Berger Paints India Ltd (BERGEPAINT) Q3 FY23 Earnings Concall Transcript

Berger Paints India Ltd (NSE:BERGEPAINT) Q3 FY23 Earnings Concall dated Feb. 02, 2023.

Corporate :

Naman Bagrecha — Investor Relations

Sujyoti Mukherjee — Vice President, Finance and Accounts

Abhijit Roy — Managing Director and Chief Executive Officer

Analysts:

Abneesh Roy — Nuvama — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Ajay Thakur — AnandRathi Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY ’23 Results Conference Call of Berger Paints India Limited hosted by Emkay Global Financial Services. We have with us today, Mr. Abhijit Roy, Managing Director and CEO; Mr. Kaushik Ghosh, Vice-President and CFO; and Mr. Sujyoti Mukherjee, Vice President, Finance and Accounts. [Operator Instructions] I now hand the conference over to Mr. Naman Bagrecha of Emkay Global Financial Services. Thank you and over to you, sir.

Naman Bagrecha — Investor Relations

Thank you, Vivin. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.

Sujyoti Mukherjee — Vice President, Finance and Accounts

Thank you and a very warm welcome to Berger Paints India Limited earnings call for Q3 FY ’23 and we really appreciate your participation. The management statement and the performance have already been uploaded in the website for your information. That before I hand over to our MD and CEO, Mr. Abhijit Roy, I would like to make a small disclaimer that questions should already be restricted to the quarter only. I now hand over to Mr. Abhijit Roy, our MD and CEO for his comments on the performance.

Thank you, Sujyoti, and good evening to all of you. I will take you through quickly through the presentation first, and then you know we look forward to the questions from your side. I hope you know you have received this presentation well in time and have gone through it, but just for the sake of repeating whatever has been put out there. The decorative business showed decent growth in the quarter in spite of extended monsoon, very high base effect and the short festive season compared to the corresponding quarter last year.

The growth progressively improved with a double-digit growth in December, every month we had some growth, but in December, we had a double-digit growth, some mix impact on account of higher stocking of premium products by retailers on the back of steep price increases in the corresponding period last year and lower sale of exterior emulsion due to extended monsoon. On a YTD basis, decorative continued it’s healthy growth.

If you look at the figures on a standalone basis, growth rate, this year, quarter three, the volume growth was 6.6%. Last year, it was 11.2% and compounded three-year growth rate has been 15.3%, which is fairly healthy. In terms of the value growth for the same quarter this year, we had a 7.2% standalone value growth, 21.2% was the figure last year and again on a three-year compounded basis, our growth rate has been a strong 17.2% in terms of value sales growth in for quarter three. If you look at the YTD figure, the YTD this quarter so far we have our volume sales growth of about 17% which is you know and then last year if you look at it, it was 27.5% three years compounded is 15.9%. In value sales terms, 25.3% is this year’s figure, 37.6% was last year and three years compounded growth is 17.3%.

So in terms of both volume value, whether you look at quarterly or in terms of the YTD figures, the compounded growth rate is pretty strong. This quarter it has been slightly on the lower side and there are good reasons which we explained at the initial stage and that is why the growth rate has been at around 7.2%.

If we look at you know overall what has been happening in terms of network expansion, for the year, we have added 8,000 retail outlets and 4,300 color bank machines till date. We expect to you know close at about 6,000 color bank machines by the end of the year, and maybe around 10,000 odd you know retail outlets, which is beyond the machine count as we also add a few retailers on — for various other businesses that we have along with paint and there’s a non-machine counters which we will have about 4,000 added in addition to the 6,000 color bank machines.

Construction Chemicals segment registered strong growth in the quarter. And we expect to gain market share going by the industry growth trend so far and we are reasonably confident that we will add to the market share this year. In terms of new product launches, we introduced one product for Long Life 15 which comes with a 15-year warranty with a new type of technology. This is for the exterior wall coating and we also introduced one coal-tar based solution for rising dampness and used for new constructions. This is popular you know down south and used for you know basements of new construction, and the Industrial Business side, GI and Auto business showed good growth in this quarter [Indecipherable] and infrastructure business continued its double-digit growth aided by infrastructure spending. We continue our leadership position in this particular business line, further price increases were realized in the quarter and Powder Coating business line at significant de-growth on account of lower sales to the fan industry. So this particular category you know a large dependence is there on the fan and there were some changes in rules in the fan industry which has really impacted us and we went badly negative in Powder Coatings this quarter, but things has you know revived in January onwards we are back to normalcy.

