KANSAI NEROLAC PAINTS LIMITED (KANSAINER) Q3 FY23 Earnings Concall Transcript

KANSAI NEROLAC PAINTS LIMITED (NSE: KANSAINER) Q3 FY23 Earnings Concall dated Feb. 06, 2023

Corporate Participants:

Anuj Jain — Managing Director

Prashant Pai — Director – Finance

Analysts:

Aniruddha Joshi — ICICI Securities — Analyst

Avi Mehta — Macquarie — Analyst

Archana Menon — Morgan Stanley — Analyst

Tejas Shah — Spark Capital — Analyst

Amnish Agarwal — Prabhudas Lilladher — Analyst

Percy Panthaki — IIFL — Analyst

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Keyur Pandya — ICICI Prudential — Analyst

Hitesh Taunk — ICICI Direct — Analyst

Harsh Shah — InCred Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Kansai Nerolac at Q3 FY ’23 Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi. Thank you and over to you.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah, thanks Mike. On behalf of ICICI Securities, we welcome you all to Q3 FY ’23 Results Conference Call of Kansai Nerolac Paints. 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.

Before. I hand over the call to the management, we remain enthused by the strong recovery in the auto sector and the related paint recovery also. We believe that segment is likely to grow very well in coming quarters.

Now I hand over the call to the management and then we will open the floor for question-and-answer session. Thanks and over to you, sir.

Anuj Jain — Managing Director

Thank you, Aniruddha. Good morning all of you know. First of all, let me wish you and your families a happy new year, and thanks for joining this call of Kansai Nerolac for quarter three of financial year ’22-’23. For this quarter as you must-have seen, that we recorded a topline growth of 1.4% over the same quarter of last year. And EBITDA is a degrowth of 10.2%.

Last year, other operating income included some non-recurring income, and if you exclude that, then the net revenue is up by 4% and EBITDA is up by 14%, PAT is up by 13.5%. If you look at the nine month period, the growth is 20.7% over the corresponding period of the previous quarter, and EBITDA growth is around 13.7%.

During third quarter, the growth is led by automotive, but within automotive also the growth was higher from passenger vehicle and commercial vehicles, the two-wheeler growth was — remained muted.

Decorative; the growth is slightly negative. Raw-material prices, though softening, is still being carefully monitored, given the volatility in crude and forex, coupled with geopolitical changes. Pricing in Decorative so-far is 3% YTD level, in fact it was taken earlier itself in-quarter one and quarter two, but we have taken some additional prince increase in industrial and overall price increase in industrial is in the range of 8% to 9%.

If you look at gross margin in comparison to quarter two, they have improved by 170 basis-point, and mainly it is on account of one, the product mix, where in fact one of the initiative what we have taken is shifting towards premium in all our businesses, especially in the non-auto industrial and the decorative. So it is partly on account of product mix, and the price increase of industrial, partly enough on account of that and partly on account of raw-material prices. But we’re still carrying high-priced inventory, because in industrial, the supply-chain challenges are still continuing, the geopolitical situations are still not stabilized. So one of our strength area competitive edge is the service and therefore to continue with the kind of service-level, we are still keeping a high-priced inventory. And therefore the effect of raw material prices, even in the coming quarter will come gradually.

Just to give you some colors related to our industrial business; in auto, as I said that we have got the price increase and almost all key customers, we have been able to conclude the price increase. We continue our path of extending technologically superior product. Some examples I gave earlier also, monocoat, medium solid, two more customers. So that path we are continuing. But some more initiatives what we’ve taken during the quarter, is that we have started seam filler and underbody sealant, it’s a new market. So basically our attempt is to increase the TAM in the automotive business. So it’s an traditional market, which we are entering and the technology in-house and we already got approval from the leading automakers.

The fastener coating we were exploring earlier, the commercial supply of fastener coating just started, and alloy wheel, again a new technology, new products and we have started making inroads into key manufacturers. There are some new additional business areas which we are also exploring, and as I said that our attempt is basically to increase the TAM in auto business.

Coming to non-auto which is performance coating business, as we have said earlier also, our focus is towards high technological products, the premiumization and so basically related to that, some of the business which is a very low profit business we have been exiting. And resilience in the premium item is going up quarter-on-quarter. For this premiumization, we are actively working to get approvals across key infrastructure segments, because the market is expecting, we are also expecting a good growth in infrastructure. Even in the recent budget, a lot of focus is there on the government side on the infrastructure. So we are bullish on the infrastructure segment, and therefore, we are aggressively working in terms of getting the approvals. A number of approvals have increased, even in the last quarter. Some example of these approvals are like bullet train, Vande Bharat, Mumbai Coastal Project and construction chemical — construction equipment and air-conditioner segment also we got some of the new names.

In coil coatings, where we started the business three-four years back, but we were there in the basic product category and now we are ready with the higher-margin technology products, and started getting into the applied segment. We also got some approval from the appliances, and here also our premium segment contribution has gone up significantly and some of the basic categories, where the profitability was very low, that we have exited. So this is in the industrial area.

