Kansai Nerolac Paints Ltd
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Kansai Nerolac Paints Ltd
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Ladies and gentlemen, good day, and welcome to Kansai Nerolac Paints Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir.
Yes. Thanks, Diksha. On behalf of ICICI Securities, we welcome you all to Kansai Nerolac Paints Limited Q4 FY '22 Results Conference Call. We have with us today Mr. Anuj Jain, Managing Director; Mr. Prashant Pai, Director, Finance; and Mr. Jason Gonsalves, Director, Corporate Training, IT and Materials.
This is first call of Mr. Anuj Jain after he becoming Managing Director, and we are glad to host him for his first call as Managing Director. So heartiest congratulations to you, sir, and over to you.
Thank you. Thank you so much for your wishes, many thanks. Good morning, everyone, namaskar. Thanks for joining this call, which is for quarter 4 of financial year 2021 and '22. You all have seen the results, but I'll give some commentary, and then we'll come to the question-and-answers.
So during quarter 4, we recorded a top line growth of 4.2%. And for the year, the growth was 24.7%, top line. If you look at only for the quarter, decorative value growth was almost flat and volume growth was negative. During the year, we had some loss of market share in decorative and we gained market share in industrial segment.
Decorative, where we had a loss of share, we feel that reduction in marketing and promotion expenditure over the last 2 years has affected our market share. In terms of other highlights of the quarter, it continued to witness inflationary pressures along with the volatility in crude and exchange rates. And overall inflation, you all are aware, every quarter, we are talking about it, but it has still remained high and unprecedented rate during the year.
Now in the situation, as we spoke about for the quarter 4 and for the annual , where we had a problem related to our margins in industrial where the inflation is relatively higher than if we compare with the decorative and also like in decorative the more price increases taken, while industrial, despite the price increase, we are not able to mitigate the inflation.
I think clearly, we have 2 tasks in our hands. So one, in terms of Industrial that what do we do? So our focus in Industrial, because we have a good strength there and whatever scenario was there still we are able to increase our market share. So we want to still continue to increase market share in...
Hello?
Hello? Yes?
Sorry to interrupt the line for Mr. [ Nimith ] was unmuted. You may go ahead, sir, now.
Okay. Okay. So I was saying that clearly, we have 2 tasks in hand. The one that in industrial, which is our strength area, we have a good market share, we are on the increasing trend. So we'd like to continue our focus in the Industrial to see that how much better we can achieve. But I think the major problem which we talk about that how do we get margins in Industrial. So one obviously effort is getting the price increase, which last year also, we have taken a good price increase, but it's still not able to mitigate the inflation.
So one that we'll continue to ask for more price increase. But other than that, what can we do so that we are able to better our margins? So one action what we are doing in automotive extending technologically superior products such as monocoat medium solid, which we have started introducing to more number of customers because there, we can get a little better margins.
In the other nonauto part, which is performance coating business, we are increasing our focus towards high-technology premium range of products. So there again relatively, the margins are better. And the lower-end items where the margins are severely impacted, there we'll play low and soft.
In coil coatings, which we introduced a few years back, and there again, the margins are tremendously under pressure. We have been able to build now products with the better technology. And the Appliance segment where we were not present but we got the approvals and we've started supplying in the Appliance segment where the contributions are better.
Even in Powder Coating, where we are market leaders, and we have a good share in the popular segment and economic segments, but our share is relatively lower in the premium segment and the functional coatings. So that's another area of focus, where we have come up with some new products in the functional coatings, and we are increasing our focus in the premium range.
So these are some of the steps which we have taken in Industrial, and we'll be pursuing this step to see that how do we -- to what extent we can better our margin.
Coming to Decorative. We spoke in one of the conferences, I think 2 quarters back about our new strategy and you know what are things we are doing. So I'd like to give you some brief about that. And we started rolling it out. We have rolled out in the last few months.
So one is this new brand expression, which is about Nerolac Paints Plus. Paint Plus is all about differentiated products which are available in the market at a differentiated price point. These are the products with additional functional benefits. So one of the products which we started last year was Beauty Gold Washable. But now recently, we have added Mica Marble Sheen and Stretch. We are on air with the campaign of Mica Marble Sheen and Stretch.
We are launching -- we have launched last month Impression Kashmir with PU enamel, high-end exterior is in pipeline and high-end water proofing. So these are some of the products which we are launching. So a lot of new products are coming out in the market. And our focus would remain to add more products in the premium and the super premium categories and some of the products which I mentioned belong to this category.
So having said that Paint Plus and the differentiated products, now we need to communicate to the market consumers that we have these differentiated products. So we are increasing our communication through advertising and digital marketing. On -- the communication will be focused on Paint Plus, which is a differentiated expression.
Japanese technology because we are different in that regard and the jingle, which is very, very attached or unique to Nerolac. So these are some of the areas which give us the differentiation from the competition. So we'll focus on that. And for the communication, as I said, that reduction in marketing expenditure has impacted us. So we'll keep a share of voice, which is equal or better than our market share. At least the share of voice would remain and whatever the market intensity changes accordingly our share of voice that we are targeting a share of voice, it will remain.
