Asian Paints Ltd

NSE:ASIANPAINT

Earnings Call Analysis

Strong Growth and Margin Expansion

The company saw a collective 1.3% decrease in prices but achieved a 12% volume growth and a 5.2% value growth. Gross margins hit a 4-year high, and PBDIT improved significantly to 24.1%, up from 20% the previous year. The auto and industrial sectors are performing well, with expectations of sustained momentum, robust growth in T3 and T4 cities, and declining raw material prices contributing to optimistic projections. However, uncertainties in global markets, particularly South Asia, and pending elections pose potential risks.

Leadership and Financial Performance

Asian Paints held its Q3 FY '24 earnings call with Sunila Martis from the Investor Relations team facilitating the discussion. The management team, including the MD and CEO, Mr. Amit Syngle, and Mr. R. J. Jeyamurugan, elaborated on the company's robust performance, highlighting a 12% value growth in Decorative business and an overall volume growth of 9% for the 9-month period, despite a price decrease of about 1.3%. Their Compound Annual Growth Rate (CAGR) boasts a strong figure upwards of 15%, reflecting consistent growth in recent quarters.

Market Dynamics and Product Performance

The company witnessed a recovery in T3 and T4 markets which had previously shown some stress, contributing to the company's growth. Furthermore, luxury products experienced double-digit volume growth, outperforming premium products which grew at a slower pace.

Expansion and Distribution

Asian Paints has aggressively expanded its retail footprint, adding 2,000 touch points in Q3, resulting in an extensive network of approximately 1.62 lakh retailers. This expansion has been an integral part of the organization's growth strategy.

Flagship Brand Performance

The waterproofing segment, highlighted as the 'lighthouse brand,' continued to demonstrate significant growth, surpassing even the retail growth rates. This has been instrumental in propelling the company's growth in the overall coatings market.

Innovation and New Product Contribution

Innovation remains at the forefront of Asian Paints' strategy, with the introduction of new products contributing significantly to revenue. Over the last seven years, close to 280 new products have been introduced, evidencing the company's commitment to differentiation and market leadership.

Capital Expenditure and Expansion

The company's commitment to growth is underscored by its significant capital expenditure of about INR 2,000 crores, which has successfully increased production capacity by about 2 lakh KL. This strategic investment is aimed at meeting growing demand and reinforcing market leadership.

Service Innovation and Coverage

Asian Paints has redefined its service offerings, transitioning from Safe Painting Service to the more comprehensive Beautiful Homes Painting, covering all 650 cities across India. The move signifies a broader commitment to household aesthetic enhancement and customer experience improvement.

Earnings Call Transcript 2024-Q3

[Sunila Martis, executive]

Good evening, all of you, and thanks for joining us to discuss Asian Paints Q3 FY '24 earnings. I'm Sunila Martis, and I'm from the Investor Relations team. Today, we have with us our MD and CEO, Mr. Amit Syngle. We also have with us Mr. R. J. Jeyamurugan, our CFO and Company Secretary.

I would now like to invite Amit for his opening comments.

[Amit Syngle, executive]

Thank you, Sunila, and welcome to all for this FY 2024 Q3 results, which are there. I'm sure all of you would have kind of seen the highlights in terms of what are there. Just to kind of take you through certain specifics in terms of what we are talking of here.

You're all aware that given the legacy Asian Paints has since 1942, we are existing to beautify, preserve, transform all spaces and objects, bringing joy and happiness to the world. So that is the core value in terms of what we have been speaking for a while. This is standard disclaimer for all of you.

And when we look at the results for Q3 from a point of view of volume, the results are very, very strong. You see in terms of a 12% value growth in terms of what we are talking from the point of view of the Decorative business, and we look at a 5.5% kind of a value growth, which is coming in both areas. The CAGR numbers are very strong because this is something which we have been pursuing from quarter-to-quarter for the last about 14 to 15 quarters to that extent, and this has been a story which has been fairly consistent in terms of the CAGRs being very, very strong to that extent in terms of what we've been able to kind of achieve.

On a 9 monthly level, if you look from the point of view of overall volume, since Q2 was a little bit depressed, so we are sitting at about a 9% kind of a volume growth and a 4.6% value growth from the point of view of the overall 9 months as a result. But here also, again, the CAGR numbers are very, very healthy, upwards of 15% in terms of what you can see.

This really shows to you the clear thing of when you look at the overall coatings growth in India to that extent where basically, we have combined the area of Industrial with Deco to that extent. And overall, if you see, this has really grown very well for us.

Industrial has -- both businesses have grown quite well, whether it is the Auto OE business or the protective paints, which is the general Industrial business, both have grown quite well. The volume number is the same because for Industrial, we don't look at volume, and therefore, it is about a 12% growth. On value, there's a clear upsurge from the 5.5%, which you saw in the previous graph to about 6.1% because the Industrial business has done far better in terms of overall numbers. And the CAGR numbers clearly as was shown in the last chart, about 14% and above to that extent.

From the 9 monthly part, again, a bit similar, except for the fact that the value growth here has gone up to about 5.3% given the fact that the Industrial overall on a 9 monthly level has also done well. Overall to that extent, the volume growth remains the same. The interesting point here again clearly is that the CAGR is over 15%.

So I think the net take is obviously that the volume growths have been pretty healthy to that extent. And overall, if you look at from the point of view of overall kind of growths which we have given in terms of the overall coatings, that has been pretty healthy in terms of what has kind of come in.

And you must see that this has to be seen from the perspective that in the year, we have taken a price decrease of about 1.3% already, which has to be factored in terms of the value growth numbers which you are seeing here to that extent. So if you really add up to those numbers, the value growth also looks pretty decent in terms of what we've been able to achieve this quarter.

If you look at from the point of view of our performance across the various quarters, which I just spoke of, I think the story has been one which is very, very consistent. And I think that is something which really matters in terms of what we have seen in terms of the compounded average growth rates in terms of what have come in. And this is a trajectory which is something which is very clear in terms of what we are seeing from the point of view of the Decorative business. Overall, that it is consistent and it is healthy in terms of the kind of double-digit CAGRs number in terms of what we are kind of talking of.

