Ladies and gentlemen, good day, and welcome to Kansai Nerolac Q2 FY 2022 Earnings Conference Call hosted by ICICI Securities. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir. Thanks. On behalf of ICICI Securities, we welcome you all to Q2 FY 2022 results conference call of Kansai Nerolac Limited. The paint industry suffered during COVID and lockdown, but the demand revived very sharply. However, the industry is now facing challenges of higher input prices. We believe the much-awaited price hikes are happening in this quarter itself, Q3 FY 2022 itself, and it will partially ease the pressure on profitability. Kansai Nerolac is likely to benefit from revival in decorative as well as strong recovery expected in industrial paints too. We continue to remain positive on the company. From the management side, we have with us today Mr. Anuj Jain, Executive Director, Mr. Prashant Pai, Director Finance, and Mr. Jason Gonsalves, Director Corporate Planning, IT, and Materials. Now, I hand over the call to the management for initial comments on the quarterly performance, and then we will open the floor for question- and- answer session. Thanks, and over to you, sir. Thanks, Aniruddha. Good morning, everyone. Seasonal greetings to all of you. Welcome you all to Kansai Nerolac investor call for Q2 of FY 2021-2022. During second quarter, we recorded a top line growth of 16.2%. In this quarter, we witnessed a significant hardening of raw material prices, and the level of inflation what we are seeing was like never seen before. It was unprecedented. In view of this situation, our approach was to strike a balance between top line and bottom line, and we moved with that approach. Giving you some highlights about decorative business, because you know that we are equally divided, you know, in decorative and industrial side. In decorative, if you look at value and volume growth, they were in the similar range. Demand in the quarter two was, you can say better in the urban towns, but at half year level, urban towns and the rural markets were performing in the same way. Some of the actions which we have been working upon in decorative and what results we have got, emulsions did well, and we have increased our salience in super premium category. That was part of our strategy to improve the product mix. We expanded network. Last year, in fact, the expansion of the network which did not happen, you know, because of the COVID situation, but now the workings have been normalized, and we expanded our network, and also putting focus and accordingly increasing the number of tinting machines in the market. One of our key focus was in terms of introduction of differentiated products, you know, differentiated from the offerings that are there in the marketplace. We have introduced more product and expanded some of the new product which we introduced in the first quarter in more markets. Therefore, the contribution from the new products have increased. One product, Beauty Gold Washable, which comes with the anti-bacterial property and also washability, and our proposition was given as stability and safety, was accepted well, and it is gaining traction consistently. We supported this product in last quarter with 360-degree campaign in many markets. You know, there are a lot of touchpoints related to consumer, which we've attended. We have also increased our presence on the digital platform. Continuing our focus to introduce differentiated products, we just launched Mica Marble Stretch and Sheen. This product also has a very unique feature, and one of the key benefit is that the outside buildings develop crack over a period of time, and this product is kind of no crack. More products are in pipeline for introduction in coming quarters. In new businesses, where we were late entrant, we are progressing as per our plan. We have strengthened our portfolio and expanded distribution. Quarter- on- quarter, we are able to do that. Some of the initiatives related to digitization in with dealers and painters, our apps what we have introduced, and we try to build some customer-friendly features in our apps. Those are gaining traction, and we are able to bring more engagement from the dealers and painters as we are moving forward. In terms of price increase, because the inflation has been quite high, we have taken price increase in line with the industry. In fact, in the past quarters, some of the price increase we have taken ahead of the industry also. We have our plans to take further increase so that we are able to mitigate the impact of inflation. Our focus in decorative continue on paint, emulsion. Within the paint, emulsion is our focus. Distribution expansion, introduction of new products, and new segments, where I just said that we made late entry, but we are making progress consistently there. Based on the progress of various internal initiatives, we remain optimistic and determined about our future prospects. Coming to industrial, t he demand outlook was getting better, but unfortunately, these shortages of semiconductors resulted in production drop, mainly in the passenger vehicles, you know, segment. In two-wheeler segment also there is some impact, but not as high as it is there in the four-wheeler. In two-wheeler, the demand remains subdued. Mainly the rural demand has still not kicked off, so there the growth is lower. Within the two-wheeler, scooter segment is doing better than the motor bikes. Commercial vehicles and tractors, you know, are continuing to do well. As a company, again, you know, there is unprecedented inflation that we have seen, but we are working very closely with our customers to arrive at win-win situation because there is definitely a pressure in terms of these shortages, and therefore the production drop, and customers are also facing the heat of that. We are working very closely with them to arrive at win-win situation. Partial price increases we have taken, and we are very hopeful of getting further increases in industrial. In auto refinish and performance coating business, our sales have gone up because the growth rates are better in those businesses, including powder, and we are able to get higher price increases in these segments. In industrial, our focus continue to be on the new business. Based on the new technologies, we are working very hard to build new technology which gives advantage to the customers in terms of efficiencies, productivity, and therefore, you know, they get not only the product performance advantages, but the other advantages also. The niche segment like coil coating, functional powders, high performance coating, and also we are attempting to increase our share in some of the existing accounts. That has been some of the highlights in industrial area. Coming