Ladies and gentlemen, good day, and welcome to the Q3 FY 2022 earnings conference call of Kansai Nerolac Paints, hosted by ICICI Securities Limited. As a reminder, all participant 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. Anuj Joshi from ICICI Securities. Thank you and over to you, sir. Yeah, thanks, Margaret. On behalf of ICICI Securities, we welcome you all to Q3 FY 2022 and nine months FY 2022 results conference call of Kansai Nerolac Paints. We have with us the senior management team of the company represented by Mr. Anuj Jain, Executive Director, Mr. Prashant Pai, Director, Finance, and Mr. Jason Gonsalves, Director, Corporate Planning, IT and Materials. Now I'll hand over the call to the management for the initial comments on the quarterly performance, and then we will open the floor for question- and- answer session. Thanks, and over to you, sir. Thank you. Thank you so much. Good morning, everyone. Greetings to all of you. This is the first meeting for this year, happy 2022 to all of you. Welcome to this Kansai Nerolac call for Q3 of 2021 and 2022. During the third quarter, our top line growth was around 13.1%. Quarter continued to witness inflationary pressures along with volatility in crude and exchange rates. Overall inflation has been unprecedented, which we have been talking in the earlier quarters also, and the situation has not eased. In view of the situation, we continued our approach of balance between top line and bottom line. Just to give you some highlights related to our business verticals, industrial, the automotive growth was hardly, you know, marginal. In passenger vehicles, though there was a demand recovery, but, the demand could not be serviced due to continued shortage of semiconductors. Two-wheeler segment remained subdued, mainly because of rural distress and, there the demand was lower. Commercial vehicles was better, but tractor segment also was sluggish. In terms of our focus, we have been focusing on technology which basically gives environment and efficiency benefits to our customers apart from finish. To say that, you know, we have been working on, from the conventional poly system to the medium poly system. That's what we've been concentrating upon. In the area of, non-auto industrial business, which we call performance coating, there we have taken a direction of shifting our mix from lower end to high technology products. There also are a lot of epoxy alkyds where the inflation has been so high and the margins are very, very low. That's the focus. You know, we wanted to get our technological advantage into that area also. Some of the achievements are, like in performance coating, we are now an approved supplier of Trans Harbour Link and Coastal Freeway for our C5 system. C5 is basically a fluoropolymer based system, you know, which gives the life of 15-30 years on the steel structures. In coil coatings, where we made entry few years back, you know, and we were supplying only to the roofing system, and that was also another good profitable area. Now we got approval from the appliances. All of you must be knowing that, you know, we are quite strong in the appliances through our powder coating system. Now we got the approval and started supplying in the appliance because the product requirement is very, very specific. It has a 360-degree bend, you know, need to be bent. You know, we are able to develop that product and get the approval on that. In powder coating also, the focus is towards the premium category. You know, one of the achievement is that we started supplying to one of the leading construction equipment company who has set up the fastest robotic line. You know, no manual intervention at all. We have developed, you know, customized specific products and the sales are approved. In this area again, you know that in drums and barrels where we are a strong player in external coating. Now we have got approval for the internal liners also. We have been working with our customers in the entire auto and non-auto area related to inflation and pricing fees, which we discussed earlier also. Now we are able to get average around 18% increase in industrial segment. When it comes to decorative, the volume growth is high single digits. Value growth is double digits. Demand was better in urban towns, you know, to lower tier cities. To a certain extent, it's a contrast if we compare with the last year, you know, where the demand was better from the upcountry towns. Some of the key actions what we have done in decorative, you know, we continued our focus on differentiated products. The approach what we have taken is a problem solution approach. First product which we introduced in that area was Nerolac Beauty Gold Washable, which is now present across the country. This product is a, you know, a good finish with the washability, and that's the problem and solution approach. We introduced Nerolac Excel Mica Marble Stretch and Sheen, which is again a good finish product along with the no crack property, because that's one area, you know, identified as a consumer need which was still not serviced, and that's the solution what we have provided. This product is being expanded to the other markets. We also introduced one rapid set product in the range of our construction chemical. Typically in the areas where the winter, the temperature goes down to 0 degrees or 1 degree, and during those days when the construction activity is happening, the setting time of concrete and the cement goes up from 6 hours to 12 hours. With the rapid set, which is like an admixture which goes into concrete and cement, the setting time is reduced to the regular level, 5 to 6 hours. That product is also, you know, introduced. We also introduced 3D emulsion in some markets, and we also announced the launch of Nerolac Impressions Kashmir, which is getting into the market now. This is also our, you know, this progressive Impressions Kashmir, and why it is called Impressions Kashmir, because the good combination of beauty and purity. You know, it's antibacterial, antiviral. It has generally there are products, you know, which are launched in the exterior for the dirt pickup. You know, this has a dirt pick-up optic in interior. You know, normally in the interiors when you do cleaning and there's a lot of dirt which goes and get settled on the wall, so this product has the capability to resist that dirt. Some of these are highlights of the new product. Because of these reasons, our new product penetration is going up consistently, and this is helping us increase salience of emulsions also. Our emulsions salience has gone up. Within the emulsion, the growth in super premium category. We divide our categories now into super premium, and popular. In the super premium category, the growth has been higher. That's also a good sign, and I think that's getting reflected from whatever data we read that, you know, there is a case for share recovery. In the premium segment, I think the story is good and intact. There are more products in pipeline in the coming quarters, as a part of our strategy that, you know, good problem solution approach products, you know, we should be introducing. Also, you know, what we've done is we've increased our activities on the painter engagement. We have introduced the