Akzo Nobel India Limited (AKZOINDIA) Q3 FY23 Earnings Concall Transcript

Akzo Nobel India Limited (NSE:AKZOINDIA) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Unidentified Speaker —

Analysts:

Unidentified Participant — — Analyst

Sanjay Kumar — ithought PMS — Analyst

Avi Mehta — Macquarie — Analyst

Presentation:

Operator

(call starts abruptly) third, if I interpreted your opening remarks appropriately, what you are simply saying is given the input in that situation at this point, price cuts, etc are sometimes.

Unidentified Speaker —

Yeah, I mean I would. I would definitely think so. I mean, I would think that look, you’ve just seen the results, it’s not — and you got to look at results from a — I would say nine months, 12 months and sometimes quarterly results don’t and I’ve been maintaining that right, last, if you look at the last quarter, the question was why you seem to have suddenly spend more on A&P because that we were clear, we were — IPL was on there and post that we also had the T20. We wanted to be a part of that all that, right. Similarly, I really think that we should just sort of look at it a little longer timeframe and then sort of — sort of come back.

Unidentified Speaker —

Operator, can we take the voice questions as per the queue.

Questions and Answers:

Operator

Certainly. We have a question from Mr. Sanjay Kumar from ithought PMS. Please go-ahead.

Unidentified Participant — — Analyst

Hello, am I audible?

Unidentified Speaker —

Yes, Sanjay, hi

Unidentified Participant — — Analyst

Hi sir, this is my first time on the call. First of all, hats off, excellent corporate governance exhibited over the years. You guys have kind of set the benchmark. I have three questions. So first, I want to understand your distribution strategy? When I spoke to JSW Paints, they said AkzoNobel retailers are the easiest to convert to JWS Paint has moved from a hub-and-spoke model to hub only model. They have in fact even scaled-up to 75 depots which is higher than our 30, are completely in the opposite direction. So we have reduced our depot footprint from say 100 odd to 30, so please share the rationale for moving to a two-tier distribution. Our freight costs have come down, but does that impact the P&L elsewhere? This is my first question.

Unidentified Participant — — Analyst

Yes, so Sanjay, thanks for the question. Look, I will not speak about any competitor, because you know, people, you know the people in the industry and let’s assume that everybody is as bright as intelligent as you and making the same effort, right. So, fullest respect for the company. On specifics, look what is the challenge for us. Our challenge has been that when I joined this company in 2013, we were available in 1,500 towns and I really fell off because you know the company, I had joined from and Unilever, where I worked for a very long-time, the distribution was a big sort of step-up, right. And so for we really after working with the team then was, really to say, how do you slowly navigate it.

We — and I started a distributor journey for all of you if you remember, Sanjay and there were lot of questions on, is it the right model and today sitting 10 years after that, I went on — having to say on calls, it is working. Give me — have faith, I have created it in two organizations. Right. But I’m pretty happy that almost 70% of our business comes to our distributors and these are the families, which have now got better to us, literally to the organization, right. And we follow a pristine process, our focus is on-sell out, so really not too much stress for them, right. So that’s one. Now once you reach that and you start getting to 3000, 4,000 towns, then you would say that look, what next right?

And you know, the market-leader is available close to the universe. I mean, universe is 11,700 towns. Market leader would be easily in close to about 9 to 10, so how do you really start getting there? Because your biggest strength is your product quality, you ask any consumer who use Dulux, chances are that and if I call a person who uses only Dulux as soulless, user, which is an FMCG term, then, chances are that people who have used Dulux don’t use any other brand after that, right, or even if they try, they normally get back very fast. So given that and given the fact that this is a 3-year sort of a period for interior and maybe sometimes three to five years for exterior, we said, look, let’s move to the next level and that’s how the strategy started. So when you look at 30 depot towns, these are places where we stock other than our factories and you’ve got to remember, we’ve got a 170 stock points through distributors. Right. Today. Yeah, so what do you forget is our distributors are our stock points too, right. We only carry 20 days of — 21 days to stock but they are our stock points too. Right. And hence the focus was then to how do you move to the next level. And then so we identified geographies using some — some metrics saying that, look, which are the geographies where we should sort of start moving and that’s what we’ve done, Sanjay.