Coming to the decorative, if you can recall that in the last meeting we said, that what has happened in the third-quarter, we had a visibility of that because last year Diwali was in the month of November, this time Diwali was early. And generally we have seen in the last two-three years, the rains get extended — monsoon get extended. And also because last year and this quarter, there was a very heavy price increase, probably we have never seen in the past that kind of price increase, and therefore typically in this situation, dealers go for a higher stocking, and therefore we did not expect a growth in decorative.

But we continue on our strategy. One was Paint Plus which I spoke in last two-three quarters also. And in the Paint Plus, our idea was to basically come up with the differentiated product, all democratizing products. So in the key categories and like waterproofing wood paints, whatever products we had, it’s a part of pipeline. Most of these products are now launched in the market, and to that an extent our Paint Plus range, what we envisaged, that is completed. In fact, in the last quarter, we introduced one more product, which is Everlast 12, which is basically a self-cleaning paint. So after every rain that the paint looks good — more beautiful.

We also started the next-generation range of products. This is basically for sales team [Phonetic] network. And this range has better whites. So the white is non-yellowing, and in terms of quality is far, far better and these products also have a better coverage. So by and large, our Paint Plus range is in-place now. As I said, this is our part of our strategy to differentiate and democratize the product offering in the market. We have got a good response to quality proposition and pricing, and salience has gone up. We are now in a position to ramp-up our distribution and salience of these products.

The next part, which we have been working for last few quarters was in the area of influencer, where the role of influencer is very-very important in paints. These influencers include painter, contractors, architects and interior decorators. So our strategy is to focus on key painters and architects and interior decorative, and demonstrate advantage of Paint Plus products to them. The infrastructure in terms of feet on-street and call-center progressed, and we’ll be completely in-place by say next quarter.

The number of connects and active users are going up gradually, when we look at all these instances. Digital adoption is progressing well and number of downloads have also increased substantially. Our reach to influencer which used to be there in the path through the distribution, has become direct now, and we have started sharing — generating business leads and sharing business with these influencers.

The next part of our plan is the distribution, where the first part, what we are looking at is the same-store growth. So focus is basically to increase the countershare and the initiatives related to that next-generation shoppee, which earlier I spoke about, that is getting stabilized now. We have already crossed more than 50 and now we are looking at more numbers going-forward. The next-generation service counters, as I spoke about that, we started the next-gen service. And therefore now related to this service, we are attaching it with the counter, so that they can supply and service the demand. The exclusive range of products for the distribution and some customized activities.

So as of now, the distribution expansion is in double-digit. This is only a direct reach, indirect is different. As of now, we don’t track the indirect reach. We have now started tracking secondary to primary conversion of sale, and then the last quarter in fact, more than 40% now we are in a position to track that whatever material we are billing to the market, how much is getting converted to a secondary sale. Going-forward, it will help us in terms of ensuring that how we keep increasing and therefore, how do we get the advantage in primary sale also.

We have also initiated actions — not initiated, actually it is already actioned, for faster replenishment of stocks in the market and last mile delivery, because in last one year, two years, the number of SKUs have grown in decorative market. And while many of our dealers who still have the same kind of the warehouse facility. So therefore, the service is becoming very important and we have introduced some premium services, to ensure that the requirement is taken care of.

You know that our market-share is single-digit, and that also gives us the opportunity. So there are certain weak towns, as a company, we have a good market-share in Tier-2, Tier-3, Tier-4, but Tier-1towns, that we are not so strong. And because when you are not strong, then obviously the distribution support also is weaker. So these weaker towns that we started working with the strategy of project, the services and wood finishes, so because in all these businesses, you can get access to directly to the influencers and the consumers. So basically the users. So project is one area where we have expanded, earlier we were there in 33 towns. Now, we’ve expanded our reach to 48 towns. And accordingly, we have expanded the team.

The pipeline of WOM sites [Phonetic] is being built gradually and within the project because the margins are lower than the retail, but we are focusing on the quality of business, so that the margins are also not affected. NextGen services with the proposition of five day dust free, which is a differentiated proposition if we compare with the industry. This has now expanded to 100 towns which are greater than 5 lakhs population. Till last quarter, we expanded to 50, but now we expanded to 100. Consumer acceptance of branded service is on rise, that is the learning what we’re getting from the market, and digital campaign to generate these kind of — has given us a good advantage. And as of now, 27,000 sites we have serviced. So basically, with these initiatives. Now we are able to understand this business pretty well and service team and structure accordingly we’ve expanded, and which is also getting supported with architect and interior decorators contact program.

The third-part of this weak towns is our wood finish applicator. Again, it is a user based business. So project next-gen services and wood finish applicators, where we can reach-out directly to the users, is our plan to increase our business in the weaker downs.

In waterproofing and wood salience is now close to around 77% [Phonetic] and they are started doing well. So quarter-on-quarter, we are seeing the progress in these businesses. For brand related, as we have been saying in the past, our share of OIS [Phonetic], we are maintaining at 15% and we have also started our communication in the regional markets.

