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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Pidilite Industries Limited Q1 FY '23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arun Baid from ICICI Securities. Thank you, and over to you.
On behalf of ICICI Securities, I welcome you all to the Q1 FY '23 post result con call. From the management side, we have Mr. Bharat Puri, Managing Director; Mr. Sudhanshu Vats, Deputy Managing Director; and Mr. Sandeep Batra, CFO. Now I hand over the call to Mr. Batra for opening remarks, post which the floor will be open for Q&A. Over to you, sir.
Thank you, and good afternoon, and a warm welcome to all those who have joined the call. I take great pleasure in sharing my opening comments on the first quarter results, which were approved by the Board meeting yesterday. First of all, delighted to share that on a consolidated basis, the company crossed the milestone of INR 3,000 crores in revenues for the first time. This represented an over 60% growth over the same period last year, a combination of higher volumes and measured price increases. Consumer & Bazaar growth was across all geographies and categories of adhesives, construction chemicals and DIY portfolio. B2B growth was also strong across all verticals. While input costs remained elevated, sequential EBITDA margins remained constant on account of calibrated pricing, higher volumes and effective cost management actions. Now I'll share a summary of the financial performance for the quarter ended June 2022. On a consolidated basis, net sales were INR 3,091 crores, a growth of 60.3% over the same period last year. Consumer & Bazaar segment grew by 63.9% with B2B segment growing at 49.8%. As mentioned earlier, gross margins remained impacted on account of steep escalation in input costs. Material costs as a percentage to net sales for the quarter were higher by 736 basis points over same period last year and 180 basis points higher over the immediately preceding quarter. EBITDA for the quarter was INR 529 crores, a growth of 52.3% over the same period last year. Profit before tax and exceptional items was at INR 473 crores and increased by 63.3% over same period last year. I'll quickly touch upon the stand-alone financial performance, where net sales at INR 2,778 crores were higher by 62.5% over the same period last year with sales volume and mix growing by 44.3%. Consumer and Bazaar sales were higher by 66.6% with an underlying volume and mix growth of 49.2%. The B2B segment grew by 50.5% with an underlying volume and mix growth of 28.9%. The prices of our key raw material, vinyl acetate monomer, VAM, have continued to increase during the quarter. Q1 consumption rates were $2,230 per metric ton versus $1,608 per metric ton in the same period last year. EBITDA before nonoperating income for the current quarter is at INR 487 crores, higher by 50.3% over the same period last year. Profit before tax and exceptional items at INR 443 crores grew by 58.8% over the same period last year. I'll quickly now touch upon the performance of our subsidiaries, starting with the overseas and international subsidiaries, which maintained positive growth momentum and reported high digit -- high double-digit constant currency revenue growth largely due to judicious pricing actions. Subsidiaries in Asia reported higher sales and EBITDA, whilst the Africa subsidiaries continued the growth momentum. The subsidiaries in Americas reported higher sales, but EBITDA was under pressure due to higher input costs. The domestic subsidiaries registered good sales growth. However, the EBITDA margins of the B2B subsidiaries in India, they remain under pressure due to higher input costs. While the near term remains challenging, we remain cautiously optimistic on the medium term given the recent softening of input prices led by lower oil prices, a good monsoon and continued good demand conditions in the housing and home improvement sector. Our focus continues to be to deliver broad-based profitable volume growth. With this, I come to the end of my opening remarks. Open the floor for questions.
[Operator Instructions] We take the first question from the line of Mr. Avi Mehta from Macquarie.
Can you -- am I audible?
Yes, you're audible.
Sir, I just wanted to understand the comment a bit of near term challenging situation, because it seems you've indicated that demand is positive, clearly, from the performance. Input costs are also moderating. So would love to hear why you have shared a challenging situation for the new term?
Sure. Really, why we are saying the near term is challenging is because of 2 reasons. Reason number one is that quarter 1 of the year is when we have seen the highest input costs, which means that all of the inputs bought in quarter 1, a large part of the inputs will be consumed in quarter 2. And therefore, quarter 2 from a near-term perspective is challenging because from a margin perspective, it would remain the highest raw material cost. And we believe we will see -- will be in this quarter. That's one reason. The second reason is largely given that -- on a year-on-year basis, all building materials have seen substantial inflation. We are seeing some amount of slowdown/moderation of growth in the rural/small towns. And until the effects of a good monsoon, money going into the hands of the consumer in rural and semi-urban happens, which will probably happen only in the second half, the near term will remain challenging. Thus, the comment of the near term remains challenging. Does that answer your question?
