Berger Paints India Ltd (BERGEPAINT) Q3 FY22 Earnings Concall Transcript

Berger Paints India Ltd (NSE:BERGEPAINT) Q3 FY22 Earnings Concall dated Feb. 11, 2022

Corporate Participants:

Srijit Dasgupta — Chief Financial Officer-F&A

Sujyoti Mukherjee — Vice President, Finance & Accounts

Analysts:

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Abneesh Roy — Edelweiss Financial Services — Analyst

Avi Mehta — Macquarie Group — Analyst

Tejas Shah — Spark Capital Advisors — Analyst

Varun Singh — IDBI Capital — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Mihir Shah — Nomura Securities — Analyst

Praful Kumar — Dymon Asia — Analyst

Gaurang Kakkad — Haitong Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the Q3 FY22 results conference call of Berger Paints India Limited hosted by Emkay Global Financial Services. We have with us today Mr. Srijit Dasgupta, Director Finance and CFO and Mr. Sujyoti Mukherjee, Vice President, Finance & Accounts. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Ashit Desai from Emkay Global Financial Services. Thank you, and over to you, sir.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Yeah. Thanks Sinduja. Good evening, everyone. We’d like to welcome the management of Berger Paints and thank them for this opportunity. It’s a pleasure to host them for this Q3 earnings call.

I’ll now hand over the call to the management for their opening remarks. So over to you, Srijit.

Srijit Dasgupta — Chief Financial Officer-F&A

Thanks Ashit. Good afternoon, ladies and gentlemen, and a warm welcome to all of you to the Q3 FY22 earnings conference call for Berger Paints India Limited. As usual, comments with a few statements or remarks about the standalone and consolidated quarterly performance and then invite questions from the participants.

So, the standalone so numbers look like this. For the quarter, total income from operations grew by 21.2%; PBDIT de-grew by 9.1%; PAT de-grew by 13.1%. Some remarks on the factors which influence the performance; quarter was characterized by sustained growth in the top line for all businesses. The growth in the automotive business was a little muted compared to the other business lines, mainly because of the two-wheeler business, which you’ll see is significantly affected by a significant drop in the production numbers in the industry for the quarter.

The quarter also saw, as everyone has known by now, significant raw material price increases, which found its way into the P&L since the inventory effect of carrying lower cost raw materials and finished goods pretty much played out by the end of the last quarter, meaning Q2 of FY22. The increases were seen mainly in monomers, butyl acrylate in particular. This goes into emulsion production for water-based products and emulsions, solvents, phthalic anhydride, vegetable oils, etc.

The raw material price effect was also partially offset by finished goods price increases in the decorative, the protective coatings and powder businesses. The cumulative price increases taken till December 2021 in decorative business was approximately 24% and we’re calculating this from January of 2021; even though the bulk of the increases came only in the second half of the quarter, meaning Q3 FY22 and therefore had only a partial impact on the quarter numbers. Going forward, the full effect of the price increases should be visible both in top line and profit numbers barring any further spike in raw material prices.

The price increases in other business lines like general industrial and automotive did lag behind, however, more than in decorative and therefore more price increases will be taken in Q4 of FY22. The general industrial and automotive business literally [Phonetic] suffer the most in terms of gross margin contraction in this quarter, but should improve in terms of margins from Q4 onwards. Raw materials continue to [Indecipherable] at the end of the quarter and into January of 2022.

The company also managed to offset some impact of the raw material price increases through vendor development and reformulation activity. Some of these initiatives we had already spoken about in earlier calls, the initiatives have been taken earlier but the effects of which are now playing out. There was also some effect of a better product mix, particularly in decorative business through higher growth of better contributing products.

Newer products like the higher-end water-based primers, admixtures did very well in the quarter in terms of sales as did the construction chemical workhorses, mainly the sealing compounds and the damp proofing products. As usual, the advertised products showed significant growth, well above the business line average. In this quarter, the metros and larger towns showed a good, we think festival demand, and indicative of a strong post COVID bounce back as did the institutional project end of the decorative business. This concludes my remarks of the standalone business, I’ll now move on to the consolidated numbers.

In the quarter, the total income from operations grew by 20.4%. PBDIT de grew by minus 5.3% and PAT de-grew by minus 8%. BJN Nepal, that’s our Nepal subsidiary and STPL, [Indecipherable] and Saboo Coatings grew very strongly in the top line though STPL was impacted at the gross margin level by sharp increases in raw materials. This is essentially in general industrial type of business.

Bolix Poland STP, that’s the construction chemical subsidiary and Saboo Coating [Phonetic]; all suffered gross margin contraction on account of raw material price increases, though the effects of this was more than offset by the reduced mark to market foreign exchange fluctuation losses in BPOL Russia in this quarter compared to Q3 of FY21 meaning that there was little or no fluctuations losses in Q3 of FY22, so the comparison is more favorable when we look at the numbers versus Q3 FY21.