In terms of profitability, we declined this quarter mainly on account of four factors. The primary factor is, of course, the carrying stock finished goods and raw material which we are carrying of the prior period, which is at the high cost. Local capacity constraints you know which we had till we are now about to start the Sandila Factory from the 6th of Feb. But till that point of time, we normally built up the stock just before the season. So in March we normally used to build up a stock and in September again, we did the same thing. So this time also we had built up the stock in order to be able to service the market fully in the season period. This is a high cost inventory, we anticipated a good festive season unfortunately rains continued you know for some time and then they didn’t take-off therefore to the extent that we would have loved. The inventory last year throughout October, November, December we got no benefit out of the raw material price drops which have happened, so that benefit is going to come only in the fourth quarter, most of it and almost all of it will start coming from only quarter one of next year, but we will get a significant benefit in Q4, but Q3 we got zero benefit out of the RM price drop due to this reason.

Mix impact on account of lower sales of exterior emulsion due to extended monsoon gain impact on overheads due to lower-than-anticipated growth in sales and there was a little bit a mark-to-market impact of exchange depreciation. So All these four reasons combined to take it down to the level of minus 9.1 — minus 9.4% this quarter, and overall on a YTD basis though we are still growing at about 15.5% this year. But this quarter has been you know sort of muted in terms of the profit growth it’s negative and largely due to, as I mentioned, the finished goods and raw material carrying cost of high-priced inventory.

On the profitability front, further softening of rutile monomer and solvent prices has been observed and that is likely to help us in quarter four and then going forward in quarter one onwards as well. Commencement of Commercial Products in Sandila plant will also lead to lower inventory holding and working capital improvement. As I mentioned, we normally used to stock up, because we had an issue as far as the total capacity was concerned and our ability to service in the season time. And therefore, you know this will be taken care of. We are starting this from the [Indecipherable] as I mentioned.

Mix impact on account of lower sales of exterior emulsion due to extended monsoon gain impact on overheads due to lower-than-anticipated growth in sales and there was a little bit a mark-to-market impact of exchange depreciation. So All these four reasons combined to take it down to the level of minus 9.1 — minus 9.4% this quarter, and overall on a YTD basis though we are still growing at about 15.5% this year. But this quarter has been you know sort of muted in terms of the profit growth it’s negative and largely due to, as I mentioned, the finished goods and raw material carrying cost of high-priced inventory. On the profitability front, further softening of rutile monomer and solvent prices has been observed and that is likely to help us in quarter four and then going forward in quarter one onwards as well. Commencement of Commercial Products in Sandila plant will also lead to lower inventory holding and working capital improvement. As I mentioned, we normally used to stock up, because we had an issue as far as the total capacity was concerned and our ability to service in the season time. And therefore, you know this will be taken care of. We are starting this from the [Indecipherable] as I mentioned.

Mix improvement likely in quarter four on the back of increased sales of exterior wall coatings and waterproofing items which has high gross margin. We are starting this Sandila Factory in Uttar Pradesh estimated outlay was more than INR1,000 crores. The installed capacity is 33,000 metric ton per month. Our existing capacity is about 62,000, 63,000, so that adds up another 33 so we become 95,000 metric ton per month. This was sufficed our requirement for the time-being you know and therefore it will help us you know we’ve not stock up and build-up stock in before the season ending.

On the financial performance side, as I had mentioned, the standalone 7.2% with minus 9.4% PVDIT [phonetic] that growth of minus 6. YTD basis, we are far healthier, of course, you know at 25.3% in terms of sales growth and operating profit growth at 15.5% and PAT growth also at 15.5%. Details of the raw material cost has gone up actually from 63.99% to 66.18%, this is what has impacted our operating profit, if you see or observe that’s the line which has created all the impact. Otherwise, we have kept all other costs under control. And, in fact, there has been some improvement in some of the other areas. But overall, we went negative at — in the operating profit side this quarter.

YTD basis, we are growing at about 25.3%. Again you know, there too, the material cost has actually gone up. But in spite of that, because of the strong sales growth, our operating profit growth is there at about 15.5%, which is a healthy growth. What we could have done better at the raw material to sales ratio been better.

Income from operations growth standalone over the last few quarters has been shown 24, 53, 96, 26, 21, 7.3, again 53.7, 22.5, 7.2. So these are you know COVID affected, sometimes it goes up, but we have been more or less hovering at a pretty steady figure. If you see, most of them are in the 20s you know, two quarters, we are at the 7% range and then two aberrations at 96% and 53.7%.