Digital ecosystem to ensure complete information available and seamless coordination across stakeholders is progressing as per plan. And our digital performance marketing drive also we have increased, and more than doubled our organic reach via our social media. Some of these points related to decorative, which we have started in this particular year and we have been piloting and we have been testing. So we have finished at a stage of testing and piloting and our understanding is complete, and now onwards we go for the scale up on some of these activities.

Few other updates related to this, as a part of our IT backup, our DR implementation is complete. We have been working on the capability building for the people and online program is gaining traction and we are imparting lot of training to our team, so that skill enhancement happen. We have started conducting management development centers for our key managers. We have done some strategic workshops for top people, top managers with some of the innovative sessions and coming with the ideas, that can answer some of the problems to the customers, and we can come up with a better product and better processes to — and then give better solution to the customer.

Our capacity utilization is around 60%, YTD level it is more than 60%. And capacity addition in fact I think last quarter, we have announced the expansion which is in the — mainly the water-based decorative, because the growth market is water-based, and in terms of water based, the capacity expansion what we announced, is about 42% of the water based. And for the industrial, we have a sufficient capacity. So whatever this growth market is seeing, we are in a position to cater the demand of the market.

So these are some of the other points related to things and obviously, as we said earlier, we have also issued the RSUs to senior and middle-management employees. So this is the brief from my side on the result and some of the point where we have been working upon, and we’ll be happy to take the questions now.

Questions and Answers:

Operator

Thank you. We will now begin the question-answer session. [Operator Instructions] We have the first question from the line of Avi Mehta from Macquarie. Please go-ahead.

Avi Mehta — Macquarie — Analyst

Hi sir. Hi management. Thank you very much for the opportunity. I wanted to kind of just understand this — on the liquidity side more from a near-term lens? While the initiatives — very clear and I’m hoping to kind of — hope it kind of works the way you are looking for. There are signs of weakness in urban discretionary, does that not concern you from a near-term sense on the demand trades, and the decorative side? Would love to hear your thoughts on that?

Anuj Jain — Managing Director

So Avi, the trend does not indicate that, because if we see quarter-on-quarter basis, Q1, Q2, Q3, the urban growth has been — it has been doing well. I think this test was there in the rural. But we have seen improvement on every quarter basis. And if that trend continues probably from the next quarter, we mean, from the rural demand also. So as of now there is no indication like that, in the coming quarter near-term, we are seeing a better demand.

Avi Mehta — Macquarie — Analyst

Sir, you mean near-term as in Jan — is what do you mean by that, sir?

Anuj Jain — Managing Director

Yeah, coming one or two quarters.

Avi Mehta — Macquarie — Analyst

Okay, okay, sir. and sir, the second bit was essentially on the margin side, and if you could give us a sense what — it seems like margins have bottomed-out, and if you could kind of comment on that, whether that is — the understanding is correct. And what levels do you see in the steady-state over here?

Anuj Jain — Managing Director

So it’s like, as I said that this quarter, the margin expansion — gross margin expansion was around 160, 70 basis-points, which is based on the product mix, the price increase in industrial and also the declining trend of the raw material prices. So we hope that this declining trend in the raw-material prices — though we remain little cautious, because geopolitical situation or what is happening in China, we’ll have to wait-and-watch, but largely the possibilities that this trend may continue — some advantage of price increase is what we have taken, also would come in the coming quarters. The only thing what we have to keep in mind is that, generally in the fourth quarter, our business mix is very different, it goes quite in favor of industrial business. And therefore because of the change in the business mix, say, the profitability is lower in the industrial business, we see some impact of that. But otherwise you know at the segment level, if you see, I think the margins will improve based on the factors what we spoke.

Avi Mehta — Macquarie — Analyst

And sir, this should flow-through to EBITDA also right, logically? Barring as you rightly said, there is a fourth-quarter impact because of mix, but otherwise, the trend is towards — on a segmental level EBITDA margin improving from here on…

Prashant Pai — Director – Finance

Simply the gross margin improvement reflects the EBITDA. The only thing is that we are making some investment in the marketing on the people front. So to that an extent, there may be some difference.

Avi Mehta — Macquarie — Analyst

And sir, steady-state, what would you expect these EBITDA margin trajectory or levels to be? And by when do you expect the steady-state, that could be?

Prashant Pai — Director – Finance

See, as Anuj was mentioned the raw materials are showing the declining trend. So maybe another one or two quarters, it will — because we have a high-cost inventory in-place, so that has to get liquidated — hopefully in the Q1 of next year, definitely, this will be liquidated. And post that I think we should get the margin improvement also. So minimum one or two quarters, it has to happen before we liquidate all the inventory, and new inventory start flowing in.

