Pidilite Industries Limited (NSE: PIDILITIND) Q2 2025 Earnings Call dated Oct. 24, 2024
Corporate Participants:
Percy Panthaki — Moderator
Bharat Puri — Managing Director
Sudhanshu Vats — Managing Director Designate
Analysts:
Abneesh Roy — Analyst
Jai Doshi — Analyst
Sonali Salgaonkar — Analyst
Bharat Sheth — Analyst
Arnab Mitra — Analyst
Anand Shah — Analyst
Tejas Shah — Analyst
Avi Mehta — Analyst
Rahul Maheshwari — Analyst
Sheela Rathi — Analyst
Keyur Pandya — Analyst
Krishnendu Saha — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Pidilite Industries Limited Q2 FY 2025 Earnings Conference Call, hosted by IFL Securities Limited. [Operator Instructions]
I now hand the conference over to Mr. Percy Panthaki from IIFL Securities Limited. Thank you, and over to you, sir.
Percy Panthaki — Moderator
Hi, good evening, everyone. It is our pleasure to host the conference call for Pidilite’s 2Q FY 2025 results. I have on the line with me Mr. Bharat Puri, Managing Director; Mr. Sudhanshu Vats, Managing Director Designate; Mr. Kavinder Singh, Joint Managing Director Designate; Mr. Sandeep Batra, Executive Director, Finance and CFO and Mr. Dharmendra Lodha, Senior Vice President, Finance. I’ll hand over the call to the management, who will take you through the results and then we will open up for Q&A. Over to you, sir.
Bharat Puri — Managing Director
Thank you. Thank you, Percy and good evening, everyone. I’ll keep my opening remarks brief and short and I’ll take the — take you through the highlights of the Q2 and half year results, which was approved by our Board yesterday. The current quarter’s revenue were INR2,965 crores, 7% higher than same period last year, with an underlying volume growth of 8%. As you would observe, the gap between UVG and revenue growth has narrowed. Demand for consumer and Bazaar product was impacted by rains in the beginning of the quarter. Consumer and Bazaar UVG was 6% with rural markets continuing to outpace urban growth.
The B2B businesses continued the growth momentum with a UVG of 21%, driven by industrial and project verticals. Input prices remained benign, resulting in an gross margin expansion by 280 basis points over the same period last year. VAM consumption in the second quarter was around $980 a ton, compared to $1,000 in the same period last year. EBITDA margins for the standalone business were at 24.6%, expanded by 143 bps over the same period last year.
For the first half of the current year, standalone revenues were INR6,099 crores, an underlying volume growth of 9%, which was broad based across both Consumer and Bazaar, with an UVG of 7% and B2B with an UVG of 19%. Gross margin in the first half also expanded by 380 basis points over same period last year and H1 EBITDA came in at 24.6% versus 23% last year.
Resultant PAT growth for the half year was 19%. Our working capital situation remained healthy, resulting in strong cash inflows and we continue to invest in upgrading and building new facilities and our distribution network. A quick commentary on the consolidated results. Our consolidated revenue for the quarter at INR3,223 crores was higher than same period by 7% after adjusting the revenues from Pidilite USA and Brazil subsidiary. Adjusting for that, the growth was around 5%.
Consolidated profit-after-tax grew by 18% over the quarter last year and for the half year, PAT is up 19%. Despite challenging economic conditions across the first-half — first quarter disrupted by elections and the second quarter because of extensive rains, we have delivered robust underlying volume growth, as well as improved profitability.
With that, that’s all that I have by way of opening remarks, open the floor for Q&A.
Questions and Answers:
Operator
Thank you very much, sir. [Operator Instructions] Our first question is from the line of Abneesh Roy from Nuvama. Please go ahead.
Abneesh Roy
Yeah, thanks. So my first question is on the demand side. So we have seen FMCG companies this quarter call out urban slowdown. In your case also, Q1, there was an impact of elections and heatwave and it was 8% volume growth in C&B. This quarter the volume growth is 6%, wanted to understand how much is the impact of the rains in your portfolio in paint, it’s a bit easy to understand because exterior paint, there is a clear impact. In your case, given the industries are quite diversified and you have got different kind of products also. So if you could tell us in the non-rain impacted portfolio, is the demand still more like double-digit? And next two quarters your base is on the double-digit side, so it is on the higher side. So would you expect that the double-digit kind of volume growth in C&B could come back?
Sudhanshu Vats
So good evening, Abneesh, Sudhanshu here. First of all to you and to everyone on the call, Happy Diwali in advance and a very happy festive season. I think very good question and I think you’ve been hearing this on demand side from multiple people. I think first and foremost, Abneesh, Bharat and I, we always keep reminding everyone. So I just want to first remind, when you call volume growth, we are first talking here underlying volume growth. If I was to give you the volume growth of our C&B business, which is total volume growth, that is still double digit. So I think that’s very clear, so I wanted to tell you, yeah. We also — and basically our overall is plus 15% odd kind of percent number there, in terms of total volume growth, but we look at underlying volume growth, which as all of you on the call understand is, turnover growth at constant price, which takes into account both volume and mix and therefore gives you the quality of growth.
To your very specific question, Abneesh, I think, see, in our case, we’ve got a wide portfolio, so it’s a bit of a mixed bag. So I think there are certain areas which don’t get impacted, you’re absolutely right. And therefore, there are certain segments which have therefore delivered robust growth because if there is some work happening, which is indoor and has no implication, there be nothing. But at the same time, much like paints for us also in constructing, waterproofing, in construction chemicals, it’s unlikely that you will be doing waterproofing when the — when it’s raining cats and dogs. And as you know that in this — in this quarter, there were certain states which were very adversely affected with monsoon, Gujarat is one of them as I can tell you.
