Kansai Nerolac Paints Ltd
NSE:KANSAINER
Earnings Call Analysis
Q2-2024 Analysis
Kansai Nerolac Paints Ltd
In a challenging economic landscape with macro conditions and competitive pressures, the company managed to deliver a steady set of financial results. The top line, representing gross sales, saw an increase of 1.7% compared to the previous quarter, while earnings before interest, taxes, depreciation, and amortization (EBITDA) surged by 36.8%, and profit after tax (PAT) grew by a substantial 53.4%. When examining the first half of the year, the top line grew by 4.2%, EBITDA by 33.3%, and PAT after exceptional items exploded with an increase of 229.7%.
Demand for decorative products was subdued mainly due to erratic monsoons, which traditionally influence buying patterns in this market segment. Timing of the Diwali festival also played a part, with expectations for demand to shift to the third quarter. Despite these factors, the industrial segment remained robust, indicating a dichotomy in demand patterns within different market segments.
Stabilized raw material prices amidst volatility in crude oil and foreign exchange markets, paired with ongoing cost reduction efforts, contributed positively to the bottom line. The company also benefited from shifting towards a more favorable mix of premium products, with newer, unique offerings like the Beauty Little Master Sheen, increasing the mix of premium products, thereby supporting average selling prices despite some lower-end product demand.
Operations showcased a capacity utilization rate of 65%, and significant expansion projects at Vizag, Jainpur, and Hosur are progressing on schedule. Innovation programs have gained momentum within the company, with an emphasis on employee engagement and idea generation to drive efficiency and optimization.
As services are expanded, the structure of the service team has evolved accordingly. The company saw strong growth in new business segments, suggesting that previously existing gaps in the range of new businesses are no longer a concern. The expansion into over 75 towns reflects growth in projects. There has been a significant increase in advertising spending, particularly in high-visibility events such as the Asia Cup and World Cup, driving enhanced product visibility through traditional and digital media channels.
Management indicated that the margin trajectory witnessed in the first half of the year, around 14.7% EBITDA margin, could be sustained going forward. However, potential volatility in crude and foreign exchange may drive raw material prices upward, which could impact margins. Nevertheless, expectations for better and higher growth in the third quarter and beyond could offset some of these potential cost increases.
New product offerings account for approximately 10% of the company's total range, and are perceived to be performing slightly better than market expectations. This indicates that the company's strategy of innovation and product development is gaining traction and contributing significantly to overall business growth.
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Ladies and gentlemen, good day, and welcome to Kansai Nerolac Q2 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi. Thank you, and over to you, sir.
Thanks, Akshay. On behalf of ICICI Securities, we welcome you all to Q2 FY '24 Results Conference Call of Kansai Nerolac Paints. We have with us senior management represented by Mr. Anuj Jain, Managing Director; Mr. Prashant Pai, Director, Finance; and Mr. Jason Gonsalves, Director, Corporate Planning, IT and Materials. I congratulate management for posting a good set of numbers in spite of tough macro conditions and steep competitive pressures. Now I hand over the call to the management for initial comments, and then we will open the floor for a question-and-answer session. Thanks, and over to you, sir.