Yes, sir. Perfectly, yes. Sir, just on -- the follow-up essentially was essentially on the margin. Is the understanding correct that the price hikes also will start to flow through a lot more in 2Q? And hence, from a margin perspective, logically, gross margin should slowly start to improve as we go forward? Or would you expect 2Q to kind of see -- what I was trying to get to is, it does seem like 1Q is probably the bottom in terms of gross margins. But would love to know...
I don't think there will be a substantial difference between first quarter and second quarter because we have taken some pricing in the first quarter. But as I said, the highest impact of raw materials, so material cost as a percentage of sale, if we were to look at constant prices, it would be the highest in Q2 and not Q1. Having said that, let's see how the product mix works out and how consumption works out. But I would not -- it's not going to be significantly better or significantly worse. It will probably be in the same range.
Okay, sir. Got it. And sir, second bit I wanted to kind of just understand. On the last call, you had indicated a focus on innovation that you would like to start to build in. So is there any update in terms of the initiatives that you had planned in terms of distribution and new product launches?
See, first, I'll tackle distribution. Yes, on distribution, we have continued our strong investment, especially in the smaller towns and rural India. As we speak, we now have more than 7,500 Pidilite Ki Duniyas in rural stores, in villages which have a population between 5,000 and 10,000. We've now added another 17,000 villages to our direct coverage in the course of the last 6 months, and these are normally villages with a population of between 5,000 and 8,000. Overall, from a therefore Pidilite reach perspective from our investment in route to market, especially in small towns and rural areas, we continue the march. As far as innovation is concerned, each of our divisions are -- for example, our waterproofing division has had a innovation in terms of -- a product you would have seen advertised in the first quarter called Roofseal Classic, which is a coating, which is for roofs. Similarly, each of the divisions now has an innovation program. Each of these would be significant innovations, which obviously over the next 18 to 36 months will start contributing substantially to revenue.
We take the next question from the line of Mr. Abneesh Roy from Edelweiss.
Congrats on a very good performance. My first question is on the business which suffered a lot in the last 2, 2.5 years. Sir, on the art and craft, sir, you have mentioned the business has doubled because schools are now back. So I want to understand here are 2 things. How is the margin profile here? You managed to take the price hike here also, almost 25% towards the inflation impact. And second, have you gained market share? Because it's such a tough time to your competitors. So ideally, you would have gained market share here?
So specific to art material -- really, as far as art materials is concerned, a lot of the margins in art material are linked to price points, INR 10, INR 15, INR 20. And therefore, you tend to be a little more conservative. So again, our pricing here while at the gross level would be at 75% of inflation, in some cases, it may only be 60% because you want to maintain the sanctity of the price point. Having said that, have we gained market share? I think the answer is yes. If we look at our growth rates -- what has happened is there is consolidation happening, and from a distribution and reach perspective, the larger players clearly are gaining at the expense of smaller players.
Sure. My second question is on the observation you had made in the Q4 call that in the global shortage in raw material, there were 2 issues. One was the force majeure close of the many plants which were there and there was cartelization. I understand the global recession fears, which is driving down most of the other commodities. But on these 2 aspects, what is the update, on the closure of plants and cartelization?
See, there are still 1 or 2 plants, but obviously, you can't keep plants closed indefinitely. So we are definitely seeing an easing. When we look at -- I suspect your next question is going to be on VAM rate, so I will answer it straight away. If you look at VAM, we are finding that VAM is moderating and the spot rates are now gone below $2,000. In fact, they range anywhere between $1,600 and $1,800 a ton. So clearly, both from a force majeure point of view -- and I think the overall demand situation is such that it's not possible for -- these are all short-term phenomenon, which happens for 3 to 6 months. Now barring any unforeseen circumstances of the challenges we have -- last time, in January, we were confident that rates would come down and then Russia-Ukraine happened. As long as we don't have any geopolitical issues or some unforeseen areas that happen, we actually believe the second half of the year you will see a moderation across input costs.
Sure. My last question is on Araldite and the tiling solutions on Araldite. If you could give us some update on the distribution and product extension that you have done in the last, say, few quarters? And tiling solution, you had mentioned 15% penetration and I think INR 1,500 crores kind of size. Now with the kind of growth we are seeing across industries, a lot of good demand in the real estate also, where do you see this number for the industry in terms of penetration and size from a 3- to 4-year perspective?
