Operator: Ladies and gentlemen, please hold for a minute. We will start shortly. Ladies and gentlemen, good day and welcome to the Pidilite Industries Limited Q2 FY27 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Arun Baid from ICICI Securities. Thank you, and over to you, Mr. Arun.
Arun Baid: Good afternoon, ladies and gentlemen. On behalf of ICICI Securities, I welcome you all the Q2 FY27 post results con call of Pidilite Industries. From the management side, we have Mr. Sudhanshu Vats, MD; Mr. Parikshit Singh, Joint MD; Mr. Sandeep Batra, ED and CFO; Mr. Amit Agarwal, CFO Designate; and Mr. Bhavesh Joshi, Senior Vice President, Domestic Accounts and Taxation. Now I hand over the call to Mr. Batra for his opening remarks. Over to you, sir.
Sandeep Batra: Thank you, Arun, and good afternoon, everybody, and apologies for this slight glitch. I do not know, there was some connectivity challenge. But anyway, we have now joined, and I will quickly give a brief update on the Q2 H1 results, which were approved at our board meeting yesterday. In the current quarter, our standalone revenue was a shade under INR 4,000 crores, with a growth of 21.7% in nominal terms and underpinned by underlying volume growth of 10.7%, which was broad-based Consumer & Bazaar. Hello?
Operator: Hello.
Sandeep Batra: Yeah. Hello? Hello?
Operator: Yeah. Who is this?
Sandeep Batra: Sorry. I was just saying that the growth in the quarter was quite broad-based with Consumer & Bazaar. UVG was 11.1% and B2B UVG was 9.2%. However, in the quarter, we saw the maximum hit and impact on account of elevated input costs and gross margins standalone declined sequentially as well as year-on-year. As an indicator of the kind of extent of the input cost inflation, we always refer to what has been the VAM consumption rates, which in the Q2 was $1,630, nearly double of what it was in the same period last year, and versus $1,370 in the Q1. So the Q2 saw the full impact of elevated input costs. However, because of the robust top-line growth, we got operating leverage.
Sandeep Batra: Against the 720 basis points decline in gross margin, our EBITDA was lower by 430 basis points and came in at the lower end of our range at 20.4%. Subsidiary performance was good for the quarter, with international subsidiaries growing by 21.8%. Good growth in our businesses in Dubai, Bangladesh, Kenya, Thailand. All four of them grew in excess of 20%. EBITDA in the international subsidiaries also improved, with a growth of 53% versus the top-line growth of 21.8%. Domestic subsidiaries too delivered a strong quarter with a revenue growth of 22.2%, again led by the Consumer & Bazaar businesses, which grew by 22%, and B2B businesses grew by also 22%. The only business that saw some revenue headwinds was Nina, which had challenges because they did not have adequate work front available for doing waterproofing.
Sandeep Batra: But I think as we had called out in the Q1 itself, where we saw the benefit of lower input costs and the benefit of pricing that we had taken, that it is better to look at the H1 as a representation of the company performance. Therefore, in H1, if I were to look at our standalone revenues grew by 22%, UVG was 11%. Again, broad-based Consumer & Bazaar UVG for H1 was 11.6%, and B2B UVG was 8.3%. Our H1 EBITDA again came in strong, very much towards the upper end of the range at 23.5%. So that's all I had in terms of an overview of the quarter and the first half. Open the floor for questions.
Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nomura. Please go ahead.
Abneesh Roy: Thanks. The first question is on the margin. You have done quite well on the demand side, volume or trend has grown. So congrats for that. My question is on the margins. You have said that in H2 there will be recovery in the margin. So I wanted to understand, the pricing was delayed because you were expecting the geopolitical issue to get resolved or. If you could elaborate what is the current pricing of VAM and the crude related input. That is my first question.
Sudhanshu Vats: Yeah, Abneesh, always a pleasure to listen to you and to get you as a first question. While Sandeep has spoken about our performance, I just wanted to take a minute to talk about it in the context of the question you have asked, and then maybe address the question again. What is happening is that we are in an environment which has got very high raw material inflation. I think, we talk about VAM as representative, but I think there is raw material inflation in many other raw materials of Pidilite. Some of them have reasonable crude linkage as well, by the way. Therefore, that is, and you have seen crude is elevated at about $115. So very high raw material inflation, coupled with quite a lot of volatility and uncertainty. These two words are important.
Sudhanshu Vats: We use these words most of the time, but I want to give a little bit of definition in our context. First, uncertainty is very simple. I am saying that is what is happening around the world. You see the entire West Asia conflict and therefore movement of goods and so on so forth. But forget cost of sea cargo, but even movement and therefore that is a challenge and continues to remain a challenge and therefore you have got to manage that well. Volatility is another point I wanted to touch base on. As Sandeep was telling you, basically if you look at FY26, we had VAM at about $800 to $900 through the year. Mota moti. I am saying, a little bit here and there, $800 to $900. As soon as West Asia conflict happened, VAM actually shot up to almost $2,000, if I am not mistaken. Just $2,000.
