KANSAI NEROLAC PAINTS LIMITED (KANSAINER) Q2 FY23 Earnings Concall Transcript

KANSAI NEROLAC PAINTS LIMITED (NSE:KANSAINER) Q2 FY23 Earnings Concall dated Nov. 03, 2022

Corporate Participants:

Anuj Jain — Managing Director

Prashant Pai — Director of Finance

Analysts:

Aniruddha Joshi — Analyst

Abneesh Roy — Lulama Institute of Equities — Analyst

Adid — Tihaptive — Analyst

Abeta — Macquarie — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Nikhil Shah — Nomura — Analyst

Jaykumar Doshi — Kotak Securities — Analyst

Abhijeet Kundu — Antique Stock Broking — Analyst

Unidentified Participant — — Analyst

Ajay Thakur — Anand Rathi Securities — Analyst

Nishimura — Investment Manager — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Kansai Nerolac Paints Limited Q2 FY ’23 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions]

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir.

Aniruddha Joshi — Analyst

Yeah. Thanks, Seema. On behalf of ICICI Securities, we welcome you all to Q2 FY ’23 results conference call of Kansai Nerolac Paints Limited. We have with us senior management represented by Mr. Anuj Jain, Managing Director, Mr. Prashant Pai, Director Finance; and Mr. Jason Gonsalves, Director Corporate Planning IT and Materials.

Now I hand over the call to the management for their initial comments, as well as the quarterly performance. Then we will open the floor for question and answer session. Thanks and all to you, sir.

Anuj Jain — Managing Director

Thank you, Aniruddha. Thanks. Good morning, [Indecipherable] to everyone, and wish you all a very happy Diwali and prosperous New Year [Indecipherable] 2079. Thanks for joining this call on Kansai Nerolac for Q2, 2022, ’23. During the second quarter, we recorded top line growth of 19.3% and EBITDA growth. The top line growth is like by passenger decorative growth is double digit in terms of value and volume is flat. Raw material prices are gradually cooling off, but at [Indecipherable] level is still inflation continues, and it is about 7% to 8% inflation is there. So far we have taken approximately 3% price increase. Giving us the highlights of industrial, we continue to increase our market share in automotive. The one of the strategy, what we have been working upon is how do we increase better margins in automotive. So that initiative is increasing margin continue.

One part is the price expense, which we have taken around 3% price increase on retail base is industrial. Some of the customers we are able to conclude some still [Indecipherable] continue. Some other initiatives in terms of market improvement, which could be so much shorter, medium term and also long term the introduction of new technology products in the market. So we have been introducing Tintri and Lubek. Obviously, there is some new technology, which the approvals are required for the customers. And in some of the cases, the customers have to make some changes in the lines, but have the potential to upgrade the business on the existing systems to these new systems. So this is what we are trying to send.

We’ve also developed a new product and which is successfully that introduce us in the market because the government is taking initiative planning [Indecipherable] with ethanol. So as of now, it is the mix of 15%, but the potential is to go to 30% ethanol to also spacing two-wheelers that if price of ethanol goes up then the existing rulings we won’t be able to take that. So we have early product we can take the blending of the petrol and ethanol so that product we’re ready with. And whenever the ethanol price goes up, we’re ready to ship these products. Some of the other initiatives that we’ve taken in this area growth initiative is related to some new markets. So one is this decal market, which is on the two-wheeler. So the decal, generally, there is a clear, which is used. We were not there in that market. So we have developed a good technology product, and now we able to service that decal market. The other new area in automotive is PVC sealer and other body with basically goes under the car body.

So that’s a good size market where we are not there. So we’ve introduced product in that market also. We’re also getting into LOBS market and that also the technology and the products are ready. And we also made some entry in the higher medical securing for auto fastners in base coating. So these are some new market for us. So these are three new areas which in auto we are expanding. In performance footing, which is an non-auto-related as we’ve discuss last time that here, again, the focus is basically to increase the mix the business. And partly, we’re exiting the business which is very low profitable or [Indecipherable] product we’re be not able to get the margin. So some percent of business which we spoke last quarter. And obviously, the sales we are including the premium. So even at actual level [Indecipherable] has increased by more than 1% in performance footing.

Performance footing business is also dependent on lot of approvals and for this premium footings, we need approvals from infrastructure, the oil gas sector, so those that we have been trying nd we made a list that how many tools we need. And we are making up to the 50% of the peers we’ve already got. And therefore, some of these sectors now that will be a bit on to reach for the business. Just to give you a tool like we got Mumbai and the bullet train approval. We got one day express the others are also started flying. So some of the approvals we have taken in the case of refinery also. So these are some of the centers. In coil coating, which is again a part of other business the margins have been very, very low in the last year and we had to be approach of shifting to higher-margin technology. And this segment client segment is a better place in terms of margins while the roof coatings are not. So we have a bite a lot of non-profitable business and increase our sales in the premium or a client segment around 10%.

