Pidilite Industries Limited (PIDILITIND) Q3 FY23 Earnings Concall Transcript

Pidilite Industries Limited (NSE:PIDILITIND) Q3 FY23 Earnings Concall dated Jan. 25, 2023.

Corporate Participants:

Sandeep Batra — Whole Time Director

Bharat Puri — Managing Director

Analysts:

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Ankush Agrawal — Surge Capital — Analyst

Unidentified Participant — — Analyst

Kaustubh Pawaskar — Sharekhan BNP Paribas — Analyst

Amit Purohit — Elara Capital — Analyst

Akshay Chheda — Canara Robeco Asset Management Company Limited — Analyst

Keyur Pandya — ICICI Prudential Life Insurance — Analyst

Rajesh Gajra — Informist Media Private Limited — Analyst

Sheela Rathi — Morgan Stanley — Analyst

Shashank Krishnakumar — Macquarie Group — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Pidilite Industries Q3 FY ’23 Earnings Call, hosted by Prabhudas Lilladher Pvt. Limited. [Operator Instructions]

I now hand the conference over to Mr. Amnish Aggarwal of Prabhudas Lilladher. Please go ahead, sir.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Yeah. Hi, everyone. Welcome to the conference call, and thanks management for letting us host the call. We have with us today Mr. Bharat Puri, who is the Managing Director of Pidilite; Mr. Sudhanshu Vats, who is the Deputy Managing Director; Mr. Sandeep Batra, Chief Financial Officer; and Mr. Sunil Burde, who is the Senior Vice President Accounts.

Without further ado, I hand over call to the management for their opening remarks followed by Q&A.

Sandeep Batra — Whole Time Director

Thanks. I’ll start, Bharat.

Bharat Puri — Managing Director

Please.

Sandeep Batra — Whole Time Director

So good afternoon, everybody, and thank you for joining the Q3 earnings call. I will first begin with a summary of the performance and then we’ll open the floor for Q&A. I’ll cover consolidated sales first.

So on a consolidated basis, net sales for the nine months ended December ’22 stood at INR9,077 crores and registered a growth of 23%. This was led by a 24% growth in Consumer and Bazaar segment and 19% growth in the B2B segment. Sales for the quarter were up by 5.1%, which on a three year CAGR is a growth of 15%. Material cost as a percentage to net sales for the quarter was higher by 175 basis points over the same period last year, but was 88 basis points lower than the immediately preceding quarter. As we can see that input prices have moderated and gross margins have improved marginally though over the previous quarter. This is largely as a result of carrying a high-priced inventory which will get liquidated over the next couple of months.

EBITDA margins are in line with the previous quarter despite increased spend on A&SP. EBITDA for the nine month period ended December ’22 was up by 5.5% over the same period last year, largely as a result of higher input prices that have not been passed on. Profit before tax and exceptional items for the nine months at INR1,331 crores was 5% higher than the same period last year. Profit before tax for the quarter, however, was INR419 crores and lower than the immediately — over the same period last year.

Quickly looking at the standalone financial performance. Net sales for nine months ended December at INR8,179 crores was higher by 23.3%, led by strong growth in C&B segment, up 24.6% and B2B segment up 18.6%. However, for the quarter, net sales registered a growth of 4.8%, largely as a result of a very high base. Just for the information of all on the call, in the third quarter of last year, we had taken two price increases that would have led to some amount of inventory build-up in the channel. And if you would recall, last year’s — in the previous year third quarter, we had reported a revenue growth of 26%. So coming off a high base and given the fact that there was price increases taken last year, the growth for the current quarter should be better looked at on a CAGR basis where the numbers are very healthy at 15%.

If we look at how input costs have behaved, as I mentioned earlier, costs have moderated. VAM, which is our biggest raw material, the consumption rate in the third quarter was about 2,000 tons versus 2,500 tons in the second quarter. Current spot rates of course are much lower. They are around $1,200 per ton range.

If I look at the performance of the subsidiaries, despite uncertain global economic conditions, currency devaluation and inflation, our international subsidiaries reported moderate sales growth, whilst EBITDA remained under pressure due to higher input costs and impact of currency depreciation. Our domestic Consumer and Bazaar subsidiaries continue to deliver industry-leading growth as well as profitability. We are increasingly optimistic for the future because the significant input cost reductions as well as the increased construction activity combined with government initiatives in capex and the rural sector augur well for the future. And our focus continues to be to deliver broad-based profitable volume growth.