to subsidiaries, Marpol and Perma. Marpol, which was powder, and Perma, which is construction chemical, these are merged with KNP. Nerofix, which is adhesive, they recorded a good growth in quarter two, and even in H1, the growth is getting continuous better traction. For international subsidiaries, Nepal did very well in terms of sales and profit, you know, despite there were lockdowns and despite, you know, there were heavy rains in the quarter two, but still Nepal did well for us. Bangladesh, in the quarter two, we had a strict lockdown, and therefore the growth for the quarter is lower. On the H1 basis, the growth levels are quite healthy. Sri Lanka had a very long lockdown in the first half, almost 80 days if you compare with the 40 days of last year. And therefore, there have been challenges in terms of Sri Lankan economy. You know, we are getting a good growth. Obviously, the base levels are low, but we had made some certain changes in our strategy in Sri Lanka last year, and we are getting traction on that particular part. Some of the other highlights which I would like to share with all of you is that we are working and getting a better product mix in all our businesses. Material cost reduction because of this inflation, that's one initiative where whether it's from the formulation or the other parts, the purchase part, we are working on that. Continuous overhead management, judicious overhead management is the focus where we are continuing with. We are happy to share with you that we are Great Place to Work-C ertified for 2021. It's heartening that we are getting it again. You know, many initiatives, digital initiatives we are taking across the organization for enhancing the efficiencies and process adherence. That is like, building the infrastructure that supports the organization even in the, you know, future, which is very, very dynamic. On the vaccination front, more than 98% of our complete team have been vaccinated once, and more than 70% have been vaccinated with both. Even the contractual, you know, labor and the staff, the vaccination levels are quite high. The subsidiaries also, the vaccination is in the line with what we had planned. Based on this, all operations are normal. The market visits have started, everybody is traveling and operations are normal. Coming to financials. For the quarter, we declared the revenue of INR 1,521 crores, a growth of 16.2% over the corresponding quarter of the previous year. EBITDA was at INR 165 crores, a degrowth of 37.3%. PAT, there was a degrowth of 38.1% for the quarter two. For half year, the revenue growth is at 48.3%, and EBITDA, the growth of 3.3%, and PAT, the growth of 9% over the same period of the previous year. Looking forward, we feel the outlook is positive, demand, in terms of demand, you know, because there's a good progress of vaccination. Definitely we are seeing a reduced fear of third wave. Monsoon, good monsoons we are seeing. Inflation will continue to remain high. In fact, at one stage we thought that maybe, you know, after a particular period it may cool off, but it remains high. The recent last two months, the crude prices are going up, the forex is volatile. There are logistics challenges. There are port conditions. There are a lot of challenges. Even availability of material, and therefore that's a challenge, and inflation will continue to be high. As a company, we are making all efforts for price increases and internal efficiencies to see to what extent we can offset the inflation. These are some of the highlights which I wanted to share with you. With this now we invite the questions. Thank you very much. Ladies and gentlemen, we will now begin the question- and- answer session. Anyone who wishes to ask any question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may please press star and two. All participants are requested to use handset while asking a question. To ask a question, you may please press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Abneesh Roy from Edelweiss. Please go ahead. Yeah, thanks for the opportunity. My first question is on the price hike in Q3. Market leader has already taken around 9% price hike. Even the No. 2 player has taken similar. Have you also already taken or planning to take? And if you could tell us from which date it will be applicable. In my commentary, I just mentioned that, including in the last quarter, we have taken certain price hikes ahead of the industry. Some price increase they've already taken, and we have our plan. I think you'll come to know. We have our plan based on, you know, the business and the product mix. We have our plans to take the price increase. Integrated, at least, you know, that will ensure that we are able to mitigate the inflation to a large extent. Sure. Second bit is, you mentioned you have already taken some hike in Q2 ahead of industry. I wanted to understand the pricing behavior by the Top 4 players. In the past you have taken the market leader's lead pricing action in most cases. In the last one year, did that change? In fact, it not last one year, I think last two to three years it changed. Because you know every company has some of their strength area, whether it is a market or you know certain product category. Obviously so based on that the you know companies are able to take the call. This is what we have been doing for the last two to three years. Maybe the quantum you know differs. Depending on the elasticity, depending on the acceptance of the market you know we have been making certain changes rather than you know waiting for somebody else. Sure. My second question is on the supply chain global bottlenecks. All paint companies have highlighted this. Also there is some shortage also of key raw materials. If you could discuss what are your thoughts on shortage, bottlenecks in Q3, is the worst behind? On the raw material scenario, if you have any comments, how you see the outlook going ahead? The shortages are there, you know, but the good point is that we are still able to manage so far. In fact, the supplies have not been interrupted. Even you know that in case of industrial OEM, you know, where virtually we supply just in time. The challenges are that, you know, maybe sometime you have to keep the higher inventory of some of the critical raw materials, or you may have to pay premium to, you know, keep the supplies intact. The lead time has increased logistically, you know, because there are port congestions. Maybe earlier if the lead time was, say, 30 days, maybe it is going to the 60 days. Some of these challenges are there, and we are able to manage, you know, these challenges. When I say that logistics are challenges, it is not that, you know, there are shortages and therefore the demand or the