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Asian Paints Ltd
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Ladies and gentlemen, good day, and welcome to the Asian Paints Q4 and 12 months FY '20 Results Investor Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Nair from Asian Paints Corporate Communications. Thank you, and over to you, sir.
Good evening, and welcome to Asian Paints Investor Conference Call for Q4 and 12-month FY '20 results. First of all, sincere apologies for the delay in the call. On the call, the management side, we have Mr. Amit Syngle, Managing Director and CEO. We also have Mr. R. J. Jeyamurugan, CFO and Company Secretary. We have Mr. Parag Rane, GM Finance. May I now request Mr. Amit Syngle to take the call forward?
Okay. Good evening to everyone, and apologies again for starting this meeting late. I will start with the meeting in terms of our note and introductory remarks. Quarter 4 of the financial year 2019/'20 was progressing well for the business till the time of sudden seizure in all business activities in the second fortnight of March '20 due to the nationwide lockdown implemented by the central government. The decorative business in India had registered strong double-digit volume growth for the first 2 months of the quarter 4 as well as for the financial year till February 2020. With the loss of sales in the last fortnight of March '20, the decorative business volume growth for the quarter ended in low single digits. However, even with this loss in sales, we managed to end the year with a double-digit volume growth. Against this double-digit volume growth for the year, the value growth was in single digits as we continue to focus on growing the bottom of the pyramid with concentrated push on the upgradation emulsions as well as on gaining further share in the large undercoats market. We have also managed to grow the exterior textures, SmartCare waterproofing and adhesive categories strongly during the year. The focus on delivering decor through services like Paint Tool and Beautiful Homes Service has received wide acceptance with the channel partners as well as our customers. These efforts have served well in face of overall challenging demand conditions seen in the economy in the last few years. In the international business portfolio, it was a mixed bag with some of the markets functioning in March '20 with certain set of restrictions, while some markets were under complete lockdown. At an overall level, the international business registered a single-digit value growth in the year. Key units like Egypt, Ethiopia and Emirates saw an improvement as compared to the previous year. Nepal also did well. Revenues from the greenfield operations in Indonesia grew well, though lower than plans. The slowdown witnessed in the automotive industry and the business impact due to the lockdown adversely affected the automotive coatings JV, which is PPG-AP, resulting in reduction in the top line in single digits for the year. The Industrial Coatings JV, AP-PPG did well in a tough market, supported by the strong push in the Protective Coatings segment. The softer material price trend witnessed in the first 9 months persisted in the last quarter, too. This coupled with our efforts on the formulation and sourcing front have led to an improvement in the gross margins for the entire coatings business in India as well as in the international operations. While no fresh price reductions were implemented in the last quarter, a part of this benefit has already been passed through the cumulative price reduction of slightly above 1% on the portfolio level taken during the year. Both the segments within the Home Improvement business, the Kitchen business under Sleek and the Bath business under Ess did well, especially given the slowdown in the real estate construction space as well as the loss of business in the last fortnight of the year. The performance was aided by strong growth in the full Kitchen business and sanity ware range introduced by the Bath business this year. Let's come to the consolidated financials. Revenue from operations for Q4 are at INR 4,636 crores, lower by 7.1% over the previous year. For the full year, revenue from the operations increased by 5% to INR 20,211 crores. PBDIT before income for Q4, lower than previous year by 3.2% at INR 863.6 crores, higher by 10.7% for the full year at INR 4,212.5 crores. PBT for Q4 lower than previous year by 5.7% at INR 699.2 crores, higher by 9.7% for the full year at INR 3,634 crores. Net profit from continuing operations for Q4, lower than the previous year by 1.8% at INR 480.3 crores, higher by 25.5% for the full year at INR 2,779.1 crores. Stand-alone financials. Revenue from operations for Q4, lower than the previous year by 8.4% at INR 3,879 crores, higher by 4.9% for the full year at INR 17,194 crores. PBDIT before income for Q4, lower than the previous year by 5.4% at INR 775.8 crores, higher by 10% for the full year at INR 3,857 crores. PBT before exceptional item for Q4, lower than the previous year by 8.8% at INR 649.5 crores, higher by 8.7% for the full year at INR 3,446.2 crores. The PBT before exceptional item after taking into account the contribution of INR 25 crores made to the central and the various state government COVID release funds in March '20. Taking into account the recent business performance and the increased uncertainty in business conditions as a matter of prudence, the company has taken a provision for impairment in the value of investment of Sleek with a tune of about INR 29.7 crores. Net profit for Q4, lower than previous year by 5.4% at INR 432.1 crores, higher by 24.5% for the full year at INR 2,654 crores. Higher growth in net profit as compared to the profit before tax is on account of the reduction in the effective corporate tax rate from 34.94% to 25.17%. The Board of Directors have recommended a final dividend of INR 1.50 equity share for the financial year ended 31st March 2020. Taken together with the 2 interim dividends of INR 3.35 per share and INR 7.15 per share, the total dividend for the year would be INR 12 per share as compared to the total dividend of INR 10.5 per share declared in the previous year. This would result in total dividend payout of 51.1% for the year as compared to the 56.7% in the previous year. Just an update on the COVID-19 situation. Business has seen partial resumption since May 2020, and now most of the markets have opened for business. We have seen business picking up in most of the smaller towns and cities, while business has been slow to pick up in the metros and Tier 1 cities. However, the situation still remains fluid with a number of COVID-positive cases on the rise daily, and some states have again implemented lockdown in select regions. Safety of all our employees has been -- is the highest priority and all the facilities, including manufacturing locations, sales offices and warehouses in India as well as overseas, which have opened across locations have been sanitized so that our people are safe and secure. All safety protocols of temperature sensing, wearing of safety gears, including masks, goggles and face shields, social distancing, sanitizing and washing hands are being adhered to very, very stringently. The company has also taken up various initiatives supporting the central and state governments in their efforts to combat the COVID-19 pandemic and has committed a sum of INR 35 crores towards COVID-19 pandemic relief funds. The company is also working with various NGOs for providing food, masks and sanitizers. Asian Paints being a responsible and caring brand has further strengthened its work in the health and hygiene space by launching Viroprotek range of hand sanitizers and surface disinfectants to support the government in its effort to tackle the spread of pandemic and address the huge need of hand and surface sanitizers in this testing times. The company has used the San Assure service aggressively to sanitize large number of shops and homes. The company has also launched a Safe Painting campaign for ensuring safety of our painters and give assurance to customers for a safe painting experience at home, and has received a lot of leads through this initiative. We have -- we are confident that though these initiatives -- through these initiatives, we would be in a strong position to not only address these difficult and uncertain times, but also create far more resilient customer connect to drive the business forward. Thank you, everyone, and we will be happy to take any questions that you might have.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
Sir, the other paint companies are saying in June, most of the paint shops are now open, so almost 95% paint shops are open. And in June, the daily sales are now back to almost 80% of pre COVID in most of the areas. So would you also concur with this? Are you also seeing similar trend?