Sudhanshu Vats: Really shot up. We had a point of view on where VAM will go based on our earlier understanding of many years. Therefore, $2,000 was not sustainable. We thought it will settle at a number based on which we priced in Q1. I am giving you illustrative example of Fevicol and VAM, but it is true for our entire portfolio. So we priced that. We were actually proactive in pricing. We basically priced on what we call a replacement margin, which is what is the replacement cost there and then. We also got the advantage in Q1, as Sandeep also pointed out, of low-cost inventory coming in from previous quarter, Q4 of FY26. We delivered a very robust in-quarter EBITDA margin of 26.3%, surprising most people actually, because on the upside, as a pleasant surprise.
Sudhanshu Vats: But even then I had said, and I want to again maintain that you should look at it as H1 and as the year progresses, a little bit more through the year. Let me tell you what has happened to your question and start begin to address your question. Therefore, this volatility is important. As we entered Q2 of FY27, it sharply cooled down. VAM cooled down as fast as it had gone up. So it had reached almost about $1,000. Maybe I think some consignments were maybe even $900, to be honest with you. Therefore, it really cooled down. Our point of view as we entered Q2 was that perhaps it is settling down slightly lower than what we had thought it would in the beginning.
Sudhanshu Vats: We entered Q2 and we rebated, which I think we should, because while we carry some inventory and we basically have this consumption margin and replacement margin, most of our local competitors actually have one margin. They just buy and then basically they carry very little inventories at all and therefore for them, spot price becomes important. That was the price the market was seeing. In any case, we have a very clear principle in Pidilite that you will have some amount of premium onto the market, and you will give primacy to demand and growth. Then, of course, it absorbs all this profitable growth and margins will follow. I think in that context, we rebated. As we rebated, as the quarter progressed, midway into the quarter or maybe towards the second half of the quarter, VAM started going up again quite a lot.
Sudhanshu Vats: I think so therefore, we basically based on a lot of these, we have now said that we will now take pricing and we have taken one round of pricing on 1 October. I think the entire volatility. What happens with volatility is that, you see this uncertainty and volatility is for us to manage as management. We are very clear as a company and as leaders that we will not transmit this through and through to the market. You cannot say my price in one month is like this, second month is like this, third month is like that. We will manage it for the year. We will manage demand as well. I think in that context, we have said that if you look at our margins at H1, it is about 23.5.
Sudhanshu Vats: As we enter into Q3 with the pricing which we have taken with current, and you asked this question also, I think the current VAM price is around $1,200. With that and so on, so forth, we remain very confident of Q3 and quite confident of the full second half that we should be able to deliver in our EBITDA margin corridor of 20% to 24%, ideally in the slightly higher end of the corridor. I think that is where it is. What happens is that you do not pass on this kind of volatility to the market, and therefore in months, in-quarter margin becomes a little bit tricky number. While you guys look at it, but I am saying we have always maintained that you should look at EBITDA margin on a slightly longer term basis, and we stay committed to delivering to that.
Sudhanshu Vats: I think I hope it answers your question. It also gives everyone on the call a little bit of the context of what we did, and also allows you to understand our confidence, because we know the business is motoring very well. You saw the top line is growing well. We know that we have been sort of pricing, and we have priced proactively. We priced earlier also proactively, and again, we have now taken one round of price on our two big brands, Fevicol and Dr. Fixit on 1 October. We may follow up with another round of price increase towards the end of this quarter or early next quarter, depending on how things are playing out. I think that is the way it is. I hope I have addressed your question.
Abneesh Roy: Sure. That is very helpful. Two quick follow-ups to my first question. If I see whenever hyperinflation happens, local players reduce competition or even take a pause in terms of presence. For example, detergent, 10 local players have kind of exited the market. If you could elaborate in your different sub-segments, are you seeing some level of deceleration of intensity from local players? Second quick question is, paints, 30% to 40% of the raw materials, in fact, 40% of the RM is linked directly, indirectly to crude. For you also, will it be similar number given VAM is now, say, around 10% of your RM, will crude and related inputs be around 40%?
Sudhanshu Vats: Let me answer the first question. I will ask Sandeep to address the second. I think it is true. But we have some raw materials, I think percentage, I do not know. On the first part of your question, see what happens is in our case, Abneesh, first of all, our competitors, some of them are not local, like the way you see in FMCG and the example you gave of laundry. So they are not really regional local. There are some, but they are not that many. So the point is that in our case, the competition is as active as it has been. In case of Fevicol, a little bit maybe, but even there, because I am saying there you do have some, let us say, very local competitors. But if you were to look at Dr. Fixit, our competitors are not local competitors.
Sudhanshu Vats: They are like, in some areas, paint companies, some areas. So there are all kinds in that playspace. If you look at tile adhesives, our competitors are large companies in their own right. So therefore, if you look at us, our competition is a little different. So we have had reasonable competitive intensity. I would not say that there is any fundamental shift in competitive intensity. I think that is very clear. Sandeep, you want to talk about the second part of the question?