So yeah, look, when you’re a challenger brand, obviously, everybody thinks you can come in. I think, we’ve had — it’s not the first time that this brand has got challenged by new players coming in. But what I’ve seen when I work the markets is over the last four months is outlets which lapse from us, particularly during COVID on even 2021, our retention is almost now close to 90% to [Phonetic] 95%. Right. And secondly, people who have lapsed two out of — 50% of the dealers came back-in six months and I would say about 70% of the dealers have come back, 75% of the dealers have come back in a year, right. That’s the strength of the brand, to be fair. So it’s not something that only I — it’s obviously also a bit of legacy. It is the strength of the brand. So yeah, so let’s wait-and-watch. This is the strategy that we’ve unfolded, we believe it’s the right thing. We are continuing on it with breakneck speed and good luck to — obviously, people will try different things. That’s [Indecipherable] any industry will work. So this is what we are doing, Sanjay

Sanjay Kumar — ithought PMS — Analyst

Right, right, sir. Fair enough. Second on, I mean in the past, you’ve spoken about how you tackled competition from Idea when you were at Airtel. So with all due respect to all the parties involved, Airtel was and is a leader. Idea was a challenger and currently Akzo is the challenger and we are seeing a bigger challenger coming up say in terms of capacity, Grasim is already adding four AkzoNobels. Not just them, even the leader, Asian Paints has said that it will expand from 17 lakh klpa to 26 lakh klpa, that’s three AkzoNobels. So any comments on your strategy in terms of product innovation, it looks like Grasim also will come out with any color, one price. Will our ad spends go back to say 5% from the current 2%?

Unidentified Speaker —

Yeah, so, Sanjay. I don’t know where you’re based? Are you based in Chennai?

Sanjay Kumar — ithought PMS — Analyst

Yes, sir.

Unidentified Speaker —

Okay, so then it’s easier for me to answer the question. I was the CEO of Tamilnadu Airtel and then I took over the job in 2006. By the time I left in 2010, we became a market-leader, but we were not a market-leader when I took the job. We were a number three-player, Aircel was the market-leader, Idea Vodafone that time was number two and Airtel was number three and that’s what got me the job in head office, right, so let’s just wind back. I just want to be factual here, right?

Sanjay Kumar — ithought PMS — Analyst

Right.

Unidentified Speaker —

Look. Again in any business, brand distribution drives market-share and doing the right thing in telecom pricing and lot of other variables. Here too, I think, it’s doing the right thing that will sort of do it. It is a formidable competitor. Yeah, and we are sort of putting our thoughts in terms of how to handle formidable competitor. We believe that we’ve got a very strong brand, it’s a legacy brand, people who have used it are pretty passionate about the fact that they use Dulux at-home. We also have a very-high presence in premium and paint, since your questions are all limited to paints, right. So we believe that look — and we are going to come with propositions during the course of between now and next year, which will further enhance it. So we believe, we’ve got a — we’ve got couple of strategies up our sleeve, all of which I cannot reveal today, right, which should give us a bit of a tailwind but yeah.

I think secondly, as far as manufacturing is concerned, look, I think this business is slightly different. This business is not about building capacities because I can also announce a lot of capacity, but what do you do with the capacity if your consumers are not readily available to convert, those consumers don’t happen. In telecom, you spent 50 lakh on-site and once you put a site, you start getting users across the site by dropping tariff or whatever to try and do it. Will the sector get disrupted with this for a point in time, next year when the launch happen? Surely it will, yeah. But what I’m looking-forward to is to see whether the fight is going to be a price war or it’s going to be a brand war, if it’s a brand war, that’s what I think will be more interesting, if it’s a price war, I think you’ve seen it in most industries, everybody will up the ante.

