Associated Alcohols & Breweries Limited (507526) Earnings Call Transcript & Summary

And second thing, sir, how much is the yield from rice for ethanol?

Yield from rice for ethanol is around 450.

The next question is from the line of Kumar Saurabh from Scientific Investing.

So great to see, I think, from 4 quarter back single product launch to 2 products being launched and the road map. I have 2 questions. One on the product side, as you said, the cases together is 3,000. But in terms of the states, we are targeting in next 1 to 2 years for these 2 products. One, what is the overall market size and what market share we are trying? I'm not looking for exact number, but some fair guidance. That is one. And second, 2, 3 quarters back, we were at the lowest end of our raw material margin cycle in terms of grain prices. The bottling prices were also bad. I think that was the worst. And going forward, next 2, 3 years, we are giving a guidance of 13% to 15% margin. And there are 3 components to it. One is because of our better premiumization revenue mix. So my question is, do you expect those margins keeping the reversal of bottling and grain prices or everything is included? And in the current margin, like how much you see coming from premiumization? Are the other 2 factors also contributing to margin improvement? These are the 2 questions I have.

See, to answer your first question, we will launch -- we are launching these premium products in the state of Uttar Pradesh, Maharashtra and Goa. And recently, we have launched in Delhi. And the market is huge there. But definitely, entering a new state with a new product and being it so competitive right now, it's very difficult to predict how much market share will you be able do achieve. But we are looking at in the initial stages to look at taking at least a 3% to 4% market share of the product in terms of the Hillfort brand category. And in terms of Nicobar, Nicobar we believe is expanding the reach and width of distribution. That's where we are concentrating on because we've got a very positive feedback from the market in terms of the quality as Nicobar is compared to other products, which are available at the same price point or at a higher price point also in the market. So right now, we are looking at expanding the reach because gin is a product, if more visibility is there, the same will increase substantially. That's what we are concentrating on. And on your second question, I'm not clear really.

So I'll just pick up the second question. So premium product doesn't contribute much in our top line as of now because it's very, very miniscule number, but we expect to increase it in further. And that will also help us to overall increase in the margin of the company going forward.

Okay. So sir, next 2 years, those margin improvement...

Sir, you were also asking that the margin increase has also come from the operational efficiencies.

Yes. Okay. Okay. So your 2 years of margin guidance improvement, which you are giving, is it more because of operational efficiency, raw material? Or is it more being coming from premium products?

No, it's not lower right now. But this year, we are saying that we will be in the similar line. But in the coming years, we will -- we are seeing -- we will expect an increase in the margin because of the sale of premium products. Obviously, efficiencies will also be -- play a major role in that. But primarily, we are looking over the long-term period, the margin contribution should improve with the help of the increase in sale of premium products.

Okay. And sir, the last question, given we have launched 2 premium products and we are getting good reviews, but we are also fighting with players with significant brand play. So what is your marketing -- go-to-market strategy and brand management strategy for these 2 premium products going forward?

So our go-to-market strategy in different products is completely different. So in terms of gin, as I told you, we are looking at a bit of distribution and availability in HoReCa space. That's what we are primarily concentrating on. And we've been able to capture most of the HoReCa chains in MP and Chattisgarh. It's been recently launched in Delhi. So Delhi also, we will be planning to do that. And in terms of Hillfort, it's considered to be Hillfort. So what we've tried to do on the initial stage as per our strategy, which has been always is to provide value for money to the customers. So we have launched a good packaging, good quality liquid we've concentrated and we are giving it at a reasonable price. That is one. And second is we are pushing at the retail counters. We are educating the retail customers. We are trying to give certain incentives to the retail salesmen. That's where we're trying to push and achieve our growth in that. And also, we are working on social media platforms to create awareness and to create the premiumization look and feel and the experience of the product.

Great. And sir, last question on Madhya Pradesh partial liquor ban. And I think in the beginning itself, you told it's miniscule. I think maybe 3% of revenue at state is getting impacted. But the question is, what triggered this action? And do you think any possibility of this action of state government extending to more parts of Madhya Pradesh?

