Asian Paints Ltd

NSE:ASIANPAINT

Earnings Call Analysis

Lower Volume Growth Amid Challenging Market Conditions

Asian Paints faced a tough Q1 FY25 with volume growth of 7%, below the double-digit target. Demand was hampered by heatwaves and general elections, leading to a 3% decline in value. The company anticipates improving conditions, particularly in rural markets, and aims for double-digit volume growth in the coming quarter. PBT margins declined by approximately 50 basis points sequentially. Despite these challenges, a long-term 5-year CAGR remains strong at 15.3%, and initiatives like NeoBharat and home decor expansions show promising signs for future growth.

Introduction and Context

Asian Paints' Q1 FY '25 earnings call presents a narrative of resilience in the face of challenging market conditions. The company has been dedicated to creating joy and beauty since 1942, with efforts spanning decorative, home décor, and industrial sectors.

Challenging Market Conditions

The quarter saw tough market conditions with healthy volume growth of 7%, though it fell short of their double-digit target. The growth is notable when compared with a robust base of 7.8% in Q1 FY '24. Over a span of five years, the compounded annual growth rate (CAGR) sits at a robust 15.3%.

Value Pressure and Market Dynamics

Despite volume growth, the value saw a decline of 3% year-over-year, influenced by an inferior product mix and market deflation. The company noticed a stronger industrial growth backdrop, with automobile sales boosting the sector's performance.

Sector-Specific Performance

The industrial sector benefited from impressive auto sales, with combined growth in decorative and industrial sectors revealing a 2.2% degrowth in value, reflecting broader market challenges. Despite varied performance across categories, the CAGR figures remain promising.

Rural Market and Regional Performance

Elections and a heatwave impacted retail and institutional demand, though June showed recovery signs post elections, including in rural areas. Remarkably, T3 and T4 cities outperformed T1 and T2 in growth rates.

Financial Performance and Margins

The company's gross margins stood at 42.9%, down from previous quarters but still respectable considering material inflation. Stand-alone PBT margins decreased slightly to 20.3%, within the desired 18-20% range.

ESG and Sustainability

Asian Paints continues to commit to strong governance and sustainability. They've shown commendable metrics in renewable energy, freshwater replenishment, and emissions reductions. Their social initiatives, like training programs, have been impactful.

Strategic Initiatives and Innovations

Store expansions, particularly the Beautiful Homes Painting Service, have seen positive reception. New categories like automated blinds are being introduced, highlighting their continual innovation.

Price Increases and Inflation

The company anticipates further inflation and has implemented price increases accordingly. They expect continued price adjustments to manage future inflation impacts.

Home Décor and Distribution

Home décor initiatives, such as modular kitchens and bath businesses, have shown growth, supported by an expanding distribution footprint now at 1.65 lakh retail touchpoints. Projects and institutional businesses have faced slower performance partly due to election impacts.

Real Estate and Premium Segments

While certain economy segments like distempers and emulsions struggled, premium segments showed better performance. Real estate remains crucial, with government infrastructure projects expected to drive future B2B growth.

International Business Challenges

International operations have seen a degrowth of 2%, mainly due to currency devaluations in markets like Ethiopia, Egypt, and Bangladesh. However, some regions like Ethiopia and Sri Lanka are performing well.

Conclusion and Outlook

Despite challenges, Asian Paints remains committed to growth with optimism for improved future quarters driven by rural recovery, upcoming festive seasons, and strategic price increases. They aim to sustain premium market positions and expand further into home décor.

Earnings Call Transcript 2025-Q1

[Sunila Martis, executive]

Good evening, all of you, and thanks so much for joining us today to discuss Asian Paints Q1 FY '25 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 management team. We have our CEO and MD, Mr. Amit Syngle. We have our CFO and Company Secretary, Mr. R. J. Jeyamurugan; and we have Mr. Parag Rane, AVP Finance.

I would now like to invite Amit to give us his opening comments.

[Amit Syngle, executive]

Hello. Good evening to everyone, and welcome to the investor conference for the Q1 of FY '25. We'll start with the our entire journey, the whole journey of delivering joy since 1942. And I think all of you are now familiar with it that this is the core in terms of what we exist, which is to beautify, preserve, transform all spaces and objects and bringing joy and happiness to the world.

What you see are some of the newer initiatives in terms of what we have done in all the spaces, whether it is decorative, whether it is from the point of view of home decor or it is from the industrial zones in terms of what you kind of see here.

The disclaimer in terms of what you are aware of.

Let's start with the overall top line numbers in terms of what they look. Obviously, the quarter has been tough and overall, I think the demand conditions have been fairly challenging because of the host of reasons in terms of what we saw.

So we see, obviously, the volume growth has been still fairly healthy. We were gunning for double-digit, we've landed at about 7%, which is still healthy over a big base of 7.8%, which we had in the previous Q1 quarter of FY '24.

