Asian Paints Ltd

NSE:ASIANPAINT

Earnings Call Transcript 2024-Q1

[Sunila Martis, executive]

Good evening, all of you, and thanks for joining us to discuss Asian Paints Q1 FY '24 earnings. I'm Sunila Martis from Investor Relations, and I'm happy to welcome all of you here today. Today, we have with us our MD and CEO, Mr. Amit Syngle. We also have with us Mr. R.J. Jeyamurugan, our CFO and Company Secretary. And we also have Mr. Parag Rane, AVP Finance, joining us. I would now like to welcome Amit for his opening comments.

[Amit Syngle, executive]

Hello, everyone. Welcome to the investor conference for the quarter 1 of FY '24. I think it's a pleasure to kind of see all of you here. Let's kind of look at in terms of what are the headlines here.

We have always spoken about delivering joy since 1942. And as a brand, we exist to beautify preserve, transform all the Spaces and Objects, bringing Happiness to the World. I think this is a core value we had in speaking in terms of where the brand is and where we want to play forward. Overall, when we look at the quarter 1 of FY '24, I think it has been a strong quarter from a point of view of overall volume growth, which we have been able to deliver. Has been a consistent promise and what is -- we've been seeing very, very strongly for the 12 quarters in a strong manner, and we reduced double-digit 10% volume growth, which -- over a 4-year period was clearly a strong double-digit 17.5% CAGR in terms of what we see even the value number was relatively stronger in terms of what we see, about 8% in terms of what we registered.

Please remember, this was a very, very high base last year where we had grown by value of about 59% was also a price increase base and also growing over lower COVID base to that extent. So I think coupled with that, 8% on that is a still a relatively healthy number in terms of what -- we similarly, the volume base was strong at 37% over which the 10% growth has come in. We see that across geographies, there's a broad-based growth, which has kind of come in to that extent, which is as confident that it was a strong quarter in that way.

When we look at overall for the last few quarters, you have been seeing this that I think this is something which we have been strongly speaking for a quite some time that the result is consistent in terms of looking at the volume-based growth in terms of that. So the 4-year CAGR over the various quarters, have been clearly, if you see the band of about 15.2% very strongly. And I think that is something which is a strong penetration in terms of our commitment to total growth in terms of what we have been keeping pace over the few quarters as we see previous -- going ahead, I think if you look at some of the parameters in terms of how we would qualify the quarter, first of all, I think the good part is that compared to Q3, Q4 of FY '23, we saw the rural growth definitely improving, I think the rural growth was coming closer to the urban markets to that extent, which is a good sign in terms of what we see and saw in Q1 and I think we saw almost similar growth. And I think over a period of time, we are seeing that in 4 years, the CAGRs across rural urban areas are kind of same.

The overall product mix was led by the economy and premium range kind of growing. The luxury range was probably a bit down to that extent, but both economy and premium range did well. In terms of specifics, we saw the area of SmartCare waterproofing which has been on a very, very strong growth over the previous quarters we have seen, I think that kind of continued to maintain growth. The wood finishes, which is a strong area with lots of premium finishes there, grew quite well. Enamels again, which has a premium component grew well and the economy emulsions, which basically get into the bottom of the pyramid in terms of people who are coming from the unorganized sector to the organized sector, did quite well overall to that extent.

Our distribution pitch in terms of expanding the footprint that Asian Paints continued in a strong manner. We had reported about 1.5 lakh retail points earlier until the end of last year. We have kind of really added good numbers in terms of going there almost about 6,000 to 10,000 retail points, which we have been able to add in the Q1 period, which is a strong kind of signal to the market in terms of growth that we would like our presence very, very strongly, again, in every geography as we kind of go ahead even with respect to the T3, T4 town.

Services has been a strong pitch, and I think this is something which really kind of differentiates the Asian Paints in a very strong manner. Our safe pending service, which comprises of the trusted contractor service as well has done extremely well. And now we are present more than 650 towns and the revenue almost doubled in Q1 which was signifying that today, I think the trust levels in terms of the service are very high. And we speak of a fairly high NPS score, which comes in the service that we look forward.

Overall, from the point of view of retail versus projects business, the projects to the institutional business grew faster, and it was quite good, led by good construction activity, which propels the builders, but we saw goods led from government and also factories did quite well. I think these segments have been strong. And therefore, this B2B part of the business has been also spearheading growth in a very strong manner for us. From a point of view of

Innovation, again, new products, again, have been fairly consistent, and we spoking and speaking about the band of 11% to 13% contribution to the overall revenues. And I think that we have been consistent. And this quarter also, we saw about an 11% contribution coming in there to that extent.

Overall, we have already announced that there are various expenditures, which we have committed in terms of going forward, we had spoken about almost INR 8,750 crores to be spent over the next 3 years. And today, I think the overall capacity expansion has been going on pretty well. And we think we are on schedule for all our capacity expansions, which we are seeing going ahead in this year to that extent.

