Kansai Nerolac Paints Ltd
NSE:KANSAINER
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Kansai Nerolac Paints Ltd
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Good afternoon to you all. Let me welcome you all for this Kansai Nerolac Paints Investor Meet Q4 and FY '23 earnings. It's a long time that we had this investor meet, maybe 20 years back, and we always wanted to have this.
And our new Managing Director, Mr. -- hello?
[Technical Difficulty]
Hello? Yes, sorry for this interruption. So our new Managing Director, Mr. Anuj Jain, who took our office from -- who took this position from 1st of April has been consistently telling me we should have this meet. And as per his direction, we are having this meet today. And it will be our idea to have this every year. So today, let me welcome Mr. Anuj Jain, who is here to come on stage. Mr. Anuj Jain is with the company for the last 34 years, and he has risen from the manager position to this position. And he has been in various fields, marketing, manufacturing, research, various -- he's been portfolios. I also welcome Mr. Jason Gonsalves, who is a Director Materials and Supply Chain and IT. We also have our entire management committee here, which you can interact with them during the course.
And now I request Mr. Anuj Jain to take the stage.
Hello? Is the sound okay on the backside? Yes. Good evening, friends. [Foreign Language]. Welcome all of you. Really a great pleasure. I think when I took over last year, he said April, so it was not this April, it was last year April, 1st April. And when I took over, I think I had a chat with some of you, and you only advised that it will be a good practice if we do this kind of met physically once in a year. So this is the first time we are attempting that. And as Prashant said, it will be our endeavor to do it every year. So welcome, all of you, and thanks for your cooperation and support and available insight, which we keep getting from all of you. Thanks for that and continued support.
We have the entire management committee team here. You are -- you know Prashant Pai very well, CFO in the company for last 33, 35 years. You know him. You know Jason Gonzalves. He has been a part of all this online, what we do. Jason Gonzalves is heading the supply chain, the corporate planning, the procurement. So he's also in the company. It's the first company he joined as an MBA, and he continued -- he also gone through various kind of portfolios. We also have here Abhijit Natu, Abhijit, please get up. Maybe the MC committee, if you can just come here. I can just introduce all of you. So the entire team is here.
So Abijit Natu, he's the manufacturing head, a very good person. In fact, he has been having experience in -- he had experience in Asian Paints, and then he is with us for the last 12, 14 years. He understands the best practice in manufacturing and all new things what we are trying in the manufacturing and something he's building. [ Rohit ] is the -- is the mic working? So even if it is not working, I think my voice can reach to you. So Rohit Makani is the Head of Sales and Marketing or decorative. He joined company 2 years back. He has worked with Gillette, Asian Paints. He was in Crampton, but a very long time in Asian Paints. So he is [indiscernible].
Ram is the sales head. So very good -- excellent relations with the dealers in the market for many, many years. He had worked in the many geographical -- geographies. And now he's in the [indiscernible] and he's heading the sales. We have Govindarajan, who is our Company Secretary, the legal expert. Again, a very long time in the company, 100% compliance for last so many years he has been maintaining. We have Kodera-san, Kodera-san recently got posted in India. He's also a part of market [indiscernible], one of the initiatives that we are -- driving initiative Kodera-san is driving. So he's a representative of Kansai in Japan, in India.
Sudil Rahni had a variety of experience. He handled decorative, he handled industrial. And currently, he's the head of HR. He also handled all our subsidiaries, which are international subsidiaries and local subsidiary. So quite, again, in a big number of years, around 30 years he is with us. We have Lakshman Nikam, a very, very solid hand in terms of technology, is one of the master in technology. His expertise is there in the automotive, general industrials and in the decorative also, so one of the very rare person who has this kind of technological experience. So he's working with us for many, many years.
We have Nekota-san, who is the Head of technical and quality control. So Nekota-san also has been in India for a few years now, 4 years. He's also a representative of Kansai in Japan. And they provide us the technology and they help to see the quality. Our Focus remain at the top. We have [ Amrit ]. He Is the Head of Sales and Marketing of Industrial, which covers automotive, general industrial, auto refinishers. So this entire team, we thought that when we talk to you a quarterly basis, maybe that we are not able to showcase the entire team to you. Since we are doing it physically. I thought it's the right opportunity to showcase the entire team.
So this is the team which is keeping this company resilient, and they are the people who are bringing a lot of innovations in the company and taking the company forward. Thank you all of you.
So I'll just take you through the presentation today, and we'll try to share some of the things we do in the company. So this is the agenda. And not that I'm going to go through every slide because this presentation is uploaded, but maybe some of the slides where I want to talk about, maybe I want to share something on that. So this slide is on the business environment, but I'm not going to talk much on that. I think you are aware of the challenges which are going on in the country, in the world or maybe in the industry.
What I want to share with you is the Nerolac story. I think that would be something interesting for you to know. So if you see, our purpose has been created environment for a healthy and beautiful future. So we want to see that today, we are conscious that we are inclusive organization. And then we are working, we must ensure that the product, the environment, the atmosphere, what we are creating, it should be good for our future generations. That was one of the reasons that in the past, we were the first company to introduce healthy home paints, low VOCs, 0 VOC, lead-free, those initiatives because this is our purpose.
The vision is we design solutions that protect inspire and touch lives every day. So basically, we provide beauty and production to the surfaces, okay? Maybe we are known as decorative industrial company, more as an industrial company. But we provide beauty and production to the all kind of surfaces. So if you see this picture, now this is very close to our heart. So inside or outside, any kind of surface, if you see, we have a product available for that. So generally, we believe that every second house, third house has something there which is painted in Nerolac because it could be refrigerator, it could be oven, it could be microwave. It could be a fan. It could be air conditioner. It is -- hairpin, the ladies when they put hairpin in the -- that is also painted with Nerolac. Artificial jewelry, we supply coatings for that, Then 2-wheeler, 3-wheeler, tractors, the bridges, the metro, so many things, and obviously, the interior walls and extra wall. So that's what we take a pride, that each and every surface -- and that's what our motto is, that any surface, which is emerging surface, we should have a coating for that.
As a brand, we are a power brand. So today, maybe in terms of our share or size, we are #3. But in terms of mind share, we are #2 and solid #2 brand. We are known for our innovation. So if you look at Japanese technology, which is the motto that we stand for the high quality, and the jingle, [Foreign Language] also a very, very -- the asset, what we have created over a period of year and people still -- even the new generation sing the jingle, know the jingle very well. And some of the products, which I'm going to talk in the subsequent slides also, what we have introduced are different kind of products. So that's there in our -- that DNA, that we keep innovating. And this is what we have created in the last 100 years. And obviously, that's our legacy, what we have built at 103 years, the brand because today, in today's time, I think there are less number of companies who are able to survive for 100 years. But I think if you are able to come to this stage, the adaptability is something which is there, which is our forte.
So that's something what we created in 100 years. What I want to talk today is about this slide, and this is what I think if you have been attending the quarterly calls, I've been talking about it, that what we have been working on for the last 1 year. So we have been in decorative, the innovation because when we talk about the market is changing, the competition is changing, all these things happening, what we are going to do to see that we are on the path of success? So this is, in short, like Paint +, that's a new positioning we said because paint is supposed to be about color, okay? But today, if you see we are known for technology in the industrial also, and technology is playing a bigger role because technology is functionality, technology is sustainability, technology is something which is giving you a -- something which you have not thought about the product.
So Paint+ in the decorative is the creation of the technology where we said it is not all about color. It is about functionality and sustainability. We started with Beauty Gold Washable, which is for safe paint. We start -- then we get into [Foreign Language], which is that the stretched paint. But there are 2 parts of Paint+: one is a unique product; the second is that offer a feature which is available at a higher price in the market, but you make it available at a lower price so that you are able to increase the volume of that product. Recently, we introduced Excel Everlast 12, which is like a self-cleaning paint. So with every rain, when the rain comes, layer -- thin layer of the pain comes off and your building looks new, 12-year warranty Excel Everlast. We introduced a product in waterproofing, NoDamp, which bring down the temperature of the surface by 14 degrees and 12 years that warranty of the waterproofing we give for that product. So that product also we have introduced.
