Kansai Nerolac Paints Ltd
NSE:KANSAINER
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Kansai Nerolac Paints Ltd
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Good evening, ladies and gentlemen. Warm welcome to all of you to Kansai Nerolac Investor Meet for Q4 and FY '23 '24 results. First of all, many thanks to each one of you for coming for coming year despite your busy schedule. I know a lot of companies are declaring results and you are busy covering them. Thanks for coming.
You're aware that Kansai Nerolac is more than 100-year-old company. And today, we are in the 104th year of its operation. We have with us today Mr. Anuj Jain, our Managing Director; and Mr. Jason Gonsalves, who is Director, Corporate Planning, IT and materials. Also, our entire management committee is here in case any of you want to interact, you are free to do so.
You all know that we are market leaders in industrial paints and with a very high market share in automotive paints, and we can say with pride that one of 6 or 7 cars are painted by Nerolac. Our industrial growth for the current year has been very good.
For the past few years, we have been taking a lot of initiatives to [ in decorative ] area, and it has started showing results. And if you see our growth in this fourth quarter, we have been able to deliver double-digit volume growth in security as well.
Overall, our performance for the year has been pretty good with EBITDA growth of about 29% and profit before tax growth of about 42%. Now without wasting more time, I would like to invite Mr. Anuj Jain to share his thoughts. Post this, there will be a Q&A and once again, thank you very much for coming. Thank you very much.
Good evening. Welcome all of you. Thanks for joining today here. This is our second physical in-person meet. In fact, based on your suggestion last year, we started last year, same month, we had the first meeting and then we are continuing this practice, all suggestions from all of you. I'm Anuj Jain, and it will be my pleasure to walk you through our company's performance and outlook.
As Prashant introduced, I think the entire management team is [indiscernible] -- and the management team, please just get up they can all see you all. So this is our management committee team, entire management committee team is here. And I'm going to share with you that what -- how this team is leveraging the opportunities and navigating the current market dynamics.
So I'll take you through this presentation. At least you will go to the next slide. So this is the -- which one? This one Okay. So this is the agenda, which I'll take you through the business environment. I'll talk about the Nerolac story and the financial performance Prashant has covered, but still we will go through it. So talking about the business environment, what has happened -- it's okay. Can you hear me, the backside? Is my voice clear? Okay.
So the demand has been good in automotive. I put automotive penetration in India is low and generally, last 10, 15, 20 years, we have seen that demand is cyclic. But as the country is progressing, the infrastructure is progressing. We believe that in the -- going forward, the demand is not going to be that cyclic, it is going to be stable. So that's a good news for us because we have our largest market share in the automotive.
Infrastructure growth, the government is spending the CapEx cycle has been up. And therefore, the growth in this non-auto-industrial, which is high-performance coating. General industrial also has been quite consistent in the last few years and going forward also, we see the same momentum to continue.
Rural growth has been impacted for the last 1.5, 2 years. And in our business, it was reflected in industrial, it was reflected in 2-wheelers. But last 6 months, there's a pickup there. It is also reflected in the decorative. So generally, in the rural, probably some recovery, which that we are hearing from the FMCG companies also. But in our case, it is seen in the B2B business more as of now, less in B2C business. But in the past also, we have seen that if the rural is in distressed and whenever rural comes out, the B2B does better and then the consumer business follows.
There have been challenges in the business, geopolitical crude fluctuation, rupee depreciated, all these challenges, geopolitical situation, has become something very, very difficult to predict because we don't know what is going to happen every time something new comes up. But despite all this volatility, despite all this uncertainty, I think the raw material prices benign and remained stable. So we have not faced any challenges and I think it is going stable even now.
Coming to Nerolac's story. Last year, we spoke about it. This is our purpose create environment for a healthy and beautiful future is our purpose. And this picture is a matter of pride for us. If you see -- and that's why we say that we are one of the most diversified portfolio in the paint industry. You just talk about the surface which needs a paint and we are there. And in the yellow mark, these are some areas which we have added in last 2 or 3 years' time.
So we are expanding the market. We are seeing that what other surfaces needs a paint, and we are coming up with the product on that. Some of the positive comments related to our purpose, which I said, creating environment for [indiscernible]. We became [ water ] positive in '23, '24. That's a target we kept for us, and we achieved that target. Emission reduction, I'll talk about when it comes to the ESG slide, but that's also -- we are following a target. And the green energy -- and every year, we are making a good progress.
So in the ESG, we have established our metrics, and we are following that metrics and we are achieving our targets. The brand, which is like 140 years old brand, second strongest brand of [ mindshare]. When we talk about the market share, generally, the mind share comes first. The brand has been strong, [indiscernible] has been very, very strong. And even in last 1 year or 2 year, the brand is core, which we call brand equity index has further improved. So our awareness, the consideration all has gone up.
All our communication last year, I shared with you that we are talking about pains, Japanese the leadership in industrial, the Paint+ products, what we are launching in. So that's the innovation we are continuing, and I'll show some of the details with you and obviously, the legacy of more than 100 years. Here, I would like to share one fill with you, which basically captures the essence of Nerolac what we are going to talk about and let's watch for a moment together.
[Presentation]
So this showcase the happy Nerolac leg, the product, the technology, the people that I'll talk about a few points. So coming to give you some glimpse of businesses and regulative. So we spoke about last 2, 3 years, we have been talking about it at what initiatives we have taken in [indiscernible] paint. All of you cover paints, and you know that it has been a very traditional business. Typically, this business was all about -- you have a distribution, you are selling paint to them by giving discount, you're doing painter meets and you do some advertisement, that's how this model has been.
So I think what we realize is that going forward, as the consumer space is changing, the business models will also change. And therefore, we took as a challenge and to understand that what the future business model is going to be. And this slide covers that we started Paint+ new product premium, influencer, new business, project branding, and I'll talk about it that how this journey we are traveling.
So first part is the Paint+. The first part of our journey is traveling from paint to Paint+. So paint is about color. When people think about paint, they want to do a color, but color is given. This industry is INR 75,000 or INR 80,000 crores, INR 15, 000 crores, INR 20,000 crores of informal also. So whenever the consumer is doing a paint, you expect color and color is given on the table. But however the performance because the structure, the -- it needs a lot of solution. And that's why because we are expert in the paint, we are having a great market share in the industrial and our thinking, our strength is the technology, the expert area, how do we bring that decorative and that's what the Paint+ is all about.
So we introduced 15 -- more than 15 products in the last year. The salience is about 10%. We are also launching some of the unique products that could be unique in terms of their feature or in terms of their pricing. So we introduced new product in Paint+. The saliency has increased by 150 basis points. How it helps us or how it will help us in future, it insulate from the competition. because in these products, we are not fighting. So there's no discount pressure or there's no like -- there's a price drop. So here, we take our own pricing strategy.
So therefore, that we are looking forward that how do we keep increasing the sale of the Paint+ products. And the premium, in fact, in the popular category economic category, our market share is better. In the premium category, there was a scope, and that's one initiative we have taken 150 basis point. Saliency has increased in the premium products.
Next part of our strategy is related to influencer. So one is paint as a service. So as I said, paint to Paint+ is the first part of the journey, the product to services is the second part of the journey. So we are selling product. But today, the consumer space is changing. People want solution. That solution can be provided by the services. So we got into the services. We came up with a unique proposition that it can be painted in 3 days, 5 days, shorter time, the convenience spending. And today, the last 1.5 years, because this required to set up a dedicated team, the infrastructure, the digital infrastructure, all that we are ready with and our capability now is to paint 5,000-plus sites in a month. So last year, we got decent contribution coming from the paint as a service, and now it is going up month-on-month basis.