So I think the brief in terms of the largest areas, which is at work. I spoke about innovation and this being the leader, we kind of really appropriated this product, which is called Nilaya Naturals in terms of what we have introduced. This is a super luxury product at the highest point, which today no one invokes in India and this is something which is a totally organic emulsion which kind of comes in , which is packed with 90% organic materials which are earth safe to that extent with more than 200 shades served. So got a very good vintage matt look, very popular amongst Arctic designers. And therefore, this is our attempt to kind of really take on the Super luxury space in a very strong manner and offer something from the point of view of organic and green in a strong manner.

We look at really enhancing the decor on the walls in a very strong manner. And as part of that, we bring these finishes from the world. These are large set of Italian finishes, which we have introduced in the market. And this, again, is very popular amongst the AID segment. Some of these finishes are very expensive and again, in the Super luxury category in terms of what we speak.

But this really kind of takes the market and really makes it a point at the top end in terms of what we are doing in the market as we kind of go forward. Some clear innovation products, which have very, very strong propositions which kind of come in. We are talking here in terms of luxury exterior paint, which comes with almost 15, 15, 15 warranty, which is for durability for Algae and for the waterproofing. So a very strong statement again on the luxury part. We are looking at Hydroloc Xtreme, which can be applied on almost 70% damp walls to that extent, again, a technological innovation, which is there.

And lastly, an Anti Insect Paint, which again is something very strong innovation, which kind of keeps common insects away to that extent. So I think all things which are really world class from the point of view what really comes in including Purafin, which is one of the PU finishes to kind of really look at the mid-premium segment of wood finishes in a strong manner, which is what for the first time, a PU coming in this range. So as I said, every of these categories in the premium in the luxury space in terms of what we are looking at taking on.

Overall, I think just shifting from the surface to the share of space business, which is our home decor. Again, I think this has been a strong journey which we have been pursuing over the last few years. And if we today see -- we are -- at the end of the last year, we are about 4% of our decorative revenue in terms of what is there to that extent. And this is what we are steadily increasing as we are kind of going forward.

Today, we have become clearly the #1 integrated home players in terms of really offering customers decor under one roof through our almost 44 beautiful home stores, which we have kind of put across the geographies in India. And this is something which makes us very strong in terms of keeping to the customer because as we said that this whole part of Home Decor complements the coatings part in a very, very strong manner because you are part of the consumer decor life cycle in a very strong manner. We have become #2 in the fabric and the furnishing business. We have a co-branding arrangement with Pure brand, which is there in the market. We have got into areas like wallpaper through collaborations with ACE designers like Sabyasachi, Sarita Handa, and we have done also collaborations with partners like Jaipur Rugs.

We introduced the area of lighting and flooring, lighting, flooring and also the doors and windows with uPVC in terms of the category, which is also something great, which is happening. And finally, we're also now #1 in wall covering and texture.

So what you see is that literally in terms of most of the categories you are becoming amongst the top 2 kind of players in the market, including becoming the #1 player in the integrated decor area. As part of this, we have already have a kitchen and bath business, which has been there. The Kitchen business has been doing well. We experienced growth in the FTD business, which is there. The components business was slow. We had a high price increase based last year to that extent. And therefore, from that point of view, if you look at -- in terms of overall kitchen business, we were at a 12% kind of degrowth, which we saw to that extent in terms of our revenue.

As far as the PBT is concerned, we improved our margins in the kitchen business, and we were at about minus INR 2 crores kind of an overall PBT in terms of what we looked at. As far as bath is concerned, again, bath was affected by a strong base last year on a price increase base to that extent overall. And we almost breakeven here against INR 4 crores kind of profit which we had made last year. So I think we were quite affected given the fact that the basis of very, very high abnormal because of the price increase we feel that next quarter would be much better in terms of what we see in terms of the 2 businesses going forward as we kind of look at ahead.

Some of the -- this thing, again, luxury kitchens, which are been launched under the Crest brand by Sleek. This is something which all are in the range of about INR 1,200,000 to INR 1,500,000 per kitchen. So I think, again, a lot of work happening at the luxury and here in terms of what we are looking. We also have now our Nilaya furniture, which is literally having the European sensibilities in terms of what it kind of comes to it along with the way the Indian comfort kind of seeps in. So I think strong kind of introductions here, which have been introduced at our BH stores to that extent, and these are getting very popular. We are also kind of launched something called Fitted furniture , which kind of consists of vanity units in terms of Crockery, Entertainment units and so on and so forth.

So this is a new launch along with the wardrobes in terms of our BH stores in terms of going forward. So I think it completes the various areas of aspiration of consumers from where it kind of comes in. As far as the 2 new acquisitions are concerned, White Teak did extremely well at almost put a 28.4% growth. We also had good profitability in terms of the PBDIT, which was coming from this business, we have kind of added more stores, both company owned and franchise own stores, apart from the fact that the 44 stores are selling this White Teak. So we feel that this is something which is very, very strong. We've kind of acquired another 11% additional stake in June '23, taking our share to about 60% now.

So it has become our subsidiary. So strong business, as I said, we are #1 in terms of decorative lighting here. As far as we look at Weatherseal -- last year, we had doubled the sale. And this year also, we are doing quite well. We have already registered about INR 9.8 crores of net sales and therefore, really kind of expanding these businesses, and we think both the businesses have done very well in quarter 1, and we have strong hopes in terms of taking it as we kind of look at the year ahead in terms of what we want to do.