And overall, the only heartening thing which we see is that the CAGR numbers are still very strong, even if you look over a 5-year perspective at about 15.3%. Overall, when we see the value has been under real pressure in terms of what we have seen and the value is at about minus 3% in terms of what we see compared to 7.8% in terms of what we had experienced in the last Q1 quarter, the volume was 10% there in the previous Q1 FY '24 year.

So obviously, I think value has experienced the pressure, as we have said. Two, 3 areas coming very strongly in terms of which have impacted. One is the fact that the product mix was a little inferior. Second, we had also deflation -- inflation in the market in terms of what took place overall to that extent.

And overall, given the demand conditions, I think the value was something which definitely has been on the lower side as we see it. If we look at the industrial growth, the industrial growth has been definitely much better in terms of what we see on the backdrop of good auto sales in terms of what we have overall seen, in terms of even some level of sales which have been seen in the overall Industrial sector to that extent.

So if you look at the combined growth of Decorative plus Industrial, the value degrowth comes to about 2.2%, which is there compared to 8.5% of the previous year quarter 1 to that extent. The volume is at 7 compared to the 10 of previous year to that extent.

In both these cases, also, if you see the CAGR levels are pretty healthy in terms of when we see that the Industrial sales as well to that extent.

Going further, I think this is a slide which you are familiar with, and we have been talking about this in terms of saying that the volume is something which the company has been relentlessly following and that is something which has been the story for the last many, many quarters in terms of what we have delivered.

So the CAGR is still very good in terms of what we are looking at about a 15.3% over a 5-year CAGR in terms of how it is there. And this is something which has been the performance which has been seen over this thing. This quarter has been a little lower at about 7%, as I said. But I think that is something which we still believe in terms of going forward with.

As we look at further growth indicators in terms of what have come in, and these are somewhere which possibly, I think, are some explanations in terms of how the entire results pan out. So overall, as we said, it was impacted by heatwave and to some extent by the general elections where we see especially both the retail as well as the institutional business getting affected. April and May were definitely not very good months in terms of what we saw.

There were -- the recovery in the month of June, definitely, which we saw post the elections to that extent which is there. And this was also a quarter where we started some shoots of recovery in the rural demand also. In fact, what we saw that the T3, T4 cities were growing at a slightly fast -- higher pace than compared to the T1, T2 cities in this quarter.

So I think that's a good sign in terms of what we see for going for future. The Q1 mix, as I said, was impacted overall where we had the higher growth coming from SmartCare, which is a waterproofing range, the whole area of distempers and wood finishes. So I think these were the general products categories in terms of where we did well.

Economy emulsions did not do well. And I think that is something which was definitely where we saw that we kind of struggled in the quarter in terms of getting the numbers. PreLux, as a category, did relatively much better in terms of what we saw to that extent, which is a good sign in terms of what there because there has been a clear focus on this category and this has done well.

When we look at the distribution footprint, this continues to expand. Now we are at about 1.65 lakh retail touchpoints, and that is something which is very, very strongly, which has come in to that extent.

Projects/institutional business. We saw a bit of a deceleration in terms of the overall numbers as we came in because I think due to the whole general elections, I think the market was a little bit slow to that extent. And especially when we saw the infrastructure sector, that has something which definitely was on a slower side, but overall, we still relatively did well, and I think the B2B sector has done much better as compared to the retail sector in terms of the overall analysis.

From a point of view of our decor, the home decor initiatives, overall, that is something which has done well. But particularly when we come to the Beautiful Homes painting service, which is a service which has been going very, very strong. It has 2 constituents, which is the Beautiful Homes Painting Service and the Trusted Contractor Service, this has done very well and I think the parameters on NPS and the overall growth have been very, very strong in terms of what have been coming in this area. In this quarter also, the performance has been good.

From an innovation point of view, the new products continue to contribute to about 12% of our top line, and that is something which has done well, and it is kind of doing well. We spoke about in the last meet one of our newer launches, NeoBharat latex paint, which has been launched at the bottom of the pyramid level to kind of really upgrade the unorganized distemper consumer into organized kind of a brand, to that extent, has done extremely well. And I -- we are very, very happy that we have been able to kind of really widen the moat and really kind of increase the overall potential in terms of what we have an access to the entire bottom of the pyramid now with this product coming in to that extent. So it has really kind of given us a very good kick in this quarter as well as we have seen. Now we have products in interior as well as exterior, which is there working in this scenario.

Capacity expansion has been the other bit in terms of what we have been doing. Last time, I told you that we have done the brownfield expansions in terms of our existing plants which are there, which is of Kasna, Khandala and Ankleshwar. This time, we now have an installed capacity of Mysuru, which we have taken from 3 lakh KL to about 6 lakh KL, which overall takes the capacity to more than 22 lakh KL overall at the organization level. So I think which is a very big boost in terms of what we have in terms of the overall capacity coming for us, which is available in terms of -- from the point of view of growth.