See, there is no doubt about the fact that -- let me answer the tiling question first. As far as tiling adhesives is concerned, this is a fast-growing market because obviously a lot of companies are investing and consumers -- with the larger and the vitrified tiles, if you don't use adhesives, you're going to have issues and people are realizing that. So it's very difficult right now because there are a lot of unorganized and small players also in the market. Abneesh, it's very difficult to estimate what pace the market is growing. But if I -- and I won't take one quarter. But if I take the last 12 months, I suspect the market is growing anywhere between 15% and 20%. We are obviously growing at rates far higher than that. As far as Araldite is concerned, our march continues. We have now started introducing Araldite in small towns and rural in the first quarter of this year. In one of the regions we've done that, we've tested, we are moving forward. The good news is that Araldite continues on its growth path. We continue to register strong growth in Araldite. And we still believe there is a large amount of sales and distribution still to be attained even before we go into innovations or marketing, et cetera, which you will see in the second half. You will also see Araldite being blessed with traditional Pidilite advertising. So wait and watch.
We'll take the next question from the line of Mr. Trilok from Dymon Asia.
From a -- when we compare this performance along with other sort of -- you don't have direct competitors, but across the building materials or building -- sort of associated companies, despite having strong brands, are you sort of satisfied with the kind of 2 year, 3 year CAGR performance that you guys have delivered?
See, I first want to just clarify this because this keeps getting asked. The thing with Pidilite is, because we have no like-to-like apples-to-apples comparison, you fellows keep comparing us with different building materials fellows. Largely -- as far as we're concerned, you keep comparing us with paints. Why we are not an apple-to-apple comparison -- and this is especially for my friend Avi Mehta, who always uses this comparison. The fact of the matter is that 15% of our business is B2B. Another 15% of our business is FMCG. So nearly 70% of our business is what I would traditionally call Bazaar. And even in that -- therefore, I would say pretty much half of our business compares to paint, another 15% to 20% compares to FMCG, another 15% to 20% compares to both projects as well as traditional B2B. Now when I look at, therefore, our own internal standards over a large period of time -- today, if I look at the end of the first quarter -- and obviously, we're not looking at 1 quarter's growth. When I look over a 3-year period across both of my B2C businesses and B2B businesses, we have healthy double-digit growth. We've got obviously access to all of the peers' numbers. And we continue to be in the top quartile. Please remember that we don't add back. We actually equalize volumes for value. If we were to add back the volume of, say, tiles, adhesives, et cetera, our volume growth would actually be 1.5x what they are today. But that, frankly, is not a fair comparison. So at an overall level, are we satisfied? Yes. Could we -- can we be happier? Definitely, we can be happier. But I don't tell my teams I'm satisfied. But at an overall level, all our numbers and our indication show that we are in the top percentile or the top quartile of performers, and that keeps us happy.
But -- fair enough. I mean, I -- we also understand that you guys are not like-to-like comparison. But yes, from value perspective and volume, both, at least we -- sort of it's our understanding you guys seem to be [indiscernible]. So that's one of -- that's why I ask, are you guys satisfied with the performance? And second is, all this -- I mean, in the historical sort of competition, we obviously never intended to sort of enter into paints as a category. But as per -- sites suggest you guys seems to be sort of planning to do so. Could you just comment on that, please?
See, you must understand that Pidilite -- we have an overlap with paints in a lot of areas. See a large part of waterproofing is coatings. Now a lot of times, paint companies take their exterior coatings and actually quote that under waterproofing. The roof coatings, which also a lot of times come under waterproofing. Similarly, we've traditionally -- because of our pigment business, we've had a tinting business. We've always had a rural DDL and distemper business, which has existed for 20, 25 years. So actually, if you look at our total -- and then our premium subsidiary, ICA Pidilite, is in premium wood finishes. So actually, if I add all of my paint businesses, we are a significant player in paints, though we are not a consolidated paint major. As far as we're concerned, our -- therefore, I suspect your question is shorthand saying: "Are we going to do another 5 plants, large-scale paint entry?" The answer is no. We're happy with the way we are going. And the Pidilite model is about creating disruption. Wherever we find we can create markets, we can disrupt the market, that's where we focus on. That's where we put our resources, and that's what will continue.
So the understanding of you getting directly into paints is not true as of now, correct?
See, as I told you, we are already in what's a -- paints, we're already in paints.
[Operator Instructions] We'll take the next question from the line of Mr. Krishnan from Motilal Oswal.
Bharat, typically, Pidilite has always operated at a certain premium, right, to the other brands and the other players in the market. And therefore, the guidance of 20% to 25% margins. And now you've indicated that VAM cost has come down to about $1,600 -- $1,650 to $1,800 per metric ton, right? Do you see a scope for a sharp deflation, a sharp reduction in prices and possibly a sharper reduction in prices than the inflation in your own product prices? Is that the likely possibility towards the second half of the year?