Some key pointers overall. When we look at the area of urban and rural, we classify that in terms of the T1, T2 cities and the T3, T4 cities to that extent. And if you look at from the point of view of overall 4 years, these numbers are pretty much the same in terms of what is there. If you remember last quarter, we had said that rural was showing some stress. But this quarter, we have seen that some of the T3, T4 markets have recovered to that extent. And we are seeing possibly early signs of recovery as far as our growth rates are concerned. And we see almost equivalent growth rates happening in T1, T2 and T3, T4 tier cities to that extent.

The other highlight is there is that because of the fact that there's a recovery on T3, T4, there has been definitely a surge on Economy range of products growth, which has happened in this quarter. But I think the heartening thing is that the Luxury products have also done fairly well, and we see a double-digit volume growth happening on even the Luxury products to that extent. So therefore, I think it's a mixed bag where the Premium products possibly have grown at a little bit of a slower pace in terms of how we kind of see it.

When we see from the point of view of the distribution footprint, this has again been a very consistent kind of rally which we have been seeing over a period of time. We've added almost about 2,000 touch points in Q3 as well, taking our overall retail footprint to about 1.62 lakh retailers overall across the country.

Waterproofing has been really the lighthouse brand, which has been doing pretty well overall, and we have been seeing consistent kind of growths happening here, both coming from the retail and to the B2B kind of a segment, which is there, and this is something which is really giving us a lot of strength in terms of various markets, which is also kind of propelling some of the growths which we are seeing in terms of the overall coatings market as well.

The Projects/Institutional business has again done fairly well in terms of the good performance continues and is definitely significantly higher than the retail growth rates in terms of what we see. And largely, the sectors which have done well are the builder segment, the factories and the government sector, which are the 3 big contributors to the overall Projects/Institutional B2B business in terms of what we have.

From the point of view of innovation, I think there is something which we have pursued very, very strongly over a period of time. Just to kind of tell you that we have now more than 120 patents in the last about 6, 7 years in terms of what we have done. 60 patents have been granted. 30 are commercialized. And therefore, when we look at this whole area of new products, it's something which is a differentiated story in terms of what we are talking of, in terms of what we get from the competition.

And today, the heartening part is that the new products contribute to double-digit numbers as compared to the revenue contribution, which comes in. So almost about a 12% contribution to the revenue, which is something which is again very, very healthy in terms of what we speak of in terms of looking at the whole area of innovation, which comes in.

You are aware of the fact that we have committed a huge capital expenditure in terms of looking at not only the brownfield expansion in terms of what we are talking of, but we are talking of even the backward integration initiatives. All are progressing quite well overall to that extent. By the end of the year, we would have committed about INR 2,000 crores of our CapEx into all these initiatives. Khandala and Kasna have been completed, augmenting the overall capacity by another about 2 lakh KL to that extent in terms of our overall numbers as we see it.

So these are some of the key features which are there. But I think the bigger story here is of the innovation in terms of what you see. And the innovation kind of continues in the area of our painting services as well. This has been really the star service from our side in terms of what we are pursuing. Today, we are the -- globally the largest printing service, which is offered by any player across the globe to that extent. And we today have the pride of literally kind of operating the Beautiful Homes Painting now across the entire 650 cities in India.

We have just rechristened the entire service from a Safe Painting Service, which was more, during the COVID time, given the environment it was there. We've rechristened it to a larger platform of Beautiful Homes, and now it is called the Beautiful Homes Painting Service in terms of what is there.

One of the big hallmarks of the services that we talk of, mechanized painting service where we use all the mechanization from the point of view of sanding and spraying and so on and so forth. And it's really a first from Asian Paints that not only we invoke international brands in terms of getting spraying equipment, we are now talking of some of the Indian sprayers kind of coming and, therefore, really kind of looking at democratizing this entire process of mechanization so that we can talk of higher productivity.

So we feel that as a leader, this is something which is a task. We need to kind of take where we evolve from the brushing and rolling technology to a spraying technology to that extent, and this is something which we are actively doing in our Beautiful Homes Painting Service. But outside that also, there is a fair bit of ingress in terms of what we are making so that the larger set of consumers also benefit from this kind of initiative in terms of what we have taken.

I spoke of the innovation journey, and I think one of the things which we are really committed to is that today, we give to the market differentiated products. And that is something which we are committed to. I spoke about patents in terms of what we are building. One of the big areas we work is that we get chemistries, which are new to the world, not only new to India to that extent. And that's been a hallmark in terms of our -- some of our new products which have come in.

Over the last 7 years, close to about 280 new products in terms of what we have put in the market. And as I said, their contribution to the revenue has been very, very strong in terms of what we are kind of talking of. All the products which you see on the screen are, again, products with chemistry is very different and where competition does not have any equivalent products, which is there.

We've just introduced this product called Flash, which takes care of the entire French polish market, which is the manual lakh dana/spirit kind of a market which exists, which is there, which is like an ocean, which is untapped. And therefore, I think one part of a leader is that we continuously look at getting the unorganized customer to the organized market from the bottom of the pyramid. So as a leader, I think that's a very strong task in terms of what we play.

The other area, which is very important for us is looking at building the brand. And I think I must tell you that this is something which has really held us up in high esteem over a period of time given the kind of mind share in terms of what we speak of. And that is why we are very confident that today, when you have really looked at the customer's mind and you have a good mind share, this is something which will always be with Asian Paints as we kind of look at future irrespective of the competition, which might come in.

We have been constantly reinforcing our proposition, which is the Har Ghar Kuch Kehta Hai. You would have seen the whole campaigns on Where the Heart is, which is a very strong campaign in terms of what we are seeing, taking it to millions of people across the country in terms of saying that every house has a personality of its own. And Asian Paints today owns that kind of [ an emotion ] as we kind of go ahead.

When we look at the area of innovative propositions, almost, if you see 30% to 40% of the portfolio which we kind of talk of has properties, which is differentiated from what competition offers. And we can clearly claim that this is something which the competition is not able to offer definitely.