Pragati App for the painter and we're doing migration from the manual disbursement to the digital disbursement. It is gradually picking up. Quarter-on-quarter basis it is picking up. Our objective was to have a quick settlement of incentive, you know, because we do offer loyalty bonuses and incentives to the painters. Generally the disbursement used to take a longer period of time. Now with this introduction, we are able to give the disbursement in 2 hours time, which is, you know, the quickest for the, you know, that a painter is getting now. This is for the big painters. Also for the small painters, who get the incentive disbursement through the dealers. There also we have provided a facility on our Saathi App, which is meant for our customer dealers. Through that, you know, even those dealers are able to get the disbursement within 24 hours time, and therefore they are able to disperse to the painters, even to the smaller painters also, you know, with a good speed. Our distribution increase is continue to be in double digits. It's a direct increase in the distribution, which is in double digits. Project business, you know, because this year, maybe last year business got impacted in the electricity and, you know, the pent-up demand. The project and pent-up demand has come back in this year. Earlier we were not getting good orders on project business, but it has picked up for us in quarter three. In new businesses, I think we have introduced the range which is required you know by the market, whether it's construction chemicals or wood chemicals. Most of the product gaps are already filled. We have already caught up with the market growth. Though on the low base and our salience remain low, but we have caught up with the market growth. Overall salience of the new business is also going up. In decorative also, we have taken up price increase which is more than 20% on the Q2 level. Most of the increase was taken in the third quarter, and third quarter also it was towards the later part of the third quarter. Focus indirectly continue on paint part, you know, because there are a lot of new businesses that are being added. In the new businesses we are primarily focused on CP and wood. Paint, the new emulsions, distribution, so that remains our focus. Subsidiaries also really did well, barring Nepal, you know, where there was an impact of COVID in the last quarter and where the growth was negative. Otherwise all other subsidiaries have done well in terms of top line growth. Bottom line, there was stress in all subsidiaries because of the inflation. The story what is there in India was true for other subsidiaries also, where the price increase is taken, but the weighted impact was fairly low. Maybe going forward it will get reflected. Some of the other highlights are like, you know, the product mix is better. Material cost reduction initiatives continue. Our judicious overhead management is, you know, our continued focus and that remains. We are well placed towards 35, 40,000 2021. We have taken several digital initiatives across customer facing and the back end for the purpose of enhancing our efficiency and process adherence, you know, which will definitely help in the long run. When it comes to our employees, more than 96% are vaccinated fully and all operations are normal. There are certain supply chain logistics challenges, but we are able to manage that and we ensure that our customers' supplies are not interrupted because of any supply chain issues. Also one good highlight, you know, is that KNPL is rated in the top quartile of S&P ESG Index in CSA 2021. We are rated in top quartile in manufacturing space and number one in paint sector by CRISIL in ESG compass. Good news there. Coming to financials, in quarter three, in terms of EBITDA there's a de-growth of 38.5%. For the PAT there's a de-growth of 37%. On the 9-month basis, in terms of EBITDA it is 11.4% down and PAT is 13% down. These are some of the highlights. For the quarter four outlook, you know, January, February, I think, you know, that because the third wave, though impact seems to be limited, numbers are coming down. January and, you know, February first half, we expect that, you know, maybe the demand could have some impact of that, but that will be for the limited period. In the industrial segment, the shortage of semiconductor continues. You know, because anyway the additional capacity which are getting created is a little long-term. So that problem may continue, maybe to some extent it will get mitigated, but that may continue. So that's the situation. Inflation continue to still rise, so there's no ease in inflation. You know, especially in the industrial, we can still see that month-on-month basis, quarter-on-quarter basis, the inflation is still going high. And therefore, the pricing is what we have taken is still not able to mitigate the inflation. We need to go for more price increase. Right now we see that, you know, how we are able to make up for this is becoming better. This is from my side, and now we welcome to the questions. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi, sir. Thanks for this opportunity. Hi. Sir, I wanted to understand the price increase impact across decorative and industrial. Now, after this 21% increase which was taken in December, crude has also moved up. Would like to hear your thoughts on whether we need more price increase in decorative. The second question which is linked is industrial, the difference in price increase is only about 3% or so. Decorative is 21, industrial is about 18. Would that additional 3% be enough for industrial margin also to come back to normal? Or, the cost inflation basket is relatively different and hence there is much higher need which will come, and by when do you expect that? Thank you, sir. Yeah. In decorative, the 21% price increase as of now totally has mitigated the inflation. Generally what happens like the crude prices are going down, but we are more dependent on the crude derivatives and there is always a lag. As of now in the near short term, we feel that this price increase is sufficiently mitigated. Industrial, there is a big gap. You know, the inflation is very, very high. The material inflation is higher than the consumption inflation, what we have seen in the last quarter. Therefore the need of the price increase is you know, further higher. As I said, in industrial because most of the products are in the solvent category, the inflation is further going up on a month-to-month basis. There the price increase requirement is definitely there. Accordingly we are pursuing our customers, though we have taken a good increase, but I think we are pursuing our customers and we have to wait and watch, you know, how and when we are able to get it. Sir, in that one, if I may just to follow up, it is fair to say, you know, argue that all your initiatives, the non-auto is where the return to normalcy should be faster than the auto because you did highlight that auto semiconductor issue is over. Yeah. In non-auto, if you are talking about the top line demands, you know, the normalcy is faster, you know, because in auto the demand is not much issue. Issue is related to supply chain or this space. In non-auto that issue is not there. We lost the client, so we'll