That's a great question, Krishnan. But very difficult to predict. See, today's VUCA world where fortnight-by -fortnight things keep changing, very difficult to work out. If nothing unforeseen happens so on and so forth, we do see VAM coming down to more palatable levels, so on and so forth. But frankly, wait another 3 months when we actually see a trend, because right now it's like a fortnight or a month of trends. Let's wait another 3 months, and then we shall be far clearer on what second half margins will look like.
Sure. I mean -- so in the same vein, right, you had indicated in the last quarter that the unorganized and smaller players were more adversely affected, right, from a commodity cost perspective. Do you see a scope for competitive -- competition to increase in the second half of the year and beyond? Or again, is it too early to say?
See, to my mind, whenever the material cost situation turns benign -- and I don't know when it will -- competition normally increases because a lot more people jump in. In these current times when the situation is inflationary, most of these people have much longer credit periods, much -- and they tend to buy spot from the market. So will competition increase? Frankly, in our sector, we're no strangers to competition. We keep getting newer competitors as well as the old ones. Frankly, we expect that to continue, and we're always -- we work with the assumption that it will remain a very competitive space.
We take the next question from the line of Mr. Percy from IIFL.
I just wanted to know what is the total price increase you have taken in the last 5 to 6 quarters on Fevicol as well as on an overall company on a weighted average basis?
It's a very difficult question, because, as I said, we've got so many product ranges, divisions. On a weighted basis, I would say our price increase is anywhere between 14% and 18% over a year's period, and Fevicol would probably be at the high end of that.
Okay. So it's not as if Fevicol is like 1.5x or 1.7x...
Oh, no, no, no. We've always -- you remember, we've always said that we would be conservative. We would rather sacrifice short-term margin for medium-term volume. And that's what we've been doing. So Fevicol is not 1.5 or 2x or any such thing.
Right, right. And since VAM has come down, I'm assuming that there are no further price increases in the pipeline, right?
No, absolutely. If this trend on VAM continues, which, knock on wood, hopefully, it should, then obviously we would not need to raise any further prices.
Right. Secondly, I just wanted to understand some of the niche or rather smaller brands that you have on which you are focusing for growth. So things like Roff or WD 40, et cetera, et cetera. So if you take that as a portfolio, what is the growth of that portfolio as indexed to your overall company growth?
See, very -- again, as I say at every investors meet, we break our business into 3 buckets: core, growth and pioneer. Core is where we already have a market-leading position. Our job is to grow the category. There we try and grow between 1.5 to 2x GDP growth. In growth categories, where we are competing against nonconsumption, things like waterproofing, things like, for example, floors, joineries, et cetera, we try and grow at 2x to 5x GDP. And third is pioneer categories, where we want to achieve a certain minimum size. That minimum size normally is INR 100 crores in 3 years. Those are the parameters in which we operate each of our categories. And largely -- actually, in the last 12 months, we've been exceeding these numbers.
Okay. So would you be able to give some idea on which are the brands which are in your pioneer categories, but which have sort of not reached that INR 100 crore mark?
Right now, for example, if I look at floor coating, we have a company called Cipy that largely currently operates in the industrial flooring space. We haven't done much in the area of commercial flooring, so on and so forth, et cetera. Now that is something that is a pioneer category. We have a whole category called epoxy grouts, which we have a brand called Starlike -- Roff Starlike. Epoxy grouts is another category we are the pioneer. So like this -- remember, at any point in time with Pidilite, we will have anywhere between 5 and 8 pioneer categories being tested in various places. So these are some of those.
Okay. And one last clarification. This ratio of GDP which you're talking about, firstly, the GDP itself -- you're talking about the nominal GDP growth or the real GDP growth? And secondly, in terms of your growth, you are talking about volume growth or value growth in this equation?
Normally, we try and equate real GDP growth to volume growth and nominal GDP growth to value growth.
We take the next question from the line of Sheela Rathi from Morgan Stanley.
Sir, I had 2 questions. The first question was a follow up to the question asked by the previous participant, was with respect to margins. Sir, you had said that we're seeing trends of VAM pricing coming down. At the same time, you have said that we won't be taking any further price hikes. So in order to -- for us to go back to the pre-COVID level margins or the high margins of the past, do you think we are at a point where operating leverage will be the key driver of margin going ahead?
I think that's a great question. Right now, again, in this uncertain VUCA world, very difficult to say what will happen 3, 6 months later. But it does appear from where we sit today that going forward -- actually -- frankly, the decrease in input prices will actually become a greater contributor to margin growth than anything else because we don't know at what extent, like where they will fall to. And we hope that they do. Otherwise, your question is right. We don't see greater pricing action taking place, hopefully, in the next 12 months. So therefore, whatever leverage you will get will be operating leverage. But in our belief, it will take 6 to 9 months for the whole input prices situation to really settle in to find its clear level, where we say this is the new normal. Then we will be able to ascertain where we are and what we need to do.