So if you look at the month of June, we definitely see an improvement which has happened over the month of May in terms of overall sales. It will be very difficult to put up a number to it, but I think there is definitely a good improvement over the May sales, which is happening. And what we are seeing is that the consumer confidence is coming back. The only thing is that we have seen reinstatement of the lockdown in certain parts of the country in terms of TN and parts of Punjab. So we are still very uncertain in terms of how the market really fares.
So one follow-up on the demand side and this because you have been an expert here. So how do you see the demand in the medium term? Why I'm asking this is the jewelry company, Titan, said that because people will cut down on, say, overseas travel and other, or marriage also will be torn down, people will spend on jewelry. So in paint also, can that happen that people will be spending more here because of feel-good factor. But can this become negated because of the social distancing norms, which will apply in painting. So how do you see both the things, 1 positive, 1 negative?
So how we see the overall thing that the biggest, I think, the element would be that there will be 2 things which would be affecting it: One would be that paint is a discretionary spend, and it is up to the customer in terms of deciding what the priority is in terms of looking at it. Second, there would be a little bit of a paranoia in terms of getting someone from outside into your home. And that is why we have looked at a Safe Painting campaign so that we can give assurance to our customers that today, whatever service we are offering is safe, and they can get people inside their home for printing. The third area is that home is going to become a very, very strong place for socializing, and people will really value their home far more better in terms of an emotional connect than earlier. And given the fact that people are spending most of the time in the home, I think people will look at really making their homes more beautiful and joyful as they kind of go ahead. So given a combination of all that, we feel that if the situation really improves, I think the demand should be back from the point of view of a consumer, so long as there is an assurance that the painting is safe, and it kind of keeps away from -- them from any of the dangers of contracting any of the diseases.
And sir, last question, on the margins, how do you see -- essentially, do you need to take price hike because 10% rupee depreciation and some custom duty in raw materials? Second is, would you delay the price hike because of the overall sentiment being very weak, job losses, salary cuts? So how do you see pricing and margins in the medium term?
In fact, the margins have improved because of the raw material prices coming down and some very strong work, which we have taken on the formulation and the sourcing front. So if we look at it from the point of view, as we kind of look at the market, as we go further, we would look at possibly passing this benefit to the consumer over a period of time.
Are there any downgrading in this aspect?
Sorry?
Any downgrading of the product profile, you think will happen?
No, no. So what we see is that as the market opens, there would be a consumer trend in terms of looking at value for money products slightly more as we see it to that extent. And therefore, what we see is that there could be some shift in the market in terms of people looking at going for a little bit better value-for-money products rather than super luxury products in the market.
The next question is from the line of Yogesh Shah (sic) [ Tejash Shah ] from Spark Capital.
This is Tejash Shah. Sir, you mentioned that there will be a lot of safety and hygiene measures that you will take to ensure that customer safety and even the painter safety. So this also involves that there will be a lot of -- the cost of doing paints also will go up. So would you be charging it to customer or we'll take it in our cost sheet for now?
Okay. So largely, when we have launched a Safe Painting campaign, what we do as part of the measure is we look at a lot of protective equipment given to the painters and look at sanitizing the place when people come in and when they leave. So by and large, we have tried to put it as a measure where there is largely no additional cost to the customer. There would be a minor INR 1,000 to INR 1,500 kind of a cost, which can go up for a customer in terms of looking at all these safety measures. But overall, it is not a very big cost in terms of what we are looking at as a safe painting practice and it is kind of built into the cost as we look at in terms of going. And not only this, we are also looking along with the safe painting, sanitizing service, which basically sanitizes the place of the customers in a big way. And we are trying to pitch all the services at a very affordable level so that the pressure and the burden on the customer is not very high.
Sure. Sir, second, in terms of some geographic color on the recovery. So I believe that your key markets, Tamil Nadu and Maharashtra are still shut largely. So is it a fair assessment that at least in the recovery phase, your participation would be lesser than competition at this point?
No, I don't think so that would be the case because we are fairly strongly represented across the country. And what we see is that across various market, in fact, Tamil Nadu was open for a good number of days, and it just kind of got into a lockdown for 10 days now. And even in terms of Maharashtra, besides the top cities, I think the other Tier 3, Tier 4 cities are open to that extent. But given our representation across geographies, whether they are in East or whether they are in South or whether they are in North and Central, we think, given the fact that overall, we enjoy a better share, I think the comeback would be better for us as compared to competition.
Sure. And sir, is this correct based on a channel, which says that East is relatively doing better than rest of India?
Sorry?
East India is doing relatively better than rest of India?
No, I don't think so that is a specific case. There is a little bit of relativity into this. In fact, some of the states even in South are doing quite good. Karnataka is doing quite well in terms of the overall performance. And in East, when we look, Northeast is doing better than possibly West Bengal and so on and so forth. So there are little differences all across the country, but you can't universally say that East is better than any other part of the country.
Sure. And sir, lastly, if I may squeeze in one more. Sir, do you think there will be any supply chain disruption because of the whole China crisis? And how much of our imported raw material will be exposed to China sourcing?