move to the next question. Before we do that, we would like to remind all of the participants, if you wish to ask a question, please press star and one. The next question is from Prabodh Silachyxa. Please go ahead. Yeah. Hi, sir. I have a couple of questions. My first question is, now I may have missed, but what is the volume growth in your, decorative and non-decorative in this quarter? The volume growth as I said in decorative is high single digits. In the other segments, you know, the growth is low. Okay. Sir, in that context only, if I look at, say, some of the peers in this quarter, the, your overall demand scenario was quite good. Even your most of the quarter was normal. Any particular reason that our volume growth is lower than the peers, say from not only this quarter, say from the past many quarters, say last one, two years? Yes. You know there are like two things I will say. One is, you know, that it all depends on the mix, market mix, business mix. One factor is, like we said, new businesses, you know, that where we were lately started. As we have caught up with the growth, but our salience is low. On the higher salience, you know, that if they're still getting the good growth in the market, that we got advantage. The other is that, you know, traditionally, our strong markets are the upcountry markets, you can say, rural or upcountry markets, and we are not so strong in the urban markets. This time, this year if we see the growth in the urban market is quite higher if we compare with the upcountry market. That's also a disadvantage we have. Third is, you know, that because as we said, our approach of striking a balance between top line and bottom line, we have not been much focused on the economy segment and, there also the difference is there. These are some of the reasons. But having said that, maybe they have done better. Okay. Sir, as you said, in the economy segment, Kansai has been weaker, but how has been the trend in the last 2-3 years, say, Soldier or some of the other products which we launched? Are we trying to bridge the gap and how far we have been successful in that? Soldier has done good. In fact, you know, we have been able to establish, improve the distribution structure through, you know, Soldier. We started with the economy product, but in Soldier also we started moving up now and the attempt is to see that, you know, how do you upgrade? Having established the distribution, there also the story is about upgradation. The growth from the, you know, higher range of the product is something which we are trying to gain better than the economy range. Okay. My second question is on the margins. Because our margins are multi-year low, so would it be fair to presume that the margins have bottomed out? As I said, you know, that, again, in our case, you know, because we are a very good blend of decorative and industrial and quarter- on- quarter, you see that mix also changes. There are like festival periods where the decorative segment goes up and other period, you know, the segment of industrial goes up. In industrial, the volatility or the inflation is, you know, still going up. I would say that in decorative only what you are saying is yes, you know, because no one knows about the future, but as of now we'll get the yes. Industrial, I think, the situation still continues to be going up. That is pretty helpful. Just one bookkeeping kind of a question. In our results there were notes to the accounts, which is note number six, and it states that there was some trade deposits which were written back of INR 34 crore and INR 41 crore in three months and nine months. There is some incentive which has been, you can say, written back. Can you throw some more light on these two transactions? That is best for Syam Kumar to answer that. You must be aware that we have got machines which are placed in the market, which are virtually given free of cost. Generally what happens is that some trade deposit is taken against that, and that is returned to the dealers provided they complete the targets. Now, these write back is pertaining to such dealers who have not completed the targets. Now, if you look at other company, normally they do year-on-year basis. We have deferred this write back for some time, so that is what we have taken this and corrected to be in line with the peers. As far as the second incentive what we are talking, what you are seeing in the note is the incentive from the state government. Now, we have our plant in Lote where there is some incentive available towards expansion. That is the incentive which we got. That is not a write back, it is actually an approval given by the state government which is INR 9.8 crores which we have got. That's the only difference. Okay. Sir, the second one seems to be related to some GST, et cetera. If I- It's like this, whatever investment you do in that plant and whenever you make sale from that plant, the SGST collected against that is allowed as a refund. I think, sir, this will be a recurring item going forward then? Yeah, it is the total. It's not a big amount. The total sanction, we got part sanction now. Another sanction is expected maybe in the next six months. Okay. This is not something which will recur for, say, next 4, 5 years or something? No. Okay. Sir, regarding the first part of your trade deposit on the tinting machines, basically, which now you have taken back. Now, what will happen, for example, if those dealers, if their deposits have been taken by the company. Will they go out of the system or can they, you can say, take some action against the company? Anything on that front? No, nothing of that, sir. Because this is not. This money belongs to the company. Now, it's, see, as I told you, they have not completed the targets and which they are aware. There is a clear cut understanding if the target is not completed, the amount is forfeited. It's a part of the agreement. Okay. Sir, this amount is on how many tinting machines this amount has been forfeited or how many dealers, if you can share? No, you know, it's small amount. Big amounts all put together, it's a number of machines it is, you know. It is accrued over a period of 4-5 years. That is what has been credited. Okay. Thanks a lot, sir. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Sorry, sir, my line got dropped. I just wanted to put a check on that industrial part again, just to follow up on that. Would it be fair to say that the non-autos is where you expect a faster recovery in gross margins and autos will come with a lag given because you pointed towards chip shortage issues likely to take you some time? In terms of demand, you know, it is, yes. In terms of inflation, as I said, industrial, whether it is auto or non-auto, there the inflation continues to increase. In terms of margin we'll have to wait and watch, you know, because inflation is still higher. Okay, sir. I know it's a little bit of crystal ball guessing, but by when do you expect, you know, things to start normalizing on the margin front? I understand it's not something that we'll hold on to, but your expectation would be better than ours. It's very difficult. You know, we don't know what is going to happen. You know, so it's very difficult to comment on that. Mm-hmm. Our guess is as good as your guess. Okay, sir. That's all from my side. Thank you very much, sir. Thank you. The next question is from the line of Amit Shirangi from Elara Capital. Please go ahead. Yeah, thank you for the opportunity, sir. Just one thing. On the distribution expansion, you said the double-digit growth in distribution. Can you help us with the count? And second, to this, is the markets where you are. I mean, if the strategy is to get into new markets or existing market where the segments of the new expansion is higher? I didn't get your second question. I said, where is the segments of the expansion higher, whether it is in our existing strong markets or into new markets? Distribution is, you know, when we say 10%, you know, because our distribution was around 27,000-28,000. There is, you know, over the year. As of now we're talking about it is December. Over a year it is 10% increase on that particular base. It is across. In fact, the growth in our weaker market is slightly higher, which is South and West. Okay. Thank you, sir. Thank you. The next question is on the line of Mihir P. Shah from Nomura. Please go ahead. Thank you for taking my question. Sir, I just wanted to, you know, hear your thoughts on are you seeing any impact of the sharp price increases that you've taken in decorative, especially in the bottom of the pyramid segment? Because you've also shifted your strategy towards focusing on the premium end. While two different questions, but, if you can share both, you know, throw some light on both of these, basically. Logically we speak about, you know, what we keep reading and, you know, when you look at the K-shaped recovery, and I think there is a lot of data which is floating, which says that in the higher end, the income has gone up in the COVID period. Whereas the lower end, there's definitely a dent on the, you know, pocket of the population. From that logic, there should be some reduction in the demand in the economy category. But having said that, you know, in paint probably does not get reflected so much because the penetration is lower. If you look at FMCG or CPG, you know, the penetration is very high, so there is a direct implication of these kind of things. While in paint, because the penetration is lower, and even if there is some increase in the penetration that compensates, you know, the dent in the demand. Otherwise, we do feel that there should be impact on the economic demand. In the premium category, the story remain intact, and there in fact we feel that the growth will be better. Understood. There is no real, you know, reason or interplay for shift in strategy because of this, or you have consciously shifted because you're expecting demand to be impacted going forward and, or you're seeing some signs of that, basically? It's a part of, I think, you know, earlier also we discussed that, we have worked on a new strategy where definitely we are putting more focus on emulsions and, you know, this kind of premium products. It doesn't mean that, you know, our focus will go away from the economy, but you know that the aggression in terms of growth would be on, you know, these kind of category. You know, for this year, as we said, you know, because of these reasons, the growth in the market is also expected to be better. This is a long-term strategy. Whenever the growth in the economy category comes back, anyway we have the range available. Depending on the market response, you know, those things will vary. Our area of focus would be into the premium range of products. Understood. The reason why I'm probing on this, sir, is that you know, earlier also probably two years back, we probably entered the economy segment quite late after seeing the growth in the you know at the industry level was far higher in that space. Then we had lost some kind of demand because of that. Again you know, while we always wanted to focus on premium end, we had to shift strategies two years back because of the shift in industry. Again, we are shifting the strategy back to premium end. I just wanted to check on that. Okay, I'll take this offline. Other question I wanted to just check with you on, can one assume some of the future demand has been preponed as individuals were you know sitting at home and you know painting is a planned activity. You know when they thought that they will start going back to offices let us get any kind of work done. You know and demand can probably see some kind of moderation going forward as opening up happens. Your thoughts on this point sir? Just to quickly respond to your earlier question also. It is not a shift in the strategy. It is not that gradually we are changing that. You know what happens is that we are a national player and we're an entire range player. Therefore we are there in the entire range. What we have done with this quarter is that we have created a base, we have created a right distribution. Now, once you've created a base, thereafter, you know, you can decide that every year that how much aggression you want to showcase on that in terms of the growth. Otherwise the base is already created. Either typically today's scenario, when the inflation is high, the market growth is higher on the premium segment. Also when there is a stress on the margin related to inflation, I think it makes sense to go a little more aggressive on the you know premium kind of thing. Mm-hmm. Otherwise, you know that in the normal situation, the situation come back to the normal, you know, one has the leverage to see that, you know, both the categories, you know, because at the end of the day, you know, in the premium category, you do invest more in terms of marketing activities. While in the other categories, it is more of a extension of the distribution, which is team related extension and the distribution. That's the difference in these two kind of things. Therefore, you know, some kind of modifications, you know, depending on the market situation, you know, is what we look at. That's the first one. The second part, you know, that we have no insight like, you know, what you're saying that the demand is preponed. We only feel that, you know, that whenever this COVID impacts and, you know, maybe to some extent, the painting activity gets deferred and then in the coming months or the coming quarters, you know, it will generally come back. So we have no understanding as of now that there's any prepayment because of people spending a lot of time. That's a change in the behavior we can say, you know, because people are spending a lot of time at home, so they are becoming more conscious in terms of, you know, doing painting or doing a better painting. That's the indication of that. Understood. If I can, you know, turn the question a bit, how much of pent-up demand do you think has been, you know, addressed or satiated? Any insights on that? Any, you know, research would, you know, that throws up on this insight, sir? Not really, you know, the real numbers is difficult to comment upon that. One can only say that whatever demand was there, I think that is catered and maybe some drop, you know, which will be last part of the December or January that may get addressed in the coming months, you know, because as the situation improves. Got it. Understood. Okay. Lastly, on the other expenses