So these are some of the indicators I spoke about the NeoBharat. This is something which has done extremely well with our new brand ambassador, Virat, I think it's got a Philip. It has done very well. We have spent a good amount of money in terms of promoting this on various media channels to that extent and overall, we think this is something which has given us a very, very strong surge and creating a new avenue of growth from the point of view of the bottom of the pyramid, as I said earlier.

We have also been running a lot of videos, which basically showcase the relationship of Asian Paints with our dealer partners. This is an important initiative because it kind of reinforces the overall years and decades of relationship which Asian Paints has, and we have been working now with almost the third generation of people coming in, that shows the trust of people in Asian paints in terms of what they have as a brand and that is something which is amplified by some of these videos, which have been -- which have come up in terms of looking at showcasing this entire relationship.

We also have kind of launched something for our wood finishes, what is called Woodtech Emporio, which is the premium almost the luxury brand in terms of what comes in here and that we have kind of working in terms of looking at facilitating architects very strongly in terms of how we kind of really bring aesthetics in the brand and so on and so forth. This is our absolutely premium lux kind of initiative in terms of what we have taken, which kind of really gives everyone an idea in terms of what this product category is capable of creating as part of the whole digital series, which have come in.

The whole home decor foray has been extremely strong, and this is something which we have been pursuing and we've been speaking about for the last about 4 years strongly. We're happy to report that this overall categories have done well here. We are, as I said last time as well, No 1 Integrated Home Decor Player. Number one in various categories, which is involving decorative lighting, it is also from the point of view of modular kitchens, wall covering and textures. And also the fact that we are now No 2 in the fabric and the furnishing zones as well to that extent.

And our collaborations with lots of brands continue and we keep on coming out with these collaborations, whether it be Sabyasachi, Jaipur Rugs, Sarita Handa, and this is something which is a strong source, which is kind of taking the Asian Paints equity and also our partnership with our retailers forward in a very strong way since we are putting up beautiful home stores across the country now where we have more than 61 stores, which we have put in a lot of them are now WIP, which are coming now in the next quarter. So I think strong performance at the stores also, which have grown in a very big way to that extent.

Our collections, as I said, are all in the premium to luxury ranges what you're seeing is what we call as the Paris Calcutta collection from Sabyasachi, which has kind of come in, to that extent, along with we have launched collections in fabrics as well and along with the wallpapers to that extent. And this is something which is moving very, very well. The response from the market has been great in terms of what we are able to do and really kind of puts the brand into the luxury space in a very strong manner.

This is another thing which I wanted to kind of introduce to you. We have opened our second BH studio in Guwahati. The first one is in Anna Nagar in Chennai. This one is more than 16,000 square feet. It is a store which is definitely par excellence in terms of what has come in. It gives customers a phygital journey into the store with all premium to high-end kind of decor products, which are there, including lighting which is there, fabric, wallpaper, furniture. Very, very strongly done, and it's something which is really a masterpiece in terms of the way it has come out.

So I think these are strong forays which are happening in the home decor as we look at it. To look at some numbers here. I think modular kitchen, the business has picked up. Finally, we've got a 5% growth in terms of the overall numbers. We have had a positive PBDIT for the last 6 quarters, and that is something which is strong in terms of what we have been, I think, pursuing here.

Even the Bath business, which was for the last 2, 3 quarters, down has got a 10% revenue upshift in terms of what we see. And overall, what we see, this is getting very well supported by our Beautiful Homes network, which is coming, both the Kitchen and Bath are getting supported strongly. Here, we had a bit of a loss, which is there, but I think this is part of the growth journey, we will see definitely see the bottom line is also picking up as we are seeing the top lines now coming in terms of this overall category.

When we look at the other categories in home decor, both categories, which were our acquisitions, White Teak and Weatherseal have done overall quite well in terms of this thing both in double-digit growth in terms of what you see. And we are putting more and more stores in White Teak both FOCO and COCO in terms of stores, which are coming up and as well as our BH stores promoting both Weatherseal and White Teak in a strong way. So I think these are categories which are now looking in terms of some bit of growth which is coming in the categories.

When we look at our international operations, this is how you know we are represented across the globe in terms of their parts of Asia, Middle East, Africa in terms of where we are all represented, some part of the islands, which you see in the South Pacific, these are our representations in the global market. Here, I think there has been a challenge in terms of the overall business. The top line has been under constraint here. We had a degrowth of about 2%, which is there. Although in terms of constant currency, we would have grown by about 1.8% given the fact we have had depreciation of currency, which has happened in Ethiopia, Egypt and Bangladesh to that extent, and that is something which has contributed to basically the difference between the INR and the constant currency in terms of what we see.