Okay. We don't have a very significant exposure to China. There are certain raw materials, which there is an exposure, and that exposure would be close to about 8% to 10% kind of a zone in terms of the total import items which are there. But as we kind of go forward, we have alternate sources and alternate vendors, which are already identified. So even if there is an exigency which comes in future, I don't think it's a showstopper.
The next question is from the line of Manoj Menon from ICICI Securities.
Amit and Jeyamurugan, actually, both of you have taken over bigger responsibilities during tough times and very -- I generally mean good luck to both of you. Just only one question, what I have, Amit, is actually that if I leave the noise of March, April, May, June, a lot of noise about sequential and which percentage and what percentage, if I just leave it out, right, if I just cumulatively look at March plus June plus September plus December, let's say if I look at calendar year '20 as 1 full year and that too for a product category like paints where, as an analyst, I believe that your product is really not a perishable commodity, it is only postponable, how do you look at the demand, let's say, for the entire calendar year 2020?
Okay. So you're asking about the demand for 2019/'20, financial year?
No. I'll tell you. Okay, let me explain this. What I'm saying is that when I look at, let's say, in Indigo, which is an airline company, where it's a perishable commodity that if you did not fly, you just lost the revenue. But whereas in paints, it's all about postponability of the product. If I did not paint today, it is assumed that consumer will paint tomorrow. So I just want to leave the noise out of the discussion. And if I look at cumulatively March quarter, June quarter, September quarter and December, let's say if we look at calendar year 2020 as 1 block, how do you look at the demand for the entire year? Entire 12 months?
See, again, while you are right that this is not a perishable commodity, and it's not that it's not postponable. But what really literally happens is that, for example, a lot of people paint before the monsoons. And they paint so that in the monsoons, they are able to protect their houses and do waterproofing in their houses and so on and so forth. So what really happens is that some part of the demand is postponable. But some part of that demand is also gone because then they would start to kind of look at painting in probably the next April-May cycle rather than looking at doing it in November, December. That is one. Second, there are occasions like marriages and other things which come in where the home painting kind of gets on. And to that extent, possibly, what really happens is those occasions, also people might really kind of cancel the painting per se rather than just deferring it because the occasion is finished. But at the same time, there's a large maintenance sector, which, obviously, we have people are painting for giving their house a good look after, say, 4 years or 5 years kind of a thing. That is definitely recoverable because people can postpone that demand and then can kind of do it at a later stage. Similarly, the new construction parts, where the new construction is getting delayed, finally, it will get painted some time or the other. And therefore, that is also a postponable kind of scenario. So overall, if you look at from the calendar year point of view, there would be some part which will be postponable. There would be some part which would be subsumed at that point of time, and maybe it comes back after a year, 1.5 years, we don't know in terms of when it comes. So there is partially some sale loss. There is some good sale, which is possibly postponable. And therefore, it's a mixed bag.
Understood, Amit. That is very helpful, actually. And I have only 1 second question here is the potential benefits of formalization, which I have observed anecdotally in few other consumer categories and how relevant and -- I mean, for your industry at this point in time?
Potential benefit of what?
Formalization. The smaller paint companies struggling and the larger ones growing -- I mean, outperforming in times like this.
Okay. So what are you saying is that during such times, larger companies would be more at advantage with the smaller companies is what you're asking?
Yes, that's right. So it's actually the formulization benefit, whether it is access to the market, access to working capital, et cetera, et cetera. And I was told by paint companies in the past that about 30% of the overall paint industry in India is informal. So I'm just trying to understand, is there any material delta change for formalization, which is feasible? What could have happened over, let's say, 3 or 5 years, could now happen in 6 months?
Very difficult to say that such things would happen because, see, when we look at some of the smaller companies also, they are trying to, in their own way, fight back and look at in terms of whatever business they are able to get. Yes, they might get constrained with possibly not having the right amount of resources with them to that extent. But what I feel is that it's only a matter of time when they kind of come back and jump into the arena because the government is also kind of doing a lot of work in terms of assisting the MSMEs and looking at in terms of how they can hold their hands. We, as a large organization, would also -- we also believe in terms of live and let live kind of a philosophy, and we would not kind of really get really aggressive in terms of taking everything out in terms of the market to that extent. So I would say that there would be a little bit effect that the bigger players would have a little bit of advantage of larger resources and so on and so forth to that extent. But I think on the whole, it is only a matter of time when everyone jumps in.
Understood. And thank you so much, Amit. That was very detailed for both the questions. And once again, I just want to wish you and Jeyamurugan good luck in your higher responsibilities.
The next question is from the line of Avi Mehta from IIFL.
Sir, I just wanted to understand the current -- what would be the current input baskets versus the 4Q average? If you could kind of help us understand how should we look at the RM costs given the currency depreciation and the crude price decline. If you could kind of give your comments on that, please.
Okay. Parag, would you like to answer that?
Yes. Yes. So I would probably not be able to give you exact number here. But on an average, even taking the rupee depreciation into effect in the current quarter, the portfolio level input prices would be lower than Q4 on a sequential basis.
And would it be like a double-digit differentials?
I would not be able to give you a comment specifically on that front.
Okay. And the second bit, Parag, and team was the inventory levels. Now how long do you think that your existing inventory, which you have as on date, a, would it be at the 4Q average? And if it is, how much time will it take to kind of play out? How does that play?
So our quarter closing inventory was definitely on a higher side in the month of March because of the lockdown. But then because of the corrective measures also taken in the month of April following the lockdown, I think on an overall level, we would be, at this stage, probably closer to the average levels of inventory rather than being too far off from that.
And just to add to that, see, we don't see any big accumulation of inventory within the company at this point of time. I think we are back to normal levels in terms of looking at overall inventory at this point of time.
Okay. Okay. And lastly, Amit, from the -- you did saw a lot of disruption given that last week is typically the biggest week in terms of inventory buildup at the channel, dealers try to kind of achieve the early volumes, et cetera. How does that play out now given that the lockdown is kind of, is that entire volume now more or less done and people are kind of back to their normal levels, essentially? Just trying to understand, is the pent-up demand done in your view or if you would give any sense on that?