With this, we’ll open the floor for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] Our first question is from Amit Mehta of Kotak Securities. Please go ahead.

Umang Mehta — Kotak Securities — Analyst

Thank you, sir. Thank you for the opportunity. Just wanted to check, sir. Last quarter you had given a guidance that you will reach 20% plus margins by fourth quarter. Would you still stick to that? And just a clarification, this 20% guidance was for console or standalone EBITDA margins? Thank you.

Bharat Puri — Managing Director

So just to clarify, Umang, we as a company don’t give any guidance. So I think maybe the comment would have been misunderstood. All we had said was that given the trajectory that is there on input costs and assuming that there is no Black Swan kind of an event and no major disruption in the economy, we are on track to achieve our EBITDA margins in line with the corridor that we like to operate, which is in the 20% to 24% range. We have not given any definitive comment on when we are likely to reach that number.

Umang Mehta — Kotak Securities — Analyst

Understood, understood. Got it. That was the only question from my end. Thank you.

Operator

Thank you very much. [Operator Instructions] Our next question is from Ankush Agrawal of Surge Capital. Please go ahead.

Ankush Agrawal — Surge Capital — Analyst

Hello, sir. Thank you for taking my question. Sir, my question was around the wood coating segment that is done by our subsidiary ICA. So this business has scaled up pretty well in the last couple of years. So I wanted your thoughts to understand like what is leading to growth in this side of the business? And how big of this opportunity is there? Like could it become INR1,000, INR2,000 crores of business for Pidilite?

Bharat Puri — Managing Director

Yeah. Thank you for that question. As far as ICA Pidilite is concerned, it operates at the premium end of the wood finishes market, therefore, makes what I would call not even mass premium, but pure super premium wood finishes. These are equivalent to the best available anywhere in the world. In fact, our Italian collaborator, which is ICA, has only two plants; one in Italy and one in India.

As you can see, over the last four years, we’ve registered very healthy growth rates. Largely, this is because of, A, a lot of conversion from lesser premium, mass premium wood finishes to premium wood finishes and the increased prosperity across. Now without going into numbers, are the growth prospects of ICA Pidilite good? I would say, absolutely, yes. The past is a great indicator of its future performance.

Ankush Agrawal — Surge Capital — Analyst

And can you help me with the nine months revenue numbers for it?

Bharat Puri — Managing Director

We don’t share subsidiary-wise numbers.

Ankush Agrawal — Surge Capital — Analyst

Okay. Thank you. That’s all I had.

Operator

Thank you very much. [Operator Instructions] The next question is from Purushottam Garg of [Indecipherable]. Please go ahead. Purushottam, your line is open, would you like to ask your question?

Unidentified Participant — — Analyst

Yeah. Good evening. My name is Purushottam. Please refer to Slide number 16 of the analyst presentation. I would like to know where do you reflect revenue from Araldite and revenue from GCP alliance? And why it is not really benefiting the company?

Bharat Puri — Managing Director

Araldite as a company has been merged with Pidilite. So the numbers are subsumed in what we show for Pidilite. They’re not shown separately. And what was the second question that you asked?

Unidentified Participant — — Analyst

Yeah. How much revenue are you generating out of GCP alliance? And what percentage of revenue in the current quarter is related to GCP?

Bharat Puri — Managing Director

BCP? Can you kindly repeat your — I’m not able to understand the alliance that you are talking about.

Unidentified Participant — — Analyst

Yeah. There is a license agreement with GCP USA who sells construction chemicals. So where do you reflect that in the chart number 16?

Bharat Puri — Managing Director

I cannot — I don’t — I’m not able to relate to the name of the company that you are saying. Maybe if you don’t mind, you could connect with me separately outside the call and I’ll clarify that point, okay?

Unidentified Participant — — Analyst

Okay, sir. Thank you.

Operator

Thank you very much. [Operator Instructions] We have a question from Kaustubh Pawaskar of Sharekhan BNP Paribas. Please go ahead.