You talked off, you know one color, one price. I don’t know, Sanjay if you’ve traveled into the markets. You give me your assessment of what the one color, one price is doing? My assessment is slightly different from where you stand today.

Sanjay Kumar — ithought PMS — Analyst

Okay, so we will wait for the strategy that you put out. Final question on employee [Speech Overlap].

Unidentified Speaker —

No, I won’t be putting out a strategy, because you know, to be honest, and I just want to say it for the benefit for further questions. One of the things. I won’t put out is a strategy, because the strategy is being controlled by a very close group and because otherwise, it’s easy to do it. Even in my earlier jobs, when strategy is done at this level, the only people who have access are my managers and the corporate because for simple reason strategies, if they share, it is no longer a strategy. A strategy is about alternative choices right. So, those are something which are very close to us. But yes, suffice to say that we are putting those choices because we do expect at some point of time some turbulence. Right. And the question then is, if you’re a good pilot, how do you withstand the turbulence.

Sanjay Kumar — ithought PMS — Analyst

Okay. Thanks for that, yeah. And finally on employee cost, so there this clear three percentage point difference between the peers and us, so we are at 8%, peers are at 5%, 6%. But our median remuneration at eight lakh is still below the leader who is at 10 lakh. So any thoughts on this, given that we need all the margin driver as possible when the turbulence hits.

Unidentified Speaker —

So Sanjay, if you look at it, you’ve answered the question yourself. I think then it’s a basically a topline game, isn’t it? I mean, let’s be honest, after AkzoNobel acquired ICI, there is no acquisition we’ve done. Our endeavor has been to really get this business back to where it belongs. It’s taken a long while maybe three sets of leaders to do it, but what you finally delighted is, I think, collectively, over the last 10 and let me give credit, over the last 13 years right, I think the organization has been fixing all the nuts and bolts to make sure we really bounce back and I think, we have started seeing that direction, at least there is light at the end-of-the tunnel. We need to continue sustain doing it and increasing turnover would be the way.

We are not adding heavily going-forward on our employee except in certain areas of growth and a large part of it is going to come through internal promotions, which will further reinforce the message on cost and make sure that while we get good talent we unbalance it, we actually are also keeping an eye on it and we are driving productivity very seriously.

Krishna, you want to add something?

Unidentified Speaker —

I think [Technical Issues] productivity.

Unidentified Speaker —

Yes, absolutely.

Unidentified Speaker —

Keeping a close watch in terms of how do we improve our metrices to see on our slide where we put the total cost as a percentage of the bucket, that’s what is declining on a — declining on a year-on year basis. We continue to do that.

Unidentified Speaker —

Thank you.

Sanjay Kumar — ithought PMS — Analyst

Great sir. Thank you. Thank you and all the best.

Unidentified Speaker —

Thank you, Sanjay. Good day. Bye-bye.

Operator

Thank you. A reminder to participants, to ask an interactive question, you may click on the Q&A tab on the left-hand side of the panel and click raise hand.

Unidentified Speaker —

Okay, until the next who raise hand or comes, actually, okay. So I just want to read out a couple of questions that actually in the text window are one from Ajay Sharma, Maybank, Singapore. So I’m just verbatim reading the thing. How do you see the entry of Grasim impacting your decorative paints and coating business? I understand that you answered it a bit but still what is the gross margin and EBITDA margin and revenue breakup of Deco and coatings range?

Unidentified Speaker —

So actaully on the last part, I think, I’ve said it always, our contribution varies between 63% to 65%, in an odd quarter it could even be 60, 40, so that’s the broad sort of where it doesn’t change much right of decorative being the larger one.

The second is Grasim, I think I’ve answered. Look, it is a formidable player, we are mindful of it, right. We are mindful, but we are very clear. We are here to make sure that we navigate the course and come out as a stronger player. So that’s what we are currently focused on as a team. Yeah, we are going to work on different facets Manoj. It will be very difficult for me to really articulate. I think through what I’ve said and the slide that I’ve shown, I’ve given you what the areas of work we’re doing specifically to Grasim, it’s a pretty — as I said, it’s a pretty close door sort of actions. We are putting some actions. And once we are successful, I think then only I should talk about it because otherwise, it’s counting your chickens before they’re hatched.

