Kansai Nerolac Paints — Call Transcript 2023

Feb 9, 2023

9th February, 2023

• 1. Corporate Relationship Department BSE Limited, PhirozeJeejeebhoy Towers, Dalal Street, Mumbai - 400001.
• 1. Manager Listing National Stock Exchange of India Ltd. Exchange Plaza, C-1, Block G, BandraKurla Complex, Bandra (E), Mumbai - 400051.

Sub.: Q3 FY 2022-23 Financial Results Conference Call – Transcript

Ref.: 1. Regulation 30(6) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 2. Scrip Codes : BSE - 500165, NSE - KANSAINER

Dear Sirs,

This is further to the intimations done by the Company on 31st January, 2023, 4th February, 2023 and 6th February, 2023 with respect to the Conference Call hosted by the Management of our Company on Monday, 6th February, 2023 at 11:00 hrs India Time to discussQ3 FY 2022-23 Financial Results of the Company.

We are enclosing herewith the transcript of the Conference call for your information and reference.

For KANSAI NEROLAC PAINTS LIMITED

GOVINDARAJ AN Digitally signed by G T GOVINDARAJAN Date: 2023.02.09 17:00:59 +05'30'

G. T. GOVINDARAJAN COMPANY SECRETARY

"Kansai Nerolac PaintsLimited

Q3 FY '23 Conference Call Kansai Nerolac PaintsLimited'23 Conference Call"

February 06, 2023

MANAGEMENT: MR. A NEROLAC MR. P NEROLAC MR. J PLANNING PAINTS NUJ JAIN – MANAGING DIRECTOR PAINTS LIMITED RASHANT PAI – DIRECTOR, FINANCE PAINTS LIMITED ASON GONSALVES – DIRECTOR, CORPORATE , IT AND MATERIALS – KANSAI LIMITED – KANSAI – KANSAI NEROLAC

MODERATOR MR. A NIRUDDHA JOSHI– ICICI SECURITIES

• Moderator: Ladies and gentlemen, good day, and welcome to the Kansai Nerolac Q3 FY '23 Conference Call hosted by ICICI Securities. mode and there will be an opportunity for you to ask questions after the concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. recorded. I now hand them over to Mr. Anirud Kansai Nerolac ICICI Securities. As a reminder, all participant lines will be in the listen will to questions concludes. assistance during call, by and zero Please note that this conference is being I Aniruddha Joshi. Thank you, and over to you. situations are edge Paints Limited listen-only the presentation anges.ause Page 3 of 18
• Aniruddha Joshi: Yes. Thanks, Mike. On behalf of ICICI Securities, we welcome you all to Q3 FY '23 Results Conference Call of Kansai Nerolac Paints. We have with us senior management represented by Mr. Anuj Jain, Managing Dir Gonsalves, Director, Corpor Yes. ICICI to Q3 have with senior management represented Anuj Managing Director; Mr. Prashant Pai, Director, Finance; and Mr. Jason Corporate Planning, IT and Materials. i. ector; o. grow very

Before I hand over the call to the management, we remain enthused by the strong recovery in auto sector and the related paint recovery als well in coming quarters. the floor for question I to and also. We believe that segment is likely to gro quarters. Now I hand over the call to the management, and then we will open question-and-answer session. Thanks, and over to you, sir.

Anuj Jain: Thank you, Anirud your family a happy new year, and thanks joining this call of Kansai Nerolac for qu financial year 2023. of 1.4% over the same quarter of the last year and EBITDA de other operating income included some nonrecurring income. And if you exclude that, then the net revenue is up by 4% and EBITDA is Aniruddha. Good morning, all of you, namaskar. First of all, let me wish you and new and thanks joining 2023. For this quarter, as you must have seen, we recorded our top line growth and de-growth of 10.2%. Last year, operating income. if exclude the and up by 14%, PAT is up by 13.5%. answer ing, quarter 3 of

If you look a previous quarter. And EBITDA growth is around 13.7%. During third quarter, the growth is led by automotive, but within automotive, also the growth was higher from passenger v and commercial vehicles. The 2 slightly negative. Raw material prices, though softening, is still being carefully monitored given the volatility in crude and you at the nine month period, the growth is 20.7% over the corresponding period of the growth is within was v 2-wheeler growth remained muted. Decorative, the growth is ightly Raw material still carefully monitored the volatility forex coupled with geopolitical changes. growth vehicle

Pricing in decorative so far is 3% YTD level. In fact, it was taken earlier itself in quarter 1 and quarter 2. But we have taken some additional price increase in industrial. And overall, price increase in industrial is the range of 8% to 9%.If you quarter 2, they have improved by 170 basis points. And mainly it is on account of, one, the product mix where, in fact, one of the initiatives what we have taken is shifting towards premium in all our businesses, espec in is fact, earlier quarter 1 taken some overall, price look at gross margin in comparison to by 170 is on initiatives taken especially in the non-auto industrial and the decorative.