Price increases are begin taken for all these businesses and margins could improve going forwards. The JVs BNPAC and Berger Becker also had very strong top line growth, though both predictably suffered on account of raw material price increases. However, price increases have already been taken and more price increases are planned for Q4 and therefore margins should improve for both.

This concludes my opening remarks. I now invite questions from the participants on the results.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss Financial Services — Analyst

Yeah, thanks. My first question is on the discounting and promotions. So, in Q2 we had seen other players were very aggressive on discounting promotions. In Q3, all the paint companies took price hikes. But as the high promotions and discount reduced, the abnormality, has that gone away and when I see on a two-year basis, standalone numbers for you and the market leader, EBITDA growth is very similar on a two-year basis. But on sales growth you are lagging the market leader significantly. Would you be worried on that? I’m comparing standalone numbers here.

Srijit Dasgupta — Chief Financial Officer-F&A

Thanks Abneesh. Good question. I should clarify the position by saying that our numbers both from the volume and value perspective for the quarter are in the context of a mixed business line perspective, meaning 20% of our numbers are industrial businesses. So, on the decorative front, I think that would be a fairer comparison with the market leader and competition, we are not that far behind, that’s one.

Secondly, in Q3 of FY21, we did have a fair number of supply and apply contracts. These are like typically feast and famine type of businesses which did shore up the Q3 FY21 numbers a little bit. So, if we apply these two normalizing factors and talk only of our decorative business, we are not that far behind; perhaps a little bit, but really not that much and not a matter of concern certainly for this quarter.

Of course, going forward, we have our eyes on the cumulative numbers, the YTD numbers and we certainly don’t want to give up market share. So that’s a point that I think we should make. Whatever it takes, we will have to do. So I think that point should be made clear. But I thought I should just explain the overall growth numbers for the quarter in the context of our Industrial business and the supply apply contracts.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure, that’s useful. My question on the discounting bit. So the 18% or the 17% whatever cumulative price hike the industry has taken, is it being actually effective also or is there a fair bit of discounting on that? So, are we looking at a good mid-teens kind of a price growth effective?

Srijit Dasgupta — Chief Financial Officer-F&A

Yes, I did refer, meaning that we will do what it takes. But I think the discounting has been a little abnormal in certain product categories. I won’t go into details. And we have responded a little less actively or aggressively in those product categories. But going forward, we will do what it takes to retain market share.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure. My second and essentially last question, are there are two parts to this. You mentioned in two-wheelers, because of the significant slowdown because of the various reason you are impacted. So, how significant a player are you in two-wheeler painting? And second, you also mentioned whichever products were advertised, they did well much better than company average. So could you elaborate on that, which products which brand?

Srijit Dasgupta — Chief Financial Officer-F&A

Two-wheelers is a significant part of our auto business, the bulk of it is essentially two-wheelers. You might recall that as we gave up our three-wheeler and auto passenger car business into the JV with Nippon paints, so the standalone numbers really deal with commercial vehicles and two wheelers. So obviously we did suffer significantly.

We did grow in the automotive business in the standalone company, but not nearly as much as deco or protective coatings. So that’s a point that we probably need to explain. But going forward, this will unwind for sure. And — so this is, I thought, something that needs a little explanation.

Abneesh Roy — Edelweiss Financial Services — Analyst

And on the advertising bit, you said — products which are advertised.

Srijit Dasgupta — Chief Financial Officer-F&A

No, no. So, on the advertised products, it’s expected that these are premium products and we’ll get better growths and that’s been consistent over — it’s not something unusual or new. We’ve always outperformed the other products when it came to the advertised products.

Abneesh Roy — Edelweiss Financial Services — Analyst

Okay, got it. Okay, that’s all from my side. Thank you.

Srijit Dasgupta — Chief Financial Officer-F&A

Okay. Okay.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie Group — Analyst

Hi Srijit, hi Sujyoti. I had a few questions. First on this — essentially on the margins. So we did see price increase in November and December. With that, would it be fair to expect gross margin to normalize to that 40%-odd mark in standalone and 41%-odd mark in consol, as most of the inflation is broadly behind us, obviously, at current levels, I’m not saying what happens further you don’t really know, it’s an uncertain environment.

Srijit Dasgupta — Chief Financial Officer-F&A

Absolutely. But I think I’ll just qualify that expression with one remark that we are in the process of taking up prices in our industrial business. It’s not a whole lot of — in terms of percentage, it’s only about 19% or 20% of our total business, but the raw material price increases have actually impacted this business a little more than decorative and therefore the need to take up prices further in Q4. So if that is successfully concluded and done, we should be somewhere near the earlier year’s gross contributions.