However, some bright spots which are coming. Ethiopia has done quite well. Sri Lanka has now picked up in a strong way to that extent. Little bit slowdown in Middle East to that extent. However, I think one of the areas which has been obviously troubling us in the Asian market is Nepal, where the economic situation for the last now almost about 7 to 8 quarters has been definitely not very, very good to that extent in terms of what we see overall.

So overall, both top lines and bottom lines are affected there to that extent. And that is something which possibly we are looking at in terms of how the situation kind of really recovers.

As I said, both Egypt and Bangladesh were affected by the currency devaluation to that extent, and there has been also overall growth issues to that extent. So overall, I think subdued kind of show as far as the international markets are concerned to that extent in terms of constant currency of about 1.8% kind of a growth coming in the overall environment.

The profitability has also, therefore, consecutively got affected in terms of what is there. So overall, the numbers are lower in terms of what we have delivered in terms of the overall profitability, as you can see it, and that is something which is something we are looking forward in terms of how to kind of really reverse this as we look at this quarter going forward.

As far as the Industrial business is concerned, this business has done well, especially when we look at the business which is our auto refinishes and the auto OE business, which is there. This has done very well. I think the overall builds in auto in the first quarter have been good. We have seen double-digit revenue growth which has come in, in this business to that extent, which is very strong. Even the profitability numbers have been strong in terms of what we are getting, to that extent. So overall, from that point of view, we see that the PBT margins have also gone up overall in terms of what we see in this business. So I think auto has definitely kind of given us a trend in terms of really looking at a good business happening in this part of the industrial zone.

When we look at the general industrial business, which is the APPPG, as we call it, we have seen a flattish kind of a revenue, which has come in here. Overall, therefore, even the profits have been a little bit subdued in terms of what we see. We have taken some price decisions here because the pricing pressure has been strong. So that has kind of really kind of taken a little bit of a toll on the profitability overall to that extent. But overall, if you look at the Industrial business, it is almost at about a 5.8% value growth overall in terms of if you look from a combined business point of view.

Overall, gross margins, if you look basically on a material price inflation, which have happened overall and also in terms of a lower mix today, some bit of our work, which is around the sourcing formulation efficiencies have kind of really given us some reprieve here to that extent. But still, if we see that the gross margins are at about 42.9%, they have come down from what were there in Q4 to that extent, but I think still fairly healthy in terms of where they are staying if we take the effect of the material inflation, which has kind of come in to that extent.

So in summary, when we look at the overall financials, top line, as I said, on a stand-alone level at minus 3% and when we look at even a consol level, it goes to about minus 2% overall to that extent. The PBT margins are definitely lower than the Q1 of the last FY '24 in terms of what we see, but on a sequential basis, we see that it has come down by about 50 basis points to that extent. So from about possibly 20.8% to about 20.3% in stand-alone. And similar story, what we see in the consol where the PBDIT margins from -- have come down over the last year by about 420 basis points, but vis-a-vis the -- sequentially, about 50 points down to that extent.

So I think the -- we are still in our overall zone in terms of what we wanted to be of about 18% to 20% to that extent, and that is something which we'll continue to strive in terms of going forward, so that we remain in our overall margins place to that extent as we kind of go ahead.

I would like to kind of really say that it's not -- it's largely the areas of inflation, the whole area of the mix, which has kind of really affected the numbers. By and large, we don't think so that there is any competitive activity which has kind of really looked at kind of giving this performance as we look at it.

From a point of view of overall sustainability in terms of what we have been done, I think the overall governance has been very, very strong. And I think this we kind of really keep on this thing because the organization is really committed to a very sustainable performance in terms of looking at it.

So even from a perspective of ESG, we have got it all very strongly going well. So whether it is from the point of view of RE, where we are at a very strong level in terms of where we are at about 66% or it is from the point of view of our freshwater replenishment, I think the numbers are very, very strong in terms of what we see the performance in financial year 2024 and where we are going towards in the FY '25 to that extent. So the numbers, whether it is the specific effluent generation or it is from the point of view of Scope 1 and 2 emissions or it is with respect to the overall work which is done in the social framework of training people or taking care of the healthcare, I think those have been very, very strong. In fact, last year in the Colour Academy which is there, we were able to kind of train almost about 6.8 lakh people overall to that extent. So it's been a strong initiative in terms of what we have been able to kind of take on in terms of doing to that extent.

So I think overall, it's been a strong kind of foray with respect to some of these initiatives. Something which, obviously, I think all of you are looking at in terms of what is the kind of forecast as we kind of go ahead. Obviously, I think there are some good shoots, which are happening in the market. We see the rural markets definitely coming up and that is something which has been spoken about by other companies as well in terms of that they are seeing some definitely shoots. As I said, for us, the T3, T4 markets grew a shade higher than the T1, T2 markets to that extent, which is a good sign in terms of what we see. Overall, we are now seeing uptick in terms of the overall monsoons and we hope that today whatever is the deficiency at the overall country level that kind of really gets into a smaller zone to that extent.