Unidentified Speaker —

Understood. The next one is from Mr Augman Shah [Phonetic], he is asking, what is the total paints and coating capacity and what is the current capacity utilization?

Unidentified Speaker —

So good evening, Mr Shah. I think this is your favorite question, that also sometimes comes to us in the AGM, lovely to hear from you. Hope you are doing well. So look, if you look at our capacities really for the paints and coatings range between 200 to 250 million. See we are and that’s — if you look at a three shift basis, our capacity would be anywhere between around 60%, 65%, but we currently operate on two shifts.

We have used a lot of technology etc to become far more efficient. On — in terms of capacity enhancement, it’s not an issue for us. Right. Our existing plants have enough ability to be able to pull out the incremental and as we are growing, that’s one of the reasons we are sort of doing it. Only thing that we put in public domain is the fact that we’ve enhanced our powder capacity and some augmentation of paints is happening as we sort of move forward. Yeah, hopefully that answers your question. Thank you for the question. Can we get back to the voice question too please.

Operator

Certainly. We have a question from the line of Avi Mehta from Macquarie. Please go-ahead.

Avi Mehta — Macquarie — Analyst

Hi, sir, am I audible?

Unidentified Speaker —

Yes, yes sir.

Avi Mehta — Macquarie — Analyst

Yeah, hi sir. Sir, you did allude to upcoming disruption in the market and no you did — your response was very clear about if it being a brand war, it will be interesting and if it is a price war, everyone would match. We are — to be frank with you, you are a participant in the market, you obviously have a much better understanding of the industry. So would love to hear your thoughts on, do you see the profitability metrics kind of deteriorating even if it is not a price war, given the need for brand? Any sense if you could give on how you see from a industry like.

I can — I hear your strategy, but would love to hear your thoughts from an industry structure, do you see any impact kind of panning out, which helps us parse it, better understand what we could kind of play out?

Unidentified Speaker —

I get the question, Avi. You want to say something Krishna or it’s okay, let me take it then.

So just a quick one, Avi. Look, chances are that it will be disruptive initially, there will be a pricing in my assessment. It’s pretty high. There could be a couple of two-three quarters of turbulence. Right. When I said, will it be a brand war? Will it be a price war? History has shown that players in any industry, which comes and only attacks on price unless you build a niche around price is not able to succeed. Okay. So there are industries where price has played. But look at it, let’s look at now the industry, okay.

The industry market-leader has a 55% market-share, as an EBIT margin used to have an EBIT margin of 20%, 21% has already done very smart move of keeping it closer to 15%, 16%, so the other players really find it tough to go, the other existing players, right. Now, hypothetically, okay assume that the new player comes in with 10%, 15%, that’s normally the price in most industries where people sort of come in at lower prices, right. The market leader will have a thresholder of market-share to lose and similarly the one, two, three, four players, right. After a point in time, it’s existential because there is a cost of making the paint and there is a profit per liter of paint you make, right. So we’ll have to do the maths, once you do it, it’s natural that if you take, for example, and against because somebody mentioned about telecom, you launched a per — second sort of a tariff for two years, the organization did well and the moment the lead players did it, the brand disappeared, right, so.

To my mind is pricing alone going to be the driver? My years of experience says that look, it’s going to be very tough. I’ve been in those battles myself. And hence to have a thought leadership and thinking and something which is little more strategically disruptive will take time, but will be the real acid test. Right. And that’s where all the players will be also focusing — all the good players will be focusing in trying to sort of do it. You will see, I’m certain in the times to come in this industry, since you asked the industry question. I genuinely think that look, this will not just be driven by capacity, but be also driven because that’s a very cement way of working. That’s a very cement — telecom you can — you can put it and do catchment areas, etc. It will be in a branded business where consumers have already made a choice of which brand to use 50%, 60% and then you got the influencer right and different players have got different relationships with the influencer, so it’s going to be quite a lot across different chains. Having said that, let’s understand, we are talking about a competitor, which is very, what do I call, one of the giants in the industry across different sectors, yeah.

