Grasim Industries Limited analyst Q&A

Thank you very much. First question is from Avi Mehta from Macquarie.

Sir, my questions were on the paint business, especially wanted to better understand your thoughts post the resignation of Rakshit, in terms of the rough time line for the successor announcement, any change in growth strategy, aggression. I would love to hear your thoughts on that. And so the second question, if I can put it up front, is on the performance in the paint business in the quarter on a sequential basis. You did point towards market share gains, but the other peers who have announced have seen almost a 10% decline given the weak monsoon, weak environment, I would love to know how does the business stack up versus that? Those are the two questions.

Thank you, Avi. In the life of a professional, individuals take their call on where they want to build their career. Rakshit has helped Birla Opus from the very start of the business to build the project and in the initial phase of launch. Now Birla Opus has a very strong, high-performing team and will continue to stay course on the vision that has been announced to the market. I'd like to remind you the vision that the company has announced to the market, we have committed to be number two as well as profitable within three years of full-scale operation. We will stay course on that. As regards to the performance of quarter 2, this is our first time that we have faced a full monsoon season. And the first time we saw that the overall industry on a quarter-on-quarter basis has had a double-digit decline. And it is our internal estimate on a year-on-year basis. If you were to eliminate the performance of Birla Opus, the industry is slightly negative in performance. Our Birla Opus on a year-on-year basis had a significant growth, but on a quarter-on-quarter basis, had a low single-digit decline, which was primarily during the periods of July and August. We turned back very strongly in the month of September as well as in the month of October, as I mentioned in my opening remarks. We are seeing very strong secondaries or movement of paint buckets from the dealer counter to the contractors and consumers and as well as return of the institutional business. We remain committed to growth, and we remain committed to the vision that has been articulated to the market. I forgot to tell that Rakshit be there with us until 5th of December.

We'll take the next question from Rahul Gupta from Morgan Stanley.

A couple of questions. First, just as a continuation on the Paints question earlier. Now that we are out of a pretty long and persistent monsoon season, how should one look at the industry demand for the second half? And to that extent, with Kharagpur now fully commercialized, how should we look at your ramp-up in second half from that perspective? So that's my first question.

Thank you, Rahul. We are highly optimistic and results of September and October bear us out of a strong quarter 3, both on a year-on-year basis as well as a quarter-on-quarter basis. So our guidance is continued double-digit growth on a quarter-on-quarter basis and a significantly high growth on a year-on-year basis. As regards to our capacity, as we mentioned, we are at 1,332 million liters per annum, with Kharagpur arrival in the short term, it will help managing our logistics costs and better servicing on the Eastern and Central India. But in the long term, our aim is to ensure that the volume market share and capacity market share converge all investments and all efforts, whether it's advertising, manpower, distribution, servicing and any new initiatives will be directed towards to match our volume market share closer to our capacity share.

Got it. Maybe we will revisit on the industry a quarter later. My second question is on B2B e- commerce. See, the business is growing at a very fast pace. And if I look at this quarter numbers, the revenues are annualizing more than INR6,000 crores. Now you have guided for INR8,500 crores for fiscal '27. Is there a case for this number getting revised up? Or will you be reaching this targeted number sooner than fiscal '27? So any color on this will be very helpful.

Thanks, Rahul. This Sandeep here. I think your observation is right. Our growth has been compared to what our expectations, I think we've been doing very well compared to our plan. We are on track. And I think our earlier recommendation was that we will achieve $1 billion scale in FY '27. There is a likely chance that we will get there and hit that milestone sooner. But for now, we are not changing any of our direction as of now.

Next question is from Amit Gupta from ICICI Securities.

This Navin Sahadeo from ICICI Securities. So two questions. One on paints and the second on B2B commerce. On paints, if you could just give us more details about the number of dealers in this particular quarter versus the last quarter. And the reason I'm asking this because this time, Diwali was a little advanced. As you mentioned in your presentation, there is net addition to the number of accounts from 8,000 in the previous quarter to 10,000. The SKUs have gone up. The product portfolio has also expanded. But yet, sequentially, as you mentioned in your opening comments or to the previous question that there is a marginal lower single-digit kind of a drop in revenue. So how should one look at this in terms of the expanding network in the first place.