Avi Mehta — Macquarie — Analyst

Okay, perfect sir, and any level, sir that you would want to indicate, or nothing that you have to [Speech Overlap]

Prashant Pai — Director – Finance

Very difficult to make a — give a statement on that, because the way competition is also moving, we have to react to competition also. Accordingly, we’ll wait-and-see how the margins change in the coming two quarters and accordingly we can comment after that.

Avi Mehta — Macquarie — Analyst

Perfect sir. And just one last if I may, on the — you recently did a sale of land which kind of has resulted almost INR600 crores kind of flow-through. Could you give us any idea of what is the thought on this cash that is generated? That’s all from my side. Thank you.

Anuj Jain — Managing Director

So we are just looking at supporting the growth initiatives in the company.

Avi Mehta — Macquarie — Analyst

Okay sir, that’s all from my side. Thank you very much, sir.

Operator

Thank you. We have the next question from the line of Archana Menon from Morgan Stanley. Please go-ahead.

Archana Menon — Morgan Stanley — Analyst

Hi, thank you so much for the opportunity. My first question is on the decorative segment following up from the earlier participant’s question, now with all the initiatives and improving the market-share, should we think of a decorative segment growth in-line with the industry growth for F ’24, given that most of your peers are talking about a double-digit volume growth? Is that what you would be also expecting?

Prashant Pai — Director – Finance

Internally, yes, that is what we are working upon. But just to put some color on that. So today, you know that making a comparison is not absolutely fair, because so many segments people have entered in the paint industry, and it’s not that everyone is there in every segment. So to that extent, the comparison has become difficult know, that because we generally look at where exactly we are working, which segment, which markets we are working. But having said that, yes, on the — whichever market we are working in, how do we increase the growth from there, that is what our endeavor is, and definitely, we feel confident that going-forward, we will be better integrated.

Archana Menon — Morgan Stanley — Analyst

Okay, got it. And sir, on the industrial side. The comments that you made about exiting a few non-profitable businesses, where do you think you are in that journey, and is most of it done or is — should we be expecting that to continue for the next six months?

Prashant Pai — Director – Finance

Well, most of it is already done. In fact, this we started from Q1 and by and large, we are through with that.

Archana Menon — Morgan Stanley — Analyst

Okay, so going ahead, we expect a growth on the current run-rate? So all the growth initiatives should…

Prashant Pai — Director – Finance

[Speech Overlap] in fact this initiative will be through, so going-forward in the coming years and will see better.

Archana Menon — Morgan Stanley — Analyst

Okay, sir, my last question on the margin bit, what do you think is the differential right now between the industrial and the decorative business? And as industry keeps picking-up, how much could that gap really narrow to?

Prashant Pai — Director – Finance

Look generally, we don’t give that breakup, but industrial margins have been very-very low, for very single-digit, but I think as part of our plan, we may progress on that, with the price in fees and high-technology products. So our idea is that, how do we reach-out to maybe a double-digit. So we are still little far from that, but how do we reach-out to that. And so to that extent, we are working on this new technology or the optimization of the formulations and some other initiatives. So otherwise the difference in this industry will always remain, even in the non-auto as we said that we are looking at the premiumization. So margins will definitely improve, but it will still not be closer to decorative.

Archana Menon — Morgan Stanley — Analyst

Okay., So sir last quarter, you had mentioned the difference of around 500 basis-points. Would that be similar even for this quarter?

Prashant Pai — Director – Finance

I don’t know whether we have mentioned anything on this particular part, but it could be little more than that, but the gap has breached, because in industrial, because of the price increase, we have made some progress. At one point of time, when we started the year, the gap was huge. In fact, the margins are very-very low, single digit low. So obviously, they are making progress quarter-on-quarter basis.

Archana Menon — Morgan Stanley — Analyst

Okay, thank you so much. That’s all from my side.

Prashant Pai — Director – Finance

Thank you.

Operator

Thank you. We have the next question from the line of Tejas Shah from Spark Capital. Please go-ahead.

Tejas Shah — Spark Capital — Analyst

Hi sir, thanks for the opportunity, sir. Couple of questions from my side. Sir, looking at the initiatives that you spoke about on the various aspects of the business, on the intervention that we have made, be it product pricing and [Indecipherable] and also distribution. Should we assume that going-forward will we be disproportionately focusing more on rural market versus rural?

Anuj Jain — Managing Director

You are saying, focusing on non rural versus rural, right?

Tejas Shah — Spark Capital — Analyst

Yeah.

Anuj Jain — Managing Director

No, it is not like that. So basically that — as I said that we are strong in — relatively we are stronger in Tier 2, Tier 3, Tier four which include rural. So that’s the market where we have a relatively a better share. And so our efforts there will continue, in terms of some of the initiatives, which I spoke about. But there are certain markets where our market-share is very low. And like this one question keeps coming, when the new entrants are coming in the market. Actually for those markets we are also like a new entrant. So the only thing is that, when you are weaker in certain towns, maybe the traditional conventional approach of getting the distribution does not work. And that’s why we are working differently there, that how do we reach-out directly to the users.

But the initiative in terms of growth would continue for the rural and non rural both.