Sandeep Batra: Yeah, sure. So Abneesh, from a chemistry point of view, yes, I think bulk of our raw materials would be linked to crude, be it raw materials or packaging materials. But the linkage is not instantaneous or not immediate. They would have other pressures or factors that impact pricing. One, of course, is the input cost, but more importantly, and something that we witnessed is their own demand and supply dynamics. So for example, VAM as a raw material, if demand in China is soft or if demand in Europe is soft, then the full impact of input cost increases may not translate in VAM prices. So there are many factors at play, but from a chemistry point of view, yes, they are all downstream petrochemical products.
Abneesh Roy: Sure.
Sandeep Batra: At some time or the other, they will mirror whatever is happening on that crude level pricing.
Abneesh Roy: Sure. My second and last question. Araldite Wood and Araldite White, are these really new products? Do you have similar products in your legacy brands? If no, what specific market it will address and who is servicing them, if at all? Are these purely new innovations, pure brand extensions? Maybe they are addressed by current products, but now it will be more dedicated products. Pricing, how is the pricing?
Sudhanshu Vats: No, no. There are multiple questions here, but let me try and explain to you in one, maybe a little bit short. I think Araldite Wood and Araldite StoneX and WoodX is what you have seen in the investor deck. Actually, just to give you a conceptual thought. First of all, they are new. To answer your question, they are new. This is not something which existed in our portfolio. The other thing I am also telling, Abneesh, is that progressively, at least this year, we have lot of innovation, which is fundamental innovation. Let me take this time to give you an example of on Fevicol, we have piloted products called Multilock and Expert. They are going national in November. In some ways, they have the potential to be the core of the future in that sense. That is the way it is.
Sudhanshu Vats: In Dr. Fixit, we have a product called Wonderproof, which is actually doing really well as we are doing this thing. Therefore, that is again a good thing. If you look at M-Seal as a brand, we are just piloting a product called M-Seal Advance, which brings multiple features. One amongst them is to be able to wash your hands very easily, and so on and so forth. All these products are relatively new. If you look at M-Seal Advance, M-Seal Advance allows the plumber to be able to wash the solvent so easily, which is a fundamental innovation. It is universal. That is another important thing. It is low on VOC and solvent. That is a progressive thing as you go forward. Wonderproof, if you look at it has a very high drying time.
Sudhanshu Vats: And waterproofing all the time you have, whether it is pre-coat, post-coat, you have the flexibility of doing both. It also allows if there is some stagnant water or water because if your leveling is not correct, I think it allows you to sort of be able to do waterproofing even in some level of moisture and water content available there. So some of these fundamental shifts, and similarly, Araldite WhiteX and WoodX are for the premium segment. This one particularly for premium segment, for premium wood and premium stone. So a lot of innovation in different areas, maybe it is relevant to others on the call as well, and answers maybe future questions. A lot of innovation happening across the company, which are very fundamental, which are very new. Even consumer, there are things which are happening.
Sudhanshu Vats: Our new clean off, which has just been done, is getting a very good response on quick commerce and so on, so forth. Thank you. That is all from my side. Thank you.
Operator: Thank you very much. Participants are requested to limit their questions to one per participant. The next question is from the line of Anand Naresh Shah from Axis Capital. Please go ahead.
Anand Naresh Shah: Yeah. Hi, team. Just one quick question. Specifically on the domestic subsidiaries business, we have seen a very strong growth, and it is sort of accelerated, and margins are relatively held up well there. So I just wanted to understand, maybe slightly more granular, what is happening in the domestic subsidiary. Which parts are delivering this stronger growth?
Sandeep Batra: Anand, I think that growth, I would say, is again, fairly broad-based. If you look at the split of our domestic subsidiaries, there is the biggest in the consumer and bazaar is ICA, which is into wood finish. That has had a good quarter in terms of volume and top line. Then we have a bunch of subsidiaries that manufacture products which are in the construction chemical space, starting with epoxy grout, marble and stone finish, and some other waterproofing products, one of which Sudhanshu referred to as Wonderproof. That is a new product. Most of the new products that have come through this joint venture route have gained very good market traction. That is one of the reasons why our top line in the domestic subsidiaries as well as margins have improved.
Sandeep Batra: As I mentioned in my opening remarks, the only business which has seen some headwinds because it happens in the monsoon period, has been Nina. Others have all grown north of 20%.
Anand Naresh Shah: Okay. Got it. Very clear. Just one last small one on the price hike that you announced in October, 10% or 20%, just how much are you expecting?
Sandeep Batra: Well, on the pricing, to just give you a sense, of course, it varies from product to product from our different brands and categories. I think wherever there was very high inflation, we have taken about 12% to 15% price increase in our first round, which was most of it was during Q1 in two phases in a staggered form. What we have done in October and through October, there could be some October one, some here as we go along in October, we are now again going to take 3% to 5% price increase in some of these areas where there is very heightened inflation.