Avi Mehta — Macquarie Group — Analyst

Okay. Okay. And the second part on that was essentially on the supply apply contracts. Now, if I remember correctly, they tend to weigh down on the gross margin — sorry, weight more on the other expenses and aid on the gross margin or was it the other way around? If you could help us understand how does it flow on the accounting?

Srijit Dasgupta — Chief Financial Officer-F&A

Sure, sure. So, typically what happens is the other expenses get inflated by the extent of the contractual labor and expense elements and the raw materials is naturally forming lower [Phonetic] of the overall contract value tends to get push down. That happens when there are significant supply apply contracts.

So you’re very right, the raw materials tend to get — as a percentage to sales, the ratio tends to get depressed or reduced and the other expenses tend to get shored up. So, if you see our numbers this quarter, one has to take that into account, meaning what looks like a significant saving in other expenses ratio to sales is not actually so.

Avi Mehta — Macquarie Group — Analyst

So, the other expenses are lower and — then what…

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah. For the Q3 FY22, yes.

Avi Mehta — Macquarie Group — Analyst

Yeah. So what is being reported is actually lower than what is actually the case because of supply apply, as a percentage of sales?

Srijit Dasgupta — Chief Financial Officer-F&A

Meaning the — it depends on advertisements, sales promotion and all the other inputs which go into the sales support expenses, those are actually increasing healthily and any cap or reduction that you might notice in terms of ratios at least, is mainly on account of the supply apply contracts.

Avi Mehta — Macquarie Group — Analyst

Perfect, perfect. And lastly, if it’s okay. I just wanted to understand the Industrial bit a little better. You did highlight some price increases required. Would you be able to quantify how much is already done, and how much is remaining, so we get a sense on what the journey we are looking for — look at?

Srijit Dasgupta — Chief Financial Officer-F&A

This is a little complicated.

Avi Mehta — Macquarie Group — Analyst

I know it’s a mix of a lot of things, but…

Srijit Dasgupta — Chief Financial Officer-F&A

You know the price increases taken in a phased manner. So price increases which we have taken in the second half of December, for example, in the industrial business would have had little or no impact on the quarter four — quarter three numbers. And there are of course some more price increases to be taken. So maybe it’s — suffices to say that there is a significant amount of price increase effect that should come in, in Q4 for the industrial business.

Avi Mehta — Macquarie Group — Analyst

Okay. I’ll come back in the queue for the other question. I have some few questions, I’ll come back. Thank you sir.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital Advisors — Analyst

Hi Srijit, hi Sujyoti. Thanks for the opportunity. Yeah. Sir, my first question pertains to demand in general. So this quarter has been slightly challenging and confusing for us analysts also, because different baskets of demand has responded differently to the quarter. So just wanted to get a sense that, as a category, if you can give some sense on rural, urban on regional read through on the demand for this quarter and also in coming quarters.

Srijit Dasgupta — Chief Financial Officer-F&A

Sure. I think I mentioned in the opening remarks that the metros did better in terms of growth rates, surely for us and for everybody else, I’m sure. So, that’s probably a sort of post COVID recovery situation before the third wave kind of kicked in, really, and — post the second wave. So there was a period of recovery, some festival demand surely.

So, I think that probably goes towards explanation of the rural and urban kind of balance, which went in favor of urban this time in this quarter. But probably also needs to be seen in the context of a two year or a three year CAGR kind of situation. And then of course there were quarters when Tier 1 really did very badly.

Tejas Shah — Spark Capital Advisors — Analyst

Okay. That’s very helpful. The second question pertains to the phenomena that we started seeing in FMCG which is D2C is now gradually picking up in paints also and not in a similar fashion, but we are hearing that many of resellers are being now bypassed as the leader is actually expanding its footprint in rural areas directly and then that’s why they are adding some unprecedented numbers of dealer in the network. So any similar expansion, aggression, BP usually have passed — in past have done 10% addition. So any aggression or change in number that we also want to do there? And then, any comment you can offer on that, going deep rural directly rather than going through wholesalers — not wholesale but resellers that we used to have?

Srijit Dasgupta — Chief Financial Officer-F&A

Absolutely. I think that’s consistent with our strategies as well. So, expand the network, particularly in rural as much as possible even in the cities and the suburbs as well. I mean, rather than hammer away at established positions. So that’s absolutely — and we are very optimistic that this can be done. Maybe that reflects part of what FMCG is saying or suggesting in terms of feedback to you.

Tejas Shah — Spark Capital Advisors — Analyst

Yeah. So any number you can give on distribution expansion that we are doing, leadership expansion?

