Berger Paints India Ltd

NSE:BERGEPAINT

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Results Conference Call of Berger Paints India Limited hosted by Emkay Global Financial Services.

We have with us today Mr. Abhijit Roy, Managing Director and CEO; Mr. Kaushik Ghosh, Vice President and CFO; and Mr. Sujyoti Mukherjee, Vice President, Finance and Accounts. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Naman Bagrecha of Emkay Global Financial Services. Thank you, and over to you, sir.

[Naman Bagrecha, analyst]

Thank you, [ Vivin ]. Good evening, everyone. I would like to welcome the management and thank them for this opportunity.

I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.

[Sujyoti Mukherjee, executive]

Thank you, and a very warm welcome to Berger Paints India Limited earnings call of Q3 FY '23, and we really appreciate your participation. The management statement and the performance have already been uploaded in the website for your information.

Before I hand over to our MD and CEO, Mr. Abhijit Roy, I would like to note a small disclaimer that questions should only be restricted to the quarter only.

I now hand over to Mr. Abhijit Roy, our MD and CEO, for his comments on the performance.

[Abhijit Roy, executive]

Thank you, Sujyoti, and good evening to all of you. I will take you through quickly through the presentation first, and then look forward to the questions from your side.

I hope you have received this presentation well in time and have gone through it, but just for the sake of repeating whatever has been put up there. The decorative business showed decent growth in the quarter in spite of extended monsoon, very high base effect and the short festive season compared to the corresponding quarter last year. The growth progressively improved with a double-digit growth in December month, every month we had some growth. But in December, we had a double-digit growth.

Some mix impact on account of higher stocking of premium products by retailers on the back of steep price increases in the corresponding period last year and lower sale of exterior emulsion due to extended monsoon.

On a YTD basis, Decorative continued with healthy growth. If you look at the figures on a stand-alone basis, growth rate, this year's quarter 3, the volume growth was 6.6%. Last year, it was 11.2%, and compounded 3-year growth rate has been 15.3%, which is fairly healthy.

In terms of the value growth for the same quarter, this year, we had a 7.2% standalone value growth. 21.2% was the figure last year. And again, on a 3-year compounded basis, our growth rate has been a strong 17.2% in terms of value sales growth in -- for quarter 3.

If we look at the YTD figures, the YTD this quarter, so far, we have a volume sales growth of about 17%, which is -- and then last year, if you look at it, it was 27.5%, 3 years compounded is 15.9%.

In value sales term, 25.3% is this year's figure, 37.6% was last year, and 3 years compounded growth is 17.3%. So in terms of both volume, value, whether you look at quarterly or in terms of the YTD figure, the compounded growth is pretty strong. This quarter, it has been slightly on the lower side. And there are good reasons, which we explained at the initial stage. And that is why the growth rate has been at around 7.2%.

If you look at overall what has been happening in terms of network expansion. For the year, we have added 8,000 retail outlets and 4,300 Colorbank machines till date. We expect to close at about 6,000 Colorbank machines at the end of the year and maybe around 10,000-odd retail outlets, which is beyond the machine counters. We also had a few retailers of various other businesses that we have along with paint, and then those are non-machine counters, which we will have about 4,000 added in addition to the 6,000 Colorbank machine.

Construction chemicals segment registered strong growth in the quarter, and we expect to gain market share going by the industry growth trend so far. And we are reasonably confident that we will add to the market share this year.

In terms of new product launches, we introduced one product called Long Life 15, which comes with a 15-year warranty with a new type of technology. This is for the exterior wall coating. And we also introduced one coal tar-based solution for rising dampness in use for new construction. This is popular down south and used for basements of new construction.

On the industrial business side, GI and Auto business showed good growth in this quarter. Protective and infrastructure business continued its double-digit growth aided by infrastructure spending. We continue our leadership position in this particular business line. Further price increases were realized in the quarter.

And Powder Coatings business line had significant degrowth on account of lower sales to the fan industry. So this particular category, a large dependence is there on the fan, and there were some changes in rules in the fan industry, which has really impacted us. And we went badly negative in Powder Coatings this quarter, but things has revived. And January onwards, we are back to normalcy.

In terms of profitability we declined this quarter, mainly on account of 4 factors. The primary factor is, of course, the carrying stock, finished goods and raw material, which we were carrying of the prior period, which is at the high cost, due to capacity constraints which we had till we are now about to start the Sandila factory from the 6th of Feb. But till that point of time, we normally build up the stock just before the season.