Thank you, Anirudh. Good morning, everyone. Greetings to all of you. Thank you for your continued support and interest in our company. Also thanks for joining this call of Kansai Nerolac for quarter 2 financial year '23-'24. You must have seen in the results for the quarter, the top line is up by 1.7%, and EBITDA is up by 36.8%, PAT up by 53.4%. If you look at the first half of the year, the top line is up by 4.2%, EBITDA by 33.3%, and PAT after exceptional item was up by 229.7%. During the quarter, quarter 2 specifically if we look at it, the demand has been subdued for decorative mainly because of erratic monsoons and generally, we have seen that whenever Diwali is in the month of November, there is a shift of demand towards the third quarter. So demand during the quarter has been subdued. In industrial, the demand has been decent. In industrial, automotive and liquid performance coating has registered good growth. Decorative growth is marginally negative. Excluding putty, it is around flat. Volume growth is also similar. In automotive, KNP growth has been better than the market growth. Raw material prices remained stable despite volatility in crude and ForEx during the second quarter. And this, along with continued cost reduction preferred, has helped the bottom line. Partly, the bottom line was also helped with the change of mix, favorable mix. In decorative, the growth drivers, which we have been driving in our company, so one, in fact, some of the products, which we introduced over a period of last 1 year, and those products have helped in increasing the mix of the premium items. So there has been a positive change in the mix. And this also helped maintaining the average selling price despite that there has been a demand of the lower end products also, but this helped us in maintaining the average selling price in the quarter. We continued the launches of some of the more unique products. So during the quarter, we introduced Beauty Little Master Sheen. This product, we started and launched across India. This is a very unique product, having an excellent sheen. Generally, the high sheen is available in a very, very premium range. This is a breakthrough product in a very basic category. A voluminous market, we have been able to bring this kind of feature, so you can call it as a part of the economic range, this product, but we have a very good feature of the premium. So that's the product that we introduced, and we got a very good response from the market. We extended Impressions Kashmir we had introduced in some of the variants, but we introduced the high sheen variant. There are certain markets, certain states where, in fact, the preference of the consumer is towards a very high sheen. So we introduced that. And also, we have infused the matte. So therefore, now with these variants, Impressions Kashmir has high sheen, sheen, matte, these kind of variants are available and it's a very pure product. So we are getting a good response to this product. We also expanded some range in this waterproofing construction chemicals. So again, one unique product, which is Crystal Seal we have launched in this period. The other initiative in decorative, which is around the influencer program and services, which we have been updating you in the last few quarters. So our next-generation painting services and our program for architect interior designer, which we have started scaling up, is gaining continuous momentum, and we are seeing traction quarter-on-quarter basis. And that scale up process has already started, and we are going to scale it up further. The services has been expanded to more than 150 plus cities in terms of active lead generations now where we are generating the digital leads, and we are having the control on this particular business. Service team has a structure as we're expanding the services. The service team and its structure also accordingly we are expanding. New businesses, overall, the new businesses have shown strong growth. And now in fact, with our range, the gap that we had in this range of new businesses that is no more there. Probably, we are doing a little better than the market. In terms of project also, we have registered a good growth. So we have been expanding our team now almost more than 75 towns, which has a good potential of projects. So we have a team in place, we have a footprint there, and we have registered a good growth in projects also. In terms of network, the expansion in the network was in the double-digit growth. And also, as a part of our initiative, we enhanced visibility through media and digitally also, we have been very, very active. We also participated in the high decibel events like Asia Cup and World Cup. And there, in fact, we have been advertising, communicating the range of new products, the Paint Plus which we have introduced over a period of last year. Coming to industrial business, in automotive, our approach, as we have been saying earlier, continuous focus on technologically-superior products, launching sustainable technologies to reduce VOC, volatile organic compounds, and to reduce carbon emission. Passenger vehicle segment continued steady growth trend, got carried forward from quarter 1, and we expect SUV, a new model, to continue to drive demand. Two wheelers may see a better demand going forward. But as of now, it was kind of -- the production growth of the industry if you see has been flattish. Three-wheeler is fine. Commercial vehicles continue the positive momentum, and tractor has been under a little stress. We are getting the traction come from the new 6 segments where we you know that entered, which is a seam sealer, underbody coats and alloy wheels. So the business and the traction has started coming. In auto refinish, which is after paint market, our focus is in terms of adding the A-class body shops, and that is helping us, again, driving the salience of premium products in the auto refinishes. And we also introduced during the quarter the next generation waterborne paints for body shops that is what we introduced just about in the -- towards the end of the quarter 2. In Performance Coatings division, which is a non-auto industrial category, again, one of the focus areas we have taken was to come out of some business, which at the low end was not so profitable and therefore, increasing the salience from the premium business. There also gradually we are seeing increase in the salient products in the premium category. We have been working to get approvals because this business' long-term sustainable growth is dependent on the approvals. So in that pursuit, we have received the WRS approval for fusion-bonded epoxy powder. So that is for Performance Coatings division. The other updates to you related to capacity during the quarter. The capacity utilization was 65%. And our expansion project at Vizag and Jainpur, they're on track. In the Tamil Nadu, Hosur, the expansion has been completed as per the plan. Some other initiatives in the company, we have been driving the innovation program. And last year, we started innovation program and this time we have created an innovation process and we are going for a good participation from the employees collecting ideas. So that program is taking a shape. And we are receiving a lot of good ideas, and that is giving us -- that is building a good pipeline for implementing the good ideas to bring efficiency optimization in our systems. We have been once again certified as a Great Place to Work. So we received the certificate Great Place to Work certified organization during the quarter. So these are some brief updates related to a quarter, where I just mentioned about the top line, bottom line, the status, the progress on the initiatives what we have taken. And I now welcome all of you for the questions.
