall turnover. The business is doing well. But do we have a right to win? Yes. Remember, I ran the largest business of B2B in Middle East, Africa, Dubai, because we've got customers like Aramco, [indiscernible], which is your LNG gas terminals, Abu Dhabi Oil Company, all these were customers. We've got the same relationships in India. What I'm glad is our team is building on some of the relationships and needs.

We are all working as one Akzo Nobel now. We've got one Akzo Nobel in India which works with me and with Krishna to really bring out the power of the top 15 business out that we do estate. And we are very confident that this businesses over the next few years as India business infrastructure.

Just to give you an example, many of you have been to the Bangalore Airport, new airport, just to let you know, we've also done that, right? So all that work also been as, right?

So just suffice to say, when I look at some of the projects we are winning and some of them being world-class we are right up there. So I see no reason. Our right to win is our technology, our right to win is our global expertise, our right to win is brands like International, Interpon and Sikkens, which we believe are world-class brands [indiscernible]. We're looking at the hands and seeing strong customer alliances that we have, we are blessed to have alliances with companies like M&M, et cetera, Bajaj. We are really taking out some of our customer relationships really meaningful. So that's on the other part.

On the pace part, yes, suffice to say that we are doing well. There are certain challenges. And I think my view is as far as paint is concerned, Chanchal, as we move forward, you will see that some of the journeys that I have been working to all of you on investor meet calls will start profit.

Coming to the last part which was one of your question to me. Look, my contract with Akzo Nobel as a managing director is a separate part. I'm a full-time employee, right? So now in terms of tenure, I think that's what Akzo Nobel to come back. My tenure ends only in October. I'm sure Akzo Nobel has its hot into place. They understand India is a serious market. They understand the intention of competition.

And let me also give all the investors that two people who've trained under me are getting ready for future roles because also from a next 2-, 3-year horizon perspective, there are people who are sort of working with me, who are getting international exposure and India exposure at this point of time, strong leaders, et cetera, and we'll sort right?

One point I forgot to mention on pace is that in premium, we are dealers almost #2 player in paints with almost -- if you include -- the work trains including drivers a premium, we're almost at 16% or 18% market share. And we believe that we've got a right to win because of the brand and what our other kind words you would say.

So on my staff is specific [indiscernible]. I'm sure I don't know where at the right point of time. But again, here you are all professionals. This is a very professionally run company. And believe you and me, Chanchal, I will fail in my duty if this company is completely depending on one man only. Honestly, all the kind words all of you said, really the interest just thought if this company is going to be run on.

The way I've run this, for example, when I said launched 4G for Airtel, I'm sure Gopal will turn is tell you that when I left, it was a least disruption because I ensured that the transitions are so smooth that the business from INR 5,000 cores, INR 6,000 crores excluding almost INR 40,000 crores.

So to me, apart proof of the pudding that you've set small process in the procedure where teams after you were able to take it and sustain it. You feel proud, I feel proud of the organizations whether it's Hindustan Lever or Airtel to that. Of course, Akzo Nobel is single largest senior company now, right?

So rest assured, I've [indiscernible]. Just one thing, I will never join a competitor, right? Be very sure and right now a lot with my job and unless Akzo Nobel some other thoughts. I'm very much here, and I'm going to engage with all of you along with Krishna very soon in a physical meet in the investor phone. So hopefully, I've answered all the questions.

[Operator]

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

[Avi Mehta, analyst]

Hi, can you hear me?

[Rajiv Rajgopal, executive]

Yes, we can hear you.

[Avi Mehta, analyst]

Congratulations on this performance, Rajiv. Thanks for the earlier clarification. Honestly, that was one of the questions that I also had, what Chanchal asked about whether you are kind of continuing or not. But I think your answer is clear on that.

I just wanted to kind of delve on 2 specific aspects on your strategy. One, you have -- last few quarters have been great in terms of your ability to drive profitability back up. But you pointed towards the need of focusing on raising ad spend to levels that you have seen in peers. In such a scenario and given this changing entry of a new player plus our parent's guidance, how should we look at margins going forward from where we exited at 4Q? Is that a run rate that we can sustain? Or do you feel the need for investments will probably mean that further expansions likely to be limited? I would love to hear your thoughts on that.

And associated, if you could also -- one of the strategic drivers that you pointed to was -- sorry, I'll probably ask the second question later. Maybe you could kind of give your thoughts on the first one, please.