The Kashmir -- Impression Kashmir, the no-smell. It's a very pure product. So if there are children at home, the older people at home, they have some kind of allergy with the product, the Impressions Kashmir, it's like a pure product and the no-smell product. That's something we have introduced. So we have decided the range of product in this year and the entire range we have executed in this year, so we wanted to place the products which are at the different price point, a different value proposition, that Paint+ portfolio in this year '22, '23, we completed.
Second part, services. We introduced the services in the year 2000, but maybe the market was not catching up. But post-COVID, we are seeing the change in the behavior of the consumer. Today, we feel the time is left and right to get in those services. So we started the services. First quarter, we started this initiative, and it took time because we had to build a lot of infrastructure. So we -- actually, we placed the team in around more than 400, 450 cities. But digitally, you know that we started with 50, 60, 70, and now we have almost crossed 100 cities for these services. And the proposition is that 5 days, next generation 5 days painting is a proposition which is very, very unique; dust-free printing, which is very, very unique.
And what we have done during the year is that we have created a setup of lead generation and the lead conversion, the call center setup. And then how do we complete this, taking the lead and converting to a business? When we started our conversion rate, because this is all digital system and it works on the conversion basis, when we started the conversion rate of 1%, 2%, slowly, we are reaching around 7%, 8% going closer to 10%, which is supposed to be a benchmark in the lead generation model. The call center, because who attends the customer? The turnaround time, we say that when we started, it was some hours, now it is about 10 minutes. Then attending the customer. Again, it was in days, taking 7 days to 10 days' time. That has come down in 3 days' time.
So we implemented the system and now it is taking a shape. And digitally now, we have started painting 500 homes every month. So on the yearly basis, over 6,000 homes we have painted, we are painting 500 homes per day. And in totality, as I said, this is online and digital. But if I include the offline also, then about 20,000 homes we have painted. But this has picked up the pace in the last 3, 4 months because earlier, we were setting up digital system infrastructure. And then we said that now we are going to scale it up. So this is one area which we are ready with.
Then the painters, because our industry is quite divided, almost 40%, 50% people go with the recommendation of the painters or influencers. So we have set up a team, which is just a promotion team who deals with the painters. And basically, the idea is that painter has a potential, from there, how do we get share of wallet, how do we increase our share of wallet? >So in terms of training, incentivization, the discussion about the product, helping them going to the site so that consumer confidence goes up. So that's another activity what we have created. And so far, when we exited the year, 100,000 painters have started participating where we are able to -- and some of the painters, which got dropped when we were losing some share in the past yesteryears, we are able to get them back. So this has picked up some traction.
The contractor, which is basically related to a project business.because there is a verticalization happening in the -- earlier it used to be a phenomena of metro cities, then it has gone into the other A class cities and now this spreading. So we were there in the 35 cities, and we said we'll go to 70, 75 cities over a period of time. We have already crossed 55 -- to be specific, 57 cities. Now we have placed our team and trained them and created a standard operating process, the pipeline system, because this works on how many sites are there in the pipeline and then what is the conversion rate. And we are gaining maturity in this contractor business.
The next thing is about architect and interior designer. So earlier, traditionally, the influence of the architect interior designers used to be 5%, 6% in the country. But today, there are towns -- and we have identified around 27 towns where the influence of the architect and interior decorator is about 20% and that is quite high. And architect/interior decorators are like doctors in the medical field. Once you prescribed, then people use that shade or use that paint. So again, our team set up the digital methodology interface with the architects and the team where we have started registering the architects in our sites, we have started registering. We have provided -- started providing them the support, and we have started generating some business. Because it's also a different business model. but we had given it a shape and now we have started generating business with this also.
So these are some of the initiatives that we have taken during the year. So we had a brand and mind' share, but we said that in the field, what we execute so that we are able to connect these dots. So this is some of the work which we have done and why we are talking about this work today because we have started gaining the traction for this particular work, and therefore, we are going to expand it further.
This slide. already spoke about. We can see some of the examples here, Same -- the product and the project. I think I covered the point when I was talking about it, but you can refer to this slide later.
These are the number of products, the Paint+ product which I spoke that what we launched. If you see the packaging, the is very clear that when the customer goes to the market, what is the journey he goes through? So we talk about the brand -- or not a brand, and I want to understand that whether I want this sheen finish or the matte finish, thereafter, what is the single parameter where the product is different. So the packaging is designed in a manner that if the consumer look at the packaging, he's able to understand what is the unique difference in the product. On the side, if he goes on the packaging, he's also able to identify the other benefits. To talk about these benefits through the digital medium on the website, we are placing the difference that -- how this product is different. And if somebody wants to -- because in the paint industry, the problem, the pain point of the customer is he doesn't understand that how this paint is different from the other paint. So we are working to ensure that he is able to understand that how this product is different from this. And if I'm paying a price, why I'm paying a price. So that is how we have created this packaging.
And these are some of the things which are related to, if you remember, we spoke about India distribution. So we started a concept of Shopee. So this is the actual picture of the Shopee, We have already crossed -- there are 2 kind of models. So overall, it's about -- we have crossed 100. But typically, for the Shopee, we have executed 15 in the market, their response is good. And I think going forward, we'll increase the numbers of the Shopees also.
These are some campaign. So you know that in this year, we have increased our marketing expenditure, and we are doing a lot of work on expanding the communication. So these are some of the communications which we have done. Then in the product related, which I spoke about, Paint+, so these are the some of the campaigns. And some of the new films, which we have executed very recently. I'm not sure whether you would have seen it. So we would like to showcase some of the new films here.
So this is for Impressions Kashmir and [indiscernible].
[Presentation]
So this is [ Nerolac Kashmir ], no smell. This is our new...
[Presentation]
This is second. Third is Beauty Gold Washable.
[Presentation]
This is Excel Everlast, the self-cleaning paint, which was awarded...
[Presentation]
Yes. So if you see, these are multiple ads. And what I said, the Paint+ what we started, you can see Paint+ in all this communication. The Japanese technology, you can see in all this communication. There's a Japanese expert who is there in all these education, and jingle, which is a part of all this communication. So what we have created over a period of 100 years' time, which is a Japanese technology, and jingle is a part of which and communication. So that even if you have the multi-communication, people are able to connect it with one single outcome, which is Paint+ Japanese technology from Nerolac. And you can see our aggression in terms of the multiple communication multiple ads, which are coming up. One of the ad was [indiscernible], but it is there in the different languages. So this is related to communication.
New businesses which we were the late entrant, we started. But now we completed the range in construction chemicals, the range that we wanted to complete, not that we want to get into everything. The wood finishes premium and the adhesive, which we have a subsidiary. And today, our contribution is almost touching 7% to 8%. And now we have picked up, this business is growing at a good rate. Our first objective was that whatever distribution we have, we have started taking the waterproofing from the other companies, that we should be able to get back. We are -- we are now making some progress in this regard.
Shifting to industrial side from the decorative, and you know that we are the #1 in terms of automotive and even industrial, our position is [indiscernible], we are holding. And this is our pride. So actually, if you see, whether it is 4-wheelers, 2-wheelers, commercial vehicles, and this is basically, we are into this market with the technology. And technology always has been there, but I think now the kind of technologies what we are launching, which is in the area of again energy efficient, whether we can have the product which has to be baked at the lower temperature in less number of minutes, and therefore, a lot of energy saving at the customer end, the productivity goes up. So we are making a good strides there, high solid paint and this low bake paints we are doing.