Also we have got some approval from the leading appliances in the country. In Powder Coating also, we have been a market leader in power coating, but our focus is to increase our share in premium. So there are also [Indecipherable] increased by about 2%. And we have got some new accounts for the charter to give us some good advantage. So this is about industrial coming to decorative [Indecipherable] part of our greatest strategy related to a paint plus different [Indecipherable] products with future led additional benefits. So we spoke about [Indecipherable] washable for the first product and [Indecipherable]. And last quarter, in fact, we introduced the Nerolac impression [Indecipherable]. And so these are a part of the paint plus category, where we are a part of our strategy in and share in superior category. So impressions means that we have taken up existingly and we got a good response from the market. In fact, we did our last national rollout, and we did a scalers the country we plan production in last quarter.

This was expected [Indecipherable] network. So this one product, which is that we increased the ability also and we’re getting a good response. In fact to support these paint plus products, we also run a consumer [Indecipherable] Diwali period, which is still continuing on the premium products. And this was one way to enhance the interest and the preference in the category. We were also looking at adding more products in the premium and the super premium category. And because as we discussed earlier, that our sales from a popular and economic spine. But if you compare with the market, our sales and premium category is low. So what we’re looking at is that how to increase about distribution, the same distribution, who are buying my other range product, but not buying this super payment. So we are looking at extension of distribution.

So the failure is increased by 2% in super premium category. And some of the products which we expanded is in the wood finish and super payment [inaudible category. And some of the niche products we introduced in last quarter, which are term protect the proximal time also in solar, we have introduced two senior merchant, which is a superior finish at a mass premium price point. I mean the [Indecipherable], but some of these products which you’re introducing, which have a different price point and different proposition and little premiumization in solger also. Also we started introducing a product under next gen. So there’s a extension the product, which are basically meant for select distribution because the competition in the market is quite high. So obviously, some good like the dealers to retailers better that we want to focus on selling a specific range of products.

So for them, we are launching this next range next [Indecipherable] products. In communication, we said that we will be increasing communication to advertising and digital marketing of our focus is on paint plus Japanese technology and [Indecipherable] share of wise, we said that we maintaining around 15%, which we are continuing. Even in the last quarter, all our main markets was that we had a share by around 15%. And one additional point here is that return of reducing to a campaign, I’m using [Indecipherable] last year and between tin break, but using this back to our campaign, and we launched the Kasmire campain with them no paint [Indecipherable] So no smell, which we felt is going to be inside from the consumer that the segment of customer that was sensitive to be sell of paint.

So this product is highlighting the proposition. We have gone for high visibility. The other part of our plan is related to incentive program where we have taken some aggressive approach in terms of capitalization and the app and obviously, the challenge is that how we get more and more digital adoption because the entire incentive or communation were sitting to the bit below so it’s important to get the higher digital reduction from the internet. So downloads have gone by 35% to 40% compared with last year, and therefore, we are able to reach out to more number of interest. In terms of distribution, we select materials put some dedicated team on the date distribution and some new decision models, which we are working upon. So we have added about 3,000 netalatTlevel so far in this year. The other part is the project business, we are in fact we had our presence in the tech market. So they are increasing our presence across key towns and within the year, we ensure that for the downs.

I know we are available where the market potential is different. In new businesses, from sales was around 5%, which I said last time increased by 1% 6%. And we are introducing gradually, not that we are getting to every product, but we are setting with the existing products that we introduce. And then with the time tally we are introducing more number of products. for economic products, a complete range. We have launched the emulsions or times not to us have introduced. And in the last quarter, as we have seen cannibalization and shift towards value opening products, which to some extent is understood because there have been almost 23, 35% increase as two years time, and therefore, the price of one up. So there have been some shift towards the economic new product. The other part was we said we’ll be launching — we have launched these services with five days pending proposition by this industry pending proposition.

So the Q1, we piloted introduced in six cities. And in the Q2, we expanded the services to almost around 50. And we continue to split that in more down to the coming quarters. This was also linked to a market element just where we said that we are pricing for the market development who will also be handing the service part. So structural market element team is put in case, obviously, the hiring is on, but it’s put in place and more than 500 team members is on ground now. This team real services so far, they have serviced more than 15,000 sites in those accounts. And obviously, in all the sites we are driving the product abilitation the pain plus and the new products that you’re talking about. — and also helping consumers to take the right decision or giving the right eviction to the consumer for the problem that you face when you want to decide about the pain — we’re also investing in the digital ecosystem to ensure complete information available and seamless coordination across stakeholders.

So the work is in progress number is completed, and we are making progress. And we have time nice to see that this ecosystem is already within a particular time line. Overall, indicate we feel that in the Q2, the market growth is driven — volume growth is driven largely by TM businesses. In paint volume growth is very, very low. So that’s our understanding. — few other bits is that initiative process of setting near-term science-based target client base target initiative institute that’s a process of which we’ve initiated — as a part of our risk management is mitigation implementation of — last time we spoke about our initiatives related to the ESG, where we are working on stock — so initiation and TCF deframe — there we have initiated process for setting near term, we target as I said earlier. — one qualitative point, which we mentioned that what we’re working to do in the omni is basically to scale up and sustaining in terms of speed to scale up and saying went up and under that, we are focusing on some long-term allocation to internal initiatives.