supplies are impacted. We are able to provide uninterrupted supplies to our customers. The challenges are in terms of the cost and inventory. Sure, that's helpful. One last question. On chip shortage, today's article in the ET says Maruti has now seen significant improvement month-on-month. My question is, would you also think that the personal vehicle, the worst is behind on chip shortage? In your tinting machine, is the chip shortage impacting? As of now, our understanding is, you know, because there is a shortage of supplies in terms of chips and, you know, new capacities are coming up, you know, globally, and new capacities take a time of, you know, around two years. Difficult to say that whether the situation is under control. We'll have to keep the finger crossed and see that, you know, whether it is consistently, you know, that the customers are able to manage the supplies. We feel that this problem is a little longer, and it may take one year to completely come under control. Related to tinting machines, as of now, no impact. Obviously these shortages are, you know, supposed to impact all these things. As of now, there's no impact. Sure. That's all from my side. Thanks, and all the best. Thank you. Thank you very much. The next question is from the line of Prachi Kodikal from Bay Capital. Please go ahead. Yes. Hello, Mr. Jain. My first question is relating to your cost front. In our closing remarks, you mentioned that there are a lot of internal efforts that you're looking to leverage into mitigate the raw material cost increase. If you could just give us some example or sense, you know, what are the low-hanging fruit in terms of costs that, you know, we could benefit from, that would be very helpful. One is, you know, alternative raw materials. Because typically what happens is you centralize your formulations and then, you know, because this inflation period has started from last year. There are the replenishment of the raw materials, alternative raw materials, taking care of, you know, that the properties, you know, which we offer. Then, you know, globally, you know, that leveraging Kansai Malaysia and Kansai, you know, the global thing to do so, you know, so that's one area. Cost efficiency is, you know, one area. The other area, as I said, you know, product mix, because there are water-based products or emulsion or the premium range, you know, where the margins are better. Even in the industrial side, you know, that migration to the high-end products, because there are a lot of low-end products, you know, where the sale is high, but the margins are very less. These are some of the low-hanging fruits, you know, which we are taking care of. Any addition, Prashant or Jason you want to make? It is fine. Yeah. I have one more question. You know, in your recent annual report, you mentioned that you're revisiting your decorative strategy, you know, and looking at new distribution channels, et cetera. Could you elaborate a little bit on that as well? You know, what are the key changes that we are looking at? You know, some of the points I think I mentioned in my commentary also. One is, you know, that we are working on the differentiated products. Today, if you see in the market, you know, that we have a product called Beauty Gold Washable, you know, which is a differentiated offering and differentiating price, you know, that it is not competing at the market prices. There is a product called Suraksha, a dust repellent, you know, which we have introduced. Some of these products we have, you know, we are retaining because generally the market was moving on the price point. What we are trying to go away a little from the price point in the marketplace. In terms of distribution, you know, that we have a strategy to further expand the distribution. Within the distribution, I you know, we are creating certain retail points, you know, that where the consumer will be offered experience, you know, that, and those retail points will be completely focused on the, you know, premium categories. Also, we have selected, you know, like the market size has already expanded. Earlier it was only paint, but now the, you know, if you see the size, you know, because of the waterproofing and, this Italian wood finishes and some of the other businesses. Not that we are going to touch upon every, you know, every business, but whatever business we are seeing a synergy with our distribution, those businesses we have entered, and there we have completed our portfolio, and then we have made our plan to, you know, progress on those portfolio in a period of three- to five- year time. When you say new retail distribution points, would they be selling just paints or all your other, you know, adjacent products as well? Is that the thought process? Yes, yes. They will be selling paint and construction chemicals and the wood finishes. Okay. Have you already launched such retail touchpoints? Or are they only in the plans? Yes. No, no, we have already introduced, and some of the retail points are up, and we have our plan, that, you know, within, say, one year how many retail points we'll reach to, and then over a period of three years, what actually we are going to achieve. Okay. Got it. Those are my questions. I'll get back within the queue if there are any more. Thank you so much. Thank you. Thank you. Thank you. A reminder to the participant to ask a question, you may please press star and one. The next question is from the line of Keyur Haresh Pandya from ICICI Prudential Life. Please go ahead. Thanks for the opportunity. Sir, question is on the industrial side of our business. On the growth front or any outlook on the growth as well as, say, improvement in profitability, and if you can divide these two aspects in, say, automobile and, non-auto industries. In automotive, the growth percent from the demand point of view, it is good, but the shortages and therefore the, you know, production drop, that we still feel will impact the business and it will take some time to come back to the normalcy in the auto part. In the non-auto part, I think the business is back to normal and some work which we have done in the past in terms of getting the new businesses and we have entered certain new segments. The premium segments where, you know, our market share was relatively lower. There we have concentrated with some efforts of the dedicated team that has started working. In the non-auto business, the growth is back to normal, and I think outlook is positive. Coming to the pricing or margins, in auto, obviously, in the entire industrial, the inflationary pressure is higher relatively, and therefore the more price increases are required. I would say that, you know, reasonably, with the discussion, you know, in the