[Operator Instructions] The first question is from the line of Avi Mehta from Macquarie.
Sir, I just had 2 questions. First, with second half, you have indicated benefit of festive period as well as our paint plus initiatives are taking shape. Would it be fair to argue that the margin trajectory would be similar to what we saw in the first half, which is at around 14.7% at the EBITDA level? And what would be the rest if at all you think if you disagree?
Avi, I think the prices so far have been stable in the quarter 2. But going forward, maybe because of this volatility in crude and ForEx, there may be a possibility of some upward trend in the raw material prices, to that extent there may be some impact. But the positive factor for the third quarter or the coming quarters would be a better, higher growth. So I think one has to balance between these 2.
So should we expect -- I mean, would it be fair to expect this current trajectory to continue because last time you were kind of more towards 14% for the full year, but the performance has surprised us positively. So would it be fair to kind of extrapolate this? Or you think you would like to suggest that we should still stick to 14%?
So Avi, as Anuj mentioned, the crude prices have started showing an upward trend, right? Now to make a statement whether it will be the same -- or there may be a slight -- some marginal up and down. But we believe that, by and large, the margins should be fine in the third quarter.
Also, Avi, just keep in mind that because our margins also depend on the mix changes because business mix changes. So depending on how much sale is increasing in industrial and decorative, so to that extent, some flexibility is always there in that regard.
Got it. And sir, this is just a bookkeeping question. Could you kind of give us a sense on how was the ad spend intensity in this quarter?
We have increased. We have been going a little aggressive. And as I said, that we will enhance our visibility, whether it is traditional media or digital. These services where the initiative is all about the lead generation from the digital spending, so ad spends have gone up in the quarter 2.
The next question is from the line of Pramod Dangi from Unifi Investment Management.
Congratulations for a recovery in the margin. Sir, you have given a very good commentary on the directional update on the restructuring, which we have taken a few quarters back. If you can quantify a few of the numbers, it'd be very helpful. Can you help understand out of the growth of 1% over the 5% last quarter, how much driven by the volume growth, and how much driven by any price change, that is negative or positive? In case of it like -- we saw that ad spent actually went up quarter 2. And I remember that Mr. Anuj Jain has said a few quarters back that our ad spend was very low and we would like to increase it. So if you can quantify if it went more than -- from 3.5% it went to 4%, 4.5%, 5%. But I think the quantification will help with your directional commentary.
Okay. So this -- in terms of decorative, if you're talking about value growth and volume growth, the growths are similar. So that's why I said that because there is a change in the mix of the premium and therefore, we are able to maintain the average selling price. So growth in value and volume is similar. Ad expenditure, Prashant, would you like to talk about what is the change in the ad expenditure.
So it's about more than 15% to 20%, we have increased the ad expenditure in this quarter, more than 20%, around 20%.
