Associated Alcohols & Breweries Limited (ASALCBR.NS) Earnings Call Transcript & Summary

Good day, and welcome to the Q1 FY '26 Earnings Conference Call of Associated Alcohols & Breweries Limited, hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Dani from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Good evening, everyone. On behalf of Monarch Networth Capital Limited, it's our pleasure to host the senior management of Associated Alcohol & Breweries Limited. We have with us Mr. Anshuman Kedia, Whole-Time Director and CEO; Mr. Tushar Bhandari, Whole-Time Director; and CFO, Mr. Ankit Nagori, Deputy General Manager. We also have Go India Advisors, the IR team on the call. So WITHOUT wasting much time, I'll hand over the call to the management for opening remarks, and then we'll move to the Q&A. Thank you, and over to you, sir.

Thank you, Rahul. Good afternoon, everyone, and thank you for joining us on the Q1 FY '26 Earnings Conference Call of Associated Alcohol & Breweries Limited. Our financial results and investor presentation have been uploaded to the exchanges. I hope you've had a chance to go through them. We've begun FY '26 with a clear sense of direction to build on the strong foundation we laid last year with continued focus on premiumization, geographic expansion and strengthening our operational backbone. AABL continues to establish itself as a rising player in the Indian alcoholic beverage industry, backed by an integrated business model and a growing portfolio of distinctive brands. The industry landscape itself is evolving rapidly. India's premium alcohol be segment is benefiting from strong tailwinds, rising incomes, increased urbanizations and shifting consumer aspirations, are all driving demand for quality-led craft-centric products. Premium categories are now growing faster than the broader IMFL market, and that opens significant headroom for value creation. We are aligned to this shift. Over the past year, we made strong progress in building out our premium portfolio. Our 2 most recent launches, Hillfort Blended Malt Whiskey and Nicobar Gin are a testament to that. Both have struck a call with consumers looking for authenticity, flavor and elevated experiences. The positive market response reinforces our belief in a product-led strategy. More recently, we introduced Central Province vodka, which is off to a promising start. We've also refreshed Titanium vodka with a new modern packaging, keeping it in step with evolving consumer taste and reinforcing its presence in the prestige segment. Looking ahead, we are gearing up to expand this portfolio further. One exciting addition is Kultur, our new ready-to-drink brand. It will be first launched in Madhya Pradesh. Thereafter, we are planning to take it to metro soon. Kultur is designed for today's consumer, someone who values light, flavorful and convenient formats. The RTD market in India currently pegged at around $72 million is expected to grow at over 20% CAGR in the next few years. We believe Kultur is well positioned to tap into this growing demand. Beyond RTDs, we are preparing to enter new premium segments, including brandy and tequila to further strengthen our presence in high-growth, high-margin categories. These launches are a part of our broader ambition to offer a well-rounded premium IMFL portfolio that can cater to diverse consumer preferences across regions. Our entry into Maharashtra and Uttar Pradesh marks a significant step forward, positioning us in 2 of the country's most prominent IMFL markets. Maharashtra alone accounts for over 10% of India's IMFL demand, making it a critical part of our long-term growth story. These markets -- these are markets where premiumization is clearly visible, and we see significant potential to scale. As a part of our phased pan-India rollout, we continue to introduce proprietary brands, particularly in the premium segment across key -- high potential states. At the same time, we are reinforcing our operational efficiency. The commissioning of our new malt plant, which will soon be fully operational, marks an important step towards backward integration, helping us ensure quality, manage costs and support innovation, all of which are key to scaling premium whiskeys in the years ahead. Meanwhile, our ethanol business remains stable. We secured full allocations with rice and maize prices cooling off. Margins are expected to hold steady. The integrated nature of our business allows both ethanol and beverage alcohol to support each other, creating efficiencies and driving resilience. On the partnership front, our long-standing relationship with Diageo continues to remain strong. We support them across franchisee and job work formats. As we move ahead in FY '26, we do so with solid fundamentals and a sharper premium focus, broader market reach and a deeper understanding of evolving consumer preferences. We believe our strategy grounded in innovation, operational excellence and brand building will continue to guide our journey and help us participate meaningfully in India's alcobev’s transformation. With that, I'll hand over to Mr. Tushar Bhandari, our Whole-Time Director and CFO, to take you through the financial and operational highlights.