Anand Naresh Shah: Got it. Just when you opened the statement, you did say that with this hike and let's say $1,200, $1,300 plus minus VAM, you are confident of maintaining the margin band more towards the higher end of the corridor in H2. That would be the right assumption?
Sandeep Batra: Yes, that's correct.
Sandeep Batra: Yes.
Sandeep Batra: That's absolutely the right assumption.
Anand Naresh Shah: Okay, perfect. Thanks a lot.
Operator: Thank you very much. The next question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Sonali Salgaonkar: Thank you for the opportunity. Firstly, on the volume from the demand, I think of the 8 out of the last 10 quarters, we are delivering double digits UVG, especially in a market which is very miserable because of uncertainty, because it is an English concept. I would like to understand, of course, we are getting a price much better than our peers. Exactly which end user sectors are doing well for us, and how should we look at volume growth going forward, especially with that 20% to 15% price hike?
Sudhanshu Vats: Well, I think there are, again, many questions. I think first part is that we have sustained double-digit underlying volume growth for about 6 to 8 quarters. Sonali, you are absolutely right. I think thank you for the question. Second is, how are you managing to do this? It seems to be ahead of the peers. Third is, of course, with these set of price hikes, how confident are you that it will continue? Let me address all three. I think the first part is that, as a company, we have this philosophy of core and growth. Within growth, there are multiple segments that are growing very well.
Sudhanshu Vats: In our earlier calls and time permitting, even in this call, we can talk a little bit more about our construction chemical field, where we are doing a lot of work, where basically the growth tends to remain very robust. If you look at our brands there, Roff is doing exceedingly well. Dr. Fixit continues to do well. Pidilite Projects Group, PPG, which we have formed and Kavinder has talked about it in detail earlier as well, continues to drive really strong growth. Therefore, that is one area where we continue to see growth, both on C&B and PPG is of course B2B. Both places they form strong growth. I think we have, in the period which has gone by, I think we have seen robust growth in our core area as well.
Sudhanshu Vats: Fevicol has delivered a better growth than it has done in the past by about 50 to 100 bps, and that makes a difference. That is a large brand. I think as we continue, our portfolio is getting richer, and we are getting newer brands, newer products, newer portfolio. We talked about a few innovations. Some of them are performing very well. Sandeep again spoke about it. Some of them go through our subsidiaries. I think this entire piece gives us the confidence that we will continue to do well. If you look at our primary thing, which we do, basically brand building, we are seeing all three big brands have had a renewed campaign. There was Kursi Pe Nazar in Q1. Middle of Q2, Roff new campaign came in, and towards the end of Q2, Dr. Fixit new copy has also gone in.
Sudhanshu Vats: You will see Roff and Dr. Fixit lot more in Q3 as well. Lot more work on brands. There is continuous work which keeps happening on field marketing, which is very important. Lot of infusion of technology there as well, customizing some of our messages, using analytics, basically using AI to customize a lot of those messages. Lot of that work is happening, which is largely done by us. That allows us to continue to deliver on this. With the growth of the country, and we have a GDP indexation, we continue to remain buoyant. If the country growth is in the 6.5, 7 zip code, real growth, our UVG growth should remain double digit. I think, and we would like to keep inching it up, to put it, because a lot of these things we do, we create a lot of demand after.
Sudhanshu Vats: I think that is the fundamental thing. I think on the pricing which we have done, up until now, we are seeing demand to be quite robust. The latest round of pricing which we are doing, El Nino, which is also going to have some effect, and elevated crude, if it remains, and the last unknown is if West Asia conflict flares up even further. Impact of those items are not fully baked in. It is hard to bake them in fully. But as of now, we can assure you that we are seeing reasonably robust demand. You have seen our first quarter number. We have entered third quarter quite well. That is what I can tell you.
Sonali Salgaonkar: That is great to hear, sir. Sir, my second question is, you already have taken about 12% price hikes YTD, mainly in the Q1, and we have seen VAM come down a bit. If I may request for some approximate quantification of the total cost, how much has been already passed on or is everything to be passed on?
Sandeep Batra: Sonali, I think in absolute terms, the entire cost increase has got passed on. But in percentage terms, obviously, given the level that our gross margins are at, if you have to be at 50% gross margin, you have to price in 2x of the cost increase to be at the same percentage level of margin. That is not something that can be done overnight, right? Our first objective was to pass on the absolute value of the cost increase, which we have done and more. Depending upon the underlying demand situation and the on-ground situation, we are looking at calibrated pricing wherever the opportunity provides.
Sonali Salgaonkar: Perfect. Great to hear that, sir. All the best to the team, and happy festive season.
Sandeep Batra: Thank you. Thank you, Sonali.
Operator: Thank you very much. The next question is from the line of Jay Doshi from Kotak Securities. Please go ahead.
Jay Doshi: Hi, team. Thanks for the opportunity and congratulations on good UVG momentum. My question is, with adoption of AI, do you see any potential for improvement in employee productivity for your sales force and other workforce that you have on the ground workforce? Likewise on media, A&P spend. Do you think that in the next couple of years, you may be able to extract meaningful operating leverage on these line items or other cost line items?