Architect interior decorators are playing a crucial role earlier others to play, but now it is becoming very popular, not across all the towns, but we have identified the towns where the influence of architect and interior decorator on the pain consumption is very, very high. And again, we have created a team. And this is like when we talk about the Paint+ because everything cannot be tackled through the equity spend on the TV. It is like 1:1. So through this team who goes to the site, meet the consumer, meet the architect, if architect want, they meet the contractor. And there we take the opportunity to demonstrate. We have our demo kits which are provided to all these people that how these products are different. And we are already connected with 5,000-plus architects. Very good response we are getting. Whatever site recommendation we get from the architect, 70% of that is the premium product, otherwise premium saliency is very, very low. So that's a good initiative giving us a good traction.
Painter. Painter has become very important. I think we keep talking about the consumer. The role is going up. But in the paint, I think the painter also has become very important because still it's a fact that the consumer does not understand that how the paint is different from the other paint. So painter play that role of consultant or advocate.
So we have come up with the initiative, which led to [ painter quality ] and we are using now the artificial intelligence platform to pick up that -- which vendors are working with us, not working with us, buying this product or they can be upgraded. And earlier, we used to have a general communication for all. Now there is a specific cohorts we come out with this set of [ inter ] this activity, this side of painter, this kind of incentive and there's a capability which we have built over a period of last 2 years.
The last part is primary to secondary, as I said, paint to Paint+ plus, journey one, the product to services, journey 2, and the primary to secondary. The traditional model, giving to the dealer, [ dump ] into the dealer and then waiting whether the dealer is going to sell and how soon it is going to sell, but now there are. Secondary [indiscernible], which again is a team the feet on the street, what we have created a very, very large team who meet the painters. We give them the leads, the dealer gives them the lead. They go to the site, so the customer and try to convert the business.
So this is the model which we have been working upon. I'll show some of the progress which has happened. This is a glimpse of the surveys, which I was talking about under the digital. We are being very, very aggressive in terms of communicating that what this service is all about. These are some of the digital platforms that we have introduced in the last 1 year, a dealer.
So it's a dealer app. The dealers can get any information. He can do any transaction with the company. The painter initiative is 100% on the digital. So when we started some of the new initiatives, we have not given any choice for the manual. So today, we are able to track each and every sale, the incentive and everything, the buying behavior, the consumption. So everything is under digital. The architecture interior designers, they can recommend their sites, and we can track the site and what is the progress, nothing is happening.
We are also ready with the digital commerce, not the right time to talk about what we are going to do, but we are also ready with this platform the digital platform. One another initiative, which we started 1.5 year back, but we are not talking much about it. Now we made good progress on that. It's a next-gen [ choppy]. So there are obviously good big retail counters who want to upgrade their shops to the showroom, so next gen [ choppy]. Now today, as we stand here, more than 80-plus shops we have built. It's -- and then there's a shop-in-shop model.
The right side, if you see -- this is the shop-in-shop model, which is like a smaller space, so that's also 80-plus, and it is growing on a month-to-month basis. It has a very small sensor kind of spectrum automate, which is called [indiscernible]. So ultimately, when the customer goes and 5,000 customers have already tested it in last 6 months' time, 8 months' time, that basically -- that if you have a choice of shade, which is not there in the shade card.
It's a very like button type kind of [ mix], it can read the shade and from the machine that shape can be provided. So it's a very consumer friendly. So it gives a good image and the imagery and the functionality is a part of this concept. New businesses where we started late, but then we entered because our distribution, what we have with us, 25% dealers are exclusive dealers and some of the new businesses were becoming an integral part of the paint.
So we introduced the construction chemical waterproofing, the premium wood finishes. The saliency in the last year has gone up by 180-plus basis points. significant growth in new businesses and the influencer, the product that we are launching, the range is complete, the distribution that who wanted to deal with us for this kind of product is there with us. And I think in the new business if I talk about '23, '24, we have already started doing better than the market.
The project business, because clear cut trend is that there's a verticalization which is happening and it is spreading into the other towns also. The societies, the apartment, multi-level apartments are coming up. So this was one of our weak year, 2 years back and we set our team. We expanded it to 75-plus towns now. The number of active contractors have gone up. We had created a separate brand for project business, which we expanded the number of products in the last 1 year. And the most important part in this business is creating a pipeline. Do I know that how many buildings are getting painted in any town where we are present and how much we know about that.
So it's a very hardware, they're street by street. You have to go and do a mapping and then if you create a pipeline, then we know that this business, in which year this business is going to come, then you approach. So I think we have built that. It has become a part of our system. So when we start this year, there's a pipeline ready. So it's not that we have to generate the pipeline and go and put the effort that is going to speed up, speed up, speed up.
Salience of this business has gone up by 100 basis points. Again, in this business, in '23, '24, we have grown faster than the market. Branding and media, where we said that we are increasing our marketing expenditure last 2 years. We have increased our marketing expenditure. And as I spoke that our [indiscernible] index has strengthened. We continue to be a #2 brand. It has become better.
Digital, if you see, we have made a good progress. So that is last 3 years' trend, you can see it here that how we have increased our digital presence and accordingly, that how are we outreaching the consumers specific to the market is specific to the target audience. The result is that website on website, we are seeing multiplication in terms of traffic the lead generation, which we generate through our website, where we are also able to capture the consumer data.
So today, we are sitting with a large amount of consumer data with going forward when the consumer have to repaint in 3 years to 5 years' time. The data exists with us. So that capability also we have built. Some of the campaign which we have been doing on TV or digital, some of these pictures are there and maybe some film which I just want to take you through in some of the films, if you remember, on the Paint+ because ultimately, the communication, what we said is what we stand for Paint+ Japanese technology, right, and Nerolac jingle. These are the 3 assets will differentiate Nerolac with any other paint company. and that has been the part of our RFI. I'm not showing all the film I've shown last year, but 2 of the film and some of the digital film and 1 new initiative which we have started in South in Tamiladu, and therefore, Tamiladu, we have created, let's have a look at that.
[Presentation]
Moving forward. So if you see all this will -- one thing I want you to notice whether we are talking about Kashmir or Everlast, the message is very different. So we are not giving us a general message. So in the world of communication, especially and when you want to be very efficient, what is important because they are 40%, 50% consumer, and that talks any consumer research thought out it, they're ready to do the experimentation. They're ready to see that what different benefit is there. Nerolac is known brand. So that's why we are talking about no smell, okay? So that's the catch.
So we are looking at a very specific audience and who is able to connect with this kind of benefit. Everlast here talking about self-cleaning property after the rain. Small layer of the paint comes off, therefore, after the rain your building looks good. Some of the other film, [indiscernible], because [indiscernible] our brand for the waterproofing. So these are like educational films on the digital. So that is what we are continuously doing.
And as I had shown in the previous slide that how our digital expenditure is going up there, we are not able to use them because you are able to target this specifically through the digital. So the very key marquee projects what we have done in the last 1 year, [indiscernible]. Some of these projects, as I spoke about that I know you have started because project business is that you have to create the credential and more credential you create the more business you start getting.
So the reward and recognition of our team had got in decorative, which is mentioned here just for your information. Shifting to -- so basically, if you look at integrity business with all this initiative, what we have put -- when we started '22, '23, when we were ready because it took some time for the digital and all these things. So we try at 5%. The dealers who are contributing 5% to our sale and then we have seen the response. Last year, then we had scaled it up to the number of dealers who are contributing 30% of our sales. And although 30% of the dealer, our growth is better or equal, definitely, it is better than the market.
