Asian Paints Ltd

NSE:ASIANPAINT

Earnings Call Analysis

Asian Paints Reports Mixed Q2 Performance

Asian Paints experienced a moderation in top-line with a 6% volume growth, though value remained flat compared to a stronger Q2 FY23. The half-year results showed better volume growth at 8%, with value growth of 4.2%, maintaining a 4-year compound annual growth rate (CAGR) of approximately 15%. Urban centers outperformed rural areas in this period, and new product launches contributed 11% to overall revenue. The company expanded its retail footprint by 2,500 stores this quarter, reaching around 160,000 points. Noteworthy is their painting service's exponential growth and the strong business from government, factory, and builder segments despite some monsoon disruptions.

Sustained Gross Margin Improvement Amidst Flat Sales

Amidst a challenging economic environment, the company saw a deflationary impact of about 4%, yet it boasted one of its highest gross margins in the last 10 quarters at 43.9%. Profit Before Tax (PBT) grew by an impressive 52% compared to the previous year, and Profit Before Depreciation, Interest, and Tax (PBDIT) margins increased by 550 basis points to 21.7%. This uptick in profitability metrics held steady on a half-yearly scale as well, with net sales growing by 3.6% and similar improvements in both gross and PBDIT margins.

The Positive Trend in Margins and Efficiency

Even when net sales exhibited weak growth, efficiency and profitability indicators remained strong. The overall financial health of the company is underscored by gross margins that have improved by 770 basis points and PBDIT margins that stand at an encouraging 20.3%. Observing this from a half-yearly perspective, the company continues to see a boost in net sales (3.5% growth) and healthy margins, indicating robust management of operating costs and strong pricing power.

Stable Dividend Payout Signaling Confidence

The company declared a substantial dividend of INR 5.15 per share, a reflection of its profitability and cash flow strength. This, paired with a strong payout ratio of 60% from the previous financial year, is a testament to the company's commitment to shareholder return and confidence in its financial performance.

Festival Season and Wedding Demand to Boost Sales

As the company looks ahead, it anticipates a robust festival season and wedding demand to positively impact sales, especially between mid-October and early November. This expectation is also buoyed by an optimistic rural growth forecast, supported by the coverage of monsoon deficit and government spending―factors which may offset recent demand fluctuations due to uneven and erratic rainfall patterns.

International Challenges and Commodity Price Worries

Internationally, the company faces challenges in key markets like Nepal and Bangladesh, with uncertainty in Egypt due to macroeconomic conditions. Meanwhile, rising crude oil prices and the resultant potential hike in material costs are areas of concern that could impact future pricing strategies and margins.

Home Décor Divisions Facing Headwinds

While the company has found success in paint-related diversifications, its Home Décor businesses such as Ess Ess and Sleek have experienced double-digit sales declines. The management acknowledges challenges but remains focused on structural improvements, leveraging brand strength and scaling up the ‘Beautiful Homes’ retail concept to revive growth in these segments.

Boost from Strong Bottom Line Despite Flat Top Line Growth

Although the top line growth was relatively flat, the company substantially increased its bottom line, buoyed by efficient cost management and margin improvements. This strategy signifies the company's resilient business model capable of delivering growth, even under pressure on the sales front.

Outperforming the Unorganized Sector

Post-COVID dynamics have led to customers gravitating towards established brands, resulting in the organized sector outpacing the growth of the unorganized sector. The company, leveraging its brand reputation, has effectively captured market share, particularly attracting customers from the unorganized sector who are now showing a preference for emulsions and branded products.

Weather Disruptions Affecting Paint Demand

Sporadic rainfall patterns have had a significant impact on both exterior and interior paint demand. The unpredictability disrupts painting projects, impacting both the DIY segment and larger B2B projects. Consequently, the company anticipates an uptick in deferred demand translating into growth in future quarters once environmental conditions stabilize.

A Forward-Looking Perspective Combining Two Quarters

In assessing Q2 and Q3, the company anticipates growth trends aligning more closely with those seen in Q1. This analysis takes into account the delayed festival calendar and the upcoming strong wedding season—a combination that traditionally stimulates higher demand for paint products.

Earnings Call Transcript 2024-Q2

[Sunila Martis, executive]

Good evening, and welcome, everyone, to Asian Pain's Quarter 2 FY '24 Earnings Call. I'm Sunila from Investor Relations. We also have with us today our MD and CEO, Mr. Amit Syngle, Mr. Jeyamurugan, our CFO and Company Secretary; and Parag Rane, AVP Finance. I would now like to invite Amit over for his opening comments.

[Amit Syngle, executive]

Very good evening to all of you, and welcome to the -- welcome to the investor conference for quarter 2 of financial year 2024. Just to kind of reiterate, I think the bigger area, which we have been kind of fully looking at is delivering joy and happiness. And clearly, we exist to beautify, preserve, transform all spaces and objects bringing happiness to the world. And this has been the core area across businesses in terms of what we have been thinking. And therefore, the whole movement of share of surface to share of space is something which we have invoked now in terms of going forward.

The standard disclaimer. So when we look at this quarter, obviously, there has been a moderation in the top line, which has been kind of seen in terms of the market in terms of a weak consumer sentiment in terms of what we have seen, especially, I think progressively, what we have seen improvement. July was extremely weak. We saw August improving, and I think it was a healthy exit in September in terms of what we are seeing overall to that extent. And that is something which how the quarter has behaved.