So it is looking like anti-crack. You've seen the whole product, which is the Royale Glitz, which is there, which is a campaign which now we talk of the anti-crack kind of a coating which comes in. We are talking of waterproofing for damp surfaces. We are looking at really talking of textures and bringing decor into the game in a strong manner, and we are now the largest players in terms of the wallpapers as well in the country to that extent. So I think some propositions which clearly are differentiated from the competition.

The world of digital and the whole social marketing is now pretty big and a sizable part of our overall media monies go into in terms of looking at invoking this, and we are proud that today the kind of numbers we attract at an overall level is pretty big in terms of influencing the more -- the younger population across the country through the digital media as well.

We also look at democratizing decor in a big way, and we practice a lot of areas where across some 25 cities in India, we've got almost about 250 murals in terms of which we have kind of made, and that is an initiative we kind of keep on going. And this time, we will give it a very different edge, which I will just tell you.

So this is the Where the Heart is in terms of what you see. And this really connects with the people where we are able to kind of get various profiles of celebrities talking about their homes, whose homes we have done up. And therefore, this becomes a very good connect in terms of the people of looking at home decor and the whole proposition of Har Ghar Kuch Kehta Hai in a very strong manner.

If you look at this time, we came out with a very innovative campaign during the Diwali period, which was there, which was the whole thing of graduating from the Mera Wala Color to about the Mera Wala Mood in a very strong manner. In the whole construct of Har Ghar in a very strong manner where we had a face scan kind of a technology, which could kind of determine your mood and, therefore, your color in terms of what you would choose.

So this is something which really met with a very strong reception from a certain target audience, and this is something which again, speaks of the innovation, which we bring along with the products and also with the technology as we kind of speak of.

This was a very strong initiative, which we did along with the St+art Foundation, where we looked at on the World Braille Day, we at Asian Paints aligned with them in terms of looking at creating a one-of-its-kind museum where we got a lot of people who are visually impaired to kind of really start looking at creating their emotions, their expressions on the wall. And the whole area came alive in terms of what they could do, and their expression and their happiness was really unlimited in terms of what really came out. So a touching initiative, which kind of really looked at invigorating this kind of profile for the first time in terms of something which any brand would have done in this space.

Going on to the Home Décor business. Again, this is a very strong business. I have spoken about earlier also and a very clear focus of the overall company in terms of looking to kind of get in there. And I have really explained that one of the big reasons of getting in here is that we want to be part of the consumer home decor life cycle, which is there.

So right from the point when the customer rents out a place to purchasing the first house, to renovation of the first house, to the second home which kind of comes in and then kids home. We are talking of a full consumer decor life cycle, which we want to be a part of. And therefore, this really complements the coatings business. We are literally talking of paints people getting into home decor and home decor people getting into the coatings world.

So it is something which we think is really amazing from the point of view of our overall strategy, and we have seen that there is no other competition in terms of the paint industry who's kind of followed suit in terms of talking about this as we go ahead. This is a difficult path ahead, but it is something which is a sure path in terms of what we can really look in terms of getting this country to kind of align in terms of talking of beautiful homes.

So if you look at here, this is something we have been pursuing. And I think last 3 years, journey has been very, very strong in terms of what we have looked at it. We've now the #1 decorative lighting brand. We are the #1 integrated home decor player because, please remember, this place is very, very segmented and you don't have larger national-level players to that extent. You have regional players and category players to that extent.

We have now got 54 Beautiful Homes stores across the country. And I think this is a one-stop home decor which has really been very, very strong in terms of what it kind of comes in. We've got -- we're now #1 in wallpapers and textures, as I told you; #2 in terms of the fabric and furnishing. And our collaborations with designers are definitely giving us a very strong upshot in the market, especially our entire work, which we have done with Sabyasachi in terms of looking at propping up the brand in a very, very big way.

So I think this is a foray where I think there is good energy, which is coming. And just for your information, now if you look at, we are literally kind of in all the kind of home decor offerings. So you think of something which completes your home, and we have something which is right there for you. Along with that, we also have a turnkey service, which is the Beautiful Homes Service, which is now in about 11 cities to that extent. And today, to complement this, I have a little -- we have a source, which is called the beautifulhomes.com where we get in more than 50 lakh visitors over the years and a huge amount of Insta followers in terms of looking at it.

So I think this is something which is very strong. Right now, this business is about 4% of my overall Decorative turnover. We want to kind of take it to about a level of about 8% to 10% as we kind of go ahead in terms of looking at giving it a definite shape in terms of really growing this category very, very strongly.

So I spoke of the Beautiful Homes Service to that extent. Again, very, very aspirational in terms of the work which we are able to do. And it is something which is supervisory and end-to-end kind of service. Again, a first from Asian Paints in terms of what comes in from the point of view of really holding the customers' hand and delivering celebratory experience for the customer in terms of what they can get in terms of making their homes.

The other is that we continuously now do new launches here. It's like a fashion brand. We have a fall collection. We have a winter collection. And it is something which kind of really keeps on coming in terms of new things. For example, in the area of Bath, we introduced this Lotus 25 hydrophobic kind of coating, which is given -- which doesn't allow water to kind of stay on the tap or the faucet to that extent and really prevents corrosion, giving life to the product for a very long time.

And then we have the Royale Wardrobes, which are there. This is something which is a new launch which has happened in terms of giving people something which is different sensibilities at a very affordable price in terms of what comes in. So I think launches here are also something which is in the offering, which will continue.

Now obviously, I think you guys have seen that in the last 2 quarters, the Kitchen and Bath business has not done too well. This quarter, we have really propped it up, and the good part is that in terms of the Kitchen business, while the quarter was flat, I think we have got some energy now going in terms of looking at taking it to some surge as we kind of look at coming quarters. And I think the great part here was that for the first time, we got a PBT, which was neutral in terms of making a little bit of money here to that extent. And so this, I think, is a good sign overall.

From the Bath business, you've been logging negative growth of about 10%, 15% in the previous quarter. This time, at least we work around. I think we brought the degrowth lower to about 5%, but there is still a lot of work to be done in terms of looking at really propping up this category and aligning it with our Beautiful Homes stores far more strongly in terms of the work we can do to kind of prop it up.