So we have tested these models that are -- because ultimately, everything has to get linked to the dealer. And going forward, therefore, we are looking at expanding and further scaling it up. No, that's one part of the retail. The other part of the retail is that, as I said, rural, which is still -- that though there is some progression and we are hopeful that going forward, it will improve, but that has been a little lag in the last year. And in the rural, our contribution is higher. So therefore, there is some impact of that. And the moment the rural picks up as the [ KNP ] will see the benefit of that.
Coming to industrial business. the passenger vehicle, where our market share is very, very high, 7% demand growth, if you look at the CM report, EV, the penetration has gone up almost double 100% growth. And our strategy is a new technology. So [indiscernible] free CD, what we are talking about here. The differentiation is that [ low baking ] time what we are talking about, [ low-baking ] timing, the less energy, cost savings, energy savings, better productivity, those kind of things. And so it helps in terms of the environment area also, it helps in terms of declaration in terms of the customer benefit also.
Two-wheeler, again, our market share is very, very high. And there, the first 6 months, the demand was lagging. Last 2 quarters, the demand has picked up. That's a good sign for us. We have a good market share in a lot of new products, new innovative product we have launched in this market.
Commercial vehicle tractors have been a little lagged in the last 1 year. So in industrial, we are automotive or when we are talking about because our -- the market share is high there. So what we are looking at is that how do we deploy new technologies, how do we get into a new segment? So therefore, there were opportunity to increase the size of the market.
And in the last 1 year, 1.5 year, we have entered the alloy wheels, sealers and underbody, [ Jing flake ] coatings, all these are niche very -- but has a decent business size, and we are exploring some more opportunities in this particular area.
Coming to Refinish business. where we were a late entrant market share in single digit. But again, our focus is on the premium side and almost double sale in the premium we have done in the last year and A-class body shop is something what we are targeting. Digitization, body management, body shop management, software what will introduce are -- so though the market share in terms of market share, we are definitely looking at expansion, but only through the premium is our strategy in refinish.
The high-performance coating of general industrial, which is a non-auto second part, which also has been a part of our thrust in that we are increasing our focus in the business to increase our share, increase our business. In liquid, we have done very well because in the liquid business, one business is OEM business, the other business is the channel related. Channel is able to cater to a small, small industry. So there -- our focus was there, and we have been able to expand our market there. Premium because we shared with you in the past that we came out with some of the low contribution, low-margin business, and we need our focus in the premium where you need a technology approval, there is an improvement of 70 basis points.
We are introducing a lot of global product with the help of [ Arkansas, ] Japan, the subsidiary of consigned Europe, we are introducing. These are very different kind of products where the [ Saudi ] product, which I mentioned here anti-carbon wages interpenetrating system. So very, very high technology product, very, very high durability, 15 years, 20 years kind of life. [ Powder], our market share is more than 40%. We are market leader there but the growth has been -- there has been a lag in the last 1 year. But there again, the premium is our are steady, and we have been able to expand the saliency in powder or premium by 120 basis points.
So technology support because in this business, knowledge is very, very important. We have a concise support. We have the subsidiaries, especially Europe, and we are working with the Turkey very, very closely. And like there is a high-end railways, which is happening in India now and already they are there in Europe approved. Our products are being applied. So that's the kind of help we are getting.
So these are some of the permanent projects in industrial, the non-auto part. What we shared with you 2 years. This is what we have done, Mumbai Coastal Road, [indiscernible], Bullet train, and [indiscernible]. So that's the kind of technology, a different product, what we are talking about.
And these are some of the game, reward and recognition for our customers, which basically further strengthen the strong point, what we say that [indiscernible] the right to win is very, very strong, and this is what is endorsed by the customers again and again.
Manufacturing our capacity is 600 million-liter per year. And in terms of the backward integration, in decorative emulsion in industrial, the rains, the installment base raises. So that is what we have been augmenting in terms of creating the capacity. And almost today, everything is like self-produced and consumed. We are doing a lot of digitalization in the factories. So in powder, we have tried in other factory. The idea is that when you do a digitalization, the manual intervention goes away, so your quality is consistent, your throughput goes up I know your breakdown goes down. So it's become quite efficient.
So this is one initiative we have taken. We have piloted tested. We got the result, and we will be taking it forward again. The slide is not going forward. Maybe you have to press SK from there. Yes.
Supply chain, material cost, highly focused, one that raw material prices were benign, but a lot of initiatives have been taken in terms of alternate innovative raw materials. We did a lot of focus in terms of making our products available in the market because today, the number of products have increased. That's a good change in the market that dealers are market is accepting new and new product micro segments. And therefore, the number of SPs have gone up. And in many of the markets, it is difficult for the dealers to increase their space.
So therefore, it is important for us to supply as and when it is required. So we improved. We expanded our distribution network in terms of the number of depots. We have started providing on innovation, the bike service in the bigger towns that in the premium product where dealer does not want to keep because today, these premium products are INR 10,000 a drum or INR 15,000 a drum. It doesn't want to keep inventory.
So even if you need one drum or 2 drum, we supply within maybe one out or 2 are, so that's the kind of service that we have started. We are using [indiscernible] to see that how we can generate more efficiency in our procurement. Human capital has been -- the people first has been the approach. And there, we did a lot -- a great place to work [indiscernible] -- but more than that, we have created an internal platform life at Nerolac, which is like happy in this video film also must have seen the happy organization where people are working together, collaborate together and we celebrate a small achievement.
We do counseling. We do wellbeing initiatives. We know that so a lot of initiatives we have started as a part of people first. How do we nurture the talent? One is the [indiscernible], in fact, we have started doing very aggressive in terms of recruiting the management trainees from the management institutes. And there, we have formulated a program, which is called [indiscernible] and then there is a [indiscernible], the leadership training. We have tied up with one of the most reputed management institute, and we are providing a leadership training even to the senior team, where the group coaching or the individual coaching is involved. We have done a lot of work on the innovation.
So last to last year, we spoke about innovation. We launched the initiative innovation in the company. And last year, we have created a digital platform and now it's a system. It's a process which we have set under the name of [indiscernible] and then when we got success out of it, a lot of ideas we have generated inside, we have gone outside with the initiative called [ Neon ] where we invited the campuses to -- so we give a problem that we face in our business and we throw it to the campus and where the students participate and they come up with the newer solutions.
So that's the initiative as a -- this innovation we have started. ESG, very, very important focus for us. In industrial, all our customers, there's an ask and as a company, based on our purpose, we are also very focused on this. In this year, we are awarded by [ EcoVadis ] probably -- we are the only company in this space. We've got the [indiscernible] metal from the EcoVadis. And before this, I think we shared is, I know that we have been recognized on our ESG effort. And we are the only Indian paint company to get the [ SBT ] near-term reduction target approved is in line with that 1.5 how the temperatures should not go beyond that.
So we are the only paint Indian company to get this approved. So we have a road map that by 2030, how we are going to reduce the emission. So this is some of the data which is there in front of you, 13% reduction and we are taking on Scope 2, Scope 3, not only Scope 1 and Scope 2. Today, the total energy, renewable energy is 49%, only electricity is 38%. As I said, water positive we have become. And some of these data given here.
Environment, health safety. Again, global safety is a big area of focus for the company. So global safety -- global safety quality is a initiative, audits, which are conducted by our parent company Kansai Japan and our score is 96%. Any score which is more than 90% is supposed to be good there. We have done life cycle assessment of all the products, and these products are being evaluated to again reduce the emission and then we go for environment, product declaration, that initiative we have completed. Occupational health and safety behavior training, all these things we are carried out. And waste management, just to mention like the plastic rule, which has started a few years back and extended producer responsibility.