On the gross margin, it had been rising steadily up to quarter four of 21, from 40.2% to 42.3%, 43.7% and 43.8%. And these were you know those years where those quarters were actually the RM prices had dropped to abnormally low levels. So everyone benefited out of it. Since then you know it has the prices have been going up. You know we have been lagging behind in terms of passing on those price increases, especially on the industrial side. So it has come down to about 37%, 38% level. This quarter it has dropped to 38 — 33.8%, but I’m very confident that in Q4 it will again go back to the 37%, 38% level which is where you know, we have been steadily been there right through till you know these raw material prices that dropped or it has risen you know, but we will go back to this 37%, 38% gross margin level.

Consolidated quarter three figures is 5.6% which is lower than the 7.2% in the standalone which we saw. And that’s largely on account of you know three businesses which you know had you know negative growth rates this quarter. One is Nepal, which went very badly down, it was impacted by you know two, three factors, one of them, of course, is the very high inflation there. Then there was this you know interest cost which has risen substantially. And you know money flow had become a problem. We took a conscious call not to extend credit into the market too much. That did impact our sale and we went negative, therefore you know substantial negative sales in Nepal. But we are back in January, they close on the 15th actually, so that January 15th closer we had a positive growth. So we are back on to normalcy in Nepal and things are okay now.

In Bolix also we had a negative quarter than Q3, largely because of the again you know similar Ukraine war is affecting Poland quite a lot. The inflation has gone through the roof you know, Europe situation is not good. And therefore you know we had a negative quarter you know in Poland. So the UK operations continued to grow. But Poland had a big negative, and therefore, overall it was a negative from Bolix. So these two pulled it down. The impact has been you know about though STP and other companies did well and grew well, but because of these two entities you k now the growth came down from 7.2% to 5.6%.

PVDIT obviously, because the sales — lower sales growth also got impacted and it is minus 10.8 in the Q [Phonetic]. Consolidated, if you look at it you know the sales growth is 23.6% PVDIT at 13.6%. Again you know, if you look at the reason for it primarily you know raw material to sales you know going up in the case of consolidated because of the value sales is slightly on the lower side as well. This impacts you know the other areas as you know and then hence there is a little bit of increase in the employee cost, but marginally.

YTD basis, we are at 23.6% growth in consolidated and PVDIT growth of 13.6%, is where we are, as of December end ’23. Again if you look at you know over the quarters however we’ve been sharing more or less reflect the standalone performance, 24.9%, 49.5%, 93%, 27%, 28%, 53.4%, 20% and now at 5.6%.

I have already mentioned about you know the various performances of the subsidiaries, STP continued to grow well in sales and profit, and there is an all-round improvement there. Saboo Coatings had a marginal de-growth in the topline. Profitability improved on account of higher price realization and softening RM cost. Nepal had a large de-growth as I mentioned, both in topline and profitability. And therefore, there you know there was a problem as far as Nepal is concerned. But back to normalcy now.

Company’s Polish subsidiary had a de-growth, both in top-line and profitability, impacted by the Ukraine war and high inflation. Company’s joint venture Berger-Nippon Paint Automotive Coatings had a strong improvement on top line and profitability, aided by the growth in Auto sector and cost improvement, which there had been working on diligently. Company’s joint-venture Berger-Becker Coatings had a de-growth in top line and profitability.

The outlook is you know brighter demand outlook looks good in the coming quarter, which is in Q4. Mix improvement likely in the coming quarters, supported by increased sale of exterior coating, industrial sales outlook remains strong on the back of upturn in Auto sector and government spending in infrastructure. However, exchange depreciation on account of strong US dollar maybe concerned.

Thank you. And we can take the questions now.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Abneesh Roy, from Nuvama. Kindly proceed.

Abneesh Roy — Nuvama — Analyst

Abhijit, thanks for the opportunity. My first question is on the gross margin and inventory, raw material, which you discussed. So yes, I take your point, last three quarters it has been stable in the 34% to 35% range in terms of gross margin. And yes, we have seen the correction in titanium dioxide, definitely monomers and packaging costs correlated. And Asian Paints are almost ended with improvement quarter-on-quarter. So wanted to understand when you mean capacity constraints lead to inventory built up, what exactly happened, and in the future if similar thing happens, what improvement can prevent purchasing?