The clear heartening part is some of the newer categories. I think the newer categories are growing very well in terms of the overall growth. Especially, the White Teak business has been accepted overall by the architects, designers in a very strong manner, integrated with the Beautiful Homes stores kind of initiative very strongly and is now something which is now a desired category, making us the #1 in terms of the lighting kind of category.

Similarly, the whole area of UPVC windows and doors has been doubling literally to that extent. And I think this is something, again, which has done very well, giving us the foot. So right now, we are, I think, in expansion stage for both of these, and therefore, deploying a lot of money from the point of view of expansion, overheads, people which are kind of coming in to that extent. And therefore, it has to be looked from an expansion initiative in terms of where we are headed in terms of taking these categories as we kind of go ahead. So I think that's something which basically is about the Home Décor in terms of what we have spoke about.

Coming to the AP global business, you know this is the map which shows where all we are represented in terms of South Asia, Middle East, GCC and so on and so forth to that extent. And in this business, again, last 2 quarters have not been good, if you remember. This quarter, at least, we got a flat growth in terms of the overall growth which has come in. But I think the part to recognize there is that there is a depreciation, which is happening in countries like Egypt and Bangladesh very strongly. And if you were to see from a constant currency term, we have grown by about almost by 5.2%, which has come in.

Performances across has been good. Asia has been still weak, and I think there are major kind of headwinds in Nepal, which is there. So if I look at the business ex of Nepal, then in terms of Indian currency, we are at about a 7% growth in global. And in terms of constant currency terms, we are at about almost a 13% growth in global. So I think overall, the situation is improving. One, Nepal is definitely something which we are hoping to see that the macro environment kind of turns around to that extent. But this is some area which we are looking.

Profitability has been good here if you can see. Overall, we have been able to get good growths in the PBT, given the fact that overall margins have gone up to that extent and also the fact that there is a part of the deflation, which has kind of got us a good kind of margins overall, which has come in. So I think that's something which is good, which is happening from the point of view of overall profitability of the business.

When we look at our 2 Industrial businesses, I spoke about it earlier. Both businesses have done fantastically well. Overall, the Auto OE business, which is the PPG-AP business in terms of what we speak of, has registered a double-digit number in terms of what we are there, about almost a 12% value growth in terms of this quarter, which has kind of come in.

And over a 9-month period, it is almost about a 10% kind of a growth which is coming in. The great part is, obviously, I think raw material prices have been -- have kind of had an impact on the profitability. And we've been able to kind of get good prices from our B2B customers overall to that extent. So if you look at very healthy increases in terms of the PBTs, which we have kind of got overall numbers in the zone of about 40% up and on a 9-month level also numbers which are 50%-plus overall in terms of what we've been able to get.

So a very, very strong performance, which has kind of come in, in terms of this thing. And the PBT margins are almost at their highest levels at about 22.2% in terms of what we see vis-à-vis about 17.8% last year.

On the front of general Industrial business. Again, this business has been doing extremely well for us in the last 3 years in terms of we have almost doubled the business in 3 years, if you recall. And here again, we've got a double-digit growth. And this is a business which talks of protective powder paint and so on and so forth, which is there.

Overall, if you look at for the quarter, there is a 10% kind of a value growth and on a 9 monthly, we have got a 14% growth, which is there. But again, the heartening part here is that we have really kind of improved the profitability, thanks to obviously, the prices as well in terms of what is there. But I think there is also a strategic intervention from a technology point of view, which is giving us the strength which comes in. So the PBT has definitely gone up almost -- by almost about 1.7% from the last year to that extent. So again, I think strong performance coming from both the businesses.

Since I've been speaking of the material prices, I think in this quarter itself, we saw a deflation of about 0.2% to that extent. We also took a price decrease of 1% in this quarter. We had taken earlier a price decrease of 0.3% earlier to that extent. So the total price decrease actually works out to about 1.3% overall to that extent, which possibly is explaining some part of the value/volume kind of difference which you are seeing to that extent. And that is how possibly the overall this thing.

The gross margins are at one of their highest in terms of what we see in the last about 4 years or so to that extent. So I think that is a very strong picture, which is kind of coming from the point of view of overall gross margins as well.

So in summary, when we look at from a stand-alone financials point of view, I explained, that a 12% volume growth, a 5.2% kind of value growth. Gross margins are up. The greatest part is that the PBDIT has improved to about 24.1% which is again one of the highest to that extent versus the 20% kind of a thing which we saw in the quarter 3 last year to that extent. And I think that's, again, heartening, which has contributed to even a PAT growth of almost about 32%, 33%, which is kind of coming in.

From a point of view of 9 monthly, I think almost a similar thing in terms of results, 4.1% in terms of the overall value growths, but I think PBDIT margins are very strong at about 23.5% vis-à-vis 18.2% of last year. So clearly, a differential of more than 500 bps points in terms of what we are able to kind of see and ditto for in terms of the overall PAT growth, which has been also very, very strong. So that's the position for the stand-alone.

We look at -- quickly at the consolidated financials. Now here, again, pretty much replica of the stand-alone numbers, a 5.4% kind of a value increase, which is there. The PBDIT numbers moved again to one of its highest about 22.7% versus the 18.7% of last year. PAT growths, again, very, very strong in terms of what you are able to kind of see. And on a 9 monthly level, again, something which is similar to stand-alone numbers for about 4.2% value and a PBDIT moving to about 22.1%.

So overall, I think, has been a very good, strong quarter in terms of giving us indications in terms of that. Overall, I think the position is looking good in terms of overall what we see.

When we look at the outlook, and I know that a lot of you are going to ask me about this, I think one thing is very clear is that we expect to kind of sustain the volume momentum in terms of what we have built in, okay? Yes, because of the elections coming and so on and so forth, there are -- both sides of the coin, there would be excess money coming into the market. There would also be a little bit of lethargy in terms of painting your homes and some deferment, which could kind of come in to that extent.

So I think this would be true of Q4 and Q1 as we kind of look at Q1 of FY '25 to that extent. But I think the good point is that the T3, T4 cities are showing an uptick, which kind of indicates that we are talking of possibly a good kind of growth coming from those -- that site to that extent.