Some of the initiatives are that we have taken the approval posting approvals for SOP for performance and retention to implies. And the finance is still not announced shortly, we’ll be making announcement of this team. but we’re definitely taking care of that it is the majority towards performance and it is linked to performance. But for the key employees also in as — we’re working on the capability building on the current situation and the way the platforms are changing. So we have introduced one per CPO digital platform for scale enhancement of our employees. And we are in a structure program to see that how do we make a continuous improvement in the capability building. The other area is and building the initiatives now in at have spent out, you’ve taken will continue on that. And the services and building in fenticonnecto.

Also that we have added as a part of this is the last mile service improvement. So the introduction or increase in the number of products, the number of categories are going up. and real estate these prices sometimes deletes warehouse space and put inventory has been down. So we are in full of the fact that service need time to me, so we are working on that. And overall, our traction remains that we have increased our profitability industrial and increase investment gain. — decade. So these are some of the highlights related to the quarter and from my side.

And now we invite the questions.

Questions and Answers:

Operator

[Operator Instructions] Thank you — we take the first question from the line of Mr. Abneesh Roy from Lulama Institute of Equities.

Abneesh Roy — Lulama Institute of Equities — Analyst

I have three questions. My first question is on the Deco business. You mentioned share of voice is around 15% is what you’re targeting. — what was it, say, three years back? And how does this help because your deco market share is also not very different. It might be a bit lower, the share voice is a bit higher. It’s not very much different. So how does it help in the overall things in terms of gaining market share given you are introducing for many new premium products also.

Anuj Jain — Managing Director

Yes, Abneesh. So we said target of 15% share of ice. So it used to be three, four years back when we were spending good amount in marketing, used and then it came down to 6%, 7% level and obviously around 15%. How that it sells in terms of maintaining the visibility and then we are introducing new products. So that’s how do we communicate interest of the product. Now the efficiencies at how we are building is that if you see a campaign, there are some common elements like Panu Jeff semolina. So the last two worsteintroduced, there the product changes, but the format of the campaign remains same. So ultimately, there’s a continuity and we keep introducing and therefore, that when we come up with the new product. I gains, the products we are able to complicate with the right proposition.

Abneesh Roy — Lulama Institute of Equities — Analyst

One follow-up on this drop from 15%, 20% to 20% to this 2% is a star normally, we don’t see when companies do that. And now they’re coming back to the 3%. So my question is why — why did you drop to 10%? Is it linked to your overall business in the industrial part of business? And can that again recur example would that probably it comes back — so this 15% in commit?

Anuj Jain — Managing Director

So this is the impact of that, okay, we were spending that amount for a few years. And Patisiran initially, we lost the season time and other times, obviously, this use has come on the. And then obviously, we wanted to see. And I think in the last things that maybe we have taken some pieces if we felt later on in the hindsight that cannot be right. there is some minimum kind of thing which you need to support in terms of advertising. And in our business now, we obviously look at these businesses spicy. And therefore, the decorative requirement is around this percent, which will maintain irrespective of that or business pressure comes for the.

Abneesh Roy — Lulama Institute of Equities — Analyst

That — my second question is on your narrative. I understand the low this 40% of course, that would be a small day — here my question is now put large players that are just going to contain in the next four quarters. Does it make sense for you to do a noncore business, especially given market paints also tried are still very narrative, but I don’t think it has met the initial expectation, which at market would have other would have. So, could you address this for one year to year perspective make sense to focus on additive also or it will be more of just riding on your existing distribution, not too much of advertising and sales supper?

Anuj Jain — Managing Director

Yes. So, you’re right, so not too much on our focus on the starting thing, we are riding on our existing distribution. And this is like a joint venture, which we have an erotics and one part is industrial, which now that the industrial business. And in the consumer business, just riding on our existing distribution, there’s not going to be any specific process.

Abneesh Roy — Lulama Institute of Equities — Analyst

Right. And last quick question on the distribution side, you mentioned you’re trying to target new distribution models. We also incur YTD, I think you added around 1,000 retail touch points. So, could you elaborate on this? How much of this is able to take to the core deco?

Anuj Jain — Managing Director

All of the deco, but 3,000 overall open the one point I want to add is that last time at we said one of the business model is, now we’ve given a name to it. It’s a next edition, premium shopee. So last quarter, we finalized almost around 50, and all 50 we have executed the stores are up in the market and finally finalized another 25. So, this is one of the models and there are few others which we are working upon.

Abneesh Roy — Lulama Institute of Equities — Analyst

Could you elaborate on this, is this more of the professors a lot of branding point of sale within that dealer?

Anuj Jain — Managing Director

Yeah. It’s like experience you can say where there’s a bending and also like our proposition in terms of eating the product, the copies are better than the other products. So that’s attempt we are doing. So, we never become for a higher and they’ll get be updating this in experience. And from these stores, our focus is to increase our premium sales.

Abneesh Roy — Lulama Institute of Equities — Analyst

Sure. Okay that’s it on my end. Thank you.