So it is partly on account of product mix and the price increase of industrial, partly on account of that, and partly on account of raw material prices. But we are still carrying high price inventory bec geopolitical situations are still not stabilized. So one of our strength area competitive edge is the service. account the of partly account that, and of we are because in industrial, the supply chain challenges are still continuing. The

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And therefore, to continue with that kind of service level, we are inventory. And therefore, the effect of raw material prices, even in the coming quarter will come gradually.Just to give you some colors related to our industrial business, in auto, as I said, that we have got the price increase conclude the price increase. We continue our path of extending technologically superior product. Some examples I gave earlier also monocoat, medium solid, to more customers. So that part we are continuing that we have started under with service we still keeping a high the even will to auto, as we got and almost all key customers, we have been able to increase. of examples solid, continuing. But some more initiatives what we have taken during the quarter is we have underbody sealant. I high-priced

So basically, our attempt is to increase the TAM in the automotive business. So it's an additional market, which we are entering and the technolo approval from the leading automaker.The commercial supply of products, and we have started making inroads additional business areas, which we are also exploring, and as I said, that our attempt is basically to increase the TAM in auto business. basically, TAM the technology in-house and we already got from leading automaker.The fastenercoating we were exploring earlier, the fastener coating just started. And now, again, a new technology, the new have into key manufacturers. There are some new exploring, as I said, that attempt business.non-auto, which is performance coating business. As we have sai . house coating , auto, said earlier also, our

Coming to non focus is towards high of the business, which is a very low profit business, we have been exiting. And salience in the premium item is going up quarter working to get approvals across key infrastructure segments. So because the market is expanding high-technology order, premiumization. And so basically related to that, some profit have salience quarter-on-quarter basis. For this premiumization approvals infrastructure because market ing, we are also expecting a good growth in infrastructure. . premiumization, we are actively

A lot of focus is there on the government side on the inf infrastructure segment. And therefore, we are aggressively working in terms of getting the approvals, a number of approvals have increased even in the last quarter. Some examples of these approvals are like bullet trai chemical - names.In coil coatings, where we started the business in the basi products and started gett there on infrastructure. So we are bullish on the therefore, getting a in last approvals like train, Vande Bharat, Mumbai Coastal project and construction -- construction equipment and air conditioner segment also, we got some of the new the three, four years back, but we were there the basic product category, and now we are ready with the high margin getting into the appliance segment. rastructure. n, c -- technology

We also got some approval from the appliances segment has gone up significantly. was very low that we have exited. So this is in the industrial area.Coming to the decorative, if you can recall that in the last meeting, we said that what has happened in the third quarter, we had a visibility of that because last year, Diwali was in the month of November, this time, Diwali was early. And generally, we have seen the last monsoon get extended. appliances manufacturers. And here also, our premium has And some of the basic categories where the profitability this the to recall that we the third of that last year, Diwali month And generally, two, three years, the rains get extended, . e ur two, three quarters also.

And also because last year, in this quarter, ther have never seen in the past that kind of price increase. And therefore, typically in this situation, dealers go for a higher stocking and therefore, we did not expect growth in decorative. But we continue on o there was a very heavy price increase. Probably we never seen typically in for a we did not But our strategy. One was Paint Plus, which I spoke in last

And in the Paint Plus, our idea was to basically come up with the differentiated product or democratize products. the wood whatever products we had part of

So in the key categories, like waterproofing wood paints, wha pipeline, most of these products are now launched in the market and to that extent, our Paint Plus range, what we product, which is Everlast 12, which is the paint looks good, more beautiful. market to that our what said is completed. In fact, in the last quarter, we introduced one more is which basically a self-cleaning paint. So after every rain that int

We also started the next And this range has a better white. So the white is non better, and these products also have a better coverage. So by and large, our Paint Plus range is in place now. As I said, this is a part of our strategy to differentiate and democratize the product offering in the market. We pricing, and salience has gone up. We are now in a position to ramp up our distribution and salience of these products. next-generation range of products. This is basically for safety network. white. white non-gelling and in terms of quality is far, far better Paint Plus As I a the have got a good response to quality, proposition and a secondary Paints Limited tever cleaning generation of influencer. e Page 5 of 18

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

The number of active users are going up gradually when we look at all these influencers. Digital adoption is progressing well, and number of downloads have also increased substantially. Our reach to influencers, which used to be there in the past through the distribution has become direct now. And we have started sharing generating business lea sharing business with these influencers.The next part of our plan is the distribution. in of feet center by, say, quarter.number when igital progressing well, number of downloads have also which be started sharing business leais basically increase share. And to which at growing aggressively leads and

So focus is basically to increase the counter share. And the initiative related to that next generation shop, which here I spoke about, that is getting stabilize crossed more than 50, and we are looking at generation service counters, as I spoke about that we started the NEXTGEN service, and therefore, this supply and service the demand. I spoke that service, -- related to the service, we are attaching it with the counter, so that they can stabilized now. We have already going forward. The next ng is

The exclusive range of products was the distribution and some customized activities. So as of now, the distribution expansion is in double digit. This is only a direct reach. Indirect different. As of now we don't track the indirect reach. We have now started tracking secondary conversion position to track that whatever material we are building to th converted to a secondary sale. distribution as expansion is double This is only a Indirect different. of we the started tracking of sale. And in the last quarter, in fact, more than 40% now, we are in a position to the market, how much is getting primary to

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Going forward, it will help us in terms of ensuring that how we keep increasing, and therefore, how do we get the advantage in primary sale also.We also initiated actions, not initiated, actually, it is already actioned for faster replenishment of stocks in the market and last mile delivery because in last 1 year, 2 years, the number of SKUs have grown in decorative market. And while many of our dealers still have the same kind of warehouse facili service is becoming very important, and we have introduced some premium services to ensure that the requirement is taken care of.You know that our market share is single digit, and that also gives us the opportunity. it that do we primary also.We , years, many of our same kind warehouse becoming very and premium single thatfacility. So therefore, the