The next step is that augmenting the market development structure to generate leads from sites and influencers because one of our analysis is that in the market from the dealers, when we check they are ready to increase the sales and to increase the demand. So one part of the demand is related to consumer. The other is that market development by generating more leads which increase the business with the influencers also.
So to that extent, we have created the team and expanding it rapidly in the market to create demand. We have had our influencer program, but we started going aggressive on that with the acceptance of the digital Pragati app. Pragati is the name of our app, which we introduced, and it took some time for the adoption of digital. But I think now we are at the maturity stage, closer to the maturity state. And it offers the instant benefit and the disbursement is fastest in the industry is what we have been able to establish in the last few months, and we'll try to leverage and encash on this advantage.
With this on track, in fact, we have started tracking the secondary sales from the dealer counters now, which we were not doing in the past, so that we know that when we sell how much is liquidated and therefore, it gives us advantage in terms of how much further we can sell.
In that sense, related to this Paint Plus and the communication and the market development with all these activities, now we want to see that how much better we can increase our reach in terms of distribution. And therefore, we started pressing some dedicated team to open the direct distribution and new distribution models, which I think in one of the conference I spoke about that we are launching preferred model and some distributor models that also we've started.
Next part of our planning is the institutional business. So in the project business, we were weak. And today, there are about 50 towns where the project business is quite good and growing faster than the retail. And that contributed almost 70%, 80% of the total market. So we are expanding our reach. We have expanded our reach, and we are reaching to all these towns where the institutional business is good with the team -- right team available, sales and technical team available to approach this segment. In terms of new businesses, construction chemicals, wood and partly adhesives, where we were the late entrant, but that whatever work we have done last 1, 1.5 years, now we have been able to caught up and our range is complete in construction chemicals and wood also. We had tied up with ICRO and that we had gone for the different arrangement, which we started rolling out from the month of March and April. So now we are fully set. And we believe that now our growth would be definitely in line or better, and we are targeting sales of more than 5% through these new businesses.
In economic categories, where, in fact, we had, in the past, introduced Soldier brand. But then in the entire industry, there are a lot of new products have been introduced in the economy range and in the main brand, and we also have completed our complete range as a part of the economy.
In economy, now we have the range under Nerolac and we have a range under Soldier. And that basically, we are going to leverage to see that what shift is happening from unorganized to organized, we are able to encash on that. The advantage here would be that there is a range under Nerolac, and range under Soldier and Soldier that we are targeting absolutely additional distribution, a different distribution, and that can give us the advantage.
We'll continue to take price increase wherever required to mitigate inflation to that extent in the solvent base. After the crude oil prices have gone up, there is a more requirement of price increase which we have announced in the month of April on the price increase on the solvent base, we initiated the price increase in the market.
And one more thing to add in Decorative is that we have ventured into services with 5 days painting proposition. So services have been existing in the industry for many years. But I think somewhere we started around 2000, at that time we estimated that services will contribute good to the overall business in 10 years' time. But maybe that time it has not picked up. But in the current situation or the changing behaviors related to the pandemic, we do see that in the future this business will pick up. So we had made our preparation and we launched -- piloted and launched these services and we'll be extending this going forward.
So coming to the other point, our focus on ESG would remain. In fact, we have done a lot of activities and we have been acknowledged by a lot of bodies that we are doing a good work on the ESG, which we would like to continue our focus upon. And there are initiatives in terms of how do we enhance our service levels, which we have taken, especially for the weaker market, that also work will continue.
Coming to the financials. As I said, the growth is 4.2% for the quarter over corresponding quarter of the previous year. And for the year, it is 24.7%. When we look at EBITDA, it is down by 59.9% in the quarter 4. And for the year, the EBITDA had degrowth of 23.3% and during the recent Board meeting, Board has recommended a final dividend of 100%, which makes a total to 225% against 525% over last year, but that included 200% as a special dividend, which we have given in the last year. So this is from my side, and now I welcome all of you for the questions you have in your mind.
[Operator Instructions] We take the first question from the line of Varun Singh from IDBI Capital.
Sir, my first question is on gross margin and raw material inflation, which is out there into the system. So sir, how much of price hike you think we must take going forward to offset the inflation. So maybe in this quarter, the quantum of price that we have already taken, if you can give some guidance or understanding around that?
Yes. Thank you. So if I look at, say, 2 parts of the business, in Decorative last year, we have taken approximately 21% price increase. With that increase mostly if you look at water-based emulsions and water-based products, more or less it is covered, maybe another 1% or 2% will suffice. The problem is in the solvent because the crude oil price has gone up substantially.
So there's a lot of inflation in the solvent-based products. And there, we need a higher price increase. And we have taken already a price increase of -- in the range of, say, 3% for the solvent-based items and we may need more, but we'll have to wait and watch because in today's situation, very difficult to forecast that where the crude prices would settle.
But if it settles, say, about $110 or $105 or $100 and $95 various scenarios, so I think we'll have to wait and see that how do we tweak our pricing related to this trend. In the Industrial category, where the solvent contribution, obviously, the Industrial category is mostly dependent on the solvent, there last year, we have taken in the range of around 18%, but inflation is very high. So definitely, we need a more price increase.