Okay, great. So for the 1% top line growth, the ad spend is actually 20%. And if you can give the contribution from the new product? I think March end, our paint plus capital was giving around 10% contribution to the revenue. Any significant change over there how we are moving in that direction and you are introducing new product? And similarly, for the industrial product, all the new categories which you have mentioned, what kind of the contributions which you have now have mid-single digit and how they are moving.
So in terms of new products, overall the new products, the contribution is about 10% of the total range. And within the new products, there are paint plus, which are unique products. So there also our experience is gradually going up. Even in industrial, the contribution of the new product is higher single digit towards the 10% only. Overall for the company, I can say the contribution of the new product is around 10%.
Okay. Lastly, your project or the contractor business. We have a team in place a few quarters back. So what kind of traction, which we are seeing now? Is it better than what you expected?
Your voice is not clear. Can you -- I am not able to hear your question?
I am saying that on the project or the contractor business, we have placed a new team few quarters back. So what kind of experience we are having now? Is it better than what we have expected earlier? Is it going -- because there is a lot of competition as of today. So how we are building up on that side?
So in fact, if you remember, we have been talking quarter-on-quarter. So we have been gradually expanding our team, and when we expanded the team to further towns, we got a good response. Therefore, we have further expanded. And as I said, now we have crossed more than 75 towns. Now our growth in projects, so in the earlier years, our growth -- because project growth, the market growth is always higher than the retail growth, and we have been lagging in that particular growth. Now we have caught up and we are in line with the market. Our salience remain low because if we compare to the market, our salience -- our project sale to the total sale is lower. But in terms of growth, we have got up.
Okay. Got it. And lastly, one feedback. I tried to use your NXTGEN service in Mumbai. I just repainted my house 2 months back. But the call back, I got after 1 week, by the time, my color was over. So I don't know to take it this quarter. That was in Mumbai and I know Mumbai is a weak market for us, but...
I take it as a feedback and apologies for that. But I tell you what happens is that because these are new concepts, and when we introduce the new concept because what happens is that, in fact, we have started receiving very good responses, the number of leads. So sometimes what happens is it takes a little time to establish your complete structure because every month we see that how the leads are going up, what is the infrastructure team is there in the market because when we put the team, say, example, in a city like Mumbai, now you don't have the control whether you're getting more leads from South Mumbai or North Mumbai. So those kind of things and those learnings we take and continuously, in fact, there have been learning. Obviously, initially, when we started there have been challenges. But now we are able to take care of a lot of challenges because our idea is that we should be able to respond properly. So obviously, we are not 100% right out there. But I think as of now, our satisfaction level or what we want to do have reached around 90%. And obviously, we have to cross the journey of balance 10% also where this kind of problem that you had faced should not happen.
The next question is from the line of Namit Arora from IndGrowth Capital.
Sir, I think on your last slide, which is on the risk and outlook, so I wanted your thoughts on do you consider increasing competitive intensity in the Indian market also sort of a risk to do and in fact...
Sir, can you please reach to your headset. You're on mute.
Sure. I was reflecting on the last slide of the presentation on risk and outlook. So I would be grateful for your thoughts on if you consider increase in competitive intensity in the Indian market also some sort of a risk for you? And have you seen any impact on employee retention, the vendor ecosystem, distributor ecosystem, et cetera?
Actually, we have been talking about it. So obviously, it's a fact that the new competition is there, a lot of new competition has already come in. Some companies will come towards the end of the year. But I think what is important is to know that the existing players, so like for us also, there is an established brand, there is an established network. There is a good relationship with the network. Some of the initiatives that we have started in terms of influencer management. So all that ecosystem is set. Now it all depends at what approach the new competition is going to take. But in our view, it's not an overnight game. Companies may come in. There is advantage also because in a market like -- critical paint market like India, where the size of Big 4 or the organized sector is around 50,000, every year, we expect a growth of around 10%, so partly the new players can get absorbed from the growth also and rest it depends on what kind of approach they take because it's a quality market. So if you want to fight on a price with long-term sustainable growth, it becomes difficult. So I think what is important is to focus in terms of our initiative, building network, building relationship with the dealers, influencers, creating growth drivers, which we have been doing. And then let's see that how it shapes up. As of now, I can only comment that new players are good for the market because you'll see more innovation, you'll see more communication to that an extent more formalization happen, maybe the penetration goes up. So these are some positive factors also.