So I think we’ve also seen this statewide pattern as we go forward. But what I’m very happy to report for us at Pidilite is, you see a healthier overall underlying volume growth and volume growth for us, I think are attributed to the quality of our portfolio because we built that portfolio and also to the entire approach to execution by core growth and pioneer. So I think we do have growth in pioneering categories where irrespective of the overall demand scenario, I think depending on how we deliver upon our execution, we tend to deliver a bit better than the others.
Abneesh Roy
Sure, that’s useful. One follow-up question on the urban demand. So Sudhanshu, you are a veteran of FMCG, having worked in marquee companies. So would you say that the urban slowdown in general, which I think lot of categories are facing, not just in FMCG, if you see even in car, four wheelers, there is a significant slowdown versus, say, one quarter, two quarter back. What will be your thoughts on this? Why I’m asking this is till now last three, four years, real estate homes have done really well, new home and you do have a indexation towards that. So that does slow down at some stage, still robust, but if that does slow down, that obviously will have ramification. So any initial thoughts on, is this slowdown related largely to the food inflation. So if food inflation cools off, say, in the next few months, would you expect this slowdown in the broader consumption to reverse?
Sudhanshu Vats
Yeah, Abneesh, let me answer your question in three — in three parts. Let me first pick-up the very specific food inflation part and here I’m talking more for FMCG and I think you know, as you know, Bharat and I are also on the FMCG Committee and I’ve had that experience. So I’m here talking on behalf of others, not necessarily our business. I think there is direct linkage on — of food inflation. So therefore, as you rightly pointed out, if that eases, there will be advantage to the companies that operate in that area. That’s the first part.
I think the second part of your question on urban demand, I think so our own understanding is, I’ll put it in this form that is the demand buoyant? Is there a considerable buoyancy? The answer to that is a no. It is not really buoyant. But is the urban demand like some of the people have given the commentary as adverse as has been said out, I think we would like to reserve our judgment on that for another three to six months. We want to see the outcome of the monsoon, which has by and large been good. So I think we will — and then perhaps the point which you made on even food inflation, if it eases a bit because of Agri output on the monsoon and all that.
So our own prognosis on urban demand is that we will hold our judgment for another three to six months. On the third part, Abneesh, I just want to remind you, while we are — we get impacted and we are always happy and buoyed by in new construction. The ratio of in-home improvement of renovation to new construction is roughly 85% renovation and 20% — 80:20 kind of a ratio between these two. So therefore, new construction is good news, but first of all, new construction comes to us with a lag, as you may have heard from Bharat many times over. And secondly, that component of new construction to our demand is lower than what it is for renovation. So I think we don’t see a direct impact of that immediately, but it’s all — I think to sum it up, I think wait and watch for another three to six months and then take a final call on it.
Abneesh Roy
Sure. Last question, second and last question. So, Pidilite historically has been very, very proactive in terms of targeting new demand drivers well-ahead of any peer. Now this plan for targeting, say, EVs and the phone manufacturing, any further updates if you can share? And I’m not asking on next quarter or say Q4 or maybe even FY 2026, but in terms of optimism and long-term revenue which you can target on annual basis, say, in the next few years, any clarity you’ve got on that?
Sudhanshu Vats
So Abneesh, absolutely no numbers, but I think the good news I can give you is that we are progressing well on that. As a matter of fact, we met up with the partners again. And as I speak to you in the month of October, we have opened a application center in Bangalore and therefore, we already, as you know, are operating as a distributor of our partner eventually when we’ll take this partnership to the next level. So I think all-in all, we are progressing well. Beyond that, I can’t tell. We are very excited and we are progressing well is what I would sum it up to your — this question.
Abneesh Roy
So thanks, useful. That’s all from my side. Thank you.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Jai Doshi from Kotak. Please go ahead.
Jai Doshi
Yeah. Hi, thanks for the opportunity. Just a follow-up question there on your partnership with CollTech, can you give us some idea in terms of what is their positioning at a global level? Who are the large players for whom they are suppliers of high performance additionals and typically what’s their market share outstanding globally in that space? So that’s first question. And is this distributor arrangement largely a pilot that you are sort of and eventually if this scales up, would you be manufacturing it in India and taking this to the next level or it’s at this point of time or is it going to be distributor level relationship for a long-term?
Sudhanshu Vats
No, Jai, thanks for the question. I think on our partners, I think these partners have very strong product portfolio across chemistry. So I think — and as you would — as you would understand, this is a very specialized, high-precision thermal resistant kind of chemistry portfolio across different chemistries. So first of all, their product portfolio is very good. Second thing is that they have a very strong inclination on R&D. They have a very, very high — so 20% of the manpower is on R&D and therefore there’s constant R&D work which is done. And without naming, I can tell you that some of the large marquee customers across the world are customers of our — of our — of our partners.
Now in terms of the partnership is concerned, the partnership has been envisaged in phases. Our current phase is basically as a distributor. And in this, we are very excited with the work which we are doing. We are getting — we’ve set-up the cold chain with Snowman. I think in collaboration with Snowman, we are very — we have already started, we’ve done a lot of specification sampling. We’ve done some commercial sampling. We’ve also got a initial order. So there is initially it is a — it’s very good this thing. I think in terms of manufacturing your question, we will answer that question when we cut to it. I think we are very open to that thought. But as and when we talk about it as and when we are more clear and our plans are firm, we will talk about that as well.
Jai Doshi
Right. If I may ask some a few more questions there. In the current context, what product is being used in India? I know the industry is also is always maybe at an excellent state, but who are the suppliers, you know at this point of time?
