Jyoti Resins and Adhesives Ltd (BSE: 514448) Q3 2025 Earnings Call dated Feb. 04, 2025
Corporate Participants:
Utkarshbhai Patel — Managing Director
Ashok Jardosh — Chief Financial Officer
Analysts:
Madhur Rathi — Analyst
Analyst
Rajat Gupta — Analyst
Presentation:
Operator
Ladies and gentlemen, I welcome you all to the Q3 and 9 months FY ’25 Post Earnings Conference Call of Jyoti Resins and Adhesives Limited. Today on the call from the management, we have with us Mr. Utkarsh Patel, Managing Director.
As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also a reminder that this call is being recorded. I would now request the management to brief us about the business and performance highlights for the quarter and 9 months ended December 2024, the growth plans and vision for the coming year, post which we will open the floor for Q&A.
Over to you, sir.
Utkarshbhai Patel — Managing Director
Ladies and gentlemen, good morning. I welcome you all to the quarter 3 FY ’25 post earning conference of Jyoti Resins and Adhesives Limited.
Operator
We are not able to hear you.
Utkarshbhai Patel — Managing Director
As quarter 1 we were able to achieve 20% volume growth, due to monsoon and all over less demand in quarter 2, it was flat. And now quarter 3 witnessed revival in our volume growth. Volumes for quarter 3 grew at 18% Y-o-Y. Revenue on an adjusted basis grew 16.5% Y-o-Y, driven by this volume growth. We have continued to put in strong efforts in our ground level work with carpenters and dealers with several meets conducted during quarter 3 to showcase our product portfolio and improve our penetration in existing markets and create visibility in new markets.
While we gained market share in this quarter in some of our strong cities and states, we have witnessed good response in our new states as well. The higher margins of more than 30% was led by softer raw material prices and increased volumes, thereby offering us better spread and operating leverage. Because of flat volume in quarter 2, we may fall short by 3% to 5% of our stipulated guidance of 20% volume growth for FY ’25. We continue to target 20% volume growth for the next 3 to 5 years led by our efforts on the marketing front. We have increased the number of branches to 42 during quarter 3 that was earlier 38 while also strengthening our sales force parallelly, we have onboarded CMO, Marketing Manager and few ASMs.
In terms of our capacity expansions and capex plans, we are looking to add another 1,500 tonnes per month over the next 1.5 years at our existing plant, while we are looking at doing a greenfield expansion for a new facility on the outskirts of Ahmedabad to meet the initial needs of our storage of raw material, finished goods, etc, along with the potential to go up to manufacturing of 3,500 tonnes per month in the near future. Overall, we believe we are focused in our approach to markets and our strategy to maintain our number 2 position in the wood synthetic market and we are aiming to increase our market share versus the largest player.
I’m now ready to take question and answer.
Questions and Answers:
Operator
Just one clarification. The revised guidance is on an annualized basis for FY ’25. We are now ready to take questions. [Operator Instructions] We’ll first go with Madhur Rathi.
Madhur Rathi
Sir, I wanted to understand, was there a realization degrowth in this quarter? And was it because of mix change or due to raw material price decrease, we have passed on it to our dealers?
Utkarshbhai Patel
There are two, three reasons. One reason is we have focused on the OEM sales also. So, for the OEMs, the modular furniture makers, we have 3 product categories and that have the different prices as we are also in the economical grade for the OEMs, then midrange and then the high range also. And the second thing is we have passed a few discounts to the discounting bill to some territories and some states to gain more volume growth. So, these are the reasons for that.
Madhur Rathi
Okay. Got it. Sir, my next question would be, sir, we have seen our gross margin improvement because of raw material. But based on our strategy to increase the distribution and promotion expenses, so what would be the impact that was offset by gross margin reduction. So, any range that for this quarter you can give us?
Utkarshbhai Patel
So, range for the quarter 4 you are talking about?
Madhur Rathi
No, sir. In quarter 3, because of raw material reduction and the sales strategy where — so how — what would be the offset by both of these? So, I wanted to understand on that sense.
Ashok Jardosh
Let me answer this question. We have stayed at around 70% gross margin throughout this year. So, we expect that to continue.
Madhur Rathi
Okay. And sir, this would be a steady-state gross margin even when the prices increase for raw material?
Ashok Jardosh
No. This is assuming today’s raw material price and today’s average realization. If raw material prices were to expand sharply, then of course, logically, the gross margin will contract.