Some snaps of a new format of beautiful home, which we have put. This is called the Beautiful Home Studio. This is the next frontier in terms of our journey on the home decor and this is a store which has come in Chennai in Anna Nagar. And it's about 17,000 square feet, but it kind of is a store which is comparable to a store, which would be in Paris, London or New York to that extent. Very high-end luxury in terms of there and it has really kind of taken Chennai by a storm in terms of from where it comes in. And it is really high end from the point of view of offering decorative lighting, furnishing, furniture and lots of other areas in a very strong manner. So I think this is a journey towards taking the luxury and again, in a strong manner as we kind of go ahead.

When we look at the international business, it comprises of our operations in Asia, Middle East, Africa, largely to that extent in terms of the overall thing. We were -- I think it was a mixed bag in terms of the international business. If you look at the businesses in Middle East and in Africa, did quite well overall to that extent, including South Pacific. I think where we were hit was Asia, largely in the case of Nepal where we -- where I think there is a little bit of an economic crisis going on. There's a liquidity crunch. And I think there is where we degrow and this had a quite an effect on the overall Asia business, and it also had an effect on the overall global business.

In fact, what we have been seeing is that in some of the markets like Bangladesh, Sri Lanka and Egypt there has been devaluation of currency in a very, very strong manner. So if you were to kind of see this degrowth of 1%, but you were to convert it into constant currency terms, it comes to about a 4% growth to that extent which is there. So in that sense, I think the overall business is still about 4% positive in terms of how we see in terms of the value to that extent. As far as profitability goes, a large point of profitability comes from Nepal. And as I said, the Nepal market has been down to that extent. So overall, we registered lesser profits from last year, but there were still overall profits of about INR 27 crores in terms of what we see in this year. So I think the PBT levels have dropped down, but we are hopeful in terms of that Asia recovers as we kind of go forward because a lot of business comes from Nepal, Bangladesh and Sri Lanka to that extend in our international ForEx.

Going ahead, our Industrial business has been the star business in quarter 1. Very, very strong top line growth coming in. The PPGAP business, which is the business which caters to auto OEM and refinishes market, has done extremely well at about a 13% top line growth with both Auto OEM and Refinish segment doing quite well. We've got good realizations in the market from the point of view of our price in and with our B2B customers.

And also there has been an effect of the softening of the raw material prices a little bit to that extent which has kind of led to quite a very, very strong number coming in terms of the PBT, if you see. So the number is really very, very strong and really heartening in terms of what it [augurs] for us, it is almost 17% to about net sales kind of a zone, which -- when we look at the other business, which is the general industrial business, which is APPPG with there also, I think the growths have been very, very consistent. If you look at the last almost 10 to 12 quarters, they have been growing in double digits to that extent. And we delivered a strong almost INR 300 crores here with a 22 person kind of a growth coming in. So very, very strong. And the profitability numbers were also as strong, which is obviously, I think, aided by the softening of the raw material prices. But I think a lot of work in terms of improving the margins overall.

So I think both businesses are going from strength to strength, and this is really kind of adding to the brand in a very, very big way. So overall, if you look at it, when we look in Decor business also, I think today, the margins -- the gross margins have kind of gone up to that extent, we are looking at almost a 9-quarter high in terms of the gross margins to that extent. We have seen deflation in the last quarter, which is Q4 of FY '23. And we have seen some deflation of about 2% in the current quarter, Q1 of FY '24. And therefore, we see that the overall gross margins have gone up to about 43.4% really, and this has been also aided by a lot of work which has been doing with respect to the formulation efficiencies and sourcing efficiencies in terms of what we have brought into that extent.

So I think overall, this is a strong number in terms of what we have been able to get as far as the overall gross margins are concerned. So in totality, we look at the financials. At the stand-alone level, if you look at the top line, it's about a 7% growth led by double digit, almost 10% volume growth, which kind of comes in, which is very, very strong. As far as the gross margins are concerned, we are almost up by 550 bps points. If we were to kind of look at from the point of view of last year same quarter to that extent. And I think very strong 43.4% kind of a margin, which is kind of coming in. If we look at the PBDIT margins, again, very, very strong. They have gone to almost about 24.7% from 19.4% in Q1 last year.

And sequentially also, they have gone up almost by about 170 to 200 basis points to that extent. So I think a strong kind of growth happening with respect to margins, obviously, aided by some of the softening in terms of the prices. But this has obviously given us a lot of impetus with respect to even the PAT numbers in terms of what you are seeing right on the screen.

On the consolidated, the numbers are not too different. Obviously, top lines are more or less close to the stand-alone number of 7% in terms of what we have got, again, the gross margins are strong in terms of where you can look almost about 42.8% again a 530 bps point kind of an improvement in terms of what we see. PBDIT margins, again here compared to the last year Q1, we see 23.2% against an 18.1% number to that extent. And even on a sequential last year quarter, we see almost a gain of about 190 basis points to that extent. So I think strong and therefore, the PAT has been fairly strong in terms of what we have been able to see. There has been some kind of adjustments as onetime adjustment in terms of what we have made, which what we have kind of indicated as a note in the financials to that extent, but overall, I think even if we were to take those onetime kind of benefits out the growth in terms of both PBDIT as well as the overall numbers have been quite strong in terms of what kind of really comes out.

