Pidilite Industries Ltd

NSE:PIDILITIND

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Pidilite Industries Limited Q4 FY '23 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [indiscernible] from Motilal Oswal. Thank you, and over to you.

[Unknown Executive]

Hi, everyone. Good morning, afternoon, evening to all, and trust you are having a great day. It's a pleasure to host the quarter and year-end conference call of Pidilite Industry. The company today is represented by Mr. Bharat Puri, Managing Director; Mr. Sudhanshu Vats, Deputy Managing Director; Mr. Sandeep Batra, CFO; and Mr. Sunil Burde, Senior VP of [indiscernible]. I will now hand over the call to Mr. Batra for his opening remarks. Over to you, sir.

[Sandeep Batra, executive]

Thank you, and a very good evening to all those who have joined the call. I will quickly give you a summary of the financial performance for the year and the quarter, the results of which were approved by our Board yesterday. A quick look at the full year financials. Consolidated revenue for FY '22, '23 came in at INR 11,752 crores. So obviously a great milestone for the company and was up by 18.9% over the previous year. This was driven by strong volume growth, improved mix and price increases. Growth was broad-based across the Consumer and Bazaar and the B2B segment with the domestic Consumer and Bazaar segment reporting growth in excess of 20%. Consolidated margins came in at 242 basis points lower, largely on account of escalation input costs, which were pronounced in the first half of last year. These input in cost increases were partially mitigated by pricing mix and cost reduction initiatives. Consolidated EBITDA came in just a share under INR 2,000 crores and at INR 1984 crores was up by 7.4% over last year. Stand-alone for Pidilite Industries revenues were INR 1,545 crores, which grew by 19.1%. Again, the growth was led by a very strong 20.9% growth in the Consumer and Bazaar segment, whereas the B2B segment grew by 12.4%. Amidst uncertain global economic conditions and inflationary pressures, the international subsidiaries reported modest sales growth, but with the improvement in EBITDA. And the domestic Consumer and Bazaar subsidiaries continue to deliver industry-leading profit and growth. The operational cash flow remained healthy during the year and working capital in March was kind of similar levels as what it was in March '22. The Board has recommended a final dividend of INR 11 per share subject to approval by the shareholders at the Qing Annual General Meeting. I'll quickly cover the performance for the fourth quarter where consolidated revenues at INR 2,674 crores were up by 7% over the same period last year. In this quarter, we saw material costs come down vis-a-vis the same period last year as well as sequentially. The drop in material cost as a percentage to net sales for the quarter was 317 basis points over same period last year and nearly 500 basis points sequentially. EBITDA for the quarter at INR 459 crores was up by 14.5%, and PBT for the quarter was up by 13.5%. Stand-alone revenues at INR 2,366 crores for the quarter were up by 6.6%. PBT for the quarter at INR 389 crores was up by 13.6%. The consumption rate for VAM are key raw material moderated during the quarter, with Q4 consumption rates around $1,300 per tonne versus $2420 in the same period last year and around $2,000 in the third quarter. Current rates are around $1,100 a tonne. During the quarter, we also augmented and completed our coatings portfolio with the launch of [indiscernible] of products in identified geographies in select states. This is market response, we'll decide the next steps. With the aim of upgrading our manufacturing facilities and servicing market demand, we've commissioned 3 plants in this calendar year with the plan to commission another 5 before June 23. While the near-term environment is likely to remain uncertain, we look forward to the future with cautious optimism. The moderation in input costs, easing of inflation and growth in infrastructure and construction should enable us to deliver volume-led profitable growth. We continue to invest in building a resilient and agile supply chain and in digital initiatives. With this, I throw the floor open for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Abneesh Roy from Nuvama Institutional Equities.

[Abneesh Roy, analyst]

My first question is on the [ Deco Paints ] interior. In the interview, you mentioned this is not a full-fledged launch. This is more of a range completion. So I wanted to understand what exactly you mean in terms of mass media advertising and building connects with painters because you have been in exterior sales, but wanted to understand when you benchmark against the market leader in paint, how is your painter connect? So if you could answer these 2 aspects?

[Bharat Puri, executive]

See, Abneesh, I knew that you will be held the first question, and I know that your first question will be on paint. So having said that, see, as far as advertising the product of mass media, let me just give you a little bit of a background. See, you know that we have been in paint or parts of paints for a long period of time. So paint is not new for us, right? What we were getting is a request from a lot of our dealers, especially in some geographies, saying that, listen, for -- you have 2/3 of the range, but you don't have 1/3 of the range. Can you please at least complete the range for us so that we can deal with just one company and satisfy consumers? And once we assess this, we obviously surveyed this with a fair degree of seriousness. And when we saw that there was a lot of demand for this -- that's when we went and launched the range of paints. As far as our user connect is concerned in these geographies, our user connect. Now I don't want to compare with others, but obviously, one of Pidilite secret sources is user connect. It is of a high order.

[Abneesh Roy, analyst]

Sure. So does your aggression increase versus what you have done in 15 years because you already had 2/3 of the portfolio. So that I wanted to understand.