The next question is from the line of Atharva Bhutada from Purnartha.
So I just wanted to understand will we be able to grow...
Can you speak loudly?
Yes. So I just wanted to understand that in FY '24, will we be able to grow double digit now because of such a low quarter in the industry? And then quarter 2 -- quarter 3, do you think that we'll be able to beat the industry?
So I can only say that quarter 3, quarter 4, the market growth will definitely be better. And therefore, the outlook for the coming quarters is better than the first 2 quarters. How much will it grow? The outlook looks to be -- at least the coming quarter, the double-digit looks possible as of now. And when you say beat the industry, what happens is that there are different segments like, as I said, paint, putty, project of the new businesses. So if you look at segment by segment today, so whether it's a project on new businesses, some where we are equal to the market, somewhere we are a little higher than the market. But some of these high-growth sectors, our salience is lower. So therefore, sometimes some gap you see mainly because of the salience. For us, what is important is that if we are playing in that particular sector, whether we are able to catch up with the market growth or able to do better, so that is how we do our calculation. But since our salience is low, sometimes there is a difference. And therefore, our attempt also would be that how do we increase the growth in a particular segment, so that even that salient sector goes away, but that does not disturb us because as long as every segment we are able to see, other than the segment where we decide or choose that we don't want to play in a particular quarter because if the quarter market growth is high, maybe sometime we want to participate in the volume driver product. But if the market growth is muted, so some time that we go a little slow on that. So I think that's the answer which I can give to your question.
And so on a year-on-year basis for the second quarter according to the rainfall data that IMD has provided, there was very less than the average rainfall in the country. So what has happened is the paint industry with such a significant blow to the demand?
You are saying paint industry has suffered?
A significant blow to the demand.
So you can say that if you look at in terms of urban and rural, the demand has been impacted in the rural sector. Now as you're rightly saying that the rains were we can call it a near normal. So there may be a possibility that there could be a better demand at least in the coming quarters because the monsoons have not been that bad. There is some deficit, but it is like geographically, some geography it is good, some geography it is not so good. So the geography, where it is absolutely normal or near normal, there we expect a better demand. And therefore, overall at the country level, if we compare with this quarter 2, the demand definitely would be better in the coming quarters.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.
First question is on the industrial side. So if you can just more quantitatively tell as to how we have grown in auto and non-auto? And what is the outlook for the second half in the industrial side? Since based on your presentation, it seems that most of the engines are firing now, so 2-wheeler segment was not participating in the growth. Now, the 4-wheeler, 2-wheeler as well as some other non-auto industry doing well. What kind of growth outlook you would give for the industry?
If you look at quarter 2, the passenger vehicle production growth of the industry as per the SIAM report, it's about 6% production growth. Generally, paint growth goes in line with the production growth of the auto manufacturing, 6%. And I think even in the coming quarters, probably they will be able to maintain this kind of growth. Two-wheeler in the quarter 2, again, as per the SIAM report, the production growth was flat and maybe slightly negative also. But in the coming quarters, because the 2-wheeler growth is dependent on the uptick in the rural market, so there are expectations as we talk to experts, that there are expectations at least actually in some geographies. The companies are expecting to see a little better demand from the rural and therefore, the 2-wheeler will get supported. In the other non-auto, which is like general industrial performance coating, I think based on the infrastructure, the spending from the government, I think that sector is doing fine, and it will continue to do fine. In powder coating, where probably there was some low demand mainly because of some -- few segments, there, we have started seeing some kind of uptick, and therefore, going forward, probably the growth could be better in those segments also.
