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Pricing Pressure Kicking In For AkzoNobel? | NDTV Profit
NDTV Profit
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8/2/2024
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00:00
Hello and welcome. You are watching NDTV Profit. I am Mahima Vachrajani. Well, Axonobel
00:10
came out with its Q1 FY25 earnings. Revenue is up 3.7%, EBITDA up around 4%, margins have
00:16
improved a tad bit and net profit is up around 4.3%. But to break down these numbers further
00:23
and to get an outlook on how FY25 is shaping up, we are joined by Mr. Rajiv Rajgopal, Chairman
00:29
and MD at Axonobel. Welcome to NDTV Profit, Rajiv. My first question to you is that, you
00:38
know, I believe that the quarter has been a bit subdued and this is on the back of,
00:43
of course, elections and stuff. But I want you to break down how the quarter has been
00:47
for you as per your expectations and overall, how has the demand played like?
00:54
Good morning Mahima, good morning to you and all the viewers. Look, I think for us, our
00:59
growth trajectory continued from a volume perspective. We got a, you know, double-digit
01:03
growth. It split for the two verticals. Pains are high single-digit growth in volume and
01:09
coatings are double-digit. Look, I think we are executing our strategy. For us, I think
01:15
the key highlights were that some of our businesses, whether it's Marine Protective,
01:18
whether it's Powder Coating or even in the decorative side, we continue to see sustained
01:23
volume growth. Remember, the decorative side, the volume growth, while it's showing a high
01:27
single-digit, it's almost double-digit. The reality is we had a 4% price correction at
01:32
an industrial level at the beginning of the year. So, that's impeded and there was a bit
01:35
of a mixed change because obviously, there are certain, you know, growths coming in from
01:39
certain segments where obviously, you know, which has impacted value a bit. But I think
01:47
that's, you know, largely in line with what we've seen. Compared to the industry, hence,
01:52
we were also a bit surprised. We've done relatively better, but we've been really focused in executing
01:57
our strategy. On our coating side, it was driving value shared of our existing customers
02:03
and coming out with innovative products, particularly focused on sustainability and also where we
02:09
can sort of give value back to our customers. So really, it's with better offerings, it's
02:14
ensuring that we are understanding what customer problems are and trying to solve for them.
02:20
Right, absolutely. And, you know, can you help me quantify that value versus volume
02:25
growth in revenue? Yeah, so look, the blended 10 and 4 is largely
02:30
because of decorative planes having a price correction in the early part of the year,
02:35
which is almost about 4%. And then there is a mixed impact. So really, that's the gap
02:41
between 10 and 4. So, you know, 10, 4, 2, you know, if you look at the price correction
02:47
plus mix of 10 minus 6, you get approximately a 4, 3.64%. So that's the split. Look, I think
02:55
from our perspective, you know, we are focused on really delivering the Vixit Bharat of tomorrow.
03:00
And I mentioned this in my AGM yesterday. We believe that we've got very strong positions
03:05
in coachings globally. We've got terrific products, you know, whether it's the international
03:11
brand Interpon, you know, and Sikkens, Less and All. Even on our decorative planes, it's
03:16
about saying how can we drive better value in Deluxe. In decorative, of course, our faster
03:22
routes have come from categories like waterproofing, you know, and really, in the end of us, really,
03:28
how do we dial up in the mid-tier and economy where we've got almost very low single-digit
03:33
shares, you know, market shares. So that's really our strategy. We've had, I would say,
03:38
a mutual growth in pains. The growth largely came from our codings business in value. I
03:45
think we are focused in terms of delivering better value to customers and really focused
03:49
on solving their problems. Okay, perfect. And can you, because, you know, a lot of your
03:55
competitors have taken price hikes in the past one month. How much of a price hike have
04:00
you taken? Because, you know, your products have always been priced a bit higher when
04:04
it comes to the premium play. Yes, very good question. Look, I think what we are seeing
04:10
is obviously the industry is also seeing a bit of an increase in the raw material costs
04:14
in this quarter and next quarter. As you said, we are already at a bit of a premium. We don't
04:18
want to lose competitiveness. So we've taken approximately about a 1.5% now, depending
04:23
on different categories. But the blended is approximately about a 1.5% price increase
04:29
that you would see. We've taken part of it in July and the balance we are taking it before
04:34
the 12th of August. So that's really the phasing in which we've done and we'll see. You know,
04:39
we believe that our focus is really dialing up our brand, dialing up our distribution,
04:44
making sure we are competitive. We put some exquisite programs for our top dealers to
04:50
make sure during this period of volatility, people are, you know, focused. And we are
04:55
making sure that we are focused on a range completion and making sure that we are, you
05:00
know, and let's be honest, I think the industry is, you will start seeing growth coming in
05:05
from the Q3, Q4 with Diwali coming in, etc. And hopefully, you know, you would see that
05:11
even for us, you'd see sustained growth for us. Okay. And, you know, Rajiv, how are you
05:16
seeing competitions shaping up? Because, you know, Birla Oppus is coming in a big way.
