Pidilite Industries Ltd. (PIDILITIND) Q4 FY22 Earnings Concall Transcript

Pidilite Industries Ltd. (NSE: PIDILITIND) Q4 FY22 Earnings Concall dated May 19, 2022

Corporate Participants:

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Sunil Burde — Vice President, Accounts

Bharat Puri — Managing Director

Analysts:

Abneesh Roy — Edelweiss Financial Services Limited — Analyst

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Thilok — Dymon Asia Capital — Analyst

Jaykumar Doshi — Kotak Securities — Analyst

Ritesh Shah — Investec India — Analyst

Avi Mehta — Macquarie Group — Analyst

Priyank Daga — Neeti Capital — Analyst

Par Kishore — Keppel Capital — Analyst

Saumil Mehta — Kotak Life — Analyst

Ruchitaa Maheshwari — BOB Capital Markets Ltd – — Analyst

Sachee Trivedi — Trident Capital Investments — Analyst

Suresh Maheshwari — Samco Mutual Fund — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY ’22 Earnings Conference Call of Pidilite Industries Limited hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Krishnan Sambamoorthy, Lead Consumer Analyst Motilal Oswal Institutional Equities. Thank you, and over to you, sir.

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Thanks Rituja. On behalf of Motilal Oswal Institutional Equities, I welcome you all to the 4Q and full year FY ’22 post results con call with the Pidilite Industries management. We have with us Mr. Bharat Puri, Managing Director; and Mr. Sunil Burde, Vice President Accounts.

Over to Mr. Burde for opening comments, after which we will take the Q&A.

Sunil Burde — Vice President, Accounts

Good evening, everyone. The current year registered a robust sales growth, aided by strong volume growth across categories and geographies. Growth was broad-based across Consumer & Bazaar and Business to Business segments with both segments reporting volume growth of over 20% each. This was strongly enabled by the focus on digital initiatives, innovation and building a resilient and agile supply chain. The current quarter witnessed price-led growth with volumes remain subdued on account of pandemic and persistent inflation impacting consumer demand over previous year higher base, 45% growth in the same quarter last year.

The margins remained impacted adversely by unprecedented inflation in key raw materials as a result of volatility and increased input costs. This was particularly mitigated by calibrated pricing actions. In this difficult macro-environment we continue to make adequate investments in our brands. Now, I will begin with a summary of the financial performance for the year and quarter ended March 31. ’22. On consolidated basis, net sales at INR9,880 crores for the year grew by 36.3% with growth in C&B by 34.2% and B2B by 44.6%. Net sales for the quarter stood at INR2,498 crores and grew by 12%. Material cost as a percentage to net sales for the year is higher by 853 basis points over previous year and for the quarter is higher by 738 basis points over the same quarter last year.

Due to the increase in price of key raw materials in the gross margin continued to get adversely impacted. We are continuously monitoring the input cost and necessary pricing actions if any will be taken. EBITDA before non-operating income for the year is at INR1,869 crores grew by 11.1% over the previous year. Profit before tax and exceptional items at INR1,614 crores grew by 5.7% over the previous year. PBT for the current quarter stood at rupees INR346 crores and declined by 16.6% over the same period last year. Now, moving to the standalone financial performance; net sales for the current year is at INR8,298 crores grew by 34.1% over previous year with underlying sales volume and mix growth of 19.9%.

This was driven by 20.2% growth in sales volume and mix of both C&B and B2B each. Domestic C&B grew by 20.9% in volume. Net sales for the current quarter stood at INR2,075 crores and grew by 12.1% over the same period last year. The prices of our key raw materials, VAM have continued to increase during the quarter. Current procurements around $2,500 per metric ton Q4 ’22 VAM consumption rates were $2,420 per metric ton versus Q4 ’21 of $1,180 per metric ton and compared to Q3 ’22 it was $1,968 per metric ton. Gross margin impacted on account of inflation in input costs resulting in all-time high prices for most of the principal raw materials.

Material cost as a percentage to net sales is higher by 960 basis points over previous year and for the quarter is higher by 922 basis points over the same quarter last year. EBITDA before non-operating income for the year is at INR1,612 crores grew by 4% over the previous year. Profit before tax and exceptional items at INR1,627 grew by 11.7% over the previous year. Profit before tax for the current year stood at INR397 crores and grew by 5.6% over the same period last year. On a like-to-like basis, excluding dividend from subsidiary, profit before tax declined by 1.5% for the year and 20% for the current quarter.

About our subsidiary performance, the subsidiaries in Asia continued the growth momentum. Americas declined on a higher previous year base. During the previous year sales were higher on account of pent-up demand, as well as benefits passed by the governments to consumers during COVID. Margins continued to remain under pressure due to higher input cost. Domestic subsidiaries in C&B reported good sales growth. Performance of domestic subsidiaries in B2B are showing signs of revival on account of recovery in real estate and construction-related activities.

During the year, the company had filed to merger applications with the National Company Law Tribunal with respect to the merger of its wholly-owned subsidiaries, namely Pidilite Adhesives Private Limited and Cipy Polyurethanes Private Limited. Consequent to the filing of the NCLT orders approving the merger with the Registrar of Companies mergers have become effective from appointed date April 1, 2022 as a result of merger being an event happening after balance sheet date no effect of merger given in the financial results. While there are near-term concerns around significant inflation and the impact of this on market growth we are confident of the medium- to long-term prospects of the home improvement sector and will remain focused on delivering consistent and profitable volume led growth. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss Financial Services Limited — Analyst

Yeah, thanks. My first question is competitive intensity in adhesives from regional players could you talk about in the last one year? Have you seen any big change there? You have been extremely aggressive on M&A in the last many years. So does this open up more inorganic opportunities in India? In the regional space do you think you can acquire some players? Is there good valuation opportunity or most of you have already covered up most of the white spaces?