current situation with the customers, we have been able to take the price increase, and that discussion with the customer is continuing. As I said, we are hopeful of getting more price increases. In the non-auto business, we are going more aggressive in getting the price increases, even if it affect to some extent, you know, because we have advantage of services and the quality and the technology. I think that we are leveraging and going for higher price increases. Okay. Sir, one follow-up is, in auto, any thought on, say, new market entrants? Because we just want to understand how the market share has moved, and customer concentration has changed over the last, say, two to three years, and what is the current level? That is one. On the industrial side, there is lot of buzz about, say, infra or CapEx revival. Are we seeing any uptick related to that in our non-auto industrial business, and is it growing faster than the company level growth? I know, I think your first question was-- what was the first question? Secondly on this one [crosstalk] Within the auto, how the market share has progressed in last two to three years as well as the client concentration, as we have seen many new players entering, and with change in, say technology going towards EV, how are we up to date with that technology as well? In auto, in fact, you know, based on our technology and services, last two to three years, if you see that we have progressed and even the new businesses, you know, that strategic initiatives we had, and we have progressed, you know, consistently year- on- year basis in the auto. There are some new players which are seen in the, you know, two-wheeler industry, but most of these new players are in the electric vehicles category. You must have heard that, you know, a lot of players are announcing the introduction of EVs in the two-wheeler categories. Mostly these, you know, players as of now, they don't have their paint shop. They are getting it, you know, painted from outside. All these ancillaries, you know, that they are our customers, and we are able to cater these customers through our ancillaries. In the non-auto, you know, where you're talking about the increase in CapEx, the uptick, you know, there are projects like metros and bridges, you know, we are seeing a lot of uptick there, and we are participating. We have a technology available through our Japanese customers, and we are definitely seeing the uptick in that. We have created some dedicated capacity also in our Sayakha plant for some of these, you know, businesses which are non-auto business. Like coil coating, we have created a dedicated capacity in our Sayakha plant. Even for general industrial and high-performance coating, you know, that we expanded our capacity. Understood, sir. Just one clarification. When you say you have progressed well in auto, I mean, have you maintained market share or lost any, or we have gained share? Any thought on market share? We have gained market share. Okay, understood. Sir, thanks a lot and all the very best. Thank you. Thank you very much. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead. Hi sir. Can you give us some idea versus 12 months ago, what is the total cumulative price hikes you have taken in deco and in industrial? It is in line with the industry in decorative. Industrial generally, you know, we don't comment on the quantum of the price increase because customer to customer it is different, and then we have a contract with them. Yeah, for your overall business, if you tell us the number, it doesn't sort of give us customer-wise data, right? We would just like to comment on the decorative is in line with the industry. Industrial, as I said, we have contracts, and we don't generally comment on that. Sure, sure. Also because auto has now been weak for two to three years, can you give us an idea of how much your deco paints contribution to the overall has gone up? How much would it be, let's say, currently versus three years ago? How much would those numbers be, sir? Decorative is about, you know, 55% of the total business. How much it would have changed over the last three years? 2%-3%. Okay, sir. That's all from me. Thank you. Within industrial and trade like auto was weak, but you know, we made certain initiatives in the non-auto business. In auto refinish business, you know, that we have gone aggressive. Coil coating, rebar in powder, you know, a lot of new segments we have added. Some of the weakness which was there in the auto got compensated with some other initiatives. Okay. Yeah, that's all from me. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi sir. Sir, I just wanted to clarify one thing. One you said you have taken slightly ahead of the industry price increases in the last quarter. Did I hear that correctly? If that is the case, sir, if you could clarify that first. Yeah. We have taken certain price increase of certain products ahead of the industry. This is in deco, right, sir? You're talking about? Yes, decorative. No, I'm talking about decorative. Okay. Probably, and sir, if with this recent price increase that has been announced by your peers, do you think, margins should be now coming back to the third quarter, fourth quarter levels in decorative at least? Yes. Would we need more price increase? You can say more or less, but the impact could be seen probably in the fourth quarter. More or less, I think margins would be taken care of. Will be taken care of. We don't need another rounds, right, sir, in deco more after this or no, we would? We don't know, you know, because just to tell you very frankly that, you know, when we started this year we thought inflation is very high. At the end of the first quarter also we felt inflation is very high. You know, second quarter also we felt that now it will stop. Month-on-month basis it is rising. This time, you know, when we say unprecedented because it is not one side. You know, one side you see a chemical inflation, you see, you know, crude oil price rising, you see the rupee getting depreciated. You know, everything is getting affected. Logistically, you know that the cost is going up. Difficult to comment as of now. Assuming that, you know, the prices further does not go further up, then probably it is the situation would be comfortable. If the price further goes up, I think it may demand more. Okay. Sir, just on industrial side, I mean, you have clearly outlined that you'll be more aggressive in price increases. Sir, I just wanted to understand, is it fair to argue that, there also the expectation or the target would be to pass this on by fourth quarter or it might take longer, sir? How should I look at that? Because that is a little more— In industrial it is very difficult to pass on the complete, you