So you're right, there's a little bit of higher stocking, which happens in the last fortnight of -- the second fortnight of March, which happens because of people completing their targets and the retailer is also looking at some kind of a stock up. And normally, retailers are able to dispose of that material in the month of April because there is not too much of a stocking, which really happens. So what we see for that is that given the fact that April was not very great, when we opened in May, to that extent, there was a pent-up demand in terms of which was there, which we could service very, very fast in terms of the various markets to that extent. And currently, I think the situation is pretty normal that there are no large pent-ups which are there. And I think in the month of May itself, we were able to kind of tackle that situation given the fact that we had good inventory at our ends.
And the bookkeeping, what this production level currently at as a percentage of pre-COVID level?
So we will not be able to specify the level, but I think we are possibly, I think, in the range of about 60% to 70% levels.
Next question is from the line of Arnab Mitra from Crédit Suisse.
In your opening comments, you spoke about the much lower recovery in the larger cities. So is this limited to the large, like 5, 6 metros where the COVID fed is very high? Or is this more a top 20, 25 city kind of phenomenon? And if you could also give a broad contribution of, let's say, the metro cities to the paint industry volumes, that will be quite helpful.
Okay. See, it's not uniform in terms of all Tier 1 cities and metros. To give you an example, like Bombay is the most affected, if we kind of look at from a metro point of view, followed by Delhi and followed by Chennai from that point of view to that extent. But Bangalore and Hyderabad will be doing much better in terms of the overall performance to that extent. And therefore, the entire effect is selective in terms of when we look at some of the Tier 1 cities. So for example, some of the cities like Ahmedabad, Surat, would be far more affected in terms of when we look at some other cities like Jaipur or Jodhpur or Indore kind of a zone. So I think there is a little bit of a differential, which kind of really happens in terms of looking at it. When we look at possibly the Tier 1 and the metro cities to that extent, they contribute to a good number in terms of at least about a good 40% to 50% of the demand coming from there. But I think the smaller towns are also now equally good in terms of what they're able to overall contribute. But to repeat, basically, it is not uniform that all Tier 1 cities and all metros are basically not giving good business.
Sure. And the second question was throughout FY '20, we saw your value growth being almost high single digit or double digit below your volume growth, and that was because of specific efforts you had put on the lower-end segments that you had launched. So now that, that has been -- has happened and you've established that segment, going ahead also, do you think that kind of value volume differential will continue in FY '21 and going beyond that?
See, you must remember that India is a large market, and it is always like a pyramid. You always have the bottom of the pyramid, which is far broader and so on and so forth. And therefore, there is always potential in terms of looking to convert a person who is on the bottom of the pyramid to come into the organized market and look at an upgradation product, which really comes in. So from that point of view, we feel that, that is always an upgradation, which is a continuous possibility, which will happen. And as we look at the coming years also, I think that opportunity would still exist in terms of continuing to upgrade the people from the lower set to an upper product and from an upper product to a middle product and from a middle product to the relatively premium and higher-end product. So I think it's a continuous upgradation in a pyramid kind of a zone which happens, and I think it will continue.
Okay. So just to clarify, so I mean the 10% kind of gap that we saw in this year, is that significantly above what is a normal situation? Because you put in a lot of new products at the lower end this year. While, as you said, it's a continuous process, but the gap seems significantly higher this year in terms of value volume, though you had actually not taken a lot of price cut.
See, this year, we've ended up with an 11.2% volume growth and a value growth of about 5.5%. So the gap is close to about 6%, if you see, in terms of the overall thing. So I don't think so it is to the tune in terms of what you are mentioning. But what we see is that as we kind of go forward, there will be definitely some differential between the volume and the value, which will still exist as we kind of go forward.
The next question is from the line of Prasad Deshmukh from Bank of America.
Couple of questions. First, if you compare the growth trends in India markets versus, say, non-India markets where it could be a do-it-yourself kind of a setup, how would you -- I mean, how would you compare the 2?
I don't know in what context you're asking, but if you look at the total -- 2 markets are totally noncomparable because given the Indian GDP and if you take a country like U.K., where the GDP is just about 1% or 2% in terms of reaching -- the overall growth would be far lesser from that point of view.
No, no. I'm not asking about long-term growth. I'm just talking about pre COVID, post COVID comparison.
So obviously, I think in any country where there is a DIY percentage, which is higher, they would be lesser affected in terms of looking at their painting demands getting affected because the consumers are able to buy it themselves and do it in their houses as compared to letting someone in into their houses to that extent. So the paranoia of getting a stranger into your house to kind of do painting is not there. And therefore, in any country where there is a DIY component, which is higher, would under these circumstances do better.
So assuming that this paranoia continues throughout FY '21, do you see a possibility of do-it-yourself market actually emerging in India or other companies like, say, Asian Paints at least communicating to consumer that, okay, that is also a possibility?
See, first of all, I think there are ways and means of addressing the paranoia, and we are seeing now the market really opening up, and we are already seeing that people are stepping out on the roads and a little bit of normalcy, which has come in despite the cases happening because I think people are learning to live with it as we kind of go ahead. And therefore, what we see is that this paranoia will decrease and people will start getting in painters inside their homes. And we've already seen that in the month of June, after we've launched the campaign, we've got a huge number of leads from the -- from people in terms of asking them to kind of do the painting within their homes. That is one. Second, what I see is that over a period of time, this DIY as a concept is a slight difficult concept from an Indian point of view because we are still a brick-and-motor kind of construction. And what really happens in our type of construction that the substrate conditions are pretty bad in terms of the repainting exercise, which involves a lot of repair. And therefore, from the consumer point of view, it's not so easy to kind of do everything yourselves to that extent. So there could be smaller zones in terms of doing photo frames, doing small pieces of furniture and looking at doing small designs and stencils kind of a zone, but the larger painting shifting to a DIY is a little bit of a remote possibility.