Bharat Puri — Managing Director

Thanks Abneesh, relevant question. See the competitive intensity frankly over the last 12 to 24 months has actually been lesser than normal, largely because of two reasons. I think a large number of regional players have suffered as a result of their supply chains being impacted as well as the impact of this whole input cost inflation on them. On competitive intensity we have new competitors coming in frankly every quarter there is somebody getting revived or a new competitor coming in given our share position in the market.

Obviously if you are a consultant, we would tell fellows that even if you get 10% of this market, it’s a very attractive proposition. So we’ve had a fair amount of people entering but from an intensity point of view, the large amount of competition tends to be at, what I call the discount end of the market where based on high dealer discounts, high contractor allurements, lower pricing to the trade is really where a lot of the action has been. As far as M&A is concerned, when we find the right players who frankly have a brand or a route to market, then we will look at them. But obviously that will be opportunity dependent.

Abneesh Roy — Edelweiss Financial Services Limited — Analyst

Sir, one follow-up on this — globally every RM has been extremely inflationary, for you also VAM has doubled in the last one year. Could you discuss in the last few months, what is the reason, it is the same old issue of container shortage or geopolitical? So if the geopolitical issue gets resolved you see a big crash coming given in China there is such a big slowdown. You see that happening at some stage? I am not asking when. I am asking will that happen given the supply-demand scenario?

Bharat Puri — Managing Director

Given the supply-demand scenario currently, frankly, a large number of these shortages are happening because force majeures where plants are all, I mean, from the outside and obviously, I cannot say definitively but there definitely seems to exist almost some cartelization where plants seem to coordinate their closing so that the amount of stock that is available in the global market remains almost constant. Having said that, you are right that if plants were to operate normally and China was to remain depressed you will have suddenly an excess of supply over demand, but we don’t know when that will happen.

Abneesh Roy — Edelweiss Financial Services Limited — Analyst

Sure. And sir, last question on the demand side. So in Q4, there was one month obviously of Omicron impact, so was that substantial in any of your demand industry segment and similarly December FY ’23 do you think the real estate, which has done really well in last one year, wherein you supply lot of products to the real estate players. You see a slowdown coming at some stage given interest rate hikes, real estate prices are again going up in the last one year. Have you started picking up some time from impending slowdown there?

Bharat Puri — Managing Director

See, coming to the first as far as demand is concerned Abneesh, you’ve had a lot of local stoppages as a result of January had Omicron and you had some amount of supply stoppages, you had lot of shop closures, some of it extended to February. But if I look at a longer period of time frankly, largely demand has still been good. There is some amount of slowdown. And now I am purposefully looking at a longer period, even if I look at post Diwali right till today. Overall demand is still good, there is some amount strain in rural and semi-urban India.

Inflation is a massive tax that any emerging economy and common consumer pays. Having said that, we are hopeful that if you have a good monsoon the government actually does spend what it is projected to spend in the budget and front-load some of it, you will have a lot more money coming into the economy in the second half and therefore into people’s hands. So I think demand I would as you use by usual phrase of being cautiously optimistic. On the input cost, very difficult to say because geopolitics has definitely impacted it. You can see the price of crude oil, so on and so forth. And right now it’s not clear as to whereas the light at the end of the tunnel and when will it emerge.

Abneesh Roy — Edelweiss Financial Services Limited — Analyst

Sir. And one last follow-up, Bharat sir, you are a FMCG veteran, so FMCG companies are ramping up on bridge pack because INR5, INR10 is a big challenge. In your case also INR5 has been extremely strong, product and it’s a great draw for the consumer, but are you also thinking of bridge pack in the INR5, INR10, INR20 in that any range, any bridge pack you’re coming out aggressively?

Bharat Puri — Managing Director

See, we have been very conservative and actually it’s almost an oxymoron Abneesh, we’ve been conservative and aggressive. We actually haven’t moved, I mean having been one of the Pioneers of INR5 price point in chocolates, I must tell you that on things like Fevikwik and so on so forth we have not moved our price point now for 15 years and even in this inflationary situation we have not moved the price point. So frankly, we don’t see the need for bridge packs for two reasons, one is obviously, we already straddle the price points that we want to. The second point is in items of mass consumption where there is down-trading you would obviously need bridge packs. In our case, most of our consumers tend to be middle class and above. And therefore, when you’re doing the house, your smallest — you don’t need a bridge, there are very little minor jobs that you do. Your smallest pack tends to be at least a 5 kilo pack.

Abneesh Roy — Edelweiss Financial Services Limited — Analyst

Okay, sir. That’s very useful. Thanks a lot.

Bharat Puri — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Yeah, hi, sir. Thanks for the opportunity. Sir, if we look at the growth and margin pressure from the lens of core Pioneer and growth categories.

Operator

Tejas, please go ahead with your question. Your line is unmuted.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Hello, am I audible? Hello? Hello? Hello? Hello? Hello?

Operator

Mr. Tejas Shah, can you hear us?

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Hello, am I audible?

Operator

Yes, sir. You are.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Yeah. Sorry for this. So, sir, if we look at the growth and margin pressure from the lens of core Pioneer and growth categories the way you divide the portfolio, segregate the portfolio, are there any divergent trends on growth and margin pressure?

Bharat Puri — Managing Director

Actually, the largest margin pressure, I mean, it’s a coincidence. I don’t think it is anything that is part of a trend is actually on the core categories. The growth in Pioneer tend to have — have at least in the last 12 months. While there has been pressure, A, there is pressure across the portfolio. But the highest the highest pressure has been on the core portfolio, little less than the growth in Pioneer.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Okay. Now sir, in your opening remarks, you mentioned that this was an unprecedented inflationary scenario. And then the closest referenced that you can make is somewhere around 2009, ’10, when we had taken very slightly late but aggressive price hikes over a period of time. And when the crude correction happened later on we actually retained a lot of bad price hike in our P&L. Hypothetically if that scenario has to play out in FY ’23, do you think that competitive pressure, as it stands today will allow you to retain a lot of this price hike that you have already taken or you will take going ahead in coming quarters?