Some of the new segments, seam sealer and body black, I spoke about, we have now installed the capacity, and the supplies are starting. The partner, which is one of the subsidiary of Kansai Paint, Helios, who is in Europe with their support. This is, again, we have got the approvals, and we are starting the supplies. And it's not mentioned in this slide, but I spoke about the pretreatment chemicals and the booth chemicals. So because when the car gets painted in the automotive, this factory, that goes to the body shop where there's a booth and which is -- which require booth chemicals. So those areas are also that we have entered. So this is basically a step towards how do we increase the addressable market size in this category where we have the leadership because when we are going to the paint booth, whatever is applied in the paint booth is what we are taking forward.
Technology is giving the advantage where, earlier, people used to feel that in this business, it's difficult to charge price. And the technology is the answer which we have started deploying. In 2-wheeler and commercial vehicle, we have gained market share. We are working on a technology, like our [ prime minister ] launched [ ethanol 20, ethanol 30 ] earlier. The ethanol used to be 5. So now the same -- the paint product, if you -- your petrol is mixed with ethanol 20 or ethanol 30, it may not work. So the technology alignment, you see that the product work on this kind of thing.
So -- and a lot of work on the colors. So because in this industry also, I think it is not completely industrial. It is also becoming like a glamorous and decorative industry, where along with the -- so there in the decorative we are seeing, along with the color we give the functionality. Along with the functionality, how do we give the beauty? So this is related to this. And as I said, the addressable market size, what we are planning to increase.
This is the refinish market where, again, we are late intend our market share is single digit, But our market share is continuously for the last 2, 3 years. We have started increasing the market share, and our confidence has now gone up that we'll be able to increase the market share in auto refinish. And auto refinish relatively is the better profitability. So the more market share we increase there, partly the auto -- along with the auto, we are able to see the impact of that in terms of the profitability.
Performance coating. Now this is a big area. There's a lot of investment happening from the government side also. And this industry -- this size is becoming larger than the automotive market now. And this market is, again, I know that infrastructure and a lot of segments are there in this particular market. And we have started expanding this area also. And here, in fact, I spoke in my earlier meetings also, we had a problem related to the margins where we looked at that how do we increase the margins in this category, and therefore, exited the business, which was low margin business, around 10% of the business. And that we made that exit. And in this quarter, that part would be complete. And our complete focus is in the premium category product, which are high-tech products, and that's what we are concentrating upon, all the premium products and the transharbor line, the bullet train project, this kind of project what we are looking at which are premium, give you a good business, and it's a reasonably profitable business. So this is one area which we are making our strength.
Lot of technology is required. And fortunately, we have this support developed from Kansai Japan and the subsidiaries like in Europe and Turkey. So all this knowledge, wisdom we are using to make our impact. In this line, you need a lot of approvals. So we have set up a team, which is basically to take the approval. Because once you get the approval, then taking the business becomes easy. In this year '22, '23, we just worked in terms of taking the approval, and we made a good progress in getting the approval and now the business will start coming in.
Shifting to new manufacturing. This is our capacity, 66 million liter. And the digitalization, which we are -- that piloted in one of the factory basically to see that consistency in the quality, the cost goes down, the cycle time goes up. And we are getting a good return out of that in which we are planning to take it forward further. There's a backward integration resin that which you used to buy from outside. But then we started making -- we have been making it, but now we expanded the capacity so that the cost part, we are able to take care of. And so this is related to manufacturing.
In supply chain, the focus in terms of increasing the services, how do we provide? So in fact, we have taken a lot of initiative where we are increasing the service at the local level, at the up country level. In some of the cases, we are drastically, if you were supplying in 24 hours time, we are bringing down the time to 10 hours to 12 hours time. So that is what we have done. In select cities, we have introduced these premium services. We have the premium product, which is a Paint+ product can be supplied to a dealer in 1-hour time. And it is already implemented in how many cities? Around 60, 67 cities, we have already implemented. This has started working.
Human Capital, which is that very close to my heart. And when I started, the first part what we look at is people first, and that is what I believe in, that the future is dependent on the people. And we have to ensure the people who are working with us -- and today's competitive situation is very, very different. People are -- in any field, people are working hard. So when they're working hard and external challenges are so high, internally, we have to create some life. And we have created a life at Nerolac people are working and feel happy about it. These are the areas like health and well-being, security, lifestyle, learning and development, awards and recognition. We started in learning and development, we initiated called [ TAJ ], which is [Foreign Language], which is basically, we have a mission and vision. But ultimately, [Foreign Language], that practice. And we have curated enough courses, which are like how do we bring the leadership captain the people, and that program we have started. In award, we were finally able to launch RSU scheme for our select leaders, so basically to see that they continue to work with the company and they contribute to the company. So a lot of things we did in this area. There are points which are mentioned here. We have created for one sector, like sales force, we have created an auto system in terms of that if you perform, you get the promotion, that no assessment like that, so some of the innovation we have done in this particular area.
And the digitalization. This is the big effort which we have been doing, and it is obviously taking time, but probably 70%, 80% work we have already completed because today, that the behavioral change the consumer. And if you actually want to read the mind of the consumer, no research can read it. And that's why it is not so easy that any company come in and they say that we'll be able to understand consumer because consumers say something, think something but do something. And that only you can read that if you have a digital process in place through which you are able to track the customer on his journey. And in this case, we are talking about the paint.
So if you see in the next slide, there's a lot of digital initiatives. So virtually that whether it is our sales force, whether it is our painters whether the [indiscernible] generation, the dealers, the territory marketing officers, everything we are trying to digitalize so that you are able to -- and through the digitalization process, now we have started tracking that how much sale we are able to convert to the secondary. So what material we are selling to the dealer, now it has already reached to 35% to 40%. So the moment we are able to cross 50%, 60%, then we know that whatever we are selling, we are able to convert to the secondary sale, therefore, that how your primary sale can go up. And so we are working in this area continuously, how do we take care of the consumer experience. And there are a lot of nudges, which we are going to bring in other differentiation as a part of this digital strategy.
This is related to our safety. We go through global safety quality and our scores are in the high range. These are some of the awards which we have won, One of the awards we have got is Dream Companies to Work For, and then there are quality awards and digital in the manufacturing.
ESG, as I said, it is linked to this purpose also. And we are part of Kansai Japan. They're also very conscious about it. So we are working in the area of emission, energy, climate, water. In the water, we are already neutral. Now, we're heading towards the water positive. We are the company who has committed for Science-Based Targets for the emission. And in energy management also, we are Science-Based Targets, and the climate change TCFD is something which we are adopting. There are very less number of companies in India who are doing this, but we are doing this -- and we got some of the awards from S&P, FTSE and CRISIL, where we have been rated -- in our industry, we have been rated at a top level. But even in the -- if you compare with the other companies, we are in the higher quartile.
This is CSR initiatives, which is like the UN objective where they have sustainable -- the Sustainable Development Goals. And we have a social purpose. So we have chosen 7 out of that. And our CSR money gets spent in terms of education, the water conservation. So these are some of the areas we are spending our CSR. These are some of the pictures. So these are some of the pictures of CSR.
Shifting to the financial performance. So you must have seen the results. So this is our growth. In this quarter all the businesses have done well. All the businesses are double-digit growth, integrative, also double-digit growth. The volume growth is also double digit. And obviously, EBITDA -- these numbers you must have seen. This is on the consolidated basis. The result, you must have seen that. In the working capital also, we have reduced our inventories. So I know that they are working capital, which was around 30% of the revenue, it has come down to 26% now. So here also, we have made a good progress in this year.
Dividend, to be declared 2 70. Last year, it was 2 25. But we are in the range of that 1/3, 30% to 32% is something which we have been following. And also this year, because 2010 was the last year when we offered [ bonus ] and we wanted -- we thought centennial, but COVID. So this year, we considered [ 1 is to 2 ] bonus. Also obviously, this is subject to the shareholders' approval, but this is another thing which we consider. And this is our CapEx. You can see the numbers.
