Asian Paints Ltd

Thank you so much, sir. We will now open the call for Q&A session. The first question is from Mr. Abneesh Roy, Nuvama.

Thanks. Two quick questions. First is on the regional variants. So, first is, how many states have regional offerings, and do you see proof of the concept? Is the growth faster in such

Okay, great Abneesh. In the first area, in terms of the regionalization, I think that's a very differentiated strategy what we have taken. We now cater to almost about 8 to 9 states where we have taken different kind of products. The products vary from upgradation emulsions to premium emulsions to luxury emulsions. We have also introduced waterproofing variants coming in various regional packs. So, to name a few states, we have done it in J&K, we have done in Kerala, we have done in West Bengal, we have done in Karnataka, we have done in Haryana. So, a lot many states we have taken, and this is something which is not just a shot in one or two states, it's something which we are making big. The proof of the concept comes in from an acceleration in terms of the growth which happens. It is also a very differentiated offerings which we support with a lot of below the line initiatives. Not only this, the excitement levels are quite strong as well, both from the dealers and the consumers and today our research is showing that, consumers are adorning these packs into their homes and not only that, we have also got the regional colour preferences, regional books which comes in, which are also based on some of the popular TV soaps. Therefore, the whole area of regionalization is something which we are making it very big because, we believe that, today this is a kind of a strategy which will give us a lot of strength and a lot of brand equity from a point of view of customer centricity. So, that is the whole area on regionalization.

Sir thanks. My second and last question will be on the competition and advertising spends. So, in terms of the new player, we surprisingly saw the price hike while your own gross margin, EBITDA margin seems obviously are at a multi-quarter high. EBITDA margin is at the top end of the expectation. So, what will be your strategy on pricing in the near term? And on the media spends, official paint partner, now we have the Cricket World Cup in February, so do you see that benefit? And specific question on media, what will be your share of voice now given the aggression is back and second when I see FMCG companies, digital spends is now a very big portion of the overall spends, it is bigger than traditional media. In your case, if you could give that break up. Thank you.

So, there are lot of questions in one question which you asked us. So, first of all I must say that some of this pricing increase is something which is just an artificial strategy, because a price increase has a meaning when possibly you are at a discounting structure, which is reasonable in the market. So as per us, possibly this price increase has no meaning, because anything which is in the zone of about 2 to 3% will not have any impact. So, therefore we are very clear that in our whole strategy we look at overall pricing from a market perspective. We know that today, as a leader, we can command a certain premium in the market and that is something which we are really looking at going forward and not tinkering with the prices there. Obviously, I think we are watching out if the volatility shows that going forward possibly if there are any indication of inflation which comes, we will review it accordingly.

Thank you so much sir. The next question is from Mr. Manoj Menon, ICICI Securities.

Hi team, just only one clarification if I may. So, the growth initiatives Amit and team are fairly impressive. The last couple of quarters you have been highlighting those granular

So, overall, I think the way we have looked at industry growths, there is a little bit cyclicity to it, in terms of what we have seen in the past as well. There have been periods when basically the overall cycles of growth have come down. Although if you look at from a CAGR point of view, I think that still continue to be strong for the overall industry. We are also seeing some kind of consumption trends, which is a change which is happening. I think what we have seen during this point of time, for whatever reason it is there, that possibly the frequency of painting has come down a little bit. I think the occasion-led painting has also come down. Wedding is a very big phenomena today in India and that is what we are seeing that today there are more destination weddings happening than home weddings, so that has contributed to some amount of possibly postponement, and we have also seen that it is a discretionary spend. Obviously, there are other avenues in terms which people look at, where they can defer painting and get into other investment and other consumption areas. Travel and hospitality are big areas in terms of how they are booming. But what we also see is that, the industrial sales has really gone up. The whole area of B2B, which contributes to a certain demand today, you are seeing really an uptick in terms of high-teen double-digit numbers. So, I think these are strong indicators in terms of saying that there is also a shift in the demand which is taking place in some of those areas and as we see it possibly this is one area which is bound to continue growing. But what we are also seeing is that, today somewhere with the interest rates coming down and possibly now today people shifting their investments to other areas, given the volatility in terms of what we are seeing, we could see that possibly some of those shifts will come, in terms of the painting cycle. So, we are really hoping that this whole cycle comes back. What you are saying is right. I think the expectation was now, which has not happened.

Thank you, Amit, for the granular and detailed response. Just one quick follow up if I may, when we look into next 12-18 months, what is your confidence level 60-70-80-90-100%, to say that you will end the next 12-18 months, with material market share gains?

So, that is the endeavour in terms of what we want to take. All our strategies are geared towards the fact that today we would like to possibly grow to some extent higher than the market. So, whether it is from the point of view of innovation giving us that leverage or it is from the point of view of far more different areas which we are driving whether it is waterproofing, whether it is construction chemicals, whether it is the whole B2B business. So, we are reasonably confident in terms of doing that.

The next question is from Mr. Avi Mehta from Macquarie.