Bharat Puri — Managing Director

See, what will happen Tejas is why we always indicate a margin range is largely because of that. If the situation turns benign post our having taken the price increases obviously, we will give back a large part of it to the consumer, but we will then obviously end up at the top end of our margin range is what my presumption is.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Okay. So, sir, even in the interim, you won’t allow margins to cross that upper range that you have given for long-term?

Bharat Puri — Managing Director

See, they may cross for one or two quarters but we would prioritize growth — in our experience, Tejas, has been if you take margins a little too high, you open the back doors and a lot more competitors start pulling at the carpet before you realize it and then are slipping. So we like to make sure that our price premiums and pricing remain focused on growing volumes rather than in the short run, growing margin.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Fair point, sir. Sir and any capex guidance for this year and next year?

Bharat Puri — Managing Director

See, as far as capex is concerned, I must tell you one of the things, and I have spoken about this earlier, we were very clear that use this period to build the next generation supply chain. So, I must tell you that over the last two years, we have expanded or put in 10 new facilities and in addition to these 10 facilities, we have 12 facilities currently under construction all of which will be completed in the next 12 months. So we will be frankly ready for the next phase of next three to four years of growth, we will be completely ready from a capacity perspective. Our capex still remains at the traditional 3% to 5% of sales.

That’s not going to go up, but because our sales have gone up, obviously now our number of — the amount of investment we’re making in the supply chain, be it new facilities, be it new warehouses, separately the investment we’re making in digital for example we would regard ourselves as one of the companies with the leading edge of digital. As far as both consumers and dealers are concerned I mean, today we are now getting almost 20% of our dealer orders via Genie app where dealers got actually no sales but no distributor comes in, it is all done via an app, the same thing is getting extended to contractors. So there is massive amount of investment in an agile and resilient supply chain.

There is a massive investment in the whole digital piece, which is in a sense we’ve learned during COVID we don’t want to use. Innovation has traditionally been a strength area of Pidilite. This has been an area where in the last two years obviously we were focusing on the core, because of the situation on ground. In the next 12 to 18 months, you will practically from each of my divisions see one new product every quarter. So the innovation machine is also ready to fire so I mean while in the short run, yes, the inflation situation, the input cost situation is something of concern. Frankly, we are long term players and we’re quite confident about not just long but the medium term prospects of the whole home improvement sector and we are ready for the next phase of growth.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Very, very detailed answer, sir. Thanks a lot and all the best, sir.

Bharat Puri — Managing Director

Thank you Tejas.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah, thanks for the opportunity. Sir, just one question. Basically, how are our market shares have moved in waterproofing in past one year and three years? And also if you can indicate any market share trends, even if it’s indicative in the four regions, West, East, North and South? Yeah, thanks.

Bharat Puri — Managing Director

Okay. As far waterproofing is concerned, Aniruddha, it has been one of our strong drivers of growing and not just this last year, or last year but for therefore the, over the last, I would say, 24 to 36 months. Given our growth rates I would say the market is consolidating the number of players in the market is becoming a lot of the small- and medium-sector is suffering and the larger fellows are getting larger. I would suspect we would have gained some market share or the market would have grown aggressively and therefore our market share would be constant.

But it’s a market that in our view, what is most important is the market grows faster, rather than you take share from others because obviously the largest single opportunity is winning against non-consumption given that pretty much six out of 10 consumers in India don’t do any proper waterproofing. So that’s the overall situation as far as waterproofing is concerned. On overall, Pidilite also if you look at our growth rate so on and so forth our belief again is in our core category be it white glues, be it Fevikwik.

We have gained some share of largely because in times are difficult both from a inflation and input cost point of view as well as a supply point of view the leaders tend to gain and consumers tend to gravitate towards brands that they trust. But it would not be a substantial movement, but there’ll be a steady increase in market share. There is no substantial difference that we find in our performance across the regions, which tends to show that we could have gained more in some areas or so on so forth. Our performance is largely secular — one state, one year may have some issues, etcetera. But if I look at a two, three-year basis we are moving steadily — the ship is moving steadily forward pretty much across the board.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Okay. Sure sir, no because multiple paint companies have been gaining market share. So, but I mean again, I believe that they are gaining market share again from the smallest unorganized sector itself.

Bharat Puri — Managing Director

See perhaps, remember most of the paint companies participate in the, what I call the renovation and the repair segment. A lot of them don’t participate in the new construction segment because there the more channels [Technical Issues] In our books that is actually the exterior paint which may perform some amount of protective portion. So if you add exterior paints etcetera, then the paint company figures look like, but they have had exterior paints for 25 years and earlier it was never called waterproofing.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Okay. Okay. No, no, sir. Understood. This is fairly clear, sir. Yeah. Very helpful, thank you.

Bharat Puri — Managing Director

Thank you Aniruddha.

Operator

Thank you. The next question is from the line of Thilok [Phonetic] from Dymon Asia. Please go ahead.

Thilok — Dymon Asia Capital — Analyst

Yeah, hi, good evening. Thanks for the opportunity. Sorry for the background. But I just wanted to check on the volume growth for Consumer & Bazaar business [Technical Issues].

Operator

Excuse me, Mr. Thilok but we cannot hear you. There is a lot of disturbance from your background.

Thilok — Dymon Asia Capital — Analyst

I’ll come back in queue.

Operator

Thank you. The next question is from the line of Mr. Krishnan Sambamoorthy from Motilal Oswal. Please go ahead.

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Yeah. Hi, Bharat. Hi, Sunil. Bharat, from a technology perspective, what have been the efforts in reducing the pipeline inventory over the last few years and what are the benefits that you got from reduction in terms of, can you quantify those?