Sudhanshu Vats
So what I suggest there is that we can take some of this offline, I’m happy between Sandeep and I, we can talk about it in more detail. But I think the point at this moment is that we are — there are multiple guys. As you know, this is a slightly different supply chain as I’m sure you guys must be aware, there are contract manufacturers, some of the biggest guys like here, Tata Electron — Tara Electronics itself is very large in India now. They have acquired one or two of these contract manufacturers also in India. And then there are a whole host of EMS companies, as you know. So I think this supply chain, we are basically getting to understand, working with them. We have visited some of our top customers. We are working on the speech, we’ll be happy to take something in more detail with you offline.
Jai Doshi
Sure, I’ll reach out to you separately. Second question is, look, you know, AkzoNobel Decorative Paints business is on the block and some of the companies have publicly expressed interest. So what’s your view on that? Does it interest you?
Bharat Puri
Yeah, I’ll take that. Good to hear from you, Jai. As far as AkzoNobel is concerned, we’ve also read the report so on and so forth, etc. Let us get all of the details, what is on the block, what is happening so on and so forth and at on appropriate time we will then figure, you know, reply on whether it’s an area of interest or not, too early right now. It’s all in the press, but they haven’t still moved forward from the press into real action.
Jai Doshi
Understood. Any update you want to give us on the…
Operator
Sorry to interrupt, we request you to get back to the question queue for any follow-up questions. [Operator Instructions] Our next question is from the line of Sonali from Jefferies. Please go ahead.
Sonali Salgaonkar
Good evening, Pidilite team and wishing everyone a very happy festive season and congratulation for a healthy EVG. Sir, my first question is related to any updates you would like to give on the smaller business segments that paints and NBFC’s? And secondly, just an extension to the commentary by Mr. Vats to a previous participants query, how much of our overall sales would emanate from new construction versus renovation? And thirdly, the present cost of VAM consumption. Thank you.
Bharat Puri
Thanks, Sonali. The whole set of questions, let me start first. As we’ve always said for the paints initiatives where in the southern states, we will be in a position to share updates at the end of the period, which is in around March. As of now, as I can tell you, with a company with our sales and distribution strength and cloud, obviously, initially you get a good response, but I would wait and come back to you with further plans what our results are in March. Similarly, on the NBFC, we’ve just concluded Stage 1 of the two stage pilot, again, we will have firm results on the pilot, which is happening in Bangalore in March. So on both these areas, you will get an update from us in March.
Your next question, which is on — I’m not answering in the same order, simple VAM consumption rate this time is $980 a ton, last time was close to $1,000 a ton. So we’re pretty much in the same area. As far as — remember, it’s very difficult for us as a company given that we have 37 different vertical to aggregate and say what part of our demand comes from new construction versus renovation. But I’ll tell you in a very simple this thing that we use, let’s use a 70:30. 70 comes from repair and renovation, 30 comes from new construction. New construction tends to be therefore the multiplier. The larger part is actually repair and renovation.
Have I missed any of your question?
Sonali Salgaonkar
No, sir, not at all. Thank you. That’s all from my side.
Bharat Puri
Always a pleasure, Sonali. Thanks so much.
Operator
Thank you. Our next question is from the line of Bharat Sheth from Quest Investment. Please go ahead.
Bharat Sheth
Hi, sir, congratulations to the whole team for such a good number in a challenging time. I’m little new to the company. I want to understand that in last five, six years, we have added under home care added several category also as well as the [Indecipherable] category also, we have added a new product. So is it — we can get some kind of, I mean, our innovation turnover index, if you can give some and how do we see going ahead? That is the first question.
Bharat Puri
See, Bharat bhai, we are always, very broadly the objective we set for ourselves is two-third of our growth should come out of growing the core and one-third should come out of innovation. We have largely been true to that as we go forward. We also use exactly the same parameters when we look at new categories and innovation within category. Beyond that, if I share further detailed information then I’ll be helping my competition.
Bharat Sheth
But sir, would you think that going ahead, I mean, whatever product that we have introduced can I mean, accelerate the growth which we are saying that core is contributing around 65% or 60%, so from that perspective?
Bharat Puri
See, very clearly, our objective is, if we are transforming our portfolio, when we started on this journey, we were 80 core, 20 growth in Pioneer. We are now 55:45. By definition, growth in Pioneer grows faster than core and therefore we are looking at heightened growth, so that is our objective. Over a period of time, we’ve always maintained we would like to go to healthy double-digit underlying volume growth because we believe that’s the best indicator of success in an emerging market.
Bharat Sheth
And last question with your permission, sir. Sir, our — some of the subsidiary which is we have found, I mean from our last three, four years, still that EBITDA is declining. So would like to give some color on that, when do we expect that to really start healthy EBITDA?
Bharat Puri
See the only subsidiary that has been significantly challenged over a larger period of time has been Nina percept because this is a contracting subsidiary which suffered during COVID that suffered with the lack of labor, etc. But if you notice, this is slowly coming back to profitability, frankly, over the next three quarters you will see Nina percept also in a profitable situation.
Bharat Sheth
Okay. Thank you and all the best, sir.
Bharat Puri
Thank you.
Operator
Thank you. Our next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.