[Bharat Puri, executive]

See, right now, it's a range completion exercise. We will gauge the response so on and so forth. Obviously, we put the right products in the market. Let's take a call, 3 to -- I mean this is not one of our big growth initiatives of the future where we've got a set of plants, which we are putting behind it, et cetera, is one more initiative, which helps us complete our range as a home improvement company. Now based on the response, let's wait 3 to 6 months and then maybe this question will have a better answer.

[Abneesh Roy, analyst]

Sir, that's useful. My second question is on Slide #10. There, if I see in terms of sales and profits, the B2B business has grown profits faster even in this quarter and full year versus the C&D, so which is a bit surprising given the kind of inflation you have seen for major part of the year, why should B2B profits grow faster than the Consumer and Bazaar. And that's even more surprising because on sales, Consumer and Bazaar has gone faster. So is there any reporting change issue here because normally branded parts should see faster profit growth.

[Bharat Puri, executive]

Well, see, what happens, Abneesh, again, great question. What happens is in B2B businesses, both ways, when you remember, when prices go up, you raise prices much quicker in because your contracts are normally for a shorter period of time, whereas in Bazaar, given the inventory that you have in trade, given the raw material inventory, et cetera, that you have, it tends to take a longer time. So what tends to happen is you will get back margin quicker here simply because you will be able to, a, get price earlier and give back price much quicker. The other side is, of course, on raw and packing materials in industrial products, the inventory is much lower. So your consumption rates dropped much quicker. Is there any anything, Sandeep?

[Sandeep Batra, executive]

No, no. I think... Absolutely right.

[Abneesh Roy, analyst]

Sure. Last question on Araldite route to market change. So why this has been done now? And what will be the benefits? And if you could elaborate, what exactly was done here in terms of route-to-market change?

[Bharat Puri, executive]

Again, see, basically, Araldite had a different route to market from Pidilite in the sense that they had one more layer in the distribution chain, which they call the AD. AD stood for their almost like a state C&F who is actually carrying the inventory and therefore, obviating the need for the company to have depots on and so forth and carry that inventory in each location. Given that in Pidilite, we already have the warehouses, we had whole and obviously, we are a relationship-oriented company. We didn't cut off straight away. We gave the AD scope to do other businesses and so on and so forth. But frankly, this layer was unnecessary in the distribution chain. It is good for a multinational and doesn't have a Bazaar or a consumer presence. So we basically removed one layer. So in the last 2 months of the year in February and March, Basically, we sold all of the stocks, which were at the AD because now there will be no -- as from 1st of April. And therefore, our primary sales in Araldite was impacted substantially in the fourth quarter.

[Abneesh Roy, analyst]

And do you recover, right?

[Bharat Puri, executive]

Of course, going to secondary sales is perfectly all right. And remember, what is important for a company is the secondary sales, which is really simply the sales from the dealer to the final consumer. So there, we are growing very healthily. Here, what is happening was we're eliminating one full step in the distribution chain that will have 3 months of therefore issues as far as the numbers are concerned. But obviously, it's to the benefit of the company because you're removing one layer of the distribution chain and then the sales is not impacted in any way.

[Abneesh Roy, analyst]

And issue is largely done, right? From the reporting perspective, you said 200 to 300 bps impact. Will the impact be in Q1 also in terms of the primary versus secondary, I understand, but in terms of the reporting, the impact is done.

[Bharat Puri, executive]

95% is done. So there will be no impact in quarter 1.

[Operator]

Next question comes from the line of Sonali Salgaonkar from Jefferies.

[Sonali Salgaonkar, analyst]

My first question is regarding the price hikes. So could we get an approximate sense as to how much has been the cumulative increase in price hikes from last year to this year, say, over the past 12 months? And do you expect to give away certain price hikes for driving volumes from here on?

[Bharat Puri, executive]

See, 2 things. One is, remember, it's difficult for us to give you a weighted figure because the raw material situation has been dramatically different for our different verticals. So for example, wood adhesives, which are impacted by VAM had far higher increases, waterproofing and coatings had lower increases, the consumer adhesives like a heavy quick, et cetera, had even lower. So rather than -- but let me just give you a gross figure, which I'll come back to. But as far as the future is concerned, no, we do not see any need for any future price increases. If the situation gets on material gets more benign, we will actually see back, we've always maintained there at penalized our focus is on profitable volume growth. If our premium vis-a-vis other people goes more than 15%, we will actually cut back on price. In a broad sense, therefore, we will look at profitable volume growth. I'll give it to Sandeep for the exact weighted numbers on price increases.

[Sandeep Batra, executive]

So if you look at the full year versus the same period last year, the amount of pricing that is embedded will be in Consumer and Bazaar in the range of about 8% to 10%. But if you come to the quarter, that number will be much lower because a lot of the pricing happened in FY '21, '22 also. So it may be around 4% to 5% in the quarter. But for the year, it would have been much higher. Weighted average would have been about 8% to 10%.