Understood. And a second question -- my second question was with respect to your distribution strategy. You mentioned that you're really going into very small towns. If I heard it correctly, the population size is about 5,000 to 7,000 people. Is it just too small for a category like yours as we believe -- that you would focus more on the core category to spread your wings in those smaller towns? But why is there a need to go in such small towns when the opportunity is much higher in urban as well as Tier 3, Tier 4 cities?
Sure. That's a great question. See -- remember, it's not either or. We're pushing hard in urban. For example, if you look at the last quarter, actually, the growth is led by metro and Tier 1. And even if I look at a 3-year period, our metro and Tier 1 growths are very healthy. But our belief is that -- when I even equalize for income, Sheela, when I equalize small towns for income, we still believe because of a lack of knowledge and a lack of understanding, we are not achieving what we believe is the right penetration for our products there, which is why we are doing all of these initiatives that people who can afford our products -- remember, in rural areas whenever people have any form of prosperity, it goes either into construction or into gold, right? Now construction is right up our sleeve. And therefore, if they do the right waterproofing at stage one, then we've got trained users right from the base of the pyramid. The second thing, of course, is that any objects that we have -- remember, [ VUSE] is a much bigger thing in rural areas, whether it is your agricultural pipes, for which we have solvent cements; whether it is objects at home, for which we have, again, a whole range of [indiscernible]. Our belief is that we must keep investing in this market while we continue to -- urban and Tier 1 is easier to focus on. By no means are we taking our focus away from that. But it's and rather either or.
Understood. If I may just ask a follow-up question. What would your mix be with respect to urban and rural currently, revenue mix?
See, very difficult to say because of the extent wholesale. But on a broad level, it will be 2/3, 1/3.
[Operator Instructions] We'll take the next question from the line of Mr. Ritesh from Investec.
Sir, my first question is a continuation to one of the prior participants. Sir, I'm just trying to put my head on this kind of diminishing marginal returns. You indicated focusing on more in villages with lesser population. I'm just trying to understand how do you look at the size of the market, the investment? And what do you expect out of it? If one had to put it in numbers, how should we understand that?
That's a great question, Ritesh. See, we have a whole system where we actually have divided the country into a whole set of substates based on economic prosperity, and we obviously have surrogate measures of economic prosperity. Against that, we plot the penetration of our products in these substates. And then based on, obviously, a system on where we believe the greatest bang for our resources is, we prioritize a set of substates. So it's a fairly evolved system. I won't pick it up here. But your question is the right one. In a country as large as India and as widespread India, how do you prioritize and make sure that you are not pushing water uphill. We've got a fairly evolved system over time, where we realized that, listen, if a place has this kind of economic potential, this is what is our rightful share. And then based on where we are trying to prioritize and say, "Listen, this is what we'll take up in stage one. We'll do something else in stage 2," et cetera, et cetera. Like for example, in places like Bihar, we are actually working with HUL, where we are using their Shakti platforms to actually take forward our products because we realize that it's not viable for us to do the same. So like this, we keep putting various experiments in place. Our whole objective remains that make sure that the first mover and first user advantage remains; that any consumer in the smallest of small towns starts with Pidilite and hopefully stays with Pidilite.
Sir, can you detail the actual platform that you indicated in Bihar? Sorry, I could not comprehend that.
HUL has this concept of Shakti, where they have the Shakti Ammas who go to the small towns and villages, et cetera. We're trying to work with them in a partnership with them where they sell not only HUL products, but our products also in Bihar.
Okay. Sir, if I want to put the question -- if I just flip it around, you have a basket of SKUs. How do you look to cross-sell the number of SKUs? That's one. Or the other way to look at it is, if you're targeting a village with a population of, say, 5,000 to 20,000, is there a measure that you're looking at to target on a per capita basis so it makes sense to do it with the hinterland? So question one is on per capita and second is the extent of ability on cross-selling [ activity ].
See, the first one -- frankly, the per capita is the one that we use, but we don't use a simple measure of capita. We use what is called per capita economic potential of which -- and how much of it are we actually accessing. As I said, we divide this substates. Those substates, we assess the economic potential and see against that potential, how much of that are we penetrating. As far as cross-selling is concerned, actually, in the smaller towns and rural areas, which is much more easier, because the outlet tends to be the pen. See, the guy in the small villages sell kirana, [indiscernible] and then he sells various seasonal products and sells stuff like building materials. So therefore, accessing these outlets with cross-selling is not a problem.