So, my first question is on the decorative coatings industry. Could you give us a sense on how the growth momentum is, in particular what exactly was the growth in November, December versus the overall 3Q?

So, as I said, I think October was depressed for us in terms of what we saw, given the fact that the festive season was just about 15 days and that also was affected by a little bit of prolonged monsoon. So, I think the growth which came in, was much higher in the months of November and December. In fact, the exit growth rates were even higher than what possibly we saw in November. So, progressively, I think November and December is much higher. October gave very little growth.

Got it, sir. And just a follow up on that, by when do you see volume growth possibly moving to double digit? Is this like a few months’ phenomena, is it a few quarters phenomena? Any thoughts over there would be useful?

So, progressively, we see that this is the third quarter, which is seeing volume growths. In fact, last quarter we had a double-digit, this quarter we had a high-single-digit growth.

Just one bit on the Home Decor, if you could just give us some sense, on what are we doing to drive profitability? And is it fair to say that we are now in consolidation as we focus on profitability, which should impact sales growth. Just your thoughts on that. That's all from my side.

So, as far as decor is concerned, it's a very fragmented market. And if you look at from the point of view of the organized market, the organized market is very small, the unorganized market is very high. Therefore, I think there will always be pricing pressures which would come in, in terms of the affordability of the customer. Where we are leading the game is, one we are looking at maximizing our sales on the Beautiful Home store network, which are also places where we are able to cross sell from the paints to the area of space decor and vice versa.

We would now like Mr. Mihir Shah from Nomura to kindly ask his question, please.

Hi, Amit and team. Thank you for taking my question. So, my first question is largely on the demand environment. Given 3Q was impacted by a shorter festive and a prolonged monsoon, can one expect volumes to be better in the coming quarters? And if you can share some insights on how is January shaping up, from that point of view?

I think we are seeing some of the trajectory of December into January as well, for sure. And as we look at it, given the fact that the second quarter for us was at about 10.9%, this quarter is about a high-single-digit. I think as we go ahead, this band would remain, in terms of what we would be able to target for the Q4 as well.

Secondly, on margins, now you are at the higher end of the margin guidance band.

So, as we see, the whole price environment seems very volatile today. We all know that given the current geopolitical situation, the whole crude impact can come in very fast. So, we do not know, in terms of one, where is the pricing index going. Second, there is obviously some possibility in terms of regulating the key raw material of TiO2 which comes in from outside and there could be some movements in that direction going forward in terms of what can happen.

Got it. So, lastly, if I can squeeze one, if you can share an update on the latest latex paints that you had launched focusing on the rural market, how are they doing? And any thoughts around share gains from the unorganized players? We have about 220 paint companies in India;

So, great question. I think from that point of view, we had launched “NeoBharat” and we have been pursuing it very strongly. So, we have looked at the latex market, which is basically sold in “Kgs” across various markets. In certain states where we have seeded the product where we felt that the profile of the region suits it, we are seeing some uptick for us, which comes in from those geographies, digging into some of the unorganized markets and that was the purpose literally that, if we can upgrade the unorganized customer to organized markets, is something which we are looking at going forward. So, I think that persistence will continue, we have not made it a mega launch across the country, but we have seeded it in certain states, where we would continue to focus on that product.

The next question is from Percy Panthaki from IIFL.

Hi sir, just trying to understand the context of the growth this quarter for the domestic business, the sales growth is about 3%, this is on a base of about minus 7%. So, what is really constraining the growth here? Is it the competitive environment and some loss of market share or is it that the industry growth itself is that weak? And if it is the latter, is this something particular to this quarter or to the short term so that we can expect this to sort of improve with some clarity or certainty or the improvement is more of a hope at this point of time?

I would say that it is pertinent to look at the overall coatings growth which is about 4.4% and even from a point of view of volume level, it goes to 8.3%. I think, given the current demand conditions, it is still quite a good growth and we believe that, while the results are going to come for the other companies, it should be possibly higher than the industry average and that is something which we have been pursuing in all the areas, where we are seeing growth, we are putting a lot of effort in those areas, as we want to grow, namely the B2B and the industrial. I feel that going forward possibly, a good ticker would be to keep on looking at the volume growth in terms of what is there and I think the value growth would follow from that point of view. And therefore, anything in the volume, in the current context, which is between that 8% - 10% is a good growth, in terms of what I would say under the current circumstances.

Understood sir. And the volume value gap for last several years has been negative for us. Any chance, that this will become zero or something in absence of any price changes or it will remain at this 3% - 4% gap between volume and value?

So, as I see it, in fact the gap has come down. Earlier, the volume and the value gap used to be about 6% to 8%. So, the gap has come down, which is an indication of the fact, that possibly there is a premiumization which we are attempting. But I think I have commented on this earlier as well, if you look at the entire segment of economy, primers, some of the upgradation products which are there, it is a large segment. So, I think by virtue of the fact, that you would like to grow both sides whether it is the upgradation segment as well as the premium luxury segment, some of this gap is bound to remain. So, I would say that this 4%-5% is a more realistic thing which would remain in the market, so that possibly from a point of view of share you are able to concentrate far more holistically in terms of how the market is growing.

