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

Ladies and gentlemen, good day, and welcome to Associated Alcohol & Breweries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Ms. Riddhi Shah from Go India Advisors. Thank you, and over to you, ma'am.

Thank you, Shruthi. Good afternoon, everyone. It's my pleasure to welcome you on behalf of Associated Alcohol & Breweries Limited. Thank you for joining us today for Q1 FY '27 earnings call. We have with us Mr. Tushar Bhandari, Whole-Time Director; and Mr. Dilip Kumar Inani, Chief Financial Officer. Please note that today's discussion may include certain forward-looking statements, and therefore, they must be viewed in conjunction with the risks that the company faces. I would now like to hand it over to the management for opening remarks. Thank you, and over to you, sir.

Thank you, Riddi, and good afternoon, everybody. Thank you all for joining us on the Associated Alcohol & Breweries Limited Q1 FY '27 Earnings Conference Call. We have begun FY '27 on a very strong note with the same conviction, discipline, execution behind our own IMFL proprietary portfolio, continued backward integration and clear road map to build a comprehensive portfolio. Firstly, let me begin by providing an overview of the performance of IMFL Proprietary segment, which has been our key focus area. During the quarter, IMFL Proprietary business continued to deliver strong momentum. I am pleased to report our highest ever quarterly IMFL proprietary revenue of INR 729 million, registered a robust of 58% year-on-year growth in value and 40% year-on-year growth in volume. This growth is led by strong consumer acceptance of our brand, continued focus on brand-building initiatives and expanding our portfolio across markets. Central Province continued to be the key growth driver of our proprietary portfolio. The CP series comprising CP Rum, vodka and Orange vodka and whiskey continued to gain traction. The CP series delivered an impressive 260% year-on-year volume growth in Q1 FY '27 with the sales increase from 20,300 cases to 73,000 cases, reflecting strong brand equity and reinforcing its leadership position within the segment. Alongside CP, our premium brands, including Nicobar Jin and Hillfort Whiskey continued to scale steady across key markets, supported by sharper execution and increased consumer pull. In Q1 FY '27, IMFL proprietary contributed 23% of our overall revenue, comprised of -- compared to 17% in FY '26, reflecting in the growth contribution of our higher-margin proprietary portfolio. To support this growth, we continue to invest behind our brand through consumer engagement initiatives, on-ground brand activation and strengthening our sales and marketing manpower. These investments are amid to create sustainable brand equity and accelerate the growth of our product portfolio. Our commitment to build brand remains unveiling building on a successful launch of RTD culture in Madhya Pradesh. The registration process is underway for expanding its presence across 8 states -- 8 additional states, including Chhattisgarh, Jharkhand, Rajasthan, Delhi, Karnataka, West Bengal and Goa. This marks our entry into one of the fastest-growing and evolving segments within the India [ alcohol ] industry. With changing consumer preference and increasing demand for ease to consumer format, flavored beverages, we believe RTD category presents a significant long-term opportunity. Our premium product pipeline also remains firmly on track. We continue to make steady progress towards the launch of our premium tequila and brandy in Q2. Tequila will be launched initially in Madhya Pradesh, followed by a phased rollout across the key markets, while our premium brandy is planned to be introduced in Kerala, further strengthening our brand portfolio in one of India's largest brandy market. Going forward, our growth drivers for the proprietary brands would be 2 products in both value and volume. Secondly, let me speak about SDF Industries. Our distillery-cum-bottley acquisition in Kerala. This was a deliberate move to strengthen our bottling capabilities and enhance operational efficiency in one of the largest market, Kerala has begun a strong growth -- has been a strong growth story for us. SDF give us a single central located in-house facility strategically placed in Central Kerala, equal distance from major airports and consuming center. We believe this acquisition will further strengthen our footing in the state. The upgradation and automization of SDF facility are progressing as planned. Installation of the new automatic machinery is currently underway, and we expect the plant to become operational by December '26. On the manufacturing front, our backward integration initiative continued to progress well. Our malt maturation is well underway with objective to enhance profitability from the year -- from the next year onwards. The same will be utilized for our captive consumption as well as to support the launch of our single malt whiskey, improving operational efficiency and be meaningfully valued attribute our medium term. Lastly, we continue to expand our presence beyond our core market. In Q1 FY '27, we successfully entered Odisha. The initial response has been encouraging, while establishing in a new market typically takes 1 or 2 years before the brand begins making meaningful contribution. We are confident that Odisha will evolve into an important market over the medium term. At the same time, we continue to work towards entering Karnataka and Andhra Pradesh, further centering our presence. Looking ahead, we remain fully confident in the long-term growth of our business. Our strategic focus will continue to be on scaling our IMFL proprietary portfolio, driven by a sustained growth of our existing brands and supported by the robust pipeline of the new product launch. For FY '27, we remain confident to deliver around 30% volume growth in our IMFL proprietary portfolio while continuing to improve our product mix and create long-term value for the stakeholders. I will now hand over the call to our CFO, Mr. Dilip Inani, for a detailed review of the financial and operational performance for Q1 FY '27.