Srijit Dasgupta — Chief Financial Officer-F&A

No really. We’ll come up with more numbers after Q4, but again, to help you, I might say, this year after of course relatively weaker COVID affected year last year, we had fantastic growth rates in distribution and network. So every hope that next year will be even better.

Tejas Shah — Spark Capital Advisors — Analyst

Great. And the last one. Sir, you briefly touched upon while answering couple of questions earlier that pricing discipline in the industry is back and Abneesh also asked on the rebate part, but are you seeing any discipline going away in industry on credit period as well in terms of receivables and people are pushing or offering lenient terms to deliver growth in the industry.

Srijit Dasgupta — Chief Financial Officer-F&A

I’ll respond to that by saying that we haven’t done very much. I can’t respond on behalf of my colleagues in the other companies, but we haven’t done very much to move away from our established principles. So we still hang on to the credit limits offered earlier and the slabs and the policy?

Tejas Shah — Spark Capital Advisors — Analyst

But, are you seeing this being done by competition at large?

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah, yeah. To answer your question, yes.

Tejas Shah — Spark Capital Advisors — Analyst

Okay, okay. That’s all form my side sir and all the best.

Operator

Thank you. The next question is form the line of Varun Singh from IDBI Capital. Please go ahead.

Varun Singh — IDBI Capital — Analyst

Yeah, thank you for the opportunity. So Sujyoti sir. On the new emerging competition which coming up in paint sector sir, any comments that you wish to offer?

Srijit Dasgupta — Chief Financial Officer-F&A

Not yet. But I think we are actively watching all the markets. One of these players has become a little aggressive in the last couple of quarters and we are watching them very carefully. And the other one, perhaps you are indicating, is not yet fully into operation. So that will take some — they will take a little more time. But, for sure, we’re keeping an eye on them. The most recent entrant in terms of this particular — the decorative business has also become quite aggressive. So, we are keeping an eye on these two competitors of course and the third one to follow shortly.

Varun Singh — IDBI Capital — Analyst

Right, right. Sure sir. And sir, in third quarter, there has been aggressive inventory loading at dealer-distributor level due to the fear of price hike. So, I mean are you expecting, as a consequence, demand in next quarter which is fourth quarter, to be relatively impacted because of this inventory loading which has already happened? Any commentary over there?

Srijit Dasgupta — Chief Financial Officer-F&A

Not really. It may have affected the January numbers to some extent, but for the quarter, it should get averaged out. I don’t expect any significant dent.

Varun Singh — IDBI Capital — Analyst

Right, right. Sure sir. And sir the last — one last questions if I may. Sir, is there any change in the — I think Thejas has already asked on distribution. I just wanted to have a clear-cut understanding on this that is there any change in our strategy to handle this entire distribution of paint products, for example, going through wholesaler or — instead of supplying paint directly to retailer primarily to aggressively grow our distribution in the rural hinterland?

Srijit Dasgupta — Chief Financial Officer-F&A

We try everything. I mean, I can’t say that we exclude any particular strategy. That would be wrong for me. So, we do try in selected markets, this may work in some markets where we are not strong. So we try all possible strategies.

Varun Singh — IDBI Capital — Analyst

Okay. Sure sir. Sir, that’s it from my side. Thank you very much.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Hi sir, good evening. Thanks for the opportunity. Just two questions. We see that — you did mention that the volume growth was — in the domestic decorative was at 28%. Would you be able to help me explain which segment has grown faster and which segment was laggard?

Srijit Dasgupta — Chief Financial Officer-F&A

Within decorative?

Shirish Pardeshi — Centrum Broking — Analyst

Yeah, within decorative.

Srijit Dasgupta — Chief Financial Officer-F&A

I think I mentioned that the advertised products grew very well. So all the quality emulsions and associated primers and all the putties and powder paints grew less. I think that’s an overall remark I can make.

Shirish Pardeshi — Centrum Broking — Analyst

Sir, the reason why I’m asking, while speaking to channel partners, I think north had shown a lot of problems in terms of the mass end of the product, maybe because of concession or any other things have slowed down. How did it fare for us in the quarter?

Srijit Dasgupta — Chief Financial Officer-F&A

I can’t be specific about regions. I’m sorry I can’t be. I can’t tell you. But I’ll do indicate that, yes in one or two areas or locations in the north, we did have our share of issues, but hopefully being sorted out and Q4 will be better. But you’re right, there were some isolated pockets which had problems.

Shirish Pardeshi — Centrum Broking — Analyst

Sir this is — my specific question, I mean you can say yes or no, the reason why I’m asking, I mean the quarter which has gone by you have seen, but is there a recovery which has happened in last 45, 50 days in this quarter? I mean quarter four when you enter.