Bharat Puri — Managing Director

See basically what has happened — Krishnan, good to hear from you. Secondly, very good question. See what we’ve done over the last two years is we have virtually taken the salesman out of the equation as far as inventory is concerned. Today, across Pidilite’s division 80% and therefore, pretty much all of the major distributors are on a replenishment model which therefore means that no salesman takes orders. The concept of month end or period end stocking up etcetera is all something of the past. Everything is based on replenishment, salesman don’t take orders, dealers can order directly, which goes via the distributor.

So we’ve now in a sense we — and while obviously during COVID in some cases, we actually built up inventory because of the supply chain shortages, plants being closed and certain affected areas so on so forth. And given normally that April-June tends to be a big period for us, especially in the areas the waterproofing, etcetera we built up a little inventory. But the dealer pipeline frankly over the last 24 months is now firmly in our control and not an issue of concern at all for us. I mean, it’s not something where I would say, hey, listen, major reduction has happened because we’ve actually made the reduction now over a number of years. But it’s, again, an area where we are clear that based on again product. I mean, we have a fairly well-defined algorithm based on the speed of the rotation of the product and how much stock a distributor carries and that is now standard for all our divisions.

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Got it, got it. Bharat, one more question, while you did indicate earlier that there is less or lesser margin pressure compared in the growth and Pioneer categories. What about working capital, is that proving to be longer than you had expected in some of these categories or they are very much in control?

Bharat Puri — Managing Director

No we are not finding, I mean with our retail footprint and our ability to influence in retail, we’re not finding a substantial difference in working capital across the categories at all. I mean, where we find the difference Krishnan actually is the difference between B2C and B2B. B2B tends to have longer working capital, but that’s always been the case. That’s not public.

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Got it, got it. And staying on working capital, Bharat, anything to call out on the international business? I mean anything unusual?

Bharat Puri — Managing Director

I mean the right now of course the issue of concern of course, it’s not big for us, it’s fairly small, but it’s still an issue of concern is the closure in Sri Lanka. We were actually doing quite well in Sri Lanka over the last 24 months. Bangladesh has been a massive success story for us. You can see the numbers and you can see that Bangladesh is virtually becoming another West Bengal for us, which is very good. Overall, you can see that what we have done and we’ve talked about this a number of years ago that we are going to be an emerging market specialist and we will keep gaining in emerging markets that you can now see that all of our international operations, our profit-making, our operations that are now in a sense synergistic with what we do and are doing fairly well. So today, over INR1,000 crores of our sales comes out of exports plus international and it’s growing at a steady rate. It is, there are some ups and downs and that’s a matter of fair amount of acquired pride for us.

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Okay. And nothing to call out on working capital in this?

Bharat Puri — Managing Director

No, no issues, no issues on working capital, absolutely.

Krishnan Sambamoorthy — Motilal Oswal Financial Services Ltd. — Analyst

Very clear. Thanks Bharat.

Operator

Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead.

Jaykumar Doshi — Kotak Securities — Analyst

Hi, thanks for the opportunity. I would like to hear a little bit more about, you mentioned that every quarter there will be an innovation from Pidilite. So are you referring to some big bank innovations, the likes of — is there even an opportunity to — in the core Fevicol portfolio, the way we had seen in the past, Marine, then Hyper, Heatx, is there an opportunity of innovation on that front or you’re referring more towards innovations within the construction chemicals portfolio such as titles, adhesives and other such products?

Bharat Puri — Managing Director

Thanks, Jay. I think that’s a great question, I must tell you unequivocally we’re referring to innovation, both on the core, as well as the growth categories. And just as in the past we’ve done the Marine, Hypers and Heatx’s, now obviously for confidentiality reasons, I can’t tell you what you will see coming because that will give a red flag to my competition. But you will see innovations across both our core, as well as our growth categories. And you will see a lot of these, obviously, we are looking at, have to be innovations that move the needle for us. At a organization level the numbers that we set for ourselves is that one-third of our growth must come out of innovation and we are well on our way to now we’ve got the pipeline ready to do that.

Jaykumar Doshi — Kotak Securities — Analyst

Understood. And this we’ll start seeing from FY ’23? I mean, in the next one or two quarters or still?

Bharat Puri — Managing Director

You will start seeing from the second quarter of this year itself.

Jaykumar Doshi — Kotak Securities — Analyst

Right. Second is, see, I understand that you are catering to a different market when we think about waterproofing and paint companies are catering to a different market but whenever — when we compare the numbers I think, in scale terms that value-added waterproofing functionality has probably exceeded waterproofing portfolio that you have. Now we’re seeing similar trends in adhesives as well, I believe that paint companies are very aggressively selling low price tile adhesives.

That’s a category that is growing very well for you, but my understanding is you’re not participating in that commoditized tile adhesive product. So from a long-term perspective, how do you think about the aspect that paint companies have always focused on mass economy scale volumes and you as an organization have always focused on high-margin niche businesses, but they are entering some of your core categories or future growth categories through that mass and volume game? So how do you sort of think about that new competition in construction chemicals and waterproofing where until maybe three years back, we thought that it’s Pidilite and some of the international players. Now it’s Pidilite paint companies and of course the international players.

Bharat Puri — Managing Director

Again, great question Jay. Let me answer the question in three parts. First, as far as waterproofing is concerned frankly, the paint companies have just redefined their definition of waterproofing and added exterior paints and so on so forth, which were coatings, which I mean just as an anecdote as a young marketing manager I launched Apex in Asian Paints about 20 years ago or 25 years ago. We never saw it as a waterproofing product, right? So now to put it as part of your waterproofing portfolio, I mean that’s a choice that you make.

If you look at pure waterproofing, we have always maintained that there is a right for paint companies to play in the repair and renovation segment because in India given the quality of construction, consumers tend to repair, renovate and waterproof because there are leakages. Rest of the world, repair and renovation is one-third of the business, two-thirds is new construction. In India, it’s pretty much the other way around, though now new construction is gaining. In new construction, the paint companies tend to play much, much lesser because in new construction the consumer actually ends up at the steel and cement outlet and not in the paint outlet.