Thank you, Anshuman, and good afternoon, everyone. Let me begin with a quick update on the external environment. As mentioned, we recently entered Maharashtra, one of the India's most significant IMFL consumption market. The recent change in the state excise policy are something we are watching closely. It's still early to fully assess the impact, but we are evaluating pricing adjustment across channels to limit any disruption and maintain growth momentum. The U.K.-India free trade agreement could also influence the India alcobev industry, while it supports the premiumization strategy. We are mindful that it could lead to increased competition. We are monitoring the situation closely and will approach as any such development with measured caution. Coming to our performance for the quarter, we've had a solid start to the year. Momentum has been strong across both volume and value, especially in our premium and above segment. Our rich product mix has helped support margins. From the cost perspective, the input environment has improved. Price of key raw materials like rice and maize, which remained high last year have now stabilized. Packaging costs, especially glass have also come down. We anticipate that the key raw material price will hold steady, barring any unforeseen volatility. These factors, along with our tight precautional discipline and efficient supply chain helped drive an improvement in gross margin this quarter. We continue to stay focused on driving operational efficiency. Let me now walk you through the key numbers of Q1 FY '26. Net revenue stood at INR 276 crores, up by 6% year-on-year. Gross margin was 40%, showing a healthy improvement. EBITDA stood at INR 37 crores, up by 32% year-on-year with the EBITDA margin at 14%. PAT at INR 24 crores with a PAT margin of 9%. For the full year, we have planned a CapEx of about INR 100 crores, primarily to support the maturation project and continued with operational upgradation across our facilities. Here's a quick look at segment-wise performance. Proprietary IMFL revenue, INR 41.3 crores, up by 21% year-on-year. IMIL revenue INR 73 crores, up by 17%. Merchant ENA was at INR 36 crores, ethanol was at INR 57 crore. And the volume, proprietary IMFL 5.67 lakh cases, up 31% year-on-year. Licensed IMFL 3.87 lakh cases, merchant ENA, 5 million liters; ethanol 8 million liters. Looking ahead, our focus remains on scaling our premium portfolio, the malt plant will soon be operational in -- is a major step towards backward integration, improving quality control and enabling innovation. The groundwork is also being laid for our maturation facility, which will support in-house aging, a key level for long-term brand building. With the upcoming launch of RTD products, our entry into Maharashtra and Uttar Pradesh and a sharper focus on premium category, AABL is in a strong position to tap growth across segments and geographies. With disciplined execution and financial prudence, we remain committed to delivering sustainable and profitable growth with the quarters ahead. With that, we can now open the floor for questions.

[Operator Instructions] The first question is from the line of Bharat Mani from Moneybee Investment Advisors Private Limited.

Hello, am I audible?

Yes, sir, you are audible. Go ahead.

Congrats for a good set of numbers. My first question would be on the RM side. Like in the opening commentary, you said the RM prices, the feedstock and the glasses have kind of stabilized and moderated. But the gross margins on Q-on-Q level have increased by 3%. So could you just explain a little bit why was that increased?

The grain prices are on the stable format. But on the Q-on-Q, there's a slight increase. But if you take about the entire year perspective, last year to this year, so this year on Q1, the maize price is around INR 22,000 to INR 23,000 as compared to last year, which was averaged at around [ INR 2,400 ] .

Yes. But the Q4 was around INR 25,500, if I'm not wrong, right?

Q4 was INR [indiscernible].

[indiscernible]?

Yes.

That's the maximum which we got.