Kaustubh Pawaskar — Sharekhan BNP Paribas — Analyst

Yeah. Good evening, sir. Thanks for giving me the opportunity. Sir, my question is on the VAM prices. In your initial comment, you mentioned that the current spot prices are around $1,200 and the procurement base for us in quarter two was around $2,000. So should we — considering the fact that the inventory of high cost raw material is receding, should we expect the — our consumption price to reduce substantially in quarter one considering the prices remain stable at the current level?

Bharat Puri — Managing Director

Actually, just to clarify, the current buying price is $1,200 and it was much below $2,000 also in the third quarter. The $2,000 that I referred to was our consumption price, which is a mix of the higher price inventory and lower price inventory. So certainly, we will see benefit of the lower VAM prices starting from the fourth quarter itself. We will not have to wait till first quarter of next year.

Kaustubh Pawaskar — Sharekhan BNP Paribas — Analyst

Okay, okay. Thanks for the clarification. And my second question is on the demand per se. Like Tier 2, Tier 3 towns are really living under the pressure. Tier 1 towns are a little resilient to what the current stood out in the market is. But what is your expectation in the medium terms? Where do you see demand shaping up in the medium term?

Bharat Puri — Managing Director

See, Kaustubh, let me first just do a correction. Actually, we’re seeing fairly decent demand across Tier 1, 2 and 3 towns. It’s actually Tier 4 and 5 that have been under pressure, which is really the rural and the semi-urban markets. We expect rural and semi-urban markets also to start hopefully turning around from January itself. As the money from the new crop starts coming in, the government puts in more spends in this sector. We’re expecting a turnaround and better demand in this sector.

And again, just to give you a perspective, unlike the conventional consumption mass FMCGs, our business even in rural and semi-urban India is not declining or constant, it is still growing. The only thing is normally our expectation is that it grows 1.5 times urban. It has come at times to the same level as urban or even a little below urban. And therefore, our hope that across the next six months, this will see a major improvement. Demand conditions in Tier 2 and 3 towns are fairly reasonable and we are seeing an increased amount of construction activity. We’re seeing an increased amount of commercial activity, both of which really helps the home improvement sector.

Kaustubh Pawaskar — Sharekhan BNP Paribas — Analyst

Right, sir. And should we expect any pricing action if raw material prices continue to stabilize in the coming quarters? So that would further help you to see recovery, rather, the focus would be on recovering the sales volume then focusing on maintaining the margins as well?

Bharat Puri — Managing Director

We have always said that our focus is profitable volume growth. So volume growth is our priority. Frankly — and again, I don’t want to make any predictions because any prediction for the last three years has not been good. But we expect raw material prices to remain largely stable, at least across the next three, four months unless there are some new Black Swan events, new Russia-Ukraine or a situation like that. The depreciating rupee also we have therefore accounted in that. If you recall, we took pricing only at 75% of inflation. We don’t see the need now for any further price increases.

Kaustubh Pawaskar — Sharekhan BNP Paribas — Analyst

Okay. Thank you. Thanks for the understanding. I will come back into queue.

Operator

Thank you very much. [Operator Instructions] Amnish, would you like to ask the questions that you have?

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Yeah. So I have a few questions on the you can say scenario. First being that, if you look at the past few quarters, the demand — people were hopeful that the demand will come up. But post festival season also I think the demand has not yet stabilized. So do you believe that in the one quarter that Pidilite will be back to double-digit kind of a growth in another couple of quarters. And given the fact that now raw material prices are softer, so it will be largely a double-digit volume growth kind of a scenario. Is that possible?

Bharat Puri — Managing Director

See, without again going into predictions, Amnish, we have actually post the festival season not seen any drop in urban demand to Tier 1, 2, 3 towns. We are seeing reasonable demand. It is actually rural and semi-urban that remains under strain. Having said that, we expect this to continue. As we’ve always maintained, our planned stroke objective is we divide our business into three categories; core, growth and pioneer. We try and grow core categories at 1 times to 2 times GDP, normally 1 times to 1.5 times GDP. Growth categories is 2 times to 4 times GDP. And we hope the pioneer categories become growth categories in three years.