Paints comes only when — and you have to do waterproofing whether you’re constructing not after construction is complete. Now therefore, when I look at the overall segment, frankly, I don’t see any gaps in our portfolio. Yes, now a choice of whether we should play more aggressively in what we call paints rather than waterproof coatings is a choice we have to bake, which we have up to now said that, listen, we still believe there is a massive market for us to address in terms of non-competition and converting people to using proofing. And that’s where our focus has been.

Paint companies have tended to ride on cocktails and try and then look at how can they get a share of that. Therefore, if you look at the institutional market, you look at the large market the competition is still frankly the large multinationals enough, the paint companies largely don’t play. Now, they would like to play there but currently they don’t. Similarly, if you look at areas like adhesives, in tile adhesives, see the bottom end of the market is purely commoditized. It’s like — if I was to give you a paint analogy it was what dry distemper used to exist 30 years or 35 years ago and slowly people went to oil bound and then acrylic distempers and then emulsion.

We have basic tile adhesives too but we begin at a level where we believe that there is a certain minimum quality that must be offered. And frankly, when I look at my growth in both waterproofing and tile adhesives without any doubt, we are gaining. We’re not losing in anyway. So I think these are strategic choices that companies make. In the short run, the volumes look good. I mean, if I was to actually add back by tile adhesives volumes and equate the kilos of tile adhesives to the kilos of white glue that I do, actually volume growth rates will go up by 10% or 12%. But frankly, I think that is in a sense, doing a disservice to you people and to ourselves, so we don’t do it that way.

Jaykumar Doshi — Kotak Securities — Analyst

Understood. One final question — now Huntsman portfolio seems to have stabilized around quarterly run rate of INR140 crore, INR150 crore, which is about 50% higher than what, at the time when you acquired it. So is the entire distribution benefit captured or is there any low hanging fruit as far as distribution and top line is concerned for Huntsman?

Bharat Puri — Managing Director

There is definitely a low hanging fruit and a distribution runway yet. We are still — I would say only two-thirds of the way there. There is still one-third of it still to be captured for it. While Araldite is a leader, in my book, it is still a growth category and you will see in the results, hopefully in the next 12 months that we’re not going to come back to saying that, hey, this is a mature category. This is a growth category. We have shown over the last two years, we’ve beaten the acquisition case and what we had said by a large number but we still believe there’s a lot more to go.

Jaykumar Doshi — Kotak Securities — Analyst

Understood. Thank you so much.

Bharat Puri — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec India — Analyst

Hi, sir. Couple of questions. Thanks for the opportunity. Sir, in the initial remarks, you indicated volumes remain subdued on account of pandemic and the persistent inflation. Sir, just wanted to understand this because bifurcate your portfolio into two product categories when we see demand is this on back of something like price elasticity of demand, but the overall construction starts moving up or is it the inflation impacting discretionary spend kind of how should one understand this better?

Bharat Puri — Managing Director

Again, great question Ritesh. To my mind, there are two different ways of looking at this, when we said demand was subdued what tends to happen in an inflationary situation is whenever you’re raising prices the trade tends to stock up. So one quarter looks much better than the other and therefore, while primary sales may not look so good secondary sales frankly evens out. The second thing is in the pandemic obviously what happens is there are closure cities are closed in March, sorry in January and parts of February we again had those you can’t open on the weekend, you can only closed and so on so times, etcetera, that obviously impacts work and therefore work that should get completed in one month, some sort of more to complete and that impacts demand.

The third thing is if you look at the consumer purchase basket prices and everything. So while we are a very small part of home improvement if a person is building a home in say rural India and I was in rural UP two weeks back and what the fellow was saying, sir, if you look at the increase in cost of steel, cement, paint, so on suddenly the consumer needs another 20%, 25% over last year to make the same room or make the same two rooms and that obviously therefore like he tends to cut down because he’s got a fixed income. So where we are seeing actually demand is subdued is in small town rural and wherever there are economic challenges. The rest, frankly, in our view will even out over a period of time.

Ritesh Shah — Investec India — Analyst

Sir, this is quite helpful. But sir, when we say this is something which will even out, sir. What gives us that confidence given I think food inflation is pretty steep, the actual discretionary spend actually a question. So, it will come back, but what gives us the confidence that probably say three months, 6 months, sir, how do you understand that?

Bharat Puri — Managing Director

See, two things. Again, I think, I share your concern because having seen this earlier, whenever there have been periods of high inflation there is an impact on volumes and normally starts from the bottom end and then extends. Having said that, we are seeing some amount of tailwinds; for example, we spoke about the real estate sector, clearly there is a revival of the real estate sector Abneesh up to now we have not seen at least any signs of slow because suddenly you can see a slew of new projects being announced.

So whether it real estate, whether it’s the consumer spending a lot more post the pandemic for home renovation, on home upgradation and the reopening of the whole commercial segment, be it hotels, be it restaurants, be it shopping areas. A lot of these that were closed or were semi-closed have had to renovate and open. So therefore, we are seeing that urban demand is still growing decently, it’s not depressed despite the kind of inflation we’re seeing. But I would to declare success frankly, I would wait another 3 to 6 months before I declare.

Ritesh Shah — Investec India — Analyst

Sure sir. Second question in the scenario that we are in, what are the strategies one can actually adopt to or maintain margins? Are there any categories that we have, wherein we even have an option to reduce grammage, given we have a formidable portfolio. Sir, if you can help me understand that.

Bharat Puri — Managing Director

Unfortunately you’re reminding me of my good confectionery days where every time prices went up, I must tell you as a small anecdote when we introduced the INR5 Cadbury Dairy Milk chocolate it used to be 20 grams, I think it is now 5 grams or 4 grams so you can see the extent of pricing. But unfortunately we don’t have many of those, because as I said if you’re making a table at home or you’re making a chair or you’re making a wardrobe, the amount of product that you’re going to use is never in the smaller quantities, where the consumer is going downgrade substantially.