Thank you, Navin. You're right. We have expanded our distribution network to beyond our original guidance of 8,500 towns to 10,000 towns. And we continue to be able to expand beyond urban into the rural and the small town category. As regards dealers, the way to look at it is either we measure dealers on a quarter-wise basis, or we measure on a month-wise basis. Your concern has been how is it that we have been expanding our reach, and it has not translated into revenue. To measure that, we should look at the number of dealers that have participated with us in September and October. And we've been growing dealer participation on a month-on-month basis. There was a lull in July and August, and it has returned back to a significant growth, almost a double-digit growth of dealer participation in September, and the same momentum has continued in the month of October. So, the overall number of dealers have continued to grow, if I were to measure the total number of dealers who participated in quarter two over quarter one. What is important is you will say the throughput may have fallen. The throughput may have fallen on a quarterly basis. But when we measure on a September basis, the throughput is back and both in September and in October, dealer throughput is at levels and slightly higher than what it was at quarter one. So, our focus is both expansion as well as depth of performance. And currently, while we are getting a lot of dealers to be able to sample our products and start using our products, there are dealers who have sustained with us now for more than one year. And almost 30% of the dealers are currently doing more than 40 to 80 products for us. And that number continues to grow. And the dealers, I'm very happy to report the dealers who have worked with us in the over one year, we've sustained a large percentage of them. So I hope that answers your question.

Just to clarify, if you could give us the number of dealers? And second is the traction that you said or rather a spurt that you've seen in September and October, is it led by the consumer style financing or the EMI options that you introduced a couple of months back?

So those are factors which help in secondary sales. So I'll not mix the two certain topics that we first focus on primary sales, that is sales from companies to dealers. The number of dealers participation has grown as well as number of products sold has grown, both in September and October. Now once this has grown, how has been the throughput different from our legacy companies, which have a track record, and they are able to force dealers to stock. Most of our dealers prefer to buy and keep a very low stock. So for them, the most important is throughput or secondary sales. And what has been encouraging for us is, number one, we have a central monitoring system of our tinting. And we are finding that the secondary on our tinting for dealers in September and October has been almost 120% to 130% of the volume that they purchased in September and October, showing a very strong secondary or throughput from the dealers on to customers as well as reducing their inventory significantly. That is part one. Second thing that has helped is assurance. So it is helping painters and contractors to be able to tell to customers of the assurance program. And we've had thousands of projects being registered in multiple stages of execution at this point of time, the Assurance plan. And the third is the new painting services. Both Assurance and painting services are secondary-based programs as well as dealer stocking and dealer purchase are the primary-based programs. So both are running strong. I hope that clarifies.

My question second was on B2B e-commerce. So if you could just help us understand the private labels now are what percentage of our revenues, and in the same way then what's different from a technology or any other innovation that we are doing in this B2B ecommerce gives the confidence that we might be able to surpass the revenue target sooner. But that was my question.

I'll answer your question on the innovation that we're doing and what gives us the confidence that we will grow and continue on this growth momentum. So look, as you're aware, we have built an integrated e-commerce platform, which fundamentally forms a digital backbone and connects pretty much every stakeholder in the entire ecosystem, starting from the brands, OEMs to our buyers who are consuming these products, logistics service providers who are actually moving the material to our lending partners who are providing financial solutions to all other network operators who plug into this backbone. And what this fundamentally helps us is in creating this end-to-end visibility, which is predominantly not there in most of the sectors or most of the materials that are fundamentally transacted today. And that, I think, is where our ability to provide bring in efficiency, ability to provide the best price, ability to provide the widest assortment, ability to provide a very reliable experience, all of that come into play. And this already showing up in the way our repeat transactions are happening in the way the buyers are coming back to our platform to keep buying. And just as an indication, all the buyers who we acquired last year, they've already purchased on an average more than twice the amount this year, giving us the confidence that whatever experience that we're delivering through both a combination of our assortment and our technology backbone is giving results. And I think that is one of the biggest reasons why we believe our growth momentum will continue. And to drive all of this, these are custom-built tech modules that we've built from the ground up, and they are very specific in terms of addressing the use cases that are for B2B. There are a bunch of solutions that have come up in the past for B2C ecommerce, but B2B e-commerce is a lot more complex. There are a lot more stakeholders. To fulfil a single transaction, it requires more than 30, 40 touch points. and to orchestrate all of this in a system that is seamless is where our edge comes in. I hope that answers the question on innovation. On the second part or on the first part that you had asked about private labels, we are right now not breaking down our revenues into different product categories, and we will share that at the right moment. But I'll share this that our private label since the time of launch, they have seen very good acceptance. Most of the buyers who are coming to our platform to buy some of the bulk categories. As the project progresses, they have shown very good interest to continue that purchasing experience with us. They started buying behind the wall categories, and now they've also started buying the finishing categories. So we are currently operating in tiles, ply, bathware and faucetware, and we continue to increase our penetration there. What we've also seen is that we see great acceptance for these private labels in our retail channel. So, we fundamentally have two channels. One is the projects channel where we are able to directly supply materials to the site locations. And the other channel is our retail channel wherein we work with retailers who further then sell a lot of these finishing products to individual homebuilders or smaller contractors or smaller retailers. We've seen great acceptance for these private labels in the retail channels because they are seeing a great way to diversify their portfolio without having to do higher investment or having to keep inventory at their location, and that is what is driving acceptance of these private labels. So overall, I'd say all indicators are towards good experience, reliable experience.

