Globus Spirits Limited (GLOBUSSPR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Globus Spirits Limited Q3 and 9 Months FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suyash Samant from Stellar Investor Relations Adviser. Thank you, and over to you, sir.

Good afternoon, everyone, and thank you for joining us today. We have with us today the senior management team of Globus Spirits Limited, Mr. Shekhar Swarup, Joint Managing Director; Dr. Bhaskar Roy, Chief Operating Officer; and Mr. Nilanjan Sarkar, Chief Financial Officer, who will represent Globus Spirits Limited on the call. The management will be sharing the key operating and financial highlights for the quarter and 9 months ended December 31, 2024, followed by a question-and-answer session. Please note, that this call may contain some of the forward-looking statements, which are completely based upon the company's beliefs, opinions, and expectations as of today. These statements are not a guarantee of the company's future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after a statement is made. I now hand over the conference to Mr. Shekhar Swarup sir. Thank you, and over to you, sir.

Thank you, Suyash, and thank you, everyone, for joining us today for a discussion on our performance in Q3. As always, it's a pleasure to share our progress and provide insights into the strides we've made across our business segments. Along with me is also Rajesh Fanda, Business Head, Consumer Division, who will be filling in for Parang, who is unavailable today. To start off, our manufacturing business continues to be a cornerstone of our operations, contributing 56% of total revenue this quarter. While this is a decline compared to 63% in Q2 FY '25 and 63% in Q3 FY '24, the change reflects our strategic balance between manufacturing and the impressive growth of our consumer business. EBITDA margin for the manufacturing business stood at 1% in Q3, consistent with Q2, but lower than 4% in Q3 FY '24. Margin per liter came in at INR 0.85 per liter, reflecting the cost pressures faced in the segment. In the quarter gone by, due to the continuing cost pressures, we prioritized ENA sales to the extent possible while reducing ethanol production. Our flexibility to shift partial capacity between ENA and ethanol is a unique advantage for Globus, allowing us to respond to market dynamics effectively. In addition, we have conducted several maintenance activities in Q3 to make use of this period of low/no margins. As a result, capacity utilization in Q3 was 50%, down from 87% in Q2. In January, we saw a significant shift in the market dynamics of raw materials with FCI reducing rice prices for distilleries. Later, OMC responded by creating a provision for the allocation of ethanol from FCI rice at a price of INR 58.50. Currently, there is a limit to the amount of material that the ethanol industry can lift. However, having an additional source of raw material at fixed prices has already reduced the prices of grain. Going forward, it will reduce the volatility of prices of all raw materials. As a result, we now expect to achieve margins in the range of INR 5 to INR 7 per liter from ethanol with additional margins that ENA brings, we will be able to go back to a long-term average of INR 7 per liter. Looking ahead to Q4, a planned 3-week closure for maintenance in our West Bengal plant is expected, primarily for the overhaul of the dryer house and the commissioning of the corn oil plant. Following this, we anticipate improved capacity utilization across all our factories. Some updates on strategic activities. For maize procurement, we've secured sufficient warehousing capacity ahead of the upcoming season to ensure a steady supply of maize at fixed prices. And corn oil equipment, as I mentioned earlier, has been installed at Bengal in this quarter and is awaiting commissioning and delivery is underway for the other 2 distilleries in East India. Coming to our consumer business performance. The Consumer business delivered another strong quarter, reflecting our focused efforts on brand growth and market penetration. In the regular and others spice category, the segment saw a 22% year-on-year growth and an 8.5% Q-on-Q growth in quarter 3, which remains the strongest quarter for volumes in the year. EBITDA margin in this category stood at 15%, slightly lower than 17% in Q2 due to inflationary pressures on packaging costs. Going forward, the price increase in Rajasthan, which was announced just a few weeks ago, will help us grow revenue and profitability for this category. Coming to the Prestige & Above category, I'm delighted to share that we've achieved our best-ever quarter, recording a revenue growth of 245% year-on-year and 100% growth quarter-on-quarter. The EBITDA margin improved to minus 10%, which is a notable recovery from minus 24% in Q2. Our strategic investments in route-to-market efficiency and innovative product launches have begun to show results. Revenues from brands in this category are set to exceed INR 100 crores in FY '25. Of course, these are net revenues. And I'm happy to report that our strategic investments have been the key drivers of this success. Some updates on strategic initiatives here. We've created a dedicated division for our luxury brands, which entails a dedicated team and a strategy to accelerate the growth of these luxury products, namely Terai and Dahab. This initiative will focus on premium positioning, brand development, and ensuring additional new product launches in H1 and H2 of the coming year. Our UP market expansion is becoming a crucial growth market for the company, driven by strong demand in both regular and others as well as Prestige & Above categories. Our expansion strategy in this region includes strengthening the distribution network, enhancing brand visibility, and capitalizing on emerging consumer trends. In the short term, this business would predominantly be a volume driver for the regular category. However, once our distillery begins production in Q2 FY '26, margins for the regular category will be similar to our historical averages for all the categories. In addition, our malt spirit production facility has recently been commissioned. This will allow us to enhance our cost efficiency and also drive innovations, aside from ensuring a steady stream of quality malt spirit for our brands and thereby giving us supply security. Our UP multi-feed distillery project is progressing well with commissioning expected in Q2 FY '26. Once commissioned, this facility will help grow profitability in the state as well as provide supply security as brand volumes grow. As we conclude this quarter, our focus remains unwavering on strengthening our portfolio in both the manufacturing and consumer businesses. The strategic initiatives we've undertaken, namely enhancing raw material flexibility, expanding brand portfolio from regular all the way to luxury categories, and entering new markets position us well for sustainable growth in the quarters ahead. We are confident that the steps we've taken will enable us to continue to deliver strong performance while addressing market challenges proactively. Thank you. I now request the moderator to open the call to questions.