In the subsidiaries, Nepal is going through some tough time. But fortunately, we have been doing good for so many years. But currently, the time is not so good for this. In Bangladesh, we got the positive EBITDA for the year. It was negative earlier. And there are strategies basically to chase the profitable growth, and it has made progress. Sri Lanka, despite you know what has happened, Sri Lanka we had grown at 83%, Sri Lanka, and increased our market share. So we had some different strategies where it worked for us. So Sri Lanka is becoming good. And Nerofix we have acquired 40% of the equity, and it has become a wholly owned subsidiary of Nerolac now.
So coming back to the Nerolac story. So we are obviously -- when you say decorative industrial business, I discussed with a lot of you. But what we believe, and that's the reason what I was talking about, that we are beauty and production. So we are reorienting our thinking. It is no more decorative or industrial. What we say is that we are providing beauty and production. And we have surfaces. Surfaces are home interior, exterior, mobility, appliances, infrastructure. So tomorrow, there could be new surfaces. But for all the surfaces, whether we have some kind of solution available.
So today, if you look at -- it's a common topic we discuss about the competition. In one of the surfaces, the competition is emerging. But the diversification of what we have, and that is something which is our strength, that there are different surfaces and how we are looking at it. In some of the areas where we looked at our challenges, some areas where it was profitable [indiscernible] sale, how -- we are trying to come up with that. So this is, I think, the strength that we have that we are a very diversified company. And there are areas that -- because some of the businesses, some of the surfaces, where the -- based on our technology spend and the service trend, I think they give us a very stable revenue stream, which is predictable. So even if there is a risk in terms of the competition, one side you have your strategy in terms of seeing that -- because in this time of competition, we are just trying to enhance our ability to respond to the competition because that's the best what a company can do. And that is what I was trying to showcase to you that what we are doing.
But I think the stable revenue stream, which is predictable, and there are segments we have chosen and what we are working upon, is the strength what we bring to you. These are the micro step in summation, what we have done in last 1 year. These are small, small steps we have taken because we are looking for the sustainable growth. And we feel that we have enhanced our capability and ability, and therefore, we are better prepared for the future and tomorrow.
Thank you so much. So now we invite the questions that we have. Can you ask someone to combine this? But meanwhile, we invite the questions. Yes.
This is Mihir from Nomura. So firstly, on -- congrats on the Paint+ range of products. If I can just ask, the Paint+ range, you've kind of filled the portfolio gaps, the white spaces that are present. So has all the white spaces, in your mind that you wanted to be present in, filled with the Paint+ range? So that's point one.
And a few sub-questions. If you can share what is the saliency of [ Vintra B+ ] products in our entire sales? So that's the question number one, sir.
Yes. So actually, we decided the list of the product, which we wanted to introduce in '22, '23, that list 100% we executed. There are some more products in pipeline and that will come forward. Fortunately, there is a change in the market also our dealer network. The -- earlier they used to register that more number of [ products ] are coming that how do they decide what kind of -- what number of SKUs they have to keep. But they have become more acceptable now, so they are also looking at more and more new products. So we'll keep expanding because -- this is like that we keep spotting in terms of the price point or the benefit. And so we keep scanning worldwide what kind of technologies are available, and therefore, keep coming with the ideas. But for '22 '23, whatever we have decided, we have executed. In terms of sale, the traction is good. I'll not be able to share the number. But the numbers are continuously moving up, reaching closer to the double digit, you can see. And that is how we are replacing those once that we start getting a contribution from Paint+ product, there you are building the loyalty with the kind of product which are a little different. I've not mentioned, but we also introduced next-generation range of white -- these are better white. It doesn't turn yellow -- otherwise, the white turn yellow. And these are basically given -- as our distribution strategy also to next generations some of the distribution counters that we have created. So it is helping us, and I think it is gradually making improvement.
A follow-up to the question, sir, is you had put in a lot of new initiatives in the influencer program. You had earlier spoken about a new go-to-market strategy where you will showcase -- you had a different distribution system. to push these paint products. Anything that you can talk about on the distribution front, how we have scaled that up? Because we've seen the market leader behaving like a challenger and growing distribution very across the board, basically. So how does that kind of tie up with the product -- new product launches and the new strategies that you had spoken about?
See, distribution is instrumental because the product is the starting point, whether we have the good product, breakthrough products. So that was a starting point, Paint+. So we concentrated on the product paint. Second is that if we have the product, can I demonstrate to the market that the product can be converted to a sale? So that's why the influencer management. Once we have completed that, the distribution is incidental. In last 2, 3 years, our run rate for distribution opening has been in the range of 8% to 10%. But we believe now that stage has come, we can scale it up. When you compare the number with the competition, what they talk about is the combination of direct and indirect distribution. We generally don't talk about indirect distribution, though we have also created our distributor network, and we have started tracking the opening of that. But generally, we don't talk about the indirect network. So our run rate has been at 8%, 10%. But with the [ exception ] of the Paint+ and the influencer strategy, we believe we'll be able to scale it up now.
Got it. Sir, I wanted to move to margins. About 3 to 4 quarters back, the difference in industrial margins and deco margins was somewhere close to about 750 basis points. Historically, what we had understood was on an EBITDA level, it was kind of similar range. Has there been a meaningful -- I know that you've taken substantial price increases and bridged that gap. So is the gap completely bridged? Will -- if there is still a gap, will that gap get bridged at all? Or will the gap still remain? And secondly -- so first that. I'll wait for the other one.
So you're saying gap between decorative, industrial?
Yes.
So if you remember that when we started the year, the margins were bottomed in industrial, very, very low margins. And I think we've been talking about it that our target is to see that how do we reach to a double digit. So I think we are entering the zone in terms of this particular thing. Bridging the gap, yes, the gap is bridged. But the balance gap, probably new competition will bridge. So it may happen that way. But I think from our point of view, what we looked at is that make some investment in decorative because decorative, we wanted to catch up with our growth plan. And in the industrial, we wanted to improve the profitability, which I think we have done successfully. One reason is the price increase. 100% of the customers, we have been able to take the price increase. So if there was a discussion that you cannot take the price increase, we can take the price increase. There is a time lag. It happens, but we can take the price increase. There are a lot of other initiatives in terms of technology, which are differentiated products. And the service, which you are able to build as a competitive advantage, give us reasonable confidence that sustainability because in industrial, the important point -- I think what is important for all of you to know is that whether the margin is sustainable because we have seen up and down, up and down. But I would say, as of now, obviously, the decorative margins would always be higher. But I think it's -- in our mind, I think we have reached to that area, which is acceptable range. And sustainability is more important, I think. .
Sir, and the follow-up on that is the industrial price increases. Have we completely done with the price hikes in the industrial auto, non-auto industrial segment? There is still some more price increases than we can expect, which will still support some margin improvement?
No, we have completed the price increase. And smaller things could happen, but we are completed the price increase. .
I have a few more long-term ones, I'll come back in the queue.
Abneesh here. My first question is on advertising and marketing. So when I see in terms of brand equity, you claim to be #2. So if you could elaborate that because in terms of advertising budget, even the company which came with an IPO few years back, they claim that their advertising budget in deco is now bigger than yours. So if you could elaborate in advertising budget. Also, are you now #2, which tallies with your brand equity? Second is, in your advertisement, you are using that interesting line of Japanese technology. You also mentioned that beauty and protection both are important. Sir, in a home decor, hasn't customer now moved more towards beauty and home decor? So does Japanese technology kind of tagline help here because market leader also has these specific products which you mentioned? Some of those would be unique. So does that help in deco -- home deco business? Or it is too early to call that out?
So the first question, when you talk about the advertising, see, brand equity and advertising, these are 2 different subjects. Brand equity is what you build over a period of time. So how you take that is top of mind awareness, the total -- the awareness scores or the brand equity index, which you do our research to, say, companies like Nielsen or [indiscernible]. So [ their intact ] our mind share. So it is basically if the decision is left to consumer to buy, which brand is going to buy because in between them, there's a distribution influencer who can change his choice. So in terms of the recall, we are the second highest recall brand.