[Rajiv Rajgopal, executive]

Yes. So look, at this point of time, it's not fair for me to give a forward-looking statement. But I give you our Krishna largely been telling the corporate that we will want to hold EBIT margin because we believe that we have now that is the zone as they call it in ticket where we believe we can get the truth. So we are in that zone where now for us building scale takes precedence or driving one leg, which is driving profitability.

Suffice to say with some new competition, we do like other players, expect a couple of margin points pressure or basically improve things, the rational disruption of pricing in the market. But we are working strategies there. How can we [indiscernible] avoid it [indiscernible] position in premiums....

[Avi Mehta, analyst]

Sorry, Am I audible? Hello?

[Rajiv Rajgopal, executive]

Yes.

[Avi Mehta, analyst]

Sorry, I think your line dropped in between, but you were...

[Rajiv Rajgopal, executive]

Yes. So I'm saying that look, so as far as EBIT margins are concerned, we've committed to double-digit profitability we don't see in. But yes, we do see a bit of challenge. Our endeavor is to hold the margins where we are right now, right, with -- and not really with improving EBIT, for example, [indiscernible], et cetera, we want to now really focus in terms of winning in the market. That's really and growth to you. That's where the focus of the team is. If I answered your question, Avi.

[Avi Mehta, analyst]

No, no, that's clear. That's clear. The second bit that I wanted to kind of just delve on was on one of the strategic drivers that you pointed to was distribution expansion. Now I understand would you have any targets in mind in terms of city count or in terms of reach that you would like to reach, say, 2 years down line or a year down the line? I don't know how do you kind of look at this just to get the team focused on a particular number if you have something in mind?

[Rajiv Rajgopal, executive]

So I can give you some broad numbers. See, when you look at number of outlets for every company, the definition is very different. We are very stringent in putting a revenue measure, okay? The reason I put a revenue measure, ICS, for example, minimum INR 50,000 from an outlet for an update to be considered active.

So if I give you a number of outlets, it's very different from another player who may not have similar definitions. So when I also have now started realizing that when people look at -- the definitions are different by it, it's not a standardized relation.

So let me put it in terms of number of tonnes. I think in terms of number of tonnes, as I said, our endeavors to cross 8,000 tonnes in a couple of years and then say, how do we really start moving to close to 9,000 tonnes. So really, I think in the next 2 years from the current 4,800 to 5,000 tons to really say how we really mean in a meaningful amount reach the next 8,000 tonnes.

As I mentioned to all of you, we started what is called [indiscernible] sort of sustaining. You've seen we meet our distributor journey since 2015, right, 6 years ago we have done it. I set it up started setting it up in 2013. So '14 to '23 is a long journey, 10 years, right? And now we are doing the version 2, which is very [indiscernible]. A little more into the smaller to the rural markets, right? So that's what we are working on. And hopefully, that answers your question.

[Operator]

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

[Tejash Shah, analyst]

Hello?

[Rajiv Rajgopal, executive]

Yes, sir you're audible.

[Tejash Shah, analyst]

Rajiv, thanks for the opportunity. Yes. So Rajiv, if we see the evaluation of product portfolio of most paint players in the last few years, it has been largely around, I would say, on adjacency side in terms of waterproofing in terms of construction chemical. So I just wanted to know where are we in that journey? And how do you see adjacency playing role in growth ahead for us?

[Rajiv Rajgopal, executive]

Yes. So as I said, waterproofing, we entered pretty late in 2018. We have a CAGR growth since then of almost 48%, 49%, to be honest. And in the last quarter of almost 39%, right? We have started entering many segments, whether it's waterproofing, whether it's supply systems. So other than the rains, we will be entering almost characters in the next see some action on it between now and early next right?

So we do -- we believe that we -- our challenge was -- there are two things in this sort of a business. It's not just about the sale, it's also the service. And one of the good things we learned from the new player in this market is probably a really set up the HR service model to be able to be very meaningful in this business, right? So given some of our background, right, and some of the teams members that I hired, we even have a good system to be able to make sure that we are completely sort of able to capture the customer voice and be able to ingress customer credit rapidly. We are starting this in meaningfully only in a few series because we were really big exporters so we grow it.

Are we a serious player? Yes we are a serious player, and you will see us participating in this category very gently. Our attempt is like in most things, we want to be in the top 3 in the next 3 years. That's really our endeavor, right? It's not that the other 3 existing top players are also I'm sure will be very aggressive. We are month of that and very respectful of that. But we are very serious that we really want to get into the bracket. And as a result, whatever we do in our adjacencies in other categories have to be accretive to our eventual goal.