But having said that, it may not be possible to get the entire price increase. So we have started approaching our customers once again because the automotive industry also has got impacted. So as of now we are trying to see that how do we create a win-win and to what that extent we are able to take. And we hope that in next 1 or 2 quarters, situation ease out a little bit, but difficult to talk the numbers in case of Industrial, but that will be the endeavor.
Right. Sir, actually, where I was coming from is currently our gross margin is rock bottom. I mean if we look at over the last 9, 10-odd years, so despite the significant amount of price hike, which is -- which we have already taken in FY '22 and what we intend to take also. So what kind of margin which would be building in our estimates with regards to a steady state kind of a margin? I understand that raw material situation is very volatile as well as in auto also there is a large degree of uncertainty. But if you can give us some understanding with regard to what -- despite the price hike, what should be an expected level of gross margin at business level? And also if you can give understanding of what percentage of our revenue is currently from the auto business?
So as I said, I'll not quote the number. But as you rightly said that our margins are already on the lower side. So to that extent, one can expect better definitely in decorative. But industrial, one has to wait and watch. Maybe that industrial, as we assume in the short term, which is say 1 or 2 quarters, there may be more pressure, maybe decorative will be able to compensate that. But since we are in the lower range, it is expected to be better. And Decorative and Industrial breakup is...
55, 45.
55% is Decorative and 45% is Industrial.
And just one last question. On -- sir, on waterproofing side of the business, you wish to make any commentary with regard to how -- I mean what we are doing incrementally and how we want to drive growth into this category?
Yes. So we have created this as a separate business segment and complete range we have available. And so -- we have a range available in the retail segment now, we have a range available in the project segment now. And there are some special categories also which we are going to -- which we are planning to introduce now.
And this is treated as a separate business unit. We have created a team in the market. And retail, we got a good traction. And that's why I said that in these new businesses, construction chemical and wood finishes, we are all set now. And we expect that our growth would be further better to the market, and we are expecting around more than 5% [ sales ] to come from these businesses.
In how much time, more than 5%?
So I'm saying that in a year time.
We take the next question from the line of Abneesh Roy from Edelweiss.
My first question is on your comment that you initiated price hike in April. So I wanted to understand this. Normally, in consumption, market leader generally takes the first price hike. So in the last, say, 1, 1.5 year when paint industry has seen multiple hikes, how many times you would have been the first player to take hike and industry has taken almost 20%, 22% hike. Is there any net hike, which is different from this number. So has rebating incentives increased, so net hike will be lower without taking mix into consideration?
Your first question that -- don't exactly remember, but I think about 3x, we have initiated the price increase in advance. And this time also, the solvent, we have initiated price increase. And so this first part. The second part, as you said, is scheming. Scheming in the industry, if you see the reports of all the companies last 2, 3 years, continuously the schemes have gone up.
Our schemes have not gone up to that extent. But for the tire industry, the schemes have gone up. But overall price increase in Decorative was around 21%. But when you look at the scheme, it would be 1% here or there. So only that could be a difference. Otherwise, the pricing increase was 21%, schemes have gone up and around 2x to 3x we have initiated the price increase before.
So just 1 follow-up there. So you mentioned you have initiated price hikes 2, 3 times and your schemes have gone up much lesser than some of the competitors. So doesn't that impact market share? I know it impacts, but why would you do that given you are currently #3 player and you recognize that the market share is a challenge. So why still do that?
So I agree that is what I commented upon. It does impact. But as I said that our mix of the business to better extent, we are uniquely placed that where our 45% business is coming from the Industrial. So it was a kind of balancing approach, which we did.
And as I said in my comment, we do acknowledge and agree that this impacts the price increase, and therefore, we need to bring some changes. But having said that, as I said that when we look at April when we initiated because the solvent prices are going up, and someone has to initiate the price increase in the market.
There are sometimes situations where you -- you know that it's a matter of time whether it is today or tomorrow the price increase is going to come, so why not increase the prices. But suppose if the industry does not increase the prices, then you have to probably come back with your rebating or -- either you have to compensate with the other items, which are like water-based items which are more profitable or you have to compensate it with the rebating that understanding is there. And that is what we are looking at as of now. But when the inflation is so high and you are clear that price increase is going to happen then you can always take the decision to initiate it before.
Sir, my second question is on the EV part of the customer base. So you have a very strong relationship in most of the auto segments because of the Japanese parentage, et cetera. But now EVs, we are seeing a lot of start-ups entering. So how you are ensuring that your lion's market share in different parts of auto paints that remains protected here. So do you see a big risk here from a 5, 7 years' perspective?
No. So actually, all these start-ups who are coming, most of these people are planning to paint it through the ancillaries. And most of the ancillaries that whom they are connected with they are our customers. So we are quite strongly placed maybe 1 or 2 new start-ups where -- it is not that there also we have got the entry. So we are quite as good as I would say that in the normal 2-wheeler or 3-wheeler, we're equally placed in the EV also.
Okay. And last quick question on the noncrude oil raw material, which is, say, around 60%, what would be your sense on supply-demand equation FY '23? So any outlook on pricing you can share? I understand these are very difficult things to comment. But on the supply demand, are things now turning more favorable?
I would [ ask ] Jason to answer this question.
So on supply/demand, I think things are still not favorable. So there is lot of turmoil in the supply markets. So at least for the coming 1 or 2 quarters, this situation will continue. After that, we'll have to wait and watch.