Just to give you an example, new companies can come in, they can advertise. Just for example, Dunlop. The company does not exist but the brand still exists, okay? So it is like that. If you see Sony, the distribution could be very weak. But as a brand, the recall is very high. So that way I'm saying the brand is -- we call is very high. And even in the yesteryears, if we have reduced our marketing budget, our brand recall has not gone down. So that's the strength what the brand has built. Now when we up the advertising, the only difference is maybe with INR 100, we'll be able to build it further. Somebody -- if somebody else has to do it, he has to spend INR 200, INR 300, INR 400 to build that kind of thing. Advertising budget, obviously, the new companies will have to spend higher. But you start spending, the results start coming in 2 years, 3 years' time. It doesn't -- the needle doesn't move immediately. So that was the first question. Was the second question?
Yes. Second was essentially in terms of the Japanese technology.
Yes. So it's like -- mainly the product where people don't understand the differentiation. The first is whether that -- what is the conviction, what is that thing which you want to tell them that, yes because of this particular reason? Because they want to -- people are ready to experiment today, but they don't know which product is better. So when you are able to work with Japanese technology, I think that gives the first confidence that the product is good. And I think beauty, what you are saying is fine. But the concept of today's customer is changed. Beauty is not what it looks beauty is what it does. In the general, personality, people want to see that how the -- quality of this person, and I think that thinking is changing. The only thing is that people have to talk about it because the paint has a role to perform in terms of the expertise. But people have not been talking about because it is very easy to sell saying based on certainty. But if we talk about it, I think -- in the paint industry, today, we say INR 60,000 crore, INR 70,000 crores, 25% is unorganized, which is a INR 15,000 crore, they're also selling paint, they also provide beauty. But I think the distinction can be created through this functional expertise and our research says that 40% to 50% of the people definitely are ready to look at it how product is different. The only thing is the demonstration is not possible. So therefore, it is not like that you are comparing this TV versus this TV. So how do you demonstrate? And that's why some of this the field work what we are seeing on bringing is a tech on ground, how do you demonstrate that this product is better than that product is the attempt in that particular direction. Obviously, the progress will happen gradually, but I'm sure that the market is ready for that.
Sir, my second and last question is on the tile adhesive. So you have done multiple adjacencies in the last 1, 2 years. So wanted to understand what is the confidence level here because [ Pidilite ] is very strong in overall adhesive, although they are also number 2 in tile adhesive. So here, Pidilite has got a specific brand, Roth, while you are doing it through the mother brand. How does it help? Or is it a problem?
Second is now Pidilite is also entering the interior decor paints. And they have a much wider distribution in paint shops than you and the #2 player also. So do you see that as a big long-term concern -- bigger long-term concern than someone like a Grasim?
So in terms of these adjacencies, the confidence when we started, obviously, we just started without knowing that how much success we'll get. From the last year to this year, if our confidence was, say, 30%, 40% last year, it is 60%, 70% now. It is still not 100%. But we have made progress. What we have introduced is what our distribution can sell. So therefore, the mother brand, Nerolac, will work. Roth is a specialty area expert area, which would be a second point of action. The first is that we have our distribution because our strength area as our dealers, our distribution, what they can sell, that's a range what we introduce. And I think from 30% to 70% confidence level we have reached. And I think we -- sooner we should be reaching to a further increase in the confidence level and then the right time would come to get into this expertise area.
So it's like -- that they have the distribution, but distribution doesn't mean that all the people are keeping paint. People who are not keeping paint, whether they can sell paint, difficult to say because you have to bring the footfalls, you have to generate the influencer demand. It's not so easy. You have to spend a lot of money. People who are already selling paint, why should they replace existing paint the other paint? Difficult because, today, the number of shares which are being provided in the industry are quite large. So multiple products, multiple basis. So unless that the people who are not -- who are dissatisfied in the existing, company, there's the opportunity, or maybe you spend big money in terms of pulling. Otherwise, it's not that easy that people will stop. .
Avi here from Macquarie. Sir, I wanted to just build on your earlier comment about industrial margins being in a comfortable range. Could you give us a sense how are they versus pre-COVID levels, prepandemic levels or normalized levels? Just to get some sense on, is it still down from that level and how much...
See, highest margin in the industrial, I think pre-COVID, we must have seen more than 15% of the EBITDA level, Not sustainable because maybe for some period, you must have seen that.
[indiscernible].
Yes. So I think double-digit margins, sustainable margins, I think that is what we are talking about. And with what kind of efforts and this strategy have reach to that margin -- sustainable margin. So I think the double-digit margins are sustainable margin. Maybe in between some years could happen where the industry growth is very high or maybe we get a better margin. But there's a sustainability, I think that would be better considered more on the volume and maintain double-digit margins.
So how far are we -- I mean, below that journey is what -- so I understand that...
As close as you are.
Okay, sir. And sense on -- just on the sense of the digital investments. Now clearly, we are doing a lot of work over there. Could you help us understand how does this compare contrast versus industry benchmark levels? Are we -- is this a catch-up exercise, the way we are doing in new products? Is this something that will be completely different from what is already existing in the competition? Some sense on that, sir.
It's a mix of both. For example, like I spoke about project market, we are going to the newer market. it's a catch-up game because we're in 35 now, 55. It's a catch-up game. Some of the products, it's a catch-up game. But there are many products which are unique in. There are many products where we are democratizing the thing. As I said, this [ track, ] which is typically the property elastomeric paint, but that's very expensive. So now you're able to bring the similar property at the lower price point where you can generate. So I think there is a sufficient amount of uniqueness in terms of special feature or democratization. And there is also a catch-up game. There are certain markets where we are weak. Now it's a chicken-and-egg story. In the weaker market, you put the team first and then get something, or you wait for the productivity. That's a mix of both.
What about the influencer marketing, the app-based, those are already existing in the market, sir?
So there are a lot of uniqueness. We started disbursing the painter incentive in [ 2 minutes ], all right? So we were -- less than a minute. So we were the first company to do it. 10 seconds. So earlier, we used to take 30 days. We are directly connected with the painters now, 100,000 painters are directly connected. So there are certain uniqueness. So what happens is that today, finding that unique thing, okay, is very difficult because the uniqueness lies in the details, not just -- so our attempt in the influencer marketing also that what mergers we create, which are differentiated. And obviously, you can understand that all of these things we cannot talk about, but yes, there is a differentiation.
And lastly, sir, I mean I can sense increasing confidence in the initiatives that you have launched. Would you be able to give us some idea of -- historically, we have -- I got to get 3 years, 4 years back, we were leading the industry by a wide margin in terms of growth and decorative. We probably -- from there on, there has been a change in pace. But in your estimate, guestimate, by when do you think we can probably go closer to that path?
So as you said, yesteryears, we were going well then. There was a period we committed some mistake, we learned from it, we moved on. And I think last year also, I think this point discern that time also, we said that to any company, any new CEO, you have to give some, what, period, 5 to 6 quarters. So I think 4 quarters are over. So I think we are very close to that stage. That is what we feel. I think quarter-on-quarter, we made progress. I think in this quarter, fourth quarter, we feel that we are quite close. The results are still not out, but we feel that. So I think we are making a gradual progress. And every quarter, we have seen the progress. So that gives us the confidence that what work we are doing is moving in the right direction. And our ability to respond to the competition, the changing competition is going up.
It's Jay from Kotak. Just a follow-up on Avi's question on margins. So if I interpret it correctly, you're indicating that your close to double-digit EBITDA margin for Industrial business. That implies that your decorative margins are barely about 10%, 11% at this point of time, 4Q results. And if I understand correctly, decorative margins were about 18%, 19% pre-pandemic peaks. So when I look at KNPLs 4Q performance, there is perhaps a gap of 800 basis points in EBITDA margin for decorative business. Whereas others are yet to report, but our expectation is that the gap has narrowed for others to 300, 400 basis points. So is this investment? Or is that something has changed structurally? And what do you think is the sustainable EBITDA margin for decorative business based on the visibility you have today?