know, because as I said that customers also in the current situation they are facing a problem and we are truly a partners to our customer and in this difficult time that we have to have a discussion and arrive at the win-win situation. There it will be a combination. In the given situation we have no choice but to take price increase. It will be a combination of the price increase and the internal efficiencies and also giving a lot of value added services to our customer to see that, you know, how do we create this as a win-win situation. Okay. It will be a mix of, a play of these two. Okay. I understand, sir. L astly, sir, on this entry of a new player, I mean, there is a lot of talk now that, you know, Grasim is kind of doing that. How would you know, kind of look at that? Do you see that kind of weighing down on the margins of the industry structurally? Difficult to say because, you know, that's little far as of now. Generally, you know, logically if you see the paint, the penetration is low 50%. In the past also we have seen that when more number of player participate, even in the other markets we have seen, it always help the industry to grow the size. Also the industry has taken the initiative in terms of expanding the addressable market size by introducing, this, construction chemicals and some of the other categories. I think from that point of view, it is good for the industry and more number of, you know, players participate. There is always a phenomena of, formalization of the economy, like from the unorganized, you know, it is getting to be organized. Then you know that, we have our distribution in place, the product range, the service network. All these things are there. I think, net-net in the future or the overall long term, if you see it is good for the industry and it will only expand the industry. Perfect, sir. That's all from my side. Thanks a lot. Thanks a lot, sir. Thank you. Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead. My question pertains to the industry's pricing power and/or discipline and reflexivity on the same. Despite every player calling out facing unprecedented inflation for the last four months, five months, we didn't see that kind of urgency in terms of making intervention, in terms of saving, protecting margins. And this did not happen in the last month of the quarter. It was actually happening every quarter or every month of the quarter. If you can share some thoughts on why the industry waited, and even now the announcement has been a post-Diwali hike. Why was there no sense of urgency as we have seen it in the past to protect the margins? In fact, you know, when this year started, and obviously, we never estimated that there will be a COVID second wave and that will impact the market, which has happened. That was also not expected. There were a lot of, you know, things going on around that. There is a fear about the third wave, and the certainty was not there. I think in this period, what you have seen was there was little, you know, uncertainty in terms of how the demand will pick up, how the sentiment will come back, because when all this happened, there were fears in the mind that painters, you know, that they have gone away from the cities, how soon they will come back, whether the customers will allow them to enter their home. Already the sentiments were, you can say, weak or, we were suspecting, you know, that all these things, behaviors will change. At that moment of time, if there was a high price increase, it would have probably been further detrimental to the sentiments of the consumers. There was little wait and watch. Also this market, from the, you know, distribution, they were not ready to absorb, you know, this kind of high price increase. They were also worried, and their operations were not normalized. To that extent, I think, this got impacted. Now when the situation is normal and there's a reduced fear of this, you know, COVID, and we are seeing that, you know, people are moving out and they're accepting the painting process, and therefore probably it's a right time to go for that. Sir, does it mean that the price hike now the industry has announced can be absorbed without hurting demand much? We'll have to wait and watch, you know, because there is always an elasticity in the demand. I won't be able to comment, you know. There is no scientific way to say that, you know, how much price increase you do. Let's accept it that probably this is the highest price increase we could have seen. We don't have any experience, you know, that if we have implemented this kind of price increase and what is the impact on the demand. You know that obviously in the economy range of product, you know, where the pricing is more elastic, so there we'll have to wait and watch. In the higher end product or the mid-range product, I don't foresee any impact on the demand. In the lower end category, there may be some impact. Sure. Second question pertains to rebates. What we picked up in our channel check that there were unprecedented rebates also given in the recent time from some participants. Have you seen that also coming down in the recent months to fight inflation? It will depend on the product mix, because I think the market discounts have been increased in the lower end products. S ome of the other lower end products where there is a formalization happening. There the inputs have gone up. On the higher end product, not much of changes. We have not focused much on the lower end product because in this current situation, it was important for us to strike a balance. To that extent, it depends that how the product mix will behave in the market. As we are increasing the prices in the lower end products also now, if there's an impact on the demand there, you know, maybe, you know, to some extent, the rebates will get rationalized. Okay. Sir, on EVs, do you supply to any EVs in India as of now? Yes, yes. In fact, you know, on most of the players, you know, we are supplying. As I said that in EVs, you know, today, as of now, I think there's no other than the existing players. The new players, they are getting it painted, you know, from outside ancillaries, and all the ancillaries are our customers. Okay. That's all from my side. Sir, Happy Diwali to you and the team. Same to you. Happy Diwali. Thank you very much. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead. Yeah, thank you. Good afternoon, Anuj and Prashant. Thanks for the opportunity. Good afternoon. Good afternoon. Two questions. The first one is that this industry, I mean, the paint industry is talking about there is conversion happening from unorganized players to the organized, and we have been hearing this number is in the range of about 30%-35%. Generally, I tend to believe that when I look at the industry, when the inflation is high, I think the fringe player will back out. Is that thing which you are seeing visible last two to three quarters, and if that is influencing the demand cycle for the organized players? This, you know, change from the unorganized to organized, you are right that, you know, it's generally a phenomenon in any industry for that matter. In the paint industry also there. Probably in the recent past, maybe because of some aggression of the industry, it has increased. I think unorganized players do have their strength because they know the geography well and they understand the customers. They are able to service you know in that geography better. Having impacts on the margin, but I think that they have their own strengths and I do feel that you know with these sort of the changes you know in fact you know they also would be able to make a comeback. Generally it happens that you know they are able to reach out to the market, especially in the interior markets or specific states, they are able to reach out faster. Maybe there were certain challenges in the recent past, you know, for them, but I think, they have also made changes in their, you know, strategy and they also had looked at, their, you know, product mix and, you know, going forward, I think that based on their strength they would still continue to do well. Formalization will happen, but, it's not that, you know, rapidly the market will change from unorganized to organized sector. No, just one follow-up here. Since there is no syndicated data available, I think you being a leader in the industry, could you comment something on the distribution structure? I mean, is that one of the things because what we noticed from the market leader is they added a big number in terms of coverage. So is that the satellite towns are showing the demand for the organized players or how one should look at this market? I mean is that the paint dealer network is really growing or is that the distribution is growing? In distribution what happens is that we have two parts in our paint industry. One is the dealer, you know, who is the retail customer and we supply directly to the retailer and then he sells to the consumer. The other is the wholesaler or you can call him a distributor and we supply to him and then he supply to one distributor. One wholesaler supply to 50-60 or 50-100 sub dealers. It's like you know that, when you see the increase, one increase is the direct increase that how much, customers I am adding or how many dealers I am adding direct expansion. Generally the speed of the market is 5%-6%, you know, is the growth every year the industry happens. You know therefore you increase your distribution between 5%-10% every year. Then there is an indirect reach which generally you know many companies do not track. If you are adding the wholesaler and typically it happens in this particular time when there are continuous price increases are happening. Some of the distributors or wholesalers who have good money capacity, you know, they tend to buy more quantity during that particular period of time and therefore they are able to service the demand of the sub dealers you know that for little longer time. In that particular period you see that your access to the sub dealer network or the indirect network is increasing. I think the comments you know that in the industry is you know that, it's a direct and indirect reach but generally we track the direct reach. There is definitely an indirect reach also and there is expansion happening there also. Okay. My last question is on if you comment some, maybe spend a minute or two on the demand conditions in the month of October because what we gather from the trade is that demand is very strong, maybe because of pent-up demand, deferred weddings which is happening now. How you look at it, purely from the decorative paints business? In our view there's no pent-up demand now because, you know if you see this year May was impacted, only May. April is supposed to be a big month and April was completely open. So if you compare with the last year where there was a big impact in the first quarter April, May, June all three months and there were a lot of pent-up demand came later. So going forward for the entire industry if you see the bases are higher and we can only say that demand outlook is positive but you know we just hope to see that because there have been a lot of ups and downs in last two years. Now things will get rationalized, normalized and you see generally the paint industry has been growing in line with GDP. There is always a percentage. I think that will come back and things will be normal or you can say pre-COVID level if industry used to grow at the double-digit rate. Those kind of growth rates will normalize and accordingly the industry will show the performance. The reason, Anuj, I was asking, is that the industry is saying that there is consumer sentiments are weak and because of this COVID people have spent money on the healthcare and other things. I suspect that if there is some trends you can share whether there is a visible down trading. I'm not saying down trading per se but if the demand is on the low end emulsion is higher than the luxury and premium. No, no. In fact you know there is no impact on the demand of the premium products also. In fact you know one of the trend, consumer trend what we have seen is that during the lockdown people spent a lot of time at home and therefore in the home decor area they are more positive and their sentiments are better and they are ready to spend more in terms of, you know, as long as they're getting value for money or the benefits you know they are getting. There is no downgrading of you know that people are shifting from the premium product to the other product. That is not there. The demand of the premium products is good enough. Yes. Wonderful. Thank you Anuj and all the best to you and the team. Thank you. Thank you very much. The next question is from the line of Keyur Haresh Pandya from ICICI Prudential Life Insurance. Please go ahead. Thanks for the opportunity again. Sir, I just want to understand the decorative side you mentioned. The industry demand momentum seems good. Now, I want to understand Kansai context that logic says that No. 2 and No. 3 players on a low base should grow faster. Now, is it happening? If not, can we assign a reason why that is not happening? Or should we grow faster than the market leader or the industry growth rate considering our ability as well as our size benefit? I think, partly I mentioned that, you know, it depends on the timing. There were periods, you know, where in the past when it happened. In today's context, and