Sudhanshu Vats: Jay, that is a very good question, and I think something which we keep talking in management and board as well. Let me talk to you a little bit about the AI journey of Pidilite and sort of give you a little bit of glimpse on how we are looking at this piece. First of all, we are also adopting AI for our company, and we are very serious about it. Let me tell you, for instance, our top 30 leaders did a one-day hands-on workshop on AI. Full day hands-on workshop on where they themselves were coding and doing something and playing around with it. Thereafter, as a company, we are running AI hackathons. We have done first. The second one is around the corner now for across the board in the company.
Sudhanshu Vats: Therefore, you could be a very senior person, you could be a very junior person, you could be a 60-year-old or old fogies like some of us, or you could be as young as a 25, 22. Therefore, you are across the board, you are doing that. We have also identified quite a few use cases where we could deploy AI to begin with. In certain functions, we are also seeing, can you use a little bit of agentic pieces, particularly, let us say in HR, in assessment a little bit, moving forward a little bit in finance and so on and so forth. That is the work which we are doing as we speak. In the front end, what we are doing is how do we become more effective and how do we get better at what we are doing is the first protocol.
Sudhanshu Vats: Efficiency that we derive from it, productivity and reduction in manpower will be a subsequent discussion. In the first phase, again, I just gave the example of users where we can cut down multiple customize our offerings. We can do all language renditions. We have a lot of content on users, by the way, across our brands, and now we can do short forms. There is a lot of that work happening. Influencers in the relative areas, influencer work happening. There are influencers for different areas which are different, you know, that kind of stuff. How do you manage that? How do you get your micro, medium, and mega influencers in each category? How do you define them? How do you work with them? How do you create copy or adapt copy quickly with AI is the work which we are doing.
Sudhanshu Vats: A little bit of AI-led analytics for front end to improve your range selling, to what to sell in, and so on, so forth. That work is happening. On productivity, we will pick it up as of phase 2, particularly as you talked about on front end and also maybe as we go forward in manufacturing. I would also like to bring in Kavinder here. I request him to talk a little bit of what we are doing also in manufacturing and supply chain. Therefore, you will get a sense on AI. Kavinder, to you more quickly.
Kavinder Singh: Actually, on AI, we are looking at using the power of AI to look at how we can improve the material variances, particularly in manufacturing. Of course, along with AI, there are some automation initiatives are on, since your question was a broader question on the employee costs. The idea is not so much employee costs, but to actually deliver consistent quality, which is something that is very important. There are AI use cases in supply chain which are under works to see how we can improve our service delivery in terms of reduced response times. There are areas around network optimization, so we are looking around those areas in supply chain. There are various initiatives going on. But to sort of answer your specific query on staff costs, for us, staff cost is not an objective by itself.
Kavinder Singh: As an outcome of whatever we do, whatever happens, you will see, but we believe that the workflows get streamlined, people have richer jobs. When the next phase of growth, which is already on, is going on, obviously, the operating leverage with regards to staff costs, as we have already seen, is in play. You will probably see more of it because all these initiatives that we are taking will help us to grow with limited additions to the manpower or the people. So that is the way we are looking at it because we are in growth phase. In the growth phase, in our journey, we believe the idea is not to reduce numbers, but actually see how we can make people more effective and productive. So that is the focus for us. Thank you.
Jay Doshi: Thank you so much for the detailed answer, and wish you the very best.
Sudhanshu Vats: Thank you.
Kavinder Singh: Thanks.
Operator: Thank you very much. The next question is from the line of Pratik Gothi from HSBC. Please go ahead.
Pratik Gothi: Hello. Yeah, hi. Am I audible?
Sudhanshu Vats: Yes, you are.
Pratik Gothi: Yes, great. Thank you for the opportunity. My first question is on the demand environment. Any color in terms of demand environment across regions, urban, rural divide? Any comments there, please?
Sudhanshu Vats: I think it is very broad-based. On the urban-rural divide, if I was to talk to you about, I think we have always had very robust rural growth and our rural growths have always led urban growth. In the last couple of quarters, and specifically in this quarter, we are seeing a resurgence or a further uplift in the urban growth. As I speak to you, the urban and rural are quite similar. Arguably, in Q2, for the very first time after a long time, urban is slightly ahead of rural. I think therefore urban growths are sort of picking up. Rural growths are holding on. The way I want to frame it is that urban growths have seen an uptick. Rural growths have been where they are up until now for us.
Pratik Gothi: Great. Understood. Any more color on the construction chemicals bit? Waterproofing and tile adhesives did well. Any more color in terms of retail space versus project business?