05:21
So how do you see competition playing out? And do you think that this will overall affect
05:26
your market share? Look, I think this may, the answer will be a bit boring because it's
05:30
consistent. Look, firstly, you know, full credence, I think it's obviously a phenomenal
05:38
business that is getting into the sector. So we take them very seriously. However, we
05:42
believe that look, you know, you've got to dial up in brand and distribution and that
05:46
takes a period of time. So in the near period, if you play on a bit of price, there will
05:51
be a bit of instability from market perspective, which you will see on the margin side. So
05:55
far, you haven't seen it really from our side or even from the other players who've just
05:59
announced the results, right? So I think you'll have to wait and watch. I think you will see
06:03
more of it in the, you know, towards the last quarter of the year, fiscal year or the first
06:09
quarter of the next fiscal, right? But till then, I don't want to pronounce a word. What
06:13
are we doing? We are focusing on our brand, our color expertise, dialing up our distribution
06:19
and really saying, how can we make sure that we give unmatched quality? We've got a product
06:24
program in the decorative paint side since the new entrants are largely on the decorative
06:28
paint side to really call deluxe assurance where we are saying, you know, we guarantee
06:33
the sort of quality and that's the sort of promise that we offer to our customers. We
06:38
believe that we've got the best in class product quality and we continue to work on
06:42
innovations, meaningful innovations from a customer and customer centric innovations
06:47
from a customer viewpoint. Absolutely. So then Rajiv, I think I'll come back to you
06:51
with this question post Q4 or Q1 FY26. You know, one last question on, you know, because
06:58
you've mentioned in your con call saying that, you know, you're trying to improve your supply
07:03
chain efficiencies overall. So I want to understand that what is the kind of strategy that you're,
07:09
picking up in this area and what are the costs associated to this and how will it impact the
07:14
margins overall? Look, two, three things. If you look at what has happened is what we
07:21
are doing right now is we've got about 160 odd distributors in the length and breadth
07:25
of the country. What we've done is something that many of the FMCGs have already done and
07:30
I've sort of been part of, which is really dialing up things like distributor replenishment.
07:35
So really moving now to an outlet level saying, focus on the offtake, look at what you sell in
07:40
the outlet. How can you ensure that the entire supply chain right up to the factory? So your
07:44
factory produces what you literally sell. Factory produces today what you sold yesterday. That's
07:49
really the concept. And when you streamline and digitize the whole supply chain, there's a lot of
07:54
efficiencies that come in, even in terms of productivity of your people who's driving it.
07:59
So that's one, there's a huge value unlock, which is happening there. Second is sourcing
08:03
efficiencies. We are a global company. We are looking at, we can scan the environment
08:08
better than most players. And we believe that there is a lot of work which is happening on
08:13
sourcing at a global level, which we are going to take leverage off. And we are going to look at what
08:18
some of the best practices are in different parts of the world and see how we can bring it to India.
08:22
So those are the two parameters that teams are working on. The reason we are doing it is we
08:28
realize that the market is going to get heated. There is hyper competition and it's a part of
08:32
our overall strategy of making sure we continue to be a relevant player and dial up our business
08:39
in India significantly. Okay. One last quick question before I let you go, Rajiv. You've
08:44
guided for increasing your outlets to that 30,000 mark in the next two to three years,
08:50
and you've done 3,000 outlets in FY24 already. Does this target still hold or have you increased
08:58
your target? No, I would first hold it because look, I think it's also about being meaningful.
09:03
When a new player comes in, you are going to see a bit of a nutrition. So first, how do you be more
09:08
relevant for the outlets in which you already are? How do you increase the value proposition for them?
09:13
And then how do you make sure that you're able to add into the family? You don't want to be losing
09:18
some of the family members as you keep adding by focusing on it. So we want to make sure that we
09:22
are adding meaningful distribution as we move forward. And that's a part of the game plan
09:26
and the strategy that we have, Mahima. Right. Okay. Well, Rajiv, thank you so much for giving
09:31
us those insights on AxoNobel, which is also commonly known as Dedux. And thank you so much
09:37
for taking our time and speaking with us at NDTV Profit. Thank you, Mahima. Thank you,
09:42
and I look forward to the next introduction. Thank you so much. Absolutely.
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