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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 Q4 FY '22 Earnings Conference Call of Pidilite Industries Limited, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Krishnan Sambamoorthy, lead Consumer Analyst Motilal Oswal Institutional Equities. Thank you, and over to you, sir.
Thanks, [ Rotajar ]. On behalf of Motilal Oswal Institutional Equities, I welcome you all to the 4Q and Full Year FY '22 Post Results Con Call with the Pidilite Industries management. We have with us Mr. Bharat Puri, Managing Director; and Mr. Sunil Burde, Vice President, Accounts.
Over to Mr. Burde for opening comments, after which we will take the Q&A.
Good evening, everyone. The current year registered a robust sales growth aided by strong volume growth across categories and geographies. Growth was broad-based across Consumer and Bazaar and business-to-business segments, in both segments reporting volume growth of over 20% each. This was strongly enabled by the focus on digital initiatives, innovation and building a resilient and agile supply chain.
The current quarter witnessed price-led growth with volumes remains subdued on the account of pandemic and persistent inflation impacting consumer demand over previous year higher base, 45% growth in the same quarter last year. The margins remained impacted adversely by unprecedented inflation in key raw materials as a result of volatility and increased input costs. This was particularly mitigated by calibrated pricing actions. In this difficult macro environment, we continue to make adequate investments in our brands.
Now I will begin with a summary of the financial performance for the year and quarter ended 31st March '22. On a consolidated basis, net sales at INR 9,880 crores for the year grew by 36.3%. Growth in C&B by 34.2% and B2B by 44.6%. Net sales for the quarter stood at INR 2,498 crores and grew by 12%.
Material cost as a percentage to net sales for the year is higher by 823 basis points over previous year and for the quarter is higher by 738 basis points over the same quarter last year.
Due to the increase in price of key raw materials, the gross margin continue to get adversely impacted. We are continuously monitoring the input costs and necessary pricing actions, if any, will be taken.
EBITDA before nonoperating income for the year is at INR 1,869 crores, grew by 11.1% over the previous year. Profit before tax and exceptional items at INR 1,614 crores grew by 5.7% over the previous year. PBT for the current quarter stood at INR 346 crores and declined by 16.6% over the same period last year.
Now moving to the stand-alone financial performance. Net sales for the current year is at INR 8,298 crores, grew by 34.1% over previous year, with underlying sales volume and mix growth of 19.9%. This was driven by 20.2% growth in sales volume and mix of both C&B and B2B each.
Domestic C&B grew by 20.9% in volume Net sales for the current quarter stood at INR 2,075 crores and grew by 12.1% over the same period last year.
The prices of our key raw materials, VAM, have continued to increase during the quarter. Current procurements around $2,500 per metric ton. Q4 '22, VAM consumption rates were $2,420 per metric ton versus Q4 '21 or $1,180 per metric ton. And compared to Q3 '22, it was $1,968 per metric ton.
Gross margin impacted on account of inflation in input costs, resulting in all-time high prices for most of the principal raw materials. Material cost as a percentage to net sales is higher by 960 basis points over previous year and for the quarter is higher by 922 basis points over the same quarter last year. EBITDA before nonoperating income for the year is at INR 1,612 crores grew by 4% over the previous year. Profit before tax and exceptional items at INR 1,627 grew by 11.7% over the previous year. Profit before tax for the current year stood at INR 397 crores and grew by 5.6% over the same period last year. On a like-to-like basis, excluding dividend from subsidiary, profit before tax declined by 1.5% for the year and 20% for the current quarter.
About our subsidiaries performance, the subsidies in Asia continued the growth momentum. Americas declined on a higher previous year base. During the previous year, sales were higher on account of pent-up demand as well as benefits passed to the governments -- to consumers during COVID. Margins continue to remain under pressure due to higher input cost.
Domestic subsidiaries in C&B reported good sales growth. Performance of domestic subsidiaries in B2B are showing signs that they are well on account of recovery in real estate and construction-related activities.
During the year, the company had filed 2 merger applications with a National Company Law Tribunal with respect to the merger of its wholly owned subsidies, namely Pidilite Adhesives Private Limited, and Cipy Polyurethane Private Limited. Consequent to the filing of the NCLT orders approving the merger with the Registrar of Companies, mergers have become effective from appointed date of 1st April 2022.
As a result of merger being an event happening after balance sheet date, no effect of merger given in the financial results.
While there are near-term concerns around significant inflation and the impact of this on market growth, we are confident of the medium to long-term prospects of the home improvement sector and we'll remain focused on delivering consistent and profitable volume-led growth. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is competitive intensity in adhesives from regional players you talked about in the last 1 year. Have you seen any big change there?
And you have been extremely aggressive on M&A in the last many years. So does this open up more inorganic opportunities in India in the regional space? Do you think you can acquire some players that -- is there good valuation opportunity? Or mostly you have already covered up most of the white spaces?
Thanks, Abneesh. Relevant question. See, the competitive intensity, frankly, over the last 12 to 24 months has actually been lesser than normal, largely because of the 2 reasons. I think a large number of regional players have suffered as a result of their supply chains being impacted as well as the impact of this whole input cost inflation on them. On competitive intensity, we have new competitors coming in. Frankly, every quarter, there is somebody getting revived on a new competitor coming in. Given our share and position in the market, obviously, if you were a consultant, you would tell fellows that even if you get 10% of this market, it's a very attractive proposition. So we've had a fair amount of people entering. But from an intensity point of view, the large amount of competition tends to be at, what I call, the discount end of the market, where based on high dealer discounts, high contractor allurements , lower pricing to the trade is really where a lot of the action has been.