We take the next question from the line of Amnish Aggarwal from Prabhudas Lilladher.
Am I audible?
Yes.
Yes. Sir, my question is basically that in the decorative side also, I think we have lost some 100 bps-plus kind of a market share. So what has led to a loss of market share over there and what steps we are taking to regain the lost market share? That is question number one. And secondly, if you can share with us what is the breakup of volume growth for the company in this quarter on the Decorative as well as on the Industrial side?
So Decorative, market share loss depends on -- because generally what happens is that there are 4, 5 listed companies. So whether you take based on that or you can take all the companies. But I think your guess is, okay, we have lost share, I think, in the last 2 years. And in my commentary, if you have heard that is what I mentioned, the steps I would repeat in a summarized manner. So one is that this new brand expression of Paint Plus, which gets extended to the differentiated products, and we are launching a lot of new products, which are different in their proposition and the price point and we'll be adding more product.
Then increasing our communication through advertising and digital marketing. Our focus will be on the Paint Plus differentiated product, Japanese technology, which is very unique to us and jingle, which is, again, very unique to us. Our share of voice will maintain a threshold share of voice, we will not reduce it.
We are augmenting this activity with the marketing development structure. It's a complete team structure, which is basically to generate leads from sites and the influencers. And our influencer program, we have gone very aggressive with the fastest disbursement in the industry. We've started tracking secondary sales.
In distribution, we now have dedicated team to open more distribution and the new distribution model. The project institutional business where we were weak, we've expanded our reach to almost 50, 60 towns, which contribute quite large to the institutional business.
And in the economy range also we have the shift happening from the unorganized to the organized, there we have completed our range in Nerolac and Soldier base. So these are by and large and also we have ventured into the service proposition with the differentiated services of 5 days there. So these are some of the actions which we have taken, and we are now focusing on the execution of these actions to see that how do we arrest the decline in this market share.
Okay. Sir. And on the same line, do you see to execute this strategy, any, you can say, uptick in the ad spend in the coming, say, quarters?
Yes.
So ad spend will go up from the normal levels?
Yes.
Okay. And secondly, sir, if we look at our balance sheet, there is a sharp increase in the inventory. So is it the finished goods inventory or predominantly due to raw material?
Prashant will answer.
Yes, it's primarily because you saw the inflation which has happened during there is pretty high. So that has been built up, automatically inventory has gone up. There's -- low volume-wise, there's no major increase in the inventory, is primarily built up by inflation.
Mainly it is because of the inflation which is very high and that is reflecting in the inventory now.
Okay. And sir, volume growth? And if you can share the breakup that how was it, say between auto and...
Generally, we don't share on the industrial part, but in Decorative, as I said, the value growth is flat and volume growth is negative around 7%, 8%. That volume growth -- just to clarify, that minus figure was for the quarter, I was talking about, only for the quarter 4.
We take the next question from the line of Amit Purohit from Elara Capital.
Sir, just on the -- your strategy of regaining market shares from here on. What would be the easier thing to do, I mean, for you to gain market share? Would these schemes would kind of help you to gain a faster market share? Or do you think that significant increase on above the line will also be required? I just want to understand we used to spend close to about 6% a few years back.
So is that the -- are we coming back to that kind of a scenario? Or do you think that largely it will be spends on schemes? And second question is more on the data point in terms of your touch points currently and how much we have added in the last 1 year in terms of data touch points?
First question, in terms of -- see, it's a both kind of combination because when it comes to the schemes in the market, we need to be competitive. So we have a relative, for example, depending on the brand spend, if there is an x percentage being spent, that what should be my spend just to maintain the ROI for the customers and the dealer.
So I think that directly correlated to what market is spending. But for the longer period of medium-term to longer period, we believe that the growth -- sustainable growth comes from the marketing activities. And when you're giving a past reference that time, obviously, we had gone very aggressive, and we have been able to increase our mind share and which we are still a bit -- our mind share is still good. We are still having a good mind share.
So our objective is just to keep it, maintain it. And probably last 2 years, our share of voice has come down far lower than what market share we have. So it may not be that aggression what you have seen in the past related to our marketing or especially the communication or visibility. But definitely, we are targeting a particular share of voice which we'll be maintaining. So tomorrow, if the competition intensity goes up, so my target would be share of voice and to that extent, it may increase the marketing with that.
Sure. And my second on that touch points, sorry, if you can highlight what is the total touch points in terms of dealer network?
So approximately 26,000 to 27,000. And generally, the rate of growth is around 8% to 10%, we have added in a year.
And this will all have tinting machines or...
No. So 80%, 85% of that would have a tinting machine.
We take the next question from the line of [indiscernible] from LIC Mutual Fund.
Sir, just 1 question mainly. Could you throw your views on the outlook on the Auto segment? And what is the private situation in the Auto segment?
What is the? What is the second question?
Private situation in the Auto segment, how much is pending, how much...
Outlook is -- passenger vehicle outlook is good because last year also, the demand was there, but supply chain shortages were there because of these chips. But gradually, I think there's an improvement. And -- so as quarter-by-quarter, the auto industry is expecting in the passenger vehicle, it will be good and pent-up demand is there. So I think that outlook is good.