Just to clarify, as you mentioned that in the last 3 or 4 quarters that the company has gained share in the auto OEM business. And with higher share of premium cars, premium paints and larger type cars, shouldn't the paint growth be higher than the volume growth? And in that context, could we expect double-digit growth, industrial plus auto combined going ahead?
So it depends. Generally, within the passenger vehicle, you may be right, but this gets offset with the 2-wheeler because 2-wheeler numbers are also very large and there the growth has been a little lower. So only if you look at the passenger vehicle, that is possible. But when I look at the automotive, it is a combination of passenger vehicle, 2-wheeler, 3-wheeler, commercial vehicles and tractors. So even if I look at quarter 2, the commercial vehicle growth has been good. Auto production growth, as I said, 6%. Two-wheeler growth is just a little negative and sector also has been negative. So as a combination, if you see maybe the difference between -- but only if you talk about the passenger vehicle, you are right.
On the decorative side with all the initiatives that we have taken in the last 4 to 6 quarters, where do you see for the like-to-like categories, you growing faster or at least catching up with the industry. And Q2 demand, we just see because of the timing difference, we have seen this order or there is some consumer slowdown that we are witnessing in paint?
I could not understand the last line what you said?
So the slower demand that we have seen from decorative in quarter 2, is it just because of the timing difference of festive and monsoon or there is a genuine demand slowdown that we are witnessing?
So the growth, we are seeing a good traction in projects and the new businesses, which we started and there we are seeing a better traction. Within the retail categories, the categories like what we spoke about, premium based on our influencer program, architects, services, those initiatives are supporting some of those categories. And demand -- yes, the demand has been a slow one because of monsoon. In fact, this has become a trend now. In fact, we have seen that whenever Diwali is in November, the third quarter growth is always better and the second quarter go a little lower. But maybe this quarter -- quarter 2, this year, has been lower than expectation. But yes, we have seen some uptick in demand, and we are hopeful that quarter 3 will be better.
[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking.
Just 2 questions in the beginning. To my understanding, the channel has told us that because the demand was subdued in the month of July and August, we had an early discounting by most of the industry participants in the month of August. And the intensity has climbed up very high. So the question here is that, is the promotion or discounting intensity has now stabilized? Or it's still gone up because the demand what you have been saying looks better in the anticipation festive season is going to be good, but still rural has not recovered. So your comments on that.
So I think discount intensity has gone up. And as of now, I cannot say it is stabilized, but it depends that going forward that how it happens, but as of now, it has not stabilized. It is still up.
Okay. The second observation is that what we understand the quarter 2 growth was largely driven by the economy emulsions. Assume that if the festive season pans out and there is a luxury premium segment, which should come back and wedding season also will complement. So that means that our margin guidance -- not guidance, the margin what we have achieved, there is a likely chance that the margin will move up because of the mix change? Is that a fair assumption?
In our case, if you see, as I said, that within our mix, the contribution of the premium actually has gone up. And as I said that excluding the cement putty, our growth is better. So generally what happens is that when the market is subdued, the growth is subdued, that time, we won't chase volume so much because it may add to the volume, but not much of the value. But when you see a better market growth, then probably during that period that we would like to release some resources even for the volume-driven product. So to that extent, I think it gets balanced.
Okay. And the last question, yesterday, we heard one of the leading players said that South, there are problems, maybe the rains are insistent or below normal. There is pain. So in your understanding, what is happening in South or our South observation is now -- I mean, is South not important to us?
No, every market is important. But obviously, our market share is low in South, our salience is lower in South. Hopefully, because South generally, yes, this observation is right. But generally, South market gets picked up by the end of November or first week of December because December, January is supposed to be a good season time. So we can only hope that by the season time, I think our market picks up and it therefore, gives some spurt to the growth of the industry.
Okay. So if South comes back with the full sheen, can industry expect a double-digit volume growth for the second half?