And therefore, from a price point or margin perspective, really what we have to do is while being conservative keep making sure that we are slowly trading the customer to the newer price points to the newer prices and getting her or him used to those price points because the way our products is used where price points matter we are obviously keeping those price points so whether it’d be a Fevikwik, it’d be some of the children that material, etcetera. The other places we have to just keep making sure that we are giving the consumer, we are being conservative and not taking it up to aggressively.

Ritesh Shah — Investec India — Analyst

Sure. So just continuity to the same question, sir, how do you look at the margins when it comes to the influencer or the distribution channels in the current very inflationary scenario? Do we even look to tweak it or we just wait for the demand to come and hope margins to improve, raw mat hopefully going down?

Bharat Puri — Managing Director

Could you just repeat that? I lost you for the last moment.

Ritesh Shah — Investec India — Analyst

Sir, my question is how do we look at the money that we put on the table for the dealer and the influencer when the conditions are tough? Do we tweak those variables or do we intend to do that going forward?

Bharat Puri — Managing Director

See, if for example as of now values are still actually looking good for the trade so on so forth. So we have not had an occasion to tweak but whenever we do face, for example, like for example, during COVID when we did face obstacles with influencers, etcetera, we actually did deals with PayTm and converted all of our points to money so that the person religiously get money. So we have a lot of these means available to us, which we keep working with the trade, but I mean when I take a step back and you look at our business growth over the last year. If your business has grown 35%, then the trade is not so worried about margin as long as we are seeing that, listen, volumes will keep growing going forward and therefore our objective has to be to keep focusing on making sure that we grow volume in this inflationary environment because obviously you don’t want just empty price-led growth.

Operator

Sorry to interrupt, may I request Mr. Ritesh Shah to please rejoin the queue? We have participants waiting for their turn. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie Group — Analyst

Hi, everyone. Thanks a lot for this opportunity. I just wanted to understand, you highlighted that from a medium term or even if I kind of look at beyond the quarter demand environment has been relatively good and the fact that pressures our primary and core. In that sense would you argue that the gross probably bottomed out something that you had kind of highlighted that it will bottom out in Jan, Feb in the last conference call as well or do you see some more near-term pay?

Bharat Puri — Managing Director

See, it’s very difficult to say. Avi, good to hear from you. In fact, if you look at it in Jan, Feb, we thought will be a period where we will start seeing some amount of softening and then unfortunately this whole geopolitical Russia-Ukraine happened and everything turned on its head again. If I look at the supply-demand scenario, I look at the overall scenario at some point of time, it has to start evening out because capacities even today are far greater than demand. It’s just that those capacities are not being realized.

But I would say in the next three, four months you will still remain at elevated levels. It’s probably only in the second half of the year that you will start seeing some amount of, what I would say softening and that’s when like you would have to examine what the situation is. As of now, I don’t see it going further, I mean but unless there is one more Black Swan event. But I do believe that we are at an all-time high. We never see raw material prices this high. In some cases unless there are some special exigent circumstances, we do believe this is probably close to the peak, if not the peak itself.

Avi Mehta — Macquarie Group — Analyst

Okay, perfect. So I mean and the commentary vice-versa on margins as well, right? That is the right way to read it then? We’ve not reached the normalized levels, but it will take some, probably a three to six months is what I hear you but we are kind of going.

Bharat Puri — Managing Director

It depends on what you define as normalized level?

Avi Mehta — Macquarie Group — Analyst

Your range. Okay, actually what the range that you say for EBITDA range. Could you repeat, I mean just for the benefit of everyone.

Bharat Puri — Managing Director

On a standalone basis, we should be in between 20 to 24 and we’ve ended I think close to 20, 19.5, close to that. To my mind, we will still be this 20 to 24 range again unless there are some again circumstances that are completely out of the blue that should, that will be our objective.

Avi Mehta — Macquarie Group — Analyst

Okay, clear. Very clear. And just the last question is essentially from a more medium term perspective, if you were to rank categories in the Pioneer segment and which one would you say would be the most likely to hit growth say five years or three years down the line? Which one would you call it out as?

Bharat Puri — Managing Director

Specifically, tile adhesives.

Avi Mehta — Macquarie Group — Analyst

Okay, perfect, perfect. And that is — is there the concern, I mean where you were essentially arguing that the volume trajectory is something that you would still maintain — commoditized players are not going to be a concern as yet.

Bharat Puri — Managing Director

Absolutely. In every market, you will have — when you’re again creating a category, remember world over tiles are always put together with adhesive. You use sand, cement and adhesives. In India eight out of 10 are done with cement. So therefore the scope is like massive across the spectrum.

Avi Mehta — Macquarie Group — Analyst

Perfect, perfect. And thanks a lot again for this and look forward to hopefully meeting in person sometime soon. Thanks again for the opportunity.

Bharat Puri — Managing Director

Thank you Avi, thank you so much.

Operator

Thank you. The next question is from the line of Priyank Daga [Phonetic] from Neeti Capital [Phonetic]. Please go ahead.

Priyank Daga — Neeti Capital — Analyst

Yeah, hi. Thank you taking my questions, sir. My question is regarding the VAM prices; so can you give me idea about the price hike that we’ve taken in the last quarter and the inflation that we have faced percentage wise?

Bharat Puri — Managing Director

See, as far as price hikes are concerned over the last 12 months depending again on the category, we’ve taken a different price increases. They could range from 5% to 15%. In this quarter, we’ve taken some pricing in some categories in May because we felt that the quarter one, which is the quarter four pricing really had — was at the peak, which we had not expected, and therefore we needed to take price. The other thing we’re just closely watching this and seeing that what we need to do next.

Priyank Daga — Neeti Capital — Analyst

All right. And where do you see the VAM prices going in the, actually in the next two quarters.