So in March, we normally used to build up a stock. And in September, again, we did the same thing. So this time also, we had built up the stock in order to be able to service the market fully in the season period. This is a high-cost inventory. We anticipated a good festive season. Unfortunately, rains continued for some time. And then they didn't take off therefore to the extent that we would have loved. The inventory lasted throughout October, November, December. We got no benefit out of the raw material price drops, which have happened.

So that benefit is going to come only in the fourth quarter most of it, and almost all of it will start coming from only quarter 1 of next year, but we will get a significant benefit in Q4. But Q3 we got 0 benefit out of the RM price drop due to this reason. Mix impact on account of lower sales of exterior emulsions due to extended monsoon. Scale impact on overheads due to lower-than-anticipated growth in sales, and there was a little bit of mark-to-market impact of exchange depreciation. So all these 4 reasons combined to take it down to the level of minus 9.1 -- minus 9.4 this quarter.

And overall, on a YTD basis, though, we are still growing at about 15.5% this year. But this quarter has been sort of muted in terms of the profit growth. It's negative and largely due to, as I mentioned, the finished goods and raw material carrying cost of high-cost inventory.

Just on the profitability front, further softening of rutile, monomer and solvent prices have been observed. And that is likely to help us in quarter 4 and then going forward in quarter 1 onwards as well.

Commencement of commercial production in Sandila plant will also lead to lower inventory holding and working capital improvement. As I mentioned, we normally used to stock up because we had an issue as far as total capacity was concerned and our ability to service at the season time. And therefore, this will be taken care of. We are starting this from the 6th of February mentioned.

Mix improvement likely in quarter 4 on the back of increased sales of exterior wall coatings and waterproofing item, which has high gross margin. We are starting the Sandila factory in Uttar Pradesh estimated outlay was more than INR 1,000 crores. The installed capacity is 33,000 metric ton per month. Our existing capacity is about 62,000, 63,000. So that adds up another 33,000 so we become 95,000 metric tons per month. This would suffice our requirements for the time being. And therefore, it will help us, and we need not stock up and build our stock before the season anymore.

On the financial performance side, as I had mentioned, the standalone 7.2% with minus 9.4% PBDIT. PAT growth of minus 6%. YTD basis, we are far healthier, of course, at 25.3% in terms of sales growth and operating profit growth at 15.5% and PAT growth also at 15.5%.

Details of -- the raw material cost has gone up actually from 63.99% to 66.18%. This is what has impacted our operating profit. If you see or observe, that's the line which has created all the impact. Otherwise, we have kept all of the costs under control. And in fact, there's been some improvements in some of the other areas. But overall, we went negative in the operating profit side this quarter.

YTD basis, we are growing at about 25.3%. Again, there too, the material cost has actually gone up. But in spite of that, because of the strong sales growth, our operating profit growth is there at about 15.5%, which is a healthy growth. But we could have done better at the raw material to sales ratio being better.

Income from operations growth standalone over the last few quarters has been shown 24%, 53%, 96%, 26%, 21%, 7.3%, again 53.7%, 22.5%, 7.2%. So these are COVID affected. Sometimes it goes up, but we have been more or less hovering at a pretty steady figure. If you see most of them are in the 20s, 2 quarters, we are at the 7% range and then 2 aberrations at 96% and 53.7%.

On the gross margin, it had been rising steadily up to quarter 4 of '21 from 40.2% to 42.3%, 43.7% and 43.3%. And these were those years where those quarters where actually the RM prices had dropped to abnormally low levels so everyone benefited out of it.

Since then, it has -- the prices have been going up. We have been lagging behind in terms of passing on those price increases, especially on the industrial side, which has come down to about 37%, 38% level. This quarter, it has dropped to 33.8%, but I'm very confident that in Q4, it will again go back to the 37%, 38% level, which is where we have been steadily been there right through, till these raw material prices have dropped or it has risen. But we will go back to this 37%, 38% gross margin level.