So what are we saying that overall, it's, I think, over to a good start as far as this FY '24 is concerned, our foray of double-digit volume growth kind of continues, which kind of gives us confidence in terms of our performance in terms of where it comes in. Home decor, while kitchen and bath have been a little bit sluggish, but overall, a plethora of other categories, fabrics, lighting, UPVC all kind of giving us good growth, and we think as a combined business is something which is galvanizing us in a very strong way and giving us strength with respect to our core business as well, as I said, it is making us part of the consumer life decor journey in a very strong manner to that extent.

The industrial business, obviously, on a clear uptick giving us double-digit revenue growth, and this is a business which has been growing at this rate for the last -- quite a few quarters to that extent. And therefore, clearly, the journey has been strong in terms of what we see going ahead. International, a little bit less up to our expectations in terms of what we expected, but I think the ForEx tightness, the devaluation and so on and so forth are a little bit of challenges, but we still see that I think we are able to kind of overcome Asia business, I think it will kind of give us good growths and good profits as we kind of go ahead to that extent.

Overall, from the point of view of operational efficiencies and other things, a lot of work which is happening both from the point of view of sourcing formulation. And I think this is adding to the softening of the raw material prices and giving us this kind of benefits in terms of what we are seeing to that extent. So net-net, I think a great start what we see.

Just a flash on to the ESG, I think all of you would have seen our annual reports, which has a strong component of intervening the business with the ESG numbers in a strong manner. I think a strong progress with respect to the 3 areas of environment, social and governance in terms of what we have kind of taken up. And I think these areas is something which we have steadfastly kind of pursuing within the organization as we look forward. Just to give you an idea, if you look at whether it is from the point of view of water replenishment or it is with respect to the energy, which is the renewable electricity to that extent or it is with respect to the certain areas typical to a chemical industry in terms of being on a hazardous waste or affluent generation or in terms of even the scope of 1 and 2 emissions which kind of come in. I think the progress has been very, very strong. The purpose that you see is what we have kind of achieved in the FY '23.

And then we have looked at 2 buckets, which is the 2025 bucket, which you see in the gray and the pink bucket, which is a 2030 bucket, which is there. So overall, I think it's the audacity of the brand that we are upfront kind of committing to how we are committed to the ESG framework and what we are doing internally. So I think on the social front also, today, a lot of work which is being done in terms of being water positive to that extent we are getting into a lot of areas which kind of generates water in the environment and also looking at the whole area of health care initiatives and training people from the point of view of making them win livelihoods to that extent.

So overall, employee engagement, other areas have been strong. But I think this is a strong area of focus for the organization as we kind of go ahead and look at it going ahead.

Lastly, I think all of you would be quite eager in terms of knowing what is our outlook. The outlook, obviously, we are seeing that the Indian economy is still pretty good as compared to what we are seeing some of the signs in terms of the world economy, whether it is Europe or U.S. or even China to that extent. And I think we will continuously push for aggressive growth. Our growth focus definitely would remain as we kind of go ahead to that extent. As I said, the rural demand has been good in quarter 1, and we see that given the fact that the monsoons today are quite good in terms of what they are paring, we would be kind of banking on rural growth definitely going forward to that extent. Raw material prices, while I think they have been going down, we are seeing some increases, crude is at a all-time high in terms of what we see once again to that extent. We do not know in terms of what trajectory, the dollar and the rupee take as we kind of go ahead. So we are watching today the environment in terms of saying where is the raw materials kind of stabilizing and then we'll take a call in terms of how we do look at the pricing going ahead.

As far as the festive season concerned, I think we are looking at it very, very strongly because this time, we have a longer season, and therefore, we think it should be a good season in terms of going ahead. Our home decor initiatives, I think are strong, and I think they will kind of keep on multiplying going ahead and the industrial business will keep on adding to the overall deco business there. As I said, I think we are a little bit watchful on the international geographies because I think unless for us, Nepal and Bangladesh kick off strongly. I think the Asia business would kind of remain under suspect. But I think we are hoping that they also turn around the corner and it should be good in terms of going forward.

So overall, I think we have a good outlook in terms of going forward in terms of how we are looking at the coming quarter and therefore, looking at the performance in H2 in a strong way. Thank you so much.

[Sunila Martis, executive]

[Operator Instructions] We have Mr. Abneesh Roy. Joined us via Zoom conferencing.

[Abneesh Roy, analyst]

Abneesh from Nuvama ,My first question is, when I see your gross margin that is at a 9 quarter high. And when I see, for example, other FMCG categories like soaps and detergent, wherein also the gross margin expansion has happened. Local and regional players have come back strongly in terms of either pricing or in terms of local marketing. So could you take us through what is happening in the 30% local market share, which is there, are you seeing players again cutting prices, for example and are they also starting more of advertising? And what is your response to that because that's a large market and you are equally aggressive in the lower end of the market?