As far as M&A is concerned, when we find the right players who frankly have a brand or a route to market or -- it's then we will look at them. But obviously, that will be opportunity dependent.
Sure. One follow-up on this globally, every RM has been extremely inflationary. For you, also VAM has doubled in the last 1 year. Could you discuss, in the last few months, what is the reason? It is the same old issue of container shortage or geopolitical. So if the geopolitical issue gets resolved, you see a big crash coming given in China, there is such a big slowdown? Do you see that happening at some stage? I'm not asking when. I'm asking will that happen given the supply-demand scenario?
Given the supply-demand scenario currently, frankly, a large number of these shortages are happening because of force majeure where plants are all -- I mean, from the outside. And obviously, I cannot say definitively. But there definitely seems to exist almost some cartelization where plants seem to coordinate their closing so that the amount of stock that is available in the global market remains almost constant. Having said that, you are right that if plants were to operate normally and China was to remain depressed, you will have suddenly an excess of supply over demand, but we don't know when that will happen.
Sure. And sir, last question on the demand side. So in Q4, there was 1 month, obviously, of the Omicron impact. So was that substantial in your pure demand industry segment? And similarly, in terms of FY '23, do you think real estate, it has done really well in last 1 year, wherein you supply a lot of products to the real estate players? Do you see a slowdown coming at some stage given interest rate high -- real estate prices are again going up in the last 1 year? Have you started picking up some kind on impending slowdown there?
See, coming to the first, as far as demand is concerned, Abneesh, you had a lot of local stoppages as a result of January had Omicron and you had some amount of supplies stoppages. You had a lot of shop closures, some of it extended to February.
But if I look at a longer period of time, frankly, largely, demand has still been good. There is some amount of slowdown. And now, I'm purposely looking at a longer period. Even if I look at post Diwali right today, overall demand is still good. There is some amount of strain in rural and semi-urban India. Inflation is a massive tax that any emerging economy and common consumer pays.
Having said that, we are hopeful that if you have a good monsoon, the government actually does spend what it is projected to spend on the budget and front load. Some of it, you will have a lot more money coming into the economy in the second half, and therefore, into people's hands. So I think demand, I would use my usual phrase of being cautiously optimistic.
On the input cost, very difficult to say because geopolitics has definitely impacted it. You can see the price of crude oil and so on and so forth. And right now, it's not clear as to where is the light at the end of the tunnel. And when will it emerge.
Sure. And 1 last follow-up, sir. You're an FMCG veteran or FMCG companies are ramping up on bridge packs, because INR 5, INR 10 is a big challenge. In your case, also, INR 5 has been extremely strong product and it's a great draw for the consumer. But are you also thinking of bridge pack in the INR 5, INR 10, INR 20 in that? Or any bridge pack you're coming out aggressively?
See, we have been very conservative. And actually, it's almost an oxymoron, Abneesh. We've been conservative and aggressive.
We actually haven't moved. I mean, having been one of the pioneers of the INR 5 price point in chocolates, I must tell you that on things like Fevikwik and so on and so forth, we have not moved our price point now for 15 years. And even in this inflationary situation, we have not moved the price point.
So frankly, we don't see the need for bridge packs for 2 reasons. One is, obviously, we already straddle the price points that we want to. The second point is in items of mass consumption where there is down trading, you would obviously need bridge packs. In our case, most of our consumers tend to be in middle class and above. And therefore, when you're doing a house, your smallest -- you don't need a bridge -- there are very little minor jobs that you do. Your smallest pack tends to be at least a 5-kilo pack.
The next question is from the line of Tejash Shah from Spark Capital.
Sir, if we look at the growth and margin pressure from the lens of core pioneer and growth categories or the way in which... [ Technical Difficulty ] Hello? Am I audible?
Mr. Tejash Shah, can you hear us?
Hello, am I audible?
Yes, sir, you are.
Yes. Sorry for this. So sir, if we look at growth and margin pressure from the lens of core pioneer and growth categories that we divide the portfolio or segregate the portfolio, are there any divergent trends on growth and margin pressure?
Actually, the largest margin pressure, I mean, and it's a coincidence. I don't think it is anything that is part of a trend, is actually on the core category. The growth in pioneer tend to have -- have, at least in the last 12 months, while there's been pressure, there is pressure across the portfolio, but the highest pressure has been on the core portfolio, little less on the growth and pioneer.
Okay. Now sir, in your opening remarks, you mentioned that this is an unprecedented inflationary scenario and then closest difference that we can make somewhere around 2009, '10. And we had taken very slightly late, but aggressive price hikes over a period of time. And when the [ crew carriage ] happened later on, we actually retained a lot of that price hike in our P&L.
Hypothetically, if that scenario has to play out in FY '23, do you think that competitive pressure, as it stands today, will allow you to retain a lot of these price hikes that you have already taken? Or you will take going ahead in coming quarters.
See, what will happen, Tejash, is why we always indicate the margin range is largely because of that. If the situation turns benign post our having taken the price increases, obviously, we will give back a large part of it to the consumer, but we will then obviously end up at the top end of our margin range is what my presumption is.