Kavinder Singh: Yeah. I think as you may be tracking, the construction activity in India continues to do well, and that is something that I think Sudhanshu alluded in his earlier comments also. If you look at Dr. Fixit portfolio, Roff tile adhesives, and of course we have grouts as well as some Tenax, which is another novel and stone care brand. We are seeing robust growth in these businesses. We are also beginning to see momentum in the floor coating business. When we look at our portfolio on the construction chemicals, which spans across these power brands, we are seeing momentum both in urban and the emerging India markets, which include the rural as well as small towns. In fact, as we speak, we believe that this was more on the retail side. Your question is both on retail and project.
Kavinder Singh: On the retail side, momentum is good.
Kavinder Singh: The category, I think, of tile adhesive continues to grow, and we are also growing higher than the category. That is one thing that we are determined to do to gain market share. As far as the projects business is concerned, the pipeline is healthy. Conversions are happening well. We have transited from small and medium projects to large projects kind of classification to segment-based approach. We now are targeting the medium and large builders on residential, commercial, and then we have separated hotels, hospitals, and education institutions as another category. There is a separate category of EPC contractors. We go segment-wise, and we are noticing that that is also beginning to yield results because our teams have got reorganized. That is something that we did in Q2. Some of the benefits we saw in Q2, and they will play out in Q3 as well.
Kavinder Singh: Our ways of working, our focus on working with key accounts, and our focus on offering them Pidilite range of solutions which go beyond even construction chemicals is already underway. Projects is seeing momentum, and we believe this momentum will continue. At an overall level, if I were to once again summarize whether it is Dr. Fixit, whether it is Roff, whether it is CP, both in retail and in projects, we continue to see the momentum, and we believe this momentum is here to continue, as we move forward into the immediate future.
Pratik Gothi: Great. Thank you for the elaborate answer.
Operator: Thank you very much. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Company Limited. Please go ahead.
Keyur Pandya: Thank you. Congratulations on good volume growth. Sir, the question is on your portfolio. You have always talked about pioneers moving to growth. Now if you can just talk about which categories in the pioneer can become large or have large TAM as, say, Roff or Fevicol or relatively larger TAM, or you think that the possible future growth would be more by premiumization within core and growth category. I mean, that is what it looks based on what you have presented in all these three categories. So if you can just talk about large categories within pioneer, which can grow fast and can be seen more to grow.
Sudhanshu Vats: Yeah. We have quite a few of them. Let me give you a few examples. What happens is that when you do pioneering work, what happens is when you are doing pioneering work around 20 categories or 10 categories, which is the case, I can sort of enumerate a few as well. Few of them will just sort of take off. Now the question is, of these 20 pioneering, is the first one going to take off or second one? So we do right work for each of them, and we continue to work with them so that they can take off. Now let me give you a few examples, and I think we talked about it a few earlier as well.
Sudhanshu Vats: I think one example on pioneering and with a relatively large TAM is our work with Grupo Puma, the joint venture, and Kavinder may have spoken up earlier also on this. But just let me keep it crisp and give you an idea. So basically, this is our external renders where we are doing a lot of work. We have already done six to seven pilots in North India with good success, and we will see more of this as we go forward. We are working on some large projects also in this area. So this in Southern Europe where this has been around for some time, this can be 15% to 20% of all exterior walls done in a conventional sense, not the glass and steel towers which come up now. The conventional ones, this is a very large TAM if you get to that number here.
Sudhanshu Vats: But when will it play out? How much it will play out? We are at it, so this is another very good one. Similarly, in B2B, we have talked about quite a few, and we continue to do a lot of work, by the way. Therefore, there is a lot of work happening. It is a bit like the duck. There is a lot of paddling happening under the water. You do not see it seems calm, but we will move faster. Here again, if you look at it on some of our newer applications, as India is gearing up for more manufacturing, there are segments we are looking at opportunities, and we are looking at segments which can grow very rapidly. We have talked about electronics. We have broken that out into sub-segments.
Sudhanshu Vats: In the interest of time, I am not going to get there, but we are looking at partnerships in those sub-segments. Auto is another big one where we can look at within, and there is a little bit of overlap in EV auto and in electronics, the way we call it. India is now getting big time into footwear. A lot of footwear companies are going to step in into India. A lot of projects have been approved. You will see a lot of footwear manufacturing in India. Our footwear adhesives portfolio and the partnership that we do, that itself is another promising one. I think these are just a few illustrations. We have also done, by the way, like we had done ICA Pidilite, which is another one which was a pioneer, which is now a clear growth category.
Sudhanshu Vats: Like we had done for wood finishes, there is some work happening on wall finishes. I have just given you a few illustrative examples across consumer bazaar and B2B, but there are many of these. I think therefore, there are quite a few, and some of them will grow quite big. Having said that, our core growth in our core segment will also be through premiumization and new feature-led products. That work is also happening, and we talked about that, so I do not want to repeat it. But premiumization in Fevicol, feature-led products or better products which solve bigger problems, both in Dr. Fixit, M-Seal. These are our cores. Between core and those, but existing big brands, I think there, again, there is some premiumization, some work in consumer space as well. So there is a lot of work happening as far as Pidilite is concerned in this space.