We expect raw material prices to be coming down further to that extent despite the all geopolitical and other things which are kind of happening. And we expect that trend to kind of continue off the material deflation to some extent in Q4 of FY '24 as well to that extent.

Industrial business. Auto business is doing extremely well, and we think that, that is something which the builds will continue. And overall, in terms of the general Industrial business also is good because a lot of money is coming into there, India. A lot of investments are taking place. A lot of factories are coming up. A lot of expansion is there to that extent, and the overall mood is bouyant. So I think the Industrial business is also good in terms of what we see overall to that extent.

Global is a little bit of a doubt in terms of what comes in, in terms of what we see, especially South Asia has been not kind of really doing well, but now Bangladesh elections are over. Let's see if possibly, we have a higher growth coming in Bangladesh to that extent. Sri Lanka has recovered to some extent. But Nepal continues to be a worry, and we don't see possibly Nepal turning around in Q4 as well to that extent. Egypt, we have an issue in terms of the depreciation, which is there and issues like ForEx availability and other things as an issue. But I think from a growth perspective, on a constant currency term that it should kind of really give us that growth, which should kind of come in.

So overall, I think we need to be just vigilant in terms of the overall geopolitical kind of situations, which can really make the crude prices go haywire to some extent. We have seen some of the oscillations in the past. But I think overall, they should kind of stay in a certain bracket, and that would kind of give stability. And as I said, that possibly a deflation in terms of the environment to that extent.

Thank you so much.

[Operator]

Today, we have participants joining us via Zoom video platform and audio conferencing. [Operator Instructions] We have Mr. Avi Mehta, who has joined us via Zoom. [Operator Instructions]

[Avi Mehta, analyst]

Sir, this is Avi Mehta here from Macquarie. Sir, I just wanted to ask the outlook -- understand the outlook a little better. When you say you expect to sustain the Q3 volume momentum, do you -- are you calling for double-digit volume growth on Y-o-Y basis to sustain? Or could you give us the metric on which you are kind of arguing for this momentum to sustain? Or what is the metric that we should be looking at, Y-o-Y growth rates, 4-year CAGRs, 3-year CAGRs? It will be useful to kind of appreciate that.

And if I can ask the second -- sorry, go ahead sir.

[Amit Syngle, executive]

Yes, yes. Carry on, carry on.

[Avi Mehta, analyst]

Sir, in the second but just continuing, we are -- you are arguing about the softer raw material price trend to continue. Does that mean also that margins are something that would imply where we are currently could probably sustain? Or how should we look at that? Or should we -- I wanted to kind of just understand that part as well. That was the first question, sir.

[Amit Syngle, executive]

Okay. Great. So in terms of the outlook, if you see, I think, as I said, we are definitely seeing some recovery in terms of the T3, T4 cities across the country. We are also seeing certain geographies doing extremely well overall to that extent. And the Projects business also being good.

We also feel that the Industrial growth, both Auto and General Industrial should kind of be good. So overall, we are looking -- when I said sustainable volumes of this thing, we are still looking at a double-digit volume growth in terms of what we would like to sustain, which would definitely imply that from a point of view of a CAGR, it would be healthy CAGRs in terms of what you have been seeing from us to that extent.

So I think from that point of view, we are kind of really looking at that kind of a thing. Unless the elections kind of play a spoilsport in terms of what really happens because the dates have not kind of come in and it's very difficult to really comment in terms of when the whole activity will really begin to that extent, but in general, I think this is the outlook in terms of what we maintain.

The second part is that when we look at from the point of view of prices, we are going more by the trends in terms of what we are seeing because if you look at the U.S. markets or the Chinese markets, we are not seeing consumption going up to that extent. And while there are geopolitical situations which are kind of coming up, I think given the fact that the larger economies are not growing, there is 2 wars which are kind of going on to that extent, we feel that from a point of view of consumption, at a global level, the consumption would decrease, which would kind of really kick off in terms of the deflation in terms of the prices to that extent. And this is our estimate in terms of what is going to happen.

And as a fallout, what we are doing is we are very critically observing in terms of what is the kind of deflation which we will see because it's not very easy to kind of really just look at calculations at this stage, unless we look at in terms of crude derivatives, we look at additives, we look at certain kind of monomers and so on and so forth as to how they are getting affected. We will look in terms of what to kind of look at because we are trading at a good gross margin overall to that extent.

We will look at possibly decisions which could be whether we want to retain, whether we want to kind of really look at any price decreases, which would come. But that decision would kind of come in once we know exactly in terms of what is the kind of trend we are seeing in this quarter.

[Avi Mehta, analyst]

Sir, just a follow-up. When you say you had pointed in the release that there is some weakness seen towards the later half, just wanted to get your sense, do you believe that price cuts can spur demand, which -- like this in this category? Because I was always under the impression that, that pricing is not a very material driver. I would love to hear your comments on that, sir. And that's all from my side.

[Amit Syngle, executive]

Yes. So when you look at the -- definitely, I think the upsurge, which we saw during the festive season, was very, very good. So when we spoke of saying that the latter part of the quarter was not so great, it was relative to that in terms of what we are talking of. So there's just an element of relativity, which kind of comes into that extent. But I think that doesn't take away from the point of view of the double digit in volume in terms of what we are gunning at in terms of going and looking at it to that extent.

And in terms of when we look at from the point of view -- what was the other question? Sorry, second...

[Avi Mehta, analyst]

I was trying to understand, when you see pricing decisions, basically, will the pricing...

[Amit Syngle, executive]

Yes. So I understood your question. So on the pricing part, see, you're right that it is -- pricing sometimes really helps us in terms of some of the smaller towns because there is a bit of downtrading which starts happening, and the price increases we have taken earlier is also to some extent in terms of Premium and Luxury kind of product to that extent so that it helps people to kind of really counter that downtrading which is happening to that extent.

So I think it has got a little bit of a psychological impact in terms of what it takes place. Also, I think it matters in terms of how you take the pricing. If your pricing is across the products, to that extent, possibly the impact is not high. But if your pricing tomorrow is on only specific products, then it could be possibly a higher impact, which would come in, which would definitely kind of impact in terms of the demand to some extent.