[Operator Instructions] The first question is from the line of Viraj Mehta from Enigma Investment Partners.

Congratulations on a great set of numbers. My first question is in your IMFL business. For the first time, we have grown significantly. We have touched INR 100 crores for 9 months, and we think we might do INR 120 crores, INR 130 crores this year. Can you give us the milestone that we are looking for next year in terms of revenue?

Yes. So our growth rates are not going to sustain at these levels, obviously. However, next year is looking quite promising already with clear excise policies that have been announced in Rajasthan and Uttar Pradesh. And next year, we should look at strong growth. However, certainly not at the level we have shown this year.

But I'm saying is INR 200 crores possible from INR 120 crores, INR 130 crores this year?

In our internal budgets, we do not expect to reach INR 200 crores next year. However, we will certainly be at an excess of INR 200 crore run rate, if you were to look at where we end the year. But no, in the year, we will not cross INR 200 crore revenue.

Sir, my second question is with the ENA and ethanol business. With the price change that we talked about, the procurement price at what it is set, and the ethanol at INR 58. On a whole year basis, now obviously, we have had our capacity run down significantly because of the lower spreads that we were making less than INR 1 EBITDA. Is it fair to assume that next year, we should be running our facilities at 80%, 85%, and 90% utilization for the full year?

Absolutely. So that's exactly the point. In Q3 and Q4, we have prioritized a lot of our maintenance activities, which would have happened in the coming quarters or the coming year. So the plan now is to be running as close to full as possible.

And with the prices like they are today and even the maize prices where they have corrected slightly and the upgradation of the maize facilities that you were talking about, on the overall business on the manufacturing side, do you think we can do INR 6, INR 7 next year in terms of EBITDA per liter?

Yes, that's what we expect for next year to be around INR 7 a liter. The other thing is this new policy that has been announced and contrary to some of the statements I've made on earlier calls about the volatility of margins, we now expect margins to be extremely range-bound. My sense is an average of INR 7 for the year and maybe 20%, 25% plus/minus from there. The spikes that we had of INR 20 margins and the lows of the current environment, INR 0 to INR 1, this environment is behind us, and we welcome this new policy as being a very proactive and well-thought-through policy for the industry.

And sir, my last question is in your country's liquor business. In country liquor, sir, we just have got price hike in Rajasthan. Rajasthan would be 50% of our revenue. Is that correct?

No, no, it's larger. Rajasthan, currently, it is the largest contributor to the regular and others. If I remember my number correctly, it should be around 80% to 85%. Nilanjan, please correct me.

Yes, yes.

It is 80%, 85%. So this inflation price increase that we have got, is it fair to assume that a significant portion of that will directly flow down to our EBITDA because I mean, whatever prices they had to increase in terms of cost and in terms of packaging costs, they have already happened by Q3.