specifically in our context, if you look at it, because we are equally divided between industrial and decorative, and whenever there is a pressure, you know, we have to accept it honestly that, you know, whenever there is a pressure on the industrial, the pressure comes on decorative also. Therefore, in that situation, the right approach is to strike a balance, because there if we try to show more aggression. And as we said that in industrial when the inflation is high and the price increase comes with a lag effect and therefore the impact on the margins is quite high in that particular part. In this situation, if we try to show that aggression, I think it will weaken, you know, the situation. That's why probably the timing is not correct. Okay. Understood. As situation improve, I mean, when ability to spend goes up, as a company, we should grow faster than the industry on a structural basis. Certainly, definitely. That's our role and that's what we are determined to do. Okay. Sir, just one question. On the distribution side, you mentioned that 5%-10% kind of addition happens at the industry level. What would be our current distribution and, any average rate at which we are growing the distribution? Around 28,000 distribution we have, and as I said that last year the expansion was very less, but this year it is closer to 10%. That should continue in the medium term. That's our objective. Okay. Understood. Sir, thanks a lot. Thank you very much. Thank you very much. The next question is from the line of Amit Purohit from Elara Capital. Please go ahead. Yeah. Hi. Thank you for the opportunity, sir. Just, one question on the growth rates for the industrial and decorative in this quarter. If you could highlight that. Second is on the CapEx. These two things, that's it. Growth rates are similar, quite similar. Overall growth is 16.2%, and growth rate in decorative industrials are similar. Our regular, you know, CapEx continues. What is the figure, Prashant, regular CapEx? Regular is INR 90 crore. Around INR 90 crore the regular CapEx, and there's no cut on that. Sir, when was the price hike taken in the decorative space? Because if we take, I mean, was it in the mid of the quarter? Because then probably the volume growth and value growth is you said it's same, right? That's what I heard. The price increases were quite staggered. Almost every month or one and a half month, you know, there was some amount of price increase was happening, and it is quite staggered. Okay. You would have also taken around 16%-17% from April to now. Is that fair for our decorative space? No, no, not that high. The price increase in the industry was about 6%-7%, in that particular range. Not that high. The industry has taken another announced price increase now. That is now. We are talking about April to September as of now. After this announcement, have you also taken some price increases? I think I mentioned in one of the questions. We have our plans and, you know, I think you're welcome to know that we have our plans on that. Sure. Till September quarter, the price increase is 6%-7%. For decorative. Okay. Fair. Thank you, sir. Thanks. Thank you. The next question is from the line of Kunal Bhatia from Dalal & Broacha. Please go ahead. Mr. Bhatia, please go ahead with your question. Yeah. Hello, sir. Thanks for the opportunity. You did mention that Q3, on the margin front, you would like to normalize a bit on the EBITDA margins. For the same, you mentioned the mix of product mix. Secondly, also in terms of a change in formulation. Thirdly, some bit of price increases what you want to take. If I look at, say in the Q3 of last year, the margins were still on a higher base at about 19.7% kind of EBITDA margins. What do you envisage here? What would be a normalized kind of EBITDA margins which you are targeting at? See, I think this impact of all these things, what you are talking about, would be seen in the fourth quarter because the price increase, you know, because October is a big month and therefore, you know, all the impact you will be able to see in the fourth quarter. You know, the impact in this third quarter would be very, very low. For the quarterly perspective, difficult to say what you're saying, but I think impact would be seen in the quarter four. Okay. Sir, the important question here is what according to you is the EBITDA margin target you are looking at, a normalized kind of EBITDA margins what would be our— Prashant, would you like to answer this question? It's difficult to make any statement right now because it will become a forward-looking statement. Still, you know, it's difficult to maintain last year's high EBITDA margins. Maybe slightly lower than that, we can target. What range, if you could— We would not like to comment on the numbers or range. Okay. Sure. Sir, secondly, in terms of auto, you did mention that we gained market share. What would be our current market share in case of auto? Also would like to just get some sense on because you've mentioned some comments this time specifically about two-wheelers and tractors. Just wanted to get some sense on how big are these two segments for us. Our market share in auto is close to 60% and the total market share is close to 60% and we are a very strong player in the passenger vehicles, two-wheeler, and if you see tractors and commercial, we are there the market share is further higher. I think in most of these industries, passenger vehicles, commercial vehicles, tractors and two-wheeler, we are very, very strong player. What would be the current size of the auto paint industry? Current size, you can say that it is the industrial overall is 25%-30% of the total market size. That's the industry size. Okay, fine, sir. Thank you. Yes. Thank you. Thank you very much. The next question is from the line of Parag Chavan from UTI AMC. Please go ahead. Hello sir. Thank you for the opportunity. Thank you. I wanted to understand on the industrial side, actually, my perception was earlier that in industrial business, whenever basically the raw material goes up, it is easier to actually pass on the price hikes. Also, on the flip side, when actually the raw material prices cool off, even the, that benefit also has to be passed on quickly to the consumers. Now is that perception wrong or currently as you mentioned that some of these higher price hikes on the raw material side were, you were not able to pass on to the consumers. Is it a one-off this time around? I would have been happy if your perception was, right. Generally what happens is that, you know, there is a lag and, now this situation is different because generally what happens is that it is very difficult to go to your auto, these auto customers or OEMs on a regular basis to demand for the