So we have a 100% target under the plastic waste management rules of '23, '24. Whatever target was there, and we have been able to achieve that. CSR initiatives, again, we promote a lot of internal participation. It's not because it's a rule from the government, someone has to spend money. But we do take this exercise very seriously, and we work as per the sustainability development goals and we follow that some of the activities that we have done. Most of the activity in the area of skill enhancement, promoting education, community building. And mostly, we do it in the areas where our effective are there in the surrounding areas.
So we have been doing activities. We do an impact study of the main activities. We do map that the activities what we have done, how they're impacting the lives of the people in those villages. So these are some of the highlights now related to the different areas.
And now about the financial performance, which I'll not speak about it as Prashanth has already mentioned, but you must have seen the result, it's good, 3.5% revenue growth in the quarter, 4.4% during the year. And if you look at the PBT, 32.7% for the quarter and 42% for the year. So this is what we have achieved. If you see the EBITDA -- I'd go back, sorry.
So on the stand-alone EBITDA, if you see, 13.8% I think we have been discussing, that's our target, what we are keeping the band 13% to 14%. So this is what we achieved. This is on the consolidated basis. Dividend, we have declared a special dividend, total dividend 3.75%. So if you compare with the last year, it has increased. So that's also done. And CapEx, we have in ease in '23, '24. There we go up in '24, '25 some of the cash. We have a healthy cash in our balance sheet, in our books.
So that we are going to use for the opportunity and hear how we do a backward integration in the industrial to part of it in the decorative also. And capacity creation is something that we're looking at. The subsidiaries is muted because all the countries, unfortunately, post-COVID finding it difficult to come out of the situation. Some of the challenges are there. It is there in Nepal also, Sri Lanka also, Bangladesh also.
I think the entire industry, all industries are facing some problem in the subsidiaries. But our contribution of the subsidiaries or total business is not very high, but the team is working, and we are -- I think it will take some time, but we are going to come out as the -- countries come out of this problem and then the subsidiaries will start contributing. In Sri Lanka, despite last 2, 3 years, situation was not so good. We have increased our market share in Sri Lanka. And despite all the industries going negative, but we have been growing. So thank you so much. This is what I wanted to share with you. And now we'll be very happy to receive your questions.
My first question is on the market share in the last 1 year. And how do you see -- because a new player has also come. He will be advertising in second half mass media significantly. So how do you see that impacting your ad budget in second half? And until now, 1.5 months has gone since [indiscernible] announced entry. I know these are still early days, but what have you picked up from some of the markets where it just happened, any initial feedback you can share on what is the customer response? What is the painter response? What is the architect response?
As of now, I can say, there is no impact on the business. I think we have been talking earlier also that it is -- this industry takes time because there are different verticals. You have to build brand, you have to build dealers, you have to build painters. And it is not a game like 1 month or 3 months, somebody can be able to do. And for the market, it is always good that the new players are there. But if somebody wants to create market overnight, then probably it will not happen like that. So it will take time.
Initial response to the launch has happened, it's fine. It's like because this interest very complicated industry. So as we expected, there could be a lot of execution gaps which probably are seen at this stage. But obviously, in any new business, the [indiscernible] issues would be there. Related to when you say they start advertising, it's fine because any new brand comes up, you need to advertise. They need to advertise. It doesn't mean that you need to respond to that particular level. I think in preparation or based on our strategy last 2 years, we have already increased our marketing expenditure.
What is important for us is that our brand is already established. What we need to in cash, as I told you that our mind share is higher, the market share is lower. And that's a opportunity which is available with us. How do we capture that opportunity because when the demand comes in the market, you are able to capture the demand through your activities related to a painter or dealers or the services what we are talking about. So that is the way we are prepared.
Our market share, you know is in the range of around 10%. So what we look at is in asset opportunities which are available for us and therefore, I think our preparedness in terms of digital or other activities, some of the [indiscernible] that I have shared there. So we are prepared. And [ Spine], I think, gradually, we welcome the new player. And gradually, I think market can absorb, but no one can turn it around in a very, very short time.
Related question is the new company which has entered. They seem to be talking about some industry first. I don't think is industry first. I think every entrant has done that. But still given INR 10,000 crore kind of a plan s,I wanted to check on 1-year extra warranty, 10% extra [ grammage ] and digitally connected printing machine. Does any of this matter given their size? I know this has been -- this has been tried. But do you think that you and other players would need to respond? These are early days, so not asking on current, but is this a disruption?
No disruption because generally, what happens is that we give you a free material to the consumer. If you are pending a house, and I tell you that you take 10% extra material, if you need 20 liters, what you're going to do with that paint, you are not going to sell that paint. So it doesn't work in that consumer thinking is that if you say that very good product at a lower price, they also work very less because if the product is excellent and the price premium has to be there. So I don't think it's a disruption. It's been tried in the industry and there's no disruption.
And sir, question essentially on the Paint+, which you talked about, which I think every paint company is doing. How do you measure the efficacy also in percentage in terms of the premium or of your total sales in [ Deco]. Any number you can share? And for the market leader, how is this number? Every paint company talks about it, but without numbers, how do we know how is the needle moving? And whether we are going in the right direction?
So I really don't know because Paint+ plus cannot be compared with any other company. Paint+ is a positioning. So I think most of the companies have a positioning of the color. This is the positioning of the performance. What we are talking about is what other companies also could be talking about different products, maybe a differentiated product. So that's like fine. It's not like innovation. Every company is capable to do that.
In our case, Paint+ is a platform where we say the product can perform. And what are the important performance parameters, some of the communication that I have shown. So we are coming out with new and new products, which are not available in the market. And as of now, I would not like to talk about the salience of that, but it is growing. You can see it is now probably coming closer to higher single digit. So which 2 years back, obviously, we started from the 0. So how it helps is that you are away from the competition. Even if all companies are able to do is fine, then probably this industry is safeguarded in terms of getting into a direct fight because then you have a different products and you are able to create your own space.
This is Jay Doshi from Kotak Institutional. Profitability, 13 -- Hello. Yes, 13.8% EBITDA margin in FY '24 is much lower than the previous levels that you had achieved in the past. Whereas when we look at other companies, they pretty much were in line with what they have delivered in the past in terms of peak margins. So could you give us some breakup between what is decorative margins for the full year and industrial margins and where is the gap? Is decorative below pre-pandemic levels or it's largely because of industrial still way below where you were earlier?
[indiscernible]. So the -- if you look at the gross margin expansion is higher than the EBITDA margin expansion. If you are not 100 basis point is the gross margin expansion. We have increased our marketing expenditure. And that's why if you look at the 13.8% EBITDA. We are equal to 55, 45 decorative and industrial kind of company. And there's still our profit, profitability used to be very, very low until 2 years back. That was one challenge which we have taken that how do we come in the double-digit mark, then we try to keep it stable. And fortunately, we are able to do that.
So I think this is a healthy range because coming for the any B2B company, coming in the double-digit margin range -- and then obviously, in decorative, there is a need to increase the marketing expenditure. So I think that is what we have done. And therefore, to some extent, you will see that what gross [indiscernible] expansion we've had, it is not reflecting the EBITDA. So with the other companies comparing difficult because our portfolio is different. Our mix is very, very different.
Understood. So industrial portfolio is now double-digit EBITDA margin. And do you think this is a healthy band for that business?
Yes.
So it cannot go back to the previous highs in the up cycle that we had seen maybe 3, 4 years -- 4, 5 years back, right? So those were unsustainable levels.
In the previous years also, even if there was an increase in the margin, that was for a very short-term period. It is not that we were able to sustain it. Sustainable margins [indiscernible].
Yes. First and foremost, you have done an absolute U-turn in going digital. You have so wonderfully communicated through the digital media. It's full mark to your branding and marketing team.
You have seen that.
