Asian Paints Limited (NSE:ASIANPAINT) Q2 FY23 Earnings Concall dated Oct. 20, 2022
Corporate Participants:
Arun Nair — Manager – Corporate Communications
Amit Syngle — Managing Director and Chief Executive Officer
Analysts:
Abneesh Roy — Nuvama Wealth Finance Ltd — Analyst
Avi Mehta — Macquarie Capital Securities (India) Pvt. Ltd. — Analyst
Shirish Pardeshi — Centrum Broking Limited — Analyst
Percy Panthaki — IIFL Securities Ltd. — Analyst
Jay Doshi — Kotak Securities Ltd. — Analyst
Varun Singh — IDBI Capital Markets & Securities Ltd. — Analyst
Presentation:
Arun Nair — Manager – Corporate Communications
Good evening and a very warm welcome to one and all to the Asian Paints Investor Conference for Q2 FY 2023 Results. Today on the call we have Mr. Amit Syngle, MD and CEO; Mr. R.J. Jeyamurugan, CFO and Company Secretary; and Mr. Parag Rane, GM – Finance. I’m Arun Nair from Corporate Communications.
May I now request Mr. Amit Syngle to take you all through the presentation. Mr. Amit Syngle, over to you.
Amit Syngle — Managing Director and Chief Executive Officer
Hi, everyone. A very, very warm welcome to all of you in terms of today’s investors meet, and I’m sure we have an interesting conversation ahead. When we look at overall Asian Paints, this is something which all of you are familiar with almost now 80 years of existence in terms of looking at beautifying, preserving, transforming all spaces and objects and bringing happiness and joy to the world. That’s something which is the core value in terms of what we really stand for.
Overall, when we look at the business in quarter two, I think the overall business has been very, very strong from the point of view of the environment in terms of what was there for the whole quarter. We had an extended monsoon, as you are all aware, and rains have gone into October across the country in terms of what we are seeing and which has really taken some bit of toll with respect to the exteriors painting market and in terms of the overall projects and construction business which is going on around the country. But overall, despite that we logged in a strong 10% double-digit volume growth which has come in, in this quarter, which translates to almost a value growth of about 20%, which has come in here.
If you look at the three-year CAGRs here, and why three years, because we have seen that ’19-’20 was the normal year in terms of — from a pre-COVID point of view. So today we had a normal Q2 in ’19-’20 and that is why the comparison. In the entire presentation, we have taken a three-year CAGR kind of a reference. So the volumes are very healthy at about 18% in terms of the CAGR, and the value is clearly about 20%. This shows the fact that the top line focus has been ensured in terms of the organization over a set of quarters, as you have really heard from us.
At the H1 level also if you see, the growths are pretty satisfying in terms of the overall volume at being 22% in terms of what we have been able to achieve overall. And if we look at the fact that the three-year CAGR here is close to 19% and comparable to the last year where the growths were also pretty high in terms of what we have kind of achieved. So the basis are relatively much, much higher as compared to the last year Q2 in terms of what you see over the last year, H1 which you kind of see overall.
In terms of value, again, it’s a 20.1% CAGR and almost a 37% value growth. So I think the H1 trends are pretty staggering in terms of what we have been able to achieve overall. And I must remind you that overall, if you see each quarter is different in terms of the overall contributions in the entire year as well as from the point of view of how the product mix matters from quarter to quarter as we go ahead in the year. When we look at the overall trend of the top line, it is very clear that the volume index what is visible right to you on the screen is a very strong double-digit number in terms of what you are seeing overall to that extent and therefore this is representative of the three-year CAGR numbers and quarter-on-quarter you can see that the overall CAGRs in terms of the double-digit growths have been very, very strong in terms of what we have seen over a period of time, and that is something which is very clearly the overall organization we are committed that we are able to grow at this kind of volumes quarter on quarter.
Just a brief description as to what really happened. Overall as I said that there was an extended monsoon. And especially what we saw was a larger impact in terms of the western, southern geographies in terms of what we witnessed. But unlike possibly what the commentary we have been hearing in the market, we have grown much better in the T3, T4 centers, which means the rural demand for us has been much better in terms of what we are seeing as compared to possibly the growths which we are seeing in the metros, T1, T2 centers.
Now this also really impacts the overall a product mix in terms of what we are selling overall in this quarter. But I think the fact that T3, T4 centers have grown well is kind of auguring well in terms of even future that today I think the rural demand is not really died out, but it is still very live and very good in terms of what we see as we go forward.
Overall, the products in — product mix in Q2, as I said that the product mix varies from quarter to quarter. In Q2, it was dominated more by the economics emulsions, the undercoats to some extent. However, the premium and luxury ranges when we look at wood finishes, waterproofing, and select emulsions did well. We saw some downtrading in terms of the luxury and the premium and some of the economy products due to the steep prices undertaken in the last about six months on these products to that extent. So there is definitely a trend of downtrading in terms of what is relevant. But overall, what we see that the mix was a little bit affected, but at the same time it was also having some set of premium and luxury products which were growing for us at a good pace overall.
Today, from the point of view of the painting service, we have the biggest painting service today in the world, with the presence in more than 628 towns in India, and I think this is something which is clearly a strong advantage the brand has in terms of how we see overall the trend in terms of the consumption which really happens because you are literally going into so many houses across so many towns to that extent. And this service has grown almost at a rate of about 100%. So I think it’s been a strong performance which has come in here.
When we look at the projects business, the projects business obviously has been growing much faster than the retail business in terms of what we have been saying. And despite the fact that, yes, we had monsoons, we got some exterior painting and some of the construction work came to a standstill, but we had very good sales realizations coming from the government in the factory segment. And also, we did quite well in the flooring segment, which is a new emerging segment for us where we have launched a slew of products on the epoxy and polyurethane platforms to that extent.
As we see, one of the key strategies that Asian Paints has been in terms of looking at expanding our footprint with respect to distribution so that customers all across the country have easy access to Asian Paints products, and this is something we have been pursuing very strongly, and we have already added about 8,000 new retailing points this year when we look at the half year which has happened this year. So I think it’s again something which has been going on a very strong path, and we believe that this is one of the areas which is also giving us very good growths as far as the rural towns are concerned, and that is principally one of the reasons how the rural demand is getting ignited.