And I think this is really -- this will really improve the sentiment in terms of the rural sentiment coming up in terms of what we see to that extent. We also have upcoming festive season. We have a full month of October, Diwali being 31st, so I think we have a full season of the festive demand, which is there. So I think these are all factors which are looking good in terms of driving. And now we will have a quarter which is free of any elections and other things, which we kind of saw in quarter 1 to that extent.

So I think this is something which will definitely even kick off the B2B institutional business, which is there, which we expect to kind of definitely grow much better as compared to what we have seen in Q1 to that extent.

One worry, obviously, is inflation. We have seen inflation, which is there to about 1.8% in Q1. We have also taken a price increase of about 1%, which has already been done. We see further challenges, which are going to happen in terms of looking at further inflation, which we expect could be in the range of about anywhere between 1.4%, 1.5%.

And therefore, possibly we could see further price increases as we kind of go forward to that extent. So I think that is something which we are seeing in the environment, and that is something which we'll keep a watch on as we kind of keep on doing.

The Industrial business is on a good stream right now, and we think that this is something which we are now focusing at in terms of growing, and we'll continue to do that. The Home Decor categories are now bringing to do good in terms of all categories, which have done well in the quarter 1. This is something which is our commitment in terms of really forging Asian Paints into the decor area and owning up homes because this is really aiding the paint category in a very strong manner as we kind of go ahead.

Global, we believe that some challenges will continue in terms of some of the Asian markets to that extent, but we think that Middle East and the African markets would definitely pick up as we kind of go forward. And that is something which we are looking at definitely. So on the whole, I think we are definitely looking that there would be an uptick in terms of the overall demand as we kind of go forward, both from a point of view of Indian markets and international markets as well as industrial. Thank you.

[Operator]

[Operator Instructions] We have Mr. Abneesh joined us via audio conferencing.

[Abneesh Roy, analyst]

So Abneesh from Nuvama. Two questions. My first question is in some of the south market, Pidilite has ambition to scale up in the rural part of those states, plus Birla Opus has also opened franchise stores in Hyderabad 2 stores and maybe some more cities. So when I joined this with the sharp increase in the staff cost, it is up 23% Y-o-Y and 9% quarter-on-quarter, I wanted to understand any effects of these players on the broader market contour.

And on the staff cost, how much is the normal increase plus expansion? How much is it because of your company being the poaching ground for all these new players? How much is the impact because of that?

[Amit Syngle, executive]

So overall, when we see, as I said earlier, by and large, in terms of the performance, largely I think the overall industry has been down in terms of the kind of demand scenario we have seen. So I don't think so it is really impacted by any larger competitive activity in terms of what is there. Even the newer brands which are kind of coming in, they are trying to stabilize and see in terms of what they can do. We don't think so that they have really impacted anything overall to that extent.

From an employee cost perspective, if we kind of look at overall, the employee costs have been higher. There was some correction we had taken as part of our overall sick leave policy to that extent, which has -- if you look out -- take out, out of that, so the overall increase would be lesser to that extent in terms of what you see today.

But having said that, we have also invested in higher number of people this year overall, given our imperative that we want to increase our distribution overall and have a larger footprint in terms of our overall retailing points to that extent. And that is something which has gone to kind of really increase the overall numbers, which have also impacted the cost which has come in.

And these numbers are aiding us from the point of view of, one, increasing our rural footprint, increasing our activity with respect to the categories of waterproofing the whole bottom of the pyramid segment and so on and so forth to that extent. And therefore, I would say, the larger increase in terms of the employee cost has happened because of the new people addition overall to that extent. Otherwise, a normal addition is just the inflation in terms of what is there in terms of the overall salary which takes place.

[Abneesh Roy, analyst]

My second and last question is on the demand side, again. So there is some sales growth improvement in Kitchen and Bath business. Now here, my questions are on the real estate side, new projects, new building side, of course, last few years for the industry, real estate industry has been very good.

We are getting some initial signs that there could be some slowdown on this, very early days because Q1, of course, as you also highlighted many one-off factors were there. My question is, one, what's your sense on the real estate overall demand side because that does impact all your businesses?

Second is from Kitchen and Bath top line, what were the structural improvements done? So these are still very small numbers in terms of growth coming back, but would you say that most of the issues are now resolved in terms of strong growth metrics, the tough decisions being done all those have been taken now in these 2 businesses?

[Amit Syngle, executive]

So overall, if you look at from the Kitchen and the Bath business, we have put a lot of focus with respect to the whole area of servicing, which is there. We have also looked at possibly augmenting our overall range in terms of what we are supplying.