In 2-wheeler last year, because of the rural it was under stress and production growth was negative. And maybe for 1 or 2 quarters, it may still continue. But based on whatever we are seeing, the agri numbers, the way it has gone up and also depending on the monsoon, which is expected to be normal.
So I think maybe post monsoon, the rural demand may pick up. And if we consider that, then in comparison to last year, even the 2-wheeler, we are expecting a positive growth. In price hikes, last year, we have taken good price hike because in the stress situation, if you get, say 18% price increase, which is good. But it is not good in the sense that it has not been able to mitigate the inflation. So we have started approaching because there, we cannot take straight away the price increase. We have to go and discuss customer by customer, which we are doing that, and we understand it is difficult, but we'll be able to get something how much it depends that we have just started focusing on that. And we'll have to see that how much we are getting from the industrial as well.
Sir, at current prices, how much price hike will be required?
Prashant, do you want to answer this question?
See, it's a very difficult thing to answer because the things are not stable yet, right? So how much do you get -- you know the crude oil, it's always very, very volatile today, it has been going up and down. So we'll have to wait for at least a quarter to understand what is the exact number which will be required. So -- because see, going -- again, again, to the OEMs is very difficult. So we have to wait and watch.
And so basically, as of now, we don't want to comment on the situation because this is very, very volatile. It keeps changing. So actually, we don't want to talk on that number.
Sir, basically, about the investor to understand newer players are emerging in the industry, smaller players are getting aggressive, newer building material players like Astral are getting into the paints industry. So what is your view on that for the next 4, 5 years? How is the industry shaping up? What is your view on that?
Good part is that in the paint, still the penetration is between 50% to 55%. And in the last 10 years, 15 years also we have seen that when the players have become aggressive in terms of communication, advertising, more number of products, the penetration has started going up. The pace of penetration going up has increased in the last 5, 10 years.
So when the new competition comes in, there will be multiple players and good players. So we expect that overall awareness exercise will go up and that will enhance the industry growth. So that's one part. And to that extent, there may be a possibility that some of these players participate in the growth part of the industry. So that's one good part. Otherwise, that when the fragmentation happen and a number of players goes up, obviously, the competition goes up. Therefore, more innovations will happen in terms of the product or communication.
And obviously, the competition intensity would be higher, no doubt about it and whether industry would be able to retain -- and this is true for the entire industry, whether they would be able to retain the industry margins, which used to be then be passed, which has already come down now, but I'm just saying whether they will be able to go back to that, in that situation, that will be a question mark.
And sir, could you throw some light on our innovations and product launches for the next 1 year? And how is this compared to the other large players?
Some of the products I mentioned like Beauty Gold Washable, which is like -- which is a washable product, which is very different product, and it is -- the price point is also different. Recently, we have introduced Mica Marble Sheen and Stretch, again a very differentiated product at a differentiated price point. We are in the process that these are the products which are being introduced. Impression Kashmir, which is a very pure product which has no smell, a very, very safe product. Then there is a polyurethane enamel, which has almost 10 different benefits.
There is a high-end exterior which we are launching, which has -- which can keep the coating intact and it has a self-cleaning properties. And there are some more products which are there in the pipeline. So every product which we are introducing, there is a proposition which is different in the market or it is maybe a proposition which is available at the premium end, but we are making it available at the popular at that price point.
We take the next question from the line of [indiscernible] from SBI General Insurance Company Limited.
I wanted to understand that in your opening remarks, you mentioned that you're coming up with differentiated products at different pricing points, which are probably not available in the market. Could you please throw some light on -- I'm sure you also maintain an index kind of a thing that tells you how better are these products performing compared to the other products that you have? And what kind of -- what contribution do they have to the overall portfolio, what growth prospects are you seeing? I'm sure -- I mean it's too early like you've just started, but any sense on how it is also going to be going forward?
Okay. So the products what we have introduced, which I mentioned, Beauty Gold Washable, Mica Marble Sheen and Stretch, Impression Kashmir, they all are different in terms of their feature. These are feature-led product in term of their proposition. And pricing also, we are ensuring that if some of the features are available in the market at a premium end, then can we make it available to the popular end because see, the way the prices have gone up in the last 1, 1.5 years, there may be a possibility in certain markets, you may see some downgrading.
So to that an extent, we are trying to make it available at a price which is more affordable, that's the first part. Most of these products are being introduced in the premium category. And in the premium, we have 2 segments like premium and super premium. And generally, the contribution, value contribution in the market for this premium, super premium could be in the range of 40%, just an approximate figure.
Our share has been very low. So our contribution would be quite low. So the market is 40%, we will be far lower. But we see that as an opportunity because we have a decent distribution, but within the distribution, our premium category share is low. So advantage is that if we concentrate with these products, even on the existing distribution, we should be able to increase our revenues.
And also, given the down trading that's been happening in the paint segment also and given that we are not very strong in the economy segment, even in the premium, we are not the leaders, the industrial doesn't seem to come back anytime soon, at least for the next 2 quarters.
Oil does not seem to settle down anywhere below $90 is what the consensus is. So is it fair to presume that the next 2 or 3 quarters will still remain at the levels at which we've seen this coming quarter because there clearly seems nothing positive happening at the current time?