Going ahead, I think the new products, the innovation that technology has always been the torch bearer at Asian Paints and this is something which we have looked very, very strongly. And each product comes with possibly a certain attribute which is unmatched by competition to that extent. We spoke about something like about 40 products in the previous quarter in terms of what we are having which we have a clear advantage in terms of proposition. We launched for more very clear things, and these are not all the introductions. These are some of the key introductions which we see. Glitz Ultra Matt which comes with a technology where basically it’s a unique self-healing kind of a product which is there, a tile coat which opens the whole area of waterproofing for tiles in a very big manner. Ace Power Plus which is basically looking at elevating the customers from economy to a premium kind of a category in a strong manner. And finally and enamel which is really differentiated in terms of technology, but a strong source of upgradation from people to come to from an unorganized brand to unorganized brand to that extent. So clear innovations with technology as the backdrop and very, very strong innovation from the point-of-view of the product quality in terms of how it syncs with the consumer. So that’s about the new introductions in terms of what we do.
Coming quickly on to our home decor foray. All of you are aware, we have been speaking about this for sometime now. We are transitioning from really the share of surface to the share of space within the homes in a very, very strong way. And there are certain clear things in terms of what we have taken today. So all categories is something Asian Paints is now present. And as I said earlier, we now have basically a very strong model where we are literally into the manufacturing of lots of categories within the home decor space, which comes in — which possibly augurs very well from the point of view of our control over design and in terms of what we need to give the consumers as far as the overall costs are concerned.
The engine here is what we call as BeautifulHomes.com, which basically is the inspiration to people to come in, and we have more than about 60 lakh to 80 lakh people who keep on coming onto this platform in terms of really seeing how people are getting inspired to do up their homes. We have an execution mechanism in terms of the Beautiful Home Stores. Last year we had about 29 stores. We have added about seven more stores this year, and we have now 30 stores which are functional across the country. And this is a one-stop-decor shop which is there to that extent where the customer is going through almost a phygital journey, which is physical plus a digital journey in terms of what we offer. And coupled with this is we have a Beautiful Home Service, which is a personalized interior design to an execution kind of a service which we now offer in 11 cities. So I think the whole foray is very clear, right from inspiration to execution to really turnkey arrangement in terms of making the Beautiful Home come alive at your home is something which is what we look at.
So as I said today the Beautiful Homes house all the categories, whether it is lighting, whether it is furniture, whether it is rugs, whether it is from the point of view of furnishing, so all categories, flooring, everything really comes in this category in terms of what we offer very strongly. And this is the whole the engine which runs the Beautiful Homes overall as inspiration for people to come in and get inspired in terms of what they want to do with their homes overall. And the Beautiful Home Service, which basically helps people to really convert what they’re thinking, what their choices are into the actual home, what they want to that extent. So I think this is something which then augurs very well from a point of completing the loop completely.
In this you are aware that we had announced we had taken — acquired two companies, one was White Teak and the other one was Weatherseal. White Teak was a complete lighting solution which is there to that extent in terms of the decorative lighting which goes in terms of chandeliers, pendants, and other lights which come. We have introduced some functional lights as well in terms of this thing. And the Weatherseal was all about the uPVC doors and windows which were there. We have now looked at strong synergies in our Beautiful Home Stores and Beautiful Home Service with this and both the businesses, I’m pleased to report, have done extremely well when we look at from the point of view what they had achieved in the full year last year and what they have achieved today overall when we see from the H1 perspective or even from the Q2 perspective. So I think both businesses doing very well, both from the point of view of top line as well as bottom line as we look at in terms of going forward.
When we look at the two businesses which have been there for us for some time, the kitchen business and the bath business here. Both the businesses overall from a top line perspective grew well. Today when we see the Q2 in kitchens, we grow at about 14%, and in bath we grew by 11%. At a half yearly level we grow at about 35% and 51%, which is a strong growth at half yearly level in terms of what we see overall.
In terms of the bottom line, as we see kitchen business was a slight thing affected because the components business, which is a substantial part of the overall business of kitchen I think did not do too well to that extent, but the kitchen business is something which is doing — the full kitchen business is doing extremely well, and there is a little bit of a loss which is showing with respect to the bottom line in terms of the kitchen business overall. But I think we are confident that this is something which we should be able to take on when we look at Q3 and Q4 going forward. Then we have overall the bath business. The bath business overall in Q2 had a breakeven kind of a overall delivery but at a half yearly level there is a gain — a profit of about INR5 crores which is coming overall. So I think relatively if you see from the top line perspective, the businesses have done fairly well overall in terms of how we look at.
Coming on to the whole international business. This is just showing you the countries where we are represented across the globe to that extent which is there along with the various brands which we have across these geographies when you look at it. When we look at the performance, the performance has been very, very strong as we see it overall to that extent. If you see the performance coming overall, when you see the Q2 levels, we have grown by almost about 15.5%, which is there, and so as well as at the H1 level. So the businesses have been strong as we look at from the overall perspective of overall growth which has come in.
From the geographical point of view, I think all the geographies have done quite well. When we look at obviously the geographies, Africa stand out to that extent. But overall even Middle East has done quite well and Asia has done well despite the fact that some growths have been pulled off by the Lanka condition, which is there as you all are aware. But overall, the geographies have done well. Even from a point of view of overall profitability, it’s been a very strong performance where the PBT growths have been strong. We have got about INR43.5 crores against INR16.7 crores last year to that extent. And even at the H1 level, the numbers are very, very strong in terms of a PPT of about INR81.4 crores against a loss of INR28 crores last year. So I think the international business has done very well. And some of the areas like even Indonesia and all has performed fairly well in terms of both volume and value growth in quarter two in terms of what has come about.