Yes, it is possible.
The next question is from the line of Abhijeet from Antique Stockbroking.
So my question was, what would be the differential growth between industrial paints and decorative? Because our overall growth has been about 2%. So just wanted to get an understanding of what would have been the growth broadly in decorative and broadly in automotive because automotive has grown at a higher rate -- sorry industrial has grown at a higher rate, then decorative shelves would have been more muted. I mean, just the difference between the 2, growth rate.
I think I said at the start, decorative growth is marginally negative. And excluding putty, it is kind of flattish, while industrial, it is a higher single-digit growth towards double digit growth you can say.
Sorry, I didn't hear that.
No problem. No problem.
Okay. Got it. So high single-digit growth in industrial, then with a 6% growth in production that we have seen in passenger vehicles, that high single digit growth could still be sustainable, right? I mean Q2 seems to be even at the current rate.
Yes.
That sounds nice. So only your decorative growth has to move up or move to -- a high single-digit to a double-digit growth in sales moving ahead.
Next question is from the line of Tejash Shah from Spark Capital.
So when we entered the quarter, the narrative or the expectation from the industry was that whenever there is an [Foreign Language] and then up the festive season is delayed, we usually see good pickup in decorative paints. But now when we are picking up, commentary seems that it did not turn out to be that way. So is it that the underlying demand is actually much more weaker than what it appears on the number?
So you're right in terms of that -- definitely, the growth in the quarter 2 was lower than what industry has estimated. And mainly, if I break it off in urban and rural center, I think the demand was tough in the rural market. And the rural segment also contributed good to the paint industry. So in fact, there has been some stress. And the industry has been hoping to see uptick, which so far we have not seen. But based on some of the trends, as I said, it may not be across the country, but some of the geographies, we are hopeful that in this quarter, mainly because of the good monsoon in some of the geographies, we are hopeful to see that. And if that happens, then I think the overall demand of the industry will go up.
But the divergence between urban and rural is very stark or relatively rural is weaker and hence urban looks better or urban has actually definitely picked up in a very stronger way?
Urban, we can say picked up in the sense, urban there is a normal demand. Rural, the demand has gone down, and rural contribution is good, and therefore, it is affecting the total demand.
Got it. Last one. Sir, you spoke upon competitive intensity and this question has been asked in many different ways in the last 4, 5 quarters. But from your experience, you would have seen the industry has actually kind of fought with many challenges in the past and the last 2 decades and still survived in a very strong way, incumbents in particular. Would you qualify the new competition in the same bucket as in the way of what we would have felt in last 20 years? Or this time, sheer size of balance sheet with which it is coming, you'll say that this time, it could be different?
So I would say this time, it could be different because of the reasons as you rightly said. But the basic sets of the industry remains the same that what is the kind of brand you have, what is the kind of network in terms of dealers or the influencers you have? And what are the drivers of the growth, which industry is ready with. So I think those factors are there. So whether it is a big size player or small size player, I think there's no answer available overnight. So obviously, people can come in, as I said, that it is always good for the industry to have more number of players because it always is helpful, beneficial for the industry in the longer run. So that is what I expect that there may be more good things happening in the industry rather than the bad thing and therefore, the industry will prosper further.
And sir, last one on that. I am just trying my luck here. Would you have any -- I'm asking the forecast only, we're crystal clear. Can the competitive intensity have a very different regional flavor or a market structure for you as it could be very high at mass end or premium end or it can have a very regional flavor also that it could be very high on West and South and not necessarily North and East. Do you have any sense to forecast, if there is anything?
No, very difficult. It's very difficult for us to make any comment on that, sorry.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.
In the quarter 2, the kind of growth that we have seen other expenses, if you can just tell, is it A&P or something, some other line item or there is one-off since actually the growth itself is very high. So a little clarity.
Yes, Prashant?