Abhijit Roy — Managing Director and Chief Executive Officer

Right, Abhijit, you know, let me explain it to you in a –thanks for the question, though. So we normally –we had a issue as far as the full capacity. So what happens in the paint industry, it’s slightly seasonal and in the seasonal months, the demand tends to move up substantially, in non-seasonal months however, sometimes remains at a slightly lower level, at a much lower level at time. So typically, in the month of April, September and October, the demand tends to move up beyond the normal figure, normally is 100, it can become 140, 150 in these particular months. So what happens therefore is, we as a company, we did not have the full capacity to service this 140, 150 so we used to stock up materiel in the month of March and in the month of September — August, September in order to service the seasonal month requirement. And then again, it will come down and then the factories will be able to give the material as is required month-on month. So this buildup that resulted in some of these old based material, in the month of July, August the prices were on a much higher level. So we are carrying this inventory at a much higher level and then that carried on right through till the month of December, which is why we did not get the advantage of the raw material price drops at all. And that is what we are likely to get in Q4, which is why it delayed the gross margin expansion, which should have happened this quarter.

Abneesh Roy — Nuvama — Analyst

Thanks. I understood. But in terms of say the best industry practice, in terms of forward covers or say in terms of better understanding, because lot of these are global raw material. Do you think there is an area for improvement there? Or was it that you thought maybe crude will go further up, so that time, the call was taken, and calls can be wrong or right in hindsight only. So is that the issue or there is an improvement area in terms of forwards and the long term contracts, better understanding because clearly the market leader saw an improvement in the same context, so they have being able to manage it better, so wanted to understand that?

Abhijit Roy — Managing Director and Chief Executive Officer

There are two things here, one, sometimes it works in your favor, sometimes it goes against you, it is very difficult to predict. Whether the prices are going to drop or increase, had it increased, we would have been a gainer, we would have actually shown a far better improvement than market leader in this case, right. We got those advantages when the prices were going up, and then when the prices goes down, you are on the reverse cycle. Then you get caught on decision, but we had no choice, because now with the Lucknow plant coming up, we need not buildup the stock at all. So that’s an advantage in which we will have, in terms of being able to play the game. After that, we need to take a call whether we feel that if the prices are going to go up, we may still stock up, if the prices are going to go down, it may be a wrong call or right call, because it’s very difficult to predict this thing. But we need not stock up out of compulsion. Now, we had no choice but to stock up and that if the prices dropped, because the price did drop, we were sufferers unnecessarily this quarter.

Abneesh Roy — Nuvama — Analyst

My second and last question is on the demand side. December double-digit growth and, I think market clearly also saw a good recovery in December. Question is essentially is to, would you be worried on urban slowdown, which I think some of the other non-paint, but discretionary companies are pointing upwards, because there are job losses in IT sector, startups and all that, plus the high base, which you are having on the last two, three years, most quarters you have a high base, so I’m not necessarily asking on Q4, but are you now a bit more sanguine that instead of the high-single-digit or double-digit volume growth in the core paint, we should now start building a bit lower in terms of our numbers because of these to reasons?

Abhijit Roy — Managing Director and Chief Executive Officer

No. I think we are quite confident and comfortably we can tell you that, quarter four, we will possibly, reasonably and unless something goes wrong, seriously, this should have a double-digit growth rate, both in volume and value terms in Q4. Okay, and realted questions, because now gross margins are improving. On the discounting by market leader, earlier you pointed out some quarters there has been slightly more aggressive behavior. As of now, do you think that? No, this was an aggression which was there the previous year, and in Q2 and Q3 specifically, there was an unusual aggression, but that is not there anymore. We are back to normal, rebating and normal structure as it existed earlier in the paint industry.

Abneesh Roy — Nuvama — Analyst

Yeah, thanks, Abhijit. Thanks a lot.

Abhijit Roy — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Kindly, proceed.

Avi Mehta — Macquarie — Analyst

Hi, Abhijit, thanks for the opportunity. I wanted to understand on the — firstly from a broader terms from the market scenario right now, we are going to see huge capacity addition by many players. Given your experience, would you be worried about this essentially hurting profitability in the near term, because you have a new player also putting significant capacity addition, whether it is in profitability or return profile, how do you see this, and if you could kind of give us your thoughts on the same? Avi, thank you for asking this, because this has been coming up for the last few quarters. Still they come in and start actually operating in the market. I think you know, repeating the same question, and the same answer, possibly not going to make any difference. So my view has been that, this capacity addition is not going to, by itself, result in a problem. It has to be seen and observed what type of pricing point they come, what do they do. This is only one a addition which is coming, many players who have expressed an interest to come in. I don’t think that’s very worrying for us. Yes, we know one of these players starting up large capacity, now we need to see how it shapes. As I’ve always said, in any industry, for that matter, and especially in this category like paint, which has many other clements of actually the sale happens through various means, it is not only that you go direct to the consumer, do something and you win the battle, there is this dealer distributor, then you have the painter, then you have the interior decorator, then you have the consumer, and you have to get all of these aligned. So I think you know it takes some time and effort. We are not unduly worried on this count. Yes, there will be competition. We expect that there will be some sort of effort from the RT concerns to improve their sales and performance as well. So it will impact us, but we are taking our own — whatever measures we need to take from our side, and these better prepared for the battle ahead. We don’t see any major changes happening. It will be some change, but that will be possibly if we are able to become more efficient, go more closer to the customer, then I think we should be able to weather this very easily. Okay, got it, Abhijit. Second point was just on the near-term comment, you did allude towards confidence in fourth quarter [Indecipherable].