Consolidated quarter 3 figures is 5.6%, which is lower than the 7.2% in the standalone, which we saw. And that's largely on account of 3 businesses, which had negative growth rates this quarter. One is Nepal, which went very badly down. It was impacted by two, three factors. One of them, of course, is the very high inflation there. Then there was this interest cost, which has risen substantially. And money flow had become a problem. We took a conscious call not to extend credit into the market too much. That did impact our sale, and we went negative. Therefore, substantial negative sales in Nepal. But we are back in January. They closed on the 15th actually. So that January 15 closure, we had a positive growth. So we're back on to a normalcy in Nepal, and things are okay now.

In Bolix, also, we had a negative quarter in Q3 largely because of the -- again, similar Ukraine war is affecting Poland quite a lot. The inflation has gone through the roof. Europe situation is not good. And therefore, we had a negative quarter in Poland. So the U.K. operations continue to grow, but Poland had a big negative, and therefore, overall, it was a negative from Bolix. So these 2 pulled it down. The impact has been about -- though STP and other company did well and grew well. But because of these 2 entities, the growth came down from 7.2% to 5.6%.

PBDIT, obviously, because of the sales, lower sales growth also got impacted. And it is minus 10.8% in this Q.

Consolidated, if you look at it, the sales growth is 23.6%, PBDIT at 13.6%.

Again, if you look at the reason for it, primarily raw material to sales going up. In the case of consolidated because of the value sales being slightly on the lower side as well, this impacts the other areas. And hence, there's a little bit of increase in the employee cost at margin.

YTD basis, we are at 23.6% growth in consolidated, and PBDIT growth of 13.6% is where we are as of December end '23. Again, if you look at over the quarters how -- we've been sharing more or less reflect the standalone performance, 24.9%, 49.5%, 93%, 27%, 20%, 8%, 53.4%, 20% and now at 5.6%.

I have already mentioned about the various performances of the subsidiaries. STP continued to grow well in sales and profit, and there's an all-around improvement there. Saboo Coatings had a marginal degrowth in the top line. Profitability improved on account of higher price realization and softening RM cost.

Nepal had a large degrowth as I mentioned, both in top line and profitability. And therefore, there was a problem as far as Nepal is concerned, but back to normalcy now.

Company's Polish subsidiary had a degrowth, both in top line and profitability impacted by the Ukraine war and high inflation. Company's joint venture Berger Nippon Paint Automotive Coatings had a strong improvement on top line and profitability, aided by the growth in auto sector and cost improvements, which they have been working on diligently.

Company's joint venture Berger Becker Coatings had a degrowth in top line and profitability. The outlook is brighter. Demand outlook looks good in the coming quarter, which is in Q4. Mix improvement likely in the coming quarter, supported by increased sale of exterior coating.

Industrial sales outlook remains strong on the back of upturn in auto sector and government spending in infrastructure. However, exchange depreciation on account of strong U.S. dollar may be a concern.

Thank you, and we can take the questions now.

[Operator]

[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama.

[Abneesh Roy, analyst]

My first question is on the gross margin and the inventory raw material, which you discussed. So yes, I take your point. Last 3 quarters, it has been stable in the 34% to 35% range in terms of gross margin. And yes, we have seen the correction in titanium dioxide definitely monomers and packaging costs COVID related, and Asian Paints saw almost 300 bps improvement quarter-on-quarter.

So wanted to understand when you mean capacity constraints led to inventory buildup, what exactly happened? And in the future, if similar thing happens, what improvement can prevent such a thing.

[Abhijit Roy, executive]

Right. Abneesh, so let me explain it you. Thanks for the question, though. So we normally -- we had an issue as far as the full capacity. So what happens in the paint industry is slightly seasonal. And in the seasonal months, the demand tends to move up substantially.

In nonseasonal months, however, sometimes it remains at a slightly lower level or a much lower level at time. So typically, in the months of April, September and October, the demand tends to move up beyond the normal features. Normally 100, it can become 140, 150 in these particular months. So what happens, therefore is, we, as a company, we did not have the full capacity to service this 140, 150.

So we used to stock up material in the month of March and in the month of September, August, September in order to service the seasonal months requirement. And then again, it will come down and then the factories will be able to give the material as is required month-on-month.

So this buildup resulted in some of these old priced material. In the month of July, August, the prices were on a much higher level. And that carried down right through till the month of December, which is why we did not get the advantage of the raw material price drops at all. And that is what we are likely to get in Q4, which is why it delayed the gross margin expansion, which should have happened this quarter.