Bharat Puri — Managing Director

I wish I knew my friend. We thought $2,000 is the right area for VAM prices but they are stubbornly at $2,500, $2,600 $2,700. There are two major plants across the world that are close which declared force majeure. So very I frankly don’t see it going substantially above this and maybe $100 above this at worth, we do believe that it has to soften over a period of time.

Priyank Daga — Neeti Capital — Analyst

All right. Thank you.

Operator

Thank you. The next question is from the line of Par Kishore [Phonetic] from Keppel Capital. Please go ahead.

Par Kishore — Keppel Capital — Analyst

Yeah, hi, sir. Thank you for taking my question. So actually I see that the inventories have moved by a lot this year [Indecipherable]?

Bharat Puri — Managing Director

Just repeat your question, you were buffering a little my friend.

Par Kishore — Keppel Capital — Analyst

Actually I’ve seen that the inventories have most of this year by around INR460 crores. So I mean, could you please explain that. I mean, why is the inventory build up being so high?

Bharat Puri — Managing Director

Yeah, basically this is in preparation for our biggest quarter in the year tends to be part the April-July quarter. Last year, because of all of the issues around the closures, etcetera, etcetera and so on we basically had whittled down inventories. So when you look at the comparison this year we’ve obviously expecting a normal April to June and we had built up the inventory substantially. Last year if you remember the whole period was massively challenged in the first quarter and therefore inventories tended to be low. So A, it’s a comparison; B, it’s an expectation of a better April-June.

Par Kishore — Keppel Capital — Analyst

Okay, okay, thank you, sir. So it’s not because I mean there’s a buildup in the, at the company level — buildup at the dealer level or something like that, that the product is not moving?

Bharat Puri — Managing Director

When you will see this — when we will meet for the April June, the first quarter numbers, you will see that inventories will be back to normal.

Par Kishore — Keppel Capital — Analyst

Okay, sir. Thank you, sir. Thank you for taking my question. All the best.

Operator

Thank you. The next question is from the line of Saumil Mehta from Kotak Life. Please go ahead.

Saumil Mehta — Kotak Life — Analyst

Yeah, hi, thanks for the opportunity. So, just one question from my side, in the past cycles over the last 10, 15 years, whenever we see large inflationary normalized over a period of 6 to 9months, which should be the case this time around. Margin bank for us the strong [Indecipherable] many years back normalized margin bands would be 16, 20 products currently now about 24. So I believe part of that would be also.

Operator

Mr. Mehta, but you are not that clearly audible.

Saumil Mehta — Kotak Life — Analyst

Is this better?

Operator

Yes, please go ahead.

Sunil Burde — Vice President, Accounts

Yeah, so I heard your question about the margin band. Continue.

Operator

The participants have left the queue. We’ll move to the next question, which is from the line of Ruchitaa Maheshwari. Please go ahead.

Ruchitaa Maheshwari — BOB Capital Markets Ltd – — Analyst

Hello. Yeah, my question has been answered. Thank you.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Thanks for the opportunity. Just one follow-up. Sir, just the question is partly academic in nature, but just wanted to gain some perspective from your vast experience on how the broader industry is evolving? Cement players are getting into paints, paints are getting into adhesives. Pipe guys are getting into adhesives and paints both. So, has anything changed materially in terms of moats how we used to know all this in terms of distribution, branding advantage that incumbents had and suddenly the way capital is flowing or getting fungible between the categories. It seems that some of those moats are no longer relevant. So just wanted to gain — get your perspective on it.

Bharat Puri — Managing Director

No, I think that’s a great question. I mean, while obviously all companies will look at adjacencies it’s always been the attempt of a large number of commodity players whether they be made whether they be equivalent categories steel, etcetera, to try and keep moving up the value chain. In my view Tejas, it doesn’t matter whether it’s paint or whether it is adhesives or whether it is pipes. Finally, the three factors that in a sense contribute to your moat is the strength of your brand, the strength of your customer relationship and the strength of your user relationship.

And if you are strong on all of these three, I mean, looking at other people multiples and a lot of times, I mean I keep hearing anecdotally that all these people look at the multiples of paint companies or companies like us and feel that they entered our sectors, they would get the same multiple. But frankly from a strategic perspective, you have to have a reason to win or you have to have a reason to. And the moat in terms of the strength of the brand, the strength of the customer and user relationships and your hopefully ability to service via good supply chain is. If that is strong, I mean competition will come and go, but it’s not going to be easy for new players easily.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Fair point, sir. That’s very helpful, sir. Thanks.

Operator

Thank you. The next question is from the line of Sachee Trivedi from Trident Capital. Please go ahead.

Sachee Trivedi — Trident Capital Investments — Analyst

Hi, Bharat, thank you for taking my question. I have a couple of questions. The first one is, you mentioned your investments in technology and now that everything is on a replenishment model. Based on that on April 1 of any how much your demand for the year do you already know?

Bharat Puri — Managing Director

I think that’s a great question. But you see normally we will keep predicting and working based on — we obviously have got ourselves based on the last three months, based on the last one month, based on the last six months. So we have a fair idea and that you would look at your secondary sales, not so much your primary sales, look at any one-offs, like for example, where we will plan for this year’s first quarter. Clearly, we will look at last year’s, last year we had some amount of closures in May as a result of the wave of the pandemic, you will equalize for that. You will then add for innovation and so on so forth or any local factor and then work that. I would say you have visibility hopefully close to anywhere between 80% to 90% of your demand.

Sachee Trivedi — Trident Capital Investments — Analyst

Okay, okay. And the second question is sort of a similar context you talk about innovation annually launched very many products and some very good products over a period of time. How have training and educating your end users then, and how has that evolved, how has the difficulty of that evolved over the years? And particularly now any number of competitors who are also trying to get to the same end user. Could you talk a little bit about that?