Next question is from Percy Panthaki from IIFL Securities.

Can you just tell us the number of distributors, your target was 50,000. Have you achieved that target?

Yes, we are there.

Okay. Okay. And how many of them would be monthly active distributors as in ordering at least once a month?

We believe we are better than the industry standards.

In percentage terms?

Yes, right.

Understood. Understood. And your guidance of INR10,000 crores turnover by FY '28, does that remain valid?

Yes.

Understood. Understood. Also, just wanted to understand what is the next push in terms… See, when you started off, the first push was in terms of making the distribution available and increasing the number of distributors. Now more or less, that lever is sort of done. Of course, there will be some incremental growth there, but nothing major. So for the sales growth to continue double-digit on a Q-o-Q level, what is the next thing that you will focus on? What is the next lever which will drive this growth?

I think this very typical of any business. Focus is on consumer. So you need a distributor or a dealer to be able to make sure the products are available at the right time at the right place. That activity, we have managed. So all our attention is moving to consumers. And there are two types of consumers. One is a painter contractor and second is direct homeowners. That's the reason why we continue to be the most visible brand amongst the most visible brand. And we are really happy to report that within a period of one year, this the last World Cup, then we started to advertise. And this World Cup, this happens with Women's World Cup, and we won both the World Cups. And in the results, we saw that we have top of mind recall, we are number 2 brand, which is the starting fact of consumers to be able to go and ask for Birla Opus at the dealer outlet. So that is the one step, and we believe 30% to 40% of the consumers make direct purchase of paints. Remaining 60% to 70% of the consumers do it with the help of the painters and contractors. So all our effort is to be able to attract maximum number of painters and contractors, ensure these painters contractors are able to experience our high performing products and superior products as well as able to offer to customers two very new services, number one, direct painting services from branded by us, which has transparent pricing, EMI as a GST bill. And Assurance where not only the customer gets product warranty, but he will get in the first year itself, if there is any problem, our commitment to not only replace product, but also cover his labor costs to be able to give assurance both to the painter and contractor as well as to consumers. So, all the focus of the business is to be able to do consumer-related activities. And that will help us in what is happening is that is helping us dealers who first joined and took a small percentage of our 192 products. And now we are getting dealers who are increasing the number of products that they're buying and offering to consumers.

Next question is from Manish Poddar from Invesco.

So just wanted to get some sense, sir, let's say, because of this rainy season, has there been any sort of impact in this Q2 thing? And that is why you're calling out, let's say, the early part of the quarter was tapered. And despite you adding stores or adding distribution, you haven't seen performance to that extent. Because what is happening is the market always correlates individuals leaving at the top to the delivery of outcomes. And if that is, I'm just trying to get some sense on that.

Understood, Manish. So let me first clarify. We believe that we have the best growth on a quarter-on-quarter basis. Obviously, when you measure on a year-on-year basis, we are a triple- digit growth. So that may not be so relevant. But on a quarter-on-quarter basis, we had a least decline when the industry had a double-digit decline. I had almost flat or slightly negative on decline basis. What is the reason for this decline? Broadly, whenever there is monsoons, the exterior products and institution business slows down. And that is our peak monsoons in July and August. So if a part of our business is not happening. That is the reason why the slowdown happens. And that is historic of industry. On a quarter-on-quarter basis, quarter 2 is amongst the slowest quarter for the industry, and we faced it for the first time. But having said that, we have to measure the overall industry on a year-on-year basis. If you were to remove Birla Opus performance, the industry has had a slightly negative growth is what our assessment is based on various feedback that we've got from the market. Not every company has yet reported their financial results. But whatever our study of the market is against but, with Birla Opus, there has been a low single-digit growth that has happened, and Birla Opus continues to help grow the market at this point of time. I hope that answers the question.

Next question is from Nirav Jimudia from Anvil Wealth.

I have two questions on chemicals. Sir, the first is when we see our EBITDA run rate for chemicals, like last year, we were at anywhere between INR250 crores to INR300 crores. And today, when we see we have inched up to anywhere between INR350 crores to INR400 crores. So just want to understand from you that when can we again start seeing the meaningful improvement in the EBITDA run rate for chemicals? And if you can explain this in context of, (a) chlorine value-added products. So is there any scope for improvement in per kg margins here. (b) newer capacities like ECH and CPVC and when it should start contributing meaningfully? And (c) whether the benefit of the power cost reduction with our shift to renewables is optimally achieved or there is a further scope of improvement?