[Abneesh Roy, analyst]

So, I understood. But in terms of, say, the best industry practice, say, in terms of forward covers or, say, in terms of better understanding because lot of these are global raw material. Do you think there is an area of improvement there? Or was it that you thought maybe crude will go further up? So that time, the call was taken, and calls can be wrong or right in hindsight only. So is that the issue?

Or there is an improvement area in terms of, say, forward and, say, long-term contracts, better understanding because clearly, the market leader saw an improvement in the same context. So they have been able to manage it better. So wanted to understand.

[Abhijit Roy, executive]

There are 2 things here. One, sometimes it works in your favor. Sometimes, it goes against you. It is very difficult to predict where the prices are going to drop or increase. Had it increased, we would have been a gainer. We would have actually shown a far better improvement than the market leader in this case, right?

We got those advantages when the prices were going up. And then when the prices goes down, you are on the reverse cycle, then you get caught on this issue. But we had no choice because now with the Lucknow plant coming up, we need not build up the stock at all. So that's an advantage, which we will have in terms of being able to play the game. After that, we need to take a call, whether we feel that if the prices are going to go up, we may still stock up, if the prices are going to go down.

It may be a wrong call or a right call because it's very difficult to predict these things. But we need not stock up out of compulsion. Now we had no choice but to stock up. And that -- if the prices drop because the prices did drop, we were sufferers unnecessarily this quarter.

[Abneesh Roy, analyst]

Sure. My second and last question is on the demand side. Yes, December double-digit growth, and I think market clearly also saw good recovery in December.

So yes, question essentially is would you be worried on the urban slowdown, which I think some of the other non-paint but discretionarily companies are pointing towards because there are job losses in IT sector, start-ups and all that. Was the high base which you are having on the last 2, 3 years. Most quarters, you have a high base.

So I'm not necessarily asking on Q4. But are you now a bit more sanguine that instead of a high single-digit or double-digit volume growth in the core paint, we should now start building a bit lower in terms of our numbers because of these 2 reasons.

[Abhijit Roy, executive]

No, I think we are quite confident. And comfortably, we can tell you that in quarter 4, we will possibly reasonably, unless, something goes wrong seriously, we should have a double-digit growth rate both in volume and value terms in Q4.

[Abneesh Roy, analyst]

Okay. And related question because now gross margins are improving. So on the discounting by market leader, earlier you have pointed out some quarters, there has been slightly more aggressive behavior. As of now, are you seeing that?

[Abhijit Roy, executive]

No. So there has been -- this was an aberration which was there, the previous year. And in Q2 and Q3, specifically there was an unusual aggression, but that is not there anymore. So we are back to normal rebating and normal structure as it existed earlier in the paint industry.

[Operator]

The next question is from the line of Avi Mehta from Macquarie.

[Avi Mehta, analyst]

I wanted to understand on the -- firstly, from a broader sense in the market scenario right now, we are going to see a huge capacity addition by many players. Would you -- given your experience, would you be worried about this essentially hurting profitability in the near term because you have a new player also putting significant capacity addition, whether it is in profitability or return profile how do you see this? And if you could kind of give us your thoughts on the same?

[Abhijit Roy, executive]

So Avi, thank you for asking this because this has been coming up for the last few quarters. Still they come in and start actually operating in the market, I think repeating the same question and the same answer possibly not going to make any difference.

So my view is -- has been that the capacity addition is not going to, by itself, result in a problem. It has to be seen and observed what type of price points they come with, what do they do? And this is only one addition which is coming. There are many players who have expressed an interest to come in. And I don't think that's very worrying for us.

Yes, one of these players were starting up large capacity. Now we need to see how it shapes up. As I have always said, in any industry for that matter, it's -- and especially in this category like paint, which is -- which has many other claimants of actually the sale happens through various means, right?

It is not only that you go direct to the consumer, do something, and you win the battle. There is this dealer, distributor, then you have the painter, then you have the interior decorator, then you have the consumer, and you have to get all of these aligned.

So I think it takes some time and effort. We are not unduly worried on this count. Yes, there will be competition. We expect that there will be some sort of effort from the party concerned to improve their sales and performance as well.

So it will impact us, but we are taking our own whatever measures we need to take from our side. And be better prepared for the battle ahead. We don't see any major changes happening. It will be some change, but that will be possibly, if we are able to become more efficient, go more closer to the customer, then I think we should be able to weather this very easily.