So this was primarily the action was taken in terms of religious routes. And definitely, as on today also, there is a policy that there should be no liquor shops near schools, temples and colleges. So on both lines, this policy has come about to be. And it has hardly -- it contributes only 1% of the shops, 1.5% of the shops, which will close because of that. And definitely, the sale of these shops will flow to other nearby shops. And on a long-term strategy, as you asked that would it lead to liquor ban in Madhya Pradesh, I don't foresee that because as right now post GST era, liquor excise duty to the government and VAT on petrol are the 2 major revenues for the state government. And we've seen in the attitude also, a change in the state government because right now before making the policies, state government asks the manufacturers and the retailers also to be a part of it and take suggestions from us, which was not there earlier. So this also contributes -- this also states that definitely we contribute to a major revenue of the state. And plus apart from that, if there was a regional party in Madhya Pradesh, we could have even thought of this kind of thing. But as it's a national party, ruling party, so national ruling party cannot have different philosophies in different states. So that also gives us a comfort level that this kind of thing would not come in the near future.

The next question is from the line of [ Vaibhav ] from Bullseye.

So congratulations on the good set of numbers. So my question is like, how much incremental revenue do we expect from the new geographies, which we have added or which we plan to add?

So see, the initial stages, we would not see much incremental revenue. But as over a period of time, we would see substantial increase in the revenue because, see, these states which we are planning to enter are the biggest states in terms of liquor sales, which includes Uttar Pradesh, Maharashtra and Kerala -- sorry, Uttar Pradesh, Maharashtra and Goa. So these are the huge states. And if we are able to crack certain portion of it also, we will see an incremental revenue to a greater extent. And as we've shown in terms of our incremental sales in Kerala, over the years, we've been trying to increase our sales in Kerala and indeed are now the fifth largest market player in the state of Kerala apart from the -- after the big companies. And we see a continuous increase in the market share in Kerala market. If that thing happens similar in 1 or 2 or 3 markets also, then you would see a substantial increase in the revenue from the sales of our premium products. And that's where the company is focused on. And that's why the company is also taking aggressive actions and recruiting senior sales and marketing people in various states. That's our strategy has been that we take certain senior well-experienced players in different markets wherever we enter.

Any ballpark figure which you target by FY '26 or FY '25 incremental revenue [indiscernible]?

I cannot say FY '26 or '25, but over the long-term period, we are expecting the sales from our proprietary brand should be around 50% to 60% of our top line.

The next question is from the line of Naman Shah from Monarch Networth Capital.

Just one question. Just wanted to ask about the marketing spend. If you could give an absolute number on the marketing spend that we do?

So right now, the marketing spend is around about, say, around 3% to 5% because we are not going over the board -- we are not doing any over-the-board marketing, and we are doing at the retail outlet level.

And what is the percentage....

As the premium product increases, so we will have to -- as the premium product increases and new markets we enter with the premium products, we will have to increase our marketing spend in the initial years for creating the brand awareness and visibility and width of distribution.

Right. So that 3% to 5% can go to 5% to 6% or 7%?

Yes, yes.

Right. And one more question, sir. What is the competition we see currently in tequila, gin, anybody who is coming up with the product similar to us?

See, not only in terms of tequila or gin, I would see that one is that there is a competition in all the categories which are there right now. But that's a positive sign also because there is an opportunity as well. That's where most of the people are coming in. So I see it will be -- on a long-term perspective, it will be completely on the survival of the fittest kind of platform. Like we've seen 100 gins, which is being launched in India over the last couple of years. But out of which I think only 30 to 20, 25 are performing well. So one is that you have to be consistent. Second is that you have to assure the quality is really good of the liquid and the packaging is good. And you have to keep evolving and coming out with the brand in the market that is there. This I'm talking about gin and the other product portfolios. As you said about the new products which we are launching, which is the RTD and which is tequila, so we expect the RTD market to grow substantially. So we expect the RTD market, as per the market survey and research, should go by at least 17% to 20%. So that is a great potential we see. And in terms of tequila, there is no -- right now, there are only 1 or 2 Indian tequilas which are available right now. We will be the third one probably to launch a tequila. And ours would be pure tequila, which will imported from Mexico. It'll be 100% agave spirit. So we see a great potential in that, and we are seeing a growth of around about 30% to 40% in the tequila market. So there's a good potential in that.

The next question is from the line of Rohan Patel from Turtle Capital.

You fairly explained how does the business development and market development in IMFL portfolio works. But I want to ask regarding the country liquor, IMIL, we are doing fairly INR 191 crores, INR 120 crores business in 2024, and that is picking up stable. It hasn't grown like in FY '20, it was INR 131 crores. So what are our plans in country liquor, like will it be a steady INR 200 crore business, where there would be only price realization growth and volume would be stable?