Yes, excellent. And as well as your very, very high decibel communication in all forms of media, particularly television and during this IPL with a wonderful brand number in [indiscernible] which is energy, he has done a wonderful job and you picked up what I gave you last year that you need to communicate [indiscernible], which you have done full mark to you and your team.
You need to convince everybody that.
Yes. Yes. In particular, digital media because now everybody is carrying a mobile phone. And by default, you will be able to access or one is having -- one has an access to your communication, which is not one, not 2, but 5, which you showed us even here. The thought which comes to my mind is with this strong backing to your marketing team, I was sharing with your marketing team here that we have 2 big distributors in the place where I stay. And when I go to them, there is always an Asian paint sales executive or a marketing executive standing behind the customer, just watching. He will not talk or he will not interfere and a little push of this nature.
With your -- maybe a junior-level team member at a distribution point, at a nodal point in certain kits of a city like Mumbai would help and do wonders. The mind share is excellent. We have to enhance our market share is my thought.
Thanks for the suggestion. We make a note and definitely [indiscernible].
And the second thing is you go to any retailer or a dealer or a distributor, dominantly prevail and the message coming from the opposite side is Asian Paint Royal. If you ask them, do you let some of them have it like a [indiscernible]. But if you ask for your paint impressions or British paints, [indiscernible], nobody [indiscernible] these products. Now where should I find in case I have to buy your 20-liter impression white can? I was finding it difficult from where will I get it? In a suburb like Anderi West in Mumbai.
So one is that obviously, we have to expand our distribution network, which in Mumbai last 2 years, we have done. But obviously, the market is very big, very small and then we are going gradually. The other is a service that we have introduced, which is communication is available through digital, where that any consumer can reach out to the company directly. So that's one way that.
Yes. I would like to meet your marketing people here after we finish. And take a proper lead to go and pick up a can of 20 liters and full marks to your digital initiative, I think it has done wonders. It is a sea change in the whole communication and connectivity with the consumer.
Sir, this is Avi here from Macquarie. Sir, I just wanted to get your thoughts on how -- as we progress into -- as fourth quarter is kind of lower, how do you look at the next year? You had highlighted in the last week that you would expect it to be volume-led. Is there any change in that expectation? How should we look at? Any color on that, sir?
So 2 parts of it. One, if you look at the industrial, where the passenger vehicle, as we said last year, the growth was 7%, the vehicle production. Two-wheeler is picking up. CV and the tractor, they are like a little lag. So I think in the automotive segment, maybe one segment will go a little lower. The other segment will go a little higher. So not much of a change. I think automotive would stand.
So maybe [ PCM ] is saying that 1% or 2%, the production growth can go. But again, then the growth will be led by SUV, small cars will go down. So from the paint perspective, may not be much of a difference. Two-wheeler definitely is being good. So -- and we have a great share in the 2-wheelers also. So I think that's good.
If you look at the high performance coating, regeneral industrial, which last 3 years, continuously, it is doing well. And in last quarter, moderate and mainly because of some reason, election, we got typically in the election period, it's a timing factor where the CapEx headwind goes down, the government refrains to come up with any policy decision and the [indiscernible] are also a little different. So I think once the elections are over, that cycle would be back. So 1 or 2 quarter, I think we'll see some moderation in that high-performance coating and general distill.
And thereafter, it will definitely be back the way the country is spending money on the infrastructure. So that's about the industrial part. In the decorative because the raw material prices have gone down, so there's a price traction, which has happened. That's why we are saying it's a volume led. But typically, you must have seen that last 20, 30 years, there's a clear relationship of the industry growth with the GDP growth.
In fact, there was a time when it used to be 1.5x of the GDP growth. But even in the situation when the prices come down, which is good when the price comes down, the -- it will help the rural market also to pick up. So therefore, the volume growth would be outpacing the value growth. But I think if we -- if we just look at last year or maybe last quarter is aberration in the last 40, 50 years as established fact that the paint industry has a very sound direct proportional relation with the GDP. I think in the medium term to the long term, we definitely see that, that relationship will be restored, and that's a situation. It continues.
Sir, the comments on the decorative which we saw in fourth quarter, double-digit volume growth, do you see that sustaining into the year? Or is that something that could be at risk?
So plus/minus 2%, you can say, but definitely, the volume growth we see.
Okay. And sir, the second bit I wanted to check is on the market share in the decorative segment. Now you have -- if I remember earlier, you highlighted you gained the market. Could you update us how should we look at the decorative segment performance on a market share basis? How is that behaving? Is it on an overall now similar? Is the gap reducing? Are we still gaining share at a category level? Any updates on that, sir?
So if you remember that what we said that there was a gap which we were having with the market growth. And first target, what we said is that we have to reduce this gap and come closer to the market. So I think some of the segments when I talk about new business, project business, we are higher in the market. Retail, the initiatives, as I said, that 30% of our channel will be deployed, we are seeing a better growth. Rural is a lag.
So even if the rural market comes up, I think we touch the market growth. So that's a salient sector. And I think our -- definitely, that this journey that we have traveled and we have seen the progressive trend that if the gap was double digit, then it came to single digits and further narrowed down. And since this progression continue, I think we are hopeful that we'll be able to do better than the market.
Okay. So it's just a mixed thing right now. Is that how you would put it that right now, it's just because the rural salience for us is higher. Otherwise, in rural like-to-like, we will be continuing to gain share. Is that how I should read this, sir?
Yes. And I said the weak market for us or the weak areas for us are urban, where all these models that we deployed, we have started seeing the results. I think we are going to create a very balanced situation and rural, our market share also is very strong. So I think that will be maintained or we'll be able to grow it. But the market growth has to support, which we foresee that -- now some of the commentaries which are coming or the 2-wheeler, what we have seen last 2 quarters, we see that with some lag, it will start reflecting in the decorative.
[ Pramod ] here from Unifi Capital. Just one question. You just mentioned that this time the marketing expenditure was higher. So if you can quantify that number. And since we have 45, 55 mix between the B2B and the B2C. How as a percentage of revenue, we should compare this with other decorative companies? Are we under spending? Are you overspending?
You're talking on expenditure?
On the marketing expenditure.
So marketing expenditure, if you look at the decorative we are over index. So we are spending aggressively if you compare with the other companies.
So in terms of percentage, how much would be [indiscernible].
4.5% to 5% overall. But if you look at decorative, it will be higher.
So last year, we spent almost like INR 270 crores is on the marketing as well as the numbers which we had [indiscernible].
More than INR 350 crores.
Okay. And you just -- in a previous question, you mentioned that the previous margins, the peak margin which we have achieved 2, 3 years back, it's not a sustainable margin. So how we should look at the sustainable margin on neutral year, there will be volatility because of the RM cost and all. But how one should look at the -- what can be the sustainable margin in a normal market scenario?
So if we are talking about the industrial result we said that in the B2B business, the double-digit margins are sustainable margins. So 10% to 12% kind of margin is a sustainable margin. That is what we are looking at. We had low margins in the industrial 2 years back. Now you are back in this particular way.
I think the target and the endeavor for the company is, how do you maintain that out? In the decorative space, the margins can go up. But in the situation where a number of players are there, there can be some increase in the intensity of the competition to certain extent, maybe 1 year, 1.5 years. You have to see that how does it play out. But in the longer run, definitely, there's a potential of improvement in margin in case regulators.
Okay. And lastly, if I look at the year-on-year number for the full year, there is a significant increase. Our volume increased by 10% plus. Revenue top line is because of the pricing 4% plus. But other expenditures and the employee costs actually went up by 18%, 19%. So are we seeing some moderation over there or it will continue like that?