[Avi Mehta, analyst]

Okay. Got it, Abhijit. Second point was just on the near-term comment. You did allude towards confidence in fourth quarter, and I guess from -- take that point. But in Jan, are you also worried on your specific [ margin trends ]?

[Operator]

Mr. Mehta, I'm sorry to interrupt, sir. We are not able to hear you clearly.

[Abhijit Roy, executive]

Your voice is breaking, Avi.

[Avi Mehta, analyst]

I'm sorry. Is this better, sir?

[Abhijit Roy, executive]

Yes. Much better.

[Operator]

Yes. This is better.

[Avi Mehta, analyst]

Okay. Sir, there has been a very aggressive winter this time. And typically, when it becomes so cold, exterior paint demand does take a hit. Do you see that hurting not necessarily a Y-o-Y growth rate, but -- and the demand trends will continue to remain weak even in fourth quarter because of that, maybe from a pre-COVID level?

Because Y-o-Y, I you -- there is a base aspect that also works, which is making it harder to kind of get an understanding. So my question to you is from a 3-year CAGR or from a pre-COVID lens, do you see the demand trends broadly now moving towards lower trajectory probably around 12%, 13%-odd levels rather than the 15%, 17% plus...

[Abhijit Roy, executive]

Yes. So we look -- it's not only the winter. There's lots of other factors which come into play. The overall GDP growth, how is the economy looking like. All these factors combined and then the demand is very difficult to predict what is the -- but we are typically seeing that it is very closely linked to the GDP number.

It's about 1.5, 1.6x the GDP number, so if the overall economy does well, if suppose the winter is hard and as you were mentioning, first of all, that impacts the northern belt only. The east, the west and the south remains unaffected by harsh winter because there's really no winter in most parts of the world, and therefore, it doesn't matter so much.

It's only in the northern part of here, where the winter impacts substantially more. So yes, it will have some impact. But as I said, not as much as one would have shared. Base, of course, is one -- because last quarter base was much higher. This quarter base is more normalized. So on that base, normal base, we should have a decent growth. Whether it will be 12% or 14% or 15%, only time will say. We expect that we will continue to grow at a faster pace than the industry is what we want to do.

And for that, we have our own measures in place. We have our own plans in place, and we hope that we will execute it successfully.

[Avi Mehta, analyst]

Perfect. Perfect. And just a book keeping, could you give us the volume growth and decorative value growth in the quarter? That's all from my side.

[Abhijit Roy, executive]

Yes. So the -- I think I mentioned that, but just for repeating it, the volume growth that we had, the value growth is 7.2%. And the volume growth was 6.6% for the quarter.

[Operator]

[Operator Instructions] The next question is from the line of Jaykumar Doshi from Kotak.

[Jaykumar Doshi, analyst]

Sure. I've got a couple of questions. The first one is, it looks like in the last quarter, you started gaining some share, at least on a Y-o-Y basis, we were growing faster than the market leader and especially this quarter. So in what segments or in which markets do you see a visible market share gain? And is this trend looking sustainable?

[Abhijit Roy, executive]

Right. Yes, you are right that we have -- this quarter's growth rate over the market leader, the gap has been the highest in the last 17 quarters, in fact. So therefore, the growth has been good. It's been across most categories, I would say.

Little bit of improvement would have happened because I can't exactly pinpoint if there is any specific category, I don't know, frankly speaking. But I think, I presume that it will be across categories. I don't -- I haven't seen anything -- any specific category in which we have done exceptionally well.

But overall, we have grown at a faster clip. Whether it will be sustainable or not, well, time will say. We hope so because that's what we want to do, that we want to gain little bit of market share and keep going at that.

[Jaykumar Doshi, analyst]

Understood. Can you provide some color on how your sort of recent trends are in emulsion? And a few years ago, I mean, the Berger story was all about improving product mix, and then product mix improvement translates into gross margin improvement and profitability. We don't hear much about it anymore. Perhaps the focus has shifted to [ Grasim ] and other things. But can you just provide some color on how you are seeing those trends?

[Abhijit Roy, executive]

Yes. Yes, that's a good question. In fact, the focus is still there in order to improve the mix because that's something which we have to keep working on. There is still some way to go.

As far as the luxury category is concerned, we are a relatively weaker player there. We are present in a much stronger way in the premium luxury category, which is midway between the premium and the luxury category.