Going forward, when we look at our industrial business, it is divided into 2 JVs, which is there, and what you see is the range of work which we do for any object or any auto or any surface to that extent in terms of the range which we have. This is divided into two JVs, which we have, the PPG-AP and the AP-PPG, which are the two JVs with PPG of U.S. And in both the JVs, I think there has been a spectacular performance in the quarter in terms of what we see. As you’re able to kind of see that PPG-AP, if from a quarter perspective, when we see, they have grown at about 25%, at a half yearly level at about 40%. So I think strong revenues coming in there. And similarly, if you look at AP-PPG, the growths there also have been fairly substantial with — overall, when we look at from the point of view of quarter two, we are growing at about 25%. And from an H1 perspective, we have grown at about 39%. So if you look at both businesses, comparatively doing fairly well in terms of this thing. And I must say that the AP-PPG business has been doing this kind of a performance consistently for the last about eight quarters now to that extent.
Even from the point of view of today, when we look at the PBTs overall, I think the growths are very good in terms of what we are looking at and substantial increase in terms of gross margins and overall profitability, which is coming in the two businesses, which you can see from the graphs which is in front of you. So, I think in all, again, a strong performance coming from the industrial business overall in terms of what we see.
So, I think just to explain, and I’m sure there are going to be a lot of questions with respect to margins and what’s really happening there to that extent, when you look at the trajectory, obviously, I think the margins have been doing a little bit of a sinusoidal kind of a thing dependent on in terms of how we are seeing the inflations going in the market. I must point out saying that necessarily the price increases have not kept in pace with all the inflations which have been happening on quarter-to-quarter. Even, I think if you go back and look at the quarter three financial year ’21, 45% margin is a little bit of an over-delivery which is there. Normally, I think the range which we have seen is about 40% in terms of the overall margins at an average level to that extent. And if you see, we are at about 35.6% in quarter two. And please remember, there was inflation of about 6% in quarter one, and the larger effects of that have been seen in quarter two because of the fact that we already carry a certain amount of inventory, which is there, and the actual effect of any of these inflations actually come in the subsequent quarter to some extent, which is there. And in addition, we had a material inflation of about another 2%, which happened.
So quarter one plus quarter two, put together, there’s almost like about 8% inflation, which is there against which we have taken an increase of relatively about 3%. So there is clearly a 5% deficit, which is coming in to some extent here. And even if previously you were to calculate from the overall inflation, which has happened, there we have not really taken all the price increases really matching the inflation, and there has been a gap of about 3% to 4% there as well from the last year inflation numbers which is there.
So I think what we are trying to say is that, today, what we feel is that as a leader in the market, we don’t feel justified that we should pass on all the sinusoidal trends of the inflation immediately to the customer. We need to have a considered view. And therefore, I think the market also has seen it with a certain level of maturity in terms of how the margins are behaving, because today, traditionally, quarter two has been a quarter where basically you have seen a relatively inferior product mix as compared to the other quarters, as I said. And it all depends in terms of how the Diwali dates are. And some of the sales kind of augur according to that, and therefore, the quarter-to-quarter sequentially is not really comparable to that extent. And I’m talking of normal quarters as the basis here to that extent and not the COVID basis here to that extent.
So in effect, what you see is that from the quarter two of last year to now, actually, there is a 0.6% margin improvement which is there, although sequentially from 37.9%, it has come down to about 35.6%. But I think going forward, what we are very clear is that we are already seeing a trend of a deflation happening, and we definitely see that, going forward, a 3% to 4% margin correction would happen by virtue of the fact that there is a deflation which is coming and the fact that the inflation was not so very high in terms of the second quarter. But obviously, as we see, I think the best effect of this will come in quarter four going forward to that extent as we look at it. So, I think, for us, as we see, I think the gross margin story is not a worry. We think this is a phenomenon in a time which is happening to that extent. And as we go forward, possibly this is going to improve very strongly. And the business is fairly steady and very clear in terms of what the premiums we are enjoying in the market. And this is something which we very clearly feel has no impact in terms of going forward.
When we look at the overall standalone financials, I think the story is very strong. If you look at the net sales going up by 20%, the gross margins going up by about 22%, the PBDIT has gone about by 28%. And therefore, the similar story on PBT and PAT in terms of the overall growths, which we are seeing to that extent. And over and above, as I said, a double-digit volume growth, which has come in which is definitely encouraging from point of view as we see the industry trends overall to that extent.
When you look at H1, obviously, the numbers are even far higher in terms of what you see as the overall delivery, which augurs for us very well, especially when you see the PAT numbers at almost about 47% increase overall to that extent. From a point of view of PBDIT margins, what we see — comparable possibly in terms of when we look at to last year quarter. So it has really improved from 14.4% to about 15.2%. And similarly, at the H1 level, there is an improvement. Similarly, when you look at PBT, okay, overall, basically, the growths are pretty strong in terms of what we are seeing. But obviously, there is a one-off of other income, which comes into that calculation. But as a standalone, the 23% growth is pretty good in terms of what we are seeing.
When we come to consolidated, again, the story is very strong. In fact, the story from a bottom-line perspective is even stronger because of a very strong performance on the bottom line from the international business, which has come in. And if you see the top line is 20% here and PAT is at about 33% growth at the quarter level, and at the half yearly level, obviously, the numbers are very, very strong with PAT growing at almost about 56%, which is really — definitely one of the highest numbers in terms of the PAT growth, which we are seeing here to that extent.
So, as I see it, I think the overall sales has been pretty robust to that extent. And I think, had the rains possibly stopped in September, it would have been definitely much, much higher to that extent. But I think overall, still delivering, our volume growth has been strong. What we are seeing is, even in consol, the overall gross margins have really improved over the last year by about 1.3%, and that has led to a higher PBDIT margins as well to about 1.7%. So I think that’s how the overall business is, and we are pretty happy about the fact that it is still a very strong performance in terms of the way it has come about.
When we look at the dividend, we have declared a dividend of about INR4.40 per share. And just to remind you, last year, the payout ratio was about 58.6%. And the dividend payout last year as an interim dividend was INR3.65. So I think the overall interim dividend also is going up to a good thing, which is a good signal to the shareholders.