Yes. The caveat to this is the mix of brands. We announced that it's increased by 4.35%. It's not 4.35% across all brands or across all categories. So we have to see how the year shapes out. But suffice it to say, a large part of it will flow down to EBITDA. In the coming year, we're also expecting the regular category in UP to grow in volumes. Still, our distillery comes up in UP, those volumes will be at a lower margin than Rajasthan. However, after our distillery comes up, the margin in UP will be similar to that of Rajasthan. So we will grow our margins. But in the first half, there is going to be some downward pressure because of the UP volume growth.

And what's the kind of volume growth you are expecting in regular?

So Rajasthan is going to be a single-digit volume growth next year. UP can be very exciting. As I mentioned on the earlier call as well and in fact, some other interactions I've had in the last few months, we are still sort of testing the waters in UP. We've done last month, I believe, what 13,000-odd cases in the UP regular category. So, let's see how it shapes up, but it can become very interesting next year.

And sir, my last question is, at what revenue do you think we will break even in IMFL business?

I think it looks like breakeven is around the corner for the division. I hope in the next year, we are certainly expecting to break even in at least 1 quarter or maybe more.

The next question is from the line of Dhwanil Desai from Turtle Capital.

So my first question is on the IMFL side. So our understanding is that it's a business where basically you work on the distribution side and then it's a cost-driven business, the brand has very little role to play in that. And if I look at the UP market, the top 3, and 4 guys are already 50% of the market share. So how do we intend to kind of get into that market and scale up? And any kind of a volume indication that you can give over the next 2, 3 years, where you want to be in terms of market share or...

So firstly, I'd like to say that brand is, in fact, a very important aspect of all categories in the consumer business. The amount of budget we have to spend on branding varies dramatically between categories, obviously. But brand is a very important part of the regular category as well as the premium category. And that's why we have a situation like in Rajasthan, our brands have got a strong traction, and we're able to command our market shares and increase our profitability over a period of time. Similarly, in UP, there is going to be a process of breaking into the brands that are there already. The UP market is growing. So we get that advantage in that state. But we have to be able to acquire consumers from other brands. And like I said when I was answering the earlier question, that we are currently in the proof of market stage. We've sold 13,000 cases last month. Coming to Q1, and Q2, I think we'll be in a better position to give you a little volume indication or volume growth indication.

Sir, second question, I think you mentioned in your answer to earlier participants that with the new policy regime, you expect less volatility in margins. So can you expand a bit on that? Why do we think so? Also, this is our pathway to that INR 7 per liter on the manufacturing side, will it be incremental every quarter or there will be a step jump, if you can talk about the trajectory on the margin improvement side?

Yes. So reasons why volatility will be down. The largest reason is that FCI, which is, in fact, the largest buyer of rice in India has now become a supplier of rice. And it is a new source of rice or raw material. So in addition to the broken rice that we buy from the market or the maize we buy from the market, now we have the ability to buy raw material from FCI. So automatically, broken rice prices came down and maize prices came down. Also, of course, FCI is giving this raw material at a fixed price throughout the year. So it creates a ceiling to raw material prices as well as a floor to our margins. The other factor to help reduce volatility is our ability now to purchase maize in season and consume it in the off-season. In my opening remarks today as well as on the earlier calls, I spoke about how important this is going to be for the company in the summer months, in the summer crop of this calendar year. So we look forward to that as well. Both of these things give me a reason to believe that a reason to expect that margins will be range-bound and less volatile.

And last question from my side. So if you look at the margin equation, one side is raw material, another side is finished goods, which is ethanol pricing. Now we have got some comfort on the raw material side of it. But as a risk from an outsider's perspective is that eventually at some point in time, the government may come and say that the ethanol prices will get reduced because they want to get some margin. So do you see that as a risk? Or is that a theoretical concept?

So the ethanol prices are a function of raw material cost as of now. So INR 5,850 is a result of raw material being at INR 2,350. And of course, that applies to rice from FCI. Similarly, there is a price of INR 64 for broken rice and nearly INR 72 for maize. And those prices are a function of the raw material costs of the respective raw material costs. Currently, the scenario I see is that the Indian government is very keen to reduce its import dependence as well as reduce its need for Sorex. And for that reason, ethanol is being pushed in a very strong manner. There's currently a discussion that is on for taking ethanol blending from 20% to higher levels. Brazil's base blending is at 27%. And then there are fuel types available at higher blends. So as of now, I do not see this as a significant risk. Of course, the government does have that control as it does for numerous other things, which impact our P&L account and balance sheets. But I don't see this as a very significant risk in the medium or long term.