Overall, I think the bright spark has been that the volume growth has been 6% in terms of what we have seen over possibly a double digit in terms of what was there in the quarter 2 of financial year '23. From a point of view of value, obviously, it has been flat in terms of what we have seen but there was a healthy growth last year in the same quarter to that extent of about 20%. The CAGRs have been very, very strong in terms of overall, about 15% CAGR in terms of what we have seen over a 4-year kind of a period which is there.

When you look at the half yearly results, they are slightly better in terms of what we see, overall 8% kind of a volume growth, which is closer to the double digit in terms of what we have been speaking about. And the value has been a little lower at about 4.2% in terms of what is there over a fairly healthy base of '23 in terms of what we have seen. So that's how the figures pan out. But CAGR levels here are also quite strong at about 16%, both on volume and value, which we see overall, which is there.

One of the areas which we wanted to bring [indiscernible] is that if you look at just the paint in the coatings area, which is if you include the decorative sales and the industrial sales in terms of what we do, the volume growth is about 6%, and the value growth, which we see very clearly is about 1.1%. So it improves marginally given the fact that the industrial sales has done well overall from that point of view. The half yearly numbers also improved in terms of the value terms to about 4.8% as we see. And in both these cases, if you can see the CAGR numbers are pretty strong in terms of both volume and value, both at the quarterly level as well as at the half yearly level in terms of which is there.

So that's only from the coatings point of view in terms of what we are able to see the growth which has come in both on value and volume to that extent. We have been speaking about this and you've been seeing this graph, which we have spoken about the whole area of our double-digit volume trajectory. And if you see -- this is something which is still being maintained at a 4-year CAGR kind of a basis, which is there. And this is something, as an organization, we are committed to in terms of going forward. And all the imperatives which are working on to kind of see is that we kind of continue to kind of really look at this maintenance of a CAGR as we are going forward.

Some of the growth drivers to look at in terms of what really has happened overall. One of the differences which we have seen in this overall quarter is that the rural and urban centers have been behaving slightly differently. And especially, I think we have seen that there is a change from quarter 1 to now quarter 2 in terms of how we see that today. The urban centers have done better than the rural centers to that extent and that somewhere is a difference, which is kind of causing some of the dip in terms of the demand in terms of what is there.

We are also seeing that today, the current mix is led by a larger economy range in terms of what is [indiscernible], although what we see is that the luxury range has also got reasonable traction, which is there to that extent. And we have seen some changes in terms of how September has behaved in terms of possibly a larger traction on premium and luxury products to that extent.

Overall, waterproofing has been a bright spark in terms of strong growth, which we are seeing, both in the retail and the projects segment in a very, very strong way. The whole area of our distribution footprint continues unabated in terms of what we have been doing. And today, we cater to over about 1.6 lakh retail touch points. We've added about 2,500 touch points in quarter 2 itself to that extent. So I think the overall additions, from a point of view of a half year is closer to about 5,000 in terms of what we have been able to kind of really put in.

When we look at the entire area of the our painting service, which is the Safe Painting Service and the Trusted Contractor Service, which itself stands out as a very, very big differentiator in terms of what we have put in. It has really grown exponentially. And literally in terms of it has doubled in its size to that extent as we kind of look at it with some very, very good customer experience, which is measured through an NPS parameter. We can easily say that now globally, this is the largest painting service, which is run by any company, any painting company to that extent.

And therefore, that's a clear edge in terms of what we are seeing in terms of the growth which we are achieving here to that extent. Overall, from a point of view of projects and institutions, the business has been still stronger despite the fact that there is some disruption because of the monsoons which are there to that extent. But we are seeing good growth coming from the government, the factories and the builder segment, which are growing at a fairly decent pitch for us as we see it in this quarter.

Our focus on innovation continues. You've been seeing a slew of new products, which we have been launching over a period of time. And our new products contribution is even in this quarter, looking at 11% in terms of the overall revenue. So I think this is a very, very strong parameter, which keeps on driving the sales in a very strong manner. Our whole areas, we had announced a huge CapEx in terms of what we are taking both from the point of view of capacity expansion and also from the point of view of backward integration, all these measures are going on pretty well as we see it.

And we are definitely looking at achieving in terms of the numbers of CapEx in terms of what we are talking in terms of both CapEx as well as the backward integration measures in the coming 2 to 3 years. So that's, I think, the overall scorecard in terms of how we see some of the various areas which are behaving for us for this quarter as we look at it. As I said, new products have been something which has been the strong point. Earlier, we had spoken about the Nilaya Naturals top coat. Now we have completed the entire range with the primer putty kind of coming in. And this is really a #1 in terms of the paint industry where we are talking of something which is 90% organic based on natural content, which comes in and also something which in packaging, there is a revolution because it is made of ocean recycled plastic overall to that extent. So this is really a stellar product, and it's kind of one of its kind across the globe as we see it in terms of what is there and at the luxury end, this is something which is really appealing to the architects and designers in terms of what we have launched.

Not only this, if you see -- we are reinvigorating our offerings with respect to a certain consumer segmentation. We find that people who are above a certain level in terms of the [SECA ] are preferring in terms of going for a lot of pastel and whites and to kind of cater to that, we have launched what we call as the white and ivory's collection, which is there, which is called [indiscernible]. And this is a designer palette, one of its kind just got launched, and this is something which this season, I think, will do kind of really well in terms of how people will take it.

Not only this, I think, a slew of other kind of promotions, which are 360 degrees, whether it is above the line in terms of Royale Glitz in terms of what we have launched. It has been a mega-starer in terms of what we have been able to kind of put into the market and has got extremely good response in the field. We have looked at various promotions, which is based on integrations in terms of media, whether it is on Kaun Banega Crorepati or whether it is in terms of cricket, we have looked at a lot of integrations, which have kind of come in, in terms of other products as well.