Okay. So sir, even in the interim, you won't allow margins to cross that price that you have given for long term?
Yes, they may have crossed for 1 or 2 quarters, but we would prioritize growth. In our experience, stages has been that if you take margins a little too high, you open the back door and a lot more competitors start pulling at the carpet before you realize it and then you are slipping. So we like to make sure that our price premiums and pricing remain focused on growing volumes rather than in the short run, growing margin.
Fair, sir. Sir, and any CapEx guidance for this year and next year?
As far as CapEx is concerned, I must tell you, one of the things, and I have spoken about this earlier, we were very clear that use this period to build the next-generation supply chain. So I must tell you that over the last 2 years, we have expanded or put in 10 new facilities.
And in addition to these 10 facilities, we have 12 facilities currently under construction all of which will be completed in the next 12 months. So we will be, frankly, ready for the next phase of next 3 to 4 years of growth, we will be completely ready from a capacity perspective.
Our CapEx still remains at the traditional 3% to 5% of sales. That's not going to go up. But because our sales have gone up, obviously, now a number have been -- the amount and investment we are making in the supply chain, be it new facilities, be it new warehouses. Separately, the investment we are making in digital, for example, we would regard ourselves as one of the companies with the leading edge of digital.
As far as both consumers and dealers are concerned, I mean today, we are now getting almost 20% of our dealer order via Genie app where dealers got actually no sales, but no distributor comes in. It is all done via an app. The same thing is getting extended to contractors.
So there's massive amount of investment in an agile and resilient supply chain. There's a massive investment in the whole digital piece, which is -- we've, in a sense, learned during COVID and we don't want to use. Innovation has traditionally been a strength area of Pidilite. This has been an area, where in the last 2 years, obviously, we were focusing on the core because of the situation on ground.
In the next 12 to 18 months, you will practically, from each of my divisions, see one new product every quarter. So the innovation machine is also ready to fire.
So I mean, while in the short run, yes, the inflation situation, the input cost situation is something of concern. Frankly, we are long-term players, and we are quite confident about, not just the long but the medium-term prospects of the whole home improvement sector, and we are ready for the next phase of growth.
[Operator Instructions] The next question is from the line of [ Samidha Doshi ] from ICICI Securities.
Sir, just one question. Basically, how are our market shares have moved in waterproofing in past 1 year and 3 years? And also, if you can indicate any market share trends, even if it's indicative in the 4 regions, west, east, north and south, yes.
As far as of waterproofing is concerned... [ Technical Difficulty ] And not just this year or last year, but for the -- therefore, over the last, I would say, 12, 24 to 36 months. Given our growth rates, it's -- I would say, the market is consolidating the number of players in the market is becoming -- a lot of the small and medium sector is suffering and the larger sellers are getting larger.
I would suspect at -- we would have gained some market share or the market would have grown aggressively, and therefore, our market share would be constant. But it's a market that, in our view, what is most important is the market grows faster rather than you take share from others. Because obviously, the largest single opportunity is winning against nonconsumption, given that pretty much 6 out of 10 consumers in India don't do any proper waterproofing.
So that's the overall situation as far as waterproofing is concerned. On overall, Pidilite, also, if you look at our growth rates, so on and so forth, our belief, again, is in our core categories, with white glues, with Fevikwik, we have gained some share largely because in times when times are difficult, both from an inflation and input cost point of view as well as a supply point of view, the leaders tend to gain and consumers tend to gravitate towards brands limits thus -- but it will not be a substantial movement, but there'll be a steady increase in market share.
There is no substantial difference that we find in our performance across regions, which tends to show that we could have gained more in some areas, so on and so forth. Our performance is largely secular 1 state, 1 year, they have some issues, et cetera. But if I look at a 2, 3-year basis, we're moving steady, the ship is moving steadily forward pretty much across the board.
Okay. Okay. Sure, sir. No, because multiple paint companies have been gaining market share. So -- but I mean -- so again, I believe that they are gaining market share, again, from the smaller folk and organized sector itself.
See, just remember, that most of the paint, they participate in the -- what I call the renovation and the repair segment. A lot of them don't participate in new construction segment because there, the good standards that you need to [ push ] -- plus these companies had to have their exterior paint in the waterproofing... [Technical Difficulty]
I mean, in our books, that is -- actually, the exterior paint, which may perform some amount of protective function. So if you add exterior paints, et cetera, in the paint company figure would like -- but they have had exterior paints for 25 years and earlier. This was never called waterproofing.
The next question is from the line of Jay Luo from Dymon Asia.
Sorry for the background, but I just want to check on the volume growth. We consumed a lot of this...
[Technical Difficulty]
I [ apologize ], Mr. Jay Luo, but we cannot hear you [indiscernible] from your background.
I'll come back in queue.
The next question is from the line of Mr. Krishnan Sambamoorthy from Motilal Oswal.
Bharat, Sunil. Bharat, from a technology perspective, what have been the efforts in reducing the pipeline inventory over the last few years? And what are the benefits that you got from reduction in terms -- can you quantify those?