So those expenses have gone up on account of some of the investments, what we have made. I think I talked about digital because that was quite a good investment. The -- in terms of team also because some of the initiative taken, whether it's a survey or a project or they would finish is the separate dedicated structure and team was required. So I think mostly, we have investment. Now it will be in line with the market growth. So that is how it has gone up. Once we start, the market starts showing a better growth, we go towards a better growth. So you can see some advantage coming out of it.
This is Abhijeet Kundu here from Antique. So I had 2 main questions. One was in terms of geographies, how the performance has been? Because you have your core geographies and your noncore geographies. So which geographies have done well for -- that is one part. And secondly, in terms of distribution expansion, because the leader has increased their distribution very aggressively in the last 5 years. We have seen that in addition to the product extensions that they had. So in terms of distribution, where are we right now and what are lands in terms of distribution expansion.
First question was?
First question was In terms -- how has been the performance across geographies in the sense that not South?
So we have done better in North and West, probably we have done better than market also in North and West and South and East, we can say there was a lag in terms of geography, this is how it is? And second is?
Second was in terms of distribution expansion.
So distribution, there's a difference in our strategy because some people take a numeric retailer strategy, our strategy on the weighted reach, and also the distributions are not comparable because sometimes you look at the direct or indirect kind of distribution while we look at the direct distribution. So typically, like when the number of players increase in the market, there's a possibility like today, the cement companies are coming or other category companies are coming, and they start selling paint also to the cement dealers.
In one city today there are 20 dealers who are selling paint to 40 dealers selling paint. Number of consumer remains same. The demand remains same. Then there's going to be a fight between dealer to dealer, rate undercutting. So therefore, how this thing is going to work, no, no. So ultimately, what we want the weighted batteries than in the market they are 100 dealers, but only 30 dealers or 40 dealers contribute 70% of the market sale. So that's a weighted reach. So we follow that strategy. Otherwise, some companies follow numeric strategy.
So yes. So if you have to look at your own weighted dealers who are not in product ...
We are expanding our distribution and all these initiatives are also helping us gaining better. Therefore, we are looking at double-digit expansion -- and maybe as these initiatives are shaping up, maybe more expansion of the distribution network, but in the rated reach category.
And particularly in which geographies because geography ...
So like North is a good market for us. We have a good share. East also, we have a good share. It's weak for us. South PC as an opportunity. So that's a market that we have a large opportunity available, some of the actions that we've taken what we have shown. So there, we have a good scope of increasing our distribution.
Okay. And in terms of -- you have now a good amount of funds as well. So -- how would be the capital allocation going ahead, where would be the major CapEx bands?
So one would be a CapEx like last year, how much [indiscernible] So next year, it will be more than 300. So we're increasing our CapEx. We are creating capacity in the industrial and in the decorative also that is one part. We had also given one special dividend. We are exploring business opportunities -- and obviously, in this kind of situation, it is always better to keep extra cash with you. So this is how the capital allocation of that healthy cash flow per in our books.
At the ground level, any increase in trade margins or rebates that you have seen, I mean, across geographies?
Yes, there have been some increase in last the trade margin mainly because of some of the product where the competition has gone up item like [indiscernible], there have been some increase in the trade margins.
[indiscernible] Investments. So my first question is regarding do we pay any brand fees or royalty to our parent. And the next one would be, let's say, if I'm talking about volume growth, okay, in total, -- so let's say, if the market leader is guiding something 10%, 12% plus, okay, over a medium to long term. So are we also sure that we'll be able to maintain that kind of volume growth going ahead? And then coming on to the pricing. So we being a strong player in the industrial segment. Do we have pricing power out there, at least in that segment?
So I'll answer the second question first. See, in industrial, pricing power definitely because we have multiple plants, and we are the only company who can service the requirement because today, if you see industrial customer, car or wheeler earlier like the wide share was very popular. Still it is popular, but then lot of new shapes. So earlier we used to say that A category and C category now that is gone.
So whether you are supplying a pain for 100 cars or 1 car, it is equally important because the customer needed one -- the color for that one car also. That's the capability that we have. in case of any risk which happens with any of the plant, we can service from our customer does not keep the inventory, we supply. And it's like a just-in-time kind of supply what we give to the industrial customer. And the track record is that never because of this lack of service any of the lines stopped at the customer end.
So that's kind of service we have been able to build. The technology, what I spoke about that we are looking at newer and newer technology where the customer also gets the benefit. Sometimes the benefit is indirect that if we are providing paint-free CD, low breaking time, there's advantage in terms of not only price, but it's like when they save the energy. So there is indirect cost savings, which we are able to demonstrate to the customer.
So your question is that do we have the pricing power industry? Definitely, we have the pricing for our industrial and because of the technology, because of the services. Obviously, there, we work with the relation and it doesn't happen like in the consumer market that somebody takes the decision and then you follow. But all this is strength and all this over a period of time has demonstrated that because of these reasons, because of these strengths, we do have the pricing power industry. And just talking about the first question on this, the royalty?
Royalty to the parent company.
Yes. Royalty to parent company, yes, it is there specifically for certain automotive products which we have got from Kansai Paints, that will continue. And that percentage is around 3% of the net sales for such products.
So if I take the total revenue, what would be the percentage?
Total? Total revenue, it's very, very insignificant because if it's not paid on all the products because we have a SP1 Only the specific rate, the perspective is less than maybe less than 5%. Much less.
Okay. and on the volume growth side?
So as we said that the industry volume growth last year also 8% to 10% plus minus 2%. So whatever growth, I think that's established norm, as I said, GDP or the volume growth. So that's what we are expecting that it could be higher single digit. It's difficult to predict, but definitely in that range, 8% to 10% volume growth.
Yes. Can you give some color on your CapEx? Because if I see the normal CapEx is moved from 88 to 112 and now 167. So something very unexpected significant rise are coming in normal. So what is the nature? And does it enhances the capacity? Or does it just for the maintenance? That's the one question. And you said next year, FY '25, it's likely to be INR 300 crores. So if you can give some breakup over that?
And a related question is the post [indiscernible] and other expansion completion in this year, what would be the capacity in terms of liter moving from 60 [indiscernible].
So as far as CapEx is concerned, we have got 2 big projects, which will be coming up in the coming year, right, 2025. One is a new greenfield plant and other brownfield expansion at [indiscernible] . So that itself will be a major project expenditure that we'll be incurring during the year, right? Apart from that, the normal CapEx generally pertains to our IT infrastructure, CCD machines and some expansion -- not some additions in some of the plants. So that is the INR 110 crores that we are talking future.
So that trend will remain 160 [indiscernible].
Now we have got 8 -- 6 big plants, right, plus these 2 coming. So that keep on -- that addition will keep coming.
So out of 300, almost 200 will go there and 100 will go for [indiscernible].
Yes.
And what will be the capacity post [indiscernible]?
We are increasing the decorative capacity by around 25%, 30%. That will go up.
And in the industrial area, it is more in the area of resins and backward integration. So resin capacity we are expanding? So what will be the figure 611 will move to?
Around 700 plus.
In automotive paints, we are doing almost 80% CapEx. So do we do anything B2C or it's only B2B?
CapEx?
You say are quarter water brands yes. I didn't understand -- you saying 80% CapEx. You're doing in automotive a INR 50 crores of CapEx.
No, no. This expansion is on basically decorative. What you have mentioned about INR 50 crores expense Yes, basically, a resin capacity, which we are expanding, which is for automotive.
Yes, this is only for automotive.
So it will be increasing capacity by 80% approximately. And do we do in automotive, B2C or only B2B?
Only B2B not to garage or something like that or nothing like that.