Madhur Rathi
Okay. Sir, on your understanding and being in this industry for a longer time, sir, based on like past 10 or 15 years of pricing, sir, what would be the average steady-state margin that we can expect going forward?
Utkarshbhai Patel
Average steady-state market, the gross margin should be — depends upon the conditions of the raw material. But average, we can consider at the 65% gross margin because the main raw material is the VAM, vinyl acetate monomer and that is imported material. And if we talk about the 15 years, 20 years of history, so there is not much increase in the particular this raw material. And as a retail as we are in B2C, we need to give at least 1 quarter to pass on the prices of raw material get increased. So that particular 3 months, maybe we get the reduction in the margin. But after that, we can increase our price. And Pidilite is a decision maker in this industry, as we all know that and we follow them. So, it is — the 65% is — 65% is a sustainable gross margin you can say.
Madhur Rathi
Okay, sir. Understood. Sir, similar question on our EBITDA margin, sir. So, this — our longer-term guidance of 22% to 25% was based on this 30% to 33% kind of reducing by 3%, 4% each from sales promotion and advertisement our efforts towards these. So, the margin over the longer term would be sustained. So, in a scenario where our gross margin reduces by from like 3%, 4% because of pricing getting normalized. So in that sense, sir, would we take a further margin reduction or we would just take price hikes or we would reduce discount? So. I wanted to understand in that scenario, how would our longer-term margin guidance play out?
Utkarshbhai Patel
So, I think this year, we may land on 29% of EBITDA. And for the longer term, we are giving the guidance always for the 25% of EBITDA. The reason is we have started — as an example, in quarter 3, we have to do good investments for the trade activities like carpenter meets, carpenter gatherings, then dealer meets. As an example, in quarter 3, we have do carpenter — 2,000 carpenters, one gathering in Rajkot. Then we did the dealers meet in 7 territories like Ahmedabad, we have do the gathering of 700 people in 1 premise in Ahmedabad. So like that, that activities, we have started to spend, but we are like to more spend into the now consumer marketing and brand marketing. So, we want to lift our brand from here. So that spending is still ongoing. And in the next year, we will see this investment into these activities. So that’s why we are guiding a 25% margin.
Madhur Rathi
Okay, sir. So my question was more regarding — so I wanted to understand, sir, to protect this 25%, would we cater to a price hike in a scenario where gross margins have increased? Or in that scenario, we would — rather than increasing the prices to final consumer, we would reduce discounts to our dealers and advertisement. So, I wanted to understand regarding that sense like if the 70% gross margin goes to 65%, where would the incremental 4%, 5% margin be — so I wanted to understand in that scenario.
Utkarshbhai Patel
So basically, to broaden the customer base is the most priority and to onboard more and more carpenters, more and more dealers whom can we associate. So, we will not compromise that way. But simultaneously, we are also focusing for the good margin premium products and that high-range premium product sales is also increasing. So that target audience is also associating with us. And that give us this result that we can have this EBITDA margin also. So, we can continue for that also. But parallelly, we will focus on the — to broaden the customer base first.
Madhur Rathi
Got it. Sir, just a final clarification on the accounting entry for our loyalty point. So, I understand that this revenue is deferred kind of revenue and we — whenever the carpenter or dealer whenever they’ll redeem these points we recognize it as a revenue. Sir, so I wanted to understand how is the margin entry for this? So, do we like book all the profitability at this moment and only the expense part is kept on the current liability segment? Or is the current liability on a lower margin than what we are selling today or it is at no margin, sir, so I wanted to understand regarding that?
Utkarshbhai Patel
Not much difference because if we talk about the 9 months, that is only INR2 crore of difference. As an example, INR32 crore is redemption — and INR32 crore is provisions and INR34 crore is redemptions. So that is not much difference in that.
Madhur Rathi
No, sir, on the margin. So, if I suppose, sir, for INR100 — so if we have INR100 crore liability on our books regarding to this redemption, so whenever that goes into our revenue, sir, is it like no margin kind of a scenario for us? Or it’s a very low margin scenario?
Ashok Jardosh
So, let me answer that question. Basically, as per accounting standards, there is deferment of revenue and proportionate expenditure. Okay? So, both whenever it gets redeemed, it moves to revenue as well as it moves to expenditure. It doesn’t move in isolation.
Operator
We’ll take the next question from the line of Keshav.
Analyst
I’m trying to understand that why our EBITDA is flat since past 8 quarters around INR21 crores, INR22 crores and top line flattish since September ’22, which is. So, when will we break out of this range?