Srijit Dasgupta — Chief Financial Officer-F&A

I can’t comment on this quarter. Sorry.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. My last question is on the year-to-date since April. What is — the price increase has gone in and maybe if you can help me what is the current inflation. I’m sure we don’t know what’s going to come in quarter four next time. But then if you can help me what is the current inflation averaging and how much price increases we have taken to mitigate the cost inflation?

Srijit Dasgupta — Chief Financial Officer-F&A

Are you talking of decorative or industrial businesses?

Shirish Pardeshi — Centrum Broking — Analyst

If you can split both or maybe, more importantly, decorative at least.

Srijit Dasgupta — Chief Financial Officer-F&A

I think decorative has seen, as I mentioned in my opening remarks, nearly 24%, 25% of increases since January 2021. So that’s a hefty chunk and should, barring any further raw material price increase, help restore margins. So, that’s the decorative part of the business.

Having said that crude has jumped a bit in January by about $6 or $7 per barrel. And even though it doesn’t affect all the decorative raw materials, but there is an impact on things like solvents and phthalic anhydride, maybe a delayed effect on monomers as well at some point of time. So that’s a little bit of a concern and we’re keeping an eye on that.

In terms of the industrial businesses, the price increases have lagged behind the decorative business. I think it would be fair to make that comment. So the need for further price increases to be taken beyond what we’ve taken in decorative.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. So what I need to understand is that whatever we have taken so far in decorative is largely sufficient to save our margin in decorative, while you did mention that in the industrial, we will try and make an attempt to match it in the — maybe the next couple of months? Is that the fair understanding?

Srijit Dasgupta — Chief Financial Officer-F&A

Yes.

Shirish Pardeshi — Centrum Broking — Analyst

Wonderful. Thank you Srijit and all the best to you and the team.

Srijit Dasgupta — Chief Financial Officer-F&A

Thank you.

Operator

Thank you. The next question is from the line of Mihir Shah from Nomura. Please go ahead.

Mihir Shah — Nomura Securities — Analyst

Good evening, Mr. Dasgupta.

Srijit Dasgupta — Chief Financial Officer-F&A

Good evening.

Mihir Shah — Nomura Securities — Analyst

Good evening. I wanted to just check on, if you can just throw some more light on the gross margins and the impact of supply apply contracts? Essentially, sequentially, we have seen margins contracting despite sharp price hikes. I understand the increase in raw materials and the delayed effect of price hikes taken, but sequentially margins contracting is — and you did mention it’s also because of supply apply contract. So a broad range, as a percentage of sales, how much of these contracts would be as a percentage of sales.

And in the first two quarters also, if you can throw some light of where are margins? So versus peers, our margins have been a little better versus in the earlier quarters. However in this quarter, there has been deviation in trend. While peers have seen a sequential improvement, we have not. But earlier quarters, we were doing much better in margins. So, were supply apply contracts were also a function of your margin — better margins in earlier quarters?

Srijit Dasgupta — Chief Financial Officer-F&A

No, not really. I think my comments on supply apply were only meant to explain the top line growth and the relatively lower percentage of other expenses to sales in this quarter. So that is the only comment I offer. In terms of overall margins, the supply apply contracts are not a sufficiently large component to really affect the all company margins. So I think I should make myself quite clear there. So that’s one.

And so if we were to explain the comparison with peers, your second remark was that there has been a bit of an up and down in terms of competitors who have actually seen some very or one competitor really who’ve seen fairly significant improvements in margin.

I can’t speak on behalf of them, but I think you know better to look at the YTD numbers, the nine-month numbers where you will see a gradual reduction in the gap between the relative net margins of the two companies. So that’s all I can offer in reply. I’m not privy to what was the compulsions for them in terms of lower margins in Q2.

Mihir Shah — Nomura Securities — Analyst

Right. No. I get that point. I get that point. According to you sir, what would you kind of really put emphasis to on the sequential contraction of margins for your company forgetting peers and their performance.

Srijit Dasgupta — Chief Financial Officer-F&A

So purely raw material, I mean that’s the next story really and which is being restored to a large extent. I mean we’ve had hefty price increases. So hopefully going forward that situation will be rectified.

Mihir Shah — Nomura Securities — Analyst

Okay. Yeah, because you did mentioned that you have seen a better mix. So earlier — before your opening comments, I thought mix might have been at play which impacted, but maybe since you clarified mix was not and you would put raw material as the key culprit for the contraction on a sequential basis.

Srijit Dasgupta — Chief Financial Officer-F&A

Yes, yes.

Mihir Shah — Nomura Securities — Analyst

Got it. Got it. Thank you so much, sir. That’s all from my side.