line item on the P&L, we would have taken a lot of cost initiatives during the pandemic and maybe certain other costs that, you know, were getting postponed or deferred or, you know, not so, like, for example, travel and so on. Can one assume most of the cost is back and this is like a normal steady state expense that will continue? You can say that, but you know, just like you know, travel and all still was not a complete year to that extent, you know, you're finding the area like travel, business travel, you know, that may still go up in the coming months period. Yeah. What we saw in the third quarter maybe is what I was trying to ask. Got it. Okay. Thank you. That's all from my side, sir. Thank you. Thank you. The next question is from the line of Kunal Pandya from ICICI Prudential Life Insurance. Please go ahead. Thank you. Three specific questions. Let me take one by one. First thing, as you mentioned that one of the reason why our volume growth is lower than industry peers is because our focus is more on premium and super premium and not so on economic segment. But that impacts our volume growth, but shouldn't that positively impact our gross margins versus peer since our mix is getting better? Just your thought on this equation. I think you will see some kind of improvement on the sequential basis. That is one. Second, what is happening is, as I said, in the premium category also, there are a lot of new introduction of the products. So typically, if you see the earlier market was, there was the smooth finish, now there are sheen and glossy finishes. So on the unit basis, the margins are good, but in terms of percentage of the impact, some of these new categories which are coming up, in terms of percentage that will be lower. So that is how the equation is. Okay. My second question is on automotive volumes. At least from the auto players, the commentary is coming that sequentially the situation improving from month after month, if not, say, this quarter versus last year's this quarter or in any period. Rather than year-over-year, sequentially the situation improving. Do you have a different view from that? What kind of indication you are getting from your clients? I think sequentially, yes. You know, because obviously they're able to manage it better now. You know, the capacity constraints of semiconductor is there, but they are able to manage it better. I think we agree with the view that sequentially it is better. Okay. When you say normalization will take time, so, you are comparing with a specific year or a specific period? We are comparing, like, you know, what we keep hearing is that demand versus the supply. There is still a gap, you know, because if you look at the passenger vehicles, the booking period is still quite large. Also the availability of the semiconductor is still not enough because I think they're dependent on the additional capacity which is getting created, which will usually take about 2.5 years of period. Suppose, as of now it is 1.5 years passed. To some extent the supplies are improved, but it is not back to completely normal. Therefore, we feel that it will take some more time to come back to their natural demand and then they are able to serve the demand. Okay. Understood. The third question is on client additions or our client list in electric vehicles, either four-wheelers or two-wheelers, or the emerging players or the current large players. What is our penetration in the electric vehicles, both two-wheeler and four-wheeler? Are you present there? Yes, yes. Mostly, you know, that in the electric vehicles, you know, that most of the companies do not have their own in-house paint shop. Therefore, you know, that they are getting it painted through the ancillaries, and most of the ancillaries we are present. Both two-wheelers and four-wheelers. Yes, yes. Both. Okay. Thanks a lot and all the best. Thank you. Thank you. The next question is from the line of Nikhil Khandelwal from Aditya Birla Capital. Please go ahead. Hi. Thanks for taking the question. Firstly, what is the cut in the advertisement expenditure you have done in the first nine months? There's no cut. There's some increase in the advertisement. Sure. Given the context where the competition is going to heat up in the decorative, I mean, there is Grasim, which is coming, there is two more players who are planning to enter this. How do you feel your market share has been in decorative and what are the steps you are doing to further increase the market share? Any thoughts on these lines? Yes. You know, decorative is, as I think I mentioned in one of the question earlier also that, the approach what we are taking is a problem solution approach. To an extent, the starting point is the product and, our focus has been introducing, you know, differentiated products which, you know, we started with one, two, and now we are there with three and four products, and more products in pipeline. That is first part. The second part is, you know, in terms of our marketing, you know, we are doing activities around consumer and activities around painter, you know, because when it comes to decorative painting, one side is the consumer, the other side is painter. Some of the initiatives which we have taken, which I earlier spoke about, so that is the area of focus. Third part is the distribution, because the more distribution you have, more accessibility you have with the, with the, you know, customer. We have a large infrastructure, you know, more than 100 sales offices, warehouses, and therefore, we can cater to a larger number of distribution through that. The distribution for getting more distribution, obviously, you have to ensure that how fast you are able to liquidate your material from the dealer shop. Therefore, for, you know, getting that, extraction from the counter, you need to work on the demand generation, which is related to a painter, you know, because painter also play a big role and also related to a demand, you know, for the consumer. These are all some of the activities, you know, which we are working upon, in a disciplined manner. Therefore, we feel that we must continue to work on this particular strategy. As we keep getting results in terms of increasing demand and getting the distribution numbers in place, you know, we will achieve our objective. Sure, sir. Just on the first point on the product basket, which you are trying to increase, do you have putty and construction chemical that is in basket, which others are trying to do? Also on the distribution expansion announcement which you spoke about, the number one player spoke about adding almost 45,000 distributors in last 18 months. He has added hardware dealers or paint dealers. He has been very aggressive. I mean, given that competition is heating up, why not we also go in an aggressive manner, in terms of distribution expenses? Two parts to my question. Your first question is for putty. Yes, we have a team, and that's a part of our economy segment where we have not been aggressive as of now because of the current situation. Construction chemical, yes, we've started and we have got a foothold in the market. Our entire range is introduced in the market and we are getting a good response. We are making a good growth in construction chemical. On