My name is [ Mia Modi]. I'm an investor. I have 3 questions. One is this small expansion, I mean INR 50 crores worth of expansion we are doing. We just announced. What will be the impact on top line as well as bottom line? Shall I ask all the 3 together?
Then next point is you said about paying to Paint+ product to services and primary to secondary and all that. Do you have any like projection in terms of the ratio of those plus with the main business? That is my second question.
And you talked about INR 300 crores worth of expansion in coming years, right? CapEx, I mean, -- so even after doing that, we are going to have roughly INR 1,100, INR 1,200 worth of cash in the balance sheet or even more than that. I don't -- I couldn't reconcile the figures. So do we have any plans like buyback of shares or regarding with large dividend onetime dividend? If not that, what ideas do you have for that?
So first, this INR 50 crore expansion of the resin. It's the continuity of the business also because this is our backward integration we create resin, which is used in paint. Now our capacity is coming to peak there. So therefore, we have to create this new capacity. If we do not create this new capacity, then you have to buy from outside. Therefore, the advantage in terms of that you make in-house, so you get advantage in terms of your profitability in the industry.
So it will not have [indiscernible] because in industrial market share is high, we are growing good, and we are seeing next 3 years, for 5 years trend also will remain good. So therefore, we need to create this capacity.
Second question, what you are saying, the ratios of primary to secondary and the pain to Paint+ or the product to services. So as of now, we don't want to talk much about the numbers, but I can share with you like in the primary to secondary, the visibility to us 2 years back was 0. Now at least 20% of our sales we are able to track that whatever we are selling to the market, the 20% secondary, we are able to track. And every year, it is going up.
So definitely, in the next few years, we would see that more than 50, 60 of sales, we are able to track that how the secondary movement is happening. The product services, the services what we are talking about just started last 1 year. Good traction, less than 5%, but it's still a good traction. But based on the consumer understanding, what we feel that next 3 years, 5 years' time, it has a potential to go [indiscernible] Same in the new business and the project business. The project business earlier used to contribute 5%, 7% for 5 years.
Now for the industry, it contributes 15%. We were weaker there. When we started, we were 5%, 6%. Now every year, we are able to increase our sales. We are still at 10%, but growing faster there. The third question you said is CapEx, 300, right?
Utilization of --
The cash that I spoke about, the one that this capacity creation, the second is business opportunity. We'll be able to evaluate. And the third is the special dividend, which we have already announced. And fourth is that in this competitive scenario, it is good for the company to keep higher cash in the books.
I mean just INR 300 crores worth of expansion we are talking about, and we have INR 1,200 crore plus. So that is one. The second -- I'm talking about the special dividend that we had given. And then obviously, the -- when you are valuating the opportunities, you have to park money for that particular thing.
So no concrete usage?
We cannot share.
Sir, can you share some ideas on D2C potential, our plans I mean, for decorative? Direct to customer, are we planning to, I mean, aggressively enter?
Direct-to-customer is through the services because the services are directly to the customer. And there, if we see '23, '24 against '22, '23, whatever business we have done in '22, '23, 23, '24, it is more than the [indiscernible] double. What we are looking at even in the coming year would be that. So percentage of now is low. But in terms of expansion, it is higher. And that D2C is not -- though we are now there in 250-plus cities, but now we have understood that enough from which cities the business is coming more. So if we go at the city level today, we have the understanding that in top 50 cities, how much business is going to come from reduced B2C.
So it is market by market, but top [indiscernible], it will be very large. But overall, also, it is going very fast. And I feel that next 5 years, this business will grow very, very fast, and that's why we are prepared to encash on that particular opportunity.
And to answer your question on buyback, there's no plan to buy back.
[indiscernible] from Morgan Stanley. There have 2 questions from me. Firstly, on the pricing side, last time you had mentioned that you had taken a 3% odd price cut in the decorative segment. Have you also taken something similar on the industrial side, especially in the automotive segment? And the second question again was on the automotive side. While you are market leaders, could you share some insights on what your market share is currently? And how has it been trending, especially given that the EV penetration is on the rise.
Market share?
Automotive.
Okay. What was the first question?
Market share.
But before that?
On the pricing.
Pricing -- the pricing dip what we are taking integrative in industrial. It is less selectively, yes, but it is less because typically, in industrial, what happens is it's a cycle which takes a lot of time. And today, also, we believe that because of geopolitical situation, the volatility in crude and the ForEx, the visibility for next 3 months, 6 months is still not very clear. So we don't get into the price increase or reduction until we are 100% clear about the visibility of 6 months or 1 year of time. Market share in automotive specifically, if you are talking about, it is in the range of 58% to 60%.
This is Mihir from Nomura. I wanted to ask a question firstly on the mix that is -- has been negative the difference between the volume and the value growth. Do we expect the mix to deter it further, given rural is expected to come back growth in rural and you're also getting into the economy side in the painless category. So does that impact the mix further? And will it pressure overall revenue growth? Or do you expect the mix to remain stable?
So definitely no deterioration. It can be the same or it can be better. It cannot be deterred. It cannot deteriorate.
Understood. Sir, secondly, I wanted to check on tinting machines. Given that the competitor that is likely to have a different type of a printing machine, which is 40% lower in size. In line for you to change your tinting machines in case if the dealer thinks about replacing --
No, that's not the reality. So we already have a machine which is smaller only. So in the earlier days, because we, I think, launched a machine in probably 1998 or '99. So first 10, 15 years, whatever machines we have, those are bigger machines. Last 5 years machine, whatever we are giving, there's a smaller machine. There's hardly any difference with the new machine and a maybe very hardly any difference.
Understood. Sir, another question on dealers actually. The competitive intensity is largely play out in the dealer space because it seems that the product pricing is broadly similar to all the paint players. There is no major price differentiation apart from the initial discount that they are giving which is probably an introductory. So that's not going to be the place of any price cuts or price wars that was expected. That is not happening at this point of time.
So largely, the intensity will play out at the dealer end and you said the probably rebates have gone a little bit up. But no material change in rebate structure is also being visible at this point of time. Sir, can you give some color on your distribution and dealer strength basically? How many of them or what portion of them would be dedicated to you who you are confident that will not deviate from your franchisee? And probably, there will be some who are aggregators will probably -- if they are stocking 2, 3 brands, they may think about getting rid of one tinting machine. Any color that you can share? I mean, on that front, where you are very strong in certain cohorts, what percentage of that would be?
So roughly, I can tell you that 25% of our network is exclusive, they are quite loyal. So they will definitely remain with us. Then rest of the distribution, we see that how many dealers are keeping 2 brands, 3 brands, 4 banks. So even in the 2 brands, our counter share would be very high. So again, loyalty would be very, very high. So there is some percentage, which is 25%, 30% of the network, which keep 3 brands, 4 brands and they are like a multi-branded dealers. And so therefore, they want to see that even if the new companies coming, let us try it out. But there also, it is not a shift. It is like today, maybe you are selling 100 liter, you are dividing in 3 brands, maybe tomorrow you want to divide in the 4 brand and give 2%, 3% share to the 4 brand. And then see how it happens.
So that is how not pan out. So that way, if you see is 70%, 75% of network, which is exclusive or 2 brand or up to 3 brands, there, the shift doesn't happen. 25% were very multi-branded. They can give some space right now.
Brilliant. So basically, the fear of rising competitive intensity is kind of not as fearful as expected because you already have a very strong foothold in your key distributor reach, which are relatively very loyal and losses from there would largely be.