Arnab Mitra
Yeah, hi, thanks for taking my question. My question actually was again pertaining to the demand environment. So for a want of a better word, you don’t seem to be very bearish on the demand condition compared to some of the other companies I’ve heard. Now if I look at the first quarter, there was this question of election impact, second quarter is probably a bit of monsoon impact. Would you say that if December quarter, you should see whatever the pent-up demand or some postponement of activity kind of coming through and would you expect December quarter to kind of be much stronger than the first half? And any major difference you see between, let’s say, the retail products like Fevikwik versus, let’s say, woodworking adhesives, which are more used for carpentry, is there like a difference in like small-ticket versus more larger ticket reset products in your case. So any color on both of these would be helpful.
Sudhanshu Vats
Yeah. Once again, thank you for the question and I think the first part of the question has partly answered, but I’ll again repeat. See, where we are on side is we are also not saying that there is considerable buoyancy in the market. But having said that, I think we perform better. We perform better on the quality of our portfolio, on the quality of perhaps the category we operate in. So therefore there is that because each category is operating differently in a country like India at the moment. And also our execution on the entire front of core growth. And as Bharat was explaining in the previous questions, as our growth and pioneering categories grow up, pioneering particularly is largely the execution work to be done by us. So therefore, we are — we therefore get a bit of a benefit of that compared to some of the other organization.
I think on the second part of your question on our own consumer product business, which is not classic FMCG, but consumer products business, has there been some impact? The answer is yes. I think in the first half of the year, if you look at our own consumer products business, you talked about Fevikwik, but even art and stationery and some of those products, I think there has been a marginal impact. So what you are hearing from everyone, the market conditions do have a play there, so that’s the point.
Bharat Puri
Plus, Arnab, what we are not clear about and that’s why we have others saying, let’s see the third quarter, how much of this is due to really these physical factors, whether it was the election, the heat wave, the monsoon and how much is genuinely demand subdued, we still don’t have a fix. So we are just saying wait and watch, I mean…
Arnab Mitra
Yeah.
Bharat Puri
When we look even October, it’s not a buoyant October, it’s not a depressed October, it’s a normal October. So we are not seeing this upsurge in festive demand so on, so forth, etc., but we are not seeing it depressed either.
Arnab Mitra
Understood. That’s very helpful color, Bharat and Sudhanshu. And just one last question, we’ve been doing extremely well in the B2B business for the last three quarters in terms of volume growth. If you could just help us understand, is the underlying growth in those industries strong or is this more penetration on market-share gain because you have certain lines of business which you’re focusing on more versus in the past?
Sudhanshu Vats
Yeah. No, you are absolutely right. I think our B2B business, we’ve been delivering consistently strong double-digit growth for, I think past three or four quarters, if not longer, almost a year-plus. I think it’s a combination. So, there if you look at our B2B business, I think our — there is in — our industrial business and there is our project business. So I think it’s our strategic work which we’ve done on projects and the quality of execution, I think, which we are dialing up with every passing quarter. So on the product side, we are seeing very robust growth, aided also by the construction and some of the things which are happening at macro-level. So I think that is one which is — so that we are seeing very strong growth.
As and be in complete candor and which is like the spirit of Pidilite, I would also share with you that our industrial product business has delivered good growth, but some of this you are also seeing as a comparator because some of our industrial product business has a export component and one has export to Western world, that business this year has improved considerably over previous year. So there is a little bit of the — that impact as well. So I think those are the — I think so therefore, that is my response to your question on B2B. But we are confident that we going ahead, we will continue to drive our B2B businesses in strong double-digit.
Arnab Mitra
Thanks so much. All the best. That’s it from my side.
Operator
Thank you. Our next question is from the line of Anand Shah from Axis Capital. Please go ahead.
Anand Shah
Yeah. Hi, sir, thanks for the opportunity. Just couple of questions. Sir, firstly, on the domestic subsidiaries, you have the CDP [Phonetic] business sort of was slower or sort of declined this quarter Y-o-Y, I mean, you did highlight [Indecipherable], but that’s the only way through or anything else which we have?
Bharat Puri
No, definitely as far as domestic subsidiaries is concerned, the first six months has been challenging both for me. The two big ones are Nina and ICA Pidilite, both have faced challenges, both from again these physical factors that we spoke about the various areas. In our belief, again in both these cases, we’re fairly hopeful that you will see a far better second half than the first half, given that these were largely local factors. But clearly, I would say if there were two challenge businesses, these were the two challenge businesses in the first half.
Anand Shah
Got it. Got it. And just lastly on your employee cost, I mean we’ve actually seen a surge now again, I mean even in H1, it is up substantially. I mean is some of this sort of front-loading sort of building was sort of investing more or I mean eventually do you expect with double digit you will see another year as well?
Sudhanshu Vats
See, I think that’s a great observation, your observation is largely correct. What we remember in the last just 2.5 years, we’ve built some 19 new facilities. Now all facilities take time to ramp-up before they come to even 75%, 80% capacity utilization. Plus given our model in Growth and Pioneer, we will always — while these categories will be gross margin attractive, we will always invest in both people and ASP upfront. So this is part of our plan. Overtime, you will keep seeing this moderate as we go forward as the turnover equals. This is in one sense, I mean, I won’t call it front loading, I will just say this is all part of our preparation for future growth.
Anand Shah
Got it. Got it. Well, thanks a lot, sir.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Tejas Shah from Avenduspark Institutional Equities. Please go ahead.
Tejas Shah
Yeah, hi. Thanks for the opportunity. Sir, in the past two, three years, competition in waterproofing came from paint players as new joinee there or three, four years rather not two, three years. Now with them focusing more on protecting their core, do you see competitive intensity in waterproofing decreasing or have they become more aggressive because the threat is on core, they are getting more aggressive on waterproofing side.