So my take on this is that, okay, when you say premium -- popular and economy, I think we are strong in popular and economic. We are quite good. And what we need to do in popular/economy is basically it's an input gain that we have a good distribution, we have a inherent demand, which is there in the market, latent demand is there.
And if there is aggression happening in the industry, you give the inputs and you are able to generate the sale. What is not so easy is the premium category. The premium category needs a lot of marketing effort. And when we are talking about our actions, marketing, I think that all will be for this premium category of products. The rest of the part is like earlier a question was asked, whether you will be putting in money in the marketing or the scheme.
When it comes to the economy and popular range, I think it is more of a scheme. But when it comes to the premium category, it is more of marketing. Positive, I can say that whatever price increase has been taken last year. Because in the last year, the weighted impact was very low. So that price increase, you will see a reflection in the coming quarters. Coming to the growth part, I think we are still optimistic that volume growth would still be maybe single higher digit growth or closer to 10%. So that's also a positive part.
And even in the Industrial, in terms of growth, I think overall, if you combine all the segments, it may still be closer to the double-digit growth. So to certain extent, the growth seems to be fine. The last year increase, which was not reflected in the last quarter, I think that advantage would come in the coming year and with whatever actions initiatives we are taking, how much advantage we are able to get of that, that would be an added advantage.
Okay. And one last question. We kind of missed the opportunity of the economy segment for nearly years because we were kind of focusing on the auto segment, which was kind of in a bull run. And we've tried to kind of fill in the portfolio gap for the last 2 years. But even in the opening remarks, I still hear that we are still focusing on the premium product segment by adding new products. Given the penetration that is still left and which is more going to be a demand-led where you will have more of economy led products being sold. I wanted to understand why are we not focusing on that category. We nearly missed the opportunity for 6 years now and even today, we don't seem to be doing much on that segment?
So I think in the comments I mentioned one more thing that we have a complete range of economy products in Soldier and Nerolac both now. And so it's like I think we have not missed in the last 5, 6 years, but we missed it in the last 2 years because of -- as I spoke about that, obviously, there's inflation pressure, the margin pressure, our mix.
So I think last 2 years, our aggression in the economy segment was not much. But now we have a complete range of the product. We've introduced more number of products. And with the combination of Nerolac and Soldier, now we are poised. Now as I said, and in the economy category, you need a distribution which we have. Now how much aggression we want to show it is up to us. But the only change what I'm saying is that maybe in the 2 years, we have lost. And now we are clear that with this range of the products available, at least whatever growth is coming in the market that we'll be able to get.
Premium what we are trying to build because there our market share is less. In the economy our market share is not so less and the market share is less. And for the sustainable for the future, for the next few years, it is important. So we start building it now, which will help us in the coming time, while that was a short run, it will still be dependent on the economy in the popular range of the products.
We take the next question from the line of Avi Mehta from Macquarie.
Just wanted to clarify the investment that you require for the decorative segment initiatives, would this entail near-term pressure on decorative margins? Because you said marketing cost budgets will go up. And hence, would you wait till we have stability in Industrial margins before you kind of embark on this journey?
No, actually, because the -- as we discussed earlier also that margins are already in the lower range, and going forward, because whatever price increase has been taken in the last year. And more or less, the emulsion product price increase has mitigated the inflation. So that advantage will come. And so marketing expenditure will go up. But our take is that in this current situation, we can afford to do it. And so this is the right time to go for that.
So Industrial will take a couple of quarters to bottom out, but Decorative might see some impact in the near term as we initiate investments in marketing, is that the right way to see this, sir?
See, as you said, in the short term, there will be some pain, but I think on a long-term basis, it's going to be fine.
Perfect, sir. Got it. Got it. Sir, on that with just the long-term bit, sir, any guidance on the likely margins in the medium term once inflation normalizes? Basically, a sense on what is the normalized margin in our view?
See, we'll not give any guidance on the margins because that's what right, right now because situation is very fluid. But if you look at our past performance, right, see, such sort of inflation has we have witnessed in the last maybe 1.5 years, it's never happened earlier. So going forward, one can surely look at some improvement in the margins going forward on a long-term basis. And if it is the past year performance, if you see EBITDA total basis, that is deco and industrial was in the range of 14%, 15%. So let us see whether we can achieve that or how fast we can do it. It all depends on the normalization of the situation.
No, no. Got it. So that would be the range that we can kind of pursue, but the time line might be uncertain. That's the right way to think?
Yes.
We take the next question from the line of Shirish Pardeshi from Centrum Capital.
Heartly congratulations.
Thank you so much.
Sir, I have 2 questions. When I refer your digital technology slide, you mentioned that dealers have the app and influencers on Pragati app. So question here is that what exactly we are trying to do here? Is that the database or is the influencer is actually pushing the product and then complementing the dealer sales? And the subpart second question is that to your 27,000 dealers, what you have mentioned, how many people you have already got under this app?
So Jason, you...
So on the Pragati app, basically, our whole endeavor was to map the journey of the influencer and make it a direct connection between the company and the influencer, earlier influencers would go through the dealer route. So this is a way of directly engaging with the influencer.
