On paints, growth seems to be maturing - Q1 to Q3 revenue has plateaued around Rs.1,100-1,200 crores. To reach Rs.10,000 crores exit by Q4 '28, you need around Rs.2,500 crores revenue over next nine quarters - around 40% CAGR. What different will the company do, and what convinces us this target is realistic given maturing growth?
While you have done your internal calculations, I am not going to either accept or deny it. But all I can say, both in quarter-on-quarter basis, we had a robust more than double-digit levels of growth closer to between 18% to 20% on a quarter-on-quarter basis, on an annualized basis, these numbers are tending towards the three-digit growth. We have grown on a year-on-year basis by 300 basis points in the paint industry. We are still a single-digit market share player. We have a large capacity. Our presence is now on a Pan-India basis. We continue to add new dealers at a double-digit level on a quarter-on-quarter basis. More than 7.5 lakh contractors have joined hands. Consumer demand is building up and we remain confident and we continue to guide that we will deliver the Rs.10,000 crores in third full year operation.
On paint - you are testing waters with 2% to 6% hikes in January. Now it is early days. Can you help us understand how the acceptance has been? And if we look at the industry, which has been struggling with discounting, how should we look at the overall industry from here on, how volume versus value gap should move over the next year for industry and you?
First and foremost, as I mentioned in the previous answer, the gap between the leader and us was high. And we have used this price increase primarily to bridge the gap. We obviously still are a single-digit player and our aim is to bridge the gap between our capacity, which is at 24% to our current revenue market share. It is early time to be able to say what is the response to the price increase because we have had a certain range of products where we took the price increase on 28th of January, and the remaining range of products is happening on 25th of February. So, it would be better I respond to the consumer and contractor response after Quarter 4 Results are there, because we are still in the process of executing the price increase. But on a mid-to-long-term basis, what is our view about the industry? We remain very bullish. The industry in Quarter 3 has grown by 10% to 11% or probably even 12% by volume. As far as the industry is concerned, we believe that this year the industry may including Birla Opus, may grow by 5% to 6%. In FY2025, growth almost was nil. And by FY27, we are hopeful that it will come back to 8% to 10% growth levels.
Do we import any raw material from EU, which were earlier subject to taxes and now with this deal could help us from the chemicals business point of view? And any volume guidance which you would like to share from the epoxy business point of view for FY27?
If I look at imports from Europe, yes, we have some. I would not like to get into the details of what that is, but they are not a large part of our basket. So, I do not see really a large benefit from that. If you look at volume growth, then if I look year-on-year, our overall liquid epoxy plus formulations, for the year-over-year, we have grown by about 6%. I expect this rate to ramp up next year. Now, how much it will ramp up by is a matter of speculation, but I expect that rate to ramp up further. None of the fundamentals have changed.
Could you give me some numbers for where we are in terms of range here?
As I explained, we were a single-digit number and we have a strong pipeline of institution, but retail continues to be the stronger forte for us at this point of time.
When will we start sharing the revenue and EBITDA numbers of our paint business?
Shortly. Even today, because that is why there is portion of the material that has been produced and was not sold and they are still reflecting in the revenues which are getting capitalized. We are expecting to complete that and we will move on to this. We will share with you the exact dates when we do that. So, that is why this gap between capitalization, that is why the numbers what market calculates, there is a gap, and we want to finish all the materials that we have produced before commissioning and consume it, which remains in the capitalization.
So, should we assume that from next financial year you will start sharing those numbers?
We will definitely come back.
The price increase that we have taken, 2% to 6%, despite that you are saying we are confident to achieve the revenue target?
You should understand the philosophy of price increase. We always want to maintain a particular distance from the market leaders, and we felt the distance was slightly more than what that was necessary and we are bridging that gap. That is the objective of price increase and there is no other objective. And obviously, we also want to test at what demand of consumer and contractor remains at the revised price.
On Birla Pivot - extremely fast execution. We had hinted earlier the road to profitability or breakeven for this business was around a billion dollar revenue run rate. Since we have achieved that, is this business breaking even or starting to make positive contribution? How should one look at profitability for Birla Pivot from now?
On the profitability front, we are making progress similar to how we have done, how we have executed on the revenue side, and the growth has been excellent over the last few quarters. We have been making good progress on bridging the gap so that we can get to breakeven as well. I think from our current estimates, we will exit FY27 at a breakeven level. That is our current estimate.
Continuing on the Pivot point. I remember earlier you had guided cash breakeven by 2030. So you are now front-loading it, accelerating it to fiscal '27 end, right?
Rahul, I do not think we gave the guidance of 2030 earlier. But, as I mentioned in response to the earlier question, FY27 exit, we should be exiting the year at breakeven. Yes.
On chemicals side - for the epoxy business, with the trade deal done with the USA and Chinese currency appreciating by 8% to 9%, how do we see our exports to the USA market in the medium-term? And on a longer-term basis with EU FTA also in place, how do we see our volumes in terms of exports to that region as well?
Both are positive for us in a way. As you know in epoxy, particularly in liquid epoxy resins, the Koreans have been available in India due to their FTA, they get a certain advantage that they can bring in product without put up the duty. And also, they had preferential access to the US as well as Europe. Now, clearly that advantage is going to go away. If you look in terms of timing, then the US deal probably will get actioned before the American deal. So, I am seeing a positive upside on export of epoxy from India to the US. Similarly, if you look at Europe, the European chemicals industry is struggling with high costs, both from perspective of energy, but also from perspective of extremely high labor costs. I think the India-Europe FTA in the longer-term will have a much more significant impact on the Indian chemicals industry, probably in my personal opinion, more than the US. So, both these agreements, Nirav, are, I think, positive for the industry.