Utkarshbhai Patel
So, as already I mentioned that quarter 1, we have taken almost 20% of volume growth. And quarter 3 is also it is good that 18% volume growth is there. So, as we have given the guidance that we will grow by 20%, so it is as per plan. But because of the — as you know that in building construction material, quarter 2 was very disturbed by all our demand and supply into the market. And all building construction materials, quarter 2 result was not good as a volume-wise. So, that quarter 2 is disturbing for us that can little stretch in our plan. But quarter 4, we are optimistic for that. And we will achieve our goal that almost 70% to 80% volume growth in that. So maybe we will — for the 3% to 5% only.
So, we have started to grow from here. But see, in the history, if you can see in 2020, we were at INR100 crores and then we grew by INR180 crores. So that growth we have taken. So right now, the main thing is the fundamentals processes that where we are making our fundamental strong. We are focusing more to team building recruitment. As I mentioned that we have onboarded Chief Marketing Officers, Marketing Managers. We have onboarded few ASMs in the newer territories. So, these are the basic fundamentals we are making the strong to grow from here.
Analyst
Sir, at what discount are we selling EURO 7000 with Fevicol for the same package, same product on average?
Utkarshbhai Patel
So, it’s basically, 2 channel partners are there. The carpenters also and the retailers also. Retailers since dealers, hardware and plywood shops. So basically, we are passing 7% to 13% depends upon the developed territory or developing territory for the retailers and for the carpenters same 7% to 13%.
Analyst
This is your retail margin, right?
Utkarshbhai Patel
Retailer, to retailer also and to carpenter also, for both.
Analyst
So, is it 7% to 13% margin each for retailer or carpenter or is it either retailer or carpenter?
Utkarshbhai Patel
No, no, 7% to 13% for the retailers and 7% to 13% for the carpenters also.
Analyst
Okay. So basically, 7% to 13% margin for both. Retailer is selling to carpenter, so both are getting the margins or only one, either retailer is getting or carpenter is getting?
Utkarshbhai Patel
No, both are getting the margin from our side. Yes, so.
Analyst
Retailer and — I got it.
Utkarshbhai Patel
Okay. I just for clarity once again. 7% to 13% we are passing to retailers and 7% to 13% we are passing to carpenters. So, both are getting this margin from us.
Analyst
Sir, I understood that but?
Utkarshbhai Patel
Okay. So, MRP-wise, we are, as compared to the Pidilite — for MRP, we are as compared with the Pidilite. But as we are giving the good margin, so retailers pass that margins to the consumers so all over the consumer.
Analyst
Sir, approximately 10%, 5%.
Ashok Jardosh
Keshav, he’s already answered that we are giving 7% to 13% to dealers. Now whatever is the MRP, this is the effective landed price will be lower than Pidilite. Then it is in his hand, what does he want to pass on over and above that.
Analyst
Okay. In any case. Sir, now the point is that, if you look at our stock, there is no institutional shareholding. There is no big investor despite good performance, despite con call and everything. Sir, so why don’t we simply get a good auditor among the top 4 so that it can build confidence amongst the shareholders? And why don’t you list the stock on NSE? What is the problem?
Utkarshbhai Patel
There is no problem in that. There is a criteria of NSE listing. So, we will going to fulfill this criteria in this March. So, we are going to go for the NSE next year. So, the criteria of INR75 crores of net worth should be last 3 years. So that criteria will be fulfilled in this March. Second thing, recently, Taparia Group has onboarded in our stock already last week. So, it’s a good news that they have invested in our stock for 3% of equity.
Analyst
I don’t know who Taparia Group is, but why can’t you get a good auditor?
Ashok Jardosh
Keshav, that’s a large family office fund. So, they have come on board last week. Regarding auditors, we work with RB Kabra & Associates, which is one of the top-notch auditors, which is working with Ecovis of Germany, which is again one of the top 3 auditors of Germany, right? So, we’ve already changed the auditor and brought a quality auditor last year itself.
Analyst
So, which other company is this great auditor auditing? I mean, except for Jyoti Resins, is there any.
Ashok Jardosh
I think you can look that up on yourself. We’ve already shared the name with you and their results are continuously audited by RB Kabra.
Operator
We’ll take the next question from the line of Vivek Joshi. We’ll take the next question from the line of Pradyumna Dalmia.