So there are cert 3, Tier 4, but Tier 1 towns that we are not so strong. So because when you are not strong, then obviously, the distribution support also is weaker. So in these weaker towns that we s working with the strategy of project, the services and wor businesses, you can get access directly to the influencers and the cons users. there certain weak downs. As a company, we have a good market share in Tier 2, Tier 1 towns that are not So are not distribution support also these with the word finishes. So because in all these directly have earlier, we were there in 33 towns. Now we started consumers. So basically, the

So project is one area where we have expanded expanded our reach to 48 towns. And accordingly, we expanded the team. The pipeline of warm sites is being built gradually, and within the project because the margins are lower than the retail, but we are focusing affected.NEXTGEN services with the proposition of 5 differentiated proposition if we compare with the industry. This has now expanded to 100 towns which are g And the built because margins but are on the quality of business so that the margins are also not 5-days dust free painting we now expanded greater than 5 lakhs population. painting, which is a

Till last quarter, we expanded to 50, but now we expanded to 100. Consumer acceptance of branded service is on rise. That is the learning what we are getting from the market. And the digital campaign to generate this kind of 27,000 sites, we have service. So basically, with this initiative, now we are able to understand this business pretty well and service team and structure accordingly, we have expanded. And which is also g now we branded is getting the to generate leads has given us a good advantage. And as of now, sites, this pretty well structure we have is getting supported with architect and interior decorators contact program. etting user-based business.

The third part of this big towns is a wood finish applicator, again, it is a user So project NEXTGEN service and wood finish applicators where we can reach out directl users is our plan to increase our business in the weaker towns.In waterproofing and wood, salience is now close to around 77%, and they we are seeing the progress in these businesses.For brand related, a past, our share of voice, we are maintaining at 15%. And we have also started our communication in the retail markets. big a user project NEXTGEN plan in weaker towns.In to around 77%, also started doing well. So quarter seeing these businesses.For brand related, as we have been saying in the of voice, maintaining at also nication progressing as per our plan, and our digital performance marketing drive also directly to quarter-on-quarter,

Digital ecosystem to ensure complete information available and seamless coordination across stakeholders is have increased and more than doubled our organic reach via social media.So some of this pertains to the same. and than decorative, which we have started in this particular year, and we have been pi s piloting

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And now onward, we go for this scale up on some of these activities.A few other updates related to this as a part of our IT backup, the working on the capability building for the people and onli we are imparting a lot of trading to our teams so that skill enhancement can happen. We have started conducting management development centers for our key managers. We have done some strategic workshops for top people, t and coming with the ideas that can answer some of the problem to the customers and we can come up with a better product and the better process is to give better solution to the customer. this on these to as part of backup, the FDR implementation is complete. We have been the online program is gaining traction, and a skill development centers our key top managers with some of the innovative sessions material declining in the Paints Limited DR ne op tion mainly the water-based

Our capacity utiliza quarter, we have announced the expansion, which is in the decorative because the growth market is capacity expansion, what we announced i a better process is better solution utilization YTD level, it is more than 60%. And capacity addition, in fact, last the expansion, which the - is in water-based. And in terms of water is about 42% of the water-based. based. water-based, the

And for the industrial, we have a position to cater the demand of the market.So these are some of the other points related to things. And obviously, as we said earlier, we have also issued RSUs to senior and middle management employees.So this is the brief from my side on the result and some of the points that we have been working upon and we'll be happy to take the questions now. a capacity. So whatever this growth market is seeing, we are in to of are of to gs. we RSUs middle on the we have to from the of just and I'm hoping -- hope it ki based.. near-term lens.

Moderator: We have the first question from the line of Avi Mehta from Macquarie.

• Avi Mehta: I wanted to kind of just understand this on the decorative side more from a near While the initiative is very clear and I'm hoping to kind of are looking for. There are signs of weakness in urban discretionary. Does that not concern you from a near thoughts on that. looking for. are near-term sense on the demand trends in the decorative side? I would love to hear your kind of works the way you
• Anuj Jain: So Avi, the tr the urban growth has been doing well. I think the stress was there in the rural, but we have seen improvement on every quarter basis. And if that trend continues, probably quarter, we may see some uptick from the rural demand also. So as of now, there's no indication like that in the coming quarter, near term, we are seeing a better demand. trend does not indicate that because if we see quarter-on-quarter basis, Q1, Q2, Q3, growth has on basis. if uptick demand also. So now, indication like the coming quarter, near a mean near what by that, sir? term quarter from the next
• Avi Mehta: Sir, you mean near term as in Jan, is what do you mean by th

Anuj Jain: Yes. I mean one Yes. mean one or two quarters here.