When we look at the immediate outlook, we think that today, while I think it’s been raining in October as well, but I think there is — we are seeing some good demand, which is coming, which is the festival demand. But actually, what we do is that we don’t rely too much in terms of just this demand because the actual season ticks in after that to that extent. There is a strong wedding season which is on the — which is coming in. The project business looks very good because a lot of construction is picking up. The real estate is really picking up overall to that extent, despite the fact that the interest rates have gone up to that extent. Good monsoons, by and large, some deficits in some states overall, but I think — which augurs very well for the rural demand, which is already good for us, and we think that is something which will pick up.
Obviously, I think the party spoiler here could be the geopolitical situation in terms of it taking a very different turn to that extent. And the other area is that, obviously, I think the rupee depreciation and the dollar strengthening is really impacting some of the areas to that extent, and we hope that, that is something which should not be a party spoiler as we go ahead. But nonetheless, we think that overall from a demand point of view, I think it should be a good quarter ahead.
So this was the business point. And now I wanted to just share some other things which we are very, very strong and very happy about. First of all, for the core business, now we are really strengthening the core business in a very strong manner. We are now looking at acquiring a nanotechnology player, basically Harind, which is a specialty chemicals company, and it has the next-gen nanotechnology at its core. This is a technology which is something which is really growing overall across the world. It has been there for some time, but the innovations are now happening from a next-gen level in terms of the properties which you are able to bring in to that extent. And therefore, for us, I think it becomes a very, very strong opportunity that with this acquisition, our R&D will really spiral up in terms of able to offer some next-gen products which can come in the market, which can be very, very helpful for the consumers and some real new innovation can come in. We are, at the moment, taking about a 51% stake in Harind at about INR12.75 crores, and additional stake of 39% will be acquired over the next five years. So overall, we think this is a very, very strong move from the point of view of bolstering the overall technology at Asian Paints, and this will give birth to a lot of innovation coming in emulsions, in waterproofing, and lots of other products to that extent, and this is something which we are very excited about. That’s Part one.
Let’s look at what else. We are also now looking at a very, very strong area of backward integration. Today, some of you would know that Asian Paints always has been making their own emulsions. An emulsion is a very strong binder into the overall formulation, which really holds the real formulation together in a very, very strong manner. And today, as part of an extension of that strategy, we decided to possibly really invest into a technology which is absolutely the futuristic, new-age technology of the world. This is a technology which is basically what we call as the vinyl acetate ethylene emulsion, which is there to that extent. It is an environment-friendly emulsion which is there to that extent. It has a very sweet smell. And basically, it is something which gives special properties to the paint in a very strong manner.
We are already using VAE in our products. But at the moment, we have been importing this entire thing from the world players. There are very few players in the world who have both the VAM, which is the vinyl acetate monomer, which is a raw material which goes in terms of making the vinyl acetate ethylene emulsion. So I think we are putting a combined plant which is the first. No one in India has this technology to that extent. And worldwide, there are only about three to four players who have this technology which is there. And we think that this would be really a gamechanger in the market in terms of what we look at it in terms of what we are offering here. Here the investment is substantial. We are putting almost about INR2,100 crores over the next three to four years for setting up an installed capacity of 1.5 lakh tonnes per annum for the vinyl acetate ethylene emulsion, and 1 lakh tonnes for the vinyl acetate monomer, which is the key ingredient going into the vinyl acetate emulsion to that extent.
We have done a strategic collaboration here with Kellogg Brown & Root, LLC, which is a multibillion-dollar U.S.-based firm with the right kind of technology licenses and so on and so forth which is there, which is going to help us put up this plant which is going to come up to that extent. We think this is really getting into a very big area, which can give us a sustainable competitive advantage for future. And that is something which we are investing in. And this is a technology of future, which will remain for the next 50 to 100 years as we go forward. So that’s the second area, which possibly we are announcing now.
The third area is that now we are looking at another area of backward integration where we are getting into the manufacturing of white cement. And this is a joint venture which we are doing in UAE, in Middle East, to that extent. Now white cement is a very, very key ingredient in the putty which we make. It is almost about 19% to 20% of the putty which is — where the white cement goes to that extent, and that is something — becomes a very key this thing. The putty has been overall a strong initiative at Asian Paints, and we have been growing strongly in this over the years overall. And we want to be clearly putting a lot of energy in terms of looking at getting the best product to the market and really looking at incorporating what are the properties which we can do in terms of really looking at modifying the white cement which comes in.
So what we are doing is we are putting up a JV with a 60% majority ownership by APL to put up almost about a 2.65 lakh metric ton per annum capacity of white cement and white cement clinker plant in Fujairah, in UAE, and this is something which we are doing with Riddhi Siddhi Group, which has a good access to the limestone mines and so on and so forth, which is a very key input for the white cement per se. So I think overall, this gives us a very strong advantage into a growing business, which is there to that extent. And overall, what we also see is that today the entire distribution points of paint industry, which is into hardware, building material, and so on and so forth, they are also selling white cement as a very key ingredient for repairing, tile fixing, marble repair and so on and so forth to that extent. And therefore, it gives us an opportunity to even seed white cement into our network, which is basically buying all the paints from us to that extent. And therefore, really plugs in one gap which we never had overall to that extent.
So I think this is a strong backward integration measure in terms of what we are seeing as a key ingredient which goes into a putty. And I think this will really augur very well in terms of really supporting our overall growth as we go forward. The investment here is about INR550 crores in terms of what we are doing, including some of the clinker grinding units which we will set in India very close to our putty making units overall so that we have synergy there in terms of the overall cost being minimized as we go ahead in this entire venture. So I think this is another great strategic investment in terms of what we are making, which can give us gains for years ahead as we look at it.
So I think this was the overall plan in terms of the three big businesses we are putting, and you must be wondering in terms of what are we really planning overall. So I would divide our overall investments into two parts: one is the overall expansion of the manufacturing footprint. Today, we operate at almost about 75% kind of capacity utilization overall to that extent. We are looking at increasing the entire manufacturing capacity by more than 30% to about 22.7 lakh KL per annum, which is for our own manufacturing capacity in terms of what is there other than the outside processing in terms of what we use. And this is something which possibly is in line with our overall growths in terms of what we are seeing in the coming next three, four years overall that we will require this capacity to come in overall to that extent. And basically, we also look at in terms of from the point of view of the backward integration that it will really help us.