[Sonali Salgaonkar, analyst]

Understood. Sir, my second question is, now your presentation gave a lot of color of the demand that was shaping up in Q4. But coming in Q1, how do you see demand both in Consumer and Bazaar as well as B2B. The reason I'm asking is because we have got to understand that the CapEx survival cycle is going on very strong. So do you foresee a better traction in B2B from here on? And also about the consumer discretionary slowdown that we have been talking about.

[Bharat Puri, executive]

See, as far as consumer discretionary is concerned, the silver lining has been that in the fourth quarter for the first time. See, unlike FMCG, we never had a decline in rural or semi-urban sales. It only slowed down, normally wish to grow at 1.5x on sales, in this case, rural and semi urban became slower than urban. For the first time in the fourth quarter, we've seen rural and semi urban actually grow faster than urban. Now it's too early to call it a trend. We are very hopeful that this continues over the next 3 to 6 months. The other tailwind that we had clearly is that real estate and construction is seeing an upsurge and that obviously benefits us about 1/3 of our demand comes out of new construction. So on an overall basis, we would say on domestic demand, we have as we feel fairly optimistic because hopefully, it will continue. International is actually a tale of 2 different variables. Wherever we have an exposure to international markets where we are exporting directly, we are finding a substantial impact there. So for example, our pigments business exports a lot to U.S. and Europe. There, we are seeing straight declines because the markets there are very soft. I mean, they're in near recession-like situations. Even our customers in India who are supplying abroad, these could be leather, this could be textiles, et cetera, we are finding there are suffering and therefore, in a sense, we are suffering. On the other side, domestic demand for B2B, whether it be, for example, infrastructure, construction, waterproofing of large projects, joineries continue at a great rate. Domestic B2B is all right. It's only international B2B, which you asked me is uncertain right now.

[Sonali Salgaonkar, analyst]

Got it. Sir, just one last question from my side. Many of the paint companies have entered into some of the products that you are into. How do you foresee competition shaping up?

[Bharat Puri, executive]

See, Sonali, we are not at all strangers to competition. We've had -- with our market shares and market leading position. Every year, we have 2 or 3 new competitors. In one range. We had all the multinationals. We had Henkel and all of -- Huntsman, all of them come in, then we've had the large paint now paint companies have been in waterproofing for over 10 years now. It's not something that is new to them anymore. Having said that, you can see that these remain our growth areas, we remain clear leaders. Obviously, we don't take any of them lightly. We keep a close watch on them, and we are clear that therefore, we must maintain stroke increased market shares. If you look at the whole year, if you look at our Consumer and Bazaar businesses, we've got healthy double-digit volume growth. That would suggest that the market has not grown at this rate. So there is no way that we would have lost any market share. Having said that, as we said, listen, competition is something that will keep happening. Our job is to hopefully delight our consumer and our customer a little more than everybody else, and that's where our focus lies.

[Sonali Salgaonkar, analyst]

Right. So our guidance for FY '24 remains double-digit volume growth and 20% to 24% EBITDA margin. Is that correct?

[Bharat Puri, executive]

We don't go into the guidance. We've always said that, listen, our objective is to grow at 1x to 2x GDP, depending on the economic conditions, that's what we would be aiming for, therefore, profitable volume growth in that sense, remains our single dining light in these circumstances. Margins, we've always said that is in our range on a normal basis is 20% to 24%, we see ourselves returning to that range in this year, yes.

[Operator]

Next question comes from the line of Avi Mehta from Macquarie Group.

[Avi Mehta, analyst]

I just wanted to follow up on the last question. Basically, how do you see the interplay between volume growth and realization growth moderation playing out in FY '24 as you see the input cost moderation, does volumes kind of easily offset this, if you could share your thoughts on that, please?

[Bharat Puri, executive]

Good to hear from you. You see this year is going to be a volume like why I'm saying is our focus must be on cable volume growth. If you would ask me what would be our push at our field, it would be 2 things. One is, obviously, volume growth. The second is mix, better product mix because we don't see any price-led growth. In fact, if the situation gets more benign, you may actually have volumes exceed value growth at times. But that's -- we'll let to wait 3 to 6 months and see where the situation goes before we pass judgment on that. So really, therefore, we would see this being a year led by volume growth, which have about hopefully mixed growth also.

[Avi Mehta, analyst]

And sir, does the penetration opportunity kind of change or I mean, penetration pickup, is that or is the competition something that want to be concerned? I'm just trying to better [indiscernible] last quarter call, you said not seriously worried about pricing-based competition coming back, but does that in any way help volumes? How do you see that? And how is that traditionally panned out in the earlier years?

[Bharat Puri, executive]

See, remember, I mean, while obviously, we're the leaders in all of our segments, even in the what we call the popular and the economy segments of safe wood adhesives, we are the leader by far. So it's not that, therefore, we have offered at every price point. We have our own equations to know at what -- in what segment, what's the price premium that our products should command and we remain within that band and therefore, push across the board. So it's not like we're only in the premium part of the market. The thing is I don't see -- right now, it seems that VAM is moderated, and it will be in the 11,200 range. This will not see substantial price decreases. Demand will get impacted if you had, for example, [indiscernible], then you would have substantial price reductions and, therefore, hopefully, an impact on demand. But as of now, normally, what tends to happen is when inflation has happened, we've seen this in the last 2 years, there has been some amount of down gradation, right? People have switched from premium adhesives to more economy adhesives. As it changes the other way around, you will see upgradation come back, which has been a premiumization and upgradation has been a normal part of our strategy anyway. If prices renewed, that will come back again.