If we look at vis-a-vis — if therefore, the market improves, GDP improves, we will see our volume growth also improve. But without making any predictions, we are not seeing any — actually, we see an improvement in November and December over October. Actually, it was October with the extended monsoon and the long Diwali holiday that actually impacted demand.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Okay. And sir, if you look at some of the companies we are on your wire side, which is also used in the construction on the residential as well as non-residential. So they have posted clearly encouraging set of numbers. So do you think that it is going to — because you can see overall activity is there. So that will have a rub-off effect?

Bharat Puri — Managing Director

See, while I by no means am I an expert on the wire industry, so I would mind make comparisons. But remember, overall, our business, two-thirds of our business comes from repair and renovation and about one-third comes from new construction. I suspect for things like wires, etc., is probably the other way around or even greater. We are seeing that construction activity, both organize construction and real estate in the big cities and individual houses in Tier 2 and Tier 3 are fairly robust. And as you know, as houses gets complete, that’s where home improvement comes in. So we see that demand lasting for some period of time.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Okay. And sir, in terms of demand, are you witnessing any sort of a break-up that whether your adhesive segment is doing better, your waterproofing segment is doing or some of the new initiatives. So which one is the bigger driver today?

Bharat Puri — Managing Director

See, as we’ve said, the growth categories, like waterproofing is a growth category. So it is doing better at an overall level. Adhesives is — a large part of adhesives is core. They are growing — both are growing. As we’ve indicated, when we look at our nine month growth, we are growing at about 23%, 24%. All our businesses have to grow if we have to grow at 23%, 24%. Our CAGR in a volume sense are about 14%. So actually, we are seeing fairly broad-based growth, both across categories and geographies. Obviously, the growth categories, which is waterproofing, tile adhesives, these areas are growing faster than the regular core categories.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Okay, understood. So if you look at this quarter’s margin, the margins particularly on the domestic subsidiaries, then in the domestic subsidiary in the Consumer and Bazaar actually we have reported a loss. So is there any one-off over there or can you throw some light on this?

Bharat Puri — Managing Director

No, no, there is no loss. I think those numbers are not reported separately. So I think if you are only subtracting from the consolidated numbers, that may not give you the correct number. None of our subsidiaries have — in domestic subsidiaries have reported a loss. In fact, they have reported significantly improved performance over the same period last year. But separately, Amnish, maybe after the call, I can connect and clarify to you. But just to confirm, none of our domestic subsidiaries have reported a loss.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Okay. I was just stressing to I think one of the tables which is given. Okay. So it was on Slide number 12.

Bharat Puri — Managing Director

Yeah, correct.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Slide number 12 right-hand side, B2B, there is minus 4.9%.

Bharat Puri — Managing Director

That is previous year, Amnish.

Amnish Aggarwal — Prabhudas Lilladher Private Limited — Analyst

Okay, okay. Operator, you can take other questions, please.

Operator

Thank you. [Operator Instructions] Our next question is from Amit Purohit of Elara. Please go ahead.

Amit Purohit — Elara Capital — Analyst

Yeah. Thank you sir for the opportunity. Sir, just two points — questions on my side. One, you highlighted the growth pioneer and core categories. So would you be able to share some salience of each? Is it possible to share that? And second, I mean, just wanted to understand what are the new channels are you exploring in terms of — from a distribution perspective or you are seeing some industry trends which are looking at new channels? What I mean is that, we’ve been seeing this dealer stoke distribution channel and now they are large retail formats which are coming in which are kind of becoming a one-stop shop. So how do you see that shaping up plus the online channel? So just wanted to have your thoughts how do you see three, four years down the line things changing? And how are we placing ourselves? Thank you.

Bharat Puri — Managing Director

See, on the first question, just when you talked about the salience of core growth pioneer, are you asking really as to what are the — what constitutes core growth pioneer?

Amit Purohit — Elara Capital — Analyst

I’m saying in terms of percentage-wise. Like I understand, construction chemical has been our growth in that sense and pioneers are right new innovation, right? And the core part remains the Fevicol. But broadly, when I look at — is that the way to look at when you share in your PPT a pie chart which talks about 50% is adhesive and sealants. But within adhesive and sealants probably there would be some pioneer categories.