See, basically, what has happened, Krishnan, I firstly , good to hear from you. Secondly, very good question. See, what we've done over the last 2 years, we have virtually taken the salesman out of the equation as far as inventory is concerned. Today, across Pidilite's division, 80% and therefore, pretty much all of the major distributors are on a replenishment model, which therefore means that no salesman takes orders. The concept of month end or period-end stocking up, et cetera, it's all something of the past. Everything is based on replenishment. The salesman don't take orders. Dealers can order directly, which goes via the distributor.
So we've now, in a sense, we -- and while obviously, during COVID, in some cases, we actually built up inventory because of the supply chain shortages, plants being closed in certain affected areas, so on and so forth. And given normally that April, June tends to be a big period for us, especially in the areas of waterproofing, et cetera, what -- we build up a little inventory.
But the dealer pipeline, frankly, over the last 24 months is now firmly in our control and not an issue of concern at all for us. Many -- I mean it's not something where I would say, hey, listen, major reduction has happened because we've actually made this reduction now over a number of years. But it's, again, an area where we are clear that based on again, products, I mean, we have a fairly well-defined algorithm based on the speed of the rotation of the product and how much stock a distributor carry and that is now standard for all our divisions.
Got it. Correct. But I have more question, while you did indicate earlier that there is less or lesser margin pressure compared in the growth in pioneer categories. What about working capital? Is that proving to be longer than you had expected in some of these categories or they are very much in control?
No, we are not finding -- I mean, with our retail footprint and our ability to influence in retail, we're not finding a substantial difference in working capital across the categories at all. I mean where we find the difference, Krishnan, actually is the difference between B2C and B2B. B2B tends to have longer working capital, but that's always been the case. That's not something new.
Got it. Got it. And staying on working capital, Bharat, anything to call out on the international business? Is that -- I mean, anything unusual?
See, I mean right now, of course, the issue of concern, of course, it's not big for us. It's fairly small, but it's still an issue of concern is the closure in Sri Lanka. We were actually doing quite well in Sri Lanka over the last 24 months. Bangladesh has been a massive success story for us. You can see the numbers, and you can see that Bangladesh is virtually becoming another West Bengal for us, which is very good.
Overall, you can see that what we have done, and we had talked about this a number of years ago that we are going to be an emerging market specialist, and we will keep gaining in emerging markets. And you can now see that all of our international operations are profit-making or operations that are now in a sense, synergistic with what we do and are doing fairly well. So today, over INR 1,000 crores of our sales comes out of exports plus international, and it's growing at a steady rate. It is -- there are no sudden ups and downs. And that's a matter of a fair amount of quiet pride for us.
Okay. And nothing to call out on working capital in this -- any...
No. No issues. No issues on working capital, absolutely.
The next question is from the line of Jaykumar Doshi from Kotak.
I would like to hear a little bit more about -- you mentioned that every quarter, there will be an innovation from Pidilite. So are you referring to some big bank innovations that likes -- is there even an opportunity to -- in the core Fevicol portfolio, the way we had seen in the past, Marine, then Hi-Per, HeatX. Is there an opportunity of innovation on that front? Or you're referring more towards innovations within the construction chemicals portfolio, so these tile adhesives and other such products?
Thanks, Jay. I think that's a great question. I must tell you, unequivocally, we are referring to innovation, both on the core as well as the growth categories. And just as in the past, we've done the Marine, Hi-Per and HeatX, now obviously, for confidentiality reasons, I can't tell you what you will see coming because that will give a red flag to my competition.
But you will see innovations across both our core as well as our growth categories. And you will see a lot of these -- obviously, we are looking at -- have to be innovations that move the needle for us. And at an organization level, we -- the numbers that we set for ourselves is that 1/3 of our growth must come out of innovation, and we are well on our way to now, we've got the pipeline ready to do that.
Understood. And this, we'll start seeing from FY '23, I mean, in the next 1 or 2 quarters? Or...
You will start seeing from the second quarter of this year itself.
Right. Second is, see, I understand that you are catering to a different market when we think about waterproofing. And paint companies are catering to a different market. But then when we compare the numbers, I think in scale terms that "value-added" waterproofing functionality is probably exceeded the waterproofing portfolio that you have.
Now we're seeing similar trends in adhesives as well. I believe that paint companies are very aggressively selling low-priced tile adhesives. That's a category that is growing very well for you. But I -- my understanding is you're not participating in that commoditized tile adhesive product.
So from a long-term perspective, how do you think about the aspect that paint companies have always focused on mass, economy, scale, volumes. And you, as an organization, have always focused on high-margin niche businesses, but they are entering some of your core categories or future growth categories through that mass and volume game.
So how do you sort of think about that new competition? Is it in construction chemicals and waterproofing where until maybe 3 years back, we thought that it's Pidilite and some of the international players, now it's Pidilite paint companies and, of course, the international players?
Again, great question, Jay. Let me answer the question in 3 parts. First, as far as waterproofing is concerned, frankly, the paint companies have just redefined their definition of waterproofing and added exterior paints and so on and so forth, which were coatings, which -- I mean, just as an anecdote as a young marketing manager, I launched Apex in Asian Paints about 20 years ago, 25 years ago, we never saw it as a waterproofing product, right? So now it is part of your waterproofing portfolio. I get that's a choice that you make.
If you look at pure waterproofing, we have always maintained that there is a right for paint companies to play in the repair and renovation segment because in India, given the quality of construction, consumers tend to repair, renovate and waterproof because there are leakages. Rest of the world, repair and renovation is 1/3 of the business, 2/3 is new construction and India is pretty much the other way around, though now new construction is gaining.