price increase. Now, in the situation like this, where there have been a lot of uncertainty and it was very difficult to project that month-on-month basis how the inflation will go up. Typically, traditionally what happens is that you wait and see that where exactly the inflation got stabilized. Once you have that understanding then you work out and then have a discussion with the customers. In the OEM, obviously along with the price increase, you have to work with them in terms of a lot of other initiatives. As I said that you have to create a win-win situation. That is what happens. This situation is little different, you know, because every month there has been an inflation and in industry definitely it is not possible, but which can happen in consumer business. In industry it doesn't happen that every month you go and ask for the price increase. First you have to wait and see that, you know, what price increase you require. Unfortunately in this situation, if you had asked for a particular price increase and, one month subsequently or two months subsequently, the figure itself has been changing. To that extent, the lag has always been there, and this time it is a little more and the discussions are happening and people will have to work out, because we have to understand the customer situation also, and therefore we have to fall in line with each other's expectations and see that, you know, how do we create win-win. Understood. Okay. Yeah, that clarifies. Thank you. Thank you. Thank you. The next question is from the line of Ranjit from B&K Securities. Please go ahead. Yeah. Hi sir. Thank you for this opportunity. In one of the earlier questions, you have kind of indicated that this is for the industry and not for the Kansai basically, with the recent price hike that we have seen is kind of offset the raw material inflation that we have seen. The way I see it that post 2Q and now in the month towards the end of September and October, we have seen a further price increases in the raw material. The inflation has only got intensified if you look at this month of September and October. How should one view that the price hike that we have taken is likely to offset the raw material inflation? Difficult to say, you know, because, as of now the trend is further going up, but I think, to a large extent it would be done. Then we have to wait and watch for the demand that after the price increase, how the demand is impacting or, you know, the response. Based on that either further course of action will be decided. No, the question was like the price increases that the industry has taken, is it going to neutralize the raw material inflation for the 2Q or it also takes into consideration the inflation that we have seen in the month of October? Yeah. As far as decorative price increase, what they have, you know, projected or based on whatever the people are now asking for should cover at least up to 2Q. Okay, sir. Thank you. Thank you. The next question is from the line of Varun from IDBI Capital. Please go ahead. Yeah, thanks for the opportunity. Just two questions from my side. First, on this differentiated product offering as you mentioned on the call that we have now become a little bit more aggressive in terms of launching new products and a lot of products are even in pipeline. You know, just wanted to know if you can share some objective guidance in terms of how you are aiming to kind of grow this category. Any, you know, numbers in terms of, you know, revenue contribution currently and how you want to drive this category going forward in terms of, I mean, are you looking at just number of product launches or even from revenue point of view? This part is, you know, quite focused on that, understanding the need gaps of the consumer and then plugging it with the product where the offering and the propositions can be very different. We have already placed, you know, four to five products in that range which are quite differentiated. We have our internal plans to increase the volume and value of this business significantly. I would not like to talk about the numbers here because that's one way to really, you know, depart from the competition in the marketplace. I think our focus is on that. As I said that there are multiple products in pipeline. As we go along, you know, we'll see that more and more functional and feature-oriented products, feature-led products that, you know, that will be coming to the market. Okay, sure. Okay, fine. Fair enough. My second question is on the distribution expansion. As you rightly mentioned that, you know, 5%-10% kind of addition or more than 10% kind of addition that we kind of aim for. You know, how are you thinking about the regions where you want to focus more? I mean, the more of the growth you think is going to come from rural distribution expansion from urban? Any color on that? Traditionally, if you see that, you know, we are a more stronger player in the upcountry markets and relatively weaker in the towns, urban towns. Our focus is both sides. One side, you know, that is strengthening the markets where we are already strong and wherever we are weak, you know, there we are, you know, building up. I think it is the objectives are different in both the markets, but the focus would remain in both the markets. Sure. That's very helpful. Thank you very much. Thank you. Thank you very much. That was the last question for today. I would now like to hand the conference over to Mr. Aniruddha Joshi for closing comments. Over to you, sir. Thanks, Bilal. On behalf of ICICI Securities, we would like to thank the management of Kansai Nerolac, Mr. Anuj Jain, Mr. Prashant Pai as well as Mr. Jason Gonsalves, as well as all the participants, too. It was a really interesting discussion and many thanks to the management for sharing valuable inputs as well as resolving queries of investors and analysts. Wish you all Happy Diwali, and now hand over the call to the management for closing comments. Thanks, and over to you, sir. Thank you so much. Thank you all the participants for patient hearing and all the questions. Your questions always enlighten our understanding also. Thank you so much for that. Best wishes for the season. The Diwali is coming ahead and fortunately, as a country we seems to be on track in terms of vaccination and there's a safety part is taken care of. Hopefully, you know, this challenging situation which we have seen last two years will go away and we'll see bright times, you know, coming ahead. Wish you all the very best and my best regards to you and your family and your near and dear ones. Thank you so much. Thank you very much, sir. This has been on behalf of ICICI Securities. That concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.