[Avi Mehta, analyst]

Okay, sir. Clear then. Got it, sir. Just second bookkeeping. When you look at the normal range of margins of 20% to 24%, would it be fair to say that should kind of pan out just there's no other headwind as we go into first quarter and should start in the initial part of the year itself? Or will it take some time to reach that in, sir?

[Bharat Puri, executive]

No. In our view, it will actually March exit, we are already there. So starting first quarter, we should be there. We will choose to invest in certain areas in 1 or 2 quarters. But at an overall level, you will see it from the 1st of April onwards. In fact, we've seen it on the 30th of March. So therefore, it will not change.

[Operator]

[Operator Instructions] Next question comes from the line of Jay Doshi from Kotak.

[Jaykumar Doshi, analyst]

I just want to know a little bit more about your foreign to decorative paints, I mean, the product portfolio expansion. Have you sort of built a separate sales and distribution team? And at this point of time, are you looking at going beyond the distribution model or beyond your current set of reach? And the final question is what are your sort of thoughts on marketing strategy for the portfolio.

[Bharat Puri, executive]

See, on the first question, remember, we already have the sales force in place with -- remember, in large parts of India, the deepest sales force across all of home improvement is already with Pidilite so it's not a separate sales force. We may add separate fellows for certain activities in paints, but at an overall level, we will use the strength of Pidilite in terms of its distribution reach rather than have a separate sales force. As far as marketing strategy is concerned, as I keep saying this, this is not a big time. We want to do INR 1,000 crores in 1 year and therefore, we are going to have this big bang launch. We will go about it gradually look at dealer reaction and then go step by step. So just wait and watch.

[Jaykumar Doshi, analyst]

Understood. So reasonable to expect that at any point of time, it will not have any significant impact on profitability.

[Bharat Puri, executive]

No, I don't see it having a significant impact on profitability because remember, we're only doing this in select geographies, understanding then moving on. This is not like we've not put up 5 plants and running a depreciation built from day 1 kind of thing. This is from our existing facilities in select geographies understanding the market, fine-tuning our offer and seeing whether this is a useful road to go and go down.

[Jaykumar Doshi, analyst]

Understand. That's helpful. Now my next question is VAM prices have already come down to about $1,100. So do you have more headroom for gross margin expansion from these levels, 46.8% consolidated that you reported this quarter. Is there more sort of benefit still left to reflect?

[Bharat Puri, executive]

Without doubt, you see my friend, Sandeep just said is average consumption was $1,300, and the current price is INR 1,100 that still answers the question.

[Jaykumar Doshi, analyst]

Understood. So we should expect that inch closer to 50% going into first half? And likewise, you indicated 20% plus EBITDA margin as well.

[Sandeep Batra, executive]

Yes. Jay [indiscernible].

[Jaykumar Doshi, analyst]

Okay. Understood. Final one, was there any one-time expense or anything in this quarter? Because usually, when I look at Q-o-Q and Y-o-Y, the gross margin expansion is meaningful, whereas EBITDA margin expansion is bit lower. And when I look at employee as well as other expenses versus volume growth seems a bit high. So was there any one time investment or expenses in this quarter in that between gross profit and EBITDA?

[Sandeep Batra, executive]

No, there was no one time... Sorry... There was no one-time expense. I think one, I think when you compare quarter-on-quarter, this quarter was like a fully normal quarter, full the entire team is out in the market doing market development. And secondly, we also stepped-up investments in market-facing expenses, be it both direct advertising as well as connect with our users. That got significantly stepped up in the quarter. You would have seen a few of the ads on TV that got the Araldite add in particular. So those are all some of the gross margin we've plowed back into marketplace.

[Jaykumar Doshi, analyst]

Perfect. And one final one, sir, you had talked about more innovations and new product launches. Have I missed anything or anything that you can provide some commentary and color?.

[Bharat Puri, executive]

See actually we can actually do a full session on that because in each of our divisions, we have 1 or 2 new products in different places, in different geographies. So suffice to say that at Pidilite innovation has always been one of our drivers of growth, now it's back. And so whether it is waterproofing where we have 2 new products, whether it is maintenance, where we have a new product called Fevicol Homefix whether it's the wood working division where we have a product called we call Hyperstar we've got a range of innovations in plan, you will see them in the marketplace. As we speak, and you'll see a whole new range also coming through, we've got a whole range of stealers. Roff, which is our tiling adhesive now has got a full range. In fact, Roff now has 10 plants across the country. It actually has the best tiling manufacturing footprint of anybody including the leader in tiling. So we're, in a sense, always preparing for the future as we keep handling the current.

[Jaykumar Doshi, analyst]

Understood. Thank you very much and I wish you a very best for FY '24.