Tejas Shah — Spark Capital — Analyst

Sure. And sir in terms of under-indexation for us in market-share, would you like to share some insights on any regional [Indecipherable], let’s say where you are [Indecipherable] you’re offering to correct the same as well parallelly?

Anuj Jain — Managing Director

So we are like — our strong margins are North, followed by East and South and West, these are like weaker markets for us. Specially, South, which is a very large market in our country, and there we are under-indexed and there we would like to improve our situation.

Tejas Shah — Spark Capital — Analyst

Sure. And sir, you spoke about softening order from government going ahead. Looking at the competition, current competitive environment and what will the emerge by next year, would you be able — and I am asking it for industry level also, if you can share some insight there as well. Do you think that the industry will be able to retain some of the price hike that we have taken, or it will get to reinvested, be it in form of better consumption from — consumer promotion or influencer promotion or even dealer — trade promotion as well. So just if you can share with us — have that kind of pricing power?

Anuj Jain — Managing Director

From a industry point-of-view, because the margins are still not back to what it used to be, and the margins have — you know that it’s [Technical Issues]. So I think, this this kind of situation will continue and the industry would be able to sustain the pricing; because as I said that when the prices were increased, there was a doubt in the mind that how much impact we will see in the demand. So if you see last one year also, maybe there has been a kind of inconsistency in terms of quarter-to-quarter.

But for the YTD level, I think the growth has been maintained. And to that an extent, we believe that the industry should be able to sustain the current pricing level. But this industry, even in the past, if you see, if we are able to see that we are going back to the original margin level what companies in the industry would like to operate upon. That obviously, the industry has taken the initiative in the past to pass-on that pricing benefit to the consumer. Provided we feel that it will give a fillip to the growth. So whatever growth being expected, if the growth is going to be higher on that, and the industry may decide at the appropriate time. But at least for next — the few quarters visibility we have, I don’t see the possibility.

Tejas Shah — Spark Capital — Analyst

Sure. But sir, just a follow-up on that — versus past cycle this time there is one more element to consider is, changing competitive landscape. Not only time will tell how serious that turns out to be, but looking at how competition is expected to turn out or the competitive intensity is expected to pick up, do you think that industry will attempt to retain the benefit, hypothetically assuming that raw-material corrects materially from here? Or do you think that you will prefer to pass it on to retain or gain market-share for future?

Prashant Pai — Director – Finance

Very difficult to answer this question, because as of now we don’t know that what kind of approach this new competition will come in. So hypothetically if you say that they will give more discounts. But then, whether it is sustainable, because I’m sure that all of you would question them also that — because we have seen that, this is like a industry where a lot of people have tried in the past and whatever success we have seen, that if somebody is trying to get at the mass scale, that comes with a very deep pocket. Whether it is sustainable, that’s a big question mark. So whether they will take that approach. Because any player who comes into this market and they want to be a strong player in the longer run, would have to work more in terms of establishing the network, the influencer or the marketing, rather off, playing the discounting game.

So it all depends on the competition. They are difficult to read that whether somebody will take a discounting game, we probably see more in the area of building the brand, which will take a period — some good amount of period. And if that happens then it may not be much threat to the industry.

Tejas Shah — Spark Capital — Analyst

That’s all from my side, sir, and all the best.

Prashant Pai — Director – Finance

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Amnish Agarwal from Prabhudas Lilladher. Please go-ahead.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Yeah. Hi sir, thanks for the opportunity. I have a couple of questions…

Operator

Amnish, sorry to interrupt you, but we request you to kindly go off the speaker phone, as your audio is not pretty loud and clear.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Yeah, is it fine, now?

Operator

It’s much better, come closer to the microphone however.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Yeah, okay. So my first question is, I don’t know if I have missed it. So what has been the — your volume and price realization in decorative and industrial in 3Q?

Anuj Jain — Managing Director

No, we didn’t talk about the volume. But as you said that the growth if you exclude that non-recurring, it was about 4.1% and auto growth was good, and decorative growth is slightly negative. But there is a difference that volume growth is — there is a difference of 3% to 4% within decorative volume and value.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Okay. So it means your decorative realizations are up by 4%?

Anuj Jain — Managing Director

Sorry, what did you say?

Amnish Agarwal — Prabhudas Lilladher — Analyst

Does it mean that decorative realizations were higher by 3% to 4%?

Anuj Jain — Managing Director

Yeah, it is higher than the volume growth. So that is basically on account of product mix and one of the area which we have discussed earlier also, putty growth is — putty is a degrowing material.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Yeah, yeah. Okay, so looking at the fact that now the raw-material prices have more or less softened. So if we look at say slightly longer-term say, 4Q and beyond into that, say, into the FY ’24, so will we be having positive realizations in Decorative paints?