So we’ll have to wait-and-watch. I have to give — I with all humility, I have to wait-and-watch. Having seen the organization in a very different sector that I worked in, right. Yeah. Let’s — I can only say, I — I’m going to keep my fingers crossed, and I’m ready for the battle here. I mean at the end-of-the day, we are warriors in our organization and you can rest be rest be assured that we’ve got a very clear mandate globally that we’ve got to grow profitably and that’s what we’re working on.

Avi Mehta — Macquarie — Analyst

Okay. And if I may ask, in your opinion, a normalization. I understand there would be disruptions. Would you say, a couple of quarters, would you say a year or two years? How would you see it? I mean just as I said, this is — it’s just that your guess is better than ours, so it would be ideally.

Unidentified Speaker —

No, no look, I’m sure you guys are brighter and you guys do all these modeling. We don’t have so much time because we have to run the business and meet our customers and make sure they’re happy, because that’s what gives us our bread-and-butter. But that said, look, it’s a function of the size of the pocket. It’s a function of size of the pocket. It’s also a function of what you want to do, you take telecom, you’ve got one of the players, lead players, which is a combination of an international brand with a Indian brand now having a huge challenge, where the government has had to bail out.

Now, I really don’t know this antics that will happen. It’s a function of how deep the pocket is and how deep you want to run it, right. So yeah, it’s for there. It’s also a question of the strength of the other players of how — how much they will sustain. Yeah. So those are variables which are all there, yeah. It is going to be a — at a point in time, it could get a tough battle, but yeah. I mean.

Avi Mehta — Macquarie — Analyst

Perfect sir. Perfect. And last [Speech Overlap]

Unidentified Speaker —

As I say, tough times don’t last but tough people do. So let’s see. That’s all I could give.

Avi Mehta — Macquarie — Analyst

Fair point. Sir. Fair point sir.

Unidentified Speaker —

And wish you all the good wishes.

Avi Mehta — Macquarie — Analyst

No sir.

Sir the second bit was more specific to us. I mean, we have seen this quarter and congratulations on the performance, margins have bounced back quite sharply. Would love to understand from you more on trajectory sort. See we have more or less achieved the aim that we had sort trying to reach a particular margin profile. I mean, on that but I’m not saying we have reached there but you are probably there on an ROS basis, but yes, as you rightly said, there is a need to be nimble, so how — would love to know, how do you kind of balance these conflicting requirements, if I may put it? And is it that you have a chest that you would love to kind of build-in on and then kind of use them when the time comes in.

I mean, whatever is the thought would love to kind of know how you see this?. Thank you.

Unidentified Speaker —

Yeah. I was looking when you said chest and Krishna, I quickly said, take it on. So you saw the chest and all the money, I don’t even know what’s inside it. But yeah, look, I think in any good company would do all this. I mean, let’s be honest, what this is like. And I was just thinking, when you said, this is like asking a pilot if you — when you travel between Delhi and Mumbai, that how is the weather going to be. I mean, the pilot can’t tell you whether you’re going to have bumps on the road right or air pockets on the way, right. It’s difficult for him to predict. You’ll see up some stormy weather, but very difficult because all of us go through it right, so it’s like that. Yeah, so for me to be able to give you a clear revenue projections on a quarterly basis, sometimes also let’s be honest, when I see the results and start seeing some of the favorable comments that all of you and many of the investors have sort of texted, thank you to everyone.

