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HomeMarket Live UpdatesAll our categories in major geographies growing at a strong rate: Pidilite...

All our categories in major geographies growing at a strong rate: Pidilite MD

“I believe that over a six-month period, inflation will impact demand but the secular trend is strong. Overall the whole home and commercial improvement space will see some good time,” says Bharat Puri, MD, .

What is the sense you are getting in terms of consumer trends? How sustainable is this growth?
There is no doubt that there is a clear improvement in demand conditions. Basically three things are happening. One, there is still a fair amount of pent-up work in people’s homes and therefore as the pandemic lessens and things open up, people are finishing work at home. During this pandemic, people have also realised that the home is something they need to focus a lot more on and clearly both from home renovation point of view and as well as new homes, we are seeing a surge in demand. One is seeing more cases of home renovation, new homes. Real estate sector is clearly showing signs of recovery and obviously that reflects good demand.

Finally, as commercial establishments begin to reopen — whether it is restaurants, or hotels, any large mall, showrooms, etc. All these have been closed or semi-closed for about 18 months. There is some amount of refurbishing, renovation that one has to do. The combination of all of this along with the good monsoon is leading to fairly good and robust demand conditions and in my view, this should continue.

Inflation is a dampener in any developing market. I believe that over a six-month period, inflation will impact demand but the secular trend is strong. Overall the whole home and commercial improvement space will see some good time.

A lot of FMCG companies’ earnings show that they are seeing a moderation in rural growth, especially from September. Is that the case for your industry as well? How is rural growth versus urban growth? What is the trend right now?
As far as rural is concerned, it is unfair to compare rural only with last year because last year also, rural and semi-urban India continued to grow from Q2 onwards whereas urban India and the metros came back only in the second half.

Even in 2019, which was a perfectly normal year, rural and semi-urban growth was fairly healthy. One will not see the kind of large growth that one saw over last year because last year the only thing that was really open and was working was rural. So while the trend was strong if I look at a two-year period, if I look at a three-year period, rural and emerging India will clearly be a strong driver of growth at least in the overall home improvement space.

Raw material prices continue to see inflation and your margins have been under pressure as well. Do you think your gross margins have bottomed out and that you could start seeing a recovery going forward?
It is very difficult to say because this is the global situation, it is not an India specific situation. Globally, supply chains have been thrown into disarray. The whole China factor where China was a net exporter of a lot of these items and is suddenly becoming a net importer or is not exporting, is leading to a tremendous amount of volatility and even shortages.

This is probably going to take at least three to six months to stabilise until we are able to say that global supply chains overall supplies have become stable and we can see a stable outlook. Right now, it is fairly volatile.

If you take our principle raw material — VAM (vinyl acetate monomer) — the average prices in a normal year should be anywhere between $1,000 and $1,200 a tonne. That went up to $2,000 a tonne in the first quarter. They started moderating a bit and again have gone back and right now we are seeing the highest ever price of about $2,300-2,400 a tonne. If you were to ask me what is my prediction for the next three to six months, the simple answer is wait and watch because there are just too many uncertain factors.

This whole trend started with the US winter last year and the plant closures in Texas and Louisiana. Winter is coming again. In the next three to six months, we will have to manage fairly dynamically on a month to month basis. Right now, the supply situation and especially the inflation in raw materials is a thing that all of us have to keep a very close watch on and manage very carefully.

How much of this increase in raw material prices have you actually managed to pass on to the customers? What is the price hike you have taken so far?
We have always maintained that we will price conservatively and we will try and price at only 70-75% of inflation. This is because we like greater operational efficiencies, greater productivity and also hopefully this is not a long term trend because it is not that worldwide demand has gone through the roof, it is actually a supply related problem. These capacities exist, hopefully they will get equalised and will get stable over a period of time. So we have priced at about 70 to 75% of inflation which is why you will see we are at the lower end of our margin range.

Normally we try and maintain our EBITDA margins between 20% and 24%. We are now at the lower end. Going forward, we will have to do careful management of this until we see a stable situation in input prices.

Talking about the consumer and bazaar business, you managed to post a good growth this time as well. What is your growth outlook for this segment going forward?
While the growth numbers may not be as high despite this quarter being amongst the best quarters from a growth perspective in a long time. There is no doubt that there are two things happening; a) there are good demand conditions, b) as an organisation we are gaining market share. And as long as the economy remains robust, GDP growth continues on an even keel, I see no reason why demand conditions will not continue.

What can we expect in terms of volume growth from the company for the rest of the year and overall for FY22? What is the growth across categories?
Right now, given that the trend in home improvement, new homes is across the board, it will be broad-based growth. If you look at the first six months, it is not that one or two categories have grown. All our categories, the major geographies, are growing at a strong rate and we expect that to continue. I do not think it is going to be one or the other. We expect fairly secular growth across the board.

What is happening in the Huntsman Advanced Materials Solutions which you had acquired last year? Have we started seeing the full synergies coming in from that side and what is the room for expansion in the segment?
See if you look at the figures for Araldite for this quarter, just this quarter, we have sold Rs 135 crore worth Araldite. That tells us what is the growth potential and in our view there is still a runway for growth. A lot of the cost synergies have been realised but from a revenue perspective, we believe that in the next 12 months, you will see significant revenue synergies coming out of Araldite. It is the strongest brand in the epoxy adhesive space and therefore it still has a lot of potential. We have also launched the brand in Sri Lanka, in Bangladesh, in Nepal and it continues to move even outside India.

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