So if you look at only the capacity enhancement part, we are looking at almost about an investment of INR3,400 crores, which possibly includes the investment of the capex in terms of this year and going forward in the next three years. The backward integration, two things which I spoke of, which is the VAM, VAE, and the white cement which is there in terms of what we have spoken is about another INR2,550 crores. And the acquisitions which we have already made earlier in terms of White Teak, Weatherseal, and now Nanova overall. This is about INR800 crores. So this is a total outlay of almost about INR6,750 crores in terms of what we are committing for the next three years, which would be a big really step in terms of Asian Paints, which is taking to really see that we are in line with our overall aggressive growth for the next three years, plus the entire thing of a sustainable cost advantage, which really comes in from the backward integration, at the same time, furthering our overall core business and home decor business with some key acquisitions, which we are taking overall to that extent. So I think that’s the overall plan, and I think we are pretty excited in terms of taking this ahead as we look at it.
Thank you so much for listening to it, and we are now open to questions.
Questions and Answers:
Operator
[Operator Instructions] Our first caller is Mr. Abneesh Roy. He has joined us through teleconferencing. Sir, you are now live and can proceed with your question.
Abneesh Roy — Nuvama Wealth Finance Ltd — Analyst
Yeah, thanks. I have two questions. This is Abneesh Roy from Nuvama. My first question is on the backward integration big projects. So first is VAE and VAM, does it also mean in adhesives you will get aggressive because you are mentioning VAM is a raw material for VAE, so wanted that clarification. And when you say emulsion of future, what is the opportunity? What exactly is the future? Is it five years, seven years, that timeframe? And similarly, on white cement, why now? Is it because a cement player is going to enter paints, and what could be the margin improvement because of the white cement capex? That’s the first question.
Amit Syngle — Managing Director and Chief Executive Officer
Okay. Great, Abneesh. Good hearing your voice here. Now I think when we are talking of the VAM, VAE technology, which is coming, yes, it would be helpful for us in the entire area of adhesives, rightly, because the VAM goes into the adhesives in a strong manner. So it will give us strong impetus in two ways: one, in terms of improving the quality of adhesives which we can give in; and second from the point of view of margins, which would come in strongly from that point of view. So I think it makes us — entire area far more competitive and you can expect some aggression there coming in from us.
The second area which you asked, yes, it is a futuristic emulsion. And this emulsion, as I see it, holds promise even for the next 40 to 50 years as we see it. It’s not a question of just a dip for the next three years or five years because this is an emulsion which possibly we will have to get into expansion after some time, for sure, to that extent, given the overall consumption it can happen and take it. What this emulsion does is that: one, it has very low VOC, which is the volatile organic compound which is there as compared to any styrene acrylic emulsion, which is there overall to that extent. So it offers a very huge leap to companies who are on the bandwagon of environment-friendly paints in a big way, which anyway, I think most of the organizations are something which are looking at in a strong manner.
The second thing it does is, it basically imparts some very good properties in the paint in terms of scrub resistance, in terms of stain resistance and also from the point of view of some other areas which coming, which enhances the overall durability of the product when we look at from the overall interior paints’ perspective point of view. So I think as a combination, it works very well. And not only this, as I said, it really offers you a strong advantage with respect to the overall margins in terms of what it will improve as we go ahead.
Second question on white cement, which you said. Now obviously, I think this white cement, we have been looking for some time in terms of investing because this is not because of any other entry which is happening into the paint market, but more from the point of view of a purist backward integration initiative where we feel that if we have to really sustain our aggression in terms of going into the undercoat space, because please remember that we are into powder products across which are not only from a putty perspective, but also in terms of textures, in terms of tile adhesives and lot many other areas where white cement becomes a key ingredient to that extent. And therefore, we have been exploring this for a point of time, and we think that this is a very good move we are making so that today it offers us a huge advantage, which comes in. And from an overall perspective, we can say that even in terms of some of our products, it can give us a boost in terms of at least about 5% to 7% gross margins overall to that extent going forward.
Abneesh Roy — Nuvama Wealth Finance Ltd — Analyst
Sir, there was one follow-up on the white cement opportunity. Could you discuss that, how big will that be? Already in putty, you’re big. But when you’re saying that you’ll target the tile — finishing tiles, joining, et cetera, also and white cement, how big is that opportunity for you?
Amit Syngle — Managing Director and Chief Executive Officer
So overall, when we look at the Indian market, that I think is about close to about 7 lakh tonnes to 8 lakh tonnes a market in India in terms of the whole repairing and other segment to that extent. And it is growing at almost about 15% to 20% overall. So I think that is also a big opportunity and 80% of that is sold by our network to that extent. So it becomes a fairly big opportunity in terms of selling in retail packs and look at possibly taking that market, especially when we are also into bath, tiles, and sanitary.
Abneesh Roy — Nuvama Wealth Finance Ltd — Analyst
Sure. My last question is on H2 growth. So three things there. In Q1, you had mentioned downtrading in economy end. In Q2, you’re mentioning in luxury also there is some level of downtrading. In H2, you had very high pricing growth starting in Q3 itself last year. And of course, this time the festive season is early [Phonetic]. If I put all these together, would you say that in H2 the pricing growth and volume growth say double digits as of now is looking very tough?
Amit Syngle — Managing Director and Chief Executive Officer
No, I don’t think so because, see, I think it’s a function, Abneesh, of how the overall product mix augurs. So to that extent, when you look at this quarter, as I said, largely, there is a little bit of an inferior product mix in terms of what we have got. As we get into Q3 and Q4, traditionally, the product mix is quite good overall in terms of what we would see. We also saw that the retail demand got affected because of the monsoons which were there and also the exterior season got affected in a very, very big way. So I don’t think so that that should be the case. We are still looking at possibly, going forward, I think the volume growth should be healthy and so would be the value growths coming in this thing, because please remember, we have also taken some price increases now which will start giving us some effect as we go ahead.