Thank you, Tushar. On a consolidated basis, income from operations for Q1 FY '27 stood at INR 2,809 million, registering a 5% year-on-year growth. EBITDA for the quarter stood at INR 299 million with an overall EBITDA margin of 11%, while profit after tax was INR 178 million, translating into PAT margin of 6%. EBITDA margin for potable alcohol division stood at healthy 18%. The key highlight of the quarter was the continued strong momentum in our IMFL proprietary business. We are pleased to report that we have exceeded our earlier volume growth guidance, delivering an impressive 40% year-on-year volume growth to 0.79 million cases. Revenue from the segment grew even faster, increasing 58% year-on-year to 792 million, reflecting a favorable product mix and improved realizations. As mentioned before, the CP series has emerged as one of the key growth drivers in the IMFL Proprietary segment. This is reflected in the enhanced realization, which has increased by 13% year-on-year to INR 823 per case. Despite continued investments in brand building and market expansion, we maintain a healthy IMFL proprietary EBITDA margin of 20%. As we scale up our proprietary segment, share of our ENA requirement is being met completely through in-house production. Capital consumption of ENA in Q1 FY '27 stands at 59% compared to 50% in FY '26. The ENA business delivered 35% year-on-year volume growth to 7.3 million liters, while revenue grew 25% year-on-year to INR 456 million. However, margin remained under pressure during the quarter due to lower realization and increase in grain prices. The ethanol performance during the quarter has been a mixed bag. While we witnessed 28% year-on-year growth in volumes, realizations were impacted due to oversupply in the market and lower quota allocation by the government. However, we expect quota allocation to improve in the coming months. And with ethanol prices likely having bottomed out, we anticipate a gradual improvement in performance going forward. IMFL license business was impacted due to changes in business arrangement with Indre from licensing to contract manufacturing. As a result, the segment reported volume of 0.1 million cases and revenue of INR 132 million during Q1 FY '27. The IML business volumes stood at 1.7 million cases, while revenue was INR 734 million with healthy EBITDA margin of 18%. Looking ahead, our strategic priority remains firmly on expanding our IMFL proprietary portfolio. We remain on track to building a holistic portfolio of product offering and expanding this product to various states and driving sustainable profitable growth over the long term. With that, I conclude my remarks, and we are happy to take any questions. Thank you.

[Operator Instructions] Your first question is from the line of Vinay from Choice Institutional Equities.

So my first question is that given the operating loss that we have been seeing in the ethanol segment and the fungibility of the plan, do we have any plan to shift the capacity towards producing more of ENA rather than producing the ethanol?

No. See, we do not have any plans right now to shift the plant into producing ENA. We will be producing ethanol only. The primary reason why ethanol we've seen slightly down is because of the allocation, which was given to us was less because the supply was much higher than the demand which was there. So to run the plant and to get the marginal contribution, we had to run the plant, and we sold it to the private ONCs or marketing companies, whereas the price realization was lesser. But it was a conscious decision to go ahead because that would give us better economies of scale.

Okay. Okay. Understood. And my second question is on the SAF plant operation -- so like when are we expecting it to start producing EBITDA to start contributing at the EBITDA level?

Which plant?

SDF, the plant.

SDF will start production. It will be done in a phased manner. So right now, we are doing production in 3 units where they are doing job work for us. So by December, we will start moving one of the units to SDF. And from April onwards, we are planning to do a full-fledged operation from SDF. It will be done in December. First, we'll start and then we'll move the operation from 1st of April.

The next question is from the line of [ Pawandeep Bhatia from NV Alpha].

Yes, sir. In our past conversation, you mentioned that IMFL licensed on a FY '26 base was the bottom. And from there, maybe the revenues will be flat. We are seeing a situation where the revenues have further declined. And you did explain about that this licensed business has gone to job work and contract manufacturing. So even after delivering such good numbers, on the overall picture, we've not maintained our growth. So what is your understanding in this regard, sir?

No. Revenue in IMFL licensing business for DIO has remained almost flat and the revenue was in IBO in last year, last quarter was there. So that is reduced. Otherwise, from DIGO revenue is almost flat. And the reason being is that the industry has slightly degrown in that particular category. So just to brief you is that right now on the licensed brand, we just have one brand primarily, which is celebration drum, which is more of a seasonal brand. So the overall sales was slightly down of that particular category. So the revenue of that category has been flat. But if we talk about quarter-on-quarter performance of the licensed brand and right now is that last year, first quarter grew business was existing. That's why it's down.

Our business, can we assume this is the base now and we're not going to get further numbers from [ Indu ] and the seasonal brand is what is going to come from INFL licensed business?