Avi Mehta: Okay. Okay, sir. And sir, the second bit was essentially on the margin side. And could give us a sense what that, whether that is the understanding is correct? And what levels do you see in the steady state over here? sir. And sir, the was on margin side. And give what -- it seems like margins have bottomed up. And if you could kind of comment on whether that is is levels steady here?said that expansion -- gross margin expansion was around 160,

Anuj Jain: So as I said that this quarter, the margin expansion 170 basis points, which is based on the the declining trend in the raw material prices. So we hope that this declining trend in the raw basis points, is product mix, the price increase and industrial and also

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	material prices, though we remain a little cautious because geopolitical situation or what iscautious because geopoliticalwhat ishappeningin China, we'd like to wait and watch. But largely, the possibility is that this trendmay continue, some advantage of price increase what we have taken also would come in thecontinue,advantagealsocome incoming quarters.quarters.
	The only thing that we have to keep in mind is that generally ionly thingto keepin the fourth quarter, our businessnmix is very different. It goes quite in favor of industrial business. And therefore, because of theis veryItin favor of industrialchange in the business mix because the profitability is lower in the industrial business, we seeinbusinesssome impact of that. Butofotherwise, that at the segment level, if you see, I think the marginswill improve based on the factors, what we spoke about.what weabout.
Avi Mehta:	And sir, this should flow through to EBITDA also, right, logically? Barring, as you rightlysir,flowsaid, there is a fourth qufourth quarter impact because of mix, but otherwise, the trend is towards on theartersegmental level, EBITDA margin improving from here on.improving from
Anuj Jain:	Yes. Simply the gross margin improvement reflects in the EBITDA. The only thing is that weYes.themargininisare making some investmentsmakingin the marketing on the people front. So to that extent, there maybe some gapgap.
Avi Mehta:	And sir, steady state, what would you expect these EBITDA margin trajectory or levels to be?whatmargin trajectory orAnd -- sorry, when do you expect this steadyexpect thisstate that could be
Prashant Pai:	See, as Anuj has mentioned, the raw materials are showing a declining trend.See, ashasraw materials are showing abut we have ahigh-cost inventory. So that has to get liquidated. Hopefully, in the Q1 of next year, definitely,costinyear, definitely,this will be liquidated. And post that, I think we sthat,should get the margihouldmargin improvement also. Sominimum oneone or two quarters has to happen before we liquidate all the inventory, and the newinventory starts flowing in.
Avi Mehta:	Okay. Perfect, sir. And any level, sir, that you would want to indicateany level, sir,would wantindicate
Prashant Pai:	It's very difficult to make a statement on that because the way competition isdifficult toa statementwaycoming we haveto react to competition also. Accordingly, we'll wait and see how the margins change in thecoming twotwo quarters. And accordingly, we can comment after that.
Avi Mehta:	Perfect, sir. And just one last, if I may. On themay. On-- you recently did a sale of land, which kind ofhas resulted almost 600 crores kind of flow through. Could you give us any idea of what is theresultedofgiveideathought on this cash that is generated?is
Anuj Jain:	So we are just looking at supporting the growth initiatives in the company.we areat
Moderator:	We have the next question from the line of Archana Menon from Morgan Stanley.Stanley.
Archana Menon:	My first question is on the decorative segment following up from the earlon theearlier participantquestion. Now with all the initiatives and improving the market share, should we think of theinitiativesshare, should wedecorative segment growth in line with the industry growth for FewithFY '24, given that most of your

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peers are talking about a double expecting? double-digit volume growth. Is that what you would be also

• Anuj Jain: So internally, yes, that is what we are working upon. But just to put some color on that, so today, that making a comparison is not absolutely fair because so many segments, people have entered in the extent, the comparison has become difficult because we generally look at where exactly we are working, which segment, which markets we are working. But having said that, y market we are working in, how do we increase the growth from there, that is what our endeavor is. And definitely, we feel confident that going forward, we'll be doing bette is what working upon. today, that comparison not absolutely many segments, the paint industry. And it's not that everyone is there in every segment. So to that an extent, the generally we working, which having we in, how we increase there, definitely, we h. yes, whichever better.
• Archana Menon: Okay, got it. And sir, on the industrial side, the c nonprofitable businesses. Where do you think you are in that journey, most of it's done should we be expecting that to continue for the next 6 months? got it. sir, on the comments that you made about exiting a few it's omments or is --

Anuj Jain: So most of it is already done. In fact, thi through with that. the most of this we started from Q1. And by and large, that we are s see

Archana Menon; Okay. So going ahead, we expect a growth on the current run rate?. growth on

• Anuj Jain: Yes. In fact, this initiative will be through. So going forward in the coming years, we'll s better. Yes. In fact, we'll
• Archana Menon: Okay. Sir, my last question on the margin bit. Where do you think is the differential right now between the industrial and the decorative business? And as investment keeps picking up, how much could that gap really narrow last margin you much could to? margin
• Anuj Jain: Well, generally, we don't give that breakup, but industrial margins have been very, very low for the very single the price increase and high maybe a double digit. So we are still a little far from that that industrial margins have single-digit low. But I think as a part of our plan, we made progress on that with price high-technology products. So our idea is that how do we reach out to a double digit. that..

And so to that extent, we are working on this new technology or the optimization of the formulations and some of the initiatives. So otherwise, the diffe always remain. Even in the non margins will definitely improve, but it will still not be closer to decorative. so to that extent, of the otherwise, difference in this industry will remain. the non-auto as we said, that we are looking at the premiumization. So it sir, last mentioned the difference of around 500 basis points. Would digit rence auto the year, the gap

Archana Menon: Okay. So sir, last quarter, you had that be similar even for this quarter?

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

Kansai Nerolac Paints Paints Limited February 06, 2023

Moderator: We have the next question from the line of Tejash Shah from Spark Capital.