[Amit Syngle, executive]

So if you look at -- for us, the bottom of the pyramid is a very, very strong market. And we look at basically getting the unorganized customer into the organized brand in a very strong manner. So I think our work kind of emanates in 2 manners. One is in terms of expanding our footprint in a very strong manner so that we are able to reach out to smaller towns very strongly. Second, I think we have a very strong program in terms of below-the-line kind of marketing initiatives in terms of what we place in the market. So whether it is the work around the influencers, whether it is the work around going the consumer, I think -- or it is with respect to even the work around in terms of looking at brand displays at the shops, I think we do a huge amount of work there to that.

So a large expenditure possibly goes to that extent. Similarly, I think the differential schemes to kind of really who the retailers to stock the material and sell them at a strong incentive to the customers is also kind of what we kind of do to that extent. So our concentration has been very strongly led by below-the-line initiatives like this and topped with a strong focus on above-the-line kind of advertising, which we are kind of looking. So I think going forward, we are looking at really giving an impetus to our advertising in terms of a very, very strong manner and looking at these below-the-line initiatives to that extent. What we see very clearly, I think the strength of the brand is there where we are able to command a premium with respect to overall the kind of selling prices are concerned to that extent.

And despite the fact that we see some discounting by the local players and in some cases, also advertising to that extent. I think today, our quarter 1 kind of results also indicate that in that segment, we are able to kind of really get still good numbers and good response overall to that extent. So I think net-net, our initiative of the above the line and below the line. I think we will continue in a strong manner, we would be strong with respect to our initiatives in terms of what we want to kind of put to kind of to the consumer and we might even look at in terms of saying that as we kind of go forward, depending on how the raw material prices fare out, we might even look at in terms of saying that if we need any price kind of corrections as we go ahead.

[Sunila Martis, executive]

We now have Mr. Shirish Pardeshi, joined us via Zoom.

[Shirish Pardeshi, analyst]

I do understand on a base of 37% volume growth in the base quarter, the volume is about 10% growth. But just wanted to understand because you made some remarks at the premium luxury segment is not to the expectation and the middle and lower end has grown faster. Is this the industry trend because the local competition has picked up very well? And I think there is a pressure, and obviously, the demand is higher at the lower end. And in that context, I think I do understand that you have prioritized the gross margin. And do you think in the medium term, we have a pressure to drop the prices?

[Amit Syngle, executive]

So overall, I think there is no middle and lower end premium in luxury. There are only 3 segments. There is economy segment, there's a premium segment and there's a luxury segment. What I said was that the economy in the premium segments are doing well, and the luxury is something which possibly is a little bit down. If you look at the market construct, the economy segment is the biggest segment, which is there, followed by premium and followed by luxury to that extent. And therefore, you will have to kind of perform in the economy segment if you are looking at overall volume and value growth in terms of what you have to kind of turn the tables on to that extent.

So as I said, I think the premium segment has also done fairly well, riding on wood finishes, riding on Adhesives to that extent and riding on Enamels. So overall, we think that the premium segment has been very, very strong. I think the decision with respect to pricing is totally related to in terms of how the whole area of raw material prices pan out.

We are now seeing some resurgence in crude prices, they are at an all-time high in terms of what we see. So some part of the raw materials are also going northwards to that extent. So I think we are watching it very, very carefully. And overall, I think if the trends are very clear, we would possibly look at price correction only in that case in terms of going forward. And having said that, we are not seeing some of the local companies at least in the paint industry, really doing very well in terms of looking at what is there. So our thing is that possibly we would have kind of -- if nothing else gain from some of the local competition in terms of the overall economy segment.

[Shirish Pardeshi, analyst]

Okay. My second and last question on the non deco part, the industrial business and the home improvement -- the industrial business has shown the momentum. So in your sense, is it completely normalized because auto AM and auto refinish business has done exceedingly well despite the high base. So in that context, is there further more recovery is expected? Or this is the normalized base and we can build on this? And second, on the home improvement, exactly what has gone wrong because both the businesses sleek and Ace has declined very sharply.

[Amit Syngle, executive]

Yes. So overall, when we look at from the point of view, the industrial business, I don't think so. It has reached a place where it cannot grow to that extent. And we did not have any price increase basis there also to that extent. I think there were normal basis in terms of what we kind of saw last year in terms of the overall business to that extent. I think the general industrial business comprising of protective paints and powder coating is something which is up on the rise. And I think what we see is that lot many industries are coming up.

I think players are expanding, and we see a lot of opportunity in the government infrastructure business, which is also kind of a lot of money is getting pumped into that segment overall to that extent.

As far as Auto is also concerned, I think both 2-wheeler and 4-wheeler, I think we are seeing strong kind of distinct with additional lines, the whole area of EV kind of coming up and so on and so forth. So I think both businesses are promising that the uptick should continue in terms of the overall demand as we kind of go ahead to that extent. As far as the overall home decor business is concerned, I think 4 categories have grown and 2 categories are down to that extent. So I don't think so that things are terribly wrong there to that extent. And the 2 businesses which have gone degrown a little, we had very high basis because of the price increases, which were there to that extent, anything which could possibly get corrected as we kind of go ahead in terms of Q2 and Q3 in terms of possibly the quarters to that extent.