Bharat Puri — Managing Director

Yeah, I think again, absolutely relevant question. In fact, one of the things we pride ourselves on is the strength of our user relationships and our ability to forge long-term partnerships with our user which obviously therefore includes a fair amount of training, a fair amount of information, dissemination on a regular basis. I mean just to give you an idea, we have 220,000 contractor each of whom will have anywhere between five and 50 workers who are pretty much in touch with us at least once in the quarter dealing with us, so and so forth. This is frankly our bread and butter business and making sure that the user is A, fully acquainted; B, sees our new products; and C, has a strong relationship with us is frankly one of the reasons of our success.

Sachee Trivedi — Trident Capital Investments — Analyst

But has that — the education and training, has it become more difficult over the years or has it become easier mainly because of technology or because of — do you reach them on an app, how do you even reach them now?

Bharat Puri — Managing Director

Actually we have apps for each of our users. We reach them via apps. We reach them physically. Last year for example, during COVID we did over 1,000 user meets on Microsoft Teams. Now, if somebody had told me two years ago that carpenters will be sitting and doing Meets on Team you would have said, listen guys, are you sure this is possible? But there has been that evolution. So we actually use digital very aggressively. We have a very a robust database so we are able to push information to regular basis. Today, a large number of the contractors have smartphone and therefore you are able to share information. I mean, a large part of our digital effort is really around the user and the dealer.

Sachee Trivedi — Trident Capital Investments — Analyst

Got it, got it. Okay. And we’ve talked a lot about adjacencies and particularly your competitors moving into adjacent spaces. As an example of a paint company, they are now also moving into, let’s say, home decor and doing some of the paintings themselves. In your case you did take some strides and you took a stake in Pepperfry. Is that an area where you feel the need to enter sort of building your furniture?

Bharat Puri — Managing Director

We don’t want to compete with our customers. So we don’t want to build furniture. But as the digital world changes, we definitely want to understand and remain close to the consumer. So we have investments in Pepperfry, we have investments in HomeLane, we have investments Livspace. We do that on a regular basis, largely to make sure that we are completely on the ground floor as far as the new wage consumer is concerned and where our business is getting oriented towards being able to serve the customer in today’s environment. But we don’t see ourselves as competitors to our customers and making furniture, etcetera.

Sachee Trivedi — Trident Capital Investments — Analyst

Got it, got it. And just one final question from me, what is it that you worry about and what is the data points that you are looking at on a daily basis or a weekly basis, the macro data points or even external — for the foreign data points or domestic data points? And what are the data points you’re looking at and what do you worry about the most right now?

Bharat Puri — Managing Director

I would say that’s a great question. Two data points in one softer point just to keep it simple. The two data points that I constantly worry about is A, first and foremost, the price of oil, because everything in our category starts with the price of oil and I think there is enough data now also in the Indian economy to show that I think over $80 a barrel. Every $10 increase impacts our GDP by X. So really the two things I track closely is the price of oil and the actual inflation as far as India is concerned, because again experience has taught us that inflation is the one thing that impacts demand over a larger period of time and keep a close watch on that.

On the softer point, the thing I worry about is people becoming complacent. As leader, you have to be a little more paranoid and you have to keep looking over your shoulder and making sure that nobody is — you’re not taking anybody lightly. So we don’t take any competitor however, small or big lightly. And obviously, we will not make it easy for them in the market but we treat them all with respect and saying listen, there must be a — having some strategy and we must be clear how we want to tackle them. So one of the things I keep telling my people, we must keep guarding against complacency because when you have more than 70 share a lot of your core categories, that’s a great danger.

Sachee Trivedi — Trident Capital Investments — Analyst

Okay, thank you so much. Thank you so much. And good luck.

Bharat Puri — Managing Director

Thank you. Thank you so much.

Operator

Thank you. The next question is from the line of Suresh Maheshwari [Phonetic] from Samco Mutual Fund [Phonetic]. Please go ahead.

Suresh Maheshwari — Samco Mutual Fund — Analyst

Am I audible?

Sunil Burde — Vice President, Accounts

Yes.

Suresh Maheshwari — Samco Mutual Fund — Analyst

Thank you for the opportunity. Sir, which business segments are we looking at for driving growth in the next two years?

Bharat Puri — Managing Director

See, we are very clear. We’ve always said we will grow our core businesses, the core businesses is where we already have a market-leading position, and our job is to grow the categories. So whether it’d be white glues, the wood adhesives, whether it be Fevikwik, whether it be M-seal, these we would like to grow at rates of one to two times GDP. The growth businesses, businesses where we are competing against non-consumption and we have to teach the consumer, we would like to grow at two to four times GDP. And Pioneer businesses, businesses that are very small or nascent today and we need to develop them, we want to make sure that each of them becomes at least INR100 crores in three years. That’s our simple formula on how we operate.

Suresh Maheshwari — Samco Mutual Fund — Analyst

Sure, sir, that’s helpful. Thank you so much.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Bharat Puri — Managing Director

Again, let me begin by thanking all of the participants. I always find the situation or these calls stimulating as well as thought-provoking because given the range of questions. Today, we’ve got a much wider range of questions and lots of new participants, so great to have that. At Pidilite, our whole focus is, we are a — we see ourselves as they say a long-term player or a steady player who will make sure that we remain true to our strategy of being a pioneer, continuously evolving and growing categories, creating categories, being innovative and being a great place to work. And that’s really been the focus of how we’ve been moving forward.

A lot of times, things like this get covered in call. But for the third year continuously we’ve been voted a Great Place to Work. Culturally we are seen as one of — now a very attractive employer as is visible from the quality of talent that is joining us. We’re doing some really good work in the whole area of sustainability and CSR, which I would showcase at another time. So as an organization our objective is keep strengthening yourselves, do the right thing and frankly, the results will follow. You will have up and downs. I mean, we’ve had an extraordinary situation on input costs. But frankly, that is also teaching us a lot and we will emerge stronger from it. I think the important thing is not to lose sight vis-a-vis your consumer, vis-a-vis your user and of course your investor. So that’s what I like to say thank you all for your time.

Operator

[Operator Closing Remarks]