Tejash Shah: A couple of questions from my side. Sir, looking at the initiatives that you spoke about under various aspects of the business on the intervention that we have made be it product, pricing and plans and also distribution. Should we assume that going forward will focusing more on non Shah Spark le initiatives the intervention be it and also distribution. will non-rural market versus rural? be disproportionately

Anuj Jain: You're saying focusing on You're saying non-rural versus rural, right?

Tejash Shah: Yes, yes.

Anuj Jain: No, it is not like that. So basically, that 3, Tier 4, which include rural. So that's the market that we have relatively a better share. Our efforts there will continue in terms of some of the initiatives which I spoke about. But there are certain markets where our market share is not like So -- as I said, that we are strong relati 4, that's the that relatively Our which are share is very low. relatively in Tier 2, Tier

And like this one question keeps coming when the new entrants are coming in the market, actually, for those markets, we are also like a new entrant. So the only thing is that when you are weaker in certain towns, maybe the traditional convent distribution does not work, and that's why we are working differently there at how do we reach out directly to the users. But the initiative in terms of growth would continue for the rural and non-rural both. this coming new for are the thing weaker towns, maybe the convention approach of getting the we how initiative continue the rural under-index session for us in market share, would you like to share ion index under-index, and you

• Tejash Shah: Sure. And sir, in terms of under some insights on any regional initiatives, let's say, where you are highly under are working to correct the same as insights regional are well.
• Anuj Jain: So we are like weaker markets for us especially South, which is a very large market in our country. And there, we are under -- our strong markets are North followed by East. And South and West are us large country. there, under-indexed, and where we would like to improve our situation.
• Tejash Shah: Yes. Sure. And sir, you spoke about a softening raw material going ahead. Looking at the competition, current competitive environment and then, what will emerge by next year, would you be able there as well, do you think that industrial will be able to retain some of the price hike that we have taken? Or it will get reinvested be it in form of better consumption from a consumer promotion or influencer promotion or even dealer trade share whether you have that kind of pricing power. ure. sir, you spoke about softening raw and emerge year, be able -- and I'm asking it for industry level also, if you can have shared as think that to the that Or reinvested of better consumption promotion as well? So just if you can ur indexed, some insight e quarter. Page 10 of 18
• Anuj Jain: From the And the margins have and the industry would be able to sustain the pricing because as I said that when the prices were increased, there was a doubt in the mind that how much impact we'll see in the demand. So if you see last one year also, mayb quarter-to whether have that of industry point of view because the margins are still not back to what it used to be. -- that it's coming down. So I think this kind of situation will continue the industry would able the pricing in the mind much in one maybe there has been a kind of inconsistency in terms of to-quarter. But for the YTD level, I think the growth has been maintained.

And to that extent, we believe that the industry should be able to sustain the current pricing levels. But this industry back to the original margin level where company or the industry would like to operate upon. Then obviously, the industry has taken the initiative in the past to pass on that pricing to the consumer provided we feel that this will give a flip to the growth. So whatever growth is being expected if the growth is going to be higher on that then the industry may decide at the appropriate time, but at least for next the that possibility. the levels. industry, even in the past, if you see -- if we are able to see that we are going would operate taken the to on we a growth. So growth is if growth going on time, but least -- few quarters what visibility we have, I don't see Sorry, Paints Limited benefit ers how bout Page 11 of 18

• Tejash Shah: Sure. But sir, versus relevant to consider as changing competitive landscape. And now not only time will tell serious that turns out to be. But looking at how competition is expected to turn out or the complete entity is expected to pick up, do you think that industry will attempt to retain the benefit? Hypothetically assuming that raw material corrects materi think that you will prefer to pass it on to retain or gain market share for future? -- just a follow up on that, versus past cycle this time that is one more competitive And time will to But to the pick do Hypothetically assuming materially from here. How do you
• Anuj Jain: It is difficult to answer this question because as of now, we don't know that what kind of approach this new competition will come in. more discount, but then whether it is sustainable, because I'm sure that all of you would question them also that we have seen that this is like an industry where a lot of people have tried in the past. An mass scale, whether it is sustainable, that's a big question mark. will to it is answer this because of we that kind So hypothetically, if you say that they will give discount, but because also we have seen like industry of have in And whatever success is we have seen that if somebody is trying to get to the

So whether they will take that approach, because any player who comes into this market and they want to be a str establishing the network, the influencer or the marketing rather of playing the discounting game. So it all depends on the competition. It's difficult to read that whether somebody will take a discounting game. We probably see more in the area of building the brand, which will take a period, some good amount of period. it is mark.because player to strong player in the longer run, would have to work more in terms of or the competition. It's difficult to game. probably more building will a period, period. I don't know if I have missed it. So what has been the ally d ong -- your volume and

Moderator: We have the next question on the line of Amnish Aggarwal from Prabhudas.

Amnish Aggarwal: So first question is, I price realization in decorative and industrial in 3Q.

Anuj Jain: So we didn't talk about the volume. But as we said, that the growth, if you exclude that non recurring income negative. But there is a difference that volume growth is within decorative volume and value. 3Q.we talk But that curring income, it is about 4.1% and auto growth is good and decorative growth is slightly a -- there's a difference of 3% to 4% non-

Amnish Aggarwal: Okay. So it means your decorative realiza realizations are up by 4%.

Anuj Jain: Sorry, what did you say?

Amnish Aggarwal: Does it mean that decorative realizations were higher by 3% to 4%.