So I think as far as the kitchen FKD business is concerned, I think we are very, very buoyant because we are #1 in terms of that FKD business to that extent. And even with respect to the bath business, I think it will definitely come up going forward to that extent. So overall, I think net-net, 4 categories have done well very clearly in terms of what is there and 2 categories have come down. So I think overall home decor, I don't believe that it is something which is not very great. Overall, I think it's a really good growth we have kind of got in the home on decor category, given the other categories have grown well.

[Shirish Pardeshi, analyst]

So you think second half is going to be better as compared to the quarter 1 weakness?

[Amit Syngle, executive]

We think the business would definitely improve because the weakness was coming also because of a little bit of a base, which was very high to that extent. So definitely, there will be an improvement.

[Sunila Martis, executive]

We now have Mr. Avi Mehta joined us via Zoom.

[Avi Mehta, analyst]

I just wanted to kind of build on the margin point a little. I understand that better. Basically, are there any one-offs in the other expenses that we saw this quarter? And the second bit also related is because you are pointing towards resurgence of input costs, would you suggest that the current gross margin performance is something that could be at risk?

[Amit Syngle, executive]

So I think there are -- if you take the 2 one-offs which were there, one is in terms of some dividend income which we have got from our Industrial JV and the second is that there has been a provision reversals with respect to the sick leave kind of entitlement in terms of what we have made as a positive change for our employees going forward. I think if you take out the one-offs, I think the margin position is still very, very healthy in terms of what it kind of really August. So I don't think so the one-off is kind of really influencing the numbers in a very, very strong manner to that extent. And secondly, in terms of going ahead, what we feel is that the overall margin numbers also are very, very closely kind of governed by how the raw material prices kind of pan out in the market to that extent. You have seen that during the whole period of inflation when the inflation levels had gone to about 20%, 25%, 30% level. Despite taking price increases, the PBDIT margins had gone almost to about 15%, 16% levels to that extent.

So I think today, the raw material prices and the environment makes a huge impact with respect to that. We feel that for the year, our commitment on the overall band, which we have kind of made of the PBDIT remaining between 18% to 20%, I think should be sacrosanct in terms of going forward. And I think that is something which we are committing that for the year, that is something which should kind of remain.

[Avi Mehta, analyst]

Okay, sir. I mean, I was trying to push the bubble saying that given the 1Q does not have any onetime -- not a material onetime what we saw almost about 23% margin, there logically does not see any risk to that continuing and hence, there could be possibly an upside risk to your guidance. That is what I was trying to appreciate or understand better...

[Amit Syngle, executive]

Yes. So as I said, yes, you're right. It depends also in terms of that if we really look at some changes with respect to pricing and other areas, then possibly, it would kind of come down and might not remain in this level in terms of as we see it in terms of going forward. I meant only that to that extent that if which is there or there is in going forward in H2, we see a larger inflation kind of coming back. But I think we are in a good positive band in terms of what we're looking for the year.

[Avi Mehta, analyst]

Got it, sir. And sir, just a clarification. The festive demand strength should reflect in the next quarter because the channel gets feedbacks but just I wanted to reconfirm that part. So the longer festered benefit should go through the second quarter. Is that understanding correct, sir?

[Amit Syngle, executive]

So what happens is that, see, the retail season is about at least about 45 days before the festival. So if Diwali is in the first week of November or in the first 10 days of November, normally, what happens is that the period from say, 15th September to October end would be a strong retailing season, which kind of comes in to that extent.

So we feel that the larger impact would come into Q3 but impact should come into the Q2 as well because there is a retailing period which kind of gets impacted by the festive area to that extent. So we would see that both quarters possibly should show an uptick with respect to the long festive season, which is there.

[Sunila Martis, executive]

Moving ahead, we have [indiscernible] joining us via Zoom.

[Unknown Analyst]

My first question was with respect to the distribution -- the dealer network, which we have added this quarter, about 6,000 dealer points. And this year, we have guided to about 10,000 to 15,000 dealer points. Just wanted to understand that -- and we are looking to get more into smaller cities.

So here, what I wanted to understand is do we have a number in mind in terms of how many AP&T dealers a small town could have? And generally, how long does it take for the dealer to generate the requisite ROI and has there been any change in terms of the timing now on generating the ROI because companies like yours and other competition are also talking about being more aggressive with respect to adding the dealer points.

[Amit Syngle, executive]

Okay. So what we see is that today, the opportunity is, obviously, in terms of the dealer points is that dealer and retail points is that we keep on looking at, one, not only the smaller towns and which are coming up, but we're also looking at a lot of suburbs of the bigger cities also which are expanding quite a bit to that extent. So it's a combination of looking at retail points coming at both these points to that extent.

What we also feel is that today, it's a journey in terms of what the retailer start. They might do a certain amount of business in a year and they kind of keep on growing progressively over the next 3 to 5 years to that extent. And therefore, the drop out of a dealer, what we observed from the point of view of year 1 dealing with us to kind of go into year 3, year 4 is not very high to that extent because we look at putting a tinting mechanism also at a lot of retailers to that extent which gives them the flexibility in terms of earning more money given the fact that the retailer is able to cater to a larger range of SKUs, which we can offer to the customer as it kind of goes forward.