Bharat Puri — Managing Director

Absolutely, yes. So you can’t go category-wise because there are some parts of the category may be growth in Pioneer and may be in core. But broadly speaking, how do we look at core growth and pioneer? In core, we have already created the category. So whether it’s a Fevicol, it’s a FeviKwik, it’s an M-Seal, this is where we’ve created the category and our job is to grow the category because we have a market domination position as far as the category is concerned.

In growth categories, we have to create the category. We are normally a lot of times competing against non-consumption. So for example if you take a waterproofing, even now 6 out of 10 homes in India don’t do any proper waterproofing. So the job is to make this six, make it — reduce it to three and then automatically the market becomes far, far larger. Therefore, this is about creating categories. So whether it is like tile adhesives where people normally just use sand and cement and don’t use an adhesive, these are all growth categories. You could also have growth geographies like Bangladesh, you can have growth channels like e-commerce. And in fact, that segues well into your second question.

See, as an organization, obviously, we’re dynamic and we’re always experimenting both with new channels and new initiatives. Just to give you a perspective. We have an initiative called Pidilite Ki Duniya, which is a small rural stores in villages with a population of below 10,000. We now have close to 7,000 Pidilite Ki Duniyas. In these villages, there will be practically no other home improvement company that reaches directly. We will be the only one in most cases. There may be some getting it from wholesale. Now that’s a channel for obviously e-commerce. Three years back, what we were selling in a year, now we sell the same in every 20 days. If you go to Amazon, the number one drain declogger, the number one rust remover, the number play kit, all are Pidilite products.

So we’re obviously looking at a whole lot of action there where the modern trade, the emerging channels. We keep experimenting. We keep carrying along. But remember, it’s difficult, Amit, to make a prediction of what will happen in three to four years. In India, things move slowly, but they move surely. Our job is to make sure that we are in each of the emerging channels without trying to disturb the balance across channels.

Amit Purohit — Elara Capital — Analyst

Sure, sure. And I mean, broadly, on the first question, which I was — what I was trying to understand is that, over a period of time, the salience of growth categories which have gone up and probably the core categories, if I am not wrong, I mean, should we assume that it should be down. Core could be less than 30% of the total sales or the consumer with that, let me put it odd, is that the way to think or?

Bharat Puri — Managing Director

It was 75% core and 25% growth in pioneer. It’s now about two-thirds and one-third. In the next three years, we will make it 50-50.

Amit Purohit — Elara Capital — Analyst

Okay, okay. More in favor of growth in pioneer. Okay, that’s helpful. And lastly, on that second part, just a follow-up on that. I wanted to understand is that — are you sharing some, I mean, broader salience? I mean, do you think this one-stop shop is a kind of — could scale up very significantly and could be double-digit or — I mean, I don’t know what is the salience in the industry mix, so pardon me for my limited understanding. I just wanted your — what would be the mix like just to get a sense of this — how this — I mean, distribution is shaping up? That’s it.

Bharat Puri — Managing Director

And when you say one-stop shop, you refer to?

Amit Purohit — Elara Capital — Analyst

I mean, it could be — I mean, there are stores which are coming up like Hippo by Dalmia Cement?

Bharat Puri — Managing Director

Yeah, yeah. We are participating there, yeah.

Amit Purohit — Elara Capital — Analyst

Correct, correct. So — and then you are — there are standalone — I mean, there are many players who are actually looking at this as an option in terms of building a format. So I actually — I know that it will be very small, maybe say, if you could share what is the e-commerce right now like you indicated the growth trends, but what would the salience would be whether 2%, 3% of our total or 5% or what would it be like?

Bharat Puri — Managing Director

See, as far as e-commerce is concerned, it’s best to look at it as a percentage of the consumer products business because a lot of trade businesses, e-commerce is much, much smaller. And we are slowly reaching the same FMCG averages. As long as these one-stop shops are concerned, it’s too early to say. We participate in lot of them. We actually hold hands with a lot of them. But from a consumer perspective, I don’t see any of them which has been a runaway success.

Amit Purohit — Elara Capital — Analyst

Sure, okay. Thank you so much, sir.

Bharat Puri — Managing Director

Welcome.