In that, we have 2 very strong brands called Easy Clean and Anti Dust. And they continue to grow in spite of the intensification of competition there.

But in luxury category, we wish we can grow faster. In the exterior luxury category, we are doing much better. In WeatherCoat Long Life brand, we are doing relatively much better. In Silk, which is our interior luxury, we can do better than what we are doing as of now. This is as far as the emulsion is concerned. The lower end emulsion, which is Bison emulsion and Walmasta, that continues to grow at a decent clip.

So that's not something which is anything exceptional has happened. It grows with the market. As much as the market grows, this category also grows. So this is as far as the emulsions are concerned.

I think overall, also in the same space, if you look at it, the waterproofing segment is also a relatively profitable segment. And that category, we are doing quite well, and that adds up to the profitability to some extent. Again, overall, this quarter was impacted, but I think going forward, you will see a restoration of the gross margins level at the original levels where we were.

[Jaykumar Doshi, analyst]

Just one final one on that. Look, our understanding is that you've not been very aggressive on selling putty. And yet, when I look at your numbers, the gap between volume and value is not any different from the market leader. So -- and when I -- I mean, there is at least, 7%, 8% pricing increase on a Y-o-Y basis in December quarter. So what explains this? Hello?

[Abhijit Roy, executive]

Yes, yes, yes.

[Jaykumar Doshi, analyst]

I'm trying to understand. I would have expected...

[Abhijit Roy, executive]

I've heard your question, Jay. And let me explain. Actually, there was a 3.8% approximate increase in the price -- net price for the company per se. Because I can't give you the exact decorative figure or the industrial figure, but the actual figure was only 3.8% increase, which we should have got.

Now instead of that, we ended up getting about 0.6%, 0.7%. There were 2 reasons for this. One, the exterior emulsion category, which is quite profitable, has a good margin. Unfortunately, in quarter 3, again, did not do well because of the prolonged rain, monsoon, which went on till 20th of October, almost.

And then the season ended because the Diwali was early, and so we did not get the impact that we should have got. On the other hand, last year, there were price increases on exactly the same products, the more profitable products.

The bases were much higher. So we suffered a double whammy in terms of the rains impacting the sales, on top of it, the base which is higher on these products because the price increases happened primarily on these products in last quarter. So as a result of these 2, the exterior percentage, exterior wall coating percentage came down. So this impacted. Overall gap got reduced because of this. That's one reason for us.

The other, of course, the industrial, we could not pass on fully the price increases. It keeps impacting our overall profitability. Though we assisted consistent with our effort, we got some towards December. So that will impact us in this quarter. So this is -- these are the 2 things which would have impacted.

[Jaykumar Doshi, analyst]

And the disclosures in the presentation on volume, value standalone, it's essentially decorative business, right? Or is it at a standalone level? It also increasing in...

[Abhijit Roy, executive]

This is standalone basis, total.

[Jaykumar Doshi, analyst]

So it has included some industrial component or what...

[Abhijit Roy, executive]

It includes everything. It includes industrial as well.

[Operator]

[Operator Instructions] The next question is from the line of Aniruddha Joshi from ICICI.

[Aniruddha Joshi, analyst]

Yes. Sir, where are you seeing the growth higher in terms of rural, urban, east, west, north, south? Any region where we are seeing the higher growth and also probably we would have gained some share? So have we gained share in any part of India? And also around past 3 to 4 quarters, there are some loss of market share in North India. So has Berger regained that market share, too? Yes.

[Abhijit Roy, executive]

Right. So coming to your first question, where are we growing? We are growing across almost all regions. On a YTD basis if you look at it, it's more or less across all regions. But north, it still remains a bit of a concern for us. It's been mainly in east, west and south.

Well, we were relatively weaker in the west and the south. So any performance there on a lower base, the growth rate seems to be on the higher side. So that way, the gains would have been higher in those locations.

So -- and east has been consistently growing. We have a strong presence there, and we grow at a reasonably good pace. So not much of a problem as far as east is concerned.

North, in certain pockets, we are doing well. In certain other pockets, we could have done much better. We are getting our house in order in that -- in those few states where we aren't doing all that great. One of them, we have restored and hence, started performing reasonably well now already.

And the other one, the work is in progress. And we are hoping that we should be able to streamline that state as well. And then we should have a far better growth in the north as well.