Anuj Jain — Managing Director

Thank you Abneesh.

Operator

Thank you very much sir. We take the next question from the line of Mr. Adid Tihaptive.

Adid — Tihaptive — Analyst

Hi. Good morning, sir. So you mentioned that in Q2 for the industry growth was driven by Putian some of the low-value products, I just want to understand how it’s concited on that front, and has there been any divergence for anti-market?

Anuj Jain — Managing Director

So in fact, in our case, as I said, integrate our volume is flattish. And in fact, the pativ slightly negative. So to that extent, excluding pativ at there would be small growth. And pativ, our approach is to be in selective because there’s a pricing pressure in the market and the margins are not there. But obviously, it grows by the distribution network, we have to keep in certain markets for a second time frame. So, we are not looking at in a high growth in property segment by the we’re just trying to go to some extent and select basis now that we are participating.

So that is for paty. And for the new products, the new businesses, obviously, it is not comparable with the industry because we have our own approach in terms of what products we are choosing or what we are doing out in higher not taking into everything. And our sales on business at about 5% while for industry, it may be more than 10% or so. So even at a similar growth, the difference will come over the salient. I don’t have to say that in the paint, we are narrowing the gap but yes, now we continue to be selective till the time we get the right situation, and new business that we’ll improve.

Adid — Tihaptive — Analyst

Understood sir. And sitting into on watering side. How are you faring on the water cooling and construction chemical businesses? How large the business would be for us and what phase are we going?

Anuj Jain — Managing Director

That’s 5%, 6%, it is one from new business, one of the Suction Chemical, and there would be a large part of it. So we have chosen the product which we felt that goes with our strength or our understanding. And actually on those products now we have got a busy market growth, but we are not getting into rain which market is introduced. The market is good. I think this is because defies a potential because after the pain companies started confection chemical and water proofing. I think the market also is spending earlier. This was basically, there’s a problem then as a solution would given, given the preventive solution also away, you can apply the order booking at the rate. So to that extent, the market is spending. And this is, this definitely be integral part pain, and I think the prospect going forward in the future be good.

Adid — Tihaptive — Analyst

A couple of quarter factors indicated that on a pretty much a full range of water proofing solution. Does that mean that we want to restrict the odds in certain dilutions, and we are happy with the band of range that we are having today? Or does it mean that over a figure of time, may still be the getting into a [Indecipherable]

Anuj Jain — Managing Director

We started to know that at the first is that we have a distribution and whatever is protect distribution is keeping, we have come out of those range completed. and because since we were late entering so our distribution are also buying from others. So, last time I said 50% distribution started buying from us, now the figure is on 35%. We are just trying to expand within our distribution to range product which are selling. As we complete mature that, I understand or completed. We do have a five final products which are like specialy the productivity.

Adid — Tihaptive — Analyst

Understood. Thank you.

Anuj Jain — Managing Director

Thank you. Thank you

Operator

Thank the next question from the line of Mr. Abeta [Phonetic] from Macquarie

Abeta — Macquarie — Analyst

Just three questions. First, the leader has announced a very aggressive capex plan not only to kind of expand capacity but also a backward integration. Do you see a need to kind of have a similar focus on capacity expansion? Or do you have to see this impacting in equity or even in the other industry. Would love to hear you?

Anuj Jain — Managing Director

Depends company to commit difficult to give answer to that. But I can tell you like if you look at industrial which is a certain area. They are the backbone of the pain is an almost more than 90% business that probably make can press in the recent part of the capacity of recent. So whatever like this automotive market is cyclical, assuming that the market will have to run for the next few quarters or a few years, I think we are to care for that. So that’s first part. There are second other areas, there will a potential as the times go on while we evaluate.

And at the time we again, the largest part is the merchants which mostly we are making in-house. They’re also like in division parts in our how many effective capacity. Now, this area is a new area, which is I don’t think capex port area because there are a lot of experts in the market and sometimes depends on the scale also. This is a complete a different game, so the time and the companies were in total visits chemical businesses. And we feel that we will not be right to do these kind of things. But otherwise, the emulsion and the rhythm already have the background indications.

Abeta — Macquarie — Analyst

Got it. So, no impact on industry and there could be because how with this one. Okay. So, the 2nd buttons, images kind of taking up where you handicapped last quarter. The second bit is just kind of picking up where you indicated last quarter that since eco-markets was also led by one in metros last quarter, this first quarter, the group was impacted by us. Now with our country growth picking up, should we expect a growth rate in the decor market to be broadly similar? Or do you think it’s too early to call out a market recovery?

Anuj Jain — Managing Director

Only changed from that time to this time is in the quarter we have seen that Tier two, Tier three growth is coming closer to the Tier one. But if you talk about Tier four or the sense like we say population less than INR20,000, the growth is still very low, says that the small market or market is still under express.

Abeta — Macquarie — Analyst

Okay. So that pressure for us may continue for some time, maybe

Anuj Jain — Managing Director

Till that Maybe because the monsoon was good maybe fourth value, quarter, it may be coming in, we have seen some positive change in tier two, tier three, tier four. So, it may get tested down to zero or smaller markets also but we are in watch.