In new construction, the paint companies tend to play much, much lesser because in new construction, the consumer actually ends up at the steel and cement outlet, but not in the paint outlet. Paint comes only when -- and you have to do waterproofing when you're constructing, not after construction is complete.
Now therefore, when I look at the overall segment, frankly, I don't see any gaps in our portfolio. Yes, now a choice of whether we should play more aggressively in what we call themes rather than waterproof coatings is the choice we have to make, which we have up to now said that, listen, we still believe there is a massive market for us to address in terms of noncompetition and converting people to using waterproofing. And that's where our focus has been.
Paint companies have tended to ride on our coattails and try and then look at how can they get a share of that. Therefore, if you look at the institutional market, you look at the large market, the competition is still, frankly, the large -- multinationals and us, the paint companies largely don't play it now. They would like to play there, but currently, they don't.
Similarly, if you look at areas like adhesives, the tile adhesives, see the bottom end of the market is purely commoditized. It's like what -- if I was to give you a paint analogy, it was what -- dry distemper used to exist, 30 years or 35 years ago and slowly people went to oil bound and then acrylic distemper and then emulsion.
Our -- we have basic tile adhesives too, but we believe -- we begin at a level where we believe that there's a certain minimum quality that must be offered. And frankly, when I look at my growth in both waterproofing and tile adhesives, without any doubt, we are gaining. We are not losing in any way.
So I think these are strategic choices that companies make. In the short run, the volumes look good. I mean, if I was to actually add back my tiles adhesive volumes and equate the kilos of tile adhesives to the kilos of white glue that I do, my -- actually, volume growth rates will go up by 10% to 12%. But frankly, I think that is, in a sense, doing a disservice to you people and to ourselves, so we don't do it that way.
Understood. One final question, now Huntsman portfolio seems to have stabilized around quarterly run rate of INR 140 crores, INR 150 crores, it is about 50% higher than what -- at the time when you acquired it. So is the entire distribution benefit captured? Or is there any low-hanging fruit as far as distribution and top line is concerned for Huntsman?
There is definitely a low-hanging fruit and a distribution runway yet. We are still, I would say, only 2/3 on the way there. There is still -- 1/3 of it still has to be captured for -- while Araldite is a leader, in my book, it is still a growth category, and you will see in the results, hopefully, in the next 12 months that we're not going to come back to saying that, hey, this is a mature category. This is a growth category. We have shown over the last 2 years that we've beaten the acquisition case and what we had said by a large number, but we still believe there's a lot more to go.
The next question is from the line of Ritesh Shah from Investec.
A couple of questions. Sir, in the initial remarks, you indicated volumes remain that good on account of pandemic and the persistent inflation. So just wanted to understand the cyclical price you think you have in your portfolio into 2 broader categories. When we see demand, is this on backup, certainly like price elasticity of demand with the overall construction costs moving up? Or is it the inflation impacting discretionary spend? Sir, how should one understand this better?
Again, great question, Ritesh. To my mind, there are 2 different ways of looking at this. When we said demand was subdued, what tends to happen in an inflationary situation is, whenever you are raising prices, the trade tends to stock up. So one quarter looks much better than the other. And therefore, while primary sales may not look so good, secondary, sales, frankly, even down. The second thing is in the pandemic, obviously, what happens is there are closures. Cities are closed and in March -- sorry, in January. And parts of February, we again had those you can't open on the weekend, you can only close in so and so times, et cetera. So that obviously impacts work and therefore work that should get completed in 1 month takes 3 months or more to complete and that impacts demand.
The third thing is, if you look at the consumer purchase basket, prices of everything -- so while we are a very small part of home improvement, if a person is building a home in, say, rural India, and I was in rural UP 2 weeks back and what the fellow was saying is, sir, if you look at the increase in cost of steel, cement, paint, so on, suddenly, the consumer needs another 20%, 25% over last year to make the same room or to make the same 2 rooms. And that, obviously, therefore, like he tends to cut down because he's got a fixed income. So where are we seeing actually demand subdued is in small town, rural and wherever there are economic challenges. The rest, frankly, in our view, will even out over a period in time.
Sir, this is quite helpful. But sir, let me say, this is something which will even out. Sir, what gives us that confidence, given, I think, food inflation is pretty steep. The actual discretion spend is actually a question. So it will come back, but what gives us the confidence that probably say 3 months, 6 months? Sir, how should I understand that?
See, 2 things. Again, I think I share your concern because having seen this earlier, whenever there have been periods of high inflation, there is an impact on volumes. And it normally starts from the bottom end and then extend.
Having said that, we are seeing some amount of tailwinds. For example, Abneesh spoke about the real estate sector. Clearly, there is a revival of the real estate sector. And Abneesh, up to now, we are not seeing, at least, any signs of slow because suddenly, you can see a slew of new projects being announced. So whether it is real estate, whether it's the consumer spending a lot more post the pandemic on home renovation, on home upgradation and the reopening of the whole commercial segment, be it hotels, be it restaurants, be it shopping areas, a lot of these that were closed or was semi-closed have had to renovate and open. So therefore, we are seeing that urban demand is still going decently. It's not depressed despite the kind of inflation we are seeing. But I would -- to declare success, frankly, I would wait another 3 to 6 months before I declare success.