Sir, is it possible for you quantify per capita economic potential that you looked at?
See, again -- as I said, it's different for different substates. Maybe like in a different meeting, we can do that and take you through it. But it's fairly evolved. And I would say we have a lot of intellectual property invested in the...
Okay. All right, sir. Sir, my second question is you emphasized on disruption. It has always been disruption when it comes to Pidilite. You did elaborate that we are in pace in different forms already. But if you really had to delve into it, what would disruption mean over there with Pidilite?
See, disruption would mean -- if I was to go back in time, if we were the first guy with printing machines, that would be disruption, right? So things that disrupt the market, where you become a 1 or 2 player, where the others don't have a chance of, in a sense, catching up with you. That is disruption to our mind. Or if you had something like miracle products so on and so forth. I'm just thinking. And I would visit my old background in paints. But anything that where you get a 'aha' either from the consumer or the user or the seller or all 3 of them.
We take the next question from the line of Mr. Rishi Mody from Marcellus Investment Manager.
I wanted an update on understanding -- in the past 3, 4 years, right, we've seen a lot of these paint players and a lot of hardware building materials players coming into the white glue segment. And you have 4 categories. So I just wanted to understand has there been any market share loss to the likes Asian, Berger, Astral? Or are they taking the share from the unorganized sector?
That's a great question. We've been, obviously, keeping a close watch on them. Frankly, the only player that actually put some volumes which are significant out there is Asian. Asian, uncharacteristically so, is actually operating at the bottom end of the market. Their current pricing is actually the equivalent of economy glues. They're tending to gain a lot of share, therefore, from the unorganized/small players. But if you look at our growth rates -- and again, I'm not looking at growth rates only over this quarter. When I look over the last 12, 18 or 24 months in [ RBs ], we are actually gaining share. We're not losing share in white glues by any stretch of imagination.
Okay. And so on the waterproofing front as well, there's been a lot of aggression by the paint players. They're trying to do something, which will replace Fixit. So I just wanted to understand like what kind of projects is Fixit getting used and what kind of projects is Asian's waterproofing getting used in? And have we lost in market share out there to the likes of Asian, Berger?
See, again, in waterproofing, there are -- I've always said there are 2 large segments: new construction and repair and renovation. Normally, the paint companies largely tend to play in repair and renovation, though some of them are now putting up project teams for new construction. In new construction, our competition tends to be the large multinationals like Sika or BASF or FOSROC. In retail, which is the repair and renovation, it tends to be the paint companies. Again, with the entry of the paint companies what has actually happened is this was a tremendously underdeveloped market. The market itself is growing at a much higher rate. When we look at our growth rates, we believe we are still growing faster than the market. There is also consolidation taking place. But in our belief, we haven't lost market share at a gross level to any of the paint players. In fact, our growth rates remain very healthy. Most of the paint companies also, remember, in waterproofing are still playing in the coating space, products that painters can use rather than masons, et cetera, et cetera. Masons is a new user for them, which they are not familiar with. So even in repair and renovation, they tend to be more concentrated on coatings. If you see their offers, it is largely around coatings. But as I said, at an overall level, when I look at our waterproofing portfolio, we're maintaining our momentum. And in fact, actually, what's happening, because of all of these actions, the category is growing. And because we are the largest, we tend to get a larger share of the category.
Okay. So a lot of these paint players are also creating what they've been claiming to say that they're training people to become waterproofing specialists. So just wanted to get an idea on where we are on that front, like -- because if the category is going to expand, it's going to professionalize as well. Like, you'll have special applicators for this and masons, painters. There will be a differentiation then. So wanted to get your view on this.
See, this is something that Pidilite has been doing for years. We have a skilled waterproofers program, where we train people to become waterproofers. We certify them based on their level of skill. We then recommend their services. Frankly, all that the paint companies are doing is just following us. In fact, a lot of them have taken some of our people and they're therefore -- actually -- I mean, it's a great complement to us, because imitation is the best form of flattery. They're all actually doing what Pidilite has been doing for many years.
[Operator Instructions] We'll take the next question from the line of Mr. [ Rajesh from Informist ].
Yes. Sir, I just wanted -- you've mentioned about the input cost getting elevated because the materials that you sourced in the June quarter would also get consumed in the current quarter. So will it be possible for you to give us a sequential of what was speaking -- what was the sequential rise in your cost of production in the June quarter? And how much do you expect the rise to be in the September quarter? So [indiscernible].