I get a little worried because your success then becomes your biggest challenge moving forward, so I just want with all humility, say that look, we are focused on what we are doing — there’s a journey, a quarter result is like a railway station on that journey. And to me, sometimes the railway station may be large. It may be fantastic maybe air-conditioned and the next railway station may not be the representative of the same, right. So, because the train is going from your home to some fantastic holiday destination or whatever. So to me, you will have different moments. I think, it’s about navigating those moments and making sure that your path is focused, you clear of all your objectives. Our objective is very clear.

Our objective obviously is to become a meaningful player in this industry, I keep getting asked, why don’t you give a number, because there are lot of variables before I throw a number. I’m focused on basically four things right now. And this is really coming out of our global CEOs ask from all of us, first is what’s called disciplined execution led by margin management. Okay. So retain as much of prices.

Secondly is cost-control, we are still living in a tight world yes, India is doing well. We guys — you have our back. We want to invest more in you, but guys, remember that India is also a part of the globe, one small whiff, because we don’t know what those balloons could have done in United States or something can start all over again, you don’t want to be at a point in time stuck where you’re then having to take some of the actions that you’re seeing many companies do. For me, my people are like my family. So the — one of the things that it’s easier rather than to go and recruit 2,000 more people to manage with what you have and make sure that that’s being driven very effectively and efficiently. Right. The third is look, you are living in a volatile world. Okay. Paints industry operates with typically two to three months of stock between various points between raw material to where it’s consumed, yeah.

Now what’s happening is we were going through an upsurge, we all predicted that suddenly by this month, everything will come down. Slight improvements have happened. Granted. But it’s very volatile outside. Every morning, I look at what is the crude, what is the dollar and I say, shucks, God forbid, one variable by April or May or June goes phat, all the financial modelings and all the stuff that we do because we do scenario all the financial modelings and all the stuff that we do because we do scenario planning like any good company, right? We’ll all go into a different model. So the idea is how do you manage that?

And most importantly, look we are in this business because of our customers. I think our challenge has been reached supply availability, and that’s where the market leader, etc. The success story of the market leader which is played on many channels etc. has been. So how do we really focus and drive that? This is a four articulation that the global CEO is given as a challenge to each of us and that’s what we’re really assiduously working on, and I will keep you updated on the progress as we move forward.

Unidentified Participant — — Analyst

Okay, fair enough, sir. Thanks a lot for taking my questions. Thank you.

Unidentified Speaker —

Thank you, all.

Operator

Thank you, Mr. Mehta. Ladies and gentlemen, to ask an interactive question, you may click on the Q&A tab on the left-hand side of the panel and click raise hand.

Unidentified Participant — — Analyst

So let’s take another question from the text stamp. So, Mr. Ramakrishnan, [Indecipherable]01:01:07 of Zen Wealth. Can you please share some more clarity on what do you mean by product differentiation apart from brand strength, quality and product extension launches? Most of the incumbents have been working on huge capacity additions as well. Can you please update on Akzo’s capacity addition plans? I think this one aspect on the product differentiation, and brand strength and quality aspects and secondary sanction of the —

Unidentified Speaker —

So, look, I’ll talk first about the capacity addition. Look, I think in Gwalior, the Gwalior factory was commissioned for 100 million liters. We had commissioned 50 million with improvement in technology, the way we work, etc. It’s already we can do 70 billion liters in that factories. So, 100 can even sort of go much more and we are now doing powder, we’re able to augment paying. All our factories as I said, we are now only running two shifts, three shifts is not a problem.

So for us, you know, at least, even if we were to group strong double-digits, I don’t see any major need for us to. We can still be a little conservative in terms of the way we sort of manage it. Because you know I as an individual focused on a metric called redundant assets, it’s not my metric that I’m sort of validated either globally or locally, but I love to watch on return on capital employed because I strongly believe, I like to operate. I look at this business as my personal business.

So just for those of you on the call and I look at saying that if I put INR1 and what is coming out of it, that’s unfortunately the training of how do we use, right?So for me, return on capital employed is important. And hence, blindly putting capacity additions without pure understanding of — what is going to entail is that.