Operator

Mr. Mehta, I’m sorry to interrupt, we’re not able to hear you clearly.

Abhijit Roy — Managing Director and Chief Executive Officer

Your voice is breaking, Avi.

Avi Mehta — Macquarie — Analyst

I’m sorry. Is this better, sir?

Abhijit Roy — Managing Director and Chief Executive Officer

Yes, much better.

Avi Mehta — Macquarie — Analyst

Sir, there has been a very aggressive winter this time, and typically when it becomes so cold, exterior paint demand does take a hit. Do you see that hurting, not necessarily a YoY growth rate, but the demand trends will continue to remain weak even in the fourth quarter because of that, maybe from a pre-COVID levels, because, YoY, there is a base aspect that also works which is making it harder to get an understanding. So Mike, a question for you, from a three-year CAGR from a pre-COVID lends, do you see the demand trends broadly now moving to a lower trajectory, probably around 12%, 13% odd levels rather than the 15%, 17% plus? Thank you very much.

Abneesh Roy — Nuvama — Analyst

It’s not only the winter. There are lots of other factors which come into play. Overall, GDP growth, how is the economy looking like. All these factors combined, and and the demand is very difficult to predict what is, but we have typically seen that it is very closely linked to the GDP number, it’s about 1.5 times, 1.6 times the GDP numbers, the overall economy does well. If suppose the winter is harsh as you were mentioning, first of all, that impacts, you know, the northern belt only, the east, the west and the south remains unaffected by harsh winter, because you know there is really no winter in most parts of this world, and therefore it doesn’t matter much. It’s only in the northern part of it, where the winter impacts substantially more. Yes, it will have some impact, but as I said, not as much as one would have scared. Base of course is one impact, because last quarter base was much higher, this quarter base is more normalized. On that normal base, we should have a decent growth, whether it will be 12% or 14% or 15%, only time will say. We expect that we will continue to grow at a faster pace than the industry is what we want to do. For that, we have our own measures in place, we have our own plans in place, and we hope that we will execute it successfully.

Avi Mehta — Macquarie — Analyst

Perfect. And just a bookkeeping, could you give us the volume growth and decorative value growth in the quarter? That’s all from my side?

Abhijit Roy — Managing Director and Chief Executive Officer

I think I mentioned that, but just for repeating it, the volume growth that we had, the value growth is 7.2%, and the volume growth was 6.6% for the quarter.

Avi Mehta — Macquarie — Analyst

Thank you very much, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jay Kumar Doshi, from Kotak. Kindly proceed.

Jay Kumar Doshi — Kotak — Analyst

Sure, hi, Abhijit. Thanks for the opportunity, and thank you for comprehensive opening remarks. I’ve got a couple of questions, the first one is, it looks like in the last quarter you started gaining some share at least on a YoY basis, they’re growing faster than the market leader, and especially quarter. In what segments or in which markets do you see a visible market share gain, and is this trend looking sustainable?

Abhijit Roy — Managing Director and Chief Executive Officer

Right. Good evening. And yes you are right that, we have — this quarter’s growth rate over the market leader the GAAP has been the highest in the last 17 quarters, in fact. So therefore, the growth has been good. It’s been across most categories, I would say, little bit of improvement would have happened, because I can’t exactly pinpoint if there is any specific category. I don’t know, frankly speaking. But I think, I presume that it will be across category. I haven’t seen any specific category in which we have done exceptionally well. But overall, we have grown at a faster clip. Whether it will be sustainable or not, well, time will say. We hope so, because that’s what we want to do, that we want to gain little bit of market share and keep going at that.

Jay Kumar Doshi — Kotak — Analyst

Understood. Can you provide some color on how you’re sort of recent trends are in emulsion? And a few years ago, I mean, the Berger story was all about improving product mix and that product mix improvement translates into gross margin improvement and profitability. We don’t hear much about it anymore. Perhaps, know the focus has shifted to [Indecipherable] and other things, but can you just provide some color on how you are seeing those trends?