So in our experience, what we feel is that this is the kind of journey which will continue, where we will, given the vastness of our country and given the opportunities of now the larger road network, government infrastructure, the way it is kind of developing. I think the opportunities are fairly huge. So for example, if you look at the entire J&K portion today, what the opportunities have opened up very big. Similarly, you look at Northeast given the connectivity of roads, which is coming.

So I think these areas of expansion, which will -- will going to continue. And we feel that right from year one onwards, I think people get their ROI to that extent because at Asian Paints, we offer them a very, very high rotation of the inventory to that extent. And therefore, year one itself, they get the ROI in terms of going and they keep on growing as the years go by. Yes, some 5% of the retail network might drop out because of some liquidity crunch or some other personal problems which might come in. But overall, I think the business model is pretty strong.

[Unknown Analyst]

And we have not seen any change in terms of the pattern once we say 3 years ago in terms of the quantitative intensity amongst the dealers?

[Amit Syngle, executive]

No, I don't think so because I think the expansion kind of really continues only because of the fact that, as I said, overall connectivity, the whole economic activity is only increasing all across and so is our population. So I think the consumption is also kind of going higher given the housing, which is kind of coming to that extent. And I think we will not see any change in this for the next, I think, 5 to 10 years.

[Sunila Martis, executive]

We now have Mr. Rishi Modi, joining us via Zoom.

[Unknown Analyst]

Yes. So Mr. Syngle, my first question is we've seen the Kitchen and Bath business now kind of struggle to scale up immensely. If you could take us through the journey, what have been the challenges? What are the quarter next today, how are we solving for it? And where are we in the journey before we can push the paddle on the gas to scale to [ sub ] massively.

[Amit Syngle, executive]

Okay. I think to my mind, when you look at the last 3 years of journey, first year in Kitchen and Bath, we grew at almost about 35%. Second year, again, we would have grown at about 30%, 35% overall. Last year, we grew almost about 10% to 15% kind of a level in terms of the business. So last year was a bit slow. And this year, in the first quarter, we are seeing, to some extent, basically the business slowing down because of the large basis in terms of what we have seen. So I would not kind of really see that the business has not grown. I think last 3 years, overall, today, I think the combined business of the 2 entities is about close to about INR 830 crores as we look at the last financial year closing to that extent.

And therefore, this business has grown from about INR 500 crores to about INR 830 crores to that extent. And I think that's a good increase, which we have seen in terms of the last 3 years. As we go ahead, I think we should be able to add overall good growth kind of going forward both, as I said, in terms of the Kitchen and the Bath business to that extent. Kitchen obviously is a strong thing. Kitchen also has a hardware business to it, which is called the components business to that extent, which also contributes to about 40% of the total kitchen plus components kind of a business to that extent. I think that is the business which has kind of slowed down in terms of what we see in the market because of certain price changes we implemented in the market.

And also the -- as I said, that these price changes were done in the last year first quarter to that extent. So overall, I think for both the categories, we are still fairly buoyant in terms of what we see more going towards kitchen very clearly in terms of what has come because it is in sync with our strategy on home decor when we look at our beautiful home stores. 44 stores today across the country, and these stores are going to about to 65 to 70 stores this year to that extent. And therefore, we feel that these stores will also give an impetus to both the categories, along with the projects B2B business, which is there to that extent. So I think overall, we still see that these 2 businesses from a trajectory are going to be strong as we kind of look at because the opportunity there is huge.

[Unknown Analyst]

Can you hear me?

[Amit Syngle, executive]

Yes, I can hear you.

[Unknown Analyst]

Yes so's just wanted to get the clarification, you are happy with the 30% growth rate for this Kitchen and Bath business. You don't have aspirations for a doubling of business year-on-year, like -- if you have those aspirations, what are the bottlenecks for doubling or [multiple] growth in this category?

[Amit Syngle, executive]

Happiness is a relative state of mind. I might be happy with trebling the business also going forward but you need to be kind of practical in terms of the way you want to kind of grow and not really kind of strain the system. We have just kind of put additional capacity for both the Kitchen and the Bath, which has come up in Maharashtra, so that we are able to kind of really put a strong impetus in terms of going. I think going forward, we are happy we are able to grow the business by about 25%, 30% each year. That's a fairly healthy rate in terms of growth, in terms of what we see. Because I think the idea here is that you look at strong consumer propositions and you look at possibly equipping your stores, your listing in terms of really carving a niche for yourself out to that extent.

So I think we are taking really measured calls in terms of the way we want to kind of go. And as I said, I think we should be happy in terms of getting about 25% to 30% growth in this segment, which should be, I think, a good indicator in terms of our overall growth. We've always said that going forward, we are saying that the whole home decor segment should be closer to about 7% to 8% of our decorative sales as we look at the financial year overall '25, '26. So at the end of '26, that's the number we are gunning for. And I think that would be a strong number if we are able to reach that.

[Unknown Analyst]

Understood. Understood. Secondly, there has been a bit of the changes at the Board level. We have a new Chairman, and we also have a new member joining the Board. So just wanted to get your understanding like what are both of these guys are bringing to the respective roles that they've been assigned overview viewing this appointment?