[Operator]

We have Mr. Mihir Shah who has joined us via audio conferencing. [Operator Instructions]

[Mihir Shah, analyst]

This is Mihir Shah from Nomura. So firstly, I wanted to understand your view on the strategy with respect to the negative mix that we have. As we understand, the pricing-led growth has vanished now since quite 2 quarters. And now we've entered into a price cut kind of a scenario, and with your outlook of further price cut, we will have another negative pricing lever that is going to act on the overall value growth numbers.

So how would you think about the negative mix that happened? Do you -- would you think that in FY '25, would you change to shift gears into lowering the negative mix impact and focus more on volumes? Because unless and until we get at least a mid-teens kind of a volume growth, we will continue to have very anemic kind of overall top line growth of 2% to 4% over the next 5-odd quarters. So I wanted to know your views on this front, please?

[Amit Syngle, executive]

First of all, I would say that I don't think so that we are talking of only negative indicators to kind of invigorate the growth overall. I spoke of fairly positive ones in terms of looking at T3, T4s tiers kind of really coming alive from the point of view of rekindling of demand, which is happening there to that extent. Also, a 1%, 1.3% kind of a cut can't be a big strategy to kind of really just invigorate the demand so much that it kind of goes into this kind of paradigm.

The third area is that we've seen Luxury products also doing quite well in this quarter. Fourth is we have seen demand coming from the B2B Projects business also quite well. Fifth is the Industrial demand, which is kind of looking quite good in terms of the -- both the Auto and the General Industrial.

I think a combination of these factors is something which we are looking in terms of driving the growth. I don't think so we are looking at any price decreases as a demand creator to that extent, which is there, to that extent. It is, I think, sometimes slightly more psychological, some areas of downtrading, which you see to that extent. But I think what we are seeing is definitely that some of these areas are big from the point of view of growth.

Also, as I said, we, Asian Paints, always had, had a very strong kind of focus in terms of looking at differentiated products and looking at the bottom of the pyramid in terms of where we are working. And we have now a lot of newer products which are coming to kind of invigorate that unorganized customer to kind of come into the organized sector, along with the products in the Waterproofing zone, which are also kind of really giving us a very good growth overall to that extent.

So I think there are a lot of positive indicators which are kind of coming, which would kind of really continue. And even if you look at the value growth which has come in this quarter, as I said, if you were to net out the PD and other things to that extent, you are still close to about a 7.5% to 8% kind of a value growth.

[Mihir Shah, analyst]

Understood, sir. Sir, on margins, when can one expect the backward integration benefits to kick in? Will it be in FY '25 -- late of FY '25? Or it will only come in FY '26 or later?

[Amit Syngle, executive]

Which margins you said? Well, the backward integration part is still some time away as we see it because whether it is our cement or whether it is the VAM, VAE and so on and so forth, some of those will come possibly towards basically the end of next year to that extent in terms of what we will see them kicking in.

So we don't see that some of those kind of benefits kind of coming in handy at this point of time. But as I said, I think deflation would be very strong in terms of what we are seeing from this quarter perspective also, so which would definitely come in handy in terms of really helping you to kind of maintain your margins.

[Mihir Shah, analyst]

Got it. And lastly, sir, would you want to revisit your margin band that you had indicated on gross margins and operating margins? Maybe you have done a phenomenal job in [ playing ] back all the gross margins. Do you think there is scope with the premiumization that is happening at the Luxury end, so this can inch up a little further? Or do you think because of economy doing well, it will remain in the similar range?

[Amit Syngle, executive]

So I think as we kind of go ahead, we would like to maintain the same guidance in terms of PBDIT numbers of 18% to 20% band in terms of what we have been doing. We, in fact, kind of are looking forward to kind of deploying higher monies from the point of view of marketing and above-the-line spends overall from getting a good share of voice as we kind of go ahead.

I think the whole areas of brand building is something which we will kind of focus on. And looking at it in terms of seeing how we can really kind of look at possibly adding value to the market in terms of taking the brand to a higher level.

[Mihir Shah, analyst]

Got it. And then maybe one small question, if I can put through. Sir, this Qatar entity that you set up, any -- and it's a trading entity. So I was wondering what we are planning to do out there.

[Amit Syngle, executive]

Which entity you said?

[Mihir Shah, analyst]

In Qatar, you set up a -- yes.

[Amit Syngle, executive]

Yes, yes. So no, it's not something. It's just that earlier, we were supplying to Qatar. We were doing already business in Qatar, but we were doing through a distributor. Now we are setting up our own operation in terms of which we look at the whole area of distribution and supplying the paints to the market. So it's not a trading firm, which we are opening. It's just basically a mechanism to supply and service the entire market much better.

[Operator]

We have Mr. Abneesh Roy from Nuvama, joining us via audio conferencing. [Operator Instructions]

[Abneesh Roy, analyst]

Congrats on good set of numbers. My first question is on paints business. So I know you focused very aggressively on the government-related paint demand. My question is a bit different. So if I see there is a huge infrastructure being created across many cities, so we are seeing the metro projects, we are seeing the MTHL between Bombay and New Bombay. Similarly, in Ayodhya, for example, now next 5 years, 10 years, huge infrastructure, hotels and roads, et cetera, will be created. So how do you monitor your rightful market share in these kind of projects because not everything will be government?

Second is, in this kind of a very competitive, how are the margins and how the market share would have moved in the last 5, 10 years, in these kind of more marquee projects? I'm not asking on overall B2B paints. I'm asking on more marquee projects, for example, MTHL, metro, big hotels and all that. So I'm sure those would be extremely important demand driver. And as the largest paint company, you would have a rightful market share there. Could you talk about margins and market share, how things have moved in the last 5, 10 years?

[Amit Syngle, executive]

Okay. I think overall, from the point of view of the Projects business, which is the B2B business for us, I think the growths have been pretty strong, as I said, over the last close to about 6, 7 years to that extent. We have been doing extremely well in terms of what is there. Government is only one sector. But I think for us, factories, builders are also 2 very important sectors in terms of where we have been able to kind of do well to that extent. In fact, we are part of literally a majority of the marquee projects which are being done.