Abeta — Macquarie — Analyst

Okay. And lastly, sir, on the security market itself, are you concerned about the growth? Because your comment in the third quarter was off like an under pressure. So would you sit that now we are in inflation is starting to bite and growth rite likely to moderate on a trip, do you see that as a concern.

Anuj Jain — Managing Director

Yes, because if you see last year the value was in the month of November, and this time the variables are leak. And the rains are continuing to almost 15 to October. So generally, what happens in the people paint after before then. Short term? Yes, because if you see last year Diwali was in the month of November and this time Diwali was early and the rains are continuing to almost 15th of October. So generally, what qhappens in the people paints after rains, before Diwali. — so that the year after rain and before Diwali we actually need a window of 20 to 30 days, and that window was not available to that extent businesses now.

And in the month of November, if you remember, recall that last year, there was a price increase in the month of November and therefore a lot of stocking has happened in the market. So subsequent months, the growth was not very high. So therefore, that the only optimism could be that post-Diwali people have not painted before Diwali whether they resume post-Diwali, we have to wait and watch. But I think because of these reasons, the basis for last year, the third quarter demand would be muted — so we believe that like first quarter was growth worth but also would be fine because of the reasons I said the subsequent ones go on the base or not high, but this quarter the base is high.

Adid — Tihaptive — Analyst

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

Anuj Jain — Managing Director

Thank you.

Operator

Thank you very much. We take the next question from the line of Mr. Shirish Pardeshi from Centrum Broking. Please go ahead, sir.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah, hi, good afternoon, Anuj, Prashant. Thanks for the opportunity, and happy Diwali. So, to start with you gave interesting month the growth on good was driven by it. is the similar trend that you are seeing in the of October?

Prashant Pai — Director of Finance

Are you saying?

Shirish Pardeshi — Centrum Broking — Analyst

Yes. I think Anuj made a comment saying that the larger growth was driven by pretty and [Indecipherable] margin more positive. So is this similar trend where I’m coming from because you did mention that there’s a downtrading that is happening for invention. So is the volume growth in the Q4 or Q3 when we look at, of course, Q3 kind you have high days. But is that the trend, which is the structure we see in the market?

Prashant Pai — Director of Finance

Specially for October if you’re asking maybe by large similar kind of trend, but for the quarter to come — but yes, because the trend is ultimately Diwali period is like July to October only thing what happens in July, typically people stock items [Indecipherable] of things by the time September comes between get some kind of retraction. But by and large, similar trend.

Shirish Pardeshi — Centrum Broking — Analyst

I just want to be a little more clear in my mind, you did mention that Diwali happened in the month of November. But is that the impact, we have taken a sharp price increase and that’s why people are moving to the lower price points?

Prashant Pai — Director of Finance

Yes. So as a the if you look at two years basis, the price increase is almost 23%, 24%. So that will be able in the market that people are shifting to the popular or economy range of the product. So there’s a shift happening. So, to that extent, as cannibalization that some of our popular products going. But in the economic like the product that we introduced at primary lower price some of the product like we introduce like at mastering duty. So, there’s a shift in sales from the popular to the economy side.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Just to clarify, you said that we have taken 3% price increase weighted. So what is the price increase for first half total.

Prashant Pai — Director of Finance

That’s the first half.

Shirish Pardeshi — Centrum Broking — Analyst

Totally by 3%.

Prashant Pai — Director of Finance

Yes, 3%.

Shirish Pardeshi — Centrum Broking — Analyst

My last question, if you can split the growth your stronger market and non-stronger markets. Maybe my understanding how is that better in Q2 FY while the North and Central had a lot of challenges, maybe end on one of the reason liquidities also the thing which consumer companies are actually highlighting. So maybe in your thoughts in your lens, how do you think and if you can help me how your stronger markets and non-stronger markets.

Prashant Pai — Director of Finance

So the strong markets are North and East and weak markets are the South and West. But in terms of growth, but we’ve seen higher growth from South followed by north followed West followed by East.

Shirish Pardeshi — Centrum Broking — Analyst

East also?

Prashant Pai — Director of Finance

Yes.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. That’s really helpful. And all the best to you.

Operator

Thank you. We take the next question from the line of Mr. Nikhil Shah from Nomura. Please go ahead, sir.

Nikhil Shah — Nomura — Analyst

Hi, sir and thank you for taking my question. I have a few questions. So firstly, it seems like your mix did not deteriorate as much as the market leader. But given the seasonality and also your growth did well. Can we say it had some impact on margins? So, margins were impacted due to interior mix, so that is one. And can margins get better sequentially with the better mix going forward?

Anuj Jain — Managing Director

So generally what happens is that if you compare to the second quarter, which is the Diwali period with easy Q1, there’s always a deterioration of the mix. and mainly because of the contribution of sensoric like in AML, December, end tinges up. So approximately 2% iteration, you always find so that changes there. So that is one reason. Otherwise, we can detect we said that was a month in investing. And the other part is the change in the business mix. because the growth is higher from industrial. So sales of industrial has gone up and the profitability and compare them to be decretive is lower, and therefore, that also.