The next question is from the line of Vedant Mason from Minerva Asset Advisors.

I have 2 questions. Firstly, I wanted to understand -- I'm sorry if this is a repetition, but how long does it exactly take for the transmission of rice cost, any impact of rice cost to our EBITDA?

No, the earlier participant asked that I missed answering it. So it's a 2-step process in my view. One step is already complete, which was the announcement of policies that has already reduced raw material prices across the board, maize, and broken rice. But as we speak today, FCI delivery of raw material has not yet started. We expect that to begin in the second part of February at some point. So some part of cost decrease has taken place. Another part will take place once the supply starts. So, my sense is by end March or mid-March, we will firmly be in the new pricing environment. And thereafter, it will become a range bound from there.

Next is my question on IMIL on the country liquor. So we've constantly reported margins in the range of about 17% to 18%, sometimes higher than that also. I see that not consistent with other players like other competitors usually view this as a much lower margin business. So is that a state thing? Is it that Rajasthan has much higher margins and maybe UP or Madhya Pradesh or wherever else we decide to expand, margins will be significantly lower?

No, I'm not able to comment on the margins that other people report. However, for Globus Spirits, we believe that 16%, 17% is the long-term sort of margin that we're going to get from the regular business. UP, as I mentioned earlier, up till the time our distillery comes in will be much lower, with very reduced margins. But from the time our distillery starts up, we will be back to our average margins. The other thing is we will only do this business in states where we believe that we can have these margins and also sustain them over a period of time.

If I can just squeeze in one small other question. As a percentage of all our raw material, if you can give us sort of split between how much would rice be, how much would corn oil be, how much would maize be, rice, corn oil, and maize?

For the quarter gone by, pretty much, I think 80%, 90% of our ethanol was made from maize and the rest was broken rice. For our ENA business, it was all rice. Unfortunately, we don't have the breakup in terms of percentages of all of this, but that's just to give you a sense of what the strategy was in the last quarter.

The next question is from the line of Nitin Awasthi from InCred Research.

Some questions on different aspects of the company. Firstly, on the IMFL side, of course, when we started off the business, due to our mix and, let's say, other factors, we would have a lower per-case realization than the optimal level that we could have with the brand mix. Given that as an understanding, if that's correct or incorrect, please guide me. Apart from volume growth, wouldn't this number also start growing?

I don't think there is necessarily a correlation in those 2 figures. But strategically, how we are driving our business is that till now, we've had a portfolio that was heavily skewed towards prestige and premium these categories. In other words, some companies call it the mainstream category. We, in the last 1 year, have created products and launched products in the luxury space, so single malt whiskey. Of course, Terai has been there for a longer period, but Dahab was launched last year, the single malt, and a new variant of Terai was launched, which is [indiscernible]. So we do foresee our luxury portfolio growing much faster than our mainstream. And therefore, the NSV or the net sales value per unit will grow. But that's how we're looking at this, yes.

So in that, will it be a good understanding that the current per case realization in IMFL reflects predominantly your premium segment and your Prestige segment?

Can I answer that question, Shekhar?

Yes. Yes Nilanjan, please go ahead.

See, Nitin, currently what we are selling is more on the deluxe segment, right? I can understand your question that we are selling is more on the deluxe segment. Our future strategy will be the sale of the deluxe segment will remain the same. In fact, it will grow. But what will also grow is the sale above the deluxe segment, which is the premium segment, the luxury segment which Shekhar is pointing out. So what will happen is the NSB multiplier and the EBITDA multiplier will be higher, while the volumes of the deluxe segment remain the same with the growth in the deluxe segment. Have I answered your question?

Yes, perfectly. So next question I had was on the IML side. On the IML side, once our distillery dropped and running, would the distillery in Uttar Pradesh be qualified to receive the molasses under the state excise policy?

Yes, yes, it is.

From the current year itself?

Yes.

Next question, sir, I had bulk alcohol volume that should not mention in the presentation. If you have that figure, could you please provide the bulk alcohol sales during the quarter, which is ENA plus ethanol?

Nilanjan do you have that?

Bulk alcohol sales in the quarter you want?