[Aniruddha Joshi, analyst]

Okay. The last question, can you share the indicative breakup across the subsegments of paint and putty as well as quarter booking? The indicative number for Q3 or 9 months should be okay.

[Abhijit Roy, executive]

Listen, I don't think I have those numbers, and I if I can share with you at this point of time. We -- for the 9 months, I have no clue. But normally, as far as the industry is concerned, we have a fairly representative -- if you know the industry volumes or shares, this should be very close to those shares except that in our case, maybe the luxury category will be slightly lower than the industry or the leader. And it will be more oriented towards the premium and economy side.

[Aniruddha Joshi, analyst]

Okay. And lastly, if we consider the putty, water proofing, all these products put together, whether it will be upwards of 15% of sales in standalone numbers?

[Abhijit Roy, executive]

It's very difficult to say exactly what is the percentage. But I can assure you that as far as putty growth is concerned, since that might be one of the questions you would like to ask. It has been a normal growth rate, slightly above the normal growth rate. So that's as far as putty is concerned.

Waterproofing growth rate in certain segments, we have done much better in terms of the growth rate there. So that's how I would place. Exact percentage, what they are, I can't comment at this stage.

[Operator]

The next question is from the line of Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi, analyst]

Yes. Quickly, couple of questions. When I look at the trend in the market and when we speak to channel what we are seeing specially in last quarter, there was a lot of down trading in the low end or economy emulsion. Now is that the case which is also visible in your numbers? And that's why the mix impact is also a little higher side?

[Abhijit Roy, executive]

So I explained this that actually what you are seeing, it's not a down trading as such because the exterior luxury emulsion and the premium emulsion category, which actually sells in this quarter. Typically, it is a very good sale because after the monsoon, since exterior painting happens, and it's comfortable to paint as well. The season is very good for exterior coating, did not materialize this year to that extent.

So naturally, the other products kept selling. But this particular category sold less. And as a result of that, you will see that the value realization per liter came down in this particular quarter. So that's how it happened.

It's not as if the market has shifted or a lot of down trading is happening. Those who can afford in paint typically they go for the right kind of products. They don't mind buying the luxury product because at the end of the day, they want to put up the better quality paint because labor cost is almost 50%, 60%.

So I don't think people will tend to move downward just because some paint cost has moved from, say, INR 4 to INR 3.50. So that's not how the shift happens for the paint part of it.

It is the labor part of it, which is a bulk part 50% to 60% in Bombay, it maybe even 70%. So it doesn't matter so much as far as the paint cost is concerned. So there is no major downshift which happens. We have never seen that trend happening.

Yes, there is some shift which can happen because economically, if people decided that okay, instead of going for the luxury, I might go for premium luxury or instead of premium luxury, I might go for the premium. That much of marginal shift might happen, but it doesn't happen, as if I was actually thinking of luxury, now I start buying the economy category. It never happens like that.

[Shirish Pardeshi, analyst]

Okay. That's helpful. My second question is on the project business. Of late, we're seeing the project business is taking sharp momentum. And that's where the local players are losing maybe on the pricing front because the builders' lobby is also looking for the steady and maybe quality of the paints, which is there. This is visible at least when we speak to the channel partners. So in your case, if you can give some quantitative and qualitative comments what the business means for you in the near term?

[Abhijit Roy, executive]

Yes. So the project business has been growing at a decent clip of late. And that's largely because many of these buildings are coming up for completion, and they need painting to be done. And so that is happening now. And growth rate has been pretty steady.

I won't say it's buoyant as such, but it's been slightly higher than the normal retail. So that's -- if you look at it, yes, it's going at a slightly higher clip. It's about 8% to 10% in terms of our total sales. So it's not going to create that much of a huge impact unless it starts really growing at a fantastic pace, which isn't the case as of now.

[Shirish Pardeshi, analyst]

Okay. My last question is on the network expansion. You mentioned that you will reach about plus 10,000 stores. Now when do you think these 10,000 stores will start contributing meaningfully to your volume and value?

I mean, is there any timeline that if the scale up will happen within 6 months' time or maybe a year time? And when you add the network, where do you start? I mean, is it that you start with exterior or is it you start with the emulsions or you start with some low-end products?