Nikhil Shah — Nomura — Analyst

Got it. Very clear. Secondly, on the difference between the deco margin and investment margin, you highlighted it was — there was a 70% gap. That gap would have seen some improvement, of course. But can you share any indication of how much has contracted and the preset going forward as well?

Anuj Jain — Managing Director

Industry margins actually have improved based on a satiation continue to the pricing taken that has helped also to end markets. but integrative one, as I said on mix change. The other is also we have increased our investment, as we said out earlier, integrative. So that is always the mix bag.

Nikhil Shah — Nomura — Analyst

Okay. Would– Would then be about like 5% or still like 6%, 7% or any target that we have to reduce the gap?

Anuj Jain — Managing Director

It is bridge. It’s a base 2% not is based. And we we’ve been saying that because of the equity investment is going up. So something I know that it is balancing out. But just in the

Nikhil Shah — Nomura — Analyst

Got it. Sir, lastly, on — if you can talk a bit more on your non-auto industrial performance, past few quarters, we have seen a strong pickup in nonauto industrials. Is that sales momentum continuing? And if you can share what is the mix of volume and pricing in the seven, would you like volume pricing.

Anuj Jain — Managing Director

Non-auto, there are like tenants on scooting powering — so the interact ice the business in the premium. And the momentum is pretty continuing. So the thing is that the sales come it to some extent as you said, some of the nonprofitable business that exiting in the sense of you’re increasing the price and sometimes you’re not able to build the business. So we are including the business of the premium, but the lower side business is the growth retail.

Nikhil Shah — Nomura — Analyst

Got it. And lastly even book keeping any one-off on staff cost, it has shot up quite dramatically by 17% this quarter — basis? —

Prashant Pai — Director of Finance

We have an increment in the month of July. So that is the reason that a open no one of comes.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Mr. Jaykumar Doshi from Kotak Securities. Please go ahead, sir.

Jaykumar Doshi — Kotak Securities — Analyst

Yeah, hi, thanks for the opportunity. I have three questions. The first one is what is — sorry, I may have missed that. What is the Y-o-Y growth in value terms for decorative business?

Prashant Pai — Director of Finance

What is it?

Jaykumar Doshi — Kotak Securities — Analyst

Y-o-Y growth in value terms for the decorative business to be in.

Prashant Pai — Director of Finance

It’s a double-digit growth.

Jaykumar Doshi — Kotak Securities — Analyst

So one thing which I unable to understand when we think about pricing on a Y-o-Y basis, pricing is up maybe more than 20%. And you called out that volumes or maybe marginal volume growth, excluding — in your case, you’re not — your volume growth is not driven by [Indecipherable]. Then why is it on a Y-o-Y basis, the gap between value and volume is a [Indecipherable], but the pricing is up 20%. When we understand that some of your peers, there is significant duration in on a Y-o-Y basis, we can understand the narrowing of gap. But in your case, you would have expected volumes — and what — [Indecipherable] pricing.

Prashant Pai — Director of Finance

So one of the reason is that, there are some economic products that you introduce, like in beauty, [Indecipherable], moisturizers and primers. And there is a shift from the popular — product to [Indecipherable] the product, and therefore, the average selling prices of that range has come down significantly.

Jaykumar Doshi — Kotak Securities — Analyst

Okay, eventually it’s downtrading.

Prashant Pai — Director of Finance

Yes, yes. Downtrading.

Jaykumar Doshi — Kotak Securities — Analyst

Have you also seen increase in [Indecipherable] discounts versus last year? So one is — is there also another reason for that or that has been stable?

Prashant Pai — Director of Finance

Yes. During the second quarter, the September, there have been definite increase in these [Indecipherable].

Jaykumar Doshi — Kotak Securities — Analyst

Understood. Now at current spot prices, based on your inventory or pricing it, how should we think about gross margin trends over the next two quarters? And the third quarter and fourth quarter versus the current 2Q gross margin?

Prashant Pai — Director of Finance

So I think obviously, this kind of [Indecipherable] of one price is there, but some volatility now because the [Indecipherable] is depreciating. So what impact of that will come on the inflation. The situation is not one-hundred percent clear, but I think if at the same time continues, we may see some reflection in the Q4 — Q3, I am not very hopeful — but Q4, we may see some reflection.

Jaykumar Doshi — Kotak Securities — Analyst

Say something like 100 to 200 basis points? Or can it be better — is there any chance we can get better?

Prashant Pai — Director of Finance

The margins will definitely improve. But again, it depends on as you said that our strategy is eluting too much in industrial and investing decorative. So as you improve the margins, we’ll be increasing some of our investments.

Jaykumar Doshi — Kotak Securities — Analyst

Sir, final question. Good to see marketing expense in the creative business [Indecipherable]. What is the benchmark? Or is the ballpark A&P spend as a percentage of sales that we should model going forward?