All Protek is the other product in terms of where we've looked at various media campaigns coming in. Not only this, digital has been a very, very strong story and a lot of this is even marketed in terms of various events which might happen in various places, for example, the board makers in terms of what we have done in Kerala or it is in terms of looking at appropriating various occasions, even in terms of the Chandrayaan thing in terms of hitting something which how Asian Paints has kind of celebrated that in terms of looking at reaching to our customers to that extent.

So a lot of work happening around digital so that the campaigns are holistic in nature in terms of what we are able to reach out to our customers. One of the big things which we keep on doing is looking at training people and increasing their livelihood by skilling them to that extent. These are various people across the country. We have a campaign, which is called Kaamyabi ke Rang, which looks as instilling skill levels and therefore, increasing the livelihood of people and that is something which is very, very strong.

We look at training almost more than 5 lakh people last year in terms of what we are doing. And this year, also, this is going strong with almost the 3 lakh training mark breached this year as well. So this is a strong program, again, which is really kind of galvanizing the influencers to do something which is very different and to kind of inculcate their loyalty towards Asian Paints. Overall, when we look at various events and festivals, I think Sharad Shamman at Calcutta has been very strong, just to give you an idea that the way we kind of looked at, we looked at the trams in Calcutta City, which we decked up specifically with respect to the culture in West Bengal, whether it is the -- whether it's the Howrah Bridge, whether it is in terms of talking of the nuances of the local culture or in terms of even doing the inside of the trams in a very, very strong way.

So Sharad Shamman has become the Oscars for West Bengal to that extent, and that is something which we celebrate every year. This is all to kind of just give you an idea, things which have been kind of been done as we kind of look at this whole area. In the case of Home Décor, Obviously, I think we have seen a little bit of a weaker demand this entire 3 months in terms of which is there. But I think the organizations foraying, this is very, very strong, our investments, our work which we are doing in this area is something which is very clear in terms of from where we are approaching.

Today, we have become the #1 integrated Home Décor player overall. We have now 50 beautiful home stores, which are there across the country to that extent. And we are adding these store steadily in terms of what is there. Our White Teak investment has taken to us to a #1 decor lighting -- in decorative lighting. Fabrics, we are #2; wallcovering, we are #1. And lots of collaborations with Sarita Handa, Sabyasachi and so on and so forth. Currently, we are -- the overall revenue is 4% of our decorated revenue, but we are committed that we would like to kind of grow this exponentially as we really go in this Home Décor journey going forward.

So when we look at this, we have been launching newer things. So this is the new wallpapers, which have come at the smart economy and in terms of what we did. At the same time, at the high-end luxury end, we have launched some collections, which we have worked with certain designers, which is there. This is the first kind of is mural range, which we have kind of launched called -- done by the Tilla Studio. So again, to give you a variability in terms of work happening both at the economy, premium and the luxury end in terms of what we are continuously kind of really looking at customers who are basically straddling these fares as we look at the market.

However, this quarter, I think definitely the Kitchen & Bath business has been much, much slower in terms of what we have seen. Kitchen business had a price increase base last year in terms of the prices we had taken. And therefore, we had a larger kind of bookings, which were there by the consumers. That has impacted the sales there. But even to that extent, I think the demand conditions have been weaker to that extent. And therefore, it has affected the top line numbers in terms of what you were able to see.

However, we had a focus with respect to overall in terms of how we are looking at building our overall profitability here, and we had done strong work in terms of operational efficiencies to maintain a certain kind of bottom line here to that extent. Bath has been, again, more than kitchens to that extent in terms of what we are seeing. So I think while the BH network is kind of giving some energy to this. I think overall, the business has been a little bit down to that extent. But I think there are strong plans in terms of what we are taking that, how we kind of prop up Kitchen & Bath as we kind of go forward for the balance part of the year.

White Teak & Weatherseal, both are doing extremely well. Overall, top line are growing. We are really expanding the network across the country, along with the beautiful homes being there. Weatherseal, which is the uPVC windows and doors, again, business has doubled in terms of the value which is there. We are introducing newer products here. We have just introduced [ system ] aluminum as well, which has kind of come in to that extent. And in the projects business, it is also doing well. So I think these 2 would be really the flagship kind of businesses, which will lead the Home Décor as we kind of go forward strongly.

So I think these businesses are doing overall quite well in terms of how we see it. Coming to the AP Global. This is the footprint, as you are all aware of, in terms of where we operate, Asia, Africa and Middle East in terms of overall. And in these things, there has been a mixed performance as we see it, which has come in. There have been obviously various challenges, which we have seen. Largely, what we have seen that in terms of the overall numbers, while we have seen a degrowth. But in terms of constant currency terms, there would be a growth of about 2% in terms of what we are seeing in this quarter overall to that extent.

However, I think the bigger areas of performance has been Middle East, which has done very well with a double-digit kind of growth, which has come in. Parts of Africa, which includes Ethiopia, which has than decent. Sri Lanka is something which is really improving in terms of the overall business. The whole impact largely has come in from one Asia where Nepal and Bangladesh have been a little bit more affected in terms of what we see.

And also we see a large depreciation happening in Egypt, which is really disrupting the business in terms of overall both growth and bottom line, which is kind of coming in. So some of these factors have kind of really led to some disruption in terms of the overall thing. However, we have been able to kind of improve our PBDIT margins overall to that extent in terms of focus, obviously, helped by some deflation, which is there to that extent. But I think overall, this business has been also on a slightly lower side as we see it in -- especially in some of the markets of Asia and Egypt as I kind of spoke of.