• Anuj Jain: Yes, the decoratives are higher than the volume growth. So that is basically on account of product mix a de-growing. Yes, decoratives volume is and kind of the area which we have discussed earlier also patti growth is -- patti is
• Amnish Aggarwal: Yes, yes. Okay. So looking at the fact that now the raw material prices have more or less softened. So if we look at a slightly longer term '24, so will we be having positive realizations in decorative paints? growing.Yes, at that now prices or if at slightly longer term, say, 4Q and beyond into that, say, into FY
• Anuj Jain: Yes, so the trend what we're looking at and also the about, yes. The only thing you have selective in terms of patti, because of the margin situation and all those things, and it's a competitive product. So at some point of time, if the comfort level comes in because today, what we are try customers, but at some point of time, if that leverage is given, we may try to utilize it. will in decorative paints?Yes, the and also -- some of the initiatives that we spoke only have to keep in mind is going forward, as we have been very terms of and all and a point time, if the we trying to do in the patti, just trying to hold our existing dealers because the are and of sort Paints Limited , ing quarter, if you look at, say, all term ans up Page 12 of 18
• Amnish Aggarwal: Okay. And sir, my second question is that, for example, in this quarter the decorative players, the numbers have not been that great. And we have been taking several initiatives. So if you look at the past 12 months kind of a scenario, market share? And have we gained a lost m that may to question that, for the have we taking you look at months kind a scenario, share? And have gained a market share in the decorative segment? -- so what could be our
• Anuj Jain: So I just spoke about it. So obviously, we have not gained market share. But today, what is happening is that there are so many segments. Paint is not a paint, earlier also I spoke about patti project busin the different players have entered into different kind of categories. So it is not a simple comparison. But having said that, you are seeing the result. Our growth is still still lagging the market growth. But I think if we see the trend, I think it's being bridged. spoke not gained there are so many a I spoke business, new businesses. So it becomes very difficult to comment upon because different into different a simple said that, market growth. if arket ess, -- overall, this is
• Amnish Aggarwal: And sir, my final question is that what could be the taxation impact in t my that -- now we have done this land sale for our land in T that, Prashant? Thane. So
• Prashant Pai: It is a long because the book value is less, very, very marginal. So the entire would be capital gains. long-term capital gains tax, which is 20%, 22%. That's the only thing which will be there
• Amnish Aggarwal: Okay. And sir, any pl area of that land? marginal. So sir, plans to, you can say, sell our land in those offices or what could be the

Anuj Jain: No plans.

Amnish Aggarwal: Okay. But area of that land parcel, if you can share? area of share?-- around 4 acres.

Anuj Jain: It's about 4

Moderator: The next question is from the line of Percy Panthaki from IIFL.

Percy Panthaki: This is a follow you yourself are a new entrant and the traditional ways of sort of penetrating those markets is follow-up from one of your earlier answers where you said that in some of the towns

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Kansai Nerolac Paints February 06, 2023

difficult and you're trying out newer ways of going in there. So can you elaborate a little bit on that point?

Anuj Jain: So what I said is that our market share is actually weak in Tier 1 towns, and obviously, in the weaker towns, today, when you go and you w distribution, it becomes difficult because the response to that is not so strong. So ultimately, it is because our brand is strong. related to our ne people select icult ways a little on share actually in Tier want to build your position from the existing it response because is So, one of the questions, which one of the our new competition also, I think this market has time and time again shown that select from the strong brands. So we have that strength also. marketing, the influencers become Paints Limited ant persons was asking

So if we go directly to the users, the users are ready to accept. But if we remain completely dependent on the c response. So a few things that what I spoke about is like project business because the project is an emerging business, the growth rate is higher than the retail growth in those Tier 1 The second is the service part, where also the digital performance marketing can reach out directly to the consumer and generate the business an to users are ready to completely on current distribution system and in the weaker towns, you may not get the a few things is is growth retail second is marketing consumer and generate the business and route it to your applicators. w urrent 1 towns. d premium category with

And the third party is the wood finishes where we have entered in the pr the Eco brand. And there also, we have quite a good premium range of products and that is also user base.So basically, the change in the approach is that the route to market approach is going directly to the users and create a direct de are some of the things and maybe a few more things we are going to explore in the future. the where have brand. quite of products and the the approach the to approach and create demand and then service the demand. So these

• Percy Panthaki: And the servicing of the demand will be done through a traditional model only? Or is there some other innov some of the things innovative model that you're looking at?
• Anuj Jain: So we are exploring some models, which I'd not like to talk at this stage. But what happens is that it's not that we have a 0 distribution in this town. We have a limited distribution, so when you create the b basically, the same you start getting good response in the market, then you have a possibility or opportun increase your distribution also. are is limited so business demand, you can route that through your limited distribution also. So basically, the same-store growth goes up. And so this is what we are trying to do. And when mand usiness store opportunity to

Percy Panthaki: And this targeting the end users directly, that is only through digital? Or are you looking at some other ways also of doing that? good have opportundirectly, that is only also of that?a placed of team in the marketplace. So it's a

Anuj Jain: It's more of a phygital. So we have placed a large number phygital.

Percy Panthaki: But how do you reach out to an end consumer directly? Do you like do door or what do you do exactly? do doorwhat door-to-door marketing. So what -- basically what happens is that one is through the door-to-door marketing

Anuj Jain: It is not door digital marketing, you generate the lead. The other is that you get the references from your distribution or from the influencers who has become a part of our network. So you get the

references from there, and there you reach out to the consumers. So it's not door based on the references, you reach out to the many more. door-to-door, but

Moderator: We have the next from the line of S. Bachhawat from LIC Asset Managemen Management.

