Bharat Puri, Managing Director, Pidilite Industries, says: “We have a domain ecosystem which is extremely large and which addresses a fairly large market. The market size would be extremely large. This has been a system which has consistently been asking us that at times we have needs for short-term capital, there are always bumps along the road. It makes very logical sense for us. It helps our business but that is only one objective. As an organisation, going forward it helps us build a much larger ecosystem where we are able to fulfill these short-term needs of capital.”
The company has forayed into NBFC lending business and that is a little bit perplexing because investors want to know why have you put your fingers into too many pies? What is the rationale?
As far as our foray into an NBFC lending business is concerned, let us just take a step back. At Pidilite we are known for deep user and dealer connections. We have a domain ecosystem which is extremely large and which addresses a fairly large market. The market size would be extremely large. This has been a system which has consistently been asking us that at times we have needs for short-term capital, there are always bumps along the road, so on and so forth.
Now we are the only people or one of the few people who have this treasure trove of information. We have complete information on the people, their payment records, their credit worthiness, how much they buy and what is their condition. Therefore it makes very logical sense for us. It helps our business but that is only one objective. As an organisation, going forward it helps us build a much larger ecosystem where we are able to fulfill these short-term needs of capital.
We are clear that this is not a big venture and we do not want to be a large NBFC. We want to remain restricted to our domain ecosystem, people that we know very well and those are large enough for us and in a sense it complements the overall Pidilite offering. Hopefully, it also gives us greater strength. It builds greater loyalty, greater connect and obviously gives us a complete bird’s-eye view of how each of our partners is doing and therefore how we can support them.
But the Street does have concerns about the capital allocation. So, the question is what is the message that you want to give your investors?
We are very clear that we are a home improvement company. We are a company that pioneers categories. We will therefore every year enter one or two new categories which we will pioneer, pioneer categories by definition take anywhere between two to five years to really become growth categories.
Two to three years back, we started pioneering tile adhesives, it is now a growth category. We have just now started pioneering exterior renders. We put up a plant in Rajasthan. It is very early days. Hopefully it will become a category in the next two to three years. We pioneered or entered in the whole sealants business with sealants manufacturing that is slowly becoming a growth business. Pidilite’s basic model is that of a pioneer, we create categories but we create not commodity categories, but we create branded categories and that is what we will consistently keep doing over the next few years.
Is there any other category?
Exterior renders for example is a completely new category. Nobody in India does that. It is very popular in Europe. We are looking at pioneering that and right now I would not disclose more because then it becomes an advanced warning to other fellows. But knowing Pidilite, I could tell you that every year, we will have at least one new exciting category that we will pioneer.
Now your revenue growth this quarter has been subdued. What is the reason for that and what has hurt your revenue growth this quarter?
My simple invitation is do not just look at the revenue growth. Look at the volume growth. We have had a situation where over the last two years prior to this year, we had run inflation and therefore we had to take a fair amount of pricing. Fortunately input prices have stabilised and therefore we are giving back the price. Therefore the price to the consumer is reducing but if you look at it, in this environment if you look at the second quarter, we have had a very wet July, a fairly dry August, lots of disruption.
Rural areas have seen much more disruption in that we are delivering steady volume growth which is about you can see our underlying volume growth in the consumer businesses is 8% and what is also welcome is our B2B businesses are bouncing back, our B2B business in this quarter has grown 20% by volume and therefore we are fairly satisfied with when we are. I have always maintained that for Pidilite, our goal is always, if we are a double digit volume growth everything else will take care of itself.
What was the value growth and going forward, what is the outlook in terms of your volume growth? What is the outlook in particular for the second half?
Our focus is clearly underlying volume growth because that is what remains with the consumer if you keep increasing your volumes. In the second half, we are, as we have said, fairly optimistic because a), this is a longer festival season. The festival season is always a spending time in India. The second half, therefore, portends, in our view, to be good. We have tailwinds. We see a fair amount of activity in the whole real estate and construction sector, which is continuing. This is something that really helps us.
We are also seeing that the government’s focus on capex results in demand for us. If we were to look at the second half, the only headwind that we would be cautious about is, frankly, the geopolitical situation. We have unfortunately now had a series of geopolitical events, be it first with Covid, then with Russia, Ukraine, and now the situation in the Middle East.
If that does not go out of hand, frankly, we are quite optimistic about the second half, both from a growth and profitability point of view.
What is the competitive intensity looking like for paints, adhesives, waterproofing? How are you standing to insulate yourself?
At Pidilite, we are no strangers to competition. With our market share, our profitability, frankly, every year we have a new set of competitors. Our job remains to hopefully delight our customer and our consumer a little more than everybody else. But the competitive intensity is high. Yes, we have new entrants in adhesives; we have everybody now in waterproofing from the paint companies to the cement companies. But frankly, our growth rate remains healthy. So as we say, hopefully all of them are helping and growing the market.