So that's how is the AP Global business in terms of what it really looks like. The industrial business continued to maintain its very, very strong growth trajectory. Overall, when we look at the AP business, which is all about the auto refinishes business, I think both businesses have done relatively well as we see it, supported by obviously good growth happening in the auto sector, especially the passenger vehicles, I think that there is a good growth, which is happening, which is reflected in terms of the top line numbers growing at by about 6%.

And there is a very, very strong growth with respect to even the PBT levels, which have kind of come in overall in terms of what we are able to kind of put in over the healthy growth, which were there in the base to that extent. So I think overall, this business has done well. If you look at even the APPPG business, which is about protective paints, and powder coatings. This business also has grown in very healthy double-digit numbers, which is there and that their profitability has also been fairly good. Both segments have grown very well for us. And this is almost now a journey of the last 3.5 years that the business has been consistently growing to that extent.

So overall, I think -- the industrial business does well, and that is why I think in the overall coatings in Q2, we have kind of registered a 1.1% kind of a growth aided by the industrial performance coming in strongly. When we look at overall kind of deflation, which is happening over the quarters we are seeing, especially the last 2 quarters, we have a material deflation of about 2%, which happened in Q1 of financial year '24. And now we've had about a 4% kind of deflation in terms of the quarter, which has just gone by to that extent.

And I think that is something which is clearly kind of helping us in terms of looking at strong margins, which we are getting. Overall, if you see the gross margins, we are at about 43.9%, which is definitely in terms of the trajectory. One of the higher gross margins in terms of what you can see overall in terms of the last 10 quarters. So I think this is something which is there. But as we go forward, we'll have to kind of look that because of the larger macroeconomic things which are happening and the other areas in the world, how does this kind of really behave is something which we are closely watching as we go ahead.

When we look at overall as a summary now in terms of the stand-alone numbers. Obviously, as I said, the net sales is flat overall in terms of the way we look. But if you look at all other parameters, whether it is in terms of the gross margins or the PBDIT margins or even in terms of the PBT growth, I think, very, very healthy in terms of what we are seeing. PBT growth are almost about 52%. And PBDIT margins from a previous comparable quarter of last year have really kind of gone almost by 550 basis points overall in terms of what we see to about 21.7% in terms of what's really coming.

Even if we look at from the half yearly level, the trend is same. The net sales is up by about 3.6% in both gross margins where we see a 68 basis point improvement and PBDIT margins, again, the improvement is closer to about -- close to about 500 basis points in terms of what we are seeing, almost about 600 basis points. So I think the bottom line story has been still very, very strong in terms of what we have been able to put up.

Yes, some weaknesses in terms of the top line in terms of what we have seen in this quarter. Consolidated financials, again, the story is similar in terms of what we see with slight variations. Overall net sales is closer to flat sales at the quarter level in terms of what we see improvement across with respect to gross margins, PBDIT, PBT margins overall to that extent, gross margins have gone up by 770 basis points. PBDIT margins are closer to about 20.3%, much above the 14.6% what we saw last year in the same quarter to that extent. So overall, all parameters from the point of view of profitability look fairly healthy in terms of what they have come in.

On a half yearly level, similar to the stand-alone, I think net sales is up by about 3.5%. Again, improvements in margins all across both gross margins have gone up where they now stand at 43% and PBDIT margin stand at about 21.8%. So I think that's how it kind of really stacks up in terms of the overall all businesses coming together and the numbers stacking up in this way.

Dividend has been declared, I think it's a healthy dividend, which we have declared of INR 5.15 per share, which is there, and this is something which we are still maintaining a very, very strong indication in terms of how the organization has done.

Remember, in '22, '23, I think the payout ratio was very strong at 60%. So I think that's a very good sign in terms of how shareholders are benefiting from the point of view of overall performance. When we look at outlook, I'm sure this is something which is in everyone's mind in terms of what's really happening and how we will kind of really look at this thing.

One very clear thing which has happened is that while there is -- there was erratic and sporadic rainfall in Q2, which took a toll with respect to the overall demand, but there was very clear that we saw a shift towards possibly a longer festival season. And therefore, what we are seeing that right from 15th September onwards, there has been a healthy picking of overall sales, which is there, the exit of September was strong. And therefore, we are looking at a good 40 days of October and the first 10 days of November being very, very strong, which is happening because of the overall festive demand.

We also are seeing a strong wedding season which is coming in November and December. So I think the -- we have the confidence that today, going forward, we should see fairly healthy demand as an offtake, which would come in, in terms of this thing, led by the larger festive season in terms of which we are seeing currently. So that's -- I think we are confident of that. Monsoons, though, I think, have been uneven overall, but I think the deficit has been covered largely in terms of this thing. So no kind of real kind of things which are coming as disturbance in this area, and I think overall, this should kind of favor the rural growth coming up, especially towards the end of Q3 and Q4 to that extent in the hope of a good harvest and good agrarian economy kind of picking up to that extent.

Government spending, I think, has been good. It has given fillip to the rural demand also in support. Obviously, we'll have to see this in the context of the elections, which are kind of coming up in terms of how it really behaves. As we see industrial businesses are doing quite well to that extent. Home Décor, we are quite confident that with the demand in terms of the real estate, which is kind of now picking up after the monsoon is over, I think it should kind of really give a fillip to the overall Home Décor decor business also going forward.

As far as international geographies is concerned, I think the key concern is still Asia where Nepal, which contributes to a larger chunk of our business. I think Nepal and Bangladesh, we have to see from what's happening and what is really the improvement which happens in Egypt. There is a little bit of uncertainty there where we are not very sure in terms of how things will shape up in terms of going forward. Let's see and hope for the best that how businesses recover in these places.