Sudhanshu Vats
I think again, that’s a great question, but let me just split it in two, I think your question is the right one. See, paint companies tend to strongly play in the repair and renovation segment where people repair and renovate, they will waterproof and repaint largely at the same time. Most of the paint companies are not strong in the new construction area. Most of — because at that point of time, the outlets that sell waterproofing are actually what we call the building material outlets, steel, cement, etc and not the paint outlets. Now overtime, what has happened is, most of the paint companies have introduced coating that even the newer entrants that have come into the market have also got waterproofing coating. So we’re not seeing any decrease in intensity of waterproofing, it’s now become part of their range and obviously, everybody is right now in this disruptive situation trying to protect share, etc. So you will see a certain amount of this turmoil in the market, but I mean it — is it substantially more than the past? The answer is no. Is it lesser? Definitely the answer is no.
Tejas Shah
Got it. Sir, second, you have observed this industry for many years and looking at the profit pool and the way it is growing and the challenges that it has, do you see that it can accommodate this many new players or you see that consolidation is the only way to kind of make justification for the ROI that industry has been used to?
Sudhanshu Vats
See, when you have a large, deep-pocketed player with a substantial front-loaded investment coming in, you’re going to see disruption for 12 to 18 months, right? There is no doubt about that. Now finally, as I always put it, if the current incumbents manage to continue to satisfy their consumer and customers a little more than the newer fellows, then like many new entrants into the paint market, you will see that this may not be a disruptive moment for the industry. But if they don’t, I definitely do think that there are too many players in the market. What will happen in future, you guys are far better experts than we are in all this business of consolidation, etc. Will paint as an industry [Technical Issues] so the answer is yes. What will be the new normal? I think probably this time post the festive season next year and next year, I presume Diwali will be in the third week of October. Post next year’s festive season, you really know where the new normal is emerging.
Tejas Shah
Perfect. And sir, last one if I may. You were candid about your view on demand environment. If I understood correctly, you seem cautiously optimistic. So just wanted to know, we are already mid-way into the festive season. Whatever sentiment you are picking-up right now you still — you think that the signs of revival are there or you still wait for, let’s say, Diwali to get over or somewhere around mid 3Q you will have some more clarity on the demand.
Bharat Puri
I think you will only have clarity, frankly, at the end of the third quarter, but everybody currently is basing things of hope. There is no evidence right now of what I would say much more buoyant demand situation during the festive season. We are 10 days away, though I must say that remember the last 10 days of the festive season are very strong. But having said that, I mean, we are not seeing any major like as if there was a lot of pending stuff that had to be completed and therefore there is a rush, it is still a normal October, it is not a buoyant October.
Tejas Shah
Got it, sir. Very clear. Thanks and Happy Diwali to the team in advance.
Bharat Puri
Same to you. Thank you so much.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Avi Mehta
Hi, team. Thanks for the opportunity. I just — most of the questions have been answered, I just had one basic question on the margin front. Now you have historically indicated this 20% to 24% steady state range. With the first half EBITDA margin already ahead of that range, it’s at 24.5%, would you say and input costs are benign, would it be right to say that there is a higher possibility of us reaching that range, obviously, things could change, but I’m just trying to understand how should we look at the margin front? That’s all from my side.
Sudhanshu Vats
No, Avi, I would not say that there is a very-high possibility of breaching. We — you know that we don’t manage margins on a quarter-by-quarter basis. Given the extended range, etc, we postponed a lot of promotional and advertising activity to the third and fourth quarters because it didn’t make sense during that time. So you know, therefore, you are also seeing, I mean, one of the reasons why our EBITDA is higher because of lower ASP spend, that will not actually happen in the third and fourth quarter. We — I presume without any blacks on geopolitical events in the fourth quarter, we will be at the higher-end of our margin range, but I don’t see great possibilities of breaching it substantially.
Avi Mehta
Got it, sir. That’s all from my side. Thank you very much, sir.
Sudhanshu Vats
Thanks.
Operator
Thank you. Our next question is from the line of Percy Panthaki from IIFL Securities Limited. Please go ahead. Hello, Percy, sir?
Percy Panthaki
Am I audible?
Operator
Yes, sir. Please go ahead, sir.
Percy Panthaki
Yeah. Just a question on the growth, you mentioned that October month hasn’t been any kind of blowout month or any kind of delayed demand witnessed. So I mean, would it be fair to say that unless something changes materially in the underlying demand environment, the volume growth in the second half should remain similar to what we have seen this quarter?
Sudhanshu Vats
I don’t — I don’t think I would put it like that. You know, I would — what I would say is that, see, we’ve always stated that we would like to deliver double-digit underlying volume growth. And as you know, in the first half, we have delivered just shy of that 9%, very strong single-digit. Now depending like we’ve been saying from the beginning on this call, depending on how the environment plays out, our plans and our attempts would be to say to our double-digit underlying volume growth commitment. So to that extent, we would like to have an uptick of what you’ve seen over first half. But a lot will also depend on what are the intrinsic demand position which both Bharat and I have spoken about on this call.
Percy Panthaki
Right, right. So I understand the aspiration to have the double-digit volume growth, but the overall macro environment that we are in currently is very different. We can see, of course, not directly comparable categories, but we can see many of the consumer companies which have reported till now have reported extremely weak numbers, probably the weakest in a decade without any one-off event like Demon or COVID or something like that. So in that context, would you still say that I can understand medium-term aspirations, but till the environment remains as is, would you still say that a double-digit is a possibility?