Also, like Mr. Jain mentioned in the opening comments, that through this, we are also able to now understand the secondary sales. Now when it comes to the dealer app, it is basically opening another channel with a dealer, which is basically a digital channel with the dealer. We have given the facility for the dealers to also place the orders directly on the company. And we hope that the same trend that we are seeing in other industries where the channel starts putting the orders via the digital medium that will gain traction.
And also to ensure that the dealer doesn't have to depend on the company personnel for regular inputs that he requires to run his business on a day-to-day basis. So all those inputs are given on the dealer app.
And in addition, so when you're saying how many dealers? I think as of now, we have covered more than 40% of the dealers.
Yes, 40% of the dealer are...
And now we are ramping it fast so that we are targeting how do we grow more than 80%. And actually, dealers can get any information, whether it's related to the account, product, anything that -- it's available with him. And even with the painter, as we said, that it is also linked to the incentives that we have started disbursing directly to the painter.
Earlier, we used to do it through the dealer and therefore, there was a time lag. To tell you very frankly that if I compare with the past, when we used to settle the incentive in 30, 40 days' time, now we are settling in 1 minute time. So that's the kind of thing with what we have reached.
Any quantitative number, Anuj, you would like to substantiate that at what percentage of business we target to get it through this app, say, next 1, 2 year?
In terms of reach you're saying?
Yes.
In terms of reach, dealers we are getting more than 80% dealers should be there on the app. And painters I'll not talk in number, but we have a database that and out of that database that again, 80% to 90% painters, we are planning.
And we are doing a lot of activities to -- for adoption. And every quarter, we are seeing -- so I can say that in the last 1 or 2 quarters, we've made quite a good progress. And by June end, at least every business, we have a threshold that if these number of painters are available in your app, at least your program can run successfully. So I think we'll be quite closer to that by June end.
Okay. My second question is on the market share. You did mention that we've lost the share. So particularly, what I was looking some qualitative comment. Is there any particular region we have lost more, and that's why the average market share is standing at 12%?
So actually, our sale contribution is quite high from North, and that's the reason where we had a loss of share.
Okay. Okay. And the third and last question when I see the inventory, which has gone up and Prashant did offer some comments, but then when I do the channel, even channel inventory has gone up. So to my understanding, if that is true, if you can comment some qualitative remarks in that what was the channel inventory when the things were normalize? And obviously, with the inflation, the inventory has gone up in the trade. So I think if you can offer some comment on that?
Channel inventory has gone up in, say, third quarter, where the lot of pricing increases happened in September/October. So channel inventory has gone up tremendously high. And I think now it is rationalized. Now it has come down and I think the regular channel inventory as of now.
So for us, it would be in the range of about 20, 25 days, which would have come down from 40 days?
Prashant?
Maybe around 30 days.
We take the next question from the line of Percy Panthaki from IIFL.
You mentioned that in Decoratives the volume decline was about 7% and given that there is a 18% to 20% price growth in this segment. The value should have been close to 10% positive instead of being flat. So what explains this difference?
In the fourth quarter, the premium growth was very, very low, in fact, quite negative. And mostly, the sale has come from the ancillaries product like putty, primer, low end emulsions. And that's why you can say that the mix has deteriorated.
And what is the underlying reason for premium really slowing down faster than the low-cost emulsions?
Sorry, sorry?
What is the reason that premium products have not done as well as the low-cost emulsions? Is it down trading or I mean, is there some other explanation?
So there are 2 parts, one that in the third quarter when the price increase has happened, it was substantially higher on the premium product. And therefore, dealer stocking went up very, very high for the premium product. and that took time to come down. And also, as you said, downgrading that is also happening. So both the things have affected the sale of premium in the quarter 4.
Do you think that this fact that the primary sales for premium products has really been affected very, very badly this quarter, is that one of the reasons why your margins are lower?
Possible. The mix of these things, because as we said, okay, in Decorative maybe you can say mix and then Industrial where the inflation was further higher, also third reason that our contribution of the solvent products are relatively more.
So in the fourth quarter, generally, my Industrial sales percentage is higher. If you look the mix normally it is about 55, 45, then in the fourth quarter, generally, the Industrial percentage goes higher. So that's reason because Industrial contribution is lower that has affected our margin in the fourth quarter.
So the margins are lower in Industrial and when your sales of the industrial business is higher, that also is reflecting there.
We take the next question from the line of Tejash Shah from Spark Capital.
Congrats to Mr. Jain on the new role. Sir, my first question pertains to slightly longer term. So if you see last 3 years or 5 years CAGR, would it be a fair assumption that our Decorative growth would have been higher than our Industrial growth?
Last 5 years, yes, yes.
So sir, if we see our commentary on our mix, which has been kind of static at 55% for Decorative and 45% for Industrial, and it has been static for last many, many years now. So I -- mathematically, it actually defeat the equation that we are seeing because we have been kind of a 55-45 for last many years, if I see my notes 5 years back, 6 years back. So I don't understand that why that number is not changing materially into Decorative yet?
I think 5 years back, the numbers used to be 50%, 52%. And when we say 55%, obviously plus minus 1% here or there. And if you see last 1 year or 1.5 years, then the growth is similar. So on the average basis, I think last 5 years, I would say that it has gone in favor of Decorative to the extent of 3%.