Sure, sir. Sir, second question in the scenario that we are in, what are the strategies one can actually adopt to beat or maintain margins? Are there any categories that we have or in -- we even have an option to reduce grammage? Or we have a formidable large portfolio? So if you can help me in the full of it?
Unfortunately, you're reminding me of my good old confectionery days where every time prices went up, I must tell you as a small anecdote, when we introduced the INR 5 Cadbury dairy milk chocolate, it used to be 20 grams. I think it is now 5 grams or 4 grams. So you can see the extent of pricing.
But unfortunately, we don't have many of those, because as I said, if you're making a table at home or you're making a chair or you're making a wardrobe, the amount of products that you are going to use is never in the smaller quantities where the consumer is going to like downgrade substantially.
And therefore, from a price point or margin perspective, really, what we have to do is while remaining conservative, keep making sure that we are slowly trading the customer to the newer price points, to the newer prices and getting her or him used to those price points.
Because the way our product is used, where price points matter, we are obviously keeping those price points, so whether it be as heavy, quick, it be some of the children's art material, et cetera, the other places, we have to just keep making sure that we're getting the consumer -- we are being conservative and not taking it up too aggressively.
Sure. Sir, just continuity to the same question. Sir, how do you look at the margins when it comes to the influencer or the distribution channel in the current very inflationary scenario? Do we even look to tweak it or we just wait for the demand to come and hope for margins to improve with raw mat hopefully going down?
Could you just repeat that? I lost you for the last moment.
Sir, my question is, how do we look at the money that we put on the table for the dealer and the influencer, like, when the conditions are tough? Have we tweaked those variables? Or do we intend to do that going forward?
See if, for example, as of now, values are still actually looking good for the trade, so on and so forth. So we've not had an occasion to tweak. But whenever we do face, for example, like for example, during COVID, when we did face obstacles with influencers, et cetera, we actually did deals with Paytm and converted all of our points to money so that the person could reach for [ his ] money. So we have a lot of these, therefore, means available to us, which we keep working to trade. But I mean, when I take a step back and you look at our business growth over the last year, if your business has grown 35%, then the trade is not so worried about margins as long as they are seeing that listen, volumes will keep growing going forward. And therefore, our objective has to be to keep focusing and making sure that we grow volume in this inflationary environment because obviously, you don't want just empty price-led growth.
Sorry to interrupt, may I request Mr. Ritesh to please rejoin the queue. We have participants waiting for the tone.
The next question is from the line of Avi Mehta from Macquarie.
I just wanted to understand, you highlighted that from a medium term or even if I kind of look at beyond the quarter, demand environment has been relatively good. And the fact that pressures are primarily in core, in that sense, would you argue that the gross margin has probably bottomed out, something that you had kind of highlighted that it will bottom out in Jan/Feb in the last conference call as well? Or do you see some more near-term pay?
See, it's very difficult to say. Avi, good to hear from you. In fact, if you look at it, in Jan/Feb, we thought, will be a period where we will start seeing some amount of softening. And then unfortunately, this whole geopolitical Russia, Ukraine happened and everything turned on its head again. If I look at the supply/demand scenario, I look at the overall scenario, at some point of time, it has to start evening out because capacities, even today, are far greater than demand. It's just that those capacities are not being realized.
But I would say, in the next 3, 4 months, you will still remain at elevated levels. It's probably only in the second half of the year that you would start seeing some amount of, what I would say, softening. And that's when, like, you would have to examine what the situation is.
As of now, I don't see it going further, I mean, but unless there is one more black swan event. But I do believe that we are at an all-time high. We've never seen raw material prices this high. In some cases, unless there are some special exigent circumstances. We do believe this is probably close to the peak, if not, the peak itself.
Okay. Perfect. So I mean -- and the commentary vice versa on margins as well, right? That is the right way to read it then? Will we not reach the normalized levels, but it will take some probably 3, 6 months is what I hear you, but...
Depends on what you define as normalized levels.
Your range. Okay. Actually, what the range that you see for EBITDA range? Could you repeat? I mean, just for the benefit of everyone.
See, on a stand-alone basis, we should be at between 20% to 24%. And we've ended, I think, close to 20%, 19.5%, close to that. To my mind, we will still be in this 20% to 24% range, again, unless there are some again, circumstances that are completely out of the blue. That should -- that will be our objective.
Okay, clear, very clear. And just the last question is essentially from a more medium-term perspective. If you were to rank categories in the pioneer segment, which one would you say would be the most likely to hit growth say, 5 years or 3 years down the line, which one would you call it out as?
Basically tile adhesives.
Okay. Perfect. Perfect. And that -- is there the concern, I mean, were you essentially arguing that the volume trajectory is something that you would still maintain commodity -- commoditized players are not going to be a concern as yet is what...
Absolutely. I mean in every market, you will have -- when you're, again, creating a category, remember, world over -- tiles are always put together with adhesives. You use sand, cement and adhesives. In India, 8 out of 10 are done with cement. So therefore, the scope is like massive across the spectrum.
The next question is from the line of Priyum Daga from VT Capital.
My question is regarding the VAM prices. So can you get -- we argued about the price hikes that you've taken in the last quarter and the inflation that you see in percentage right?