distribution, what I spoke double-digit growth of the direct distribution. There is no indirect distribution here. What you're comparing is with the direct and indirect distribution. There are a lot of new businesses which are added, you know, in construction chemical, adhesives. There is a lot of indirect distribution. As of now I'm not talking about those numbers. When I said double-digit direct distribution growth, it is, you can say that, you know, better than the market growth of the, you know, increase in the entire distribution. Sure. Just lastly, there was an article in the media which said that you are planning to buy an office space. Any capital commitment you are doing for the office space and any plan to sell the office location which you currently have? Vishal, can you answer this? This office space we have purchased, yes, we'll be moving out, maybe over the next six months. Right now there's no plan to do anything with this current place where we are. If you are moving out to the office space, this land becomes vacant, right? If I'm reading it right. Yeah. The thing is we wanted space where we can. Because what has happened going forward, you know, due to this new working norm, a lot of space is vacant here. We have wanted to shift to a place where we can accommodate the number of people who will be attending in a smaller place. That is what we are doing. Yeah. This office space you may sell at some point in time is what I'm just trying to understand. No plan as it is. Okay. Thank you. Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead. Hi, sir. My question is that if we assume that over the next two months the price of your products as well as the input prices remain constant at today's rate, in that scenario, will the Q4 gross margin be higher or lower than the Q3 gross margin? I hope what you said is right, but it is not the reality. Even in the month of January we are seeing a higher inflation. Yeah, you would also be taking price increases, right? Yeah. You know, generally what happens is there is always a lag, you know, because you are always carrying an inventory which is a higher price inventory. So that impact also will be there. The other thing is that some price increases that you would have taken in Q3 would not have fully affected Q3, but they will fully affect Q4. Therefore just trying to understand that, in Q4, do you expect the gross margins to sort of recover from the Q3 levels? Or, do you think there is some further downside likely? Two, three points. See, one is, as I said earlier also, that quarter-over-quarter basis there is a mix change. Since we have a very good mix of industrial and decorative, and October to December, generally what happens because of the festival period, the contribution of decorative is higher, which in the coming quarter the contribution of decorative is lower. That can affect, you know, because the margins are higher in decorative as compared with the industrial. The second point is what you said is right, that, you know, whatever price increase we have taken that was factored partly in the last quarter, partly it will get factored in the coming quarter. New point which is related to a mix change and also the further higher inflation will have some impact on that. Okay. Basically there is a possibility that Q4 gross margin may be on the lower side compared to Q3, right? Am I reading that correctly? I just said, you know, what is the reality now this, now you can read whatever you want to read out of it. Okay. Understood. In terms of your distribution expansion, et cetera, just wanted to understand, are you sort of expanding, and I'm sure that you are doing both, but I want to understand where sort of the focus is a little higher. Are you expanding more in your already markets where you are strong or are you expanding in sort of relatively in markets where your market share is relatively weak as far as the distribution expansion is concerned? In distribution, you know, the objective is always create basis, you know, because generally you look at what is your numerical reach and what is your weighted reach. Even if, say, in the stronger market, you have X% of numerical or weighted reach, and we have a target of X plus something. So accordingly, you know that we will decide that, you know, maybe we want to add, for example, 100 dealers there. But when it goes to the weaker market, you know, there may be the increase in terms of number of dealers could be a little higher. But in the weaker market, we always look at the quality dealers, which means the weighted reach. While in the stronger market, you know that, where our market share is strong, we go for the numerical reach. in terms of number of dealers, you know, you may still find that they are a little higher in the stronger markets because it's a numerical reach. While in the weaker market we look at the weighted reach, so numbers could be lower, but the impact is higher. What I would do, sir, is not look at the absolute number of dealers added, but the percentage of addition. Obviously your base is larger in your strong market. On that higher base also, you think the percentage addition would be higher than the weaker market? Yes. Yes. It will be higher than the weaker market. Okay. Understood. That's all from me, sir. Thanks a lot. Thank you. Thank you. Thank you. The next question is from the line of Chockalingam Narayanan from ICICI Prudential AMC. Please go ahead. Yeah. Thank you. So the question is that, you know, what are the important initiatives you have taken in the last two years and which has actually resulted in success? It could be across various fronts. It could be operational or it could be getting into new segments. You know, while there's always business as usual, like appointing distributors, et cetera, what are the top two or three important initiatives which you actually taken with the long-term mindset in the last two, three years? You know, the first part is in the area of technology and service, where we are continuously working to get some advantage. You know, that in terms of providing a product which are very, very different, you know, understanding the problem in B2B and B2C and how we can, you know, provide a better solution to that. Because technology is our strength, and I think it's services level, because for the long run it is you know very, very important. To give you example that if you see last 2, 3 years, the number of products have really gone up. In decorative, earlier there used to be 1 finish. Now there are multiple finishes, matte, semi-gloss, sheen, you know, different variants are coming. Typically, if you find that dealers have a limited space, warehouse and, you know, most of the dealers, majority of the dealers will not be able to expand, especially in the bigger town, their space. Therefore the service requirement goes up. This is one area of initiative where we are continuously improving on that particular part. The second part is ensuring that our, you know, customer satisfaction index is improving, which is also related to services or settling the, you know, dues or those kind of things. That's another area. From there it goes to the, as I said, you know, demand generation because if you are dealing with the customer for them especially