Correct, sir.

One minute.

If it is okay, we will go to the next question. The luncheon will come in.

So the last question from my side was whether there were ESOPs given to employees. I think all of the ESOPs have been converted as per the result notes. And now that the ESOPs have been converted to shares, has our EPS been adjusted? Have there been numbers?

Has our -- what, sorry, the last part of the question I didn't gather?

No, the ESOPs were converted into shares. Issued on your employees. Now, has the EPS been adjusted accordingly in the current numbers reported?

Nilanjan, you have to answer that. I don't know.

Yes, it has been adjusted. It has been adjusted.

Sir this time around it is adjusted and last year it was a lower number of shares. Of course, EPS would be visually higher because you had a divider number increasing this year.

Yes, yes. And to answer your previous question, the scale for this quarter of bulk spirit is 39 million liters.

The next question is from the line of Ankit Gupta from Bamboo Capital.

So my first question is on the IML side. You know, we have been doing, 17, 18% kind of margins here. So, what we understand from other players is that it's largely a quota-driven market. And we have a very large market share in Rajasthan and the country puts almost 80% of our sales. If you can talk about how we are able to generate such healthy margins in the IML segment and what can be the sustainable margins here for the next 2, or 3 years with UP also coming in and we continue to remain a large player in the Rajasthan market.

So I spoke about this a little bit earlier as well. I'm not able to comment on how other players report their margins. But for Rajasthan and for UP, which are our focus areas for regular and others, these are open markets. There is significant brand salience. We are fully integrated in Rajasthan and will be fully integrated in UP. Because of the way we structure our business, our own know-how of production and manufacturing, as well as marketing these products, we are able to command these margins. In my view, 16%, 17% is the long-term sustainable margins for our regular and other segments. It does come off once in a while because in this quarter it was 14%. But we get price increases every time there is cost inflation. So, average is a 16%, 17% type of EBITDA margin.

And on the IMFL side, the kind of growth you...

Sorry, Mr. Ankit, your voice is not clear. I will request you to please use your handset.

But I'm on handset only. So my second question was on the IMFL side. You know, with us doing so well in the IMFL side in this quarter and plans to grow further during the next few years, how do you see the marketing spends here as I think I heard it correctly, you said that over the next 2, 3 quarters we should become profitable here. So, normally we've seen the company spending quite a bit on brand development and marketing and advertising. So what are our plans for that?

So, we've been sustaining investments in this division over the last 3 or 4 years, between 15 and 30 crores per year. For each year, different years, it's been different amounts. So there's been significant investment that has happened. We are now reaching the critical mass that where our gross profits are able to take care of our marketing spending. As of now, nothing significant is planned in terms of additional investment. As I mentioned, hopefully, we're going to have at least one quarter or maybe more than one-quarter of zero or slightly positive contributions from the prestige and above segment.

The next question is from the line of Kiran from Table 3 Capital.

I have a couple of questions. One much broader question. The FCI has committed around 22 rupees of raw material. One, is FCI actually giving that raw material or is it just a fictional price with no volume of take? Part B of the question is, this time we had a bumper rice crop, and therefore FCI wants to probably supply 22. So I would like to broadly understand how you are forcing over the next 2, or 3 years, not very long term as well, 7 rupees per liter kind of spread given FCI is fairly frequent in its policy every year, depending on the rice output.

Yes, that's a great question, sir. The first point is that supplies haven't yet started, but in my mind, there's no risk of no supply now. That material is going to start coming in between one week to 3 weeks period. So contracts, et cetera, are all happening. So there's no risk of no supply now. The second point about the fiscal nature of FCI, I think that's a really valid issue. And something I've spoken about in the last call as well that for global, the priority is maize ethanol. And for that, we need to secure raw material in the season time and use it throughout the year. For that, we need to invest in corn oil capability to grow our efficiencies in maize. So this I see FCI is a stopgap arrangement. I see FCI for one year, maybe 2 years, to help the industry transition to maize. Maize cultivation, too, needs to grow. We've seen very good growth in the winter crop, but that's pretty much a south and west India focused crop. We are hoping for good growth in the summer crop as well. It's looking pretty good so far. Another year or 2 of this kind of growth, and then the ethanol industry doesn't need rice because we have enough maize to sustain ourselves. And Globus' plans here are very clear. We need to buy maize in the summer and use throughout the year. We need to have corn oil to increase our efficiency. So that work is on 100 percent so that we are not dependent on FCI in the long term.