And sir, second question on labor availability. We keep hearing like, 70% of paint jobs, especially in metros, are like done by migrant labor. Could you please just give some color as to what kind of -- what is that number, ballpark? And what kind of availability we are seeing right now?
Okay. See, currently, what we are seeing is a little bit of an encouraging trend with lots of people tending to come back. First of all, at a lot of our manufacturing places, we find that a lot of people have started to come back because there is an assurance of the job which is there and assurance of earning money, which really comes in because a lot of people will not be able to stay without money for a very, very long time. So I think we have started seeing that trend happening. And even as far as the painter community is concerned, we feel that the people have started trickling in from a point of view of an assurance of jobs and so on and so forth. We've just released a media campaign in terms of where we are talking of really assessing the painters with respect to insurance at work and looking at giving them a short leads in terms of work as we kind of go ahead. So overall, what I feel is that even after holy month of Ramadan is also over, we are seeing that a lot of people have started to come back. And I think given the fact that there is also harvesting season, which happens in April, May, there is anyway, usual migration of a lot of people, which happens in the April-May period to that extent. So what we feel is that people have started to come back. And I think if the situation kind of improves, we will have lots of people coming back by July and August.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
Yes. Amit, and Jeyamurugan, thanks for the opportunity, and welcome to the new position. I have a couple of questions. The first question is that you have given some commentary on India business in May and June. Can you comment on how the situation is in the international markets?
Okay. So when you look at the international markets, the Indian subcontinent, which is the Southern Asian market, is possibly a reflection in terms of how India is. So if you look at Sri Lanka, Bangladesh and Nepal, they pretty much replicate in terms of conditions which are there in India to that extent. Otherwise, in terms of when we look at the other geographies in Africa, in the Middle East today, I think those economies are doing much better because they've not had prolonged lockdowns. And we've seen even in March, a lot of them were not closed. So geographies like Ethiopia, Egypt, then UAE, entire Middle East, in fact, are pretty good in terms of the overall business in terms of what is going on. And we feel that those countries have been continuing and not been too much affected in terms of this entire COVID-19 issue. Indonesia is a little bit more affected as compared to the other cities and to some extent, relatively less than India, but Indonesia is definitely a little more affected.
Okay. And my last question is on, you said that your 11% volume growth is for full year?
Yes.
Yes. So can you specify what is the Jan, Feb and separately for March?
No, that would be difficult to do. We have -- you have the figures in terms of the what it looks like for the quarter 4 and the other quarters earlier, which we have spoken. But generally, this difference has been in the range of about 6% to 8% kind of a zone. And it is totally dependent in terms of the push which we are making in terms of some of those upgradation categories and the undercoats, which we have been focusing on very, very strongly. And that is something which is what I commented earlier.
Okay. Just last follow-up on that. Have you taken any price correction in the, say, May and June month?
No, we have not.
So last correction, which was taken was in the month of January?
No, the last correction was taken as on 1st of December.
Q3 of last year.
The next question is from the line of Aditya Soman from Goldman Sachs.
So firstly, in terms of this push in the lower-end segment, has it also been partly driven by the fact that you've also increased capacity quite meaningfully, so it's just better utilization of capacity and there is the last gauge, which historically you may or may not have tapped as aggressively?
Sorry, I'm not -- I didn't comprehend your question, please.
Yes. I mean, you had a significant capacity increase about 15 to 18 months ago. So has this push over the last 4 quarters at the lower end of the market been a function of that capacity increase, where, one, we're obviously closer to the market, which makes it easier for you to push these lower-end products?
No, I don't think so. It is more strategic to in terms of how we kind of see in terms of business going ahead and looking at a certain demand of the market and a certain thing where we can grow the market. You must remember that we are a large player. And for us, growing the market is a more better strategy rather than looking at in terms of taking the share from the market. So I think from our point of view, we keep on figuring out segments where we can tend to grow and so on and so forth. And it has no linkage in terms of sales that we have created a market, we have to force certain product in the market.
Understand. Very clear. And then secondly, in terms of price cuts, any reason you've stayed away from price cuts since December, given that we've seen a significant reduction in input costs?
So as we said that as we kind of look at the year going forward, we will definitely look at passing some of the cost in terms of the material costs, which are there to that extent, which is the advantage which we have got. And we will do at the opportune time as the markets really open.
And is there any risk that some of your competitors could do this more aggressively or if they could increase, say, channel margins? Would that be a cause of concern for you? Or are you not seeing anything of that sort at this point?
It's a free world, they can do whatever they want.
The next question is from the line of Mudit Kabra from HEM Securities Limited.
Broadly, my question has been answered. But getting into specifics, how much of titanium dioxide, which is utile, is sourced from China? And how much of it is sourced locally?
We cannot give those details breakups.
Okay. And the next question is, what is the company's CapEx plan for FY'21?
Sorry, we lost you.
My second question -- sorry, my second question is, what is the company's CapEx plan for FY '21?
Okay. So we are looking at CapEx, which is more right now dependent on quarter-to-quarter kind of a thing, and we are looking at the situation in terms of how it kind of goes. So we are playing it by the year in terms of how it comes. In at the moment, we are looking at spending on items which are really urgent and necessary as we kind of go ahead. And we will keep on looking at reviewing this number as we kind of go ahead.
Okay. And my third and the last question is, what kind of impact do the company sees on the rural-urban ratio, which I believe was 50-50 up till previous year?
So we -- what we feel is that for the interim till the time some of the urban markets are affected, obviously, the contribution from the rural markets would kind of really increase to that extent. But over a period of time, I think it will come to what it has been earlier.
The next question is from the line of Amit Sachdeva from HSBC.
Sir, first question is basically, obviously, in this lockdown, most of the things have shutdown, dealers, everyone would face a crunch. So in this process, I assume that most companies have stepped up the efforts to basically support the ecosystem, basically suppliers or dealers or anyone, whether in terms of credit or in terms of protecting the painter community from getting completely disrupted. So do you -- so I assume that you made a lot of efforts there as well. But how do you see panning out vis-à-vis your competition as well in this quest of protecting the ecosystem, if I may say? How -- what efforts you have made and what efforts relative to the competition may have made? But where I'm coming from is that when the channel filling happens again, as you also point out that in recovery, you seem to -- you think that you will do better than others. Is it because of the lot of effort that has gone in the ecosystem protection? And how this is panning out in terms of cost and benefits for you?