Overall, from the point of view of input prices, inflation, the second war, which has started has not something which is giving a very good sign. But we see that there should be -- there would be some impact on crude and all the derivatives around it, which might lead to some kind of a inflation is what we are thinking in terms of the material prices going forward. But that is something which we'll have to really see and watch out in terms of what really happens. But in all, I think overall, demand still seems to be positive, and we are looking forward possibly to a good quarter as we kind of go ahead.

Sustainability has been the core and you would have seen that the the way we have invoked the whole area of ESG has been very, very strong. And I think it reflects in terms of the kind of work which is happening. So whether it is from the point of view of fresh water replenishment. So we are water positive. First of all, I think that's a very big point in terms of what we speak of to that extent. Or it is with respect to either the effluent generation or it is about specific hazardous waste, large quantums of reduction in terms of what basically we have promised, and we are achieving in terms of what you see here very clearly.

Similarly, in terms of Scope 1 and 2 emissions, I think there's a very good work, which is there, where we see some strong reductions coming in. Everywhere, RE has been a strong area with us almost about -- we are at 67% level in terms of how we look at the RE to that extent, and this is something which is not a purchased RE through certificates. This is something which we have actually achieved to that extent in a strong manner.

Overall, I think the work around in recycled material, again, very, very strong. The whole area of social, again, very strong in terms of the work which we are doing in terms of skilling, kind of improving the livelihoods of people or even working around the health care initiatives in terms of what they are going on. So I think a strong body of work, and this is something which is really the core in terms of bringing joy to people's lives in terms of what we think. And therefore, I think we continue in terms of spending on looking at democratizing decor and really creating joy and happiness for various communities and people across the country and also creating something what we call the art districts around. We have about 7 art districts now across the country, and that is something which we are strongly taking going forward. Thank you so much.

[Operator]

Thank you, Mr. Syngle. [Operator Instructions] We have Mr. Abneesh Roy, joining us through telecalling. [Operator Instructions].

[Abneesh Roy, analyst]

Abneesh from Nuvama Institutional Equities. I have 2 questions. My first is on Home Décor. Amit, when I see your nonpaint diversification, I see very good performance in [indiscernible] which are very close to paint. So very good performance, say, in waterproofing, construction chemicals, putty over many years. But when I see your more diversified forays, for example, Ess Ess and Sleek, it's been a consistent challenge. When I see the real estate sales last year and this year, almost every company has seen a very good sales. So if there is a lagged impact, now it should have seen. So my questions here recently are essentially, is there a big festival impact which has impacted Ess Ess and Sleek because both have seen double digit sales declined.

And second is when you say that you'll be taking a lot of concrete actions to recover sales in the balance of the year, my question is more on the structural part from a longer term, how do you see this growing much faster? Because when you say that you are the largest integrated Home Décor company, ideally, these parts of the business should have benefited more rather than paints which is anyway doing extremely well from the existing dealer network rather than the Home Décor network. So how do you measure your Home Décor network is performing as per expectations because here, it would be the key differentiator. If you could explain on these questions.

[Amit Syngle, executive]

Yes. So I think I would like to just clarify that if you look at the overall Home Décor foray, I think -- it's not only the adjacencies of waterproofing and construction chemicals and other areas which you are seeing. Today, if you see that we have started putting focus on the recent buys of White Teak and your -- the whole area of weatherseal, which has kind of come in and there we are seeing responses which are coming.

Yes, specifically, if you look At Kitchen & Bath business, if I talk of '20/'21 and '21/'22 years, I think we had done exceptionally well, almost about 30% growth in both the businesses, which is there. Last year, the growth were in double digits in terms of what we saw. So I think from that point of view, the trajectory has been good in the last 3 years in terms of what we have been able to do.

Only this year and starting from Q4 of possibly last year, we are seeing weakness, which is kind of coming in terms of the overall kind of demand which is there to that extent. And what we are seeing is that our imperatives with respect to the beautiful home stores I spoke about 50 stores, which have come in a -- large chunk of these stores have come in the last 1.5 years to that extent.

So I would say that from the point of view of going ahead, yes, you are right that we are seeing some of the weaknesses in the last about 3 quarters definitely to that extent. But we still see a very, very high potential with respect to both the businesses because in Kitchen, we are the #1 players in terms of the FTD business. And we still think that the modular kitchen is a very, very strong bet in terms of what we can take.

We have been kind of really conscious in terms of really looking at our bottom line and not really going and splurging in projects in a very big way where the real estate really has kind of really gone in and therefore, Specifically, we are not very strong with the builder segment in terms of looking at, but we are strong from a point of view of retail demand which comes in terms of renovations and other things, which people do in their homes in terms of replacing their regular kitchens with modular kitchens to that extent. So I think going forward, kitchen, we are very confident that today, we should kind of do well because the last 3 years, we have kind of grown at a good rate, both from the point of view of kitchens and components.

Bath, again, last 3 quarters, it has got really affected in terms of the overall growth. There are some network challenges in terms of what we are facing from a point of view of overall distribution. But the whole area of beautiful homes are kind of really propping up the sales very, very strongly in -- for the bath as well as we are going. There is some work which we need to do in terms of brand building as well there as we kind of go forward. So given these areas of focus, I think they still kind of are very much in the reckoning the organization is behind them. And what we see is that we would kind of revert back to the kind of growth which we saw 3 quarters earlier in terms of what we have done and the trajectory which we are maintaining as part of the overall imperative of the #1 integrated player in terms of Home Décor.