And second question, sir, on prestige and above. So we have grown from 45 crore to, I mean, we'll probably grow to 110, 120, 130 crores this year and maybe 130, 180 next year. So what is leading, I mean, Terai has been our brand for a very long time. Is it Dahab which is leading this revenue charge or is it open? I mean, are there like specific brands which are taking off in a big way that is leading to this growth? I mean, it's a fairly fast growth from 45 to 120, 120 to 160, 120, whatever that number is. So are there any specific brands, sir, because Terai has been there for a very long time.

Thanks. I'm going to ask Rajesh who's with me. I introduced him earlier as business head for the consumer business. He's filling in on Param's behalf today. He's going to take this.

Not only Terai, Doab, Terai Lychee, Mountain Oak, Brothers and Company, and SNOSKI Vodka, the entire portfolio will lead the growth in the future.

My question is from INR 45 crores to whatever, we'll end up at INR 110 crores, INR 120 crores, we're already at INR 100 crores, so I'm assuming very conservative numbers. So INR 45 crores to INR 110 crores, let's just talk about the present, forget about the future. This data of INR 75 crore has come primarily from, A, is it pricing or is it, B, a lot of volume of Dahab and Seventh Heaven? It's generally my question for the present year.

Lots of volume of Doab and Terai Lychee, TERAI, Mountain Oak and Brothers and Company, and Swarovski vodka. The entire portfolio is going to contribute in future growth. And it has contributed in this year. Doab was launched this year. The big 2 brands that have moved the volume this year are Mountain Oak and Swarovski. Luxury has, we are projecting higher growth for Luxury in the future.

So you're saying Doab and SNOSKI Vodka were the 2 brands which pulled us?

No. I'm saying SNOSKI Vodka and Mountain Oak and Brothers. These 3 brands have contributed thus far, and we are projecting Doab and TERAI to have higher growth in the next period.

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

My question is regarding IMFL. In that, I want to divide it between the premium category, the luxury brands, and the non-premium. Same in Prestige & Above, but the value category of Prestige. What we have understood is non-premium, non-luxury segment is a massive market. It's around INR 120 million, INR 150 million cases market, but well, the market is very competitive and dominated by 3 players, and they have a lot of brands over there, plus there's a stickiness towards those brands. So how would you intend to gain market share over there? What are you doing to gain market share over there? Can you explain us your initiatives and strategies for gaining market share over there?

Let me attempt to do that in sort of a nutshell. So we are focused on 9 states of India. There are 30-plus states in Indian territories. We are focused on 9. In those 9, the total addressable market of the luxury segment is 58% of the total Indian market and the total addressable market of the mainstream non-luxury prestige and above is close to 70% of the all-India market. So we pick these 9 states, basis a careful evaluation. Secondly, our brand portfolio is engineered based on the opportunities in these states. Rather than create brands first and then position them all over, we have selected certain categories, and certain brands for these 9 markets. In these 9 markets, we believe we have reasons to win for the categories that have gone, for the products that have gone in, the categories we have launched are high-growth categories for those states. So the way we look at the market is not an all-India strategy, it is a market-by-market strategy And it is quite different from how the top 2 or the top 3 companies in India would look at this market because, for them, there is a Pan India strategy and so on. For us, it's a very focused strategy to win in these 9 markets. I'm happy to say that from these 9 markets, key markets, we have already begun to win in. And those markets are Uttar Pradesh, Delhi, and to some extent West Bengal, so maybe 2.5 markets. For the other 6 markets, we are newer entrants, we are still challengers over there and we hope to convert one or 2 of those 6 markets to winning markets in the year to come.

And on top of the single malt that we have brought in Doab as well as some of, a couple of brands which are, again, a premium category for us, if you can provide your view on this, what we have understood is that the brands which are doing well in single malls or say Ultra Premium or Ultra Luxury are the ones that had a very stable and large market share in prestige category or higher prestige category. And on top of that, they have been able to push this branch. But what we are seeing is we have brought brands for prestige as well as for super-premium and luxury. So how will we be able to balance this goal? Like we need sufficient market value.