So, I'll go in reverse order of your questions to the extent I remember all of them. So firstly, we are at about 24%, 25% renewable level as of now, right? If I look at all that we have and all the state-level regulations, we expect that in the next three years, we should be able to technically get to 40%. And I use the word technically because we have not yet envisaged those projects. We have not yet signed the PPAs, but that would be a kind of aspirational level for the next 3 years. I can't forecast because, as you know, every state has its own regulation on banking, billing, surcharges, etcetera. But we think that the current 25% has feasibility to reach the 40%. Then I think your second last question was ECH.

Yes, when it should start meaningfully contributing in terms of the operating profits?

So that ECH and CPVC would be meaningfully contributing from Q1 of next financial year. We will be mechanical complete by Q3, worst case situation in January, but the start-up times of these plants are long and complicated. And as you know that some of it are -there are safety risks as well. So we expect that meaningful contribution will happen from first quarter of next financial year. Then I think you had a question on chlorine derivative profitability. Rather large basket of products, right? We have probably the largest basket of chlorine derivatives in India. And some of them are pretty seasonal because, for example, water treatment and monsoon has a higher season, right? Plastics has another high season. So I think these are mature products. It's not like you're going to see breakthrough profitability in any of these traditional chlorine derivatives, but it is necessary for us to do them so that we can get the caustic utilization rates that we want. And then your very first question was around what could be the catalyst for the next step improvement, I think, in profitability. And Nirav, the honest answer to that is it essentially depends on chloride, given our large exposure still to the chloralkali business. It's a combination of caustic prices and chlorine demand in India. That is the most meaningful factor that drives our results. And the business of predicting caustic prices for a long time is very tricky. So far, we can make our best estimates, but it's a tricky business.

Next question is from Jai Doshi from Kotak.

My question is generally on market share trends. Now last year, during the course of the year on a Q-o-Q basis, you were adding 100, 150 basis points of market share every quarter. It seems to have moderated to about 20 basis points starting this year. So is this entirely the difference between primary, secondary? That's my first question. Second is, is there a risk that it decelerates further? Or you think that you will be able to gain 20, 30 basis point market share Q-o-Q from here onwards over the next few quarters as well. And lastly, mathematically, for you to sort of INR10,000 crores in FY '28 means 13%, 14% market share. So whereas if I understand correctly, you may be at 6.5% today, gaining 20, 30 basis points quarter-on-quarter. So what do you think from here can sort of drive acceleration in sequential market share trends for you?

Thank you, Jai. I'm not sure how you're doing your calculations and how you're arriving at quarter 1, 20 basis point or quarter 2 at a slow market share growth. So first and foremost, I want to register the revenue reporting of paint companies has 3 broad components: decorative paints, putty business as well as industrial paints. Now we have a fair bit of idea of their industrial paints, some of them are also reporting a breakup between industrial and decorative paints. Now with decorative paints and putty business of the legacy players and decorative paints and putty business of Birla White, our assessment is we have grown very significantly. And last quarter, we had talked about reaching double digit, and we have grown more than 700 to 800 basis points in this quarter further. So, we are there. And on a stand-alone basis, our assessment is we will be in quarter 4 to quarter 1 of next year, double digit. We are trying to reach this in the quarter 4. But we are between quarter 4 of this year or quarter 1 of next year, we should be in a double- digit number. And our degree of confidence remains solid around there. So you may have your own internal calculations and the number that you are giving us as the end market share is quite different from the numbers that we have on our internal calculation basis.

Next question is from Prateek Kumar from Jefferies.

I have a couple of questions. Firstly, on PSF segment and caustic, the performance on a cumulative basis remains range bound like last few quarters. Do you see any figures which could provide any positive change in performance in this business. Some of it you have already alluded and like answered that.

Yes. See, we expect a slightly better performance in Q3. But obviously, there are a lot of ifs and buts in terms of U.S. tariffs, in terms of global pulp prices. We expect stability and a slightly better performance for Q3.

Okay. Also, another question is on resignation of Rakshit, which comes as a big surprise to anyone who has been tracking Birla Opus closely. My question is, should investor view this transition as a natural phase in generally difficult competitive business or as inflection point of any refreshed strategy?

It's a natural phase of professionals growing in their career. This will have no impact on the business and business will be as usual. And there will be no change in the growth strategy.

Next question is from Rashi from Citigroup.

I just had a clarification. When you're saying that the paints industry has grown at low single digits in the second quarter, and it's negative, excluding Birla Opus. This just decorative organized paints or adding putty as well?

Yes, including putty.

Thank you very much. Due to time constraints, we'll have to take that as the last question. On behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.