Analyst
Many congratulations on good set of numbers. And we run our family office too and this stock has been on our radar for some time. So, I’m not keen to ask anything number per se, but I have a few questions, if I can ask them. What would be a 5-year vision for the company?
Utkarshbhai Patel
So, as I already mentioned that the first, we want to achieve INR500 crores of revenue till 2027. But if we don’t talk about the numbers, the first thing what our goal plan is that we want to be a national leading positions into white glue and we want to be continuous journey into this particular segment, INR10,000 crores of journey. So, this is the vision for that because there is big room. The market is more than INR7,000 crores, INR7,500 crores, and we want to reach at least INR1,000 crores of top line into that particular segment. And so as we are more focused into the tertiary sell also. So, we believe in the repeat business, repeat customers only. So, we have created a separate marketing department, promotion department and separate sales department also for that. So, the main criteria we want to achieve in ourselves that if the carpenters has the mindset for the gluing applications that our brand name should be first in their mind. So, this is the first criteria that we want to achieve. Efforts are into that vision only.
Analyst
In the near future, are there any forward integration or backward integration systems or manufacturing out something or the other? Are you looking at some way of that where there will be some forward integration or backward integration in your manufacturing process?
Utkarshbhai Patel
Backward integration is very, very expensive because 95% raw material is the VAM into particular this product and there is no manufacturer into the India and it’s a huge capex for that. And particular for this volume, it is not required. And we don’t want to diversify our focus with this because already we are getting a good margin. So, we don’t want to go for that headaches of the capex and depreciation and that thing. And it is very tough to maintain that rather than we need to focus to create more network of ours into the market.
Analyst
So the thrust is on sales increase at the moment? As you said that you’re looking at a certain quantum of turnover. And any new products in the pipeline in the near future, which would be in sync with what we are doing or any diversification into any diverse product from what we are doing, something like, say, Pidilite has got many products other than white adhesives?
Utkarshbhai Patel
Right. So, as I mentioned that, that is a big room for this white glue. And as we all know that since 60 years, the single dominant player are getting the good more than 90% market share. So, we want to achieve at least 30% market share first and that is our goal plan. So, we don’t — for that. So, it’s a INR7,500 crore market until we are at maybe land this time INR280 crores, INR290 crores. So, it’s still a huge gap to achieve this. So, we want to focus into this product only.
Analyst
Okay. And sir, one question which I was looking at the manufacturing setup. I mean, is the cost of transportation relatively a lot lesser than it would be if you would go for decentralized manufacturing wherein plants spread across India or that is not feasible?
Utkarshbhai Patel
It is feasible. But right now, it is a cost of only hardly 2% max cost, 1.5% to 2% for the transportation. So, it is not required for that. But if we plan very much very, very high volume into south or east side, then we can think about that. But right now, we are planning for the brownfield expansions into existing plant. We have the space into that. And if we’ll go for the INR5 crores, INR10 crores to invest into the existing plant, we’ll get the capacity of almost double from here. So, INR500 crores revenue we can generate from existing plant. And after that, we are planning for the greenfield nearby Ahmedabad already right now.
Analyst
Okay. Just a couple of more questions, sir, if you permit.
Operator
Can I just request you to join back the queue?
Utkarshbhai Patel
Can you just help me pop in this one, if possible?
Operator
Okay. Sure.
Analyst
There’s a lot of free cash lying in your balance sheet and looking what you’re generating every quarter, month, whatever it is. So, what is the use of the free cash that you have in mind? Do you look at some big dividend payout for the shareholders or any capex acquisition or for that matter, how would be used?
Utkarshbhai Patel
So there will be 3 parts of that. First, you already mentioned the dividend. So dividend, we are giving the 15% of the profit to our investor last 3, 4 years. So, we will continue for that. Definitely, we can. But the second plan is, as I mentioned, that greenfield, we are planning in the next 3 years. So, maybe we’ll require INR40 crores to INR45 crores for that. But it will be used by gradually not in a single day. And the third thing we most want to focus to develop our network into the pan-India. So, we are planning to open new states.
We are planning to invest into making the branches, as I mentioned that last quarter 3 that our branches were 38. And if we talk about the quarter 1, the branches were 32. So, 32 to 38, 38 to right now 42. So, we have increased 10 branches in 9 months. So we continue to grow like this and we want to spread our network pan-India. So, we will invest to that. We have onboarded a CMO, Marketing Manager, marketing team, we are planning. So, we want to invest into that. So brand management, brand investment we are going to do in the consumer also.