Operator

Thank you. [Operator Instructions] The next question is from Akshay of Canara Robeco. Please go ahead.

Akshay Chheda — Canara Robeco Asset Management Company Limited — Analyst

Yeah, sir. Thank you for the opportunity. Sir, one question is that, if I recollect, so VAM is just 25% of your raw material basket. So there you did talk that it has corrected from INR2,000 crores to INR1,200. But sir, directionally, if you can give sense on the balance 75% of the raw material. I know there would be many, but just a broad sense if you can give, like do you see some cooling off there also or how do you see them?

Bharat Puri — Managing Director

Yes. I think we have seen softening in most of our input costs. VAM, since it is the largest by far, we specifically call out the cost trends of VAM. But in the others also there is cooling off. Just keep in mind that the other raw material basket have not increased at the same pace as VAM. VAM, just for your reference, kind of more than doubled in a very short period of time. So there the correction also has been equally steep. But in other raw materials also there has been softening in prices.

Akshay Chheda — Canara Robeco Asset Management Company Limited — Analyst

Okay. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from Keyur of ICICI Prudential Life Insurance. Please go ahead.

Keyur Pandya — ICICI Prudential Life Insurance — Analyst

Sir, the question is in general when most of the consumer [Indecipherable] they’re talking about some kind of demand slowdown. Any specific — company-specific factors, which gives us optimism how would be the demand for our category?

Bharat Puri — Managing Director

See, in our categories, what we are seeing, Keyur is, there is a tailwind. Ever since the reduction stroke coming down on COVID, consumers seem to have evaluated their relationship with their own homes. And therefore, we’ve seen a lot of consumer attention to both renovating and expanding stroke, therefore, looking at new homes, which is why one of the reasons you are seeing real estate come back so strongly.

Now that obviously serves as a multiplier for us. Also, as you see things like hospitality, malls, shopping as all of — as the consumer goes outdoors, is something a hotel has not been used for two years, so on and so forth. They need a certain amount of renovation. So both from a commercial activity as well as from a household activity both in new construction and repair and renovation, we are seeing a certain tailwind. And that’s probably why the home improvement sector is still fairly sanguine about demand conditions. And let’s see how that turns out in the next six months.

Keyur Pandya — ICICI Prudential Life Insurance — Analyst

Okay, okay. And sir, two subsidiaries, Nina and Percept, earlier used to be a separate subsidiary, which saw some slowdown as well as we chose achieving some of our business to be more conservative. So are we seeing a pick-up there also in terms of B2B application business of waterproofing?

Bharat Puri — Managing Director

Actually, the B2B business of waterproofing is picked up — has come back very strongly, because, A, there is a lot of investment happening both in corporate, whether it is offices, manufacturing, factories, and of course, government infrastructure. So actually, the Nina Percept business is — the whole actually large user business is coming back very strongly in the waterproofing segment.

Keyur Pandya — ICICI Prudential Life Insurance — Analyst

Okay. And sir, lastly, in terms of — I mean, without naming, but basically are both of our categories, adhesives as well as waterproofing where other large peers are entering or have entered in last two years. When now raw material basket is in our favor, any upside gap beyond which we would not like to go in terms of EBITDA or gross margin and would like to go for growth? So any gap or any broad guidance on the profitability?

Bharat Puri — Managing Director

See, we’ve always maintained that we would like to focus on profitable volume growth. We’ve always indicated that we are comfortable with margins in a certain range, which is the 20% to 24% range. And because that we believe reflects the right price equity for our brands, that’s where we intend to remain. As far as competition is concerned, obviously, we are no strangers to competition. With the kind of market share we have, we will have new competitors pretty much every quarter, and that has been happening now for at least the last 10 years.

Keyur Pandya — ICICI Prudential Life Insurance — Analyst

Okay. Got it, sir. Sir, thanks a lot, and all the best for the future. Thank you.

Bharat Puri — Managing Director

Thank you, and all the best to you too.

Operator

Thank you very much. [Operator Instructions] Our next question is from Rajesh Gajra of Informist. Please go ahead.

Rajesh Gajra — Informist Media Private Limited — Analyst

Yeah. Hello, Mr. Puri. I just wanted to ask you that your B2B sales and profit, they were down year-on-year in the December quarter. So just wanted to ask how is it going in the current quarter so far in the first 25 days of this quarter as compared to the December quarter?