My friend, if I put my team on it, it will take a lot of time because, remember, we operate across 30 different verticals, each of whom has a different raw material cost. But if I can tell you, our VAM consumption would be between $2,200 and $2,400 a ton in the first quarter. In the second quarter, it will probably be between $2,300 and $2,500.
We take the next question from the line of Mr. Amnish Aggarwal from Prabhudas Lilladher.
Yes. So I have just one question on the demand. Sir, if you look at this quarter, volume growth has been pretty healthy both in Consumer & Bazaar as well as in the industrial side. Now if I look at particularly, say, our top line growth trajectory, the first time around we have now crossed the INR 3,000 crores. Like last year 3Q, which is usually perceived to be the festival quarter, we were at INR 2,800 crores. So is this -- you can see this kind of volume growth or the uptick you have seen, is there some one-off kind of an element? Or we should consider it as a new base and then we try to build on this? And is there demand so strong that it will continue like this?
See, just -- again, we'll remain cautiously optimistic. To our mind, in this first quarter, there has also been a certain element of pent-up demand. And obviously, when you're comparing bases, you are comparing versus 2 months of last year to 3 months of this year, because for 1 month of COVID, it was closed. Having said all of that, clearly, we are seeing some tailwinds in terms of good housing demand. We are seeing that post-COVID consumers are investing a lot more in their homes, be it in repair, be it in renovation, be it in upgradation. We are seeing an upsurge in the whole real estate sector. Clearly, you're seeing organized real estate and commercial real estate see some upside. On the other hand, the headwind is inflation, my friend. And we all know that in any emerging market, inflation will always moderate growth. Now across building materials -- if you were to build a room between last year and this year, I don't have the exact numbers, but I suspect your costs are up anywhere between 12% and 25%. And therefore, that does tend to impact volume growth. I think the next 6 months will show where does really the new normal come to. Our focus will be, obviously, therefore, on profitable volume growth. Because if we are able to make sure that we are getting volumes, it will be -- then we will reach the next phase of growth.
Okay. Sir, that is pretty useful. Just one thing incremental on this because we have been doing a lot of innovation, new launches. So what could be the share of the top line from the launched products which we have launched in the last couple of years or last 2, 3 years?
See -- let me say that number is a confidential number, but it is a significant percentage of sales.
Okay. So it is in double digits?
No, no. If it was in double digits, my friend, then our growth should be -- it is in -- as a percentage of growth, it will obviously be in double digits. But as a percentage of total, it will not be double digits.
We'll take the next question from the line of Mr. [ Divesh from Unconia Advisors ].
This might be a bit repetitive, but just to get a sense on Tier 2, 3 and 4 cities, you said repairs and renovation being one aspect and a construction of new infrastructure or homes being another. What do you expect to drive this in, say, the next 1 year, again, like you mentioned, given the inflation constraints on the consumer with elevated food prices and energy, et cetera?
See, in most Tier 2, 3 and 4 towns, new construction tends to drive growth, though repair and renovations is an equal piece. During festivals, et cetera, whenever the crop earnings, et cetera, come in, consumers will both repair, renovate and then add a room or add a terrace and so on and so forth. Based on the inflation, it's difficult to say where it will pan out. But I suspect the mix will not change. We'll just have to see where the quantums are. And it will really depend -- to my mind, this good monsoon will take another 3 months to play out. In the second half of the year, hopefully, you will see a good impact of this monsoon also.
Right, sir. Second question with regards to paint players, and I'm going to double down specifically on Asian Paints. I think given our history with the company, they've sort morphed their business now as opposed to traditional coatings and paints into decorators altogether, where they transform your house end-to-end be it from consulting to in-house products available. So does that pose an additional threat as far as repair and renovation and construction is concerned considering that their distribution network is sizable as is Pidilite's?
See, to my mind, it all depends on the scale of their -- currently, they have an initiative, which is doing that. But frankly, it's only restricted to large towns and that also to small parts of large towns. I mean, for it to significantly impact the millions of customers who construct or repair and renovate every year, involves a scale which is very, very different. I would say the jury is out. As of now, from a distribution perspective, frankly, we believe actually we have a reach which is far deeper than any of the paint companies.
Last question with regards to your distribution itself considering the [ worth ] of your robust network. If you can give an overview hypothetically now since we've seen sort of a erratic monsoon -- and I'm doubling down on Tier 2, 3 and 4 cities because that's largely the narrative as to where growth is coming forth in the next 3 or 4 years in India. What do you see with regards to monsoon? Because we've seen states like UP, Jharkhand, Gujarat and Bihar not have the amount of rain that we would essentially expect this year around, where we're seeing paddy sown per square foot having reduced by about 13%. Do you think that is a bit concerning? Or are you still optimistic for the year to come?