So, if we are saying that about 9-10% volume growth is a respectable number and there is a gap in volume value, does that mean, that about 5-6% value growth is what we should be realistically expecting in the next few quarters?

I think that is a reasonable take in terms of what we can look at.

Second question on margins, earlier you had given 18-20% band, now we are at that 20% number, do you think that assuming that input costs more or less remain where they are, we would maintain this 20% going ahead as well or you would still think that it could fluctuate between the 18-20% band?

See, what we have seen is that, given the kind of environment, the volatility which we are seeing, the kind of competitive intensity which we have, our spends in terms of building the brand going forward, we would say that, we should judiciously use the monies, to say that, what is the longer term view we are taking, what are the endeavours which we are making, which is our investment in the market, it could be from a point of view of technology, which could be both information technology, AI or development technologies, which would really come in. At the same time, I think the whole marketing impetus is something which is a very big imperative for us going forward. So, I would say that we would keep the guidance between that 18 and 20% band as we go ahead and that is something which we will endeavour to maintain.

The next question is from Mr. Amit Sachdeva from UBS.

Hi, good evening and thank you for taking my question. Sir, if I recall, you had given some sort of ambition, if not guidance, for second half, kind of 5% or mid-single-digit revenue growth and value volume gap of some 5% as well. Now, given the Q3 performance and if I were to reflect back, that Q4 tend to have some sort of channel filling or at least quest for channel filling, a lot of competitive activity because everybody wants to finish the year with good

No, I think I have been maintaining that, as I said that, band of 8- 10% for volume and gap between the volume and the value is a good indicator, because see, this whole thing of channel filling is something which is always artificial. It is not something, which basically becomes a very productive kind of a thing, when you start the next quarter. So, overall, we basically take a balanced stance, in terms of how we would like to channelize our sales and to some extent there is a little bit of a hockey stick effect which comes in every quarter. So, literally if you see, it is built into your base as well. So, I would like to maintain the numbers in terms of what I just said.

Got it. Amit thank you so much for this. And if I may just stretch a little bit of the comment you made about the value volume gap of 5%, sustaining for few more quarters. Now in your thinking, you have probably reflected largely mix led activity which is causing this to persist.

Yeah. So, as I said, if you look at from the construct of the market I have been always maintaining that, the premium-luxury market contributes to only a certain portion of the entire market and you can really grow the premium-luxury market, even if you were to take a hypothetical price increase, you can grow the market only by that percentage points. The fact is that today there is a large segment which is the upgradation economy segment, which remains with a lot of attendant products, which comes in from a point of view of undercoats. So, given that fact, that we look at possibly this kind of a product mix which is possibly true for a larger set of companies. I think it is realistic to assume that this gap will remain for a certain point of time. This structure can’t change strongly, very easily in a very short time. Even if you see from a point of view of a waterproofing range and that also has a mix from a point of view of premium as well as eco category in terms of how it balances out. So, therefore, I would say that possibly this gap will remain if you want to have a far healthier growth across the range of products.

We would now take the last question by Mr. Tejash Shah from Avendus Spark.

Hi. Thanks for the opportunity. Sir, if we attribute this quarter's slowdown or the disappointment on growth to shorter Diwali window, is it right assessment that the corollary to

See I feel that, not too much is going to change for the immediate quarter or the immediate two quarters. I think largely given the demand trends in terms of what we are seeing overall, some of those demand trends from a point of view of retail, B2B, industrial would remain in the same zone. I think progressively we could really say that it could be some improvement which can take place, given the cyclicity of the industry and the fact that possibly in the past also we have seen in terms of that demand coming back, but I think we will have to really watch the environment very carefully in terms of looking at how it is auguring, because it is also dependent on a lot of other factors which are happening in and around us in the environment. I also said that some consumption patterns are changing and given the fact that we are in a discretionary category, it also governs the growth that comes in this category. So, I would believe that possibly, we need to wait for another one or two quarters, before we really see some things changing in the market.

Clear sir and just on margins, so there appears to be some divergence between the growth outlook, the competitive intensity commentary and the margin performance, because despite the muted growth environment and elevated competition, we are still at a higher range of the margin. So, just wanted to understand is it that the industry and not only you, believes that now passing on the benefit to consumer will not revive demand and hence perhaps it is better to either hold the margins or what we are doing is invest it in more of a marketing and branding activities.

No, I do not think so that is the case, because I think the competitive intensity is still very strong in the market in terms of what you see. I don’t think we see that there is any pull back which is going to happen. I think our strong ingredient has been the whole cost model, which we have broken up in a very big way. So, we are not relying on just the external deflation or the prices.

Thank you so much sir. On behalf of Asian Paints Limited, this concludes today's conference. Thank you for joining us. You may now disconnect your line and exit the webinar. Thank you so much everyone once again.