Keyur Pandya: Understood. Just last question, follow-up to this is the C&B seeing double-digit UVG growth. Now, I think in the last cycle, when RM prices were much lower, you have invested a lot, reinvested to A&P as well as further measures, the gains that you had in gross margin. Based on that, plus with changing mix of growth categories or improving mix of growth categories, can we go from, say, this 10.5%, 11% UVG to higher numbers? Should we expect that? Or this is a sustainable number from the short to medium-term perspective. Thank you and all the best.
Sudhanshu Vats: Thank you. Look, from a short-term perspective, I think this is a number we would like to deliver, which is a double digit. I think we have spoken about this also, and this year is, of course, not the right time to talk about with so much inflation. But our desire is to keep lifting up underlying volume growth. If you were to look at our track record of the last 3 to 4 years, at least in 60 bps, 70 bps, 100 bps. So we have slowly inched this up over a period of last 3 to 4 years, including this year, I think the going up to now is quite good. Therefore, we will continue to. We want to take this from classic double digit to early teens. I think that is the desire over a period of time.
Sudhanshu Vats: In the medium term, yes, UVG has to continue to grow.
Sandeep Batra: If you see even H1, Keyur, last year was 10.1%, and this year, H1 is 11%. So we are committed.
Sudhanshu Vats: Thank you.
Sandeep Batra: So obviously, it's not going to dramatically jump in one year because it's underlying volume growth. It's not total volume growth. As we have always said that we are not chasing volume for volume sake. For us, the mantra is profitable underlying volume growth. So we are not here to chase volume for delivering any volume number. The growth has to be profitable volume growth.
Keyur Pandya: Understood. Thank you.
Operator: Thank you very much. The next question is from the line of Tejash Shah from Avendus Spark Institutional Equities. Please go ahead.
Tejash Shah: Hi. Thanks for the opportunity. Hello.
Sandeep Batra: Yes, Tejas Shah, we can hear you. Please, go ahead.
Tejash Shah: Yeah.
Sandeep Batra: Yes, you are. Speak, carry on.
Tejash Shah: Yeah. Sir, we entered this year on the backdrop of the war and also the noise of job losses. As the year progressed, these headwinds have actually gathered pace only. With this context, when I see the numbers that we have delivered, would you say that we had to work harder for what we have done? Or there is also you are positively surprised with the demand on ground because you spend a lot of time as a team also in marketplace. Just wanted to understand from you, are you positively surprised, and how do you see this demand sustaining, let's say, ceteris paribus, macro doesn't improve or change from here for the rest of the year?
Sudhanshu Vats: Yeah. Therefore, we are not building any improvement in macro for the rest of the year. But at the same time, this is not the scenario for a really worsened macro. I think that's the point I'm making. This is now the new macro, which is basically conflicts are on in some parts, crude is elevated to a certain level, and some supply chain disruptions keep happening all the time. I think that you're absolutely right. The teams are indeed working hard, Tejas Shah, particularly supply chain, to make sure that material is available, to make sure that material is produced and then shipped. I think all that is happening. To be honest with you, our exports out of India into West Asia or going shipped through West Asia, that area, are still underperforming because there are challenges in that space.
Sudhanshu Vats: But having said that, as far as our work in India is concerned, on-ground work is concerned, we do a lot of work to generate demand ourselves. We are continuously working on field marketing, brand building. We are making the right investments. We talked about a lot of those things, innovation. We will continue to do that. We stay firmly focused on trying, delivering double-digit underlying volume growth even under these trying circumstances. Lastly, to your point, demand in India has held up, and that's good. That's a good thing for us. I'm saying, so therefore, in India, demand is holding up. As we travel, we see that also up until now.
Tejash Shah: Super. Just to start on margins, we are known not to let a crisis go to waste. Historically, we have seen that we actually kind of buckle up on efficiency, on internal product re-engineering, everything during crisis. That actually kind of helps us when the normalcy comes back, we actually go and settle down at a higher level of margins. Now, assuming that we are actually at it in this crisis period also, should we assume that if normalcy has to come back, let's say hypothetically, crude has to fall or the raw material has to fall 30% from here on tomorrow? Would you say that all these inefficiencies and pricing power that you have displayed in the past will mean that we again reset the base for next 3, 5 years on margin?
Sudhanshu Vats: So margin base, we've talked about a lot. I think margin base, we would like to keep at 20% to 24%, because I'm saying you can't fundamentally reset this. But I think what we'll do is we will continue to stay on the higher end, continue to inch it up a little bit. In between, I think, with all the work which we've done on the previous cycle, when it cooled down, you saw that. It cooled down for a slightly extended period, if you look at 2024, 2025, 2026. Almost 2 years, very benign costs and all that. You saw us inching up and also a few quarters delivering ahead of our corridor as well. But our understanding is that this is the right profile because trying to go very high on margin at times could compromise the growth opportunity in a country like India.
Sudhanshu Vats: Could also open up the segments for competitors and make it attractive for wrong reasons. I think therefore, philosophically what you're saying, Tejash, is correct, and we will continue because that's our DNA in that zone. But I think the corridor is more or less where we are. I think that's it.