[Abhijit Roy, executive]

Right. So we are adding 10,000, of which 6,000 are machine counters and the 4,000 are non-machine counters. In the non-machine counters, typically, it's the basic products we sell, enamel, distemper, primer, some amount of putty, little bit of white emulsion. They take stainers and stain it. So that's how it happens. Typically, smaller shops who doesn't want to invest in the machine at this stage and can become machine taker at a later date.

So that's about 4,000. And these will -- these are small value transactions which happen, but some of them morph into machine dealers at a later date. The 6,000 machines that we plan to install, at least 4,300-odd we have already installed.

These are good counters. They start from day 1 across the basic -- it depends on location to location where you are positioned. If it is UP and Bihar, it behaves differently. If it is Kerala it behaves totally differently. They use very high-end premium luxury paint as well.

So it depends on the state where we are, right? But mostly, whatever is the full range of products we sell in those states, these machine counters will start off with this full range. That is how it happens. In our case also, this is the same trend.

[Shirish Pardeshi, analyst]

So let me harp little more on that to get a little more depth. So to reach, say, 150 KL to 200 KL per month for these machine outlets, it's sufficient for you to say 6 to 8 months' time or they start with a month first itself?

[Abhijit Roy, executive]

Do you mean 150 to 200 liters or KL -- what are you saying? I didn't understand.

[Shirish Pardeshi, analyst]

Liter, sorry.

[Abhijit Roy, executive]

Liter, right? So they start with -- probably start slow and depends on the size of the dealer counter as well, right? So if it is a big dealer counter in which we have managed to enter, we may start with a much higher volume right at the beginning, right?

If it is a smaller dealer, he will start with a smaller volume. So it depends on what type of dealer you have got into and what is his profile. If he's got a very good footfall, if he's got a good contractor base, if he's got architect connections, he may start with a slightly higher volume.

It also depends on how he places you in his counter. It sometimes maybe that you are his second best, and he feels that he needs a good company and he may give you due importance.

Sometimes he you might be the fourth entrant in his counter, in which case, he'll give you only a little bit of space, maybe 1 or 2 products only which he will sell, which he likes. So it depends on lot of these factors. It's very difficult to quantify exactly what will happen, and this is what is going to repeat itself in across counters. It varies from counter to counter.

[Operator]

[Operator Instructions] The next question is from the line of Ajay Thakur from Anand Rathi Securities.

[Ajay Thakur, analyst]

Just had 2 questions. One was on the industrial and auto paint segment. Just wanted to understand how the growth has been in both these segments? And also can you just give some color in terms of the margin performance in both these segment?

I understand that obviously you have been sitting on a high-cost inventory. But if you were to adjust for that, can we expect a margin of this segment actually being improved to at least in your pre-COVID level kind of margins?

[Abhijit Roy, executive]

Yes. So as far as the industrial business, we have 3 broad lines: automotive and general industries, protective coatings and powder coatings. So the powder coating segment, as I mentioned, is degrowing in our case, need not be for others. But for us, because we are slightly dependent on the fan industry for our sales in powder coatings and that there were some issues with the fan. They were changing some norms in star ratings who are coming in. They have stopped production for almost 2 months. And therefore, the sales have been impacted. The profit in the case of powder coatings remains stable.

As far as protective coatings is concerned, the sales growth has been good. We are the leader there. Infrastructure spends are very high now by the government, also in this budget as well, CapEx spend has gone up substantially.

So we are looking forward to this good growth continuing in the future as -- the margin, however, is a bit squeezed here. It hasn't gone back to the COVID days. Even if we adjust for the raw material and then finished goods stock, which we had carried forward, it will still be marginally below the pre-COVID period because the full extent of the raw material price increases have not been passed on in the industrial section, whether it is auto, GI or protective coating.

[Ajay Thakur, analyst]

Okay. And sir, secondly, just wanted to understand on the growth, how it has been in tier 1 versus the tier 2, tier 3 towns, some color on that front?

[Abhijit Roy, executive]

We've been growing reasonably well in both these markets so far, both the urban markets. We don't look at it in -- from there we look at urban and nonurban, in all our depot towns we consider as urban, including the major city. So from that perspective, more or less the growth rates have been on equal terms. No great significant difference that we could see between the 2.

[Operator]

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

[Abhijit Roy, executive]

Thank you for -- all of you for coming and participating in this session. I hope you were -- whatever questions you had, we were able to answer those satisfactorily.

Wish you all a very good health. And meet you again in the next quarter ahead. Thank you.

[Operator]

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.