Bharat Puri — Managing Director

See, as far as B2B sales is concerned, just let me give you a background, Rajesh. Basically, there are two aspects to the business. Wherever there is strong domestic business, like for example, waterproofing, there demand conditions are strong and the business is doing very well. Where the business is suffering is really wherever we have exports, especially to the Western Hemisphere and where our customers have exports, whether it be leather, whether it be textiles. The largest impacted of this is pigments where our pigment exports have been substantially hit. And if you look at all the other pigment companies, you will see the extent of the problem. Frankly, in the first 15 days or 20 days of January are no different from December, at least for the international export-oriented businesses. The rest of the domestic businesses are normal.

Rajesh Gajra — Informist Media Private Limited — Analyst

Okay. Thank you.

Operator

Thank you very much. [Operator Instructions] Our next question is from Sheela Rathi of Morgan Stanley. Please go ahead.

Sheela Rathi — Morgan Stanley — Analyst

Yeah. Thank you very much. Hello, Mr. Puri. Sir, you talked about the market share trends and you said that competition has always been there in this space and you are the leader there. But just one question I had here was that have you seen a resurgence of smaller and regional players in the last one quarter because inflation has eased and all the supply chain-related issues are behind us? So is there a higher competitive intensity which has picked up? And not in general for your sector, but in general, across the space, do you see that as the same playing out?

Bharat Puri — Managing Director

Thank you, Sheela. Always a pleasure to hear from you. I think your observation is an astute one. We haven’t seen that in the third quarter, but we are seeing signs of that beginning, because obviously, a lot of the small regional players who had suffered greatly because of this raw material inflation situation now are finding the situation a lot more to their liking. The way I would answer that is, in the next three to six months, we definitely expect a lot more increased competition from them. And obviously, we are prepared for it.

Sheela Rathi — Morgan Stanley — Analyst

And then how should we think of margins going ahead? Because things are in favor, but at the same time, we will see competition.

Bharat Puri — Managing Director

See, that’s why a lot of times, a lot of analysts keep asking us the question as to why don’t we take our — we’ve had quarters where our margin has — when raw materials have been benign, has gone up to 27%, 28%. And we’ve always said that we prioritize volume growth and market share over a greater margin. We believe this margin range allows us the right price to equity relationship for our — and it also keeps competition at base. So that’s where we will remain.

Sheela Rathi — Morgan Stanley — Analyst

But sir, would you like to give any sense on how the margins could play out by the end of the year?

Bharat Puri — Managing Director

Very difficult. See, as we consume all of the higher-priced inventory, the margins will steadily go up. I would suggest that the best margins will be the exit March margins, then quarter one will follow. So I mean, I think we’ll be at fairly abnormal range during that time.

I don’t know, Sandeep, if you want to add something?

Sandeep Batra — Whole Time Director

No, no. I think, absolutely. I think we will see, as I said earlier, margins improving throughout the fourth quarter. And we would certainly look to hit the range by the time we exit March.

Sheela Rathi — Morgan Stanley — Analyst

Understood. Thank you. Just one more question. I joined the call a little late so I’m not sure whether this was addressed. But sir, you had talked about the capex plans last year. If you could give us some update in terms of where we are? And also on the distribution side in terms of how much distribution we have added in the last three months?

Bharat Puri — Managing Director

Okay. So as far as the capex is concerned, as we’ve always been maintained, at Pidilite, we are prepared for the next phase of growth. In the course of the last 24 months, we’ve expanded and completed expansion of seven of our brownfield factories and we’ve completed five new greenfield factories. There are another six brownfield expansions currently going on. And there are eight new greenfield factories in progress. All of these we’ll complete in the next financial year. So that’s as far as capex is concerned.

As far as sales and distribution is concerned, at Pidilite, we’ve always been clear that sales and distribution is a very strong driver of growth. In the first nine months of this year, we’ve actually added 2,000 — a little over 2,100 towns, which actually are villages with a population of between 5,000 and 10,000 to our direct distribution reach. We actually now cover about 32,000 town stroke villages directly. So that process is an ongoing process. We now have 7,000 Pidilite Ki Duniya, which are the small retail stores in villages between 5,000 and 10,000. Our dealer app, which is the Pidilite Genie app, now pretty much gets 10% of it — 10% of our sales is coming via the app. It doesn’t need a salesman or a distributor to call, it’s directly via the app.