We are introducing more newer designs concepts, which have come in to that extent. We have looked at premiumization coming with more expensive kitchens, which are targeted at the premium customers in terms of that sense. So I think today we are getting that benefit, which is coming from the point of view of the work which has done.

The second area is our Beautiful Home stores, which are now spread across the country, 61 stores. They are also giving a Philip to both kitchen and bath in a strong way in terms of what we are getting. We have also new factories which have come in, which are basically aiding the whole supply and the servicing conditions for these 2 businesses going forward.

So we have not been a very strong players in the projects segment. It is a small segment, which caters to. We are stronger players as far as the retail is concerned in both the kitchen and the bath categories to that extent. And even in bath, we are involved more in terms of some of the smaller projects which are there to that extent.

As we see it, I think the overall the builder segment, the construction segment has definitely been a little bit slow in terms of what we have witnessed in the last about 6 months as compared to earlier, while the real estate has been on the high because there has been also a lot of existing inventory, which is getting now sold overall to that extent.

We still feel that the housing sector is an important sector. And I think the premium luxury sector is something which is doing quite well overall to that extent, which will kind of keep on aiding our B2B business, which is there. As I said, we are expecting much stronger growth happening in our B2B business going ahead.

And real estate would be one big indicator, which will come out of it. We think it will still kind of be still decent in terms of in the market, but more impetus we see coming from the government infrastructure projects, which are going to be there plus the overall segment of factories where a lot of companies are expanding new companies coming in to that extent. I think that all aids the B2B business in a very strong manner.

[Operator]

We have Mr. Aditya Soman joined us via Zoom.

[Unknown Analyst]

So 2 questions. Firstly, on volume growth. [indiscernible] you had indicated a double-digit volume sort of guidance for FY '25. Does that remain for the remaining 3 quarters given that you expect an improvement?

And second question on the price increases that you have taken in July and as you indicated that they might be for the price increases to offset the material cost increases. Will the transmission lead to the gap between volumes and value decreasing?

[Amit Syngle, executive]

So overall, if you see today, we have delivered 7% volume. And if you net out from the point of view of inflation or the price decrease which we have taken earlier, which was to the tune of about 4-odd percent, we would have actually landed at about 1.5% kind of a value to that extent.

So I think overall, to that extent, what we see is that we are still watching the second quarter in terms of how it kind of really opens. I think overall, what we are seeing is that the month of June has been good in terms of the demand pickup to that extent.

As I said, rural demand is showing some signs, the sentiment because of monsoons is increasing. We also have a festive kind of season ahead. So definitely, we are looking at in terms of a double-digit kind of a volume growth for this quarter going ahead in terms of hoping that the demand conditions will be better in terms of what we see as we kind of go ahead.

As far as the value and the volume gap is concerned, last time also I said, the endeavor is that it would be in the zone of about 5% to 6% in terms of the gap to that extent. And as we look at some of the price increases which are coming, which are enabled because of the inflation, which is happening, I think this gap definitely should be in the zone as we kind of see forward going ahead.

[Unknown Analyst]

And maybe just 1 follow-up on that. And the price increase will have nothing to do with what the competition has to do, right, at this point?

[Amit Syngle, executive]

See, actually, I think the -- given the price elasticity which we have from the point of view of the brand and the equity in terms of what is there, we feel that our pricing anyway is at a premium in the market to that extent and there is a significant gap between any of the players which exist in the market to that extent.

So we feel that we go by the pricing decisions which are more from the point of view of looking at our overall margins, given the inflation which is there and so on and so forth. So I think to that extent, it is irrespective of what the competition is really doing in terms of the price because there the -- I think the trajectory is very, very different in terms of what we see.

[Operator]

Next, we have Mr. Avi Mehta joined us via Zoom.

[Unknown Analyst]

Sir, I just wanted to clarify on the earlier question. So while you pointed to some recovery in June, would -- are you revisiting or are you still planning to achieve or you're targeting that double-digit volume growth for FY '25 with probably a 5% to 6% pricing decline? Is that still on? Is that the right way to read that last answer?

[Amit Syngle, executive]

So what we have seen in terms of June, I think there has been the uptick in demand and the June conditions have been definitely much better in terms of what we have seen overall to that extent. Basis that I think the overall sentiment improving what we see today and what we look at from the point of view of even stocking season for the coming festive thing, I think both indicators are that we should kind of really be able to kind of really gun for the double digit in terms of going forward.

So I think those are the indications which we are getting from the market overall, to that extent. And hopefully, the whole bottleneck we had due to elections and everything is over now, which really affected the months of April and May in this quarter. Otherwise, this quarter also could have been much closer to the double digit in terms of the volume overall, to that extent.

I think what we need to really look at is the value growth in terms of where we need to kind of really get in as we kind of go ahead. And that is something which we are looking at pursuing as to kind of how do we kind of really galvanize the growth and look at improving the mix overall as we go forward.