Okay. I think we must remember that it's not that we come and help people only in times of need. See, it's a relationship which any organization builds over a period of time with its customers and it's all stakeholders which are there to that extent. And I think Asian Paints has been on the forefront in terms of building relationships with either vendors or influencers or retailers or any of the people who are the stakeholders in the entire business, including the customers. So what we have done is that even during this point of time, we have not been behind. And we have looked at in terms of passing huge amount of monies to our retailers, so which was a money which could have accrued to them in another 3 to 4 months. And we've looked at settling the accounts very, very fast so that people are -- have the liquidity in terms of being comfortable and the anxiety levels going down. Secondly, what we have really looked at is being there with them in terms of times of emergency, whether it is aiding them for any medical help or ambulance or anything which is required, we have been always there. We have a 24/7 helpline, which really takes care of any of the needs of the retailers, which kind of come up. As and when they kind of just open their shops, we looked at offering free sanitizing of their shops to them. We also looked at providing insurance, a much better insurance package to all their workers who are coming to the shops. We overlooked at providing insurance packages to the contractors and the painters who are connected with their shops. We even provided them with a new layer of credit, so that they are able to kind of feel easy in this environment to that extent and also aided them by providing them a lot of business leads by doing various communication initiatives like the Safe Painting, and we have launched a new initiative called the San Assure, which is the sanitization services, which we have started overall. So the idea is to give them more and more business as we kind of keep on going ahead and look at improving that relationship forward in terms of going. So I think the list goes on in terms of the work which we have done, and that's a continuous work. We don't look at it from the point of view because it is pandemic we are working. But I think that's the kind of intention and the relationship of Asian Paints that we keep on doing that to that extent. And when we do this kind of work, we always see that competition really follows a lot of stuff which we do to that extent. But I think it's a question of who does it more and who does it better.
Sure. So I assume that you've done a great job and best of luck for that. So Amit, that's very, very helpful. My second quick question is and I come back to mix again, because I think Arnab asked as well. The quick question is that last year saw, I think, if not, not including Q4, but there was a larger impact of price deflation. And much to -- much credit was, as we understood, was driven by the mixed-led change that was happening because of the focusing on the lower end of emulsion. And as I think that last year was an extraordinary push on that product. So what we want to understand is that whether this push would be augmenting in the same intensity as last year or one large impact has come and that impact would be lesser this year. But obviously, value for money, et cetera, those factors will play out. But what we want to understand is to extent of price deflation, which could -- we experienced as a result of this factor alone. How should we see about as the recovery happens in Q3 and Q4? How should we appreciate that aspect of mix?
You have asked the same question that someone asked earlier in different words, but I will still answer that question, since you've asked it. See, as I said, we go by creating a certain kind of a market demand. And some of the segments which we approach is not a 1-year game, it is a game which is basically spread over a few years because today consumer habits, consumer behaviors change over a period of time to that extent. And we see this upgradation as a continuous process in terms of which kind of really happens. In this process, we have also seen some of our super luxury products doing extremely well in the last year to that extent. So for example, when we look at the area of wood finishes, we find a lot of our top-end premium products are moving very, very well in the market to that extent. So I think it's a mixed bag in terms of what really happens. You must remember that the volumes overall are much larger at the lower end. Therefore, to some extent, lower-end growing doesn't mean the top end is not growing, okay? So I think that's a distinction you must remember, but given the fact that the size of the top end would always be relatively smaller than the size of the bottom end. To that extent, there would be a difference between the value and the volume, which will come in terms of the product mix. So net-net, this effect overall will continue in terms of what you see. And I think it will continue more also from the point of view of the fact that I felt that given the situation is exceptional, people would start looking at a little bit of a down-trading and looking at in terms of also kind of going for more value-for-money products.
Sure. Sure. That's very, very helpful, Amit. And any cost measures that you're taking to sort of contain and minimize the -- like you are taking some exceptional costs in sort of aiding the ecosystem and doing those -- managing this period. But has that come with some sort of substantial cost savings that you've initiated as well which should we aware of in some A&P or any other spends that you are trying to economize. How we should think about the overall spend, non-COGS and non, basically, incentive spends. Should we see some reduction there this year? How should we think about other costs?
See, very difficult to say for this year because this year is not going to be a little bit of a normal year to that extent. So we don't really know in terms of which way the winds are going to go as we kind of go ahead to that extent. So to really kind of talk about minute things in terms of how advertising, how promotion expenses, how marketing expenses would look like, it would be very difficult to say. But I've always maintained that when you look at some of the measures on marketing in terms of building a brand, it is not like an on-off switch that you can switch off at some times and come back when it is convenient to you, okay? Consumers can really dump brands which don't really kind of communicate with them and do not have the saliency over a period of time. So I would say that we would not look at the short-term measures in terms of going forward, but can kind of contain -- maintain a balance in terms of going ahead.
The next question is from the line of Latika Chopra from JPMorgan.
My question was regarding your product mix. Clearly, over the last 12 to 18 months, we have seen a significant shift towards value for money or economy end. And at the same time, over the recent years, waterproofing has emerged as a new segment. As you conclude the full year, I would have to understand if you could get some color on how the contribution of these 2 categories would have changed in your portfolio mix over the last 2, 3 years? And importantly, how do that play with your margin mix at the gross margin level? Because you did mention reformulation and sourcing efficiencies. So some color on this would be appreciated.