Abneesh Roy — Nuvama Wealth Finance Ltd — Analyst
Amit, just one last follow-up and I’ll end there. So last year in Q2 and this year in Q2, your margin has been a negative surprise. And you also mentioned the mix deteriorates in Q2. So is it because the exterior paints is a higher margin business because that is the only seasonality I see in terms of demand?
Amit Syngle — Managing Director and Chief Executive Officer
No. See, what happens is that largely, if you look at quarter two, September is a strong kind of this thing for all the products, whether it is wood finishes, whether it is emulsions, whether it is waterproofing products also to that extent, whereas July and August are largely stocking months, which really happened to that extent. So I think to some extent, possibly, that has a toll with respect to it. But the gross margins over the last year’s quarter have actually gone up from 35% to about 35.6% this year in quarter two.
Abneesh Roy — Nuvama Wealth Finance Ltd — Analyst
Sir, that’s all from my side. Thanks a lot.
Operator
Our next caller is Mr. Avi Mehta joining through Zoom video platform.
Avi Mehta — Macquarie Capital Securities (India) Pvt. Ltd. — Analyst
Hi, sir. Am I audible?
Amit Syngle — Managing Director and Chief Executive Officer
Yes, you are.
Avi Mehta — Macquarie Capital Securities (India) Pvt. Ltd. — Analyst
Thanks, sir, for the opportunity. First, I just wanted to understand for the integration in the backend that you’ve contemplated. Could you share what has triggered this expansion, given typically raw material availability has not been an issue, do you see — also related, does this not weigh on return profiles because typically backward integration has meant return profiles taking a hit? So would love to hear your comments on these two aspects. Thank you.
Amit Syngle — Managing Director and Chief Executive Officer
So actually, I think Asian Paints has been into a backward integration earlier as well. As you know, a lot of emulsions we are making ourselves for quite some time, whereas a lot of companies do purchase all the emulsions from outside. And to my mind, the emulsion making has given us a very big boost with respect to our overall margins and profitability to that extent. So I think, for us, the backward integration has augured quite well with respect to the overall increase in margins and overall really flexibility in terms of procurement to that extent.
The other thing which I see is that this is — these investments are fairly unique, and these are not generalistic to that extent. So the VAM, VAE is really kind of a protected technology worldwide in terms of what is there and it is the technology of future. So to that extent which we feel that this is a backward integration, which really helps us from the point of view of not only increasing our margin substantially, but also from the point of view of imparting some new customer-facing properties, which can give our products a new turn in the market from the point of view of how consumers see it and how they see the performance of the products coming in.
Similarly, the white cement one is pretty strategic because of the fact that today what we see is that if there is the raw material which is contributing to a significant contribution in the formulation, and today we have a control in that thing. We can really vary various properties at the manufacturing stage which helps us possibly giving qualities in the finished product. At the same time, I think the margin gains really change because in some of these products, these are — the powder products are fairly low-end products to that extent. And any improvement in margins can be really very benefiting for you. So I think it is fairly strategic. And we think — I think that cost and really the differentiation in the market are two very big pillars in terms of what we are riding as far as the backward integration is concerned.
Avi Mehta — Macquarie Capital Securities (India) Pvt. Ltd. — Analyst
Okay, sir. Okay. I hear you. Sir, the second bit is just a clarification. Would it be fair understanding that our margins are going to move to around 39.5%, 40.5% by fourth quarter is what you indicated. What I wanted to understand, because you highlighted downgradation in the painting demand, does that not be a risk? Do you see that as a risk, or are you fairly confident about still reaching that target in the third quarter — in the second or third quarter or fourth quarter?
Amit Syngle — Managing Director and Chief Executive Officer
No, I don’t see any risk because if you’ve seen that we were at 35% last year in quarter two, and then we came to about 39% overall as far as quarter one is concerned. So I don’t see anything. I think this is just a quarterly phenomenon which has happened more from the point of view of the inflations, which we are seeing in the market and little bit cyclical to that extent. We’re very confident in terms of looking at saying that the band possibly going forward would still remain at 39%, 40% in terms of the overall gross margins as we go ahead. So I think it is just a phenomena of the quarter in terms of what we are seeing. But going forward, I don’t see any areas this thing where possibly the margins would stay at this level.
Second, I think the downtrading and so on and so forth is possibly just incidental which happens because you must remember that today some of the price increases which we have taken have an immediate impact, but over a period of time, they normalize to that extent because this is a consumption market. And this is not a market where people have too many alternatives or they could defer their overall demand indefinitely to that extent. Even in COVID, we have seen that people, whenever normalcy has come in, they have really gone and splurged in terms of doing up their homes to that extent. So I see no reason in terms of why possibly it will not jump back.
Avi Mehta — Macquarie Capital Securities (India) Pvt. Ltd. — Analyst
Got it. sir. Thank you very much and wish you luck. Thanks a lot, sir.
Amit Syngle — Managing Director and Chief Executive Officer
Thank you.
Operator
Joining us through Zoom video platform, we request you, sir, to please mention your name and your company name and proceed with your question. Thank you.
Shirish Pardeshi — Centrum Broking Limited — Analyst
Yeah. Good evening. This is Shirish Pardeshi from Centrum. Amit, congratulations for showing that kind of aggression in the market at this time. So two things: one is that on the Riddhi Siddhi joint venture, what are the timelines? And do you think — I mean, do you mean that you will bring the limestone to India and probably towards near the port? And the related question on that, what is the reserve and what are the rights Riddhi Siddhi has for their mines?
Amit Syngle — Managing Director and Chief Executive Officer
Okay. So first of all, see the limestone reserves are in Fujairah, as I said, and Riddhi Siddhi actually has the rights for a very long time, I think, over 50 years to 100 years as we see it in terms of the overall limestone market, which is there. So I think that is not a concern. We are putting up a clinker manufacturing unit right in Fujairah. So that is something which is what we are planning. This would come up in the next about 24 months in terms of what we see in terms of this thing. We are taking an aggressive timeline in terms of putting that there. We would put some grinding units in India in terms of getting the products so that we could save with respect to overall cost, which would come in to that extent and which could align with our putty locations overall to that extent. So I think the whole area is where we are able to conserve cost the maximum, at the same time, what we are able to do with the formulations so that we get advantage in our product.