Yes, as far as price hikes are concerned, over the last 12 months, depending again on the category, we've taken different price increases. They could range from 5% to 15%. In this quarter, we have taken some pricing in some categories in May because we felt that the quarter 1, which is the quarter 4 pricing really had -- was at a peak, which we had not expected and therefore, we needed to take price. The other thing, we're just closely watching this and seeing that -- what we need to do next. .
All right. And where do you see the VAM prices going in the -- actually in the next 2 quarters?
I wish I knew, my friend. We thought $2,000 is the right area for VAM prices, but they are stubbornly at $2,500, $2,600, $2,700. There are 2 major plants across the world that are closed, which are declared force majeure. So very -- I frankly don't see it going substantially above this and maybe $100 above this at all, but we do believe that it has to soften over a period of time.
The next question is from the line of [ Pat Krishil ] from [ Keppel Capital ].
Sir, actually, I see that the inventories have moved by a lot this year. So could you please explain that?
Just repeat your question, you have buffered a little, my friend.
Sorry, sir. Sir, actually, I've seen that the inventories have moved up this year by around INR 460 crores. So I mean, could you please explain that? I mean, why is the inventory buildup being so high?
Yes. Basically, this is in preparation for -- our biggest quarter in the year tends to be partly April, July quarter. Last year, because of all of the issues around the closures, et cetera, et cetera, and so on, we basically had whittled down inventory. So when you look at the comparison this year, we obviously held -- expecting a normal April to June, and we have built up the inventory substantially. Last year, if you remember, the whole period was massively challenged in the first quarter and therefore, inventories tended to be low, so if the comparison be an expectation of a better April, June.
Okay. Okay. So it's not because, I mean, there's a buildup in the -- at the company level or something, like, buildup at the dealer level, something like that? That the product is not moving itself?
No, when you will see this when we will meet for the April/June. The first quarter numbers, you will see that inventory will be back to normal.
The next question is from the line of Saumil Mehta from Kotak Life.
So just one question from my side. When benefit in the past cycles over the last 10, 15 years, whenever we see large or inflationary events normalizes over a period of 6 to 9 months, which should be [ next year ], time around. Margin bands for us, the strong leaders like us have moved up so many years past, normalized margin bands sed to be 16, 20 more up to 18 to 22. Now I can't believe 24. So I believe a part of that would be also.
Mr. Mehta, you are not that clearly audible, sir.
Is this better?
Yes, please go ahead.
Yes. So I heard your question about the margin band. Continue.
The participant of left the queue. We'll move to the next question, which is from the line of Ruchitaa Maheshwari.
My question has been answered. Thank you.
The next question is from the line of Tejash Shah from Spark Capital.
Just one follow-up. Sir, just the question is partly academic in itself. But just wanted to gain some perspective from your last experience on how the broader industry is evolving.
Cement players are getting into paints, paints are getting into adhesives, pipe guys are getting into adhesives and paints both. So has had anything changed materially in terms of moats? How we used to know all this in terms of distribution, branding advantage that incumbents had, and suddenly, the way capital is flowing or getting fungible between the categories, it seems that some of those moats are no longer relevant. So just wanted to gain -- get your perspective on it.
No, I think that's a great question. I mean, while obviously, all companies will look at adjacencies, it's always been the attempt of a large number of commodity players, whether they be cement, whether they be in equivalent categories, steel, et cetera, to try and keep moving up the value chain.
In my view, Tejash, it doesn't matter whether it is paint or whether it is adhesive or whether it is pipes. Finally, the 3 factors that, in a sense, contribute to your moat is the strength of your brand, the strength of your customer relationship and the strength of your user relationship. And if you are strong on all of these 3, I mean, looking at other people, multiples and a lot of times, I mean, I keep hearing anecdotally that all these people look at the multiples of paint companies or companies like us and feel that if they entered our sectors, they would get the same multiples.
But frankly, from a strategic perspective, you have to have a reason to win or you have to have a reason to disrupt. And the moat, in terms of the strength of the brand, the strength of the customer and user relationships and your hopefully, ability to service via good supply chain, that is strong. I mean, competition will come and go, but it's not going to be easy for new players easily.
The next question is from the line of [ Sanchit Trivedi ] from [ Caden Capital ].
I have a couple of questions. The first one is you mentioned about your investments in technology and now that everything is on a replenishment model. Based on that, on 1st of April of any year, how much of your demand for the year do you already know?
I think that's a great question. But see, normally, we will keep [ listening ] and working based on -- we obviously have a lot of [ sales ] based on the last 3 months, based on the last 1 month, based on the last 6 months. So we have a fair idea and then you would look at your secondary sales, not so much your primary sales, look at any one-offs like, for example, where we will plan for this year's first quarter.
Clearly, we will look at last year. Last year, we had some amount of closures in May as a result of the wave of the pandemic. You will equalize for that. We will then add for innovation, so on and so forth or any local factors and then work that through. So I would say you have visibility, hopefully, at close to anywhere between 80% to 90% of your demand.
Okay. Okay. And the second question is sort of a similar context. You talk about innovation, and you've launched very many products and some very good products, like, over a period of time. How is training and educating your end user then? And how has it evolved? How has the difficulty of that evolved over the years? And particularly now with any number of competitors who are also trying to get to the same end user, could you talk a little bit about that?