See, the country liquor would be a very steady market and it's a very, very low-value product. And apart from that, it's been done on the tendering process. And the tendering process has got certain cap on a particular individual of the quantity which -- one person can't change. So we are at the maximum quantity which can -- which one distillery can take or bid or get -- win the bid for a particular -- for Madhya Pradesh state. So we see whatever the growth in the industry would be there, we will grow at that pace only. And definitely, as the cost increases, we might see the price increase because it's done on the tendering process, I cannot comment on that. But that will be -- that will remain the same and then will grow as per what the industry will grow. So we are concentrating right now purely, purely, purely on our own value-added product and the premium product because that's where the future is. Because now the young -- new entrant to the drinking age, they want to drink premium quality product. They want to drink less, but they want to drink good quality product. So that's where we are targeting and there's a huge opportunity available there.

Okay. Fair enough. And can we expect now that the raw material cost has stabilized, like after FCI thing coming down and other material and feedstocks would be down. So the margin would be expanding throughout the board like in your premium products as well as your franchise product, licensed product and country liquor?

See, the grain prices would definitely -- we will see -- we might see a short-term stabilization or a downward trend in terms of grain price as soon as the FCI rice comes and the fresh crop comes in the next month. But over the long-term perspective, we see that there can be a certain stability coming in the grain price because now the -- if you see the data, the crop cultivation of maize is increasing month-on-month. So people are being -- farmers are being more aware. We, as the institution also, are educating the farmers of benefits of growing maize. So as the maize availability increases, we might see a stability in the price because that would come -- but that will take a year or 2 when the maize would increase substantially, the cultivation of maize. And your second question was?

My question was regarding this only that you've explained. And just one question, which is quite a broad question, and it has a qualitative element in it. So what we've observed in IMFL is that companies that have performed greatly in this sector have like 2 to 3 blockbuster product that has done like 1 million cases of business for them. If you see Allied, or if you see USL or if you see Radico, they have a couple of products that are like millionaire brands. So like to make a millionaire brand, what does it mean? Like it needs definitely...

Definitely, we are making 1 or 2 brands of our brands as million brands. And we are always aggressively working towards that. So just to give you an example that in our entire portfolio, if you see, we were the first company to fastestly deliver a million case when we launched in Kerala. Within a span of 3 years, we touched 1 million case. And this year, we expect to do 1.5 million cases. And in terms of brand level, definitely Radico and other like Diageo and all these are very old companies and they have got products. So we are also working on those lines, and we are believing that we should have the entire portfolio with us, which we're working on. So with RTD, with our brandy, with our tequila and in future, our single malt. So we will be a one-stop shop for any retailer or distributor. So that's what we are targeting to achieve in.

Okay. Sir, one thing that we have also observed from legacy players is that in a particular category, for example, say, most of them are getting away from value side and focusing a lot on super premium and high-end Prestige. But they have a strong 2 to 3 brands within a single category, like, for example, USL has 2 to 3 brands in, say, semi premium, even Pernod Ricard has. So are we planning to bring, say -- create a portfolio of, say, 10 brands out of that 2 to 3 will be in semi premium, high premium Prestige or we will be going slow by bringing one brand, then we'll see how that performs, then add another brand in same category?

No, no, we will have the entire portfolio. So see, the maximum consumption in India is the whiskey category. So in whiskey category, we have almost 4 brands right now. We have planned to introduce 1 or 2 more. So at every price point, starting from the lowest end of the price point to the most premium price point, which will be -- in future, we'll be launching a single malt. We believe that we should be available in each and every category, okay? And out of these categories, 1 product or 2 product without products can be the hero products, which can -- which help it really well and gain the market share. In vodka category also, we have got 2 vodkas with us. One is CP vodka and second is Titanium vodka. In rum also, we have 2 products. So like that, obviously, you'll have to have -- one is a premium product and the second is a popular product, because you cannot leave the popular price range category also as the bigger player like, say, Pernod Ricard or USL are moving away from the popular category and going on the premium side only. So there's a huge potential of increasing the volumes because the volumes will come from the popular end products. So we have got the concentration on there also. So we are making a basket of the entire product portfolio.

[Operator Instructions] The next question is from the line of [ Sumit Agrawal ], an independent investor.

So congratulations on good set of numbers. My question is regarding the distribution on the CSD platforms, how that going? And considering the new launches to be in gin and tequila, how is like CSD conducive to these kind of drinks?

I'm sorry, I could not hear you clearly. Hello? Sumit?

Am I audible now?

Yes.