So whether it is the Ayodhya thing which is coming up or whether it is the parliament, whether it is the NHAI, I think today -- or it is the metro business, I think we are part of all the businesses because today, we have kind of a one consumer initiative in terms of what we look at. So the consumer, whether they are coming for Industrial or they are coming for a Decorative kind of -- or a Waterproofing range, we offer the customer from a single window in terms of what we are able to kind of do. And that is something which is really working very well for us in terms of really being part of all this.

So if you see a large part of the airport expansions across the country, we have been part of that from both a waterproofing window as well as in terms of from the point of view of decorative paints to that extent. So I think from that point of view, literally, we can kind of pick up all the marquee projects, and we can say that at least about an 80% representation, which is happening in those. And to that extent, what is very clear is that, that is kind of giving us the growth, which is kind of coming in.

The other thing is that, yes, the overall margins in our Projects business would be lesser than the margins we would kind of get into retail to that extent. But I think today, that also depends in terms of from a project to project where we have seen that some of the premium luxury projects, which are kind of coming in, you are able to derive a higher set of margin in terms of which is there.

Also, when you are able to offer technical solutions which are regarding whether it is solutions with respect to waterproofing or it is with respect to certain other areas, you tend to kind of take out a slightly higher margin given the fact that you have an expertise, which from where you are coming in, and I'm referring to all the projects like an airport or a metro to that extent where they're wanting a specialized product to kind of come in to that extent.

So overall, what I would say is that we do monitor our shares in terms of each of these categories. We look at some reconciliations from the published results of all the companies, look at in terms of what is our share, look at the segment-wise share to that extent in terms of what is there and, in general, look at in terms of ways and means in terms of how we can really look at increasing the margins as this is a growing area in terms of what we see overall.

[Abneesh Roy, analyst]

Right. My second question is on your tougher part of business. So Bath and Kitchen contribute 2% of your quarterly revenue and, obviously, 0 on profit. So why do this kind of a business? My specific question is, when it hardly adds anything to profit and 2% to top line, why should such a large company do this? And 5 years down the line, where do you see this kind of INR 85 crore run rate or INR 100 crore run rate in terms of revenue for these 2 businesses? Because already many years have gone. And still, if I see your initial comment, you're saying some growth, you're saying some profit.

So ideally these businesses should have grown much faster irrespective of how the real estate cycle is. Such small businesses, why should such a large company do such a small business? And what's the way forward from a 5-year perspective?

[Amit Syngle, executive]

Sure. So I think how we have -- while we had taken these businesses way back in 2013-'14 kind of a thing, and your question is right that we have not been able to grow these businesses at the rate we should have grown those businesses. I think we've kind of looked at a little bit of a revamping of the overall strategy in terms of what we have seen for the last about now 2 years or so in terms of saying that we are now not talking of as stand-alone these businesses to that extent but as a part of an integrated Home Décor kind of a strategy which we want to kind of bring.

We are looking at the whole area of decor under one roof as a very big strategy as part of which Beautiful Homes is becoming a vehicle in terms of how we want to deliver this entire area in terms of going forward to that extent. And today, as you know, that if you look at some of the categories, while we are #1 in terms of the full kitchens, which are there to that extent, in Bath category, we are pretty small in terms of as an overall player in terms of when you look at the larger players in the market.

So we feel that today, as we kind of go forward, some of these stand-alone initiatives in these categories are not working unless we basically bring them under an umbrella in terms of what we are seeing, and that is something which is Beautiful Homes for us. And we are looking at really revamping and kind of getting some growth in terms of as we kind of go ahead.

Essentially, we feel that from a point of view of our business, this business complements the paint and the coatings kind of segment, which we have already, which is the whole area of the moving the share of the surface to the share of space within the home to that extent. And as we kind of go forward, this could be a differentiated strategy, which would come in to that extent. It might contribute to only about 7%, 8% or 10% of the overall business, but it would be an important kind of contributor in terms of really having a big place from the point of view of the brand and the consumer mindset in terms of what we would go in because we will then stand for overall decor and not for only paint, which is what all the other companies are standing for to that extent.

So largely, I think that strategically, we are looking at possibly gaining a larger share of the consumer mind which possibly also kind of has a good effect in terms of our overall coatings and paint business.

[Abneesh Roy, analyst]

Sir, last quick question is on the repeat business and cross-sell. So in the last 10 years, you have hugely diversified your business. And my question was more on paint and adjacency. So when I see paints, putty, construction and waterproofing, those are all very adjacent to each other.

So I wanted to understand from a repeat business and cross-sell, how are you monitoring how successful you are in this? Because a lot of these may not be pan-India. So -- and a lot of these may not happen at the same time. For example, waterproofing, especially in terms of the old societies, et cetera, may happen much later than when you -- when the customer has used paint. So I wanted to understand how you monitor how successful you are in terms of cross-sell and repeat businesses.

[Amit Syngle, executive]

Okay. So what we look at is that actually now, for example, I spoke of the overall Beautiful Homes Painting Service. Now today, when we pitch to the customer, we pitch to the customer an overall solution. The overall solution is in terms of possibly putty, waterproofing and top coating with paint to that extent, overall to that extent. So it's a complete solution in terms of what you approach a customer at any point of time, which has basically given us definitely that if you look at from a per house perspective, the wallet size is something which possibly we are able to take higher given the fact that all these products are coming at a go to that extent.

Even in normal painting, now putty and waterproofing are largely integrated in the process because today, some of those products are giving so much of benefit in terms of either cracks or dampness not coming in the market that we are able to largely convert a customer in terms of getting it to that extent.

So I would largely not call it an adjacency to that extent. I would call it now something which is integral to paint. And I think one of the things why it has happened is that you see competition also following very clearly in this area, and everyone has now a range of waterproofing, which also kind of comes in to that extent.

So I would say that we should not now look at calling waterproofing as an adjacency but looking at possibly saying that all these are integrated. Even in projects, what we are seeing today is that when we go to a large site, we pitch waterproofing first, which is at the foundation stage, and then we'd look at possibly converting the site completely from the point of view of top coat to that extent. So I think the whole area is integrated much more strongly from the point of view of offering a complete solution to the customer.