in the decorative area what is important is the return on investment. How much demand you are able to generate which is a function of, how we increase the demand from consumer. Fortunately for consumer, in fact our brand is quite strong. We have a very strong mind share. As of now what we are working on the painter activities, painter engagement where we are able to convert the demand into the conversion area. This is related to a B2C. In B2B our strong forte always has been technology service and capability to ensure that, whatever product we supply on site that, you know, that is, completely okay at the site now because the different site conditions have a different kind of humid conditions, climatic conditions. Therefore there is always a challenge that, you know, how the product is working at the site. That kind of service network, you know, we already have in place where we have the capability to see that, you know, that line functions smoothly. These are you know the areas, which we have worked upon. Sir, on the B2C thing, right, what, you know, any drastically different approach you have taken to increase your reach or, I mean, it could be not just number in terms of expansion, but something which you have actually changed, the way in which you looked at, you know, say five years back and now. See it's like, you know, one point is, you know, product because product is always a starting story. Slowly if you look at say five years back maybe all companies, all products have similar price point which is not the situation now. There are many products you know where there is a complete differentiator in terms of the proposition and in terms of the pricing. That is first one. The second part is the channel if you compare the last five years. The channel, you know, the regular channel, you know, hardware channel or paint channel where the typical approach is that, somebody goes whether it's a painter or customer you go and try the product. Now the change is that you know there are segmentations, which are happening within the channel and you know, there's a new generation coming of the dealers and they are not really you know, comfortable with the old kind of you know setup. Therefore there's an initiative in terms of ensuring, you know we have a preferred partner model and you know, every year you know that we are adding numbers and going forward you know that we want to add more numbers on that. The third part is that you know, the painters you know that where painters get attached to the dealer and the painter also looks at that what kind of demand generation or the additional leads can happen. There's an initiative around digital marketing you know where you know we generate the lead and ensure that lead gets connected with the painter and the dealer. You know it's like entire process you know which is going through a transformation or the change process. That is what we are seeing, and that is what is being done, you know, because all these digital initiatives along with the, you know, the physical model, the connectivity of that is, you know, making the difference. Processes are getting changed. Got it. Thank you. Thank you. The next question is from the line of Jignesh Makwana from Amsec. Please go ahead. Jignesh from Amsec, your line has been unmuted. Please go ahead with your question. If you have a query, unmute yourself from your handset and ask your question. Taking no response, we'll move to the next question, which is from the line of Jaykumar Doshi from Kotak. Please go ahead. Hi. Thanks for the opportunity. I think you know there is a common view on the street that Nerolac's decorative paints business gets impacted when industrial coatings business goes through a challenging phase. I've not tracked the previous cycles, but when I look at the past two or three years, I noticed that you know since the time auto slowdown commenced in CY 2020 and CY 2021, there was a sharp cut in advertising spends you know. If I look at CY 2019 BARC data, maybe Nerolac's media spends were comparable to Berger. Today when I look at CY 2020 same BARC data, it indicates that you're spending a fraction of what you were spending in CY 2019. You know, today, perhaps those media spends would be much lower than the number two player. Again, when I look at growth rates also, I think there is some evident market share loss. I'm unable to sort of, you know. Is this assessment correct that, you know, there is a, you know, effect of, you know, weakness of industrial or challenges of industrial on decoratives at the organization level in terms of the budgets, the way you plan about growth? I'll tell you in two, three parts. One is, you know, typically what happens is that if you look at the paint purchase cycle and how it works. First is the mind share, and then you try to convert that mind share into the, you know, market share or the market scale. When you look at, you know, the period we're talking about, yes, we have a spend, you know, higher in terms of advertising or increasing the consumer demand. Once you reach a particular mind share, and if that mind share, you know, that is good, then you try to bridge the gap between the market share and the mind share. That gap can be bridged with, you know, that when the conversion happen at the distribution end and the painter end. Therefore, in that situation, your focus shifts to rather than creating the further mind share, you know, ensuring the conversion part. To that extent, you know, that we have reduced in terms of advertising and spend more in terms of painter creation or the distribution creation. That is first answer. Second is that, you know, maybe last two years also the advertising got impacted because of the COVID reasons. You know, because for four months, five months, six months, you know, there was no point of advertising. To that extent also it has come down. When it has come down, even in this year you'll see maybe we have, you know, come down on the advertising because for a large amount of months, you know, we felt that it may not be necessary. Therefore, what we spent is more on the market activation, local market activation, especially related to our demand generation through the painter and dealer side. Third part, what you're saying is, as I said, you know, that depending on the situation, some kind of balance, you know, between the top line and bottom line, you know, one has to do. As I said, you know, more in the area of economy range of products, you know, because these are like commodities, you know. Basically, you give more incentives, and then you can get more sales. There, even if you have a short-term loss in sales, it is not something which you cannot try to get back. More important is emulsions, you know, that which is definitely consumer oriented. There, if you are able to maintain your scale and able to increase your sales, that is something which is long-term. In the economy category, one can always, you know, modify the approach depending on the situation. Understood. This is helpful. You know, as you think about your business from the next two to three players' perspective, do you intend to compete across the segments, or you're increasingly going to position yourself, or, you know, focus more only at the premium end of