[Tejash Shah, analyst]

Sure. That's very helpful. Second, we have kind of an inherent strength on the premium side of the portfolio. But at the same time, there has been a long-standing kind of vacancy in the mass end of our portfolio. And we have attempted in the last 10 years, I have seen 2, 3 attempts which have been made to correct that deficit in the portfolio. So where are we in terms of today in terms of catering the mass end of the demand? And what will resiliency of that part of the portfolio in overall revenue today?

[Rajiv Rajgopal, executive]

So look, I don't talk about category contribution to revenue because that's, I think, something that we don't talk about. But I'll give you sufficient information in terms of what we've done.

You're right, when I joined the company, we had 2 brands. We have progress and rainbow. Coming with this sort of background I have you cannot in a mass period with a single brand. So we move to promise. And in 2020, we move to launching PromoSmart Choice into entering the economy.

Where we believe that we started getting new boats, which is -- the reason why we've been able to access or gain ingress into many small towns and into many outlets, right? So that's really been the success. I generally think it's going to be very accretive. I do think that, that's one category that we are keeping in. It is the profit pool of many of the larger players. So obviously, for us to clear a meaningful role and even dream of being the top 3, we have to have a meaningful market share. I hope that answers your question.

[Tejash Shah, analyst]

Yes. But would that be margin dilutive, that journey of gaining market share in that part of the business?

[Rajiv Rajgopal, executive]

Look, I think what we've done is over a period of time, our margins when we sort of started the journey to now we've been able to address and bring it close to our average contribution burns, right? So when I started the journey and I joined this company, mass used to trade at almost 15 points lower. Now it's almost coming equal. So we don't worry. I think that's something that we will try to maintain. Even if it's little dilutive, as I said, we are very sure of the able guidelines.

[Tejash Shah, analyst]

Perfect. And then last one, if I may. Very broader level question on how the industry is evolving and then the kind of competition we are seeing from adjacent players and new players also. So do you think that this calls a very -- like makes a case for some consolidation in the industry, either incumbents like you acquiring smaller players or there has to be some consolidation between big players? What are your broader thoughts on the industry looking at next 5, 10 years from here?

[Rajiv Rajgopal, executive]

Okay. Most -- look, I can't talk specifically of this industry because we have to wait to see how the future pans out, right? As they said, pictorial -- all I can say is that look at different sectors have been sort of privileged over with telecom, et cetera, or even in the FMCG space, if you look at [indiscernible], there is some consolidation happening, right? But again, consolidation has to come with what is the strategic advantage that will bring. Once that is answered that it makes 3 in sense, then it's worth it.

Otherwise it's adding more without any meat in what in dry ad, right? So we are in capital. As a player, we are very choosy in what we do. We've taken the journey of moving to many growth and working on our top line. And that's what we'll continue to do. And we will keep all options open and some of our global certain. As you know, they have acquired the Kansai business in Africa. That's a case in point to say that we are an agile focused player, we want serious positions in markets like in India.

[Aniruddha Joshi, analyst]

Yes. Anirudh Some questions from my side. So in this quarter, we have seen there was extreme winter in early part of January. And also, there were unseasonal rains, especially in North India. So has that impacted our exterior paints offtake during this quarter? And do we see some shift of revenues happening to, let's say, the coming quarter?

And the second question is now with -- obviously, with correction in input prices, it is expected that the rebates or the trade discounts are likely to increase significantly. So how do you see the on-ground situation as far as this is concerned?

And third is some of the paint companies have also announced that they want to get more closer to the influencer that is winter and contractor and some of the schemes, trade discounts will be directed towards these influencers. So what is Akzo's strategy in this regard?

[Rajiv Rajgopal, executive]

Yes. Okay. So let me just try. So the first question was around the winter. Yes, no winter was there. Yes, it rein places and however the exterior paints or an average look at our premium which experienced a large part, we did very well. Actually, we had some challenges in a few states in the mass market, not so much in the creation. So that's the first.

The second really your second question was around -- the second question was I not know your third question, your second question, remind me.

[Aniruddha Joshi, analyst]

Sir, with correction in input prices, there is likely...

[Rajiv Rajgopal, executive]

No. So that is the third question anyway. So remain, yes, look, there is aggression by some of the players. Obviously, we will respond a vigilant manner and in a sensible manner. See, when you run a business, you have to go to the long term, right? So we will take positions. There are certain parts of the portfolio where you will need to respond, certain parts of the portfolio you need to sustain. So that's more our approach as we'll not shy away from taking price increases that are in the market. And we will continue to look at making sure that what we do is a long-term play, not a short-term play.