Prashant Pai — Director of Finance

Difficult to comment on that. We got — to tell you very frankly, as of now that we make some sense of the figures, and we start doing that. But what we do that, what equity are doing, what is the response and that we will be able to get a response and there for some additions quite. So, say, as I think we are not going to look at what we have been doing four, five years back, but obviously, we’re increasing. And also, as we know, that we increase up between industrial or increase mix, a bit of a focus – super premium. So that gives us some better mileage. So putting them, we’ll see at some of the areas that we can invest more.

Jaykumar Doshi — Kotak Securities — Analyst

Understood. So I presume that will be in FY ’17, ’18, ’19. But again, higher than FY ’20, ’21 as a percentage of sales?

Prashant Pai — Director of Finance

Yes, you’re right. Sometime —

Jaykumar Doshi — Kotak Securities — Analyst

Thank you so much — that’s it from my side.

Operator

We take the next question from the line of Mr. Abhijeet Kundu from Antique Stock Broking. Please go ahead.

Abhijeet Kundu — Antique Stock Broking — Analyst

Hi, thanks. Sorry if I’ve missed on this, but what is the outstanding on auto volumes are significantly? Our key clients have posted very strong volume growth. How much of that has benefited in this quarter also coming quarters? And also, what happens then when auto recovery happens in the OEMs — will give you a better pricing. I mean the prices also happens. We have two or 3% has been the overall [Indecipherable]. So just wanted to get an understanding on the sales part coming from the recovery in auto OEMs and also on the profitability part. So could we see better profitability, a better — I mean [Indecipherable] and also better volume growth going ahead, or a better volume was already after the current quarter. Just wanted an idea on that.

Prashant Pai — Director of Finance

Yes. So automotive is the three passenger vehicles, then your two-wheelers, three-wheelers and the CV and the debtors[Phonetic] — so this growth is led by the services two-wheeler growth is still muted, it better than last year, but it is still — so one has to say that passenger vehicles in this year may put the peg level. But we would be down to every level action. So time it is led by the asset vehicles. And I think that run as of now, we feel that our information is published in the market part, it will at least continue.

On the pricing case from some of the customers we’ve already taking the pricing fees. And for other customers, we are continuing. And you’re right, that when you [Indecipherable] true because when [Indecipherable] was very high and we have not been able to take full pricing here. But decision is better with the customers now. And I feel that now that we’re able to get more pricing fees.

Abhijeet Kundu — Antique Stock Broking — Analyst

Okay. And so the recovery that we have seen in passenger vehicles that you already factored and [Indecipherable] during the quarter.

Prashant Pai — Director of Finance

Yes, yes.

Abhijeet Kundu — Antique Stock Broking — Analyst

Yes. Thank you, sir.

Operator

Thank you very much sir. We take the next question from the line of Mr. [Indecipherable] from Ampersand Capital. Please go ahead sir.

Unidentified Participant — — Analyst

Thank you for the opportunity. Just wanted to understand from you this industrial segment, how much did it grow on a year-on-year and [Indecipherable] — is that something you can say?

Prashant Pai — Director of Finance

[Indecipherable] in share, but obviously you can say that the percent growth is higher than 20%. And I’m talking about the actual or the highest of the growth of passenger vehicles, specifically.

Unidentified Participant — — Analyst

Understood. And the reason why I was asking, is that your overall revenue performance in Q2 compared to Q1 is — this is then marketed [Indecipherable] paint [Phonetic] despite the fact that you have a bigger contribution of automotive, which also well. So where exactly was the drag for you, in terms of market share loss?

Prashant Pai — Director of Finance

You said that we track it on [Indecipherable] new business. So this–I think said that you’re keeping it restricted. The market growth is driven by on the new businesses. In paint category, our understanding is that our growth is very, very low. So to that extent, we have narrow gap and closer to it, but continues. And new business is not comparable because we are making our own choice that we — which business, how many products to be into — that is not comparable.

Unidentified Participant — — Analyst

Understood. And a market leader in industrial and automotive and where you’re not in equity and at this point of time, there is a newer trend which is coming into decorative side, of course, you’re trying to defend your position by increasing spending — spend there, but in the process, you’re going to be in kind of neglecting the [Indecipherable] side of it?

Prashant Pai — Director of Finance

No. In fact, you know industrial — because industrial is still [Indecipherable]. And in this kind of situation, I think that we’ll be increasing our focus on industrial also. With the separate business or one focus, there’s no other [Indecipherable] focus. And [Indecipherable] is good as none. Auto [Indecipherable] market share is not that high. Their impact some of the initiatives in terms of product, technology, premium, the putting up approval team and also some of the initiatives you are taking so that we can look at more business in that area.

Unidentified Participant — — Analyst

Last thing, I just wanted to check with you. [Indecipherable] basis while you were guiding to a due [Phpnetic] performance in December quarter, — so will there be — I mean, will you continue to kind of see a margin decline on a year-on-year basis as well or the margin has kind of the floor and improving from here on?

Anuj Jain — Managing Director

I think — I think on the lower side now. So if I just say we only say about margin, margins will improve. But as I said that we are also in the process of creating a marketing investment integrative. So I think you have to keep that in mind.