Anuj Jain — Managing Director

Yes. The trend what we are looking at and also the some of the initiatives that we spoke about, yes. The only thing you have to keep in mind is, going-forward, as we have been very selective in terms of putty, because of the margin situation and all those things, and it’s a commodity product. So at some point of time, if the comfort level comes in, because today what we’re trying to do in the putty, is just trying to hold our existing dealers, because the customers. But some point of time, if that leverage is given, we may try to utilize it.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Okay. And sir, my second question is that — for example, in this quarter if you look at, say, all the decorative players, the numbers have not been that great. And we have been taking several initiatives. So if you look at, say, past 12 months, kind of a scenario, so what could be our market-share and have we gained or lost market-share in the decorative segment?

Anuj Jain — Managing Director

So. I just spoke about it. So obviously, we have not gained market-share. But today what is happening is that, there are so many segments. Paint is not — paint earlier also spoke about putty, project business, new businesses, so it becomes very difficult to comment upon, because different players have entered into different kind of categories. So it is not a simple comparison. But having said that, you are seeing the result, our growth is still — overall basis still lagging the market growth. But I think if we see the trend, I think it’s being bridged.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Okay, okay. And sir, my final question is that, now we have done this land sale for our land in Thane. So what could be the taxation impact in that?

Prashant Pai — Director – Finance

It is a long-term capital gains tax, which is the 20%, 22%. That’s the only thing which will be there; because the book-value is less, very-very marginal. So the entire would be capital gains.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Okay, and sir any plans to — you can say, sell our land in Lower Parel, where our office is. What could be the area of that land?

Anuj Jain — Managing Director

No plan.

Amnish Agarwal — Prabhudas Lilladher — Analyst

Okay. But area of that land parcel if you can share?

Prashant Pai — Director – Finance

So it’s about 4 acres.

Amnish Agarwal — Prabhudas Lilladher — Analyst

4 acres. Okay sir, thanks a lot.

Operator

[Operator Instructions] We have the next question from the line of Percy Panthaki from IIFL. Please go-ahead.

Percy Panthaki — IIFL — Analyst

Hi sir, this is a follow-up from one of your earlier answers, where you said that in some of the towns, you yourself are a new entrant and the traditional ways of sort of penetrating those markets is difficult, and you’re trying out newer ways of going-in there. So can you elaborate a little bit on that point?

Anuj Jain — Managing Director

So what I said is that, our market-share is actually weak in Tier-1 towns, and obviously in the weaker towns, today when you go and you want to build your position from the existing distribution, it becomes difficult, because the response that you get is not so strong. So ultimately it is — because our brand isn’t strong. So one of the question which one of these for some of asking related to our new competition also, I think this market has time-and-time again shown that, people are reluctant to shift from the strong brands. And that’s why that strength we also have. If we go directly to the users, the users are ready to accept. But if we remain completely dependent on the current distribution system, then in the weaker towns, you may not get the response.

So a few things what I spoke about is like project business, because the project is emerging business, the growth rate is higher than the retail growth in those Tier-1 towns. The second is the service part. Where also the digital performance marketing can reach-out directly to the consumer and generate the business and route it through your applicators. And the third-part is the wood finishes, where we have entered in the premium category with the [Indecipherable] brand and there also we have a quite a good premium range of products, and that is also a user base.

So basically the change in approach is, that — the route-to-market approach is going directly to the users, create a direct demand and then service the demand. So these are some of the things and maybe a few more things we are going to explore in the future.

Percy Panthaki — IIFL — Analyst

And the servicing of the demand will be done through a traditional model only, or is there some other innovative model that you’re looking at?

Anuj Jain — Managing Director

So we are exploring some model, which I will not like to talk at this stage. But what happens is that, it’s not that we have a zero distribution in this town, we have a limited distribution. So when we create the business demand, you can route that business through your limited distribution also. So basically the same-store growth goes up and so this is what we are trying to do. And when you start getting good response in the market, then you have a possibility or opportunity to increase your distribution also.

Percy Panthaki — IIFL — Analyst

Okay, And targeting the end-users directly, that is only through digital or are you looking at some other ways also of doing that?

Prashant Pai — Director – Finance

It’s more of a phigital. So we have pleased large number of team in the marketplace, so it’s phigital.

Percy Panthaki — IIFL — Analyst

But how do you reach-out to an end consumer directly? Do you like door-to-door marketing or what do you do exactly?

Anuj Jain — Managing Director

No, it is not a door-to-door marketing. So basically what happens is that, one is through the digital marketing, you generate the lead. The other is that you get the references from your distribution or from the influencers who have become a part of our pallet. So you get the references from there and there you reach-out to the consumers. So it’s not door-to-door, but based on the references you reach-out to the consumer.

Percy Panthaki — IIFL — Analyst

Understood, understood. Yeah, that’s all from me. Thanks and all the best.

Anuj Jain — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next is from the line of S. Bachhawat from LIC Asset Management. Please go-ahead.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Hi sir, thanks for the opportunity. Sir my question is relating to the…

Operator

Mr. Bachhawat, if you will come closer to the microphone. Your voice is a bit low on the call.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Hello. Is it clear now?