Difficult to give the numbers straight away, but I can only tell you that -- when you say 18%, 19%, that time the industry has seen 24% margins also, right? So between the leader company and the challenger brand, there would be a difference of 400, 500 basis points. So you can look at the margins, what the leader is operating at, which is about 19%, so 400, 500 basis points if you calculate, That's a sustainable margin because that much of money definitely, as a challenger brand, we are required to invest into building our efficiencies, the marketing, advertising. And we'll definitely not shy away in doing that. I think that would be the sustainable [ mark. ] And when you talk about this quarter, I think we are saying that we are entering that zone, right? So -- and therefore, we are reaching to that particular area. So I think margins are in this kind of range.
That's helpful. Second is, could you sort of give an overview of what's the outlook for different segments of industrial in terms of -- and I can understand the environment is quite challenging and volatile. But over a 2-, 3-year period, how do you expect each of the segments that you operate in within industrial to grow from a revenue perspective, more normalized growth rate? And second question there is, when we talk to a couple of your listed peers, all of them claim that they are gaining share in auto coatings. And in all the 3 segments, you've also indicated that on the slide. So who is losing market share? How easy or difficult it is for each company to compute the market share trends in this segment?
Industrial, if you see auto sector, that is obviously cyclic. But the long-term prospect is very good. The kind of capacities which the customers are creating, the penetration of car in India, we see it is very, very low. Even if you compare with China, or U.S., there's a big difference. So the long-term prospect -- so there is a cyclic nature, but the long-term prospect of auto is very, very good. In the other part of the industrial business, which is your high-performance coating, even the short-term prospect, medium prospect is very good because the government is also putting a lot of focus. A lot of CapEx is being spent by government. So we see good progress there. A lot of government business, which used to be taking the low-quality products now shifting to the premium products and high-level products. So I feel that there's a good potential even in the next 2, 3 years' time. but consistent growth. Sometimes we feel that if you compare with the other countries where the contribution of industrial is higher. so let us to say -- so there may be a possibility. There may be a slight possibility that going forward, the contribution of the industrial improve. And I'm saying mainly even the nonmaterials. And there, fortunately, as I spoke about, there is a good business potential even in the premium areas and the profitable kind of business mix.
A follow-up, if I may. Do you, over the next couple of years, expect industrial coatings to grow faster than decoratives, ballpark similar or slower?
So because our market share is low in decorative, our internal intent would be that decorative grow faster. What really happen, we'll have to wait and watch.
From Avendus Park. So a couple of questions. So first, at a very broad level, if I see last decade, the first 5 years were very good to 2018, '19 for the industry. Impact the '18 and then we have seen a sudden slowdown in the industry. And on top of that, when we see the kind of competition this category is attracted, it is like unprecedented. So when we add those 2 factors, how do you see next 3, 5 years in terms of growth runway also and the competitive landscape, how it is evolving?
See, I can only share from our experience that it's not an easy industry. So if you want to make some place, and there are players that have entered this industry and we have seen what has happened. We have seen some successes also in our specific states. But there, what kind of money is spent and then what kind of market share is created, so if you look at one company who has created a good market share in a state like Tamil Nadu, spending what kind of money and then waiting a market share of 7%, 8% over a period of 13 years or 14 years. So that's the best case study, which is available today. So it's a deep pocket, sustainable [indiscernible]. And whatever you create a ripple. It's about 3 years because what we have seen in that state for those 2, 3 years, the existing companies got impacted, But then they're back in terms of growth because there is no problem. But there is a reallocation of the share happen.
And then -- so if you look at from the long-term perspective, it shouldn't be a problem. So that's my take. It's not going to be very, very easy. And from our point of view, if you look at it, in decorative, our market share is low. We are also market -- we have equal opportunities. It depends on how do you change the approach. And as I said, that there are certain markets where we are not available or present. You get into those markets, your brand is already there. You start taking those steps. And definitely, today, when I disclose some of you people feel that where the market share is lower, it is the companies are vulnerable. I don't believe in that. ultimately, you need to have a strength, and that is what we are trying to build upon it. And if you create your solid infrastructure background and systems and processes, I think we have the equal opportunity to go to the newer market and build our market share.
And sir, in terms of market share, when you see a portfolio and regional presence, would you like to share some insights on region or product portfolio where you are highly under indexed versus your average? And where your incremental focus will be in the coming period?
So in terms of regional, North is a strong market for us, followed by East. And then West and South is a weaker market for us. Product portfolio, we are good and popular in economic category. Premium is a weaker area for us, which through the Paint+ we are focusing upon. In terms of rural urban or tier-wise, if you see Tier 2, Tier 3 Tier, Tier 4, we have a very good market share. Tier 1 is a weakness for us. And the services and some of the contractor thing, what we are talking about is basically a Tier 1. Does that answer your question?
Sure. And sir, last one, if I may. Extension of [indiscernible] only. So when we see -- when the competition that we spoke about and the incremental effort that we are putting to gain market share, should we assume that at least in the near term, the best margins that we saw pre-COVID will be a slightly distant event for us to regain? And the focus will be largely on to gain market share and build some more presence in the crops?
So focus will be to build volume sales, whether it's a decorative. And as I said, there's a good opportunity in the industrial, certain areas, everything we cannot speak. But that is also because there are exhibition capabilities, let me accept it, is far, far better. There are some low-hanging fruits. And we have realized that there is a lot of juice in that business also. So idea is to basically build volume to what possible extent. And to support those initiatives, whatever investments are required, those would be made.
This is Rohit from Entrust Family Office. It's good to have your thoughts on the construction chemical side. As we understand, we've been underindexed compared to the leader in waterproofing, and we've been trying to plug those gaps, right? So what's our strategy there? I mean, the impression I get is it's more like just catching up and launching those external sort of waterproofing products. Is there any differentiation there? Because overall, if you look at the market, I think this is something which grows at maybe mid-20s compared to the decorative paint market, which probably close at mid-teens. So what's our strategy there? And...
What is the -- sorry.
Sir, I just wanted to add that I think if you are at a mid -- maybe a 5%, 6% share of waterproofing now, our total sales is the number I think you've given one of the calls. Do you have any target in mind as to where this kind of settles a couple of years down the line here?
So far, our strategy was very simple, catch-up game, no differentiation. But as I said that when we have completed the range, now there are certain products which we are introducing which are differentiated. Otherwise, so far, it was would be a catch-up game based on our distribution. And what we are looking at is because our market share is closer to 10%, the first target is we reach closer to 10%. And after that, then we see how to take it forward. But that's our first milestone.
And any comment on the B2B versus B2C mix because some players are very aggressive on the project side of waterproofing, whereas someone like a is [indiscernible] probably stronger on the B2C side. .
Project side, we were, again, we clear, but we expanded the team. We expanded the market. And obviously, the water proofing is a part of that particular thing. And today, the growth rate in projects, I think we are catching up or maybe doing better. So we have already caught up. Because that's like a -- you have to just establish a knowledgeable techno-commercial team who goes to this big buyers and able to demonstrate and explain the product. That was a kind of catch-up game for us, which we have done.
This is Sheila from Morgan Stanley. My first question was on the Industrial segment. It feels like we're doing very well there. We're gaining market share across categories. Will it be fair to say that the growth momentum there could be much more superior than what we could see in the decorative segment over the next few years? Of course, there's an industrial cycle which is picking up. So why are we not putting in more energies there than more innovations on the deco side?