Shirish Pardeshi — Centrum Broking Limited — Analyst
Okay. That’s helpful. Second question on the capacity expansion which you have mentioned. How soon, how quickly, which are the locations you have finalized? Or if not finalized, this is primarily going to be on decorative emulsions, or the capacity expansion is going to be relative to something else also?
Amit Syngle — Managing Director and Chief Executive Officer
Yeah. So the overall capacity expansion is with respect to our decorative because that is the key category which has been growing at a very, very strong pitch, what I showed you with respect to the overall volume growths quarter-on-quarter to that extent, and largely with respect to our entire initiative on water-based products to that extent. We are looking at certain brownfield projects as well overall to that extent. So our entire Ankleshwar plant is something which we are revamping up and really doing and putting some solvent-based additional capacities which are going to come in there to that extent. And as you go ahead, we have the second phase of our certain investments coming in some of our plants going forward. So I think these are all coming from the point that we are sitting at a certain capacity utilization. And these will all come in the next, as I said, about three years in terms of what we want to put, which takes our capacity to a certain level as was pointed.
Shirish Pardeshi — Centrum Broking Limited — Analyst
My last question on the demand side. I think the raw material prices are falling down. So is that the growth which is tapered or the inventory by the trade has slowed? Obviously, the rains has little prolonged, but generally, the sense which I’m getting that even trade is also expecting a very sharp drop in the prices. Is that the fear or is that you have already implemented or communicated to the trade?
Amit Syngle — Managing Director and Chief Executive Officer
See, I am a firm believer that you can’t really play with the prices as if you are playing on a stock exchange, okay? So this is something which is really a strong imperative that, as a leader, you need to have responsibility that you can’t be erratic in your behavior in terms of just increasing and decreasing the prices at your whims and fancy in terms of the way it comes in. I think we have a larger onus towards the consumers in terms of seeing how demand augurs to that extent. I don’t think so we are getting immediately in terms of looking at any decrease in prices despite the fact that there would be a raw material decrease, which would happen. We would love to really let things stabilize over a period of time and then take a concerted call in terms of what is there because we are all in favor in terms of seeing that, to us, the consumer demand is sacrosanct and we would like to continue to really see that we are growing handsomely in the market and overall gaining share.
Shirish Pardeshi — Centrum Broking Limited — Analyst
Okay. Thank you, Amit. I could see the bandage on your hands, so please take care.
Amit Syngle — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you, sir. Our next caller is Mr. Percy joining us through Zoom Video platform. Sir, request you to unmute yourself and proceed with your question.
Percy Panthaki — IIFL Securities Ltd. — Analyst
Hi, sir. Am I audible?
Amit Syngle — Managing Director and Chief Executive Officer
Yes, you are.
Percy Panthaki — IIFL Securities Ltd. — Analyst
Two questions from me. One is what is the total price increase that has been taken between 31st March of this year versus what it is now? That is the first one. Second one is your difference between the derived pricing, that is the volume you gave versus the sales, and the announced price increases, if we add up on a YoY basis, that difference is quite high this quarter, maybe about 13, 14 percentage points. The derived is 10%, which is 20 minus 10, and the announced price increases are close to about 24%. So where do you see this stabilizing? See, we have always had some amount of difference between the derived and announced price increases. This quarter it is definitely on the higher side. But would you say that into the future, say, into FY ’24 or something, we would still have something close to a 10% difference in the derived pricing — sorry, derived versus the announced pricing? Yeah, those are my two questions.
Amit Syngle — Managing Director and Chief Executive Officer
No, I don’t think so it is that simplistic the way you are kind of putting up. But first of all, I must tell you that between 31st March and now, we have taken about approximately a 3% price hike over a total inflation of about — close to about 8% in terms of what has happened in quarter one and quarter two to that extent. So that’s in terms of the price increase numbers in terms of what you were asking.
The other is from the point of view of this derived number in terms of the volume and the derived value growth in terms of what you were speaking of. See, this is a larger function of too many factors which come into play. One is the whole area of the product mix in terms of how the product mix is auguring out and how — which products are doing, because the margins on various product categories are very, very different in terms of what it really looks at. And the price increases we have taken are also not uniform across the products. The price increases vary from product category to category. In some categories, the price increases have been far higher; in some categories, the price increases have been strategically kept low overall to that extent, so that we don’t really upset the elasticity of pricing at the consumer level to that extent.
So I think, going forward, some of this difference will continue. It is very difficult to really put a number saying, will it be stabilized at 10%? Will it stabilize at 8% or 12%? But I think some variability will look — I think it is best to really look at this thing stabilizing and seeing that in terms of where do we settle in terms of this kind of a derived growth in terms of what you’re talking of.
Percy Panthaki — IIFL Securities Ltd. — Analyst
Sir, reason I ask is, even if we assume that volume growth going into FY ’24 will remain robust, say, at around 15%, but FY ’24 we will have very little price increases, assuming that the materials stay at the current level. And then if this implied pricing differential is to the extent of 10%, then we will dip into a single-digit value growth in FY ’24. So is that calculation correct? And if not, where am I going wrong in that?
Amit Syngle — Managing Director and Chief Executive Officer
No, it’s not correct because what can happen is that when the volume growth goes up, what if I was explaining to you, if it goes on a certain category of products where the — possibly the increases which we have taken are fairly high to that extent, it would really increase the value growths to that extent in terms of overall to that extent. Now if it really doesn’t get on to those product categories and the growth is coming from some of the other growth product categories, then the differential would get maintained overall to that extent. So I would say that possibly going ahead, our aim would be that possibly the — we are able to focus on the right set of products overall, which gives that a value growth and overall gross margins and profitability to that extent.
So as I said, I think the correct way to possibly look at is that you can’t put an algorithm or a trend onto it that it will remain like this. It really would augur from the point of view of how the product mix shapes up. And second, please remember that this 3% increase in terms of what is there, which is there, which will also have some implications going forward to that extent, although nominal and not to the tune of what possibly it was last year.
Percy Panthaki — IIFL Securities Ltd. — Analyst
Right, sir. Very helpful. Thanks, and all the best.