Sudhanshu Vats
See, remember, in our sector, I will take a step-back. If I look at the headwinds, a lot of the headwinds in the first half, hopefully, we are not going to have these extreme weather events, be it the monsoon or heat, we’re obviously not going to like face disruptions because of the elections, etc. We also know that we and this is a statement of fact that the whole capital expenditure of the government is weighted very substantially to the second half. There is healthy construction activity. Overall, after all the dust is settled, it’s a good monsoon, which should hopefully lead to an upsurge in rural incomes. Now, therefore, are we hopeful and are we planning? Yes, yes and it’s not just aspiration. We believe that if in these tougher times, we have delivered 9% UVG stepping it up in second half is an imminent possibility. But as I said in answer to another question on demand, frankly, this question will be best answered in January because by then you will know where the new normal has settled post-Diwali.
Percy Panthaki
Got it. Secondly, I just wanted to understand in terms of the pricing, I mean, in the second half, would it be fair to say that if commodity remains where it is today, then your sales would be equal to UVG?
Bharat Puri
If that sales will be a little better than UVG because obviously we want better mix so on and so forth. But yes, we don’t see further possibilities of price decreases, etc. And you will now see a convergence and hopefully slow the value outpacing volume.
Percy Panthaki
Got it, got it. And lastly, I just wanted some more details on the paint venture. It’s been now quite a few quarters since you have launched. And earlier when we used to ask, you used to say just wait a couple of quarters and we will share some more information. So can you give some more color on now sort of which states are you getting a decent traction into in those states, what kind of sort of market-share roughly you have or anything of that sort that would help us understand how successful the foray has been?
Bharat Puri
See, my simple answer to you which I answered again I think Sonali asked the same question. This festive season in the South, etc will be Pongal and which is first week of or close to the 10th of Jan. Wait till therefore we go through one full-cycle and then let’s come back to you, we are in no hurry. As we’ve said that listen, we are not into this big bang approach, we are not setting up factories across every nook and corner of India and then giving away product free. We believe we have a right to win in small town and rural India. We are proceeding in our pace. All I can tell you is, as of now, we are happy and satisfied by what we are doing, but more color and more further plan, wait till we get over the festive season of the South.
Percy Panthaki
Fair enough, fair enough. But just — I mean, the reason why I asked is I just wanted to understand in the current numbers and the growth that we have, let’s say, 7%, 8% kind of growth that we have done, is it that, let’s say 2%, 3% is coming from this new venture and excluding that the growth will be lower?
Bharat Puri
[Speech Overlap] No, I want to just explain to you, we are in four states in rural and semi-urban. Semi-urban is 30% of the total market, right? So 70% of those states also we are not in. These four states will be less than one-third of the Indian. I mean, even if we did extremely well here, we would not make any significant difference to our growth rates.
Percy Panthaki
Understood. Understood. Yeah, okay, that’s all from me. Thanks and all the best.
Bharat Puri
Thank you.
Operator
Thank you. Our next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead.
Rahul Maheshwari
Good evening, sir. I just have one question. As you mentioned in your earlier remarks that the Growth and the Pioneer categories are growing faster than the core categories. Can you give some more detail in terms of range, how much fast it’s growing and what are the brands which are driving the growth? And any pipeline which you can highlight that how many further subcategories of brands you would be able to add? That would be very helpful. Thanks.
Bharat Puri
See, Rahul, very simply put, we will not tell you about future pipelines, etc, because that is a more interest to my competition than to anybody else.
Rahul Maheshwari
No, in terms of numbers, I’m asking, not in terms of…
Bharat Puri
In terms of numbers, we are clear. We’ve always said that core category should grow around GDP and growth and growth category should be two to four times GDP, Pioneer categories, we don’t have a target. We want them to be in three years, achieve a certain minimum size so they can become a growth category. As of now, therefore, if you look at our business, it is spread now 55 core, 45 growth. Largely we are again plus, minus 10% exactly meeting these numbers. So we are according to plan. In — if you look at, for example, the core categories that would include wood adhesives like Fevicol, Fevikwik, M-Seal, if you look at the growth categories, it would include waterproofing, it would include tile adhesives, it will include the joiner segment, it will include what we call also growth geographies, which is rural India. So we’ve got a whole set of stuff. This is — I mean, we are one of the few companies the question hasn’t been asked. This is now the third year where rural for us is growing twice as urban. You know, everybody else has been complaining about rural and you know, now urban has got challenged. So people have forgotten rural, but the so-called turnaround in rural that we are still talking around is little or nil growth becoming 2% and 3%.
In our case, rural has been twice urban growth.
Rahul Maheshwari
So if you don’t mind, sir, what is that only you are able to grow 2x means what are two, three success factors, which has made Pidilite grow 2x of rural of urban, sir, can you comment on that?
Bharat Puri
Yeah, I will definitely tell, see, first, it’s just the categories that we have. I mean, it’s not that we are much smarter than all our friends in the FMCG sector. Our scope for penetration, Rahul, is much, much higher. I mean, you know, we have such a vast portfolio and in our portfolio, making our product just available is of no use. We have to teach people how to waterproof, how to use style adhesive, how to put wood together. So we about five years back created a new division called Emerging India, which actually aggregates all the Pidilite products for rural and semi-urban India. We have substantially therefore invested behind brand building, behind education of intermediaries and the retail universe, I mean, you know, you all know of our initiative called Pidilite Ki Duniya. We’ve added 1,000 Pidilite Ki Duniya’s just in the first six months of this year. We now have 15,000 Pidilite Ki Duniya’s, which are retail stores in villages with a population of 5,000 to 15,000.
So we have consistently believed because of the penetration data that equalize for income, we have a greater opportunity, but it will take a lot of doing to capitalize on that opportunity. I would say — and without trying to pat ourselves on the back, in the home-improvement sector, we would be by far the deepest penetrated company by a long-distance.
