It raised prices 2% last quarter. Did the price hike cancel the effect with respect to raw materials? After the price rises, what is the path of demand?
The paint industry has experienced price flexibility. It’s a good thing because in the whole painting exercise a large component of labor is included, so if paint prices go up, the impact on the overall business is a bit marginal and in this business, it’s a positive factor that applies to our industry.
But having said that, in the T3 and T4 markets – which are the smaller markets, we’ve seen a drop in the rating from luxury and luxury to more economy products, and to that extent, there is a small amount of deferment from a certain category like a fee that can be deferred for a while. .
However, we saw that the T1 and T2 market including the metro markets did very well and the support for luxury and luxury products from there was generally good in terms of what we saw. Consumer demand has been very good in the three months as we’ve seen and that’s why we got size growth 37% and growth in value of about 59% this quarter. We feel that the effect of inflation was marginal but did lead to some reductions in economic products.
That point was taken away but 37% volume growth in the quarter helped that growth. Is this because ad spend is also high? More importantly, how sustainable will this growth in size be in the future?
Overall, in the past six to seven quarters, volume growth has been in the double digits and the company has been aggressively leading the top streak through various measures. What we’ve been doing constantly is we’ve been adding a lot of new products and driving those new products through a massive amount of marketing initiatives.
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Lots of innovations have been made in the market in terms of newer categories such as waterproofing and emulsions. We have been able to give a huge boost to the market in general. The other factor that has gone in our favor is the fact that the B2B client segment has grown faster than the retail segment and we have seen very good growth coming from the construction sector because the real estate market seems to be going up. We have also received a good boost from government spending on infrastructure. Waterproofing and other areas have grown exponentially from these initiatives. Finally, there has been some pent-up demand in the market due to two years of Covid. I think a lot of the homes had been made available for renovation, paint and repair before the monsoons. This has also increased the overall demand.
One organization is aggressively driving it through a range of marketing initiatives. We are also gaining market share and at the same time the good demand from consumers has helped the whole volume to grow. Hopefully we can move forward to keep the double-digit volume growing.
Raw material prices have fallen in the last 20 days. I know it’s hard for you to be highly volatile in the price of your final product, but what is your expectation when you see such a drop in raw material prices?
Year-over-year PBDIT margins have gone up to 19.4% overall that much and that has been possible due to a better mix of products and also from our point of view we have taken some rate increases and have worked on our operational efficiencies in a very significant way. But year-over-year gross margins declined sequentially with the prior quarter because we saw about 6% inflation in Q1 compared to Q4 and despite a 2% price increase, we were hit hard by inflation.
So, going forward, it will totally depend on the fluctuation of inflation in terms of how it is formed because we find that while crude oil prices are going down, the rupee is depreciating to such an extent and therefore it is very difficult to predict how inflation will form in the second quarter from now on. Depending on how inflation forms, we should be in the 38-40% overall range in terms of gross margins. From the PBDIT margin, we should maintain a margin of 18-21% going forward.
When it comes to gross profit margin Profile, you’d expect 38% to 40% but as you also pointed out, it’s very difficult to say how raw material prices will move. But if inflation sees a rebound in commodity prices, will you go for it Rising prices Or will you continue to wait and watch given the volatility we have seen?
As an industry leader, it is our responsibility to take maximum absorption in terms of inflation so as not to overburden the customer and reduce consumer demand. But at the same time, if inflation really goes up, we’ll take more increases. We just announced one price increase of 0.5% on August 1st. If inflation really goes up, we’ll look at taking further increases over time.