the portfolio? You know, generally you see what happens is that, since ours, the advantage is what? The distribution. Then therefore, you know, whatever distribution demand you have to provide the entire range, and we are entire range player, so therefore the availability of the entire range would be there. But when it comes to focus, obviously the focus is never on the entire category. The category, other category more will be focus category. There, in fact, you know, we'll be very, very focused on few categories of products. I'll not take the name, but few categories of products. They are obviously as a part of the emulsion. The product which has a differentiated proposition, has a differentiated price point, you know, there we would be spending more of our resources in terms of providing the focus on those products, and other products get tagged along with that. Understood. You will not, unlike, you know, the market leader who has, you know, taken a very conscious call over the past two to three years to aggressively sell putty, economy emulsions, construction chemicals, even, you know, something as sort of a INR 10 per kg price, tile adhesives. You are clearly not going in that direction. That is the right understanding. Correct? Range, in terms of range availability, all the ranges are available. You don't want to sort of just, you know, by aggressively pushing the volume. You know, as I said earlier also that, you know, these products are commodity products, and as of now we are not participating in that kind of discounting on these products. It always goes with the time. Now, when the time is right, you can decide that you know how much you want. Otherwise, at this situation, yes, we are not doing it. Thank you so much. Thanks for the response. Thank you. The next question is from the line of Uneet Prasad from Investec. Please go ahead. Just wanted to, you know, come back to the point where you made a comment regarding new generation coming in, as far as dealerships is concerned and then moving on to the preferred partner model. Can you just elaborate on this? Is this a case where we are moving towards, you know, exclusive dealerships or it is a case where they would stock all multiple brands but still focused on a particular brand? How does that work? Yeah. It is, you know, basically a change in selling approach from the dealers, you know, because there are marketing dealers who are more dependent on the painter purchase and there are marketing dealers who are more dependent on the consumer purchase. Wherever there are consumer footfall and the shop conditions are not so good, so in this model, you know, that, we provide a good, amicable kind of ambience at the shop and, provide certain, you know, demand generation activities specifically for the counter. Therefore, your focus is, to sell more of a premium product, you know, because, the more, product, you know, that which offer the benefit to the consumer. Therefore, we train, you know, this next generation people, you know, who are ready to work, capable of taking this particular thing. Otherwise, in the past, conventionally, you know, people sell the product but they don't sell the benefit of the product, you know, to the customer. So these are, you know, we call it next gen, preferred partner dealers, you know, that where we train them that what are the benefit and how, you should pitch the product to the customer, rather than just selling it dry. Concentrate on the benefit and, you know, what exactly the customer is looking for, and if you can provide the solution. So it's a win-win situation. Customer gets the answer to what he's looking for, and in the process the dealers also manage good margin. So it's a win-win situation. That is how, you know, that we are taking the approach. Understood. Is this an approach adopted even by other brands or is it only you that have started this over the past couple of years? How is the scenario changing? It is something, the thing what I'm talking about is very specific to us, but maybe in some other manner they may have taken this particular direction. You know, we have a clarity in terms of that how many numbers, identified numbers. It's not something, like, openly available in the market where anyone can get into it. We identify the counters, you know, where the footfall of the consumer is good and then, you know, getting specifically into it. Therefore, it's not a, you know, as of now scale of numbers to whatever extent. Taking this approach, and as we keep making a progress on that, then appropriately, gradually, you know, we scale it up. Understood. Thank you so much, sir. Thank you. Thank you. The next question is from the line of Jignesh Makwana from Amsec. Please go ahead. Jignesh Makwana, please unmute yourself from your handset and go ahead with your question. Am I audible now? Yes, you are. Hello? You can go ahead. Thank you for the opportunity. Yeah, just want clarification on the volume side. You said, Decorative witnessed significantly a high single-digit kind of volume growth and Industrial witnessed a low single-digit kind of volume growth. If I assume that you took almost 21% some kind of price hike in Decorative, 18% price hike in Industrial segment. Even if I assume that you haven't factored the entire price hike in the Q3 itself, some material price hike, and assuming the 60-40 kind of revenue mix, I think the growth which reported on a standalone business, that math is not adding up. Am I missing some element over here? Sir, would you like to answer this one? No, you are saying your 60/40, because this is not matching you're saying. Yes. See, it's not like that. It all depends on the mix again. The mix changes, and within the range also within the decor industrial, there's a mix change happening. Accordingly, the growth what Anuj has mentioned that they are the growth numbers. Okay. Can you please quantify what would be the mix component in the entire? We don't do that. I will leave it to your imagination. Generally we don't say that. Okay, thank you. Thank you. Anyone who would like to ask a question, you may press star and one. The next question is from the line of Hitesh Taunk from ICICI Direct. Please go ahead. Thank you for the opportunity, sir. Most of the questions have been answered. My question is only our current capacity and what is the CapEx plan going forward? Our capacity is good enough because last few years, we have created a good capacity. As of now, the utilization is around 60%, no problem with capacity. There is a regular CapEx plan, maintenance CapEx which is there. If you can quantify, sir, the CapEx? Right, right now there are no projects as such. Normally maintenance CapEx which is ranging from INR 60 crores-INR 70 crores per annum. Okay. Okay, sir. Thank you. Thank you for the clarification. Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Thank you, everyone. Thanks so much. I hope it was helpful for you and thanks for all the good questions. A lot of good business marketing questions, and really appreciate that. We hope that we are able to answer and satisfy your query appropriately. Wish you the very best. Have a safe period and wish you happy 2022 once again. Thank you all. Thank you. On behalf of ICICI Securities Limited, that concludes this.