So these are separate business units for us. So there are strategy for each and every business. But I think I mentioned about it, that our focus is when we talk about the industrial, one is the auto where our market share is pretty high. Within auto also, we are trying to increase the size because we are the market leader there and [ the role of ] any market leader will be to increase the size. That is what we are trying. In the non-auto area, which is high performance coating, the liquid coating there, there is definitely a potential and our market share is within 20%. And there, we are putting a lot of focus. Again, we are taking initiative in terms of technology, tie-ups, the increase in the manpower and the approvals. That business is based on the approvals. So we have taken a lot of steps and we are reasonably upbeat to increase the business there.
Where I'm coming from is, isn't it going to be much easier for us to take this business much -- make it much bigger than where we are currently?
Yes, yes, it is. And in our mind, the direction is there. .
And with much better margin profile because you talked about more premiumization?
Yes, yes. That's the direction [indiscernible]. So you can say that's what I spoke about, that the fragmentation of the diversification which we bring at the sprint. So one side that because our market share is, say, around 10% in decorative, as I said, there are markets where we can play our game, and we can do that. And it's a separate strategy business unit. So we are -- that strategy is there. But if you see from the market point of view, tomorrow, if you are saying the short term, there's going to be a fragmentation and therefore any kind of risk, if you say one of the mitigation part is that area. And we are definitely working very seriously on that.
And the second and final question is on the deco segment. What I wanted to understand is going ahead, what the focus will be on market share you've been talking about it or on margins? Will we defend our market share? Or will we defend our margins?
So I think margins in the sense that the focus would be on profit. So there are -- so in our case, we look at our return on capital employed and earnings per share because that's one area, what we are focusing, and what profit can make you achieve that? And I think that's the point. So if you say that whether you are so focused that you get 15%, 18% rather of that approach, no focus on profit because with the less growth, you can get a better profitability but lesser profit. I think that's the approach that we are taking, that generate the profit, which gives you a good return on capital employed is that the part of our strategy.
Just one follow-up here, and that's it for me. Is -- do you sense that the competitive intensity even amongst the existing players have gone up much more than where it was, say, 3 years ago?
What intensity? .
Competitive intensity.
That has gone up because when you get the news that the new competition coming, so the intensity has gone up. Definitely, it has their impact. People are a bit more aggressive. There are certain product categories where the discounts have gone up, Marketing activities have gone up. But it's good. I think one good outcome of this activity could be because in our industry, the penetration is still within 55%. When these activities goes up, the new competition also come in, the penetration should increase. There may be a possibility that the market growth is still -- itself will show some kind of uptick. The other is the formalization, that every year it happened, But the speed of shifting from the informal sector to the formal sector also would change.
Sir, Ramesh from [ Meta and Vakil ] in the recent times, particularly if you see in the IPL, the competition, like JSW Paints is -- having a brand numbers that are in alia, but in their ad or in their communications. Indigo Paints is having [indiscernible]. I personally believe that a company like yours, Kansai Nerolac, it can we invent the communication aspect with a brilliant brand number setter, it would do wonders. Vision Paints is deploying Ranbir copper, but for xTerrain, where Asian paint stands at #5. Internal Decorative Paints, we are #1. So personally, I see that Nerolac has been in existence for a very, very long period, in fact more decades. And somewhere, the connect with the consumer is lost. So why not have an extremely powerful brand ambition in the communication across all media, digital, print, TV, newspapers, you say that.
Thanks for the suggestion. I thought that we should tell our story to you said all of you become our brand business and help us increasing our market share. So I agree with you, I think in the past, we have had the brand investor, now also we have [indiscernible]. And if you see the campaigns that we have shown here, we are talking more authenticity where we are saying the Japanese expert who is talking about the Japanese technology because in some of the cases, you can see -- if you see the case like Dow, in case of [ Hindustan ], that is endorsed by the medical fertility. So sometimes that today, there are many options available in the world of digitalization, even the influencer recommendation. So there are many, many ways. So we do have the investor. And I take your suggestion. Maybe at the given time, we'll see. But I think more important is that somebody from the industry itself was the expert and who knows the product and talk about the product, I think this millennial generation is more hooked towards that. So it will be a combination. The brand MLs only help in the sense that when you advertise, maybe it catches the eye of the people, that maybe they are not wanting to see, but because of that reason they see. But how much they are able to register the message, but it's a mix and match. You have to generate that kind of positivity in terms of years, this is seen. But I think as of now, we're working more in terms of quality, but blended with -- because we have the blended business also. And the communication what we have shown there, you can -- you could have seen that 2 firms are with [indiscernible] and 3 firms are without [indiscernible], which is like a common people because I think that's a very authentic story and that -- we feel that there is a chance there that when you talk to the people in their own language, probably it will be in the consumer connect.
Absolutely. And second observation was, sir, I stay in [ Anderi West ]. And I went to the distributor in the whole area. There are 2 powerful people. At both the places, I found Asian Paints executives standing outside the outlet. And unfortunately, at both the outlets, after Asian Paints, they are stocking [ drillers, ] but they are not stocking Nerolac, neither they are stocking Paints. So I think as far as distribution goes, your manpower or force -- sales force should become proactive and penetrative.
No, I agree with you, definitely. So Mumbai is one of our weak markets. So I understand. I know -- I'm very well verse also. I understand who you are talking about also. It's a weak market for us. And as I said, that obviously, we will not be able to do everything because, obviously, you also expect us to generate sales and profit both. But yes, the investment what we are talking about, we are moving in that direction. The team, the support with the team, the digitalization, the activities. We are working on that. I think -- and that's the opportunity for us that when we are not there, that's the opportunity available for us. We are working on it.
And you've got a wonderful Impression range, particularly for the whites. .
Thank you so much for giving us a compliment. Anyone else? .
This Mihir from Nomura here again. Sir, can you talk a bit on the overall demand environment? Now we are entering in a phase where the pricing lag that we had taken over the past many quarters will start disappearing. And we will be largely left with a negative mix and the volume-led growth. And given the raw material prices have meaningfully corrected, visibility of any further price increases also seems to be at a distant. So how is the demand environment currently maybe in the near to medium term? How is it shaping up? Can there be a case of preponement of demand during the COVID period? And hence, is there a possibility that we can enter a very low demand environment? I mean, we have seen this -- of course, not comparable. But in other FMCG companies, we are seeing a lot of down-trading to low-priced SKUs while volumes are remaining flat, smaller SKUs are growing. So on an overall demand sense, if you can throw some light on the near to medium term, what is the kind of volume growth that we can expect. Earlier, it used to be a multiplier to GDP. But what can be the case in the near future? .
Correlation with GDP is still there. So we expect a GDP growth of 6%, maybe we can expect the demand of 8% to 10%, and there will not be much difference in value and volume. And this I'm talking about for all businesses, whether it's decorative, industrial, any part of the industrial. So because the average selling price would be similar so there would hardly be any difference. So that's what the possibility is. In terms of this year, Diwali is in the first week of November. So our past experience says that whenever the Diwali is in the month of November, we got a good season because, generally, if the Diwali is in October and now the monsoon get extended until October. So there's hardly any period before Diwali for the painting. But this time, it will be a longer season, there could be a help in that. But I think there's a stable demand. So even in the automotive sector, what we have seen, one reason was outlier because in the last year, the month of May, previously there was a COVID impact. So the first quarter growth has been very high. Now it is a stable demand. Automotive, probably one can say closer to 10% or maybe 8% to 10% demand will continue. Rural market as of now is not much predictable, But I think because the first quarter was not so good. 2 quarters, we saw that rural demand is coming back. Fourth quarter, again, there is some kind of distance between the urban demand and rural demand. Obviously, we are talking based on our data so we don't know what is happening in the industry. But we believe that still -- the monsoons are good or this the impact of what we are hearing now is not there, then I think the rural demand is up because people are spending money, people are -- and therefore, some where the money started going to the rural market. And if that happens, the 2-wheeler, we feel the demand will pick up because of 1 or 2 years, it was subdued. So I think in all the sectors, we are seeing a kind of stable demand, some areas related to infrastructure, we'll see a better demand. .