Operator

Thank you. The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead.

Praful Kumar, please go ahead with your question, your line is unmuted. Mr. Praful Kumar, may we request you to unmute yourself if muted from your handset. We would request Mr. Kumar to please re-join the queue.

[Operator Instructions] The next question is from the line of Mihir Shah from Nomura. Please go ahead.

Mihir Shah — Nomura Securities — Analyst

Sorry, sir. One more follow-up. With respect to inventory, would we still have three months inventory of raw materials with us? Earlier — would it be that in the earlier quarters we had higher inventory, as you would have foreseen linear increase in raw material, so you might have kind of increased your inventory and that low-cost inventory would have depleted. Can that be also one of the key reasons?

Srijit Dasgupta — Chief Financial Officer-F&A

I did mention in my opening remarks that that did play out in Q2 fully. So Q3, we didn’t have the benefit of those buffers. Maybe you missed that. But I did say in my opening remarks that that had something to do with the increase in raw material prices as far as the P&L is concerned. So you’re absolutely right, that did happen.

Obviously, in a really inflationary situation there is a limit to how much inventory you can — and it’s always, we have to take a call as to whether it will dip for flatten out or peak and — so that call is sometimes difficult to take. We did get the benefit of higher low cost inventories in Q2 to some extent in Q1 but that played out — that story played out fully by the end of Q2. So Q3, we bore the full brunt of the price increases.

Mihir Shah — Nomura Securities — Analyst

Understood. And inventory would be about 1.5 to two months or more than that as well, sir?

Srijit Dasgupta — Chief Financial Officer-F&A

Between raw material and finished goods together would be close to a little less than two months, yes.

Mihir Shah — Nomura Securities — Analyst

Got it. All right, thank you so much. That’s all from my side.

Operator

Thank you. The next question is from the line of Praful Kumar from Dymon Asia. Please go ahead.

Praful Kumar — Dymon Asia — Analyst

Hi, sir, good evening. Congratulations on good results. Just one question, given the competitive nature and intensity heating up, are you facing any HR [Phonetic] challenges or are you ensuring that balance returns to [Indecipherable]? Thank you sir?

Srijit Dasgupta — Chief Financial Officer-F&A

It’s really indistinct, can you be a little closer to the mic, please. I couldn’t quite get all of it.

Praful Kumar — Dymon Asia — Analyst

Sir, given that competitive intensity is heating up, we are looking at a formidable kind of large floor coming in…

Operator

I’m sorry to interrupt Mr. Kumar, but your voice is sounding muffled, sir. It is not clearly audible.

Praful Kumar — Dymon Asia — Analyst

Is it audible now? Is still not audible?

Srijit Dasgupta — Chief Financial Officer-F&A

Better.

Praful Kumar — Dymon Asia — Analyst

Yeah. Sir my question is given that competitive intensity is heating up in the first half and the last floor is coming in. In terms of volume retention, any key measures that you have taken, any addition that you have seen lately at the mid-level? Just some thoughts on that.

Srijit Dasgupta — Chief Financial Officer-F&A

I can only respond in broad terms, I think, I can’t talk specifically about strategies. That would not be right. So yes, I think our focus on innovation, new products and network expansion continues.

Praful Kumar — Dymon Asia — Analyst

Okay, thank you, sir.

Operator

Thank you. The next question is from the line of Varun Singh from IDBI Capital. Please go ahead.

Varun Singh — IDBI Capital — Analyst

Thank you. Sujyoti sir, at company level, what is the policy that we follow for tinting machine distribution? Do we charge it to the retailer or we offer them for free in exchange of sales target? If you can give some highlight on that, sir.

Sujyoti Mukherjee — Vice President, Finance & Accounts

Yeah. So far as this color bank machines are concerned, I think it’s a mix of both. Of course we do offer certain credits in respect of achievement of certain volumes.

Varun Singh — IDBI Capital — Analyst

And what would be a typical amount that we are charging to retailers when we offer our tinting machine?

Srijit Dasgupta — Chief Financial Officer-F&A

There is nothing specific about it. I mean as I said that it depends upon the volume achieved and there are I think slabs as per the volumes achieved by the dealer.

Varun Singh — IDBI Capital — Analyst

Okay, sir. Understood. So, thank you very much. That’s it from my side.

Operator

Thank you. The next question is from the line of Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss Financial Services — Analyst

Yeah sir. A few follow-ups. So one is on distribution. Have you tried or do you think it is possible to sell paint via the cement shops? Specifically asking because the new player obviously they cement [Indecipherable]. So is it possible to sell paint through the cement shop?

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah, good question Abneesh and this is something that everybody is grappling with. Let’s see what the next few quarters tell us.