Manoj, could you just repeat the first part? You said that —

Unidentified Participant — — Analyst

Yeah. So, first question is, can you please share some clarity on what do you mean by…

Unidentified Speaker —

Differentiated. So look, differentiated products is the ability to be able to offer propositions where you can charge it. Very simple in my language, or be able to offer it at a cost advantage, so that you’re able to gain market share, simple. So either you have product differentiation, where you’re giving a value prop tested with consumers, whether consumers willing to give you a premium or you’re driving something which has cost benefit where you takeout some costs, etc., but it’s going to be a volume driver, example.

So if you look at — when I talked of Promise SmartChoice, yeah. We are obviously a huge part of our growth, that we launched post-COVID in 2021 has come through Promise SmartChoice because we never had a play in the economy segment, and we are doing it very profitably now. So that’s the second part.

On the first part, if you look at some of our work that we’ve done when our exterior brands using some of the PU and also technologies that we use in coatings that we are going to bring in [Indecipherable]01:03:55, you will see that these are going to be a little forward-looking. Can’t share more, but as and when we launch the product — products between now and Diwali this year, you will get to see it done obviously at some point of time in the quarterly call. We will keep you know, a best of it. Thank you for the question.

Unidentified Speaker —

Yeah. Can we take — I find Sanjay again back in the queue. Can we take that question, please?

Operator

Sure. We have a question from Mr. Sanjay Kumar from ithought PMS. Please go ahead.

Sanjay Kumar — ithought PMS — Analyst

Sir, just two more questions. So our gross margins have been pretty stable in the last few quarters. So, can you talk us through about our raw material situation, do we import all of the VAE, VAM from the parent? I think we important our titanium dioxide. So what is the scenario given the supplier base is fairly concentrated amongst three, four players in VAM, this capacity being added.

My perspective, I’m asking, if I missed. Can any surprise — negative surprise specifically come from raw materials side? Because even the leader is backward integrating or do we have any such plans?

Unidentified Speaker —

Yeah, sir let me come to the core of what you asked, which is the last part, which is, are you going to do, look at backward integration. Look, globally we’ve done something on reasons, but not more than that. We are a very large player, right? And we will leverage our global skill, okay. We are pretty big — We had $10 billion sort of a company, 9.5 — 45% is paid, so you can calculate, right. We don’t see too much of supply issues.

We believe that you know, given our scale, given what it has to offer and the fact that many of these players have been customers for a long-time, we don’t see an issue there, Sanjay, to really be very focused on to what you asked.

Sanjay Kumar — ithought PMS — Analyst

Okay, so no capital allocation towards raw materials side going-forward?

Unidentified Speaker —

So, capital allocation for backward integration, no. There are some smart things we will do. But again, as I said, that’s I don’t think I’m preview to sahre that. We are kind to work things smartly at a global level. So we’ve got a bunch of very, very bright people on a global scale. That’s why the handle was — Obviously, we work very closely with them and obviously that’s something that we will do, but we are not looking at backward integration for sure.

Sanjay Kumar — ithought PMS — Analyst

Okay, a final question from my side. So will you be reactive or prior [Technical Issues] to the turbulence that’s expected?

Unidentified Speaker —

Sorry, will be reactive or proactive to?

Sanjay Kumar — ithought PMS — Analyst

The turbulence that’s expected.

Unidentified Speaker —

See, look. Again, let me answer it in the way I did earlier. If it’s going to be brand-led, we’ll be proactive. If it’s going to be price-led, I would rather wait and watch, right. History has taught me that without using your intelligence or at least hopefully some intelligence. Yeah, just sort of getting into a price was not helped anyone.

So whatever you do you have to think through what you want to. We are creating scenarios. But you know, I’m not sort of those trigger-happy if you understood what I’m trying to see.

Sanjay Kumar — ithought PMS — Analyst

Yeah. perfect, sir. Thank you.

Unidentified Speaker —

Thank you, Sanjay. I think we got one more question.

Operator

Thank you. We have our next question from Mr. Ajay Sharma from Maybank[Phonetic]01:07:27. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi. Can you hear me?