[Abneesh Roy, analyst]

Just 1 very quick question. So you mentioned that in retail, you have high focus and real estate where the growth is much higher. I understand the margins will be much lower. But given current life-cycle

Of Ess Ess and Sleek, would it like a lot of immense sense to cost subsidize from the paint business because the amount of subsidy needed will be much lower. And it also addresses your earlier point that you need brand building there. So if you have that as a captive brand in the new home, won't it also help in terms of the brand equity of both the businesses?

[Amit Syngle, executive]

No, it is there. So the umbrella branding of Asian Paints is definitely helping us in both the businesses to that extent. I was talking more of the fact that today, the awareness of people that we are in the kitchen and the bath category as well. So I was talking more in terms of building that space as we kind of go forward. .

It's not that we are totally out of real estate to that extent. We do participate in terms of the real estate versions. But especially, we are looking at a little bit of the mid-end to high-end builders kind of a space to that extent and not looking at the lower end to that extent which is there. So as I said, we are looking at calibrating our margins there and looking at in terms of what products we could kind of really offer there. So it's not a segment which is left for ever to that extent. But I think we are being a little bit more cautious with respect to how we want to kind of achieve our bottom lines as well as we kind of grow this business of kitchen and bath going forward.

[Abneesh Roy, analyst]

last question is on your core business. So you mentioned weaker sentiment, downtrading, which is being seen in almost all forms of consumption currently. You take FMCG, you take QSR, all companies currently are suffering. I wanted to understand, given this is a new trend at least in paint, what are the proactive steps you are taking in terms of increasing market share at the lower end so that the down-trading benefits you? And second is, in Q3, you mentioned because of the festival demand and marriage season, some of the themes might reverse.

You see this as a [ 2-quarter ] phenomenon given it started this quarter? Or you think this is more of a 1-quarter phenomenon only and we'll get to know Q4 later, but what's your sense?

[Amit Syngle, executive]

So as we see it, I think this quarter has been definitely been an anomaly to that extent in terms of what we see. You've been seeing the trajectory across the last 13 quarters in terms of what we have been able to kind of do overall to that extent. What we see very clearly is that if we look at the entire quarter, July was the weakest and it picked up -- July was weaker because of the rains, which were very, very high and strong.

And then I think progressively, we've seen some improvement in August and September. As I said, the exit rates in September has been very, very good. And overall, in terms of even the product mix we are looking at in September is coming back strongly. So we feel that going ahead, given the larger festival and how we are seeing possibly the current October, which is kind of going overall.

I think this seems to be a little bit of a onetime phenomenon in terms of overall what we are seeing. But having said that, I think overall, on an analysis, if we see in terms of how last year was there in terms of the overall sales, which we have seen, which was in terms of high double-digit growth in terms of overall volume also in terms of how it is auguring, definitely, what we see this year in the first half is that demand has been a little bit slower, more aided by the fact that the smaller tier towns are doing lesser or giving lesser kind of sales to that extent as we see overall to that extent. But I think that apart, we would say that phenomenon of really kind of looking at saying that we are looking strongly at the coming quarter, I think, remains. And this quarter has been a little bit of an anomaly there from a point of view of sales.

[Operator]

Next, we have Mr. Avi Mehta joining us through Zoom. [Operator Instructions]

[Avi Mehta, analyst]

This is Avi Mehta from Macquarie. Sir, I just wanted to kind of pick up on the demand environment bit. I'm -- what I'm trying to appreciate, is it fair to argue and what I read between your lines is that the moderation in 2Q is largely because of festive timing and hence, would it be fair to say that if I were to add 2Q and 3Q and look at that growth momentum, that should be similar to the momentum that you were, say, witnessing at 1Q or probably prior to that. Is that the way I should look at demand? Or how would you look at it?

[Amit Syngle, executive]

Yes. Definitely, I think when we look at possibly, I think combining both the quarters and look at Q2 plus Q3 kind of a growth, I think that is something which definitely gives us a leeway in terms of saying that it should be closer in terms of how we would have looked at Q1 growth, which has kind of come in to that extent. So I think that is the correct analysis in terms of what we see overall in terms of going forward from the point of view of how demand will augur given the larger festival season. Because what is very clear that last year, the Diwali was around 18th October or so. And this year, it is around 12th November. So there's a clear time period in terms of what you are kind of getting to that extent.

The other factor, which we must kind of really look at is that the whole pattern of rainfall has been very, very sporadic, if we look at from the point of view of this quarter. July, it was very heavy. August, it was absent. And then in September, it kind of came back to that extent, which has also kind of killed the sentiment in terms of whatever demand would have kind of built up in terms of there, especially the whole exterior segment kind of -- has got affected in a very strong manner as we see it.

So we would definitely see some deferment of this demand, which is going to come into that quarter. Apart from the festive thing, which is there to that extent. And third, what we see is very clearly a very, very strong wedding season, which is kind of coming in November and December.

And that, I think, augurs quite well for our industry because typically, there is a lot of painting which happens around the weddings time, which is there to that extent. So I think -- when we look at all these factors, possibly that Q2, Q3 is something which we are looking at in terms of the growth kind of really balancing out.

[Avi Mehta, analyst]

Got it. Got it, sir. So not a demand issue, more a timing issue is how I should kind of look at this, got it. Sir, the second bit was on your comment on input cost. I wasn't quite clear. Is it the current level of input that you are worried about and hence, you need to take price increases on that? Or is it more of crude rising? And related to that, sir, just from a near-term perspective, this quarter had a mix impact. Clearly, economy did well. if you're seeing bullishness coming in on growth, if you're seeing input costs, we don't know where it will be, but assuming stable, would it be fair to say that margin at the EBITDA level should also move up from 2Q levels just because the mix normalizes?