So actually, how we look at, keep on doing is that, see, there is a value addition in terms of the formulation, sourcing efficiency across the set of products. It's not that we look at only value addition or formulation efficiency only at the low-end set of products to that extent. So it is a process, which is a continuous process because you must remember that in the paint industry, the material cost is a very, very substantial component. And therefore, there is always an opportunity in terms of keep -- keep on working in terms of formulation and sourcing efficiency, which we kind of do across the range of products. Having said that, there are certain categories which we have really driven strongly and waterproofing is one of those categories and some of the upgradation merchants are those categories. And we enjoy a fairly decent margin in terms of those categories as well because there is no point in terms of pushing the category and therefore, kind of taking a hit in terms of your margins in terms of as you kind of go ahead to that extent. So I think it's a balanced push in terms of what really happens in terms of what you want to do. But there is no kind of formulation efficiency, sourcing efficiency just at the value-added products point of view, it is all across the portfolio in terms of how we see.
So if I have to understand, your waterproofing portfolio will be in line or accretive to your aggregate margins. But your value-for-money portfolio will be also similar gross margin profile on an average basis or not very dilutive?
Yes. So it will depend from product-to-product. So if you look at from the point of view of certain categories, they would be comparable with possibly the margins of the top-end products as well.
Okay. The second question I had was on distribution, clearly, one of the drivers of revenue growth over the recent years. Would it be possible for you to share a broad dealer base as you ended March '20? And what are your thoughts on expanding it further? What kind of opportunity headroom you have there?
Distribution, what? Sorry, I missed your point.
Your dealer distribution. Your dealers.
Okay. So I think as we said that, that's an ongoing opportunity in terms of what we keep on doing and every year, we add to the overall retail network in a very, very strong manner. And these are basically into new towns, new geographies, we keep on expanding so that basically, we have a good representation across various clusters, across the country to that extent. So even last year, we had a fairly good number addition in terms of what we have done overall in terms of the network. And what we see is that as normalcy hits this year as well, I think that initiative will continue.
And possible to share what would be the broad base of your retailer network?
No, we'll not be able to share the numbers with you.
Next question is from the line of Nikunj Doshi from Bay Capital.
This is Nikunj Doshi from Bay Capital. Just wanted to get your views on the infrastructure industry and projects demand. What is the trend right now? And what do you see in the months to come?
Okay. Currently, I think, obviously, the area of new construction, new projects, institutional segment, industries, all that segment is definitely down. And we have seen even construction, government has asked for captive labor and things like that, they've got affected by migrant labor going and so on and so forth. So currently, I think there are 2 factors prevailing. One is that the -- a lot of construction work has not started. New projects are not coming up. And third, the issue is that the money markets are very, very tight in terms of how the builders kind of see in terms of for themselves. So what we see it is that it is going to be a slow process for these kind of -- this business to kind of come up. But I think the government is trying to give a lot of initiatives so that basically, we can look at in terms of growth here as well to that extent, and especially, in the month of June, we have started a lot of builders coming back on the anvil in terms of looking at starting their construction. And that is something hopefully should accelerate.
What percentage of our revenue would be coming from this segment, infra projects and the industry?
So it would be less than 10%.
Less than 10%, okay. And in terms of the waterproofing product portfolio, if you have to compare a product range with, say, Pidilite, or Dr. Fixit, do we have any gaps in terms of the product range or we have all the products that perhaps Dr. Fixit has?
Okay. See, as an organization, how we work is that we basically look at the more consumer and what consumer is asking for, and do we have a product to give from a consumer's perspective in terms of giving a solution to the customer. We don't really compare our products one-on-one with any existing player because what we believe is that Asian Paints has got a very, very different philosophy as far as new products and innovation is concerned. And this is very customer-centric and not centric to any other company, which is already existing. And I think that's been basically the DNA of the organization, and which has also helped them in terms of growing. So we don't really look at me-too products. We always look at products which are innovative, new and really aligning to the customers' demands.
The next question is from line of Pulkit Singhal from Motilal Oswal Asset Management.
So this seems to be a very opportune time for the home painting services that we've been investing in for the past few years to kind of takeoff, probably have an inflection point. Would you agree with that? And to that extent, are your efforts in this direction a lot higher than it was in the past in terms of the kind of promotion of it or the employees involved with it and various aspects?
No. See, Asian Paints has always been into the servicing business in a very, very strong manner, and that is something which we have been pursuing almost for the last about 20 years, where we have a home solutions kind of a brand, which looks at in terms of giving painting service to people around. And we've done a lot of good work in the last about 5, 6 years in terms of bringing a lot of capabilities to this entire service as we have gone ahead. We have also now equipped our retailers in terms of offering services, which are very strong with respect to painting services. It is just that, at this point of time, we looked at a Safe Painting campaign, which came in more from the point of view of a mindset, that if there is a paranoia in the customers mind and we need to really kind of assure the customer, here was a trusted brand, as in Asian Paints, coming in and assuring you that we will paint your house without anything happening to you along with that. And our launch of sanitizers and the sanitizing service has also really helped us because now we are offering a complete package to the customers in terms of saying, not only we are safe, we are also sanitizing your places and we are kind of coming in. So I would say that the only introduction which has happened to the entire painting service is more the elements of safety and sanitization, which we have introduced now.
Right. And to that extent, I mean, the customers feel -- I mean, they are willing to pay be a bit higher, that front-footed the safety and the hygiene aspect in place and therefore, looking at this service.
Yes. So normally, in India, see, it's very difficult to really get a real differential pricing in terms of -- from a servicing, which is there to that extent. So you need to be very, very frugal in terms of what is that extra which you are asking, and you must kind of ensure that the customer sees value for money in terms of paying that extra, which is there. So to that extent, as I answered some question earlier as well, we have not really kept a huge premium in terms of offering the safety or a sanitization kind of a zone, and it is something which is easily affordable.
But in terms of the revenue business if I just look at, say, INR 100 is you want get for the paint and INR 17 is what you make as operating profit. I'm just looking at P&L. But when you offer this service, how much incremental in terms of revenues do you actually make? And what are the margins there? I mean, is it INR 100 going to INR 110? Or how does it work?
I can only tell you that we don't make a loss.
Okay. And sir, secondly is on the whole opportunity on the sanitization space and I mean with the launch of hand sanitizers and service. Is this -- would you also be open to considering -- or are you considering going into the FMCG area also in terms of creating a brand there? Is that something that you are open to in terms of [indiscernible]?