[Amit Syngle, executive]

So I think this is in regular course. We have Mr. Deepak Satwalekar, who was the Chairman, I think this term comes to an end in September and to that extent. And therefore, we had to announce the new Chairman, and we have Mr. [ Shaji Shai ], who kind of takes the chair, he comes with a very, very rich background in terms of heading Ashok Leyland earlier and being at the helm of lot many other companies to that extent including Infosys and so on so forth to that extent. So I think it comes with a very strong area of expertise and I think has been a strong kind of directional leader at Asian Paints in terms of his contribution to the Board to that extent.

So I think that's the kind of transition in terms of what we are seeing, which is a natural transition and a strong one too in terms of what we are looking ahead.

Second is that we have one of our directors who had completed his term, Dr. Sivaram. And in case of him, we are taking Areena , which is coming. She comes in, again, with a very, very strong kind of experience. She has been with HDFC and other Boards to that extent, Wipro and so on and so forth, we think she brings in a very, very strong area of the capital to kind of really energize us from the point of view of our thoughts with respect to newer businesses, technologies and also with respect to the overall financial kind of management as we kind of go ahead. So I think that's the thought in terms of looking at these 2 people.

[Unknown Analyst]

All right, finally, just a bookkeeping question. When we say NPD contribution to 11% of sales, how do you define the NPD, like what period of launch were these products launched with it.

[Amit Syngle, executive]

Okay. So normally, what we look at the new products are defined as -- it takes us almost about 1 to 2 years to kind of launch the product and then sustain. So we normally define it as NPD over 3 years to that extent in terms of the -- this thing. So that's how our new product is defined.

[Sunila Martis, executive]

We now have Mr. Amit Rustagi joined us via Zoom.

[Amit Rustagi, analyst]

I have a question relating to margins. So if you look at the Q1 margins, they were pretty strong versus of a guided range of 18% to 20%, so what do you think is the best to utilization of margins from here would be more channel discounting or reinvestment or you think the price cuts? So what do you think that if the [indiscernible] is there? What do you like to achieve from the excess margins you have?

[Amit Syngle, executive]

So I think we don't really act on quarter-to-quarter in terms of the margins you get because you've seen in the last 2 years, given the inflation, I think the margins have gone even lower than that band also to that extent. So I think we take a considered view in terms of how the margins are emanating and whether they are stable from a point of view of overall business and environment in terms of going forward. We would obviously be aggressive with respect to our above the line, below the line programs in terms of what we do in marketing and also in terms of possibly our share of voice in the market in terms of our media spend and our other marketing activities, including various measures on really exciting the market through various schemes and discounting mechanisms to that extent.

So I think that is first and foremost because we are committing ourselves to the growth, and we will not let that growth go away to that extent. And we are pretty aggressive about that in terms of our real thought in terms of taking that forward. So I think overall, as we kind of go ahead and as I said, there could also be an occasion in terms of saying that depending on how the raw material prices pan out, how the rupee dollar parity pans out, we might look at even pricing corrections as we kind of go forward. But I think we will really be watchful in terms of seeing what is there and just not react quarter-to-quarter saying that now I have a good [fitting], let me go [indiscernible] . So I think I will take a considered call in terms of going forward. And that is something which possibly is the right mechanism as we see from the Asian Paints point of view.

[Amit Rustagi, analyst]

Okay. Sir, my second question relates to if we have resorted to price pass-on to the consumers. We have seen in some of the consumer companies, the channel inventories get impacted and the channel inventory comes down, impacting the primary sales. So what do you think in our case, how the price cuts being implemented and how the channel reacts to those price cuts?

[Amit Syngle, executive]

So as far as Asian Paints is concerned, I think we don't depend on channel inventories a lot because our channel inventories are to a minimum level because of the fact that we are able to really service the retailer at least almost about 2x in a day to that extent. And therefore, I think we don't really encourage too much of really loading the retailer in terms of inventories. However, in some months, obviously, if there are some stocking months which happen to that extent. And if it happens and if there is any price corrections, we are willing to kind of give the concession to the retailer in terms of a back linkage, which kind of happens on certain stocks to that extent. So I think it is something which goes in conjunction in terms of really seeing that both the organization, the brand and the retailer, I think we all benefit from what we are kind of doing. So I think the considered call is very clearly that we take them along with us so that even if they have stocked for some time, there should not be at a loss in terms of that stocking.

[Sunila Martis, executive]

Thank you so much for all your questions. requesting Mr. Amit Syngle to please give his closing remarks.

[Amit Syngle, executive]

Okay. It was good in terms of hearing some of these questions coming from your side. I think it's been -- overall, as I said, I think it's been a good quarter. I think we are fairly satisfied with respect to the kind of overall numbers, which have kind of come in. We are looking forward to the long festive season, which is coming to that extent. And we feel that today, the Indian story is still live in terms of the overall demand conditions and so on and so forth. Good monsoons coming to that extent. And I think these are all positive kind of indicators in terms of indicating that I think the coming period should be a good one as far as overall business goes. Thank you so much for coming and being with us today.