Analyst
You are selling only on cash basis or credit basis?
Utkarshbhai Patel
No, credit basis.
Analyst
How much is the credit period?
Utkarshbhai Patel
So, it is average 118 days around. But if we talk about the old states where we are already mature and developed, so that is 75 to 80 days around. And for the newer market, it goes to the 100, 120 days.
Analyst
Have we had any write-offs in the near past?
Utkarshbhai Patel
Percentage-wise all over 17 years, it is not more than 1%.
Analyst
And we are not selling to any of these retailers or wholesalers or our distributors through any subsidiary or something? It is directly billed from the company?
Utkarshbhai Patel
Directly billed from the company. Yes.
Analyst
That would be enough for the moment. I wish you all the very best for the future and we hopefully will continue to stay on as investors for a long time.
Operator
We’ll take the next question from the line of Krishna Shah.
Analyst
I have a quick question. My question is on the capacity increase that you mentioned. So for the same, do you plan to do any fundraise or the same will be done through internal accruals?
Utkarshbhai Patel
Internal accruals only.
Operator
We’ll take the next question from Shubh Shah.
Analyst
Sir, you mentioned you increased branches from 38 to 42. So, these branches are similar to depo or are there something else? What is the role of these branches?
Utkarshbhai Patel
So that is similar to depo. So, what we do, we appoint consignee sales agents. So basically, it is not our investment into the capex for that and their investment. So, we are passing 3% to 4% to them and they handle the stocks, inventory, billing, dispatch, etc, that is handled by them. So as an example, if we talk about these 4 branches, so that 4 branches we open into the UP recently, we are focusing on the UP and Delhi, so like that. So geographically, where it is easy to deliver to the retailers, so at that wise, we are opening the branches for that.
Analyst
Understood. And so the last — you mentioned you moved from 30 or 32 branches to 42 branches. In what geographies have these branches opened?
Utkarshbhai Patel
Mostly, it is in UP and Delhi. But if we talk about the Karnataka, so we have opened into the Mangalore also, then in West Bengal, we opened 3 branches.
Analyst
Understood. And so before this 32 branches, we did not have any or significant branches in UP or Delhi?
Utkarshbhai Patel
No. Yes.
Analyst
Understood. Understood. Another thing sorry, what are the margins of this CSS?
Utkarshbhai Patel
3% to 4%.
Analyst
3% to 4%. Okay. Understood. Also you mentioned we give 7% to 13% margins to our retailers or dealers. What is the similar comparable number for Pidilite?
Utkarshbhai Patel
It is 4% to 6%.
Analyst
Sorry, 2% to 6%?
Utkarshbhai Patel
4% to 6%.
Analyst
4% to 6%. So for example, INR100 MRP, MRP is same. For Pidilite, it would be INR94, INR96 for the dealer and for us, it will be much lower. Is it?
Utkarshbhai Patel
So this margin actually, we are giving on the dealer price, not on the MRP. So, after that margin, there is one room also for the retailers that they will sell towards the MRP. So that is his call that how can he give the discount from MRP basis.
Analyst
Understood. So, MRP is same, but dealer price is different for Pidilite and us?
Utkarshbhai Patel
Right. The lending price is basically the more attractive, the loyalty programs annually, the quarterly offers. So, these all are the difference between the vendors.
Analyst
Can you quantify like if Pidilite is INR100, where would our lending price for the dealer be?
Utkarshbhai Patel
So, it will be what I already mentioned that 7% to 13% from the dealer price.
Analyst
Okay. Understood. Understood. And also our volume grew 18%, sales grew 16.5%. So, have we taken a realization drop of 1.5% this quarter?
Utkarshbhai Patel
So yes, basically, it can because as I mentioned that now we are in 10 products, so that has different strategies. And actually, we are — for the retailers, we are running the different strategies also to grow the market. As an example, if we are in UP and Delhi right now, so we may pass some few discounts into the in-billed. So, that in-billed discounts to do placements of our products. So that go to a little 1.5% realizations into that.
Analyst
So, over the past 1 year or so?
Operator
I would request you to join back the queue.
Analyst
Just a follow-up question on the same thing. So, over the past 1 year or so, have we taken a significant realization drop?