Sure. And sir, in the past, we have always maintained that at the EBITDA level, both the segment actually contribute almost equal margin because of more marketing overheads in the industrial side. But considering the pricing pressure that we have seen in the recent past, would it be a fair assumption that the EBITDA share level at the base that we are sitting today on the share of decorative gains will be way higher at EBITDA level than the industrial paints?
Yes. You're right.
Okay. So sir, just expanding on that and then just referring to Percy's question also, if we do the math on the industrial side of the equation, taking 55-45 as base, and that means that this 45% of the business had actually a very decent 15% kind of growth in the quarter to generate 6% of overall growth. Is that math correct? Because it means that Industrial actually did very well compared to Decorative in this quarter.
In the quarter 4, you are saying?
Yes, sir.
Yes, quarter 4, I said that total growth is 4.2% and Decorative is flat. So the balance growth has come from Industrial.
Okay. Okay. And sir, last question. Employee cost had a decent jump in the quarter. Considering the performance, I'm assuming variable pay won't be that high. So any one-offs there in the quarter?
Yes, this is one-off. There are some provisions, but it's the one-off outlier.
Sir, would you like to call out the number on the one-offs?
Prashant?
See, if you read the notes to the -- this thing results, there is one provision for retiring benefits to the directors which has been made, and that is about INR 24.22 crores, which has come in this quarter. So that's the reason that manpower cost is higher.
Okay. Sir, is it for directors or is it for 1 director?
No, for retired ones.
We take the next question from the line of Abneesh Roy from Edelweiss.
Sir, a few follow-up questions. So first is you saw good growth in putty and my sense is most of the paint players are also seeing that. So how many more years of very good market share gain for the industry, paint industry you see versus cement industry in putty? Because last 3, 4 years, paint industry has taken a massive market share. So could you comment on the industry level? What's your thought process on putty growth next 3, 4 years or next 2 years or next 1 year?
I think -- see, overall putty growth is in line with the industry growth. But for the paint industry, the growth is higher, as you are rightly saying that maybe they are able to take the share from cement companies. And still their share is quite high. So it depends on what level of aggression you want to play. So I think for the next 2, 3 years, I'm not seeing the similar kind of growth what you have seen in the last 2, 3 years, but definitely higher than the market growth, you can still get from putty.
And why is the market share growth happening for Paint Plus? Is it because of cross incentivizing because you have much more product portfolio versus a cement company. Is that the main reason? Or pricing, there is more aggression because these are very wafer thin margins. So I don't think you can do much on the pricing bit, right?
Yes. So actually, the distribution is common. So basically, people who were selling paint, they are also selling putty, now -- but putty definitely a price-sensitive product. So ultimately, whatever aggression you have seen, we have not been that aggressive. But whatever aggression we have seen in paint is basically from the pricing aggression. So when you are getting share, you are getting on the price.
Sure. Second question is on the advertising. You did mention that you would like to be more aggressive given so many new launches. But my question is on the paint industry again on advertising volumes. So in FMCG, what we are seeing, FMCG volumes are down sharply, almost 20% down because of the gross margin pressure. So in FMCG, the EBITDA margin pressure has been fairly controlled in most of the cases. So for the paint industry also are you seeing on an overall basis that paint volumes would be down?
No. We are not saying we were down, instead we are seeing that even at volume level, there would be higher single-digit growth is what we are seeing in the volumes.
Okay. And last quick bit. So in the distribution market leader is trying to do something new on the wholesale bit. So what would be your thought process that, yes, direct reach, direct dealership is there in paints for every player. But now on the wholesale, is that a good strategy? Could there be some issues because of that?
Wholesale will always create a disturbance -- pricing disturbance in the market and the process it brings down the margins and therefore some disruption. But there are 2 part of wholesale. One to reach to the market where direct distribution is not available. So our approach is that wherever we are not able to reach directly there, how do we reach out through the wholesaler and distributor. But otherwise, creating our wholesaler and distributor data pricing stability issue in the marketplace.
So is that a big problem? Because market leader will be present in almost all the key regions. But still if they are doing it, does that create a problem for you because you are a smaller player?
Two ways we can take it. One is that, okay, in that process when there is a pricing volatility in the market. So there is a disruption and therefore, its opportunity whether you would like to encash upon it because their reach is higher. So wholesale and distribution, all this create a pricing disturbance in the market. So that is rather of a problem. In the short term, obviously, it is -- you get the more increase in terms of reaching touch points or outlets. But for the other player, sometimes there is an opportunity because people -- the margins of the dealers are very, very low here.
In fact, that's why when the companies are able to offer good margins or better margins, some amount of dealers are ready to shift. So that is one opportunity available. Second, in fact, for us, the answer is that because a weaker player, there are so many markets where we don't have the reach and maybe these are very smaller markets where we cannot reach directly. And therefore, as a part of our distribution plan, we also have a plan of wholesale distributor but only for those markets where our reach is poor.
Thank you so much. I would now like to hand the conference over to the management for closing comments.
Thank you so much for all your questions, and it was very nice to interact with you. We definitely value whatever insights come from you and the points that you give to us. And that's it from our side. Thank you so much, and wish you all the very best for the good times. In the past years, we have been seeing so many uncertainties. Let's hope together, we are able to come out from this world of uncertainties and get into a more certain world. So all the very best to each one of you. Thank you so much.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.