So other expenses, as I said, we are -- as per our plan and for -- we have been mentioning quarter-on-quarter that we'll be increasing our ad spend. We have been doing that as per our plan, and that is one of the reasons, plus other experienced more of a normal growth, which is in line with the inflation.
[Operator Instructions] The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher Private Limited.
Anuj and Prashant, I have just one question on the volume growth. Because I think a couple of questions back also it was discussed that if we book say our total volumes in 2 buckets, that is decorative and industrial, and on the same industrial side, while auto is doing well, I would say, powder coatings and all even durables are slightly tepid. If you look at overall sales of the industry and general industrial is, I would say, doing reasonably well. So that is one bucket and the second is decorative, which has not done that great so far maybe because of delayed festival season. Now if the automotive industry, say, grows by 5%, 6%, say, in volumes, and general industrial and you can say powder coatings, they might grow say around in tandem. Then do you see a possibility that the decorative will have a momentum, which will enable double-digit growth rate for the industry in the second half of the year?
As we discussed that, obviously, if you see the breakup between industrial and decorative, mainly the double-digit growth is missed because of the decorative part. And because of this Diwali momentum followed by the good marriage season, which is expected in the month of November, December, we are hopeful that this growth will get into the area of double-digit volume growth.
In 4Q also?
Hopefully, yes.
Okay. And this time around, I think the pricing will remain negative if the product prices have not changed.
No, not changed, because already price change, that when you are able to see stability because as of now in the market, you see the volatility is there. And as I said, that going forward, there may be some upward movement of the raw material prices. So one will have to wait for that when it gets stabilized.
Okay. That's useful. The second bit is on the -- you can say your puttys, waterproofing and all the other, you could say, Construction Chemicals segment, which we had entered over the past 2, 3 years. So how are we trending over there? Any, you can say, idea which you can give us on market share or in terms of, say, distribution or the -- actually, what is the movement and how we are progressing in those particular segments?
Water proofing, Construction Chemical areas, specifically, we have started doing better than the market in terms of the growth. Obviously, our salience is lower because we started late. But in terms of growth, we have started doing better.
Okay. So can you share with us that how much that could be a part of decorative now?
Overall new businesses would be about 7% to 8% of the decorative now.
Okay. And that new businesses will include all this?
Yes.
[Operator Instructions] The next question is from the line of Abhijeet from Antique Stockbroking.
Everybody has been asking about competition, the competitive environment, intensity and all. But on ground, will you be able to tell me, that I don't know, but on ground, have your large dealers seen any -- has the competition approached them? Have you seen any competition trying to tap large dealers? Have you seen that?
There are discussions in the market that people are meeting, but I think it's a little early because the competitions have already entered. There are companies who have entered in last 1 year, 1.5 year. Obviously, that's the business -- whatever business is happening, it's happening, but that has not impacted much the industry. And when we talk about some of the new players who are going to come in, their in fact, as of now -- obviously, there's nothing, the product is not introduced, the packages have not been rolled out. So I think it's a little early to comment upon that.
The next question is from the line of Atharva Bhutada from Purnartha.
Sir, I just had one question. I just wanted to understand, is the rural demand being impacted due to higher price increases that we have taken over the last 4 to 5 quarters?
It could be possible. But parallelly, industry has come out with a lot of products, which are there in the economy range also. And generally in the -- what we are seeing in many of the consumer industries, there's a downgrading which is happening. And so therefore, there are products available, which are in the price range. So I think it's a matter of demand. And to some extent, I probably would agree with you that it's a downgrading to that an extent that it's a combination of both.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for your patient hearing, and we really appreciate for your continued support. And this is a good part of the year, in fact there are so many festivities that we are approaching towards. From my side and on behalf of Kansai Nerolac Paints Limited, I extend the best wishes, greetings for Diwali to all of you. Please enjoy with your family. And thanks once again. We'll catch up again after the next quarter. Interesting times ahead for the industry, but I think the industry trends have remained bullish in the past and will remain bullish in the future also. Thanks for attending, and best wishes for the season. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.