[Amit Syngle, executive]

So what we see is very clearly that the larger geopolitical situation, as we are all aware, has kind of put pressure on crude. We are seeing increasing crude in the last about 10, 15 days. And earlier also, we had seen some upward movement, which is there. Plus, I think going forward, from a point of view of currency also, we don't know in terms of which way it is kind of going. As a result, what we are looking at is that possible in the coming quarter, you will definitely see some upswing in terms of the material prices, especially where crude derivatives are concerned, solvents are concerned, I think we will definitely see an upswing. .

What I was mentioning was very clearly is that the kind of deflation, which we have seen in Q1 and Q2. That is something which we don't see any deflation. In fact, we see going forward, there would be some inflation to that extent. And therefore, I was not talking of a price increase. I was just saying that we might have to look at prices in terms of what we might have to do depending on how the inflation takes place going forward to that extent. So I think from that point of view, there is some balancing which is happening with the material prices going up, and this is a trend which I see in Q3 and Q4 going forward.

So from the point of view, I think the PBDIT margins and so on and so forth, we have always kind of maintained that we would kind of remain in that band of 18% to 20% to that extent. And I think that's a very strong and steady way in terms of looking at how we perceive our margins going up in terms of both calibrating prices or calibrating discounts and overall spend as we look at going forward.

[Operator]

Our next caller is Mr. Jay Doshi who's joined us via telecalling. [Operator Instructions]

[Jaykumar Doshi, analyst]

This is Jay Doshi from Kotak Securities. Just a quick 1 question. Could you comment on the competitive intensity from local players, unorganized players. You mentioned that rural growth was a bit much lower. So are you seeing more competition from local players given [indiscernible] environment?

[Amit Syngle, executive]

Okay. I'm not very sure whether I got your question completely right. But are you saying that -- how has been the unorganized sector performance and how we are seeing with respect to our overall shares with respect to that?

[Jaykumar Doshi, analyst]

Correct. Organized versus unorganized spend

[Amit Syngle, executive]

Okay. So as we see it, I think the unorganized sector, definitely, I think, has got affected post COVID. First, it was the whole disruption in terms of the supply chain. Now we are also seeing a very clear shift towards brands, which is happening from the customer point of view to that extent. And overall, what we have seen is that the price elasticity also which was there earlier has kind of really decreased to that extent. So which was there earlier. So overall, from that point of view, I think it is very clear that the unorganized sector, to some extent, is not growing at par with possibility the organized sector is growing to that extent.

And that is something which we have seen in the last 2 years as well to that extent. And therefore, one of the areas from where we are gaining share is especially the unorganized sector, which is there, given the gains which we have been able to achieve in the last about 3 years. we see very clearly that the unorganized customer who's sitting at the fringe is kind of looking to buy into an organized brand. And therefore, what we see is that there is a lot of traction coming towards the emulsions, which are the smart or the economy emulsions in terms of what we are seeing. And people are looking at really brands to kind of really where they want to kind of really upgrade to because the price difference is not very high and they get the comfort of the assurance from a brand which kind of comes in.

I think the trend which is appearing is very clear that the organized industry is growing faster than the unorganized industry in terms of the overall growth, which are happening in terms of the products which are quite relevant to the paint industry .

[Operator]

Next, we have Mr. Shirish Pardeshi, joining us through Zoom. [Operator Instructions]

[Shirish Pardeshi, analyst]

This is Shirish Pardeshi from Centrum Broking. I have a couple of questions. I think you said that the rains were uneven or sporadic. My understanding, this would have affected a larger exterior business. So I'm more curious that generally, typically, what is the split in the rainy season between the exterior and interior in terms of decorative?

[Amit Syngle, executive]

So see, there are 2 parts of it to that extent as we see it -- see, what happens while the exterior business gets affected. But I was largely talking of the painting segment because when it rains, a lot of customers, they would avoid doing interiors as well to that extent. So it's not like just the exterior business is affected to that extent. So I think what we have seen is that a lot of time, both if the rains are sporadic and they are not kind of really clear periods which are kind of coming in, both interiors and exteriors will get affected.

Also from the point of view of B2B projects, I think the larger buildings, the larger builders also look at those 3 times, which come in between in terms of when they start painting the buildings to that extent. So overall, what we see is that the more erratic the rainfall, the more demand, it will kind of affect. The more predictable the rainfall to that extent, I think the lesser demand, it would kind of really affect. So I think from that point of pattern, it is not only the exterior, but yes, the extent of exterior is higher, but interior also gets affected because of the overall sentiment to that extent.

Having said that, the other area of this, which can also take a toll is also on -- in terms of the retail sentiment, which is there, which is also gets affected from the point of view of overall stocking how they would be kind of looking at stocking during this point of time to that extent. So there are multiple factors which kind of work and just kind of ascertaining just exterior percentage would not be, I think, the right way of assessing in terms of how demand would have got affected.

[Shirish Pardeshi, analyst]

Okay. That's helpful. To follow up here. So you -- if you -- if what you have said, if I understand, so this delay or the postponement of the demand is always there and that's why you are positive saying that September trend, you have got that demand. Is that the understanding correct?

[Amit Syngle, executive]

So it is -- as I said, what we have seen in general that whenever there is a longer Diwali, okay? Definitely, we find that the longer Diwali helps the period of about 45 to 60 days, which are there starting from second fortnight of September onwards to that extent. And therefore, you get a larger play because please remember that monsoons do continue in larger parts of the country until September end, okay? And if you have a shorter Diwali, it basically gets affected because the season will not typically start from 1st September onwards to that extent. .