Safe to assume that these ECH price corrections on the upside would translate into a similar increase in the prices of epoxy which generally gets passed on a lag basis?
Yes, there is usually a time lag associated with that. As I mentioned in the epoxy value chain, there are competing routes, glycerin-based ECH and propylene-based ECH. So, what may be a pass-through for me, may not necessarily be a pass-through for somebody else, maybe globally who may be propylene-integrated. So, depending on their crude prices, propylene prices, glycerin prices, the pass-through mechanism has a different cyclicality, but in the longer-term, it always passes on.
This quarter we have seen a dip in our epoxy revenues. Was it more because of the volumes were lesser this quarter and that should start correcting next quarter onwards, is this a right assumption to make?
Volumes were slightly under pressure on the liquid epoxy resin side. Actually, maybe the better way to see it is, we decided not to take certain volumes where we thought the margin was getting too squeezed. That is probably the better way to see it. If I look at the non-LER business, all the formulation, within the specialties, there actually we have not had any volume issue. It is on the margin where perhaps the lowest profitable part of our LER business, we have been a little bit unwilling to allow our margins to get compressed too much.
On the overall paint that we sold, you said 500 million litres - that was since the time we have been in the market, accumulative?
500 million liters, not 500 billion liters by the way. Yes, since the time we have started operations.
When you talked about 300 bps lower than the second player, that includes putty and everything, exit market share?
I am again saying what we said in the opening remark statement, Birla White plus Birla Opus value for Quarter 3 and guidance given by number two players, in our internal estimates, now the gap is 300 basis points. I hope it is clear. And it is only Birla White's putty business. It does not include any other business.
On the increase in new dealer addition - the typical profile of these dealers, qualitatively, are these large dealers or these are dealers largely from the market leaders? Initially there were challenges to reach the very large dealers, what is the state now?
We are getting blend from all categories of dealers. In our internal assessment, we broken dealers into A category, which are more than Rs.3 crores, B category, which is Rs.1 crore to Rs.3 crores, C category, which is Rs.30 lakhs to Rs.1 crore and D category into less than Rs.30 lakhs. Most of the dealers are coming in the A, B, C, the small numbers also come in the D category, but our focus in the A, B, C category.
The price increase - is it more from a testing perspective or is there any raw material pressure? Do you think the brand is strong enough to take pricing? You highlighted FY27 industry growth could be closer to 8%, so the pricing volume graph should reduce in the FY27?
First and foremost, there are no current raw material pressure. Second, we have been consistently maintaining that we are at a lower price than the market leader and we felt the gap was higher and we reduced the gap. That has been the strategy around there. It is not a price increase strategy per se as you are reading it. Please read it that we would like to maintain a certain gap with a market leader and we want to test at that gap what is the consumer response. There was an X-gap that existed and we reduced that gap.
Could you explain a bit on our share of retail business and institutional business? I believe we have grown pretty fast in our institutional business, but I was trying to figure out if the base there is lower or are we tilted more towards institutional business?
To our understanding, the retail-institutional business mix is 85-15. We are not yet there on that mix. We are still a single-digit on the institutional business, retail is much faster to take off and institutional is a much longer gestation period. The message that I was communicating is that we have a strong pipeline and hopefully by FY27, we should be able to come closer to the industry average between 12%-15% on overall contribution from institutional business.
This number of saying that 18% we have grown last quarter - I met a couple of dealers from the time we started recently and I have seen some of them saying that they have stopped doing business or finding it difficult. While my sample size is very small, what is an acceptable level of pushback or reduction in dealers when we expand dealership and what are our targets here and where are we in that?
It is a large dealer universe. There are over 100,000 dealers. On an average, in a quarter about 50%-60% of the dealers are active. We are also experiencing a similar level. In fact, our sense is about 70%-75% in a quarter are active around there, and we are satisfied with the number of people who onboarded with us, with the number of people who are active in a given quarter. Most of the dealers who have joined us and have been consistent in network have continued to stay with us. We are very focused on our collection and there dealers who are poor pay masters are the ones probably you may be referring to.
What is our policy with tinting machines that we have given to dealers and where dealers have not been doing as much business, how are we dealing with them, and have you started collecting money for tinting machines?
No, we do not collect money. As we have already explained, we give the dealers free-of-charge tinting machines and that remains a consistent policy even in FY26 and going forward. Only, if a dealer does default on his payment for a long period of time, are any actions that are necessary, but it is few and far, and probably not relevant for this national platform.
On paints - while you talked about your revenue expectation maintaining for FY28, what do you think on profitability? Related question - you have seen some increase in interest expense during the quarter sequentially and depreciation, is this completely related to capitalization of six plants or also any working capital changes which you expect because you are increasing mix in your business?
In Grasim, if you are referring with the last year, the borrowing is used for setting up the new plants was being capitalized. In the 15th of October, we have commissioned our last sixth plant and now from next quarter onwards, there will be no capitalization and all the interest cost will be coming to P&L account.
So there is no material working capital changes, because we are shifting segment business to more institution that does not have an implication?
If your question is on debtors, we are well in control as debtors and working capital is not a challenge. We repeat again, that the interest component in the past, a portion of that was getting capitalized and now the portion is significantly fallen, because from six plants now down to in our 15th of October, it is only one plant and that also a part of it was no more capitalized and the same applies to depreciation. As now all the six plants are fully commissioned, the full depreciation is reflecting in the books.
The other question was on paint segment profitability which we are expecting for FY28. You maintain it as like turning positive in FY28?
Yes, we maintain our guidance. I will repeat. Within three years of full scale operation, we are targeting to be able to reach a profitable #2 position.
Could you share what is the current share of renewable energy in the chemicals segment?
Exit rate is around 22%, 23% right now. And actually are targeting to reach an exit rate of over 40% by end of FY27, if you want to make a projection.