Utkarshbhai Patel
No. I think it’s 1.5%, not more than that because that’s why this margin is maintained. So, it’s not much variation to that. Because right now, we have increased the volume into the OEMs also. So earlier, it was 3%. This year quarter 3, it goes to the 6% for the OEMs. So, OEMs has this type — we don’t run this type of discount offers or annual loyalty programs or carpenter loyalty program. So, it is go to the flat to the OEMs. But that has a different range that is economical grade, midrange, upper range. So that is the reason. It’s a mix of the realization.
Operator
We’ll take the next question from the line of Vijay Shah.
Analyst
Two questions from my side. One is that, sir, we have guided that we want to be in the ballpark of INR500 crores sales by FY ’27. And you said this year, we’ll probably end by about INR280 crores, INR290 crores in FY ’25. Are you still confident of that guidance for FY ’27, sir?
Utkarshbhai Patel
So see, we tried a lot and we have the plans for the 20% of volume growth. And if we’ll achieve this 20% of growth, then definitely we can reach by INR450 crores to INR500 crores and we want to continue for that. But as I mentioned that quarter 2 was flattish and that spoil our average a little bit, so maybe we’ll land 17%, 16% of volume growth this time. Yes. So, next 2 years, we need to work hard and we need to go for 20%, 25% of volume growth. But our efforts are there. And yes, right now, we are optimistic for the coming years for that.
Analyst
Sure. My second question is that, sir, if I understand this a little bit on the overall business, you would agree that the capex to do a business is not very large. As you said, currently, you had said that from current 2,000 tonnes per month, we are going to add another 2,000 tonnes per month with a brownfield capex of INR10 crores. I think today, you have clarified that it is probably going to be 1,500 tonnes.
Utkarshbhai Patel
Right.
Analyst
Per month.
Utkarshbhai Patel
Right.
Analyst
And the raw material, as you said, sir, 95% of the raw material is VAM, which is an imported product for everybody.
Utkarshbhai Patel
Right.
Analyst
So sir, if I were to ask you in a different way that, sir, what do you think is our moat that we are able to make 30% margins in this kind of business where raw material is not our distinction, the manufacturing cost is not so high. Still we are able to generate 35% EBITDA margins. So, what do you feel, sir, is a moat of our business that we are able to deliver such healthy profitability numbers?
Utkarshbhai Patel
So basically, if you can see this is not overnight journey.
Analyst
Sure. Go ahead, sir.
Utkarshbhai Patel
Yes. So, it is not an overnight journey 17 years we have invested into this business. And the main effort is to build the trust into the carpenters’ mind and into the retailers’ mind. And that is the main effort. And it takes years and long years. And this is the reason that we are getting the repeat business. And see, as an example, if you talk about the Gujarat, Rajasthan, MP that are the earlier states, it is already more than 10 years into the states. So every year, these dealers has given us the business. Every year, this carpenter has given us the business. So, it is always a repeat business. And these are the key things to focus into that segment. And so we want to continue for that. So, this is basically that’s why I chose this model. It is asset-light model and it is not required much capex into that and not much higher technology into that, but it is required more work into the network building.
Operator
We’ll take the next question from the line of Rajat Gupta.
Rajat Gupta
Sir, a couple of questions from my side. So first, with respect to the newer markets. So, I know you won’t quantify region-wise data, but just to get a sense, what has been the volume growth across the new territories? And what kind of challenges are we facing with respect to onboarding a dealer or a carpenter in these markets?
Utkarshbhai Patel
See, always it is challenging to onboarding the new dealers, new carpenters. But it’s — as I mentioned that this is a process and that we need to have the patience, always a B2C product. B2C industry, we are into that. So, it always require patience. But yes, we got the more confidence into the retailers now because as we have proven into the Gujarat, Rajasthan, MP and Maharashtra, so they are very confident now for our products and they keep trusting in our sentences that is given by our sales team. But definitely, we need to prove for that and that is on process.
And for the newer markets, percentage-wise, it is — we are growing more because the volume is lower into that territory. So, if we talk about example, in UP, we are doing 10 tonnes and right now it is in 20 tonnes. So maybe for UP, we have taken the growth of 100%. But the volumes are low in the initial period, but we are targeting every state at 100 tonnes per month at least. So, it is generated INR2.5 crores — almost INR20 crores, INR25 crores of revenue yearly. So, we are target for every state to generate at least for that in the newer states we are talking.
Rajat Gupta
And with the scale up of the new capacity, whether it is brownfield or the way we are looking at the greenfield. So, we want this particular demand, which will be coming in from the new markets or the existing market that will surface or we will need to explore the new territories or the access to the OEMs for meeting out the overall requirements?