Operator
Thank you, sir. We request everyone to kindly limit your questions to only two. Our next caller is Mr. Jay Doshi joining us via Zoom Video platform.
Jay Doshi — Kotak Securities Ltd. — Analyst
Yeah. Hi, good afternoon, and thanks for the opportunity. I want to understand this INR2,100 crores investment for backward integration of VAE a little better. If I do some ballpark math, your overall RM cost, COGS is about INR19,000 crores, INR20,000 crores. So I’m assuming your emulsion purchase will not be more than INR7,000 crores, INR8,000 crores today. Is that right understanding?
Amit Syngle — Managing Director and Chief Executive Officer
No. As I said, we don’t really purchase too much of emulsion to that extent. We are making a lot of our emulsion inside. But as I said that there is a clear pricing difference which comes in from the point of view of what we are using and what this possibility technology will offer to that extent. So currently, we might be purchasing some quantity of this emulsion from outside which we are trying to make. But overall, when it replaces the existing emulsions in terms of what we are using, it will also give us a lot of benefit.
Jay Doshi — Kotak Securities Ltd. — Analyst
You talked about 500 to 700 basis point gross margin advantage for — in putty because of this white cement backward integration. What is the magnitude of gross margin improvement that this capex can drive for your rest of the decorative paints portfolio or emulsions portfolio?
Amit Syngle — Managing Director and Chief Executive Officer
So overall, what we see is in terms of the advantages would be much higher as we look at from the point of view of the VAM, VAE coming in terms of what it really pegs us at from the point of view of overall margins. What we also have to remember is that we will also see that whether — as we use this emulsion going forward, whether we would like to absorb those margins or we would like to also pass some of them in strategic pricing overall in terms of as we go forward to that extent. But I think the margins here could be even higher.
Jay Doshi — Kotak Securities Ltd. — Analyst
Final one, how does this 1.5 lakh tonnes capacity compare versus decorative paints? So you’re targeting 22.7 lakh tonnes of decorative paints capacity. So will this be…
Amit Syngle — Managing Director and Chief Executive Officer
Sorry, we lost you in between. Will this be?
Jay Doshi — Kotak Securities Ltd. — Analyst
How does this 1.5 lakh tonnes capacity of backward integration compare versus your overall decorative paints capacity of 22.7 lakh tonnes that you’re targeting?
Amit Syngle — Managing Director and Chief Executive Officer
Okay. So I think what it does is that it bolsters our overall water-based emulsions daily capacity till about, I think, 2027 or so, to that extent. After that, we might have to go for a further expansion, given the fact that the way we are growing and projecting. So it would definitely give us an advantage till about 2027, 2028, but we will then have to get into expansion plans over this 1.5 lakh KL capacity, which we are talking of.
Jay Doshi — Kotak Securities Ltd. — Analyst
Thank you so much. That’s it from my side. Thanks a lot.
Operator
Thank you, sir. Our next caller is Mr. Varun Singh joining us through teleconferencing. Sir, I request you to please mention your name and your company name and proceed with your query. Thank you.
Varun Singh — IDBI Capital Markets & Securities Ltd. — Analyst
Yeah. Thank you very much. So my question is on the new endeavors. So in the decorative segment, sir, if you can mention some ballpark number with regards to how much margin accretive we expect these backward integration to be at overall company level, sir?
Amit Syngle — Managing Director and Chief Executive Officer
Sorry, are you saying — I couldn’t understand your question. Are you saying that because of VAM, VAE in terms of this thing because the — if you were hearing, the previous caller was asking exactly that.
Varun Singh — IDBI Capital Markets & Securities Ltd. — Analyst
Yes, sir. So, white cement, VAE, VAM, so combined both, any ballpark number that we should expect with regards to overall operating margin improvement for the company?
Amit Syngle — Managing Director and Chief Executive Officer
No, as I said that, overall, basically, I think individually, both will affect the gross margins in terms of the product categories differently. And therefore, we will have to see from the point of their overall contributions in terms of the business as we go forward, what they are doing. But overall, as I said, in both the categories, I think the gross margin improvement easily to about 4% to 5% will happen.
Varun Singh — IDBI Capital Markets & Securities Ltd. — Analyst
Okay, sir. And sir, my second question is on waterproofing business. So where do we stand as of now? If you can give some objective understanding about the overall business.
Amit Syngle — Managing Director and Chief Executive Officer
So waterproofing you’re asking?
Varun Singh — IDBI Capital Markets & Securities Ltd. — Analyst
Yeah.
Amit Syngle — Managing Director and Chief Executive Officer
Okay. So what we think, waterproofing, we have been in the business for — waterproofing for the last about eight years now. Overall, the business has been growing substantially overall and is now a significant contributor in terms of our overall business going forward. Both at retail level as well as from the point of view of projects, we have been doing extremely well. We think that as we look at from the retail market, we are easily one of the leading players in the market in terms of what we are and our brand SmartCare has done extremely well. We have a slew of really differentiated products, which we have offered in the market, which are performing very well overall in the market.
Even from a projects point of view, we have got into the whole backward integration of looking at making bituminous emulsions — bituminous membranes and HDPE membranes, which are there and specialized range with respect to the repair and construction chemicals. So today, I think our range is more than 200-odd products which we have, which come in the whole area of waterproofing. And we think that today, our positioning of being an expert solution provider is very, very strong. And this is a business we think will continue to do well for us.
Varun Singh — IDBI Capital Markets & Securities Ltd. — Analyst
Okay, sir. Thank you very much and all the best.
Operator
Thank you, sir. Thank you all for joining. I now request Mr. Amit Syngle to give the closing remarks.
Amit Syngle — Managing Director and Chief Executive Officer
Okay, I think it was extremely good in terms of taking at least some of the questions from you. And I think hopefully, we have been able to answer some of your queries which have come in to that extent. We look forward in terms of your interest with the brand going up again and again. And I can promise you that today, I think the whole area of excellence in terms of taking the brand ahead is something which we really pursue very, very strongly. Wishing you a very happy Diwali and a strong festival ahead. Thank you so much.