Again, the answer to that is a state-by-state answer. There are certain states where we are only launching luxury. There are certain states where we are launching the entire portfolio. So we don't believe that there is one formula to win. There are multiple formulae for each state, there is a formula that we have and that formula will be different for a UP, for a Delhi, for a Bengal, for a Uttarakhand and for the other states. And just because the others have done it in a certain way, that doesn't mean that there isn't another way to succeed in the markets that we are focusing on.

And just last 2 questions. If you can give us in roughly percentage, like which the 3 brands that you say, Swarovski, Mountain Oak and Brothers Whisky, which have contributed to our prestige in our segment? So out of INR 0.7 million that we have done for 9 months, how much would be percentage from this brand, the Swarovski would come out of 10?

Nilanjan, can you talk about this, please?

So if I take the 3 and give a number of 100, 75 will be from Mountain Oak and almost 20 or 18 or would be Swarovski and the balance will be Brothers.

And one question regarding these ethanol and ENA sites. Considering this new raw material pricing environment, so how will we go forward, like what would be our raw material mix? Are we going to be 80%, 85% ethanol coming from maize or we will be going back to a little bit towards the rice? If you can explain the whole?

I'm not able to project that currently. We are in a changing market scenario right now and I believe, as I said earlier, around 15th to 31st March that period, the market environment would have changed after the deliveries from FCI start. In my view, for this year, it should be around 60% maize and the rest of it a combination of FCI and rice from the market. But this figure could change dramatically. It changes on a month-on-month basis depending on essentially trading tactics for that month. But suffice it to say that because of this new source of raw material that we have, margins or rather price volatility of raw material is going to be dramatically reduced.

And considering that there is flexibility of changing the raw material mix, so let's say that now Rise becomes very favorable going 3 months out, just an example. So how much time will it take for our facilities to start using Rise and these…

15 days, rice takes 15 days. Essentially, it's just a period of building some operational inventory and reducing it and then building it again, so 15 days, but and zero downtime in production. It is very much a commodity trading-driven call.

The next question is from the line of Anil Shah from Insightful Investments.

Congratulations for a decent set of numbers, sir. So my question is on the regular. The first question is on the regular side. You talked about margins. Obviously, you also talked about a price hike, which has come through from Rajasthan. But at the same time, we are also entering UP and there the margins will not necessarily in the initial part be strong. So what can we take as far as margins are concerned, given the mix that Rajasthan and UP will have in the first couple of quarters, sir?

So for Rajasthan, it's far more predictable, obviously. UP, I'm not in a position to predict volumes as of now. But UP business, the first couple of quarters, my sense is breakeven. And Rajasthan, of course, will grow a little bit from where we are right now. Once we cross the first couple of quarters, that's when I can start giving you some indication of the volume mix from UP. So at this moment, to give you an average margin will be difficult, but UP is going to be small right now on our overall volume.

We can take about 15%, 16% as the base margin, sir, for a combined regular for both.

Yes. Certainly 15%, 16%, I think so. It's a guesstimate I don't know what UP volumes will be.

And sir, when does the distillery come in operation in UP? And by when does UP margins become.

Q2 FY '26.

Q2. So we are only talking about 2 quarter margins now, fourth quarter and first quarter, correct? And after which the margins will be similar.

Q4, Q1, Q2.

It comes in operation in Q2 during the course of that Q2. So yes, 3 quarter margins but after that, it will be in line.

Yes.

So another question is, what is our CapEx plans for the next 2 years? We should be done with the distillery in the UP. We've kind of done with the technology improvement that we wanted to do for the manufacturing business. Any large plans over the next 2 years over and above the regular maintenance CapEx?

No. No large CapEx planned currently.

And third and last question, sir, on Prestige & Above, if one has to take a kind of a 3-year out view from here and given what you're planning to do in terms of newer launches and newer markets and you said you've got right to win. We're kind of seeing early signs in 2.5 markets, et cetera. Where can we see this in, say, 28 or 30 for that matter? Just some ballpark numbers so that we know in terms of the vision where the management really is looking for as far as the Prestige and Above is concerned.

So from the current strategy that we have in place, we have a vision to take this to about INR 500 crores type of revenue. But the concern on that is I'm not able to give you a time line or an accurate time line, but that's certainly in the 4, 5-year kind of window, maybe 3, 4-year window from now.

But we do have plans to move beyond these 9 states.