Utkarshbhai Patel
All 3 together efforts are going on. We are focusing on the existing territory to penetrate more. We are planning to focus for the newer territories for the retail also and we are onboarding the people and different channel partners for the OEMs also. So, as I mentioned earlier that we want to take OEMs also at least 15%, 20% of our revenue. So this quarter, it is go to 6%. So, we are aiming to at least reach 10% average year-wise, the first target is. So yes, all 3 efforts together.
Rajat Gupta
Just a last question. So like particularly if I look at the overall demand, so that is primarily linked with the real estate space in a way because building material requirement is somewhat suffice to overall the demand which is emerging out from the real estate space. So right now, when we look at the RE space, it is primarily there in the mid-cycle. And there will be a lot of completion, which will be taking place just in a matter of near about 2 to 3 years. So, whatever scale up which we are doing, is it pertaining to that particular side of the aspect like where you see a good amount of trust and demand coming out from the RE space and that will help in utilizing the overall assets to a greater extent?
Utkarshbhai Patel
Yes, of course. This is the reason for that. And second thing, the renovation is also there. As population is going high, as now village is moving towards the towns and cities and now people are spending with the aesthetical view of their houses, their offices. So, people are earlier stage, they go for the renovation more than 15, 20 years. But nowadays, maybe 5 to 6 years, 7 years, people are also thinking about the renovations. So, renovations is there, the newer markets, the developments of 2 BHK, 3 BHK apartments. So, whenever this real estate grow, definitely, this product is the — demand for that.
Rajat Gupta
Sure. So, we’ll continue to maintain overall 20%, 25% kind of a volume growth over the next 3 to 4 years. That remains our vision. And with respect to the new territories also, just to replicate the Gujarat model that you’re seeing kind of a visible option in near future?
Utkarshbhai Patel
Right.
Operator
We’ll take the next question from the line of Pradyumna Dalmia.
Analyst
Just a couple of more questions, sir. Your main raw material is VAM. So that is a direct function of which commodity which would affect the pricing of raw material, which will impact the margins.
Utkarshbhai Patel
So basically, it’s a crude derivatives. But as I mentioned that in VAM particular, there is not much variation in price happens only except the COVID because of that 2, 3 years that was disturbed because all the chemical materials and all the freight components. So otherwise, it is almost INR60 to INR75 between per kg.
Analyst
And which is the largest manufacturer of VAM in the world?
Utkarshbhai Patel
So there are the 4 to 5 largest manufacturers. So, the Celanese is there, the DuPont is there. So, they have the plants into the Taiwan, in Singapore, in Japan, in China.
Analyst
Okay. And what is the geography that we currently cover in India? How much of it — you mentioned that the market size is INR7,500 crores for the white adhesive market. Incremental gain will be difficult. You will have to lap up new places.
Utkarshbhai Patel
So, right now we are in 14 states and. People are onboarding; the marketing team, sales team. For the newer states if I talk about, we are also planning for the newer states We are looking for the east part. Kerala is there, Chennai is there. So, still 5 to 6 states.
Operator
We’ll take the next question from the line of Poonam.
Analyst
I had a question — there are 2 questions that you are going to expand to other states. So, my question is — and I think you already answered in the previous question, but if you could repeat which are the states that you are looking to penetrate? And over the next, say, 1 to 3 years, what according to you would you have to spend in terms of marketing or your overall operating cost structure, how would it look like? And third question would be, how do you see your return on capital employed being impacted?
Utkarshbhai Patel
So basically, the plans will be balanced plan because I believe that all the channel partners should be incentivized properly to grow the business. So, we are — first, we are obviously focused on to our employee, our recruitment, our inductions program. Second is our retailers who are keeping — and the third is the carpenters. So, we have 2 separate teams to — for the retailers, there is a separate team, the sales part that team are collecting payments, order and take care of the retailers to give the service to the retailers and for the marketing and promotions.
So, for the carpenters loyalty programs, we have a separate team who are doing the gathering of the carpenters, the promotions, the loyalty program to give them the gifts or behalf of the loyalty program redemptions. So, etc, doing by the marketing team. So, this will be the balanced plan, balanced strategies all put together. And for the newer states, I already mentioned that the UP, Delhi, the Punjab and Chhattisgarh, the West Bengal, the South, Telangana, these are the more focused territory in which we want to do replica of our Gujarat model to include these states in particular.