[Operator]

Next question comes from the line of Sheela Rathi from Morgan Stanley.

[Sheela Rathi, analyst]

Mr. Puri very interesting branding of the decorative paint Shisha. My questions are on the decorative paint segment itself. So the first question I had was -- how should we think of the capacity which you have built for this particular segment, maybe now or 12 months from now? So if you could give some idea there? Secondly, of course, there is an overlap with respect to the distribution network. But if you could give us some quantification here is that what is the target distribution we are looking at? And the third is final with our is that what is the early feedback you're getting with the launch of these products into the market.

[Bharat Puri, executive]

So Sheela, personally, always good to hear from you. Nice questions. See, listen, I mean, as far as paint is concerned, we already had capacity because we were in the coatings business, so on and so forth. Those of you who cover paints also know that paints is not capital intensive. Paint is not one of those things where you need to put up this mega cement like plant. So if I could call it, -- so therefore, we've always had the capacity putting up -- I mean, we understand the technology. We've always made the product. So without disclosing how much capacity we have adequate capacity to be able to scale up at a rapid pace if we would choose to. The second thing is, as far as distribution is concerned, very simply, please remember, we call on more paint outlets than all paint companies, except the leaders, even today, and this is all India. As we go down town classes, we actually have distribution which will probably be amongst the best, if not the best. Now therefore, we will make sure that we cut the costs according to our needs and therefore, marketing strategies, you would appreciate if I tell you my marketing strategies, my competition will be happier than you are. So suffice to say that whenever penalize does something, we do it with a fair amount of thought. We do it differently from everybody else, and we do it with a long-term perspective. We are not here to show you 1 quarter or 2 quarters numbers. But to see whether this is something that can add to our overall, what you guys call total addressable market, whether we will be a true home improvement company where if you want to renovate or build a new home, anything to do with the finishing of the home, we will have a product.

[Operator]

Ladies and gentlemen, the management line has been disconnected. Please hold [indiscernible] as we connect to them. Ladies and gentlemen, thank you for being on hold. The management line has been reconnected. Thank you, over to you.

[Bharat Puri, executive]

Yes. So I don't know who was in the question [indiscernible]. Sorry, we got disconnected.

[Operator]

Yes. I'll be promoting the next one in line. That is Mr. [indiscernible] from Mintec Services.

[Unknown Analyst]

Yes. First of all, thanks for giving the opportunity and are some relation to entire futile for achieving record revenues, especially in the current billing truly remarkable, truly remarkable. I have a couple of questions to ask. My first question is, why has consolidated revenue in quarter 4 declined over quarter 3, any specific reason for that? And my second question, you talked about volume growth in FY '24. So what percentage of annual revenue in FY '23 was generated through digital channels. What are the digital initiatives that company has currently embarked? And my last question is material cost as a percentage to sales in quarter 4 is lower compared to quarter 3, it is receivable in the current quarter and the next quarter?

[Sandeep Batra, executive]

I'll answer your question. The first question was why Q4 has declined over Q3. And historically, if you look at our numbers for the past many years, you will see that our Q4 is generally our smallest quarter in terms of revenue. And then is generally the biggest quarter, and Q1 is also a significant quarter. Q4 is generally shopped smaller. The second question you had was on digital. So one of the digital initiatives that we have launched is a dealer app through which a dealer can directly place the order on the distributor without having the distributor person, call them up and take the order. Revenues from that exceeded INR 1,000 crores, nearly 15% -- in excess of 15% of the sales of Consumer and Bazaar business. And your last question was on the taste of material costs. We did see a sharp reduction in fourth quarter sequentially. We do anticipate some slight moderation in the first quarter also going forward. But from what we have seen in terms of our purchase prices for the last 3 months, they have kind of been stable. And given the kind of inventory that we hold it takes about 3 months for the benefit of any reduction in costs to kind of reflect them. So as we look higher, yes, you could see some moderation in the first quarter but nowhere near what we saw in fourth quarter.

[Operator]

Next question comes from the line of Latika Chopra from JPMorgan.

[Latika Chopra, analyst]

Some of my questions have got answered. I got disconnected. I'm not sure if you mentioned or clarified on what was the impact of route to market change for Araldite of 1.5 percentage, if I'm not mistaken, was it on Consumer and Bazaar domestic revenue?

[Bharat Puri, executive]

Yes, it was on Consumer and Bazaar domestic revenue, Absolutely.

[Latika Chopra, analyst]

All right. And the second what I wanted to check was you've decided to phase out the surgeon at business in U.S. Just trying to understand, are there any parts of your businesses that you're evaluating or exploring to review to divest?

[Bharat Puri, executive]

See, we've always said, Latika, firstly, always good to hear from you. We've always said that we would like to be in emerging markets, multinational and therefore, the phasing out of start-and-stop in a sense, reflects that. We keep looking at various businesses, so on and so forth on a consistent basis. But now you would see the -- we don't have any now developed market portfolio left in our international businesses. We've always said we'd like India to be the [ tucopypiced ] business for all international businesses, and that's what we will be working towards.