So my question is regarding the distribution on the CSD platforms. Considering the 2 new drinks to be like in gin and tequila categories, how are the sales in this CSD for both these kind of liquors?

[ Sumit ], it's a very well question asked. We see a great potential in the CSD market. So we are in process of getting our products registered. It's a lengthy process, it's a 6 months to 1 year process. We are in the process of getting our products registered. But there's a huge opportunity in the CSD market, especially for the Indian liquor manufacturers. And in CSD markets, also the government has taken a serious step and have encouraged Make in India products. So all the international and imported products are banned in CSD. So there's a potential of gaining good market there, and we are working towards it. So there are certain norms, which we have to follow and certain inspections, which needs to be done. So we are in the process of getting that.

Excellent, sir. And my second and last question is regarding any tentative date. Everybody looks for like a single malt. It is the most kind of a hero product, highly premiumized. So any date you're looking at in future tentative date, not just a deadline, but just some tentative date on that?

We are expecting our plant to get commissioned by April '25, okay? By April '25, the products will start coming out. And at least minimum maturity in the cask will be 1.1 to 2 years of that. So from April '25, two years, you can see that we will have our own product. And plus our in between also, what we are also doing is we are also launching a mid-range product. So right now, we have got a Central Province Whisky and then we've got a Hillfort Whisky. So we do not have anything -- a Central Province EDP is INR 1,200 and our Hillfort EDP is INR 3,100. So we do not have any products in between this gap. So we are trying to launch one more product in between this gap, for which, we will purchase malt from outside and then launch it. So that by the time our product is ready, we will have a certain market study and the market testing done with the products.

Congratulations on good set of numbers and hopefully for a good launch of single malt also. Eagerly waiting for that.

The next question is from the line of [ Debayan ], an individual investor.

So my question is regarding the ethanol plant actually. So if we see, ethanol market is very much competitive. So I just wanted to understand the rationale behind entering the ethanol space.

The rationale behind -- getting behind the ethanol space is that there is a huge opportunity there. So when the government has started ethanol manufacturing that ethanol -- when the government started encouraging ethanol manufacturing, which is around about 2 to 3 years back, the government had targeted by 2025, they will achieve 20% blend in ethanol. So -- which government is expected to achieve as per the time line. And in future, the ethanol market is going to grow only because the government is looking at reducing their import of oil and depending on their own ethanol manufacturing. And right now, it's only available in petrol. So in future, government is also working on technology to come in diesel and increasing the ethanol blending in petrol also. So there's a huge opportunity and there's a better price realization. So right now, our price realization in ethanol is INR 71.8, whereas in ENA, it's slightly lower. So there is a huge opportunity also and it gives us economies of scale to us. So which gives us a higher realization in the overall portfolio because with the same staff and with everything being the same, we can achieve a higher volume.

[Operator Instructions] The next question is from the line of Kumar Saurabh from Scientific Investing.

Yes. So sir, in the IMFL segment for proprietary as well as IMIL also, we have done really well this quarter. If you can just spend some time and update what is working for us and this kind of like 31% growth in IMFL as well as in IMIL? Is it sustainable? That is one. And second, on the ethanol side, the kind of revenue run rate, which we are doing, could there be any volatility? Or these are contract based where there is enough revenue certainty?

Pardon me, I didn't get you. So see, the sustainable this quarter, there has been a substantial increase in our sales. And definitely, this would be sustainable. There will be a growth of 12% to 15%, which we see in IMFL volume of our case.

Okay. And sir, IMIL also, we have done well, almost 23% of growth on Y-o-Y basis. So do you see IMIL also grow to sustain in single malt?

IMIL, we will grow as per the industry or as per the market. So there is not much contribution there because it completely depends on the tender. We have a yearly tender and whatever tenders you get, you have to supply in those particular districts. You have -- you are the sole supplier in those particular districts. And whatever the volume grows in that particular district, you will grow at that pace only. So IMIL would be stabilized only.

Got it. And ethanol, I think we are almost doing INR 68 crores, INR 70 crores now. And I think we are at our full utilization capacity. So do you think this number will sustain? Or if there are any kind of revenue risks there in ethanol?

It will sustain because we are using our optimum capacity and we are at optimum production range.

[Operator Instructions] Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for the closing comments.

I would like to thank each and everyone who've taken out time to attend this conference call. And in case there is any further queries, you can directly contact Monarch or Go India Advisors. Thank you.

Thank you.

Thank you, ladies and gentlemen. On behalf of Monarch Networth Capital Limited, that concludes this conference. You may now disconnect your lines.