S. Bachhawat: So question is relating to the...

Moderator: Bachhawat, if you will closer to the microphone? Your voice is a bit low on the call.

S. Bachhawat: Yes. So my question is relating the allocations for railways in this budget was very So what will be the implications of that on our business, if any? there the references, of S. ManagemenBachhawat, if the voice is bit Yes. So the this of business, impressive.

• Anuj Jain: So it's a part of our performance coating business. And there, the infrastructure and the part of the infrastructure is also a railways. And typically, in India, the r coating what they were using was very low quality of coatings. But now with this new project coming like Vande Bharat, the bullet. The coatings are also being used are very durable and high-performance coating. So we definitely it's part of performance coating there, and infrastructure the railways market earlier, the quality Vande being used and performance see the good impact of that going forward. ailways --
• S. Bachhawat: Is it possible to quantify in any way?
• Anuj Jain: No, difficult to quantify it, but I can only say like performance coating business size is as good as probably auto business. And in the automotive, probably this infrastructure or performance coating business, maybe the country will be able to see a more consistent growth. quantify but only as business. the what happened, it's a cyclic. But in the or performance maybe able to a here. I have a couple of questions. One -- can you indicate
• Aniruddha Joshi: Aniruddha waterproofing and the LID businesses, how it is shaping up? And when they are going to do the distribution expansion, whether the only change will be initially distributed, or the entire book of products will be distributed at one g how is the performance of the international subsidiaries for these companies also shaping up in FY '24? they to do will be will at go? That is question number one. And secondly, the -- so how do you see the performance these companies FY Aniruddha, in waterproofing, waterproofing has now become an integral part of paint. So it indicate the performance of the o? me product that goes hand-
• Anuj Jain: So Anirud goes together. But within the order booking also, there are many segments. So if I just talk about the waterproofing segment, which is like a liquid paint, a liquid in-hand with the paint product. sealants, where the market is a little different, and therefore, to handle that, we are placing the different infrastructure of different teams. within booking there just about waterproofing paint, hand paint product. But then there are some other businesses like ad mixture, the where different, to that, a good Paints Limited od Page 14 of 18

But otherwise, mostly contribution come from the Our range for the retail is complete. In fact, now we have introduced some product in the project business also. And we have been able to stabilize, and we are getting a good growth from waterproofing. Also, the wo getting a good traction from wood finish also. otherwise, waterproofing and that goes hand in hand. for we product the And to are a the wood finishes, the things have been stabilized, and we are

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Kansai Nerolac Paints Paints Limited February 06, 2023

Coming to the international in Sri Lanka despite the country had a problem, but we feel that maybe in the coming quarters, it may get stabilized. our market share in Sri Lanka. In the Bangladesh, the growth has been decent, double growth. And only N some kind of instability. But as don't see that this kind of negative growth, which has happened in third quarterwill continue. oming Sri despite quarters, may Actually, we have been able to increase our market Sri Lanka. the growth has doubleNepal last quarter, there was a significant substantial de kind instability. we see now, probably things are getting stabilized, and we ctually, double-digit de-growth because of

Moderator: We have the next question of the line of Keyur from ICICI Prudential Life Insurance. that this negative growth, which Life Insurance.

Keyur Pandya: Sir, just want to understand on the industrial side, you mentioned that passenger vehicles and commercial vehicles did well versus 2 kind of visibility from the clients. So if you can throw been given from the client for next if you can just throw some light on the near - other industrial paints. vehicles did 2-wheelers. I think in this kind of business, we have some of visibility from you some light on how the visibility has client for one or two quarters or whichever way the cycle works. So you the near-term visibility on automobile as well as industrial wheelers. term -

Anuj Jain: Whatever we keep hearing through the media from the clients, they are optimistic as of now for the coming quarters in terms of automotive. The challenge in between, they felt that this chip shortages are able to control. But of late, again, there they still have a backlog. But for the coming quarter, I think they remain optimistic in terms of good growth in the passenger vehicles and commercial vehicles a segment. industrial from the are shortages to are certain problems and therefore, the think they remain terms in the and wheeler which has not been doing so well, what we are hearing is the kind of and also in the tractor

The 2-wheeler segment, whi some optimism. Now not necessarily that it will come in the next quarter. But in the coming quarters, I think it is also expected to do better. And also with this current budget, I think the focus of the government, what we have seen on the the rural initiatives. not in the in the coming it expected also thethe capex and consumption both and some of ch x re non-auto business,

So once that momentum picks up, they feel that the growth is going to be better in the coming quarters or the coming year. So that is what we a infrastructure business is year that the business will be doing well in the coming quarters. they that the coming year. are hearing. For this non business -- the going is good. And there also the -- -- there is optimism in the

Moderator: We have the next question from the line of that Archana Menon from Morgan Stanley.

Archana Menon: Two questions. Firstly, on the deco side, you mentioned increasing share within your existing paint counters. So what are the measures that you're doing there? And is there a need to increase the dealer com current employee attrition rate? And how does it compare versus the past? share that is need dealer commission to drive that growth? And the second question is, what is your mission . next-generation shopping,

Anuj Jain: So same-store growth, as I mentioned, that it's not only discount because ultimately, what is important is the which is like, you can say, touch and f stores. Then the service business, what store I mentioned, only discount what ant is the earnings of the dealer. So one initiative with our next feel experience center, We have already crossed 45 . we have started.