[Unknown Analyst]

Got it, sir. Got it. And sir, second, just continuing on that, we have taken a 1% price increase. Now with that, would we -- would that be enough to get gross margins closer to what we saw in fourth quarter versus where we are right now in the first quarter?

[Amit Syngle, executive]

So we are anticipating that we would have another inflation of about 1.5% in the second quarter as well. So given the fact that we've already had about 1.8% and 1.5% is something what we are seeing on coming, we will have to take maybe further price increases as we go ahead.

[Unknown Analyst]

And that should hopefully -- and so you would probably need to take more price increases to get it -- to take care of the future inflation. But sir, this price increase is okay for the existing inflation, is that the right understanding? Or is there a discounting to take care of economy, I don't know if that is a reason which...

[Amit Syngle, executive]

The overall, I think, increase is clearly linked to the overall inflation, which we are seeing. So as you see, it has not really matched to the overall percentage levels of the inflation to that extent. So we never do that because we look at overall balancing in terms of what possibly is the right thing for the market in terms of going forward as it is there.

So I think even in ahead -- looking ahead, we would like to look at balancing the increase in terms of going forward and it might not be exactly matched to the inflation in terms of what it is taking place.

[Operator]

Next, we have Mr. Mihir Shah joining us via Zoom.

[Unknown Analyst]

Apologies for my bad throat. Sir, I just wanted to check on the employee cost and the other expenses. I have adjusted for the one-off that you had called out last year of the employee costs and despite that, there is a 15% increase in employee cost and other expenditure also gone up by 14%.

So I understand the gross margin or the gross profit part, that is not a major surprise. But I believe the surprise is coming on higher cost, which is dragging down the EBITDA materially.

[Amit Syngle, executive]

So okay, how we see it is that, as I said earlier, I think we have definitely taken some increase in terms of adding the numbers with respect to the overall employees are concerned. We are looking at expanding our footprint with respect to some of the newer categories. We are looking at increasing the number of retail points as we have already stated as part of our overall distribution policy to that extent.

So I think -- and we are looking at a larger kind of focus with respect to certain span of controls for some of our people to that extent in terms of -- especially when it comes to overall areas of sales and marketing.

And therefore, I think some of the numbers which we are augmenting are looking to kind of look at this increase. We hope to kind of really balance this with the value growth going forward to that extent. So that from a point of view of percentage to sales, we get into a reasonable band in terms of what we have been following over the years to that extent.

So the intention is very clear that we are looking to account for the kind of growth strategy in terms of what we are taking because the growth strategy would be for definitely to look at the medium term in terms of how we want to kind of grow.

[Unknown Analyst]

Got it. So then it would be okay to assume that the costs that we are seeing in the first quarter are likely to continue for the remaining part of the year for other expenditures and staff cost?

[Amit Syngle, executive]

Yes, some of the costs will continue, to that extent. There are other cost measures with respect to general overheads where possibly we will look at what are the cost measures we can take, whether it is with respect to the general expenditures, which kind of take place overall. So some of those definitely will come under some optimization as we kind of go ahead.

So as we go forward, some costs would definitely remain, which are possibly fixed in nature, but some of those costs is something which we'll definitely put a focus on.

[Unknown Analyst]

Got it, sir. Secondly, I wanted to just deep dive on the gross margin bit. The new launch that you made in the latest scale seems to be doing quite well, and that is also dragging down the overall mix this quarter. You had earlier mentioned that the negative mix will be around 5% to 6%. Of course, we've seen it higher -- at the higher end of the band, maybe 7% this quarter.

Going forward, given that economic emulsions can continue to grow well, also you've taken some price cuts in the lower end in the distemper, in the putty and the primer segments rather than all the paints that we have seen. So do you think that can have a bearing on the gross margin bit also, should we revisit that assumption?

[Amit Syngle, executive]

No, we have not taken any price cuts to that extent. So the only price cutting we had done was in the last financial year in terms of what was there, which was earlier to quarter 4 to that extent. So right now, we've only taken a price increase, which is there overall, which has kind of come about.

And as I said, that we had spoken about a 5%, 6% band. If you net out the price decreases, which were taken far earlier, you would see that the actual value would have come to about 1.5%, 1.6% kind of a thing, which is in that 5% to 6% band for the 7% growth in terms of what we have spoken of to that extent.

And therefore, I think we are still kind of really targeting that kind of a band between the volume and the value going forward. But definitely, we have not taken any cuts in terms of our prices.

[Unknown Analyst]

My apologizes. I said price cuts, it was price hike. Got it. I think that's all from my side.

[Operator]

Next, we have Mr. Ashish Kanodia joining us via Zoom.