Abhijit Roy — Managing Director and Chief Executive Officer

That’s a good question. In fact, focus is still there in order to improve the mix, because that’s something which we have to keep working on. There is still some way to go as far as the luxury category is concerned, we are a relatively weaker player there. We are present in a much stronger way in the premium luxury category, which is midway between the premium and the luxury category. In that, we have two very strong brands called Easy Clean and Anti Dust, and they continue to grow in spite of intensification of competition there. But in the luxury category, we wish we can grow faster. In that exterior luxury category, we are doing much better, in WeatherCoat Long Life brand, we are doing relatively much better. In Silk, which is our interior luxury, we can do better than what we are doing as of now. This is as far as the emulsion is concerned. The lower end emulsion, which is Bison emulsion and Walmasta, that continues to grow at a decent clip. That’s not something which has — anything exceptional has happened with the market as — as much as the market grows, this category also grows. So this is as far as the emulsions are concerned. I think overall, also in the same space if you look at is, the waterproofing segment is also a relatively profitable segment, and we are doing quite well. That adds up to the profitability to some extent. Again overall, this quarter was impacted, but I think going forward, you will see a restoration of the gross margins level at the original levels where we were.

Jay Kumar Doshi — Kotak — Analyst

Thank you. Just one final one on that. Our understanding is that you have not been very aggressive on selling putty, and yet when I look at your numbers, the gap between volume and value is not any different from the market leader. There is at least 7%, 8% pricing increase on a YoY basis in December quarter. What explains this?

Abhijit Roy — Managing Director and Chief Executive Officer

Hello.

Jay Kumar Doshi — Kotak — Analyst

I’m trying to understand [Speech Overlap].

Abhijit Roy — Managing Director and Chief Executive Officer

I’ve heard your question. Let me explain. Actually there was a 3.8% approximate increase in the price, net price for the company per se, because I can’t give you the exact decorative figure or the industrial figure, but the actual figure was only 3.8% increase, which we should have got. Now instead of that, we ended up getting about 0.6%, 0.7%. There were two reasons for this, one, the exterior emulsion category, which is quite profitable, has a good margin, unfortunately in quarter three, again did not do well because of the prolonged rain or monsoon which went on till the 20th of October almost. And then the season ended, because the Diwali was early, and so we did not get the impact that we should have got. On the other hand, last year, there were price increases on exactly these same products, the more profitable products, the bases were much higher. So, we suffered a double whammy in terms of the rains impacting the sales, on top of it, the base, which is higher on these products, because the price increase has happened primarily on these products in last quarter. So, as a result of these two, the exterior percentage, exterior wall coating percentage came down, so this impacted — overall GAAP got reduced because of this. That’s one reason for us. The other of course, the industrial — we could not pass on fully the price increases, it keeps impacting our overall profitability, though we assisted with our effort, we got some towards December, so that will impact us in this quarter. These are the two things which would have impacted.

Jay Kumar Doshi — Kotak — Analyst

Thank you. And disclosures in the presentation on volume standalone, that’s essentially decorative business, right? Or is it at a standalone level? [Speech Overlap]?

Abhijit Roy — Managing Director and Chief Executive Officer

This is standalone basis, total.

Jay Kumar Doshi — Kotak — Analyst

But it does include some industrial component?

Abhijit Roy — Managing Director and Chief Executive Officer

It includes everything, it includes industrial as well.

Jay Kumar Doshi — Kotak — Analyst

All right, thank you so much and wish you the very best.

Operator

Thank you [Operator Instructions] The next question is from the line of Aniruddha Joshi, from ICICI Securities. Kindly proceed.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Thanks for the opportunity. Sir, where are you seeing the growth higher in terms of rural, urban East, West, North, South, any region where we are seeing the higher growth, and also probably we would have gained some share, so have we gained share in any part of India? And also around past three to four quarters, there are some loss of market share in North India, so has Berger regained that market share too?

Abhijit Roy — Managing Director and Chief Executive Officer

Right. Coming to your first question, where are we growing, we are growing across almost all regions, you know, on YTD basis, if you look at it, it’s more or less across all regions. But North, it still remains a bit of a concern for us. It’s been mainly in East, West and South. We were relatively weaker in the West and the South, so any performance there on a lower base the growth rate seems to be on the higher side. So that way, the gains would have been higher in those locations. And the East has been consistently growing. We have a strong presence there, and we grow at a reasonably good pace, so not much of a problem as far as East is concerned. North in certain pockets we are doing well, in certain other pockets, we could have done much better. We are getting our house in order in those few states where we aren’t doing all that great. One of them we have restored and started performing reasonably well now already. And the other one, the work is in progress, and we are hoping that we should be able to streamline that state as well, and then we should have a far better growth in the North as well.