I missed one question you asked. Yes, you painters contractor. Your painters contractor, yes, we've already bought to. I think we've got now systems by which direct payout can happen. We are -- we've started bar code, we got painter app. So we've got -- we are very digital as far as painters and contractors are concerned. So yes, I believe that's the [indiscernible]. I hope I've answered all your questions.

Can we have the last couple of questions, please, because I'm mindful of the fact we just got about 7 minutes here.

[Manoj Menon, analyst]

Sure. Manoj here. Sir, let me take a couple of questions from the Q&A. So we have one from [indiscernible] of FSSA which is [indiscernible].

Okay. She asks, with new competitors coming in, all incumbents are focusing on the premium end of the paints, which has been a sweet spot for Akzo being over-indexed with Dulux. Are you seeing any changes in competitive intensity or in the margin structure of the segment?

[Rajiv Rajgopal, executive]

So in premium, look, their competitive intensity has always been high, but I think we were like to win because Dulux stands for the best-in-class quality international, right? And to me, those are propositions which give you a competitive advantage, right? So really, honestly, you can discount dramatically don't change premium sales as much as it does in the mass and economy but really advertising and granularly does impact. So those are areas we are working on to still bring the decoders back.

As I said, for us, the entire fund is about really seeing how can we bring the magical paint into the can, right? So really how well do we get that magic or pay sort of quickly into a growth vision is what we are really working on. And we've got some solid plans by which we will see some thought leaderships coming in the premium segment as we move ahead. On both innovate product innovation product differentiators as we start. Hopefully, I answered your question.

[Manoj Menon, analyst]

Yes, [indiscernible] is there, listening to the call, you can message me if there's a follow-up you need. Let me just check, sir, is there anything else on the Q&A? Okay. So there's a question from [ Utkash Solapurwala ]. What's your current capacity utilization and CapEx plans for FY '24?

[Rajiv Rajgopal, executive]

So our current capacity utilization, depending on the is close to around 60%. The reason is because we've got put a lot of automation into plants. We've automated significantly only running 2 ships now. It's best in class. If you visit our plants and see some of our other peers, et cetera, we see it soon. In fact, I would say agenda plants would be even in Asia, when we some of the best in class in terms of automation.

We've got things like IoT an AI already implemented in our plants, significantly ease of all the other peers. And hence, we believe that we're getting capacity over the next couple of years with increasing volumes will come about saying our assets and in hence improving our return on capital.

In terms of expansion, we are obviously, as I said, increasing our footprint in both power paint and some of the other business as we move forward. Capacity addition is not a challenge for us. We'll be able to do it faster than I said we are earning 2 ships. We can plug and play and ship. And then we can create additional capacity as we go. Our focus has been saying how do we automate how we really make sure we are spending the asset. Manoj?

[Manoj Menon, analyst]

Yes, sir, I'm just browsing through the Q&A. Maybe we'll take one last question. Okay. So Lakshmi Naryanan [indiscernible] Investments is asking you, what are the top 3 strategic priorities for Akzo senior management for the next 3 to 5 years? Please help with some quantitative as well as qualitative inputs?

[Rajiv Rajgopal, executive]

Look, I think that's I think a very difficult question, and I'm not sure I should be addressing such questions in public. Suffice to say, no, we won't be a meaningful player in the Indian market. We are #4 player. We are perhaps one of the few players in the industry in India at #4 which is significantly profitable. Our profitability in the year has even been ahead of some of our senior peers. And with respect to them they have [indiscernible] business, solid businesses, which we also indicate right, but still was in the market, right?

So I know somebody really more our position from 4 to 3 and then it's moving upwards. And that's turning the game. Organically, I had a few inorganically. In terms of EBIT margins, I have already done we won't remain in other regions in the profitability. We believe that our mix has been on skewed towards premium. I think for us, it's about the single month growth how do we really start growing in a cut model as we start doing it. so the growth should be something which is sustainable, yes.

So it's sustainable growth, and that's why really me and my team and Krishna are spending a lot of time saying that it's not about this quarter, next quarter, that will come and go as we've seen many quarters normal. I've been on the investor call since 2018 November, when I took over and grow our first and making pretty good then 2019, '20 [indiscernible].

[Manoj Menon, analyst]

Thank you, Rajiv. Thank you, Rajiv, Krishna and Harshi, exactly 5:00 now. Appreciate your time. Any further questions, we will relate to you. Thank you so much.

[Rajiv Rajgopal, executive]

Thank you. Thank you, all. Thank you for taking time out to join. Wish all of you have a wonderful day and week ahead, and thank you for taking out time.

[Operator]

Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes the webinar. Thank you for joining us, and you may now disconnect your lines.