Unidentified Participant — — Analyst

No, my question is that despite all that, the margin lead these levels from where it can only go up, even though it may not really lead to kind of level which in the past?

Anuj Jain — Managing Director

I think it’s the margin that closer to the low level only. And from here, the margins will improve. But again, I’m repeating a point of margin improve, but we remain our investment decorative. So therefore, you may not find any set.

Unidentified Participant — — Analyst

Thanks. Thanks.

Operator

Thank you, sir. We take the question from the line of Mr. Ajay Thakur from Anand Rathi Securities. Please go ahead.

Ajay Thakur — Anand Rathi Securities — Analyst

Hi sir. Thank you for taking my questions. I have two questions. S\o what kind of a gross margin exploring marketing spend? What kind of a gross margin you look at, say, in Q4 or maybe over the next one year? What moment can receive on a basis?

Anuj Jain — Managing Director

You want to ask the question, so at Rosebel, overall, as we mentioned that we are focusing on improving the industrial profitability, we can see at least 2% to 3% implementing a gross, right? So that [Indecipherable]

Ajay Thakur — Anand Rathi Securities — Analyst

So that [Indecipherable]. Thank you, Sir. And second question was more on the Painter app. So we are talking about innovative channels. Can chatepainters and also to increase our distribution or the kind of uptake from them. So what kind of similar kind of innovative channel can be resort to dip, which can actually help us in kind of not being affected by the institutional or the patient pain and the leader of the segment. So what kind of other lead channels can we also look at such as e-com channels, which can obviously can diversify our growth market and kind of help us in terms of cost to growth? Any kind of a broader look or sense would help?

Anuj Jain — Managing Director

So there are some thoughts about it, but we’ll not be able to spell out completely. But I can only say that one area the service area, which is like merging actually, there’s some question that the same part of the business parochial services, which is depending on the lead management system that how we ended the lead and how we can prove that lead, in the comes out of the post but maybe the right time [Indecipherable].

Ajay Thakur — Anand Rathi Securities — Analyst

Okay, thanks for taking my question. Thank you.

Anuj Jain — Managing Director

Thank you.

Operator

Thank you, Sir. We take the next question from the line of Mr. Nishimura [Phonetic], Investment Manager. Please go ahead.

Nishimura — Investment Manager — Analyst

So just to get some context on the numbers. So it should be announced that backward integrated in an and EE. So how much of your decor cost can program component, the name cost or the total cost, how much is an as a component — so just trying to assess that backward integration for them.

Anuj Jain — Managing Director

I think [Indecipherable]

Nishimura — Investment Manager — Analyst

All right. So is it like a new technology that the team that they won’t use to land or — or like what is your view on this market division?

Anuj Jain — Managing Director

No, what happens is like there are some centers of VOC, which are like European Standard and American Standard, and we are in compliance of those tender like for this low you see less than 50 gram per liter is the tender. So this technology helps income of bringing on the but then there are some other economies so which can help in terms of bringing down the VOC. So these are some in the areas of sustainability. But list total compliance that they have complied to that. And there are means and ways we see for the long the.

Nishimura — Investment Manager — Analyst

Okay. All right. And sir, on the cooking business.

Anuj Jain — Managing Director

We are following the European standard — so a mine saying that the European.

Nishimura — Investment Manager — Analyst

And also on the protein business side, so just trying to understand this industry a bit better. Like how big is this industry size? And do you think like the strategy that emotional pricing? Is it the way to go? Or do you think this is not really a commoditized market?

Anuj Jain — Managing Director

So this is like — I don’t know how to say the size because there are lot of nonpaid payers into this, but you can say that we only do merchant. So if you say a market size is INR50,000 crores, and you man would 50% to INR20,000 crores. And so you — so maybe just — there’s a lot of non particular nonpaint players. And this is a commodity product. The nice just taking 189 with the K and it is sold on discounts. So obviously, that’s not have gone up in the market. And therefore, these are commodity products which basically led by discounts.

Nishimura — Investment Manager — Analyst

Right. And do you think the backward integration of our plants and so other helps or to get any margin extraction? Or it’s just a lower pricing and pass it on like what do you think is the rationale behind such backward integration in such a commoditized business.

Anuj Jain — Managing Director

There will be some advantage in the anomalies, white cement and D-Power and the ad powder also consume this VA and the TAM and Devin. — o these are two key raw materials, 2to3 keratitis, and there could be some advantage in our pricing.

Nishimura — Investment Manager — Analyst

Okay. Okay. Got it. Thank you, sir.

Operator

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.

Anuj Jain — Managing Director

Questions always highlight and figure some of the photos also thanks for being contribution to us. And as we spend out that it’s a long-term allocation of the building of the initial business in what we’re making on not getting the averted within the in I think that we have a and we are working on it and call how we go in the long-term basis. And thanks for attending this call. I wish you the again the even setting for the coming December and Christmas and New Year, and have a good time and have a healthy and ready time. Thank you so much.

Operator

[Operator Closing Remarks]