Aniruddha Joshi — ICICI Securities — Analyst

Okay, thank you. The last question, can you share the indicative breakup across the sub-segments of paints and putty, as well as quarter booking?

Abhijit Roy — Managing Director and Chief Executive Officer

Listen, I don’t think, I have those numbers, and I don’t think I can share with you at this point of time, for the nine months, I have no clue. Normally as far as the industry is concerned, we have a fairly representative, if you know the industry volumes or shares, this should be very close to those share. Except that, in our case, maybe the luxury category will be slightly lower than the industry or the leader. It will be more oriented towards the premium and economy side.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. And lastly, if we consider the putty, waterproofing, all these products put together, whether it will be upwards of 15% of sales in standalone numbers?

Abhijit Roy — Managing Director and Chief Executive Officer

Yeah, it’s very difficult to say exactly what is the percentage, but I can assure you that as far putty growth is concerned, since that might be one of the questions you would like to ask, it has been a normal growth rate, slightly above the normal growth rate, so that, as far as putty is concerned.

Waterproofing growth rate in certain segments we have done much better, in terms of the growth rate there. So that’s how I would place exact percentage, what they are, I can’t comment at this stage.

Aniruddha Joshi — ICICI Securities — Analyst

Okay, sure sir. Thank you.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Kindly proceed.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah, thank you. Hi, Abhijit. Good evening. Quickly couple of questions, when I look at the trend in the market, and when we speak to channel, what we have seen specially, in last quarter there was lot of downtrading in the low end or economy emulsion. Now is that the case which is also visible in your numbers and that’s why the mix impact is also little higher side?

Abhijit Roy — Managing Director and Chief Executive Officer

I explained that, actually what you are seeing, it’s not a downtrading as such, because the exterior luxury emulsion and premium emulsion category, which actually — sales in this quarter, typically it is a very good sale, because after the monsoon, till exterior painting happens, and it’s comfortable to build as well. The season is very good for exterior coating, not materialize this year to that extent. Naturally the other product kept selling, but this particular category sold less. As a result of that, you will see that the value realization per liter came down in this particular quarter, that’s how it happened. It’s not as if the market has shifted or lot of downtrading is happening. Those who can afford in case, typically they go for the right kind of products, they don’t mind buying the luxury product because at the end of the day, they want to put out better quality paint, because labor cost is almost 50%, 60%. I don’t think people will tend to move downward, just because some paint cost has moved from say INR4 to INR3.50. That’s not how the shift happens for the paint part of it. It is the labor part of it, which is a ballpark, 50% to 60% in Bombay, it maybe even 70%. It doesn’t matter so much as far as the paint cost is concerned. There is no major downshift which happens. We have never seen that trend happening. Yes, there is some shift which can happen because economically, if people decided that okay, instead of going for the luxury I might go for premium luxury or instead of premium luxury I might go for the premium, that much of marginal shift might happen, but it doesn’t happen as if you know I was actually thinking of luxury, and now I start buying the economic category, it never happens like.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. That’s helpful. My second question is on the project business. We’re seeing the project business is picking sharp momentum and that’s where the local players are losing, maybe on the pricing front, because the builders lobby is also looking for the steady and maybe quality of the paints which is there. This is visible at least when we speak to the channel partners. In your case, if you can give some quantitative and qualitative comments, what the business means for you in the near term?

Abhijit Roy — Managing Director and Chief Executive Officer

The project business has been growing at a decent clip of late. And then that’s largely because many of these buildings are coming up for completion and they need painting to be done. That is happening now. Growth rate has been pretty steady. I won’t, let’s say, very buoyant as such, but it’s been slightly higher than the normal retail. If you look at it, yes, it’s growing at a slightly higher clip. It’s about 8% to 10% in terms of our total sales. It’s not going to create that much of an huge impact, it starts really growing at a fantastic place. This isn’t the case as of now.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. My last question is on the network expansion. You mentioned that you will reach about plus 10,000 stores. Now, when do you think this 10,000 stores will start contributing meaningfully to your volume and value? Is there a timeline that the scale-up will happen within six months time or maybe a year time? When you add the network, where do you start? Is it that you start with exterior? Or is it you start with emulsion? Or you start with some low-end products?