[Latika Chopra, analyst]

Sure. And the last bit was you were adding a lot of setting up manufacturing units investing behind a lot of your new portfolio building capabilities there. Are we done with no chance in terms of CapEx? Or we should expect more in FY '24, '25? Any thoughts on CapEx plans?

[Bharat Puri, executive]

See, our CapEx remains at about 3% to 5% of sales. Having said that, obviously, we've added a lot of -- just to speak, we've added 12 plants in the last 2 years. In this quarter alone, we've added 3 and in the next quarter, we'll add another 5. So having said that, a large part of our growth CapEx is in place. But even though we are focusing on volume growth and then ours is a volume-led product, it will be normal CapEx. There will not be any of the areas where you will certainly see our CapEx go beyond our normal limits.

[Latika Chopra, analyst]

Sure. And Mr. Puri, the last bit was on talent management. You are operating across multiple categories and have done so well. And we just wanted to understand better what kind of talent hirings or capability buildings has the company been more focused over the last 2, 3 years?

[Bharat Puri, executive]

That's a great question. See, one of the things actually we've been on not just for the last 2 or 3 years, but actually now for the last 5 to 7 years is we clearly said we want to, a, build a culture and then a team that is fairly unique in our sector. And we've been on this journey of what we call building a chrono rial culture, which is a mix of professional and entrepreneurial. Can we capture the capability system, process, the rigor, the cap of good multinational but can we have the entrepreneurial energy, can we have the risk-taking ability, the agility and speed of a good entrepreneurial company? And we've been on this journey. In fact, if you look at our leadership bench, I would submit in our sectors or actually compared to most consumer companies, it will be a very strong bench. Almost all, if not all of my leadership team are people with IVL background, we have served in great companies and now we in Pidilite for a fair period of time. We've also extended that across the level. So one of the areas we have focused a lot, which doesn't get talked about is we've changed our talent bench and our talent profile over the last 5 years vary dramatically.

[Latika Chopra, analyst]

And does that mean there's been a change in employee incentive structure any KPI changes there? And also, I was curious to understand how are the responsibilities shared between yourselves and Mr. Sudhanshu.

[Bharat Puri, executive]

Fair see... Answering the first. Absolutely, yes. Therefore, our incentive systems and so on and so forth, obviously reflects what we call our objectives and the Pidilite way of working and what we believe makes Pidilite successful and the incentives actually reflect that, whether it be in the mix of pay and the way people are evaluated and therefore rewarded. As far as Sudhanshu is concerned, Sudhanshu has been handling parts of the business, the best way to put it is Sudhanshu being prepared that he has a full view of Pidilite without the pressure of quarter-to-quarter numbers. And right now, there is, for example, the Consumer Product division, a lot of the Araldite handles directly slowly and steadily, we will keep handling greater amounts of responsibility so that it's -- he gradually eases in rather than with the sudden shock of having to do various things in a short period of time. But since it's here, it will be good for us him to also answer the question.

[Sudhanshu Vats, executive]

Yes. No, thanks for the question, and thanks, Bharat. So I think as far as rightly pointed out, I think the idea is to gradually ease in. I think -- but having said that, I think to answer your question, I would say 2 points. One is that from the point of view of all businesses, I continue to be involved in, in some form or the other. And managing independently, we are slowly and gradually building on businesses. We started with consumer products. We've then added Araldite, I look after our Construction Chemicals business as I go forward, managing industrial business as well, a little bit in the transition. So I think that's how it is progressing. Thank you.

[Operator]

[Operator Instructions] Next question comes from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

A couple of questions. First is a generic question. So I wanted to understand what percentage of our sales do we actually bundle? So say, hypothetically, if I am a painter and I would buy goods versus for expes. So if I come to Pidilite, how much of bundling can actually work over here?

[Bharat Puri, executive]

See, that's a very difficult question, Ritesh because it differs from geography to geography and town class. For example, in the big towns, the nation, the plumber and the printer tend to be separate. As you go down town classes, it becomes a handyman who does a little bit of each. So there's no one answer to the question. It will depend on town classes and even different geographies have different practices. So something that done by certain trades when in one part of India, they are done by different percenter part of India. So very difficult to give you one standard answer for the question.

[Ritesh Shah, analyst]

Okay. I'll just flip around the question a little bit. So if you look at it from a hardware shop standpoint, is there an element of bundling, which works? I'm referring it more from a distribution standpoint, so influencer apart [ Mycena ] Painter from the channel standpoint?

[Bharat Puri, executive]

Without any doubt, see, for example, hardware, paint, and as you go down the POP treat and you go to tier 3, 4 and 5 class pounds, it becomes hardware, paints and building materials. In some cases, it will become ply, hardware and pain. So there is an overlap of different channels in different geographies. In a broad sense, don't hold me to that, the more larger the town, the more the sub segmentation of disaggregation, the smaller the count, less developed, the more the aggregation.