See, I think all the numbers you're giving are the right ones. But [ Divesh ], by simple answer to you would be let's address this question at the end of the monsoon. It's clear that the pattern of the monsoon over years has changed. We seem to have the sudden spurts rather than this constant monsoon. Let's revisit around the 15th of September and then we'll know where prosperity is high, where it is -- and where it hasn't been good. Very difficult to say currently.
[Operator Instructions] We'll take the next question from the line of [ Ranjit Narang from Parasails ].
Yes. My first question is that C&B business, what I am seeing is that the margin is dipping to like 2% from the past year or 2.
Sorry, you're not very audible, my friend. Just repeat your question?
Sir, I'm saying that in C&B business, we are seeing a 2% margin drop as we compare it to a year-on-year basis. And so when can we expect it to come back to the previous level? Like it was at 24% previously.
See, as of now, as we've consistently said, we have purposely moderated margins in the interest of volumes. As raw material prices ease, as input prices ease, we will see it come back. We would rather prioritize volume. If you see the absolute profit, we are still growing very healthily. We would still prioritize volume over percentage margins. But given the way -- raw materials are difficult to say, but I would suspect, hopefully, our exit margins will be in our band of 20% to 24%.
Okay. That's helpful, sir. And the second thing, if you can guide us with the PAPL numbers in terms of [indiscernible]?
It has now got merged into Pidilite. But if you have last year's numbers, I can tell you that our growth rates in PAPL are very similar to our growth rates at an overall level. So PAPL is growing very healthily.
We'll take the next follow-up question from the line of Rishi Mody from Marcellus Investment Manager.
Yes. So just one broad question, right? So we're seeing a lot of this trend of modular furniture into the play for people who are renovating their home or they're buying new homes. So just wanted to understand how you view this? Is it a positive? Is it a negative? Because what we understand is this: a lot of glue gets consumed in furniture and a bunch of it gets wasted, which is going to reduce once modular furniture comes into play. So I'm coming from that thought line. So if you could just give me more understanding of this phenomenon that is taking place in the furniture industry?
See, for long, we've been looking at the whole area of modular furniture. Actually, it's not a new thing. Modular furniture has now existed for a large period of time. There are a large number of joineries that have been set up. One of the reasons why we did our tie with Jowat, who is Europe's leader in a technology called hot melts, which actually go in these joineries, is that we wanted the same market share in the joineries that we have in retail. So having said that, what we are seeing, Rishi, is that while modular in growth rate sense may be higher, it is still 85-15 or 90-10 between customers making custom-made furniture. Because this is the only country in the world where you can custom make your furniture to your house and it's cheaper than ready-made furniture. And therefore, while 10 years back, we all did this trend work and thought that it's going to actually go up very substantially. Frankly, the growth rates have not been at those levels at all. Having said that, we are obviously alive to it. We keep studying it. We have similar market shares in the joiners that we have at custom-made furniture.
So like -- let's say, if I am to get an idea of how much value of adhesive gets used in a custom-made furniture versus a modular furniture, including your joineries and everything. If, let's say, INR 10 gets used in custom-made furniture, how much would be getting used in a modular furniture in totality?
Frankly, in value, the number -- because the technology used is different. What -- joiners use a technology called hot melted adhesives, which actually melt under heat, which are -- incidentally, we are the only -- now 1 or 2 other people may be still trying, but we're the only local manufacturer of hot melts. The rest is all imported. So on a per kg cost, et cetera, or a usage cost, there's not a great difference. It's only at the lower end of the market. Whereas, the cheaper end of the market -- just as in -- custom-made furniture, you have economy glue. And joinery furniture will be cheap. Joinery is may be using cheaper products.
Okay. So like, ideally, if modular furniture picks up over the next decade or so, we should ideally benefit from it given the current scenario. Of course, there will be prices coming down in the future once more players enter. But the high value items go into modular furniture compared to the custom furniture?
It all depends on the quality of furniture, my friend. Just as in every market, there is furniture for rich India, middle India and aspirant India. It's the same here. So the quality differs dramatically. Difficult to make one generalization.
Thank you very much. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Arun Baid of ICICI Securities. Thank you, and over to you, sir.
On behalf of ICICI Securities, I thank the management of Pidilite for allowing us to host the call. And I hand over the call to the management for any closing remarks, post which we can close the call.
So thank you very much to all those you joined the call for their continued interest in tracking Pidilite. And we'll connect with you after the second quarter. Have a good evening.
Thank you. On behalf of ICICI Securities, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.