Yes. I think, again, absolutely relevant question. In fact, one of the things we pride ourselves on is the strength of our user relationships and our ability to forge long-term partnerships with our users, which obviously therefore includes a fair amount of training, a fair amount of information dissemination on a regular basis. I mean just to give you an idea, we have 220,000 contractors, each of whom will have anywhere between 5 and 50 workers who are pretty much in touch with us at least once in a quarter, dealing with us, so on and so forth. This is, frankly, our bread-and-butter business and making sure that the user is a, fully acquainted; b, sees our new products; and c, has a strong relationship with us is, frankly, one of the reasons of our success.
But has that sort of education and training, has it become more difficult over the years? Or has it become easier maybe because of technology or because of I don't know, do you reach them on an app? Like, how do you even reach them now? How do you...
We have -- again, we have apps for each of our users. We reach them via apps. We reach them physically last year, for example. During COVID, we did over 1,000 user meets or Microsoft Teams. If somebody had told me 2 years ago that carpenters will be sitting and doing meets on Teams, you would have said, "Guys, are you sure this is possible?" But there has been that evolution.
So we actually use digital very aggressively. We have a very robust database. So we are able to push information on a regular basis. Today, a large number of the contractors has smartphone. And therefore, you are able to share information. I mean, a large part of our digital effort is really around the user and the dealer.
Got it. Got it. Okay. And one, we talked a lot about adjacent fees and particularly, your competitors moving into adjacent spaces. And as an example of a paints company, they are now also moving into, let's say, home decor and doing some of the painting themselves. In your case, you did take some stride, and you took a stake in Pepperfry. Is that an area where you feel the need to enter sort of building your furniture?
See, we don't want to compete with our customers. So we don't want to build the furniture. But as the digital world changes, we definitely want to understand and remain close to the consumer. So we have investments in Pepperfry. We have investments in HomeLane. We have investments in Livspace. We do that on a regular basis largely to make sure that we are completely on the ground floor as far as the new wage consumer is concerned and where our business is getting oriented towards being able to serve the customer in today's environment. But we don't see ourselves as competitors to our customers in making furniture, et cetera.
Got it. Got it. And just one final question from me. What is it that you worry about? And what is the data point that you are looking at on a daily basis or a weekly basis, the macro data points or even external sort of falling data points or the domestic data points? And what are the data points you're looking at? And what do you worry about the most right now?
I would say that's a great question. Two data points and 1 softer point, just to keep it simple. The 2 data points that I constantly worry about is, a, first and foremost, the price of oil because everything in our category starts with the price of oil. And I think there's enough data now also in the Indian economy to show that I think over $80 a barrel, every $10 increase impacts our GDP by x.
So really, the 2 things I track closely is the price of oil and the actual inflation as far as India is concerned. Because, again, experience has taught us that inflation is the one thing that impacts demand over a larger period of time and keep a close watch on that. On a softer point, I -- the thing I worry about is that people becoming complacent. As leaders, you have to be a little more paranoid and you have to keep looking over your shoulder and making sure that nobody -- you're not taking anybody lightly. So we don't take any competitor, however small or big lightly, and we, obviously, we will not make it easy for them in the market. But we treat them all with respect and saying, listen, they must be having some strategy, and we must be clear how we want to tackle them. So one of the things I keep telling my people is we must keep guarding against complacency, because when you have more than 70 shares in none of your core categories, that's a great [ agent ].
The next question is from the line of Suyash Maheshwari from Samco Mutual Fund.
Am I audible?
Yes.
Sir, which business segments are we looking at for driving growth in the next 2 years?
See, we are very clear. We've always said we will grow our core businesses. The core businesses is where we already have a market-leading position. And our job is to grow the categories, so whether it be white glue, the wood adhesives, whether it be Fevikwik, whether it be MC, these, we would like to grow at rates of 1 to 2x GDP.
The growth businesses, businesses where we are competing against nonconsumption and we have to teach the consumer, we would like to grow at 2 to 4x GDP. And pioneer businesses, businesses that are very small or nascent today, and we need to develop them, we want to make sure that each of them becomes at least INR 100 crores in 3 years. That's our simple formula on how we operate.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Again, let me begin by thanking all of the participants. I always find these situations or these calls stimulating as well as thought provoking because given the range of questions, today, we've got a much wider range of questions and lots of new participants, so great to have that.
At Pidilite, our whole focus is we are -- we see ourselves as they say, a long-term player or a steady player who will make sure that we remain true to our strategy of being a pioneer, continuously evolving and growing categories, creating categories, being innovative and being a great place to work. And that's really been the focus on how we've been moving forward.
A lot of times, things like this don't cover -- get covered in calls. But for the third year, continuously, we've been voted a Great Place to Work. Culturally, we're seen is now a very attractive employer as is visible from the quality of talent that is joining us. We're doing some really good work in the whole area of sustainability and CSR, which I will showcase at another time.
So as an organization, our objective is keep strengthening yourselves, do the right thing. And frankly, the results will follow. You will have ups and downs. I mean we've had an extraordinary situation on input costs. But frankly, that is also teaching us a lot, and we will emerge stronger from it.
I think the important thing is not to lose sight, vis-a-vis your consumer, vis-a-vis your user and of course, your investor. So that's what I'd like to say. Thank you all for your time.
Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.