Yes. Yes, yes. I think the [ Indu ] business closed in...

In Q2, July last year.

So sir, on a yearly basis with the seasonal rum and whatever business we are left with, what can be the annual number sales from this so that we can just take a steady-state number and...

Yes. So right now, as we've already mentioned earlier, the company's completely focus has been to increase the sale of the proprietary brands, which has been -- which we have been performing on track and which has grown by almost 40% in volume terms this year as compared to last year. But if you would just want to take on the licensed brand per se, so licensed brand on a ballpark figure, we will do around 1 million cases. If I talk about only license...

Sure. Sir, on the ethanol front, our realization, some other participant also asked, our realization is down INR 250. So this is a result of only us supplying to private players because the government has some floor of INR 69 or INR 70?

Yes. So our average realization from the sale to the government, which is the quota which we get on an annual tender was around about INR 64 -- was INR 64 because it was a mix of and FCI, right? So that average was INR 64. But however, we had to run the plant to get marginal contribution from the plant and to overcome a certain amount of fixed cost. So then apart from that, the private parties whom we have sold to, which is around about INR 54 -- INR 52. So that's why the average realization has gone down drastically. And the quota, which we got last year was around about somewhere around on an annualized basis was 30%. And this is there up till October onwards. This year, we are expecting a higher location. And this year, we will also be participating directly to the other OMCs in the lenders as well to get a better realization.

The next question is from the line of [ Shreya Chatterjee ] from [ Ageless Capital ].

Just if you could give a brief about what's the number of cases sold -- like currently, the cases sold for Nicobar and Hillfort -- and also what's the like market share and everything else for central province and the other brands and the other leading brands, it would be...

So Shreya, I can share you the details of this after this con call. But just to give you a ballpark figure. So around -- if I talk about only Nicobar gin, so we are doing around approximately 500 to 700 cases of Nicobar gin across the various states. And a similar amount of transaction is around about 1,000 cases of Hillfort whiskey, which we are doing on a monthly average. Because these are brands, they would take a longer duration to scale up.

And what are the cases like if you could individually provide for UP and Maharashtra, like how we are doing generally for UP and Maharashtra?

UP, there has been a certain change in the policy of lifting. So UP slowed down, whereas in Maharashtra, it's picking up. So Maharashtra, on an average, we are doing around 700 to 900 cases a month.

Got it. And any forecast or guidance for these 2 states and for these your upcoming brands like Nicobar and Hillfort?

See, so what happens is that any new state you enter, it will take you at least 2 to 3 years to stabilize. And Maharashtra being a bigger market and very capital intensive. So we are going slightly slow because the entry cost in Maharashtra market is a huge cost. So you have to play a slow, steady and sustainable manner. Instead Maharashtra, we've launched only in Thane, Bombay, Pune and Nagpur region only these 3 regions. And the positive point is that we are seeing an increasing sale on a month-on-month basis as we've seen demand coming in from the consumer because it primarily Maharashtra is majorly a consumer-driven market. In UP, we do not see much clarity right now because the new policy has come in new policies come in, how that policy is going to shape in, that will affect. But next 2, 3 markets which we are seeing, which we've seen a substantial growth is Chhattisgarh and Delhi. So we expect these 2 markets to do much better. And we have plans to enter Karnataka market in the coming -- in this quarter itself, whereas also, again, premium market. So our entire portfolio would vary in a combination of premium and a popular brand portfolio. We'll be focusing on volumes right now because that gives you better economies of scale whenever you enter into other markets because we are also recruiting sales force in various markets. And the launch of premium portfolio would definitely come in from HoReCa. So we have got high expectations once we launch tequila. Our objective is to reach with our tequila before Diwali or before the season starts in almost 7, 8 states where we are operating on the premium brand front.

Sir, on the ethanol side, you say that you got a better volume, but the realizations were low, and that's why the margins like the EBITDA margins also were reported as negative for the ethanol business. So what price would you have actually broken even for the ethanol business? And what's the guidance for the entire year? If you can give some guidance for the ethanol thing?

It should be around INR 57 to INR 50 -- INR 60, in between.

To breakeven -- for the ethanol business to break even?

Yes, yes.

I think we had done...

Sorry to interrupt, Ms. Shreya...

This is just a completion of the answer only. So if you could just give the guidance for the ethanol business. And I think we had done INR 64 on the realization part for that one?

Se we are -- last year, we did a realization of around INR 54. And this year, we are expecting it to do the volume -- achieve the major volume. However, the new tender will come in place from October onwards. So we might see a better realization in that front.

So any guidance of revenue or volumes for the ethanol business for this year?

Revenue would remain the same as per the last year because that's the maximum capacity we can manufacture. So whatever maximum capacity we can manufacture, we will manufacture unless until we get a marginal loss. So we don't want to get -- we want to get a marginal contribution to cover the fixed overhead.