Abneesh Roy — Edelweiss Financial Services — Analyst

But you have never evaluated?

Srijit Dasgupta — Chief Financial Officer-F&A

No, no, we have. Of course, we have. Yes. Yes, we have.

Abneesh Roy — Edelweiss Financial Services — Analyst

So what is the feedback?

Srijit Dasgupta — Chief Financial Officer-F&A

Difficult because the nature of the product is different from paint and the — as opposed to the builder; here, it is the painter who is going. So — but, definitely there is an opportunity there and it is being tried for sure, as we speak.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sir, In an INR5, INR10 FMCG also, Indian consumer currently is downgrading towards more [Indecipherable]. In your case, consumer has to spend INR40,000, INR70,000 and now what has happened across a range of products, the features which you offer are fairly good. So it is not that in a lower end, the product benefits are bad.

So, do you see down-trading happening because there is a slowdown in rural big time, 18% price growth, there are other kind of challenges, drop [Phonetic] challenge, salary challenge, in everything, kind of a challenge is there, I’m not saying it’s a gloom and doom scenario, I’m just saying in the current context down trading, can it happen? I’m not asking on Q3 because Q3 price growth was still transitory but Q4 and onwards, do you see that as a risk?

Srijit Dasgupta — Chief Financial Officer-F&A

Nothing so far, Abneesh. I mean, rather on the contrary, we’ve seen our mix improve in all markets. So this is something that gives us hope that the market has recovered from the COVID scenario. So let’s keep our fingers crossed. To answer your question, no, we don’t see anything yet.

Abneesh Roy — Edelweiss Financial Services — Analyst

Okay, final question. In FMCG, whenever sharp inflation happens, there is some product reengineering, some savings in packaging, some ingredient scrapping and all that which keeps happening. In your case, obviously, it’s a 40 year high inflation. I’m not asking about specifics, because that will be too sensitive, but have you done some kind of product reengineering, some kind of a packaging change to cut costs?

Srijit Dasgupta — Chief Financial Officer-F&A

Not packaging, but for sure we do formulation improvements, which also includes cost reduction activity. But very clearly the brief is that quality has to be the same, if not better, and that’s the principle on which we work on. So, of course, I spoke about formulation and reformulation savings, but for sure not at the cost of quality.

Abneesh Roy — Edelweiss Financial Services — Analyst

Okay. That’s all from my side sir. Thank you.

Srijit Dasgupta — Chief Financial Officer-F&A

Thank you.

Operator

Thank you. The next question is from the line of Gaurang from Haitong Securities, please go ahead.

Gaurang Kakkad — Haitong Securities — Analyst

Yeah, thanks for the opportunity, sir. So, sir, my question is regarding the industrial price increases. So you indicated that the price increases are not in tandem with decorative and bulk of price increase will happen in Q4. So, sir, one of the peers who is a heavyweight in the industrial business; for them, the price increase for both deco as well as the Indus space is almost similar. So why this disparity for us because largely the customers for industrial business say auto or even non-auto would be similar for us, as well as for them. So just wanted your thoughts on this part.

Srijit Dasgupta — Chief Financial Officer-F&A

I can’t speak on behalf of the competitors. I hope I can only clarify my position. Yes, we have a more widespread number of customers, particularly in our general industrial. We have taken significant price increases in our powder business, in our protective coatings business; the two elements of industrial business where the price increases are kept up perhaps with decorative. My comments were limited mainly to the automotive part of the business and that’s too really the two-wheelers.

Gaurang Kakkad — Haitong Securities — Analyst

Okay. Okay. So for two-wheeler, we would take price increases in Q4 largely for non-autos, we are at par in terms of pricing.

Srijit Dasgupta — Chief Financial Officer-F&A

Absolutely. And also to clarify, the price increases and the effects of the price increases, there may be a lag, meaning if we take price increases in December, the full effect will only be achieved in Q4.

Gaurang Kakkad — Haitong Securities — Analyst

Yeah, yeah that’s fine. Okay. And secondly, on the RM index number, if you can share what is the last year Q3 or FY21, what would be the weighted-average RM cost index currently?

Srijit Dasgupta — Chief Financial Officer-F&A

In terms of increases, I think it’s been very, very hefty. So, the RM price increases are somewhere in the region of 28% to 29% over the last year in terms of increases. But this is at the RM level. So as a ratio to sales that would be somewhere in the region of 15%, 16% or thereabouts.

Gaurang Kakkad — Haitong Securities — Analyst

Okay. And this would be — this 28%, 29% would be similar for deco as well as non-deco, right?