Operator

Yes, it’s much better. Thank you.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Yeah. So my question is relating to that allocations for railways in this budget was very impressive. So what will be the implications of that on our business, if any?

Anuj Jain — Managing Director

So it’s a part of that of the Performance Coatings business, and there the infrastructure and the part of the infrastructure is also railways. And typically in India, the railways market — earlier the coating what they were using was very low-quality of coatings. But now with this new projects coming like Vande Bharat, the Bullet, the coatings are also being used are very durable and high-performance coating. So we definitely see the good impact of that going-forward.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Is it possible to quantify in any way?

Anuj Jain — Managing Director

No, difficult to quantify it. But I can only say like Performance Coatings business size is as good as probably auto business. And in the automotive, what happened — it’s cyclic. But in the — probably this infrastructure of Performance Coating business, maybe the country will be able to see a more consistent growth.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Thank you.

Operator

Thank you. [Operator Instructions]

Aniruddha Joshi — ICICI Securities — Analyst

Yeah, hi, sir. Aniruddha here, I have couple of questions. One can you indicate the performance of the waterproofing and allied businesses, how it is shaping up? And when they’re going to do the distribution expansion, whether the — only paints will be initially distributed, or the entire bouquet of products will be distributed at one-go? That is question number one.

And secondly, how is the performance of the international subsidiaries. So how do you see the performance for these companies also shaping up in. FY ’24? Yeah. Thanks.

Anuj Jain — Managing Director

Yeah, Aniruddha, in waterproofing, waterproofing has now become an integral part of paint. So it goes together. But within the waterproofing also, there are many segments. So if I just talk about the waterproofing segment, which is like a liquid paint, a liquid product that goes hand-in-hand with the paint product. But then there are some other businesses like admixture, the sealants, where the market is little different. And therefore to handle that, we are placing the different infrastructures or different team. But otherwise mostly, contribution comes from the waterproofing, and that goes hand-in-hand. Our range for the retail is complete. In fact, now we have introduced some products in the project business also, and we have been able to stabilize and we are getting a good growth from waterproofing, also the wood finishes, things have been stabilized, and we are getting a good traction from wood finishes also.

The coming to the international, in Sri Lanka, despite the country had a problem. But we feel that maybe in the coming quarters, it may get stabilized. But as of now, actually we have been able to increase our market-share in Sri Lanka. In Bangladesh, the growth has been decent, double-digit growth and only Nepal last quarter, there was a significant substantial degrowth, because of some kind of instability. But as we see now, probably things are getting stabilized, and we don’t see that this kind of negative growth, which has happened in third quarter, it will continue.

Aniruddha Joshi — ICICI Securities — Analyst

Okay, thank you sir. Thank you. This is helpful.

Operator

Thank you. We have the next question on-line of Keyur from ICICI Prudential Life Insurance. Please go-ahead.

Keyur Pandya — ICICI Prudential — Analyst

Thank you. Sir, just want to understand on the industrial side, you mentioned that passenger vehicles and commercial vehicles did well versus two-wheelers. I think in this kind of business of business, we have some kind of visibility from the client. So if you can throw some light on how the visibility has been given from the client for next one or two quarters or whichever way the cycle works. So if you can just throw some light on the near-term visibility on automobile, as well as industrial — other industrial paints?

Prashant Pai — Director – Finance

Whatever we keep hearing through the media or from the clients, they are optimistic as of now for the coming quarters in terms of automotive. The challenge — in-between they felt that this chip shortages are able to control. But off-late again, there are certain problems and therefore, they still have a backlog. But for the coming quarter, I think they remain optimistic in terms of good growth in the passenger vehicles and commercial vehicles, and also in the tractor segment.

The two wheeler segment, which has not been doing so well, what we’re hearing is the kind of some optimism. Not necessarily that it will come in the next quarter, but in the coming quarters, I think it is also expected to do better, and also with this current budget, I think the focus of the government what we have seen on the capex and consumption growth, and some of the rural initiatives. So once that momentum picks up, they feel that the growth is going to be better in the coming quarters or the coming year. So that is what we are hearing. For this non-auto business, infrastructure business is — the going is good and there also the — there is optimism in the year, that the business will be doing well in the coming quarters.

Keyur Pandya — ICICI Prudential — Analyst

Thank you. I’ll get back-in the queue. All the best.

Operator

[Operator Instructions] We have the next question from the line of Archana Menon from Morgan Stanley. Please go-ahead.

Archana Menon — Morgan Stanley — Analyst

Thank you, sir for the follow-up. Two questions, firstly on the Deco side, you mentioned increasing share within your existing paint counters. So what are the measures that you’re doing there, and is there a need to increase the dealer commission to drive that growth? And the second question is, what is your current employee attrition rate and how does it compare versus the past?

Prashant Pai — Director – Finance

So same store growth as I mentioned that, not only it is sound, because ultimately what is important is the margin. So one initiative is our next-generation shoppee, which is like a you can say, touch and feel experience center what we are creating at the shop. So-far already we have crossed more than 50 numbers. Then the service business, what we have started. So we are creating our next-generation service counters, where all these lead business, which we are generating can be passed on to this counter.