Rahul Maheshwari
Okay. Sir, just a follow-up question. Can you give how much distribution expansion you are making or any target in terms of percentage? Will it be in-line with the sales growth or can you give some color in terms of how the mix approach you are taking from a distribution point-of-view?
Sudhanshu Vats
So yeah, so distribution — when we look at distribution like Bharat was telling you, I think there are — so he talked about Pidilite Ki Duniya which is our — both presence and demand-generation. But in terms of our absolute coverage of outlet, we now cover close to about 6 lakh outlets in the country. And even in the quarter which has gone by, we’ve expanded by about 5%. So we’ve added close to about 30,000 outlet. Much of it will be in the smaller towns and rural, but that’s a continuous expansion. But for us, distribution expansion is also about improving the range of our product as we go to these outlet. And as you know, Pidilite has a very wide range and that is another factor which we measure, KPI of range sales index and that we keep growing as we go forward. I think we’ve made progress on that as well.
Rahul Maheshwari
But any run-rate of growth in distribution as of the shops and etc., which you were telling, any target that you are keeping into mind from two, three years perspective where you want to reach from overall distribution point-of-view?
Bharat Puri
See, we have clear targets at each of — like for example, at every town either from zero to 10,000, there are so many villages, this is where we reach and this is the range that reaches. So we have targets across all town classes which Emerging India does. And at a broad level, as Sudhanshu said, every year, we hope in a numerical sense to improve our distribution anywhere between 12% and 20%. But numerical alone is not important because in our current distribution, there is an equal opportunity in increasing range, I mean, I’ll give you a simple example. When we took over Araldite, it had very little sales in Emerging and Rural India. Now, Araldite if you go to the smallest of the small towns, you will find it available. One of the reasons why we have doubled Araldite sales over 3.5 years that we’ve acquired is just our distribution cloud.
Rahul Maheshwari
Right, right. That’s very helpful and thanks to the management and best wishes. Thanks.
Bharat Puri
Thank you, Rahul.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Sheela Rathi
Thanks for taking my question and actually I was very intrigued with the comment which Mr. Puri you made about we operating in 37 verticals and then obviously you gave the details around the category. The question I have is seeing the success in terms of so many categories we have done over the years, what are the key synergies you see when you think of getting into different spaces or categories or even into adjacencies. And what according to you is the biggest challenge when we are managing so many categories?
Bharat Puri
See, I think that’s a great question, Sheela. Firstly, good to hear from you after long. Very simply, we have a very clear model. When we look at adjacencies between consumer, customer which therefore is the channel, consumer, channel and technology, we must have the right to win in at least two of the three. Then we consider that as an adjacency. So like the best example I’ll give you is we started with tile adhesives. With tile adhesives, you need tile grouts because that’s what like holds the tiles together that those are the — what you see as the lines between the tile. When we did — after we did tile grouts, we realized that there are other services, stone and marble. Therefore, we did 10x and we became stone and marble. Then we realize there’s a need not only for fixing them but also maintaining them. Therefore we did cleaners for wheel.
So like this, what we try and do is between consumer channel and the technology, we must have a winning position in two and that’s how we keep identifying adjacency. What we also have done over a period of time, two of our senior most managers who were CEOs of businesses currently spent 100% of their time identifying new businesses because if our model is that of a Pioneer, you know, we are a company that creates new categories on a consistent basis, then we must be studying the world for these categories and we study a whole set of affinity markets and what you see in the marketplace is after a fairly rigorous evaluation and testing when we go out into the market.
Sheela Rathi
And anything around the challenges which we face because I’m sure there would be some?
Bharat Puri
Oh, there are significant challenges because in a lot of these, you have to learn the technology, you have to learn the application, I mean, we put up this factory, I’ll give you a simple example for what is an exterior plaster from paint. You don’t have to do any plaster putty or paint, all of it does together, this is now very popular in Southern Europe. Understanding how it will be applied in India by the Indian mason, will it be the mason or will it be the painter? How will it be done? So remember, as a Pioneer, you will generally take a longer to do the category. But once you do the categories, you become associated with the category and therefore almost become the category definer. We know that model, we follow it fairly rigorously. The challenges and as you rightly said also is making sure that it gets enough management retention, it also gets the right resources, which is why our buckets of core Growth and Pioneer.
We have clear investment criteria for core Growth and Pioneer. We have clear people and advertising allocation for these based on their position. So we — over time have evolved the model which is internal to us.
Sheela Rathi
Do we think we are still in a position to add another 30 verticals or I mean, I mean, how are we positioned for that?
Bharat Puri
Without any doubt, Sheela, every year, we will add at least two large verticals and many — within those verticals, smaller ones because frankly, that’s the lovely thing about India as a market. We still have a large — I mean, let me give you a simple example. Tile adhesive, even today one in four consumer uses any tile adhesive. Three out of four use standard cement. Now similarly grouts, they use white cement. They don’t use a grout at all between — now this is a long-term and with the three India’s approach, what I call premium India, Middle India and Aspirant India, you need products for all three. So therefore at any point of time, we will — we actually looking at a minimum — I mean, as we talk today, we will be starting at least 15 different verticals.
Sheela Rathi
Very interesting. Thank you very much, Mr. Puri.
Bharat Puri
Thank you.
Operator
Thank you. Our next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Company. Please go ahead.
Keyur Pandya
Hi, team. Just one question. So on the gross margin side, if we look at VAM as a representative of raw material, I mean from $980, probably it is still trading at lower prices. So you always talked about say reinvesting for growth. Now when you are talking about, say, there is some possible slowdown or lull and I mean, is it possible to reinvest even from such high levels of investment in A&P in last year or is it better to take that in the pocket when additional investment may or may not yield additional, say, growth in near-term. So just thought on balance between margin and growth especially from the perspective of already high investment that you are doing for last one and one and a half years.