[Unknown Analyst]

Just on the 5% to 6% that value gap you're talking about, so the price cuts which you took last year that will also have some impact in the next 2 quarters. And then when you look at the rural kind of growing much faster, the product mix could actually even get slightly adverse in the next 1 or 2 quarters. So is it fair to say that the 5%, 6% gap between volume and the value which you are targeting, it's more like an exit run rate rather than a yearly average?

[Amit Syngle, executive]

So definitely, I think the attempt here is to kind of look at in terms of improving the mix in terms of going ahead and also kind of focus on the value in terms of going forward. So therefore, I think that is the point which we are looking in terms of bridging the gap overall from the point of view of volume and value to that extent.

Because currently, the mix, if you look at it, some of the economy ranges have done much better as compared to the overall premium luxury part in terms of going forward. Plus, I think some of the price increases, which are being taken to that extent will also kind of help us in terms of looking at bridging that gap overall going forward to that extent. So I think the endeavor is that we kind of remain in that bracket as we kind of go forward. But as you rightly said, I think we will have to put a lot of focus in terms of our premium products to kind of see that we are able to get closer to that range.

[Operator]

Next, we have Mr. Shirish Pardeshi, joining us via Zoom.

[Unknown Analyst]

Just 2 questions I wanted to understand. This 7% volume growth what you've said, so 3 reference point. One, we've said that our NPA contribution is about 12%. We've also launched the NeoBharat paint in the market. And third, you also mentioned in the beginning that there is some -- economy emulsions has not done well. So just wanted to understand which segment has declined within that? I mean, putty, primer would have grown, you also said waterproofing has grown. So maybe some more qualitative comments on that?

[Amit Syngle, executive]

So overall, as we said that the whole segment of the bottom of the pyramid, which is the entire distempers, the segment, which basically gets combined with NeoBharat, I think that is a segment which has done extremely well overall for us to that extent.

And as you rightly said, segments of SmartCare, waterproofing, wood finishes, textures, some of those zones have done quite well for us overall to that extent in terms of the growth which have come in. I think the segments which clearly have -- this thing is the segments where possibly there is stress.

One is the segment of the economy emulsions per se, to that extent. Overall, even if the segments of certain underquotes like primers and all have not done very well for us to that extent in terms of what we see. Some of the premium ranges in terms of the waterproofing possibly have not gone to a desired level to that extent.

And the premium luxury emulsions, while they have grown us for relatively at a decent level. Possibly, I think the overall value which we could kind of look at them could be much higher in terms of what we see in terms of the overall product mix to that extent. So I think that's the story where possibly the economy story comes out in terms of some of these products, which I have mentioned. But definitely, the economy emulsions out of the whole lot of emulsions is the one which is not doing well.

[Unknown Analyst]

Okay. My second and last question on the other businesses. So we have now 61 Beautiful Homes. So when I look back 2 years, we have taken a lot of steps to improve throughput, we have launched many new categories. What stops us, is the model still under reconstruction or getting the unit economics right? Or we think the economic conditions are not right and that's why we are going slow?

[Amit Syngle, executive]

No. Actually, see, we are adding about 18 to 20 stores every year to that extent. The whole area of getting -- our model is very different in terms of where we align with retailer and it's not a model. It's a fairly unique model in terms of what we have launched. So it takes a certain point of time to really add the real estate and add to the entire store in terms of the design because the phygital design with lots of technology put into that extent.

So I think the endeavor is that we keep on looking at about 15 to 20 stores in terms of what we put every year and look at newer categories which we can add. We've just added a category which is automated blinds, which have kind of come in, which is a new factory, which has come up in Chennai in terms of what is there to kind of focus on that category of home decor.

So I think we are firmly kind of entrenched in terms of taking the overall home decor endeavor because we feel that from a consumer decor life cycle, it kind of really enhances the core category of paint because you start owning the homes far more strongly as you kind of go forward. So I think we are pretty strong and bullish on this category as we want to kind of go ahead and we are putting the adequate pace in terms of what we want to.

[Unknown Analyst]

Just 1 quick follow-up. What kind of gross margin or burn we would be having quarterly on this business?

[Amit Syngle, executive]

So overall, I think the total business is fairly diverse today in terms of a lot many categories which are there. Some categories are in a nascent stage, some categories like a Kitchen and Bath are at a larger stage. So overall, if you look at the gross margins, it's a pretty big band. And for some categories, it takes some time to kind of really come to a certain level to that extent.

So difficult to really put one number in terms of putting in saying what they will be kind of at. So I think it's a band which is there, which is pretty good in terms of from the point of view of overall realizations as we kind of go forward.

[Operator]

I would now request Mr. Amit Syngle for his closing remarks.

[Amit Syngle, executive]

So great, I think speaking to all of you. I think it's good that we have been able to kind of address some of the questions in terms of what you are having. Overall, definitely, we are looking forward to a much better quarter as we kind of go forward. Thank you all for coming and joining us. Thank you.