Srijit Dasgupta — Chief Financial Officer-F&A

Pretty much, less so in deco for the water-based maybe, though water-based also suffered very significant increases because of monomer price increases. But the impact on Industrial businesses would be a little more.

Gaurang Kakkad — Haitong Securities — Analyst

Okay, Yeah, that’s it sir. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie Group — Analyst

Hi, sir. Thanks for the follow-up opportunity. Just one bit I wanted to clarify, the comment that you’ve made in the presentation that demand was sustained even after significant price increases. It implies that the volume decline is equal to the price increase that has happened. Is — that understanding is correct, right sir?

Srijit Dasgupta — Chief Financial Officer-F&A

In terms of — our comment was limited to the observation that even though we had price increases, say in the middle of November, there was — the sales continued meaning the growth continued into November and December. I think that was the intention.

Avi Mehta — Macquarie Group — Analyst

So there was a value, right. That’s what I wanted to kind of reaffirm. I mean, it seems that it is value growth that you’re talking about has continued and…

Srijit Dasgupta — Chief Financial Officer-F&A

No, also volume, meaning it was not significantly dented by the fact that we had a significant price increase in the middle of November.

Avi Mehta — Macquarie Group — Analyst

So volume growth sustained. Sorry, the volume growth also has not been impacted. The volume growth has sustained, that’s what it means.

Srijit Dasgupta — Chief Financial Officer-F&A

Yes, yes. Volume was roughly, if we normalize it for decor. I mean we’ll have to talk about…

Avi Mehta — Macquarie Group — Analyst

Yeah, for decor, yes, correct.

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah. So that was not significantly impacted because of the price increases is what we are saying, meaning sales continued.

Avi Mehta — Macquarie Group — Analyst

Prefect sir. That’s all I wanted to clarify. Thank you very much.

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah, yeah.

Operator

Thank you. The next question is from the line of Ashit Desai from Emkay Global Financial Services. Please go ahead. Mr. Ashit Desai, please go ahead with your question. Your line is unmuted.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Hello, can you hear me now?

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah, Ashit go ahead.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Yeah. Srijit, wanted to know if the network expansion that you guys are doing, what’s the mix with respect to that? How much is it in metros or if you can give some split as to urban Tier 3 Tier 4 etc.? And in your assessment, how much of the growth is coming from this incremental network expansion?

Srijit Dasgupta — Chief Financial Officer-F&A

I can’t give you numbers Ashit, but I can say that the network expansion is mainly in the non-Tier 1 non-metro cities. That is where the opportunity is the most and I think we are quite happy with our performance in FY22. As I mentioned earlier, FY21 was a bit of outlier because of the COVID situation. But even with the second and third waves we’ve done reasonably well in FY22 in terms of network expansion.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Okay. Is it fair to assume that — I mean, we’ve seen a very solid expansion across paint players, is it fair to assume that the quantum of growth coming from network expansion is much higher than the last three, five years?

Srijit Dasgupta — Chief Financial Officer-F&A

Maybe in Q3, we still have to see how the year plays out. Q3, yes, I think I mentioned this earlier, the larger cities did contribute more. But let’s see how that pans out. I hope this is sustained and we are able to — this is not just some — only a purely pent-up demand, which is sort of unleashed.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Okay. And lastly, any update that you can share on the UP plant. I think it was expected to be up by this time.

Srijit Dasgupta — Chief Financial Officer-F&A

By the UP plants, you mean the UP plant?

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Right.

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah. So we are on track as we might have — as you might have known. The sunset clause for the plant in terms of the subsidies and benefits is January of 2023, but we will be operational well before that. So we are expecting by middle of the calendar year we should be operational.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Okay. And how fast can you ramp up this plant. It’s a fairly large plant. So, would you expect some impact of higher overheads?

Srijit Dasgupta — Chief Financial Officer-F&A

Yeah, it is. But the infrastructure will all be in place because one of the terms of the subsidies is that the infrastructure has to be in place before the commercial production is announced. So, that gives us a little more impetus in terms of managing the plant — project more effectively. And therefore, really all the facilities will be in place on the day of commercial production. So it’s only a question of balancing manpower from time to time to ramp up.

Ashit Desai — Emkay Global Financial Services Ltd — Analyst

Okay, okay. Thanks for this and all the best.

Srijit Dasgupta — Chief Financial Officer-F&A

Thanks. Thanks Ashit.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Srijit Dasgupta — Chief Financial Officer-F&A

On behalf of Berger Paints, I thank all of you for your participation and your insightful questions. And hopefully the third wave of Omicron behind us, we would see better times going ahead and that’s what has been projected by most of the institutions as regards to the GDP growth of more than 7%. Hopefully, things are going to look better going ahead. Let’s hope for the best.

Operator

[Operator Closing Remarks]