I think enough number of players have entered the market and the market model 10, 15 years back, if the company were entering paint industry, they were not getting the success. Now the good part is in the last 10 years, whatever companies have entered, they've created their space. So that is good. But if you see last 10 year, what is the change? Because if the industry grows at the rate of 7%, 8%, 10% every year, which is INR 5,000 or INR 7,000 crores of growth in that, some part INR 500 crores, INR 600 crores goes to the new player. And as I said that when the number of players increase over a medium term, definitely, it help industry growth to go up, whether it's from informal to formal, or the per capita itself, you know that people will start rural models.
So I think it will help the growth and the existing companies will find that because it is happening gradually. It cannot happen overnight. It is happening gradually. It will not be seen. But today, if I have to commend the 10 years back, if there are 4 players today, there are 8 players, I.f you compare with the 10 years back, obviously, the market is reset. Everybody has taken 1%, 2%, 3%, some share they have taken. But whether it has impacted the existing company, no, there are more number of consumer market shares are getting reset, but over a period of time.
So if the business -- ultimately, what is important for the business is that I need to grow in the top line, I need to grow on the bottom line. So as long as that opportunity is available, and we keep on catching on that opportunity, it is fine for the business.
Brilliant, Sir. Last question a repeated question on margins, actually. Given in the Deco part of the business, Paint+ saliency is increasing 150 basis points probably to high single digits. You said it's increased. So margins are better out there. And in the auto and industrial, you're exiting the lower margins you are entering into the higher margins. Structurally, anything -- any steps that you are taking ideally are margin-accretive steps.
So how should -- I mean -- so that's point number one. So that trend will ideally continue. So I was probably -- I felt your comments a little more conservative on margin improvement side because that these trends will continue. So maybe one comment on that and one more follow-up on margins.
No. So there is -- one is the -- this leverage that when we are in doing premiumization, obviously, it is helping the margin, but then also help you to play out in the market. So if we are doing better in the premium products, and for example, if I talk about [indiscernible], there are some other products which are very competitive. So even if you want to play out in those segments, okay? The margin does not get impacted. I'm just saying because we don't do that, and then you want to play in the lower end also because that's also the market.
One of the rural market picks up. The growth is coming from the economic product. We would like to encash on that. So I think the positive way you can see is that since those initiatives are working. So even if you invest because at the end of the day, we are not saying that we are going to play only value game. Ultimately, it will be a volume have also support business, what is there.
So you are in a position in this situation, if the competition is there. In case if you have to fight it out, so you have the leverage to play in that market without affecting your margins. If it doesn't happen, then obviously the margin will improve.
Got it. And finally, on margins, again, no juice left from the margin improvement historically or there is still a little bit of juice left when we were trying to...
How can we make this statement. There is always a juice.
This is Amnish from PLP. Sir, my question is regarding the market share in the decorative. So what has been the trend in the market share in the current year and if I take the last couple of years?
Last couple of years, we were losing market share. This year, we will be very close to the market. So that is our -- the improvement, what we're talking about because in between 2, 2.5 years, we had a loss of market share. Now we are able to almost [ a restrict ] or very close to the market growth.
So it means a 10% market share, which you indicated is more or less what you had 12 months back.
Yes, you can say that.
Okay. My second question is on the automotive. What is the ratio of automotive -- sorry, on the industrial and Deco, what is the ratio now?
Generally, we talk about 55, 45, but because this year, 23 '24, the growth of industrial is better, some change, maybe 55 has gone down to a little extent and 45 was a little gone up.
Okay. And in particularly, the automotive used to be a very dominant part of the industrial, but now looking at the entire infrastructure growth, railways, flyovers, bridges coming up. So has that ratio changed? And how much are the Japanese companies now accounting for as a proportion of our total automotive paints?
Japanese contribution to our total automotive sales 60%. Japanese contribution to our total automotive sales was around 60%. 55%, 60% would be the contribution. And what was the other question?
The other question was that what is now the proportion of your non-auto in the total industrial?
Total industry, so it has gone up. Generally, earlier it was within the industrial, 70% was automotive and 30% was on -- but that 30% is going up now because that market size has become large. In fact, based on the growth, what we have seen the last 2, 3 years, I think next 2, 3 of the sites would be equivalent to the automotive market. And there, obviously, we have a scope and the opportunity, the growth prospect to keep increasing.
So does this change in mix in the industrial side moving away from auto to more on the general industry so would it be margin accretive because I perceive auto companies have more bargaining power.
Margins are slowing whether automotive or this particular part. And as I said earlier, that bargaining power is fine, but I think the time has come now where we talk about technology, the other advantages. And I think it's quite a balanced situation. It is not that bargaining power takes you to a situation where you work on the nonacceptable margins. So business has to be remunerative.
And therefore, if we have a target margin, I think we work on that because if the business is not remunerative, then what is attraction to do our business. I think it has come to that level. So bargaining power is there. That's why probably in the B2B business, you don't see margins like decorative. But I'm saying whatever right margin is there for the B2B business. That margin is there, and I think the customers are also able to understand that. Today, in fact, most of our customers will be surprised to know that they want to deal with these players who are having a decent margins. Because margins are less, they feel that these vendors are also risk vendor. So sometimes today, when we discuss with the customer, they also give us a target of the margins. So they may do a bargaining. But they also say that you have to operate in this kind of rain so that you are a sustainable growing company.
So you indicated the industrial margins between, say, 10% to 12% kind of you can say level. So is there any scope of the juice left there to increase the margins or profitability?
Yes, definitely. So premium is the scope, the new technologies is core, definitely the risk book. But generally, like based on our past experience, we say these are sustainable margins. But as a company, as a people, you always work on this. And if your question is whether juice available, yes is available.
This is [ Nikunj Doshi ] from Bay Capital. Just wanted to understand this Infrastructure and Projects business. Is it through -- is direct selling or is through distributors that we are selling to these projects?
Project business, we are selling through the project dealers. So there are dealers only, but they are specified project dealers whose job is based to fund. They sell to the builders, contractors and architects. So we sell through them because responsibility is to provide this service to the site. Their responsibility is to collect the money.
So we don't take risk on the collection risk on the --
But having said that, some amount of very large projects, we do direct also where the payment risk is not there.
And [indiscernible] day part, you mentioned in Bulletin also project you mentioned. So we are already -- we are supplying or we are supplying this harbor, we are supplying?
Already we are supplied.
So is this a large opportunity for us going forward or it's going to be --
Yes, large. And you see that traditionally, the business in the railway used to be low end, now it is high end. And as and [indiscernible], the [ tomorrow bullet ] will come. So the railway, the entire thing is going to change completely. So earlier they used to talk about very low kid-based paint. Now we're talking about high-end polythene epoxy paints.
And paints for EV, is there a special kind of a paint or is the same car paint, which is used for EV or?
The same. There's no technology difference for EVs or any. Some differences will come and the batteries and there could be some opportunity inside the battery and those kind of tether. But otherwise, the [indiscernible] is same. So therefore, the paint is also same.
See, last time, you had said on the digital lead system that our conversion rate had went up from 1% to 2% to almost 7%, 8%. And you closed the year by year-end -- any improvement over there? How the net system is working now? How much is conversion happening?
So the lead system is basically for the services pass and as a service, and they are now are converting higher than 10%, which is the benchmark in the industry. Then you target more than 10% conversion. We have reached to that level.
And on the direct distribution model, also, you had commented something earlier on the alternative distribution model and the direct distribution model. And you had actually, I think on the low end side, they started some distribution channel. So any development or any update on that side?
P
Yes, we are working. So these are like smaller markets, the rural markets where we find directly going difficult. So there, we have appointed distributors to cater to those markets. We are making progress on that.
So any significant contribution coming from that? Or is it still very early days to say anything?
So early days to talk about number, but mature days to talk about that it is picking up very fast.
So I think -- I hope the questions are -- any more questions? Okay. Thank you. Thank you. Thanks a lot.
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