Sudhanshu Vats
Yeah. Thanks for the question, Keyur, I think good question. I think, see, the way we look at market is we — and we define ourselves as a pioneering company. So we look at opportunities all the time. So for us, there are always opportunities to invest and opportunities to build category. And when you build categories, your over indexation on investment is there as we’ve talked through this call and Bharat talks about it all-the-time. So for us, the market being a little dull or being very buoyant is totally independent to our desire to build categories. So therefore that — and because India has such a strong runway across many of the categories or if not all the categories that we operate in, I think there is always room for us to keep on building. And importantly, I wanted to tell you, Ross recently has a property which comes with — you know, this basically Kabaddi where the Kabaddi League and it depends on when the Kabaddi League is that property will get exercise and so that ASP will come in, but that I’m just telling. So therefore, our investments are going to continue to be what is right for the brand, what is right for building the categories and wherever we want to get into some more longer-term pioneering effort, those investments will be there and we will make those investments in the right form.
So I wouldn’t look at in the way you were looking at it.
Bharat Puri
No and if you look at the simple things, somebody, one of your colleagues asked the question on people and the increase in — that is clearly again strong and very significant investment into growth.
Keyur Pandya
Understood, noted. Just one last question. I mean, so what will be the VAM prices right now?
Bharat Puri
See, what we are buying currently is between INR800 and INR900 dependent on the timing, so on, so forth, etc. At an overall level, while VAM has softened, there are some other prices that have gone up. So at an overall index, we are pretty much in the same range. We will be in quarter three, we will — quarter three will be very similar to quarter two.
Keyur Pandya
Noted. Thanks a lot. All the best. Happy Diwali.
Bharat Puri
Thank you.
Sudhanshu Vats
Thank you.
Operator
Thank you. Our next question is from the line of Krishnendu Saha from Quantum AMC. Please go ahead.
Krishnendu Saha
Hi. Yeah. Hi, thanks for taking my question. I’m very new to the company, so just trying to understand the business. So you launch Pioneer products for two or three products every year. So in the last four, five years, how many — have you actually — I mean, how many products have you stopped or you could launch — you thought the success was not good for [Indecipherable], so you have to recall the product or you have to start producing that category, how many years would that be?
Sudhanshu Vats
See, Krishnendu, again, that is great question. We — you see before we launch the product, we have a concept of piloting product. We pilot in very restricted geographies, get the — see, we are a very patient company. I mean, if you want to be a pioneer, then you have to be a learning company. So we don’t launch anything extensively without a lot of — we will first pilot in a geography, then we will pilot in a state, then we’ll pilot in a region before we go all India. So therefore — and again, we use the pilot for learning. So there are many pilots which go back, we reformulate the product. We again we may need to make some changes in the application process, we make those. So it’s an ongoing process. In all new stuff, there will — you will — if you have a success rate of over 70%, 75%, it’s a great success ratio and that’s what we try and remain at.
Krishnendu Saha
I see, so we have a lot higher success rate, right? And just to understand little bit more, our rural is our — liberty [Phonetic] market is growing faster, this is my understanding is because we have opened Pidilite Ki Duniya on a faster click, is that would be one of the four reasons? The rule is volume-wise and it seems is growing faster? That’s my understanding, right? Is that understanding right?
Sudhanshu Vats
So, Krishnendu, there are multiple paths to it. It may be very simplistic to say that just because you are opening more PKDs, your rural growth is going up. Secretly that it’s integral and an important element of one of our things as we go deeper into rural India and smaller villages. But at the same time, as we were talking through this call multiple times, I think it’s about distribution expansion, it’s about range, it’s about demand creation in some of these places because again, let me tell you, all across India, most of our categories need a lot of work with the applicators or users to create demand. I think that would have to continue for us to be able to deliver growth. So the good news is that these categories need to be created, their demand for that needs to be created, applicators need to be trained and so on and so forth. So all of that, it’s a summation of many of these things, so — and not just one single initiative.
It’s an important initiative. It’s a — it’s some kind of a surrogate or an indicator kind of an initiative as to how we do combined sales and demand planning, but that’s not the only thing which sort of delivers that kind of growth.
Krishnendu Saha
Right. And it also helps because we have a higher success rate of 80, 80% of new filing, so that’s new launch, so that also [Indecipherable]. And last thing when you open a Pidilite Ki Duniya outlet, does it carry all the — all your products at the same outlet or it’s like coming stages? How do you go about that when you open up the business?
Sudhanshu Vats
So, Pidilite Ki Duniya by definition does carry most of elite products because it is a one Pidilite. But over a period of time, you build an assortment and you also build an assortment which in our judgment is right assortment for that particular village or that particular small town. So I think, yes, by definition, do we have most of Pidilite product? Is this like a one Pidilite approach? The answer is yes. But do you carry all your products all-the-time to all PKDs? The answer is no, you sort of build it over a period of time that’s what is the right assortment and then do it.
Krishnendu Saha
Sure. Thank you. Thank you for the time. Thank you. Happy Diwali.
Sudhanshu Vats
Thank you.
Bharat Puri
Same to you.
Operator
Thank you. As there are no further questions from the participants, I now hand the conference over to the management.
Bharat Puri
Thank you very much to everybody for their continued interest in Pidilite and as we sign-off, wish each on the call and their families very best wishes for the festive season. Thank you.
Operator
[Operator Closing Remarks]