Unidentified Speaker —

Yes, Ajay. Good evening.

Unidentified Participant — — Analyst

Good evening. So my question was on the earlier question I asked actually in terms of coating and decorative paints split, right. So, I was just wondering in terms of the gross margin and also in terms of the bottom line basically. Is the mix similar or is the deco more profitable basically?

Unidentified Speaker —

Look, the coatings business have a wide range of margin on an absolute, the deco obviously is more profitable, but coatings has started getting profitable over the last year — two years. Some of our coating businesses are extremely profitable. Yeah, but right now at an aggregate it has been, which is more profitable than coatings.

Unidentified Participant — — Analyst

Okay and then for the raw-material side, do you see how is the raw-material basket trending basically? Do you see more benefit coming from that going forward or is kind of already reflected in the last quarter, this quarter numbers?

Unidentified Speaker —

Sanjay, look, obviously, the benefit is yet to come. I mean, look, we still we’re carrying a lot of inventory of the previous months. And as you know, as you’ve seen in the industry, the industry has not reported great groups, right on the pin side of the business. So as a result, my belief is, look, it will take a little longer time to get depleted. It will take a quarter or two to sort of get completely depleted.

That said, you know, Sanjay, the — Ajay the challenge I face is, is very difficult to predict because you know I started the prediction in week, right at the beginning of this week. By next week, the variables have completely changed, which are outside my control. And hence for me, I think what we are doing is we’re not working with ranges rather than any absolute numbers etc., percentage numbers.

To just broadly say, if you for example, if you — crude goes ballistic suddenly, what was sort of reasons, right? Touches 100, what is the planning there, because you’ve got to have a Plan B. So that’s the way we work, Ajay. Otherwise, to be honest, very difficult to answer that question.

Unidentified Participant — — Analyst

And for the coating side, do you have to pass-on the benefit or can you retain that benefit of the lower raw-material prices basically?

Unidentified Speaker —

See, look, we have continued to take price increases in our coatings business and in the last quarter. And that being said, we didn’t. Coatings we took because coatings, you remember the price increase takes a lot of time. There is a lot of discussion with customers. There is a lag in the price increase that comes in coatings.

Yeah, so, our endeavor will be to retain as much as possible because we don’t know times ahead and be rather than having to drop-off correct, and then again take it up. I think since remains at till it reach steady state. You should hold.

Unidentified Participant — — Analyst

Okay, just the last question. So is it fair to say that progressing there will be attacking mostly the decorative side and not so much for you on the coating side?

Unidentified Speaker —

I have no idea. To be honest, we will have to be ready on any front. [Speech Overlap] ask you Ajay, what are your thoughts are? But since you asked me, I will spare you of that, right? Maybe Manoj or someone will have better insights, right. We’re going to be ready…

Unidentified Participant — — Analyst

Our entry barrier for the coating business, because it’s kind of B2B, kind of thing?

Unidentified Speaker —

No, not all, right. Not all coating business. I mean, one of our largest customers ended-up becoming a competitor, right in the coil coating business. So, look, these are very difficult to sort of speculate and look at. I think, yeah, we just have to prepare and play.

Unidentified Participant — — Analyst

Okay, great. Thank you so much.

Unidentified Speaker —

Thank you.

Operator

Thank you. I would now like to hand over the call to the management for closing remarks. Over to you.

Unidentified Speaker —

Thank you. So once again thank you all for the trust and the patience and supporting us all this while. As I mentioned, we still — In my view still, well, things we do hope to see light at the end-of-the tunnel. We are seeing some signs of it, right, but you never know what the next day morning is going to be ready. So, I think for me, the key thing that I’ve learned over the years is, the ability to be a little [Indecipherable]01:11:41 to also have that ability to put alternates in-place so that we can continue the performance that we’ve done.

Thank you once again. Thank you for taking time out and joining the call. Wish all of you a great day. Bye-bye.

Operator

[Operator Closing Remarks]