[Ritesh Shah, analyst]

Yes. Okay. Sir, I'll just -- again, trying to fit the question again, sir, internally, do we try to cross-sell products like how is the organization structure? So we have phenomenal brands. Each brand does beautifully well independently. But given we are into water profiling and when you want to put paints along. So how will internally the system work to make that sale happen cross-selling happen?

[Bharat Puri, executive]

Okay. That's a good question. So we do it in 3 ways. The first thing we do, obviously, is we have a master database, which looks at what everybody sells. And therefore, what we will try and do is make sure that all of the relevant divisions cover that outlet. Secondly, at the dealer level, we also have umbrella schemes that are common across Pidilite. So there is an incentive for him to sell him or her to sell Pidilite rather than sell only some products with Pidilite, right? And the third thing is we also run therefore, programs with the divisions where we incentivize them to sell products across divisions rather than their own divisions. So mix of all 3 things.

[Ritesh Shah, analyst]

Right. Just a follow-up on here, sir. You indicated paints more as a completion of a particular range. So in the past, we have maintained that probably we would not venture into this, we are already there unless something really innovative. So sir, why this stage in heart now because it was always a natural extension for Pedilite to get into given brand and distribution.

[Bharat Puri, executive]

See, it is really a result of a lot -- I mean, we were obviously exactly saying this to our customers, but we've been having a series of customer meets across the last 2 years. And we've had a very strong demand from our customers saying, listen, I mean, while you don't need to go head on and be the biggest paying company in the business, your products, for example, a lot of our dealers believe that the best exterior paint products are ours because they do both paint and waterproofing. And people have been happy selling them. So it's largely based on customer feedback and customer response where they've been pushing us and then when we went in and looked at certain geographies, we found that listen, this is a growing market with an opportunity for a player who is differentiated and clear on why they want to be playing here.

[Ritesh Shah, analyst]

Alright. Sir, just a follow-up question on paints. Sir, you just indicated that you don't want to go head on. Pidilite and the brands, I think they have enjoyed leadership position in each of the segments. So how should we look at it given it just Pidilite have the distribution, you have brand, you have everything, and you would not just get in for the sake of it, you indicated long-term strategy is there on home improvement. So what's the broader vision, sir?

[Bharat Puri, executive]

See, the broader vision is to be a full home improvement company, which addresses all needs across home improvement. And as you rightly said, listen, Pidilite always believes in doing things definitely, let it unfold in the market, and we'll show it to you once you've done it.

[Ritesh Shah, analyst]

Okay. Sir, if I may just squeeze in one more. You indicated, I think, on C&B segment that there are 4 state that we ventured into, if I heard it right. Sir, can you detail which were those 4 states and any specific reason to choose those states? Is it because of distribution or proximity to manufacturing facilities?

[Bharat Puri, executive]

No, we didn't indicate 4 states actually in C&B, I just said 2 states, which is AP and [ Telangana ], which in a sense was the old AP and [ Orissa ]. Those are the states and very simply, I mean, we the states because of proximity to our manufacturing location.

[Ritesh Shah, analyst]

Okay. And sir, last question. You -- basically, the company has multiple units, I think, 33 plants, and I don't understand 35 comakers. What part of this manufacturing footprint is actually fungible for paints of the category, like a 10 out of 33 plants we already have the facilities where we can ramp up.

[Bharat Puri, executive]

A large part of the coatings plants, I would say, at a broad level, don't hold me to the number, but 4 to 6 plants in the coating areas will be fungible for paints every time.

[Ritesh Shah, analyst]

Okay. This is quite helpful. Thank you so much for the answers.

[Operator]

Next question comes from the line of Keyur from ICICI Prudential Life Insurance.

[Keyur Pandya, analyst]

Sir, first question is on the current demand environment. As we mentioned, the near-term uncertainty. So in the backdrop where real estate and especially new real estate is doing well and expect it to do well. So what is holding us back to guidance of -- not guidance as such, but basically uncertainty in the near-term demand?

[Bharat Puri, executive]

See 2 things. One is [ Keyur ] clear. Now you can't isolate yourself as an economy from the Rest of the World, given that the rest of the world has all this uncertainty -- there will be some spillover. We are seeing, for example, of customers of ours who have export-oriented businesses are already suffering. So one is the uncertainty around the whole geopolitical stroke recession in the west, stroke muted demand, therefore, in these places, the currency crisis in some of the developing economies, that's one uncertainty that we've been talking about. The second is we just want to be clear that rural and semi-urban India, the demand is fully back to its traditional level rather than being the muted that it was besides the fourth quarter of last year, pretty much for the last 1 year.

[Keyur Pandya, analyst]

Okay. Okay. Sir, second question is on this higher OpEx, which was partially answered that generally as of the -- as it was spent on the market-facing activity. So this was one-off activity or this is how it will be since we have higher gross margin, you would continue to invest more than usual to drive growth?