Second question is on competition and capacity. Everybody has increased capacity in the wake of the competition as well. Do you think that historically, we have not seen such a lot of capacity coming in the paints category at the same time from -- and especially given that all the other players are also regionally diversification is there. So then you take any player, you are -- there can be a case of excess capacity in each of the regions, cumulatively also. So is there a case a possibility that we can have excess capacity and then that can lead to a possible price cuts or intense competition? And how do you see that scenario playing out, sir?
I guess, at least for the existing players, we're not in much of the case. I can only tell you that INR 60,000 crores or INR 70,000 crores based on the industry. If the growth is 8% to 10%, INR 7,000 crores is the growth from the INR 7,000, INR 1,000, 2,000, 3,000 even if that is shift off, how it will impact the capacity. Maybe your capacity utilization, if it is going up by 3%, 4% every year, it may get reduced to 2%. It will not come down. So it's because whatever growth this new competition is going to create will be from the additional growth. So to that extent, only the reallocation will happen because that's INR 5,000 crores, INR 7,000 crores every year, which is getting added. It still is a good size. So whatever new competition happens, it will be only from that. So the worst risk is that we are not able to increase your capacity utilization.
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You can see that you're quite geared up with a very strong Paint+, Functional plus portfolio to take the competition here on.
Can you share something on capital employed in international subsidiaries? And what are your views? And when are they likely to be yielding some positives?
Sorry, your first question, capital?
Capital employed in international.
International subsidiaries.
Yes..And when do you think that there will be giving some benchmark return which you expect?
Mike?
See, if you look at our subsidiaries, the capital employed is as per whatever we had planned. And we had additional infusion in our Bangladesh and Sri Lanka subsidiaries. So we are very mindful of the fact that whenever the capital is required, we are giving the required capital so that all these countries, this -- other than India, these counties are going through a financial turmoil. And in this condition, we have to support and we have been doing that. And based on whatever we have supported all -- all these 4 companies have been -- are in profit right now. Initially, when we took out the big losses, in the fourth quarter results, all the 4 subsidiaries have turned around. So this is a positive sign, and we will be funding this companies regularly and when it is required.
Yes. Can you quantify? And what is the benchmark return which you are expecting maybe 3 to 5 years down the line, not saying 1 or 2 years of turmoil?
So very difficult to make a guess or statement right now because it will take some time for these companies to mature. And maybe I don't expect EBITDA margin in the way we are having India immediately. But for example, I'll tell you in Nepal, they are giving a better return than India, right? Whereas in Bangladesh and Sri Lanka, it is still on the maturity stage. So we believe that it will take about another 2 to 3 years for them to mature until we get us a benchmark at an [ offer ] 12% to 14%. .
It also depends on because these countries are also facing some challenges. If you see our quarter 4 results, you will find that the standalone and the consolidated, consolidated in terms of EBITDA is slightly better than the standalone. So obviously, subsidiaries have contributed to that. But also like in some of the countries, the Jan to March quarter, it's supposed to be a season period. And Nepal, so the last year, Sri Lanka was challenged, but we still had a growth of 83%. Bangladesh was a challenge, and therefore, we changed our strategy to a profitable growth. So we are making progress on that. But Nepal, as he's saying, that has been giving us a very good return, but there is a pressure on Nepal. So in the other market, we have made progress. But if Nepal come out of the challenge, I think then the situation will come back faster.
And something on Nerofix?
Yes. So Nerofix is a wholly owned subsidiary now, and we have been doing a good business. And again, it's a very good mix and synergy with us because we have the adhesives for B2B and B2C both. And now since it has become wholly-owned subsidy, we have a plan to take it aggressively.
Can you share some more thoughts on increasing your size of industry in auto space?
Size of?
Auto.
Size, yes. As I said, there are certain opportunity areas. Like [ seam sealer ], what we introduced, which is under body sealer. There are fastener coatings with the help of our Helios in Europe that we introduced, the target painted in the booth, booth required booth chemicals. And there's a pretreatment chemical where we are not there. So that is what we are entering. So these are some of the opportunities which we have been able to identify [indiscernible we have made some progress. So these are the areas through which we are trying to increase the size of the market. .
Can you share some numbers? How big are this collectively put together? .
So these areas would be about INR 600 crores to INR 800 crores kind of thing. So these are niches, but give you a good profitable business. So these are the sizes. As of now, we have been able to spot these areas, there could be more in the pipeline. .
And they've been niche and small volume requirements, margins will be obviously high.
Yes.
And will you be needing some more CapEx to be done for that?
Yes. So in fact, some of the areas where we have entered, we have already -- like in sealer, we have already installed the capacity, faster coating, we have already installed the capacity. So that, we are doing.
Ajay Thakur from Anand Rathi. I just wanted to have 2 queries kind of addressed. One was you mentioned about 1 lakh painters reach that you have. Can we get some kind of a sense what would be the universe of the painters across India? And/or what could be the reach of our competition in the painters reach kind of a thing? .
So number of enters in the country would be around 20 lakhs, 20 lakhs to 25 lakhs. These include small, big painters all. About 7 lakh painters are the painter -- weighted range painters to drive the demand or you can say 80% is what they are doing. Out of 7 lakh, our reach would be 3 lakh, 3.5 lakhs. 1 lakh is we have started engaging on the personal level. Our reach of the 7 lakh -- because we may be reaching to 10 lakh painter, but that number, we are not able to track. What we are tracking is about 3 lakh to 4 lakh of number and 1 lakh number where we are able to engage with the painter. .
Secondly, I wanted to understand a bit more on the high-cost inventory that we had mentioned last time in the last quarter. Have we exhausted that inventory? Or some part of that is still there in our raw material for the next year?
It's more or less exhausted now because, as I told, it takes about 4 to 6 months. And that cycle is more or less over now.
In the industrial category because geopolitical situation is still not so supportive. So some items, we keep higher inventory, But yes, we are reasonably hopeful.
This is Archana from Morgan Stanley. Two questions. Firstly, just continuing from the point on the capacity addition side. What are the plans that you have for the medium term to expand capacity to benefit from the growing demand? And secondly, just to get a broad sense of your revenue split right now. Earlier, you used to mention split of around 55% deco, 45% industrial. How does that look like right now?
Also one request, sir, it would be very, very helpful to us if you could start disclosing segmental performance also in terms of numbers going ahead.
Capacity, as I mentioned the presentation, 606 million liters of the capacity what we have. We already announced the capacity expansion -- partly the water-based capacity extensions of about INR 300 crores is the investment, which we announced over a period of 18, 20 months, which has started last year. So that's the capacity expansion we are doing, and what was the question.
The segmental split.
Split, yes. Generally, we maintain 55-45. Obviously, sometimes it goes the 2% higher or sometimes 2% lower. It keeps ranging from 53% to 57%. Obviously, in the last year, the industrial contribution was more. The decorative contribution has come down. So it's not -- to be very frank with you, we generally don't give exact figure. We say 55-45. Sometimes it has gone up to 57 also. So it is in that range only. Segment-wise reporting , we generally don't give.
So with that, I think there are no more questions, we'll end this.
So I think we have received some questions from those people who are attending on the Zoom also. There's a question on ROC in financial '23 is around 13%. By when can we expect it to go back to historic rate of 20%?
I think our ROC is 14 point -- 14 plus. We have already made some progress from 12.5% to 14% plus we have come to. 20%, I don't know, but I think in our mind, 17%, 18% is the right figure. And I think that's right -- in our kind of mix for decorative, industrial, that is what we are looking at.
By when will the land sale of [ value ] 660 will complete? But it's not INR 660, it's 655. But yes, it's under process. So we hope to get it sooner. So this was one question.
So thank you all. Thanks for your question, and thanks for the participation. After this, we have this, we have [indiscernible]. Kindly please enjoy. And during this course, we can always discuss if you any further questions. .
Thanks for coming. Thank you so much. Wish you all the very best.