Tejash Shah: Very clear. Thanks and best wishes, festive wishes to the team. Thanks.
Sudhanshu Vats: Thank you.
Operator: Thank you very much. The next question is from the line of Shruthi Soni from Hansa Capital. Please go ahead.
Shruthi Soni: Hi. I hope I am audible.
Sudhanshu Vats: Yes.
Shruthi Soni: Yeah. I understand VAM being a headwind for the company in terms of the demand and supply in international market and crude oil disruptions due to Middle East prices. But one of our competitors has set up the VAM plant itself. I just wanted to understand whether we are having any such plans or whether we are looking to buy from somewhere else to reduce our cost, and what should be thought about this, one. Second will be, I wanted to some light on UnoFin product, the plaster that would kind of replace the long paint layer. I want to understand what was the response in Delhi, Jaipur, and Chandigarh. Thank you.
Sudhanshu Vats: Okay. I think we will take both the questions. I will answer the first one, and I will hand over to Kavinder to talk to you a little bit more about UnoFin. I think on the first part, on the capacity which has come up for one of our competitors, and part of it has come up, not full VAM as of now. I think VAM production has not started. PVA has started. I think, see, we have evaluated VAM ourselves or with one of our large international partners multiple times. Our understanding is that the minimum size for VAM which you need in India, first of all, that you should have the right scale, because this is a scale product. Therefore, it is made in fewer large plants all across the world. Therefore, having a suboptimal size may not help you from pricing in the long term.
Sudhanshu Vats: May secure part of it. From supply chain security, maybe yes, but we have not had a challenge on security up until now, even in times like this. From a pricing point of view, we see no advantage. Even in our analysis, the other thing we have also seen is that India does not have natural advantage on either ethylene or acetic acid. Therefore, if you are going to source ethylene and acetic acid, and then convert that into VAM, I think, you may or may not have that cost advantage which you are going for. Our own understanding is you may not have, unless you build a hyper-scale project. The project which has just come up by the competitor is, in our judgment, definitely nowhere close to that. So it could be for other reasons. We are nobody to comment on that.
Sudhanshu Vats: I think for their other pieces, and they may have a good reason for it. But from a point of view of cost advantage, I think it does not work for us. Also as a branded player, and Pidilite has very strong brands. I think, in general, if you look at, now I am saying conceptually, not necessarily specifically to this point, both models on backward integration or managing through buying and managing the crests and troughs well works quite well. Many branded players across the world in most categories are not fully backward integrated. They run their businesses very well by procuring well and managing the cycles as they go up and down quite well. I think that is the philosophy. I think we are in that zone and that space at the moment.
Sudhanshu Vats: We see no specific advantage, and to that extent, no specific disadvantage to us with this plant coming up. I will hand over to Kavinder on the second part of your question on UnoFin.
Kavinder Singh: Yeah. We have been, as you are aware, we have been working with the Spanish joint venture partners, Grupo Puma, on building a business around these external renders. Obviously, there are advantages of getting into this category. It is a new category. There is a very specific technology. It gives you 15, 20 years of waterproofing, extremely good-looking facades, aesthetically, on the outside. So we have gone to various segments, hotels as well as villas, and even residential buildings. So we have obviously learnt along the way, and there are obviously advantages of building this business, because this is sprayable, breathable render, and ensures that you are able to get very good-looking facades or exteriors for a long time, and with the waterproofing intact. Now, where are we and how do we want to go further? At this moment of time, quite a lot of our learnings have been assimilated.
Kavinder Singh: We have seen interest from various architects to use this product in some of their projects. So we have decided, and we will continue to focus on the projects business within that segment, which are more amenable for this kind of a product are basically commercial and hotels and those kind of buildings. A little bit of residential is also fine, low-rise residential buildings. And this is something that we are now rolling out as we speak. And as the momentum is building up, we are already trying to see whether we need to put up more plants of this particular render production, if it can be done beyond the current facility that we have in Rajasthan. So, the news is positive. We are building this category. And even with Grupo Puma, we have, just as an adjunct to your question, this is not just for the renders.
Kavinder Singh: We have tied up with them for even tile adhesive. So we have launched a product called NeoPro, which is gaining good momentum in the premium tile adhesive, specialized tile adhesive range. So we are seeing that by working with partners, and this has been our strategy, wherever there is a technology that we can bring in, it helps us to be an early mover in the category, and that becomes our, in some manner, a moat as we go forward. So as of now, the story is positive. It is building up slowly but surely. Hello? Yeah.
Operator: Thank you very much. I now hand the conference over to the management for closing comments.
Sandeep Batra: Thank you very much for your interest in Pidilite and for joining the call, and wish each of you and your families the best for the festive season. Happy Diwali to everybody.
Kavinder Singh: Wish you all a very happy Diwali.
Sandeep Batra: Thank you.
Kavinder Singh: Thank you.
Operator: On behalf of Pidilite Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