[Bharat Puri, executive]

We will definitely continue to invest more than usual as gross margins come. It may be in some similar activities in different Europe. Basically, as a company, we're investing in 5 areas, right? First and foremost, we are inventing investing in route to market. Secondly, we are investing in marketing, which is basically advertising as well as sales promotion. The third is we are strongly investing in digital. The fourth is we are strongly and digital includes e-commerce. It includes our digital initiatives. It includes our analytical initiatives. The fourth is we are investing in innovation and making sure that our innovation machine fires at a much higher rate. And of course, actually, the most important that we are investing in people. So all -- we will keep looking at and making sure as we've always maintained, we are a long-term player. We are a marathoner. We are not interested in the 100-meter sprint, and we will keep preparing to make sure that we can keep running the marathon at the right pace.

[Keyur Pandya, analyst]

Sure. And just last one question. On the paying side, as you mentioned, that we want -- basically, the company wants to complete the portfolio. So we already had this structure of, say, printing machine and all or the pace at which we want to grow, we won't meet that infrastructure. So how we would like to grow our business? I mean do you need a tinting machine? Do we have that asset? Or how will we go about that?

[Bharat Puri, executive]

We already had the infrastructure, and we already had tinting machines because the exterior paints are again also printed. So we already have the infrastructure in place.

[Keyur Pandya, analyst]

So any number which are there already in the distribution ballpark number, if not the exit number?

[Bharat Puri, executive]

[indiscernible] let it reach a number where you will get a here. Right now, let's say that we have the infrastructure, let it pan out.

[Operator]

Next question comes from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Question is on incremental capital deployment. Is there a threshold ROCE that we look at, as you mentioned, into new product categories?

[Bharat Puri, executive]

Absolutely, yes. In each of our areas, we are clear that it has to be intrinsically profitable. We may -- therefore, it has to have a gross margin, which is of acceptable levels. And obviously, the CapEx proposal has to have an IRR that works for us. And we will choose to invest more. And therefore, in the initial year, not make the same margin on the product. But we do not enter into any of the commodity side or the value-based side of the market. We are clear that over the long term, stable this thing, all our products will meet benchmark IRRs and will be intrinsically profitable.

[Ritesh Shah, analyst]

Sir, any quantification, please?

[Bharat Puri, executive]

Let's keep that -- again, it is different for core businesses, different for growth business is different for Pioneer businesses. But suffice to say that it is far higher, much, much more than double the cost of capital.

[Ritesh Shah, analyst]

That's helpful. And sir, secondly, on the demand side, can you please dissect the trend that you're looking at semi-urban rural versus urban?

[Bharat Puri, executive]

See, as far as semi-urban and rural is concerned, what we've seen for the first time in quarter 4 is that demand actually there was better than it was in urban. Otherwise, the last 3 quarters before that, actually urban demand was outpacing rural and semi-urban. And therefore, we are saying, listen, we are hopeful, let's see if this persists for the next 2 quarters, then we know that we are back to normal rural and semi-urban demand.

[Ritesh Shah, analyst]

Sir, any particular variables which resulted to the swing? Or is it just the base effect on inflation is actually getting captured? And that's the reason why the swing in demand or improvement in the bond?

[Bharat Puri, executive]

Very difficult to say, but I think some money has gone into people. So remember in the rural areas, whenever money comes in, it tends to go either into construction, into vending discretionary spend, it appears, and again, this is a net. This is not based on real data, but it appears that money in the hands of the consumer is slowly increasing in rural areas.

[Ritesh Shah, analyst]

Sure. And sir, just last question. And no, does it impact the sales trajectory of the company? Like is there any correlation both on the C&B side as well as on the B2B side?

[Bharat Puri, executive]

See, we've done this analysis. To be fair, what it tends to have a greater impact on Boral and the overall feel-good factor rather than on hard sales, we are not able to correlate hard. On linear, they tend to be a little harder, especially in rural and semi-urban, but it's -- I mean, when we look at the data, it doesn't give you the stark difference.

[Operator]

Next question comes from the line of Sheela Rathi from Morgan Stanley.

[Sheela Rathi, analyst]

Mr. Puri one question which I had was, is that -- I mean, did I correct you correctly when you said that paint companies are also present in all the 4 construction chemical categories. Is it something which has changed recently? Because if I remember correctly, in the past, you have said 2 out of 4 categories is where the paint companies have been focusing on.

[Bharat Puri, executive]

No, no. See, if you say category, again, if you're saying segment many paint companies tend to focus on the paint outlets, the paint outlets tend to focus on renovation rather than new construction. That has not changed. Some of them have been trying to venture also into the projects area, so on and so forth. But largely, if I was to say, the paint companies remain focused on paying tax and what I would call the large renovation segment. Sorry, we're not able to hear you.

[Sheela Rathi, analyst]

A big change versus the past, right? It's still the same.

[Bharat Puri, executive]

The only thing that has changed is now some of them are venturing into the product -- in the project areas and trying to spread their wings, but that is expected. That's also been going on for some time. I mean it's not something they're doing in the last 1 year; they've been doing it probably for the last 3 to 4 years.

[Operator]

Ladies and gentlemen, that was the last question for today. We have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

[Sandeep Batra, executive]

No closing comments, but thank you very much to everybody on the call for your continued interest in Pidilite and will connect again after the first quarter results. Thank you. Have a good day.

[Operator]

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