So the business sharing or the business lead is more important, because when you give the business, automatically the profitability goes up. Also there is a range of products, which are exclusively meant for these people. So when you have a large distribution in the market, sometimes there is a competition and therefore the margins get affected. So that’s another thing. And also, depending on-market, because every market has become very different, there are certain customized activities what we are looking at. So this is the initiative related to our same-store growth.

Attrition level is in the range of 15% to 20%. We don’t have any figure of the other industry players that what is the attrition level. But obviously, last one or two years, we have seen little uptick in the attrition level. But some of the internal initiatives we have taken, and we are trying to see that we keep it at the reasonable level.

Archana Menon — Morgan Stanley — Analyst

Got it, thank you.

Aniruddha Joshi — ICICI Securities — Analyst

Thank you. We have the next question from the line of Hitesh Taunk from ICICI Direct. Please go-ahead.

Hitesh Taunk — ICICI Direct — Analyst

Thanks for the opportunity. And sir, my question is about our capex plan. Sir, you said our water based capacity, you’re going to spend 42%. Can you please highlight what is our current capacity, overall capacity and what is the capex plan for FY ’24?

Prashant Pai — Director – Finance

Our capacity is approximately 50,000 kl per month. So that’s the capacity. And capex in fact INR290 crores is what we announced earlier, it will be spent over a period of next nine to 10 quarters.

Hitesh Taunk — ICICI Direct — Analyst

And sir my next question is, on a distribution point-of-view. What are the current distribution networks’ total count and how much distributions are covered in the painting machine, and how much growth are we planning for the next one year?

Prashant Pai — Director – Finance

So distribution, generally we speak by year end, but approximately in the range of 28,000, 30,000. 80% is covered through the machine penetration. And going-forward, obviously we are looking at increasing our pace of expanding the distribution.

Hitesh Taunk — ICICI Direct — Analyst

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

Prashant Pai — Director – Finance

Thank you.

Operator

Thank you. We have the next question from the line of Harsh Shah from InCred Capital, please go-ahead.

Harsh Shah — InCred Capital — Analyst

Yeah, hi. Sir, just wanted to understand more on the decorative gross margin bit. At one-time, we’re talking about not focusing more on the gross margin products like putties, and then we are also talking about increasing our focus on projects business, which I would assume that would be a low-margin business, right. So how do we look at the gross margin bit going ahead for Deco business?

Prashant Pai — Director – Finance

So project businesses see, if we look at some of the Tier-1 towns, in some markets, it contributes 20%, 30%, 40% also. So to that extent, it cannot be avoided. Second is, as I mentioned that we are focusing on the quality. So what happens is, there are two approaches in the project, you can sell any product, and therefore whatever product your price is low, you can sell it. There is a basket approach, that you selling a range of the products, so one product your margin could be lower, the other product, your margin could be higher. So we are looking at a different approach.

And just to comment on the margins of the project also, maybe at the gross margin level, the margins could be lower, but the project sale, if we convert it to the EBITDA level, then the difference would not be that much, because in the retail, you’ll have to do a lot of activities, lot of promotion, which is not required in the project business and within the project also, in fact, our focus is in the premium product category, so that quality of focus we are keeping in mind, so that it does not affect the margin. Literally, it’s more a commodity and competitive game, where you cannot completely leave it also. When we say we are not focusing much, our idea is that we are not focusing on the growth of that, but we still have to sustain and maintain our existing dealers, that is what we are trying to do. And if the prices goes down and it becomes little more — because the industry has accepted now that the putty will continue to remain below profit thing. So if you get some advantage in terms of pricing, then you may like to pass it on to the market and see that, if that can improve your growth by some point.

Harsh Shah — InCred Capital — Analyst

Okay, okay. And secondly sir, just to clarify, we said that our decorative volume declined marginally this quarter, and we had a three to four percentage mix benefit, right?

Prashant Pai — Director – Finance

So value growth is slightly negative and between value to volume, there is a difference of 3% to 4%.

Harsh Shah — InCred Capital — Analyst

Okay. So in that case, even our industrial growth would be in mid-single-digit?

Prashant Pai — Director – Finance

So in auto, it would be higher. As I said in auto, it was driven by passenger vehicle and not the two-wheeler. Two-wheeler growth was low, auto passenger vehicle growth was high. And in the Performance Coatings business again, the growth was muted.

Harsh Shah — InCred Capital — Analyst

Okay, got it. Thank you so much sir.

Operator

Thank you. As we have no further questions, I would now like to hand it over to the management for closing comments.

Anuj Jain — Managing Director

Thank you all for all of your questions and I hope we are able to answer the question, and wish you all once again, the very happy new year and let’s hope that this year does far better than our last year, for each one of you. Thank you so much for attending this call and we’ll catch-up within the next quarter. Thank you.

Operator

[Operator Closing Remarks]