When you have a longer Diwali, to that extent, you get the benefit of the fact that even if the monsoons end by September end, you get a clear possibly 40 days in terms of the higher retail, which kind of comes in. So that's the shift which you must recognize, which is relative to the monsoons to that extent. And therefore, in the larger patterns, which we are seeing over the years, definitely, we've seen longer Diwali helps in terms of really a larger demand. And therefore, the quarter respective quarter gets affected.

[Shirish Pardeshi, analyst]

My second follow-up here, you have been guiding that double-digit volume growth given first half is over. Do you relook at this guidance or you maintain that guidance?

[Amit Syngle, executive]

So overall, as I said, for quarter 3, we definitely are looking at the same guidance in terms of going forward as we see to that extent. Now how much is in terms of this will come in is something we'll have to see how the demand augurs, but we are hopeful that for this quarter, we'll maintain the same guidance.

[Shirish Pardeshi, analyst]

Okay. My second and last question on the projects, what we have announced over vinyl acetate monomer and other projects, what we have said. What is the current update and where -- at what stage we are and maybe if you can give us some what is the CapEx already happened? What is more to come? And when these projects will get completed and we will start to get commercial production?

[Amit Syngle, executive]

Okay. So when we look at the cement -- kind of the white cement project, which is happening in Fujairah in Dubai, I think we are absolutely online in terms of getting our permissions, the land acquisitions and all the agreements in place to that extent. We are at the process of ordering equipments for our entire project. What we are seeing very clearly that -- if we look at the project, should we definitely be over by December of 2025. In terms of these things, we will see in terms of we are able to keep on the overall project. But it looks like that it should be definitely be over by then. .

If you look at the VAM VAE project, which is happening, again, I think the basic work with respect to consultants in terms of overall larger layouts and looking at some of the various permissions some of those applications are gone to that extent. And we are looking at quarter 4 of 2026 in terms of where we would be able to kind of complete those plants to that extent. So I think these are the 2 larger things which are there as far as possibly all our investments with respect to the brownfield investments, which are there. We have been able to complete our investments with respect to our plant, which is in North in Kasna. We have been able to complete our expansions in Kandala, which is the Maharashtra plant. And our expansion in the Ankleshwar plant which is happening is expected to be over by about December of this year to that extent. So I think all those are in line in terms of what we have kind of put into that extent. In terms of overall CapEx, which we had committed in terms of going in this thing, we would have kind of spent almost, I think, about 50% to 60% of that CapEx going into some of these projects.

[Unknown Executive]

For the brownfield expansions, yes, out of the -- I think 3,400 is what we had announced for brownfield, we have already spent close to around 1,500 for that.

[Operator]

Next, we have Tejash Shah, joining us through Zoom platform. [Operator Instructions]

[Sachin Bobade, analyst]

This is Tejash Shah from Avendus Spark. Amit, a couple of questions. So first, as we entered the quarter last quarter, there was a lot of enthusiasm from industry because of the buildup period that we had got this time because of [ Adhik Maas ] to festive season. Now do you think that, that advantage has got negated because of erratic monsoon. And now we are actually as good as any other normal year? Or you think that, that pent-up demand can still reflect the surface in 3Q.

[Amit Syngle, executive]

I think for the -- that exact culmination of that excitement, we have to wait until quarter 3 to kind of finish. We are still kind of looking at the fact that the festive demand is kind of good. We have exited, as I said, September at a good kind of rate. And we are seeing some of those things happening in October as well. .

So I think for us, possibly, yes, there has been a dip in terms of what we have seen in quarter 2, which is disappointing for sure. But I think what we are looking forward is still that quarter 3 should kind of really make up for whatever is the deficit of quarter 2 to that extent going forward in some way or the other as we kind of look at it. So I think from that point of view, from the point of view of estimation, which we do, that the industry should grow at 1.5x the GDP to that extent, I think, should still hold in terms of going forward as we look at it.

[Tejash Shah, analyst]

Second question is if I see our distribution footprint expansion in the last 3, 4 years, it has been reasonably aggressive at at least north of mid-teens number. And now if I see the guidance for this year, 10,000 on a base of 1.6 lakh base that we have, it comes to somewhat around mid-single-digit or high single digits. So just wanted to know, is this the number that will continue from here on or we have an opportunity to accelerate as we go along in this year? And associated question, what will be the number of color banks installation that we would have done in H1 FY '24?

[Amit Syngle, executive]

Okay. First of all, our brand is not color bank. It is color World.

[Tejash Shah, analyst]

Yes, sorry, color World.

[Amit Syngle, executive]

When we look at overall expansion, I think it's been -- I don't think so it has been nominal. It has been very, very aggressive. And I think what we look at absolute numbers very clearly rather than a percentage kind of an increase over that because that is something which really matters. Overall, what we see is that we are already at a number, which is -- if we look at at a half yearly level, more than 5,000 to that extent. So I think we are well in line in terms of taking the number going to what we had kind of really looked at from our earlier kind of mentions. .

So I think from that point of view, the network expansion is -- continues to be fairly aggressive, and that will continue in the next half of the year also to that extent. And therefore, what we are definitely looking is that we should be closer to about 8,000 to 10,000 points this year as well our distribution.

[Operator]

With that, we conclude with the Q&A session. Thank you, everyone, for your questions. Mr. Syngle, we now request you for your closing remarks. .

[Amit Syngle, executive]

Okay. Thank you, everyone. I think it was great having you for this investor conference. Thank you for coming and joining us. Look forward to kind of really seeing that we are meeting you in the next quarter conference for sure. Thank you.