It's from these 9 states, this is the plan. Currently, for the coming year, we are going to focus on these 9 states. Given the market we are able to address in these 9 states, there's enough work for us to do right now.

So when we just kind of do some numbers in terms of the regular business and the manufacturing business now with steady margins, we should be able to see some decent amount of free cash flow getting generated over the next 2 years, each of the next 2 years with not much large CapEx plans, we should start seeing whatever little leverage that we have should also be reducing and we could becoming net zero debt company in the next 2 years. Is that fair?

Yes, there's going to be a fair amount of cash coming in now, especially because Prestige is breakeven level soon and the manufacturing business margins are going to become far more stable and interesting. And a lot of that, given that there is no significant investment plan will go into debt first, obviously.

The next question is from the line of Aashish from InvesQ.

Sir, I just wanted some data points. On the manufacturing segment, what would be the volume of sales that we would have done for the 9 months of this year? And what's the capacity utilization that would have meant?

Nilanjan, can you take this, please?

Yes, sir. On the manufacturing segment, on the 9 months revenue, was volume, we have done almost 138 million liters and the capacity utilization of 9 months put together, I have a quarter 1. Quarter 1 is 50. 9 months of data will be in the range of 70%, 72%.

9 months will be 70% plus utilization, is it?

Yes.

Because I think in the presentation, you've given Q3 to be 50% and you're saying.

Q3 is 50%.

And Q1 was also 50%, is it?

No, no, no. I don't have the Q-on-Q number with me. I'll send it across, but that's the Q3 number that I have.

So I think there was no capacity enhancement between FY '25 and next year, there won't be any changes in the overall capacity. So is it fair to assume that we would be going to maximum capacity next year?

Aside from UP. So UP capacity will get added but that's dedicated to the consumer business. There's no ethanol over there. I don't foresee much of ENA sale either, maybe a little bit. But aside from UP, yes, we should be high capacity utilization in the coming year.

So on the manufacturing side, the capacity utilization, which is around 70%, it will go to maybe 95 plus next year. And our profitability, you're saying that maybe INR 1 was the profitability. This year, it will go to maybe INR 5, INR 6 kind of. Is that the right assumption, sir?

Yes, yes. We should be able to achieve our INR 7, our historical average of INR 7, I think we'll be able to achieve that this year. In the coming...

Yes. One more thing. I mean, still the rice procurement from FCI is still to come, but how would you expect the maize prices to behave? Or is it already being seen in the maize prices in the market?

Some of the changes have already happened. I think another round of change will come when the FCI material starts getting delivered. So in my view, maize should open in the summer around the same level as it did last year. So what this FCI thing will allow is the increase in demand of raw material is what FCI is going to be able to cater to. So maize should go back to the levels it was last year, even keeping in mind the growth in maize cultivation. But let's see how it shapes up.

So any rupees per kg kind of estimates given the yield that you guys work with?

[indiscernible] was around INR 22 at farm level. Yes.

And your procurement because this announcement came later, so your procurement for the season would have been of maize at what price?

No, no. So the winter season does not really benefit our company because the winter season is a South and West India season. For us, the season that is relevant is the summer season. So that's yet to come. For us, the timing of this announcement is fantastic because it's just before the summer crop.

Yes. Otherwise, you would have been stuck with inventory of higher cost.

The next question is from the line of Deepak Kumar Ajmera from IGE India.

From here in 3 to 5 years, what will be the growth driver, means Prestige & Above.

I'm not able to hear you clearly.

I'm saying from here on in the next 3 to 5 years, what will be the growth driver? Prestige and Above, you said around INR 500 crores maybe in 3 to 5 years. And what will be the vision towards regular and manufacturing ethanol? Regular, the current run rate is around INR 900 crores revenue annually, and ethanol looking at this quarter and capacity utilization, INR 2,000 crores is the revenue potential. What will be the future? And the number which I have told that's correct or not. And what will be the vision towards Regular and manufacturing ethanol? Regular, the current run rate is around INR 900 crores revenue annual and ethanol looking at this quarter and capacity utilization, INR 2,000 crores is the revenue potential. What will be the future? And the number which I have told that's correct or not.

So for Regular, I'm not able to do a projection till such time as we are able to stabilize our launch in UP, which would be done after H1 of the coming year. And as a result, I have not given any forecast for that business. The Rajasthan business will grow at mid- to low single-digit numbers in terms of volume. And also, it will grow