Analyst
Right, sir. And we are already having strong return ratios, both in terms of return on capital employed and return on equity. How do you see that shaping in the next 2 to 3 years?
Utkarshbhai Patel
I think that will be continue as it is for that because already we are having this sitting on the cash, so we will utilize the proper way and we will continue for that — so that will be as same what it is right now. It’s almost 14% around.
Operator
We’ll take the next question from the line of Keshav.
Analyst
Sir, is the EURO 7000 brand with company or promoters?
Utkarshbhai Patel
Sorry, EURO 7000 brand?
Analyst
Is owned by the company or is owned by the promoter.
Utkarshbhai Patel
Company.
Analyst
Okay. And sir, like you mentioned that from 32 branches, we have gone to 42 branches. That’s almost 30% increase in 9 months. But sir, if we see our revenue has not moved. It is the same in March quarter, it was INR71 crores and December quarter is INR71 crores. So, from 30% increase in branches, we are essentially selling the same quantum of goods.
Utkarshbhai Patel
So basically, what is the I am explaining to you. So, when the — is open, that is the process. So basically, we have set the network to grow from here. The branch is the first thing because that is keeping the inventory over there. And you are appointing the consignee and sales agents for that. So right now, we are going to utilize the network of their particular CSA network. So, these all CSA have the network of laminate and plywood distributorships already. So, we are choosing that CSA only. So, we will leverage their network, their relations now. And after that, we need to onboard our area sales manager, our sales team, our marketing team. So, by saying this 10 branches in different states, different cities, what we have appointed. So, now it is — this is the first basic step that we need to create to grow from here.
Analyst
Sir, also, if you could give us some idea that at what package are we — are the maximum sales coming from, whether it is from bulk package 20 kg or it is from 500 gram, 1 kg?
Utkarshbhai Patel
No, actually, it is mix, but I can give you the brief. The bulk packing is 30, 50 and 60 kg. So, our half revenue is from 30, 50, 60 kg and half revenue is from 500, 1, 2, 5, 10, 20.
Analyst
Okay, sir. Sir, and also, sir, there is one Nisha IT LLP, which used to hold around 8%, 7%, and this is coming down every quarter. So, is this a promoter group company?
Utkarshbhai Patel
No, no, it’s not promoter group company. It’s a separate entity.
Analyst
Okay. And sir, since our valuations are kept on — they just keep on falling, even though you are showing such great volume growth, and so sir, I would request you to kindly consider increasing your payout ratio because, sir, I think our company is the cheapest FMCG stock and it is also the lowest payout ratio amongst the whole FMCG industry. So possibly, if you increase your payout ratio, then maybe the market will develop confidence in our stock. So, kindly consider that.
Utkarshbhai Patel
Sure. We can definitely think positive about that. But I believe that all our market is the last 2, 3 months is bleeding like anything and because of the U.S. policies and the things. But I think it will be stable in next quarter. And then definitely, we’ll think about that.
Operator
We’ll take the next question from the line of Subh Shah.
Analyst
What is the cash back or reward which we are giving back to a carpenter post the purchase per kg?
Utkarshbhai Patel
So it’s 7% to 13%, what I mentioned. That depends upon the newer territory and depends upon the already developed territory.
Analyst
But if I were to put a number to it like INR15, INR25, INR30 per kg.
Utkarshbhai Patel
So it is almost INR15 to INR20 per kg.
Analyst
And it has been the same, I think, since.
Utkarshbhai Patel
It’s vary to vary state-wise, vary to vary as an example, right now, we are onboarding people into UP or Delhi in the newer states, then there is definitely an attractive programs running on so that we can onboard the people. So, it’s a different. It’s vary to vary.
Analyst
What would be the similar number for Pidilite?
Utkarshbhai Patel
That is 2% to 4% they are doing for the loyalty program.
Operator
That was the last question of the day. Utkarsh sir, if you have any closing comments, you can go ahead.
Utkarshbhai Patel
Any questions remaining?
Operator
No, sir. That was the last question. If you have any closing comments for the investor community, you can just tell.
Utkarshbhai Patel
Okay. All over we believe that we are focusing our approach to the markets and we’ll maintain our strategies and we will try the best to achieve our 20% of volume growth. And as I mentioned that will be the balanced strategies we need to focus on to the retailers, on to the carpenters also. And we’ll keep continue to focus into the white glue. And thank you very much for investing in our company and thank you very much for trusting our brand. We’ll keep continue for growing. Thank you.
Operator
[Operator Closing Remarks]