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Kansai Nerolac Paints Paints Limited February 06, 2023

So we are setting our passed on to you give the which are exclusively meant for these are next-generation service counters where all the lead generated this counter. So the business sharing of thelead is more important because when thelead automatically the profitability goes up. Also, there is a range of products are exclusively these counters. can be

So when you have a large distribution in the market, sometimes there's a competition and therefore, the margins get affected. So th And also, depending on market because every market has become very different, there are certain customized activities, what we are looking at. So this is the initiative related to our same-store growth. when you market, competition margins that's another thing. depending every become are activities, So is store the range 15% We don't have any figure of the other industry

Attrition level is in the range of 15% to 20%. We don players at what is the attrit uptick in the attrition level, but some of the internal initiatives we have taken, and we are trying to see that we at attrition level. But obviously, last one or two years, we have seen a little in some of and that we keep it at the reasonable level. 't x nd capex, in fact,

Moderator: Thank you. We have the next question from the line of Hitesh Taunk from ICICI Direct.

Hitesh Taunk: And sir, my question is about our you're going to expa capacity? And what is the of Hitesh Taunk from ICICI Direct.our capex plan. Sir, you said about our water base capacity, going expand 42%. Can you please highlight what is our current capacity, overall capex plan for FY '24?

Anuj Jain: Over capacity is approximately 50,000 kl per month. So that's the capacity. And INR 290 crores is what we ann quarters. 50,000 capacity. And announced earlier, which will be spent over a period of next 9 to 10 ounced distributions are

Hitesh Taunk: Okay. And sir, my next question is on a distribution point of view. What are our current distribution networks, sir, total count? And whatever covered for the next 10 years. And next What total -- and how much distrib -- with the tinting machine -- and how much growth are we planning for the

Anuj Jain: So distribution, generally we'll speak about year 28,000- 30,000. 80% is covered through obviously, we are looking at increasing our pace of expanding the distribution. year-end, but approximately in the range of 30,000. is through the machine penetration. And going forward, end, e At one time, we're

Moderator: We have the next question from the line of Harsh Shah from InCred Capital. at of distribution.Shah from understand more on the decorative gross margin a bit.

Harsh Shah: Sir, just wanted to understand mor talking about not focusing more on the low talking about increasing our focus on products, which I would assume that would be a low margin business, business? focusing low-margin products like patti, and then we're also about our I assume that would be business, right? So how do we look at the gross margin bit going ahead for Eco coating business, growth muted.Paints Limited margin Second is, as I mentioned single Page 17 of 18

Anuj Jain: So project business, see, if you look at some of the Tier 1 towns in some market, it contributed 20%, 30%, 40% also. So to a certain extent, it cannot be avoided. Se that we are focusing on big quality. So what happens is there are You can sell any product. And therefore, whatever pro there is a basket approach that you are selli see, at Tier towns in 40% certain it cannot be focusing is two can therefore, whatever project your price is low, you can sell it, is selling a range of the products. two approaches in project.

So one product margin would be lower. The other product margins will be higher. So we are looking at a different approach. at the gross margin level, the margins coul EBITDA level, then the difference would not be that much because in the retail, you'll have to do a lot of activities, a lot of promotion, which is not required in the project business. one The margins higher. So ooking And just to comment on the margins of the project also, maybe could be lower, but the project sale if we convert it to the level, difference not be that you'll to a is ng d e also. When

And within th quality of focus we are keeping in mind so that it does not affect the margin. Related to patti, it's more a commodity and competitive gain where you cannot completely leave it we say we are not focusing much, our idea is that we are not focusing on the growth of that. But we still have to sustain and maintain our existing within the project also, in fact, our focus is in the premium product category. So that of in so commodity and you leave not idea not focusing on dealers that is what we are trying to do.

And if the prices goes down and it becomes a little mor now that the patti will continue to remain the low profit thing. So if you get some advantage in terms of pricing, then you may like to pass it on to the market and see that can improve your growth by some point goes more because the industry has accepted patti to the profit like it that points. e difference of 3%

Harsh Shah: And secondly, sir, just to clarify, we said that our decorative volume declined marginally this quarter, and we had a 3 to 4 percentage mix benefit, right? to we our volume 4 percentage

Anuj Jain: So value growth is slightly negative. And between value to volume, there is a to 4%. growth negative. And between value volume, industrial growth mid-single digits.

Harsh Shah: So in that case, even our industrial growth would be in mid

Anuj Jain: So in auto, it would be higher. As I said, in auto, it was driven by passenger vehicle and not the 2-wheeler. 2 performance coating business, again, the growth was muted. it would higher. As in auto, it the wheeler. 2-wheeler growth was low. Auto -- passenger vehicle growth was high. And in the

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	Kansai Nerolac PaintsPaints LimitedFebruary 06, 2023
Moderator:	As we have no further questions, I would now like to hand it over to the management fornowhandover
	closing comments.comments.
Anuj Jain:	Thank you allfor all of your questions, and I hope we are able to answer the questions. And
	wish you all once again the very happy New Year, and let's hope that this year does far betteronceNewlet'sthis
	than for ---- last year for each one of you. So thank you so much for attending thithis call, and we'll
	catch up with you in the next quarter. Thank you.
Moderator:	Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank
	you for joining us, and you may now disconnect your lines.for joining