Abhijit Roy — Managing Director and Chief Executive Officer

We are adding 10,000, of which 6,000 are machine counters and the 4,000 are non-machine counters. In the non-machine counters, typically it’s the basic products we sell, enamel, distemper, primer, some amount of putty, little bit of white emulsion, the strainers. That’s how it happens. Typically smaller shops who doesn’t want to invest in the machine at this stage and can become machine takers at a later date. So that’s about 4,000, and these small value transactions which happen, but some of them more into machine builders at a later date. The 6,000 machines that we plan to install of this 4,300 odd, we have already installed. These are good counters. They start from day one across the basic and depends on location to location, where it was positioned, if it is UP and Bihar, it behaves differently, if it is Kerala, it behaves totally differently, they use very high-end premium luxury paint as well. It depends on the state where we are right. But mostly whatever is full range of products we sell in those states, these machine counters we’ll start off with these full range. That is how it happens. In our case also, this is the same trend.

Shirish Pardeshi — Centrum Broking — Analyst

Let me have little more on that to get little more depth. To reach say 150 to 200 kl per month for these machine outlets, is sufficient for you to say six to eight months time? Or they start with a month first itself?

Abhijit Roy — Managing Director and Chief Executive Officer

You mean 150 to 200 liters or? What are you seeing, I didn’t understand?

Shirish Pardeshi — Centrum Broking — Analyst

Liter.

Abhijit Roy — Managing Director and Chief Executive Officer

They start with, probably start slow, and depends on the size of the dealer counter as well. If it is a big dealer counter in which we have managed to enter, we may start with a much higher volume right at the beginning. If it is a smaller dealers, we will start with a smaller volume. It depends on what type of dealer you have got into, and what is his profile. He’s got a very good footfall, if he’s got a good contractor, of he has got architect connections, he may start with slightly higher volume. It also depends on how he places you in his counter. It sometimes maybe [Indecipherable] and he feels that he needs a good company and give you important. Sometimes you might be the fourth entrant in counter in which case he will give you only a little bit of space, maybe one or two products only, which he will sell, which he likes. It depends on lot of these factors, it’s very difficult to quantify, you know exactly what we’ll have, and this is what is going to repeat itself in across counters, it varies from concept to counter.

Shirish Pardeshi — Centrum Broking — Analyst

Thank you. Thanks for your patience and all the best.

Operator

[Operator Instructions] The next question is from the line of Ajay Thakur from AnandRathi Securities. Kindly proceed.

Ajay Thakur — AnandRathi Securities — Analyst

Hello sir, thanks for taking my question. Just had two questions, one was on the industrial and [Indecipherable] segment. Just wanted to understand how the growth has been trending in both the segments? And also, can you just give some color in terms of the margin performance in both the segments? I understand that obviously you have be sitting on a high-cost inventory, but if we were to adjust for that, can we expect margin of this segment is actually being improved to at least in your period COVID-level kind of margins?

Abhijit Roy — Managing Director and Chief Executive Officer

As far as the industrial business, we have three broad lines. Automotive and general industries, protective coatings, and powder coatings. The Powder Coating segment, as I mentioned, is de-growing in our case, maybe not be for others, but for us, because we are slightly dependent on fan industry for our sales in Powder Coatings and that there were some issues with the fan, they were changing some norms in star ratings were coming in, they have stopped production for almost two months and therefore, sales have been impacted. The profit in the case of powder coating they may stay below. As far as Protective Coatings is concerned, the sales growth has been good. We are the leader there. Infrastructure standards are very high now by the government, also in this budget as well. Capex spend has gone up substantially. We are looking forward to this good growth continuing in the future. The margin, however, is a bit squeezed here. It hasn’t gone back to the COVID days. Even if we adjust for the raw material and then finished good stock, which we had carried forward, it will still be marginally below the pre-COVID period, because the full extent of the raw material price increases have not been passed on in the industrial section, whether it is Auto, GI or protective coating.

Ajay Thakur — AnandRathi Securities — Analyst

Okay and sir, secondly, I just wanted to understand on the growth. How it has been in Tier 1 versus the Tier 2, Tier 3 towns, some color on that front?

Abhijit Roy — Managing Director and Chief Executive Officer

It has been growing reasonably well in both these markets so far, both the urban market. We don’t look at it from — we look at it, urban and non-urban, and all our depo towns we consider as urban, including the major cities. So from that perspective, more or less the growth rates has been on equal terms, no great significant difference that we could see between the two.

Ajay Thakur — AnandRathi Securities — Analyst

Thanks sir. That’s from my side. Thank you.

Operator

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

Abhijit Roy — Managing Director and Chief Executive Officer

Thank you all of you for coming and participating in this session. I hope whatever questions you had, we were able to answer those satisfactorily. Wish you all a very good health and meet you again in the next quarter end. Thank you. [Operator Closing Remarks]