The next question is from the line of [ Udit Sehgal from Pinpoint X Capital ].

I wanted to know regarding the SDF acquisition. From my understanding, in Kerala is mostly there are few distilleries and everybody gets the bottling from there. And I mean every distillery has multi brands of bottling. So is that what we are planning? Or are we going to do our own brands only?

The primary objective is to do our own brands. That's the primary first and foremost objective. That's what we are planning to do. We have in Kerala approximately, we have a sale of 1.5 lakh plus cases a month. So what is the issue coming in right now, we are bottling at 3 different areas. So to get the efficiency because the price realization is low to get the efficiency and to get it manufactured at 3 different locations. is becoming difficult, and we cannot grow on the volume terms basis. We cannot introduce smaller SKUs because if you do job work, he does not allow you to do that because for him, it's a costly affair. So once we move the entire operations to our own SDF unit, we will be able to increase substantially at the volumes. That is the main objective. However, we are building up a capacity -- we are working for a capacity buildup of at least around 3.5 lakh to 4 lakh cases per month. So we would be doing majorly our production and plus we might look out for an opportunity of doing job work for someone else also. But main reason was to get a better margin by better margin and better volume for manufacturing for ourselves. That is the 4 main reason of acquisition was...

Okay. Perfect. And with regards to the malt plant, are we going to the malt and use it for our own single malt? Or do we plan to sell it in the market as well?

So primary objective is to use the malt for our own purpose. There are 2 defined purpose for the same. One is we are currently buying malt from outside for our central province whiskey Hillfort, and we are in process of launching one more whiskey. So for that, we will be using in -- we are buying right now from outside. So that we will use in blending process from in-house itself. Second is we will be launching single malt, 2 variants of single malt. One is the entry variant and one would be the premium variant. So we have started maturing the liquid. It's been almost 8 to 9 months since we've matured the liquid and the result is coming out fairly well. So we expect the revenue of this to start being shown in the balance sheet in, I think, Q3 next year onwards.

Okay. Excellent. And -- can I ask another question? I regarding our Hill brand, how many cases are we doing currently? And what is the plan to grow it because it's a tough segment that we are in. So how do we differentiate ourselves? And how can we do it more aggressively?

So basically, see, the thing is right now is that we are doing right now around, say, around 1,500 cases per month. but we expect it to increase in the -- just before the season time because I agree that it's a very tough market because the competitor -- we are -- our competitors are world #1 and #2. So we are pitching against that. So it's very difficult to work in that. But we are in the brand designing and the liquid, we are working on that. We've worked really hard on that. So it will take time to change the customers' preference. That's what we are working on. So it's a slow process. I think it will take at least from here, if I talk about 1 to 1.5 years to start seeing the good results.

Also, sir, in MT, one of the big distilleries...

Sorry to interrupt [indiscernible] request you to join the queue for a followup question. The next question is from the line of [ Disha ] from the Trinetra Asset Managers.

Sir my first question is regarding the ready-drink product launch that was end of June 2022. What is the trajectory behind it? And how do you see the past 1 month. And is there any...

Can you -- Sorry, your voice is not clear at all. Your voice is not clear at all.

I'll repeat again. Am I clear now?

Better. Yes.

So the ready-to-drink product and the new product launch that was in June 2026, how was the first month? And do you see any meaningful contribution from that segment in the FY '27?

See, your question was not clear, but I presume you're asking about the new launch of the RTD, right?

Yes, sir. Yes, sir.

So the response of that right now, we have launched only Madhya Pradesh, we launched last month, and we have seen a very favorable response. We've launched in 5 flavors with a 330 ml can at a price point of INR 120 per can. The RTD contains almost 8% alcohol volume by volume. So we have seen a quite favorable response. And looking into the response, we have applied for registration to 8 other states.

Okay. So do you see some meaningful contribution from that product by 2027 or from the next year onwards?

Yes. From next quarter onwards, you'll start seeing it. But again, as I said that in the initial phases of launch of any brand, it will take certain time to stabilize. So you'll see a full effect coming in from 1st of April when we'll be fully registered in 10, 12 states and fully functional. But yes, we are prepared -- we are doing all this just to prepare ourselves for the main season, which is just before the Diwali and before New Year. We will be available with this RTD in most of the states. We'll be available with tequila in most of the states. That's our focus is so that we don't miss out on the season -- main season.

Okay. And my next question was on the EBITDA margin that fell from 14% to 11% despite the revenue growth. I know that might have been covered before. But could you please throw some more light on it and help me understand that whether it was from the ethanol segment oversupply or the pricing pressure because of the potable alcohol business?

So again, your question is not clear, but you are asking for the ethanol business about, I think...

Overall margin reduction to 11% EBITDA...

Yes, overall margin reduction.