So we’ve got a whole set of initiatives, which is around, A, sales and distribution expansion, both quality as — width and depth. We’ve got a set of initiatives around a resilient supply chain in terms of both factories and warehouses. We’ve got a whole initiative around digitization, which includes whether it is e-com, whether it is analytics and whether it’s our internal digital programs. And obviously, we’ve got a whole program around innovation.

We’ve introduced a whole range of new products across all of our major division what we call as a new premium variant called HyperStar. In the waterproofing business, we’ve introduced a new economy waterproofing solution for exteriors called Raincoat Neo. We’re doing very well in the roof acrylic coating segment with a brand called Roofseal. In our consumer maintenance businesses, we’ve launched a business — we’ve launched this product called HomeFix, which we’re testing in Kerala, which is a subsititute for nails. You don’t need nails. Like this — I mean, I can — we can take you through a whole round of innovation where pretty much every quarter you will see one major and two minor innovations from our divisions in Pidilite for the next 12 to 18 months.

Sheela Rathi — Morgan Stanley — Analyst

This is very helpful. Thank you, sir.

Bharat Puri — Managing Director

Thank you.

Operator

Thank you very much. [Operator Instructions] Our next question is from Shashank Krishnakumar of Macquarie Capital. Please go ahead.

Shashank Krishnakumar — Macquarie Group — Analyst

Yeah, hi. Thanks for taking my question. Sir, you’ve called out that you saw an improvement in November and December over October. So can you just comment on how the demand trends in the Consumer and Bazaar segment have been in these few weeks of Jan?

Bharat Puri — Managing Director

They’ve continued on a good — I mean, we’ve seen the same trend continue, Shashank, in January.

Shashank Krishnakumar — Macquarie Group — Analyst

Okay, okay. And just the second question on innovation. Can you just call out what the contribution from new products have been in the first nine months of FY ’23?

Bharat Puri — Managing Director

See, we have a very simple objective at Pidilite that one-third of our growth should come out of innovation, plus-minus 10% we keep focusing there.

Shashank Krishnakumar — Macquarie Group — Analyst

Okay, okay. Thank you, sir.

Operator

Thank you. [Operator Instructions] Our next question is a follow-up from Purushottam of [Indecipherable] Please go ahead.

Unidentified Participant — — Analyst

Yeah. Thanks for taking my question. Sir, I’m referring to Slide number 15 and this is related to Araldite. Sir, where do you reflect Araldite in this industry segment composition? That is my first question. And second question is, when we acquired Araldite brand, we must have prepared the projected revenue. So when we look at the first three quarters’ performance of Araldite sales, are we on track with reference to the assumed revenue that we expected out of Araldite acquisition? Thank you.

Bharat Puri — Managing Director

I’ll leave Sandeep to answer the question — the first part of the question. On the second part, Purushottam, we are absolutely — in fact, we are beating our acquisition case on Araldite from the revenue and a profitability base. I mean, if you — when it was reported as a standalone business, you can look at the kind of growth rates that we had. I mean, Hunstman grow it at an average of 6% to 8%. Obviously, we’ve grown it at a much better rate.

Sandeep Batra — Whole Time Director

And your question on how we report Araldite, we report it as part of the Consumer and Bazaar segment, because the company has got merged with Pidilite from 1 April, ’22. So we are showing Araldite sales and EBITDA as part of the Consumer and Bazaar segment. And also to make comparisons, to make the previous year data comparable, whatever the Araldite sales were in the same period last year have also been added so that the numbers are comparable.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

Thank you very much. [Operator Instructions] It would appear that we have no further questions. I would like to hand the call back to management for some closing comments.

Bharat Puri — Managing Director

No really closing comments, just thank you to all of you for your continued interest in Pidilite, and all of you have a great evening. Thank you.

Sandeep Batra — Whole Time Director

Thank you, everybody.

Operator

[Operator Closing Remarks]