So we have looked at really focusing on the health and hygiene category. As part of that health and hygiene category, we already had a brand called the Royale Health Shield, which was there, which is an antibacterial paint for homes. And as part of that, we have looked at extensions in that category as well. Along with that, we are riding the whole area of sanitizers into that zone because it kind of aligns with our health and hygiene forays, which we are kind of taking. We have also set up a parallel distribution system in terms of reaching out to the FMCG distributors and looking at in terms of going to the normal FMCG shops to that extent. And therefore, we are looking at this business kind of seriously as we are going ahead.
And therefore, soaps and hand washes could also be an extension at some point in the future?
We have not thought about it.
The next question is from the line of Yogesh Shah (sic) [ Tejash Shah ] from Spark Capital.
Sir, one follow-up. So last quarter, you had said that CCI proceeding was relatively new. So any update on the same? And any contingent liability we had to provide for it?
No, we are not providing any liability. And I think there has been no kind of follow-up on that.
Okay. And sir, just in relation to the previous question, I believe you have also entered into PPE segments. So is this largely a social obligation or a CSR activity that we have taken on ourselves or we are seeing a business case also around all these launches?
So we were already in terms of the PPEs because some of the products like wood finishes and other things are largely sprayed in the market. And from the point of view of caring for our painters and contractors, we used to anyway kind of get into providing them masks and so on and so forth, so that their health is kind of taken care of. What we did at this point of time, given the pandemic which is there, we just kind of accelerated our entire initiative in terms of looking at providing far more safety equipment in terms of going forward. So what we are doing is that it is obviously not a flash in the pan. But what really definitely happens is that as we are kind of going ahead, we are looking at in terms of what kind of safety equipment is something which is sustainable as we kind of go ahead. Masks definitely are required as far as painting is concerned in terms of looking at it, and so is the sanitizing liquids and other options, which are there.
The next question is from the line of [ Yang Ken ] from Tokio Marine.
I'd like to ask about the sanitizer business. Can you provide any revenue guidance or profit guidance? And since it's a new business segment that you are building new distribution networks, is that a business that might be loss-making in the beginning? Could you provide some guidance on that?
So we got into this business at the behest of the government, and the entire purpose of starting was more in terms of looking at a point of view of helping the government and looking at helping the NGOs. So we started this business at a very short notice in terms of looking at getting into it, but it's kind of aligned with our health and hygiene kind of business going ahead. So currently, how we are looking at is, we are kind of just catering to the demand in terms of the huge demand, which is in the market. We've not really sized up in terms of how much we'd like to kind of do and what is the kind of number which we have in mind in terms of going forward. But yes, we are looking at in terms of catering to the market demand in a very strong way, and we have introduced some innovative products as well in the entire segment. So I think the entire goal is not to kind of look at some very high revenue number, but look at in terms of sanitizing becoming a very strong part of our safe painting activity and look at our alignment with the home. The whole home sanitization becoming a very, very strong initiative in terms of going ahead.
Great. And my second question is on the CCI, the news item. Is there any update you can give us on that?
I just answered that question. There's no update post that. Because I think of the COVID.
The next question is from the line of Ashit Desai from Emkay Global.
My question was on trade schemes discounts. If you could give some color on what the kind of competitive activity. And in this kind of scenario, are you able to cut back on these trends? Or you have to spend more to get painters and other workers back to their jobs?
Okay. So as I was saying that there is definitely some additional spend, which are there from the point of view of looking at providing some of the things to help our stakeholders, the painters everywhere to that extent. We have extended some insurances. We have started looking at in terms of even providing the safety equipment to a lot of painters and to our retailers to that extent. So I think that is definitely a cost which comes on to the system, but I think that is cost well spent because it's a case of building relationships in terms of going ahead to that extent. As far as discounting is concerned, yes, to some extent, some discounting has been there, which is a little bit kind of attractive propositions to really boost the confidence of the retailers to that extent. But there is nothing which is so extraordinary, which is there. But definitely, there's a little bit of an incentivization, which is higher in this period.
Got it. Got it. And my second question is, if I remember correctly, I think you talked about Q4 volume growth to be in low single digits. And so if you look at the difference between sales and volume, it seems to be more than 10% this quarter, which is higher maybe compared to Q3, even for the full year numbers that you revealed.
No, I don't think it is higher than 10% because I think the top line is to the tune of about 8%, so -- a negative 8%. So I don't think so it is too much higher. It is in the same bracket, which I spoke of earlier.
Yes. I was referring to the full year numbers of 11% and -- 11% volume and 5.6% sales.
So that's about 6%.
Yes. Yes. Yes. So this is driven by -- I mean, if you could give some color on this, what is driving this incremental delta? And will this increase or remain at these levels? You've answered some of these before, but if you could give some color as to what are growth between emulsions and the putties and the lower-end baskets, basically?
Yes. So you heard my answer. What is the specific thing you're asking there?
So if you can give us the growth for emulsions for the year and the putties and construction chemicals that's been growing fast?
No, I won't be individually able to give you specific for each segment, separate growth and kind of zones. But what I can tell you is that, as I answered someone earlier saying that when you look at these are large kind of markets which are there. So if you look at a typical pyramid, you will always find that the pyramid is broader at the bottom end. And therefore, similarly, what really happens is that when you get at the upgradation segments and the value-added segments, there are fairly huge. To that extent, what I can tell you is that in all these areas, definitely, the growth has been pretty good in terms of what we have been able to achieve. And easily, we could say that it is more than double digits.
As there are no further questions, I now hand the conference over to Mr. Amit Syngle for closing comments.
Yes. Thank you so much for all coming here. I, again, once again, apologize for making you wait for so long. So -- but I'm sure we are looking forward to this pandemic coming to closure fast and looking at more normalcy in the business and economy as we kind of go forward. Thank you so much.
Thank you. Thank you, everyone.
Thank you.
Ladies and gentlemen, on behalf of Asian Paints Limited, that concludes this conference. Thank you all for joining us, and you may now all disconnect your lines.