[Operator]

We have Mr. Amit Rustagi from UBS joining via Zoom. [Operator Instructions]

[Amit Rustagi, analyst]

Yes. This is Amit Rustagi from UBS. And congratulations for a very strong performance. Sir, I just wanted to understand that if we go ahead with these current metrics of double-digit volume growth, where do we see our revenue growth? Because a few years back, our value growth used to track the volume growth. Then we started to see value growth coming at maybe 2% to 3% discount.

And now we have started to see value growth at, say, about 5% to 7% gap to volume growth. So if we continue with a double-digit volume growth, where do you see value growth? And can we start to see a reversal in some of these trends, maybe when you have more value-added products and when you have more integration with the VAM and VAE?

[Amit Syngle, executive]

Okay. Just to kind of put in is that from a company's point of view, the premiumization objective will always kind of continue in terms of really saying that how can I really look at upgrading the customer to high-value products to that extent. And I think that's a constant strategy, which is, at force, in terms of what we are looking at, even if you look at this kind of quarter.

Overall, I think if you net out the price decrease and so on and so forth, as I was saying, you are still kind of talking of about 4%, 4.5% kind of a gap, which is kind of existing today between the volume and the value, which is going forward.

As we see it, I think, going forward, possibly some part of this gap might come down as we see to that extent. But largely, I think the gap will remain because of the sheer fact that if you look at the country size and segments which are there, the -- overall, the Economy and the Premium segments are very, very big segments as compared to just the Luxury segment, which is there to that extent. And therefore, from a point of view of overall growth, when you tend to kind of grow in some of these areas, to that extent, the gap tends to kind of be there to that extent as we go ahead.

But what we are also seeing is that with high-end waterproofing products, high-end technological solutions, which are kind of coming in, in terms of textures and some other areas, which are there, there is definitely an upgrade which is happening to that extent. But I feel that today, this kind of a lag of about 3% or 4% would kind of continue for some time.

[Amit Rustagi, analyst]

Yes. Sir, just second question. When do we see our VAM and VAE projects coming up? And when we'll start to see the benefits of backward integration in the margins?

[Amit Syngle, executive]

So I think you already -- someone already asked that question. So I think it will definitely take -- the cement project should kind of be on by December of 2025 for sure in terms of what we are looking, and maybe the VAM would kind of come in, I think, 4, 5 months later than that to that extent. So I think it will take 1.5 to 2 years more in terms of some of those investments coming alive.

[Operator]

We have Mr. Jay Doshi from Kotak connecting via Zoom. [Operator Instructions]

[Jaykumar Doshi, analyst]

My question has already been answered. Thank you so much. Sorry, my question has already been answered. Thank you so much. I believe I lowered my hand, but there's some confusion.

[Amit Syngle, executive]

Okay. Okay.

[Operator]

We have Mr. Shirish Pardeshi from Centrum connecting via Zoom. [Operator Instructions]

[Shirish Pardeshi, analyst]

Yes. You [ relayed ] our profit margin expectations. I have 2 readings from the report. When I look back at INR 7,800 crore domestic revenue, you have reported a [indiscernible] volume growth. You also mentioned that Tier 3, Tier 4 markets has done well, and you've said Economy, Emulsions has done better. So I mean, I know this is a little stretch, but if you can split, out of that INR 7,800 crore, what would be the Economy, Emulsion contribution in the quarter or maybe some ballpark number? So that's my first question.

[Amit Syngle, executive]

So overall, as I said that if you look at from the point of view of the overall Emulsions, actually, I think there is definitely a larger contribution which comes from -- in only the Emulsions range, a larger contribution which comes from Economy and Premium to that extent, and then there's the Luxury. So I think between the Economy and the Premium, you can take that the contribution comes to about almost 80% out of the 100% Emulsions, which are being sold to that extent.

So I think that's something which we look at in terms of how we kind of look at going forward. And therefore, the entire effort there is to kind of convert the Economy to Premium and then Premium to Luxury.

[Shirish Pardeshi, analyst]

So if that is the truth, I don't think there is a margin story which is going to pan down. I mean it will continue. That's my inference.

Second, on the Decorative part, which is the Home Décor part, can you give some quantitative numbers because you -- last 4 quarters, you've been saying that you are expecting 8% to 10% contribution by FY '26. So though we gather that we have 54 stores, but in terms of metrics, how many stores, what kind of ROI or whether we are using the franchise route? Or how that scale up will happen? And maybe if you can give some profitability numbers on that. I mean this is purely from the modeling perspective because 8% to 10% contribution is a big number.

[Amit Syngle, executive]

Sure. So currently, as we maintain that it is contributing to about 4% of our total Deco business in terms of what is there to that extent. As we look at it, there are various parts of it today. One is the -- overall, all the businesses which you are able to see, whether it is White Teak, whether it is Weatherseal or it is living or it is in terms of categories like fabric and other things which we have got, which basically gets sold either through BH, and they also get sold through independent kind of stores, which are there to that extent.

When I look at the BH stores, we have a model in terms of ROI, which we run. And after we put up the store where the retailer invest into the entire store from the point of view of property and looking at really inventory and doing up the store, we look at ROI of almost about 2.5 to 3 years by which he's able to get his investment back into the game.

So we have been doing this activity for the last now about 4, 4.5 years to that extent. And out of the 54 stores, if you look, almost about 35 to 40 stores would have got their kind of investment back in terms of the ROI to that extent. And therefore, all of these stores are profitable stores, both from the point of view of the organization as well as from the point of view of the retailer.

[Operator]

I now call upon Mr. Amit Syngle to give the closing remarks.

[Amit Syngle, executive]

Okay. Great. I think it's been good listening to all the questions, which you have been raising, and I think it's been overall a good quarter in terms of what we are seeing. And we were conscious of the fact that we were the first FMCG coming on the plate, so we better have good numbers in terms of what we could kind of give it to you to that extent.

But I think it's been great meeting all of you and look forward to kind of interacting with you in the next quarter. Thank you so much.