Okay. So that's what I'm saying. So the gross margins have reduced by 3% on a Q-on-Q level. The gross margins in Q4 FY '25 was around 43% and Q1 FY '26 is around 40%. So why has there been a reduction in the maize prices -- the rice prices have reduced?

I'll just check and get back to you on that.

Okay. Okay. So the second question would be on the IMFL proprietary business. So there has been a 30% volume growth on a Y-o-Y basis. So could you just explain what were the drivers of this growth? Was there the expansion into UP and Maharashtra? And if you could just talk about how has been the response in those 2 states and about the existing states as well?

Okay. So basically, as earlier also, we've said that our focus has always been now going forward is on our proprietary brand and the premiumization portfolio. So this growth primarily has come from a mixed bag from across different states. So to name a few, the growth has come from -- one is the premium launch of Central Province vodka in Madhya Pradesh, so that volume has added. The volumes have increased in the Kerala market and certain amount of volume increase have come from UP market. Maharashtra market, not major volume increase has come because as soon as we launch the Maharashtra market, the new policy of MML Maharashtra policy has come out with, so which we are just evaluating and we are seeing what the competition is doing and then putting our price accordingly and moving forward. Because till now, there's no clear picture on Maharashtra policy, how the competition will fare. So primary contribution has come from Madhya Pradesh market, Kerala market and slight of it has come from UP market.

Okay. Okay. So second question would be the Hillfort and Nicobar Gin. So FY '25, you did a volume of 10,000 cases. So what is the volume that you did in Q1 FY '26? And what is your target for this year?

So Q1 FY '26, we've just done around 2,000, 2,500 cases, which will increase substantially. So we have targeted around 15,000 to 20,000 cases this year.

Okay. Okay. Just one more question. Is there any update on the tequila launch? I guess there was some regulatory approval that you had, which was in process. So could you just give me an update on that?

So in that tequila launch, we are -- there were some regulatory issues from the Mexican government, which was taking time. But now we are going ahead, and we are in process of importing the tequila. So I think around next 2 to 3 months, we can target and launch tequila. We've already placed a purchase order of importing the tequila.

Okay. Just one last question, if I could. So there has been an excise duty in Karnataka followed by Maharashtra. So do you expect any other states to go forward and put any hike in excise duty? Or what is the on-ground scenario as of now?

See, we cannot say anything per se in terms of excise duty because we are dealing with so many governments altogether. So what government, what step, what time takes the steps, we cannot say. But see, we have to be dynamic and adjustable as per the market change in scenario, like whatever has happened in Maharashtra. So for that, it's become a setback for almost all the companies and primarily for the big players, which is there. So it's difficult for them to operate or to strategize. So they might give up on the margins which they were getting. And so it can be an opportunity for us that if we give a higher margin to distributors or retailers, so our brands might click. So -- but we are just assessing that how the things is going to function. And even the MML policy is not clear yet. So there can be an opportunity for being a local or an Indian player to enter into the MML segment also if there is an opportunity available there. So we can see it as an opportunity right now. But depending on state to state, how they're going to play, then we are going to take a call. Because see now within this complete year, within this year end, we'll have a portfolio of all the premium brands across the category. So we can play in each and every category depending on the market scenario and price it accordingly.

Okay. Just before I get back in the queue. So the gross margins, which I had asked earlier, so do you get a chance to look at the data and...

We'll just get back to you. Just give me some time.

Our next question is from the line of Karan Kamdar from Choice Institutional Research.

So I wanted to ask about the margins once again. So I see that our OpEx margins have improved rather OpEx as a percentage of sales has declined almost 50 basis points. What has improved? Similarly on the power side?

Sorry to interrupt, Karan, sir, your voice is not clearly audible. [Operator Instructions]

Am I audible now?

Yes, sir. Please go ahead.

Sorry about that. So I'm saying OpEx has reduced operating expenses as well as power. So what would be the reason for that? And will it sustain in the upcoming year? Or is it like a onetime impact?

No. So the operating expenses has reduced because the efficiencies have come in, and it's sustainable over the years to come. And the power has reduced because the turbine, we are using the turbine fully because now almost all the plants are up and running at full capacity. So that's why the power is also reduced.

So this kind of EBITDA margin -- sorry, yes, please go ahead, sir.

[indiscernible] sustain in times to come.

Okay. So this kind of EBITDA margin of 14-odd percent is sustainable for the year? Or do you think we'll still go back to 12% or 11% kind of a number?

Everything would depend on the grain prices. Right now, we are expecting grain price to stabilize because the crop is good and the maize cultivation acreage is also increasing. Like in Madhya Pradesh, there has been an increase of 5%. And over the years, people are getting -- being more educated and cultivating more grain -- sorry, maize because the requirement is huge in terms of ethanol and alcohol industry as well. So with that, if the price of grain stabilizes or stays here, then the margins are sustainable. But in the times to come, as we are entering the bigger states, okay, we would have to invest certain amount of money in development of team and in marketing activities. So it should be around this range only if the grain price stabilizes.

Got it, sir. And one question, if I can squeeze in on the IMIL side. we've seen a lot of growth there. So what contributed to that kind of growth? And is that growth sustainable?

So see, IMIL growth primarily we have seen because there has been certain increase in the consumption because of the new variant, which was introduced in IMIL. That is one product with a lesser strength and one product with lesser capacity like a 90 ml was introduced this year. So that's why the growth is there. But I think we would see a stable growth of around 5%, 3% to 5% in IMIL. And it's a completely tender-based process. We cannot do much about it. So our focus is right now only in our IMFL product of our own IMFL premium product. So that's where we are looking at driving the growth from.

[Operator Instructions] Our next question is from the line of Kush from Niveshaay Investment Advisor.

So my question would be related to the RTD launch has been delayed. Can you elaborate on the reason and how we plan to compete with established players in this category?

See, as we've also mentioned in the presentation that the delay was primarily because of the import of the equipment. So now we've received the equipment. Now we are under the process of registration. So as soon as the registration will happen within a month's time, we will first initiate the launch in the state of Madhya Pradesh. And then we will go to other major states where the consumption of RTD is higher. See, the -- to be competitive as per the peers which are there, so the only thing which we can do is that we can add more unique flavors. And as we've also shown in our -- you must have received our annual report. So we've tried to make the packaging more attractive and more appealing to our consumers. So these are the 2 things, and we are adding more flavors and we are -- so we are giving more choices to the consumers. These are the 2 primary things, and we are maintaining the quality. So our liquid also, we would be using the best liquid in our RTD. So these are 3 things which continue apart from the marketing and promotional activity, which we'll be doing across. So this is the strategy to cater for the growth on the RTD.

Okay, sir. So my next question would be with the change in improved contract terms for IMFL license to contract manufacturing, how will this affect top line trajectory and margins?

Pardon me?

Hello?

Yes, can you repeat it, please?

Yes. So the change in improved contract terms from IMFL license to contract manufacturing. So what would be the affected top line trajectory and margins?

So that will come effective from next month onwards, okay? There will be a slight impact on the top line because the revenue would go in their books. But that we will -- we are trying and compensating from our -- from the increase in sale of our product portfolio, and that should be the focus going forward. So we are concentrating on that. And apart from this, we are in talks with Inbrew and a couple of other agreements also and expanding their product range across the country. So if that materializes, so most of the things will get compensated in that. But definitely, we have to be focused in our own products. That's what we are giving in doing.

Why is Inbrew taken to line?

Why is?

Why has been Ibu has been taken in line?

See, we are any which ways if I has taken it back, we will be the primary driver of the sales force here. And for that, we will get a -- certain percentage we will be getting from that. Plus we will be getting also the job work revenue from them. They have taken it back because of their own particular reasons, which are known to them, which I cannot disclose it here. So that's the only purpose why they have taken it.

Okay. So my last question would be our working capital is well managed. What are the key drivers behind this?

See, primarily, the working capital is being well managed because of the efficiency of the main money which is coming in from the state of Madhya Pradesh, okay, from the government. It will completely depend on the states and states you enter and what the payment cycle is there on those states. So it will completely depend on that. So for example, Delhi, whatever products we sell, we sell is after the duty and the payment cycle is better there. So we get the duty in advance. And Madhya Pradesh, we don't have to invest in duty. So that's why the major business is Madhya Pradesh and Kerala, which is there. So that is the major reason of working cycle being lesser. But as there will be a substantial increase in sale in, say, for example, Uttar Pradesh, Uttar Pradesh, what we are looking at becomes an equally bigger state than Madhya Pradesh or Kerala. So then the working capital cycle might change a bit. But we will try and do other things in which we will increase the efficiency of working capital cycle.

Okay. Okay. So sorry, my last question would be, will the contract manufacturing arrangement for Inbrew cover the same product previously under the IMFL cycle business?

Yes, it will have the same products, plus there will be other products also which they will be launching.

[Operator Instructions] Our next question is from the line of Nishita from Sapphire Capital.

Can you hear me?

Yes, ma'am, we can hear you.

So I just wanted an update on the malt maturity facility that you are doing? And how much revenue is expected from the malt plant? And when will the commencement start there?

See the malt maturity plant has almost been commissioned. Right now, we are running a few trials on the malt maturity. And within a month's time, it will be up and running. The revenue would start -- first revenue -- initial revenue would start coming out from 1.5 years from today. Because we'll have to mature the liquid for at least for 1, 1.5 years. And the more you mature, for example, if you mature for 2 years, if you mature for 3 years, so that's how the revenue will start kicking in.

Okay. And like what is the revenue growth that you're expecting once the revenue comes in?

So see, revenue would come in 2 different formats. One is that we will be -- if we will be selling the pure mature malt, okay, after 1.5 years, then the revenue would be completely different. But our objective is to convert into our own IMFL product. So if we are able to achieve that over next 2 years, we are able to have what we are targeting, have a presence in almost 10, 12 states, have a good volume of premium brands. Then we would be liking -- then we'll be looking at making our own single malt and selling that. We would like to consume most of it internally in our own products. So that will include our single malts, certain amount of malt, which is going in our Central Province whiskey, amount of malt, which is going in our own Hillfort whiskey. So if we are able to do that, then there will be a substantial growth in the revenue.

[Operator Instructions] Our next question is from the line of Rajveer Tandon from Ventura Securities.

Sir, my first question would basically be that you've given a volume growth of 30% in the IMFL segment, the proprietary segment. But in your PPT, you've given a full year forecast of about only 20% revenue growth for that segment. Do you see any declines coming in? Or how is it?

No, we do not see any decline coming here. You would see a growth at a higher trajectory only. So -- but over the years, we would be somewhere around 25% to 30% growth in terms of our own IMFL proprietary brands.

So you're telling that over the period of 2, 3 years?

Yes.

Okay. And my second question was regarding the tequila product that you are launching. How is the progress going on the approvals from the Mexican government?

Pardon me, how has it progressed?

Going from approvals from the Mexican government because it was stuck, right?

See, approvals are still under -- it's still under process. But we are -- irrespective of that, we are going ahead and importing the tequila and we will be selling it here. So the only thing is that we will not be able to call it tequila. We'll be able to call it the Agave Spirit.

Okay. Something like [indiscernible], right?

Registration process will be on. And as soon as we get the registration or the number, we will incorporate it in our packaging because we don't want to lose on the opportunity because the opportunity is right now.

Yes, yes. So it will be something like Pistola is selling, right?

Pistola is selling from Indian Agave Spirit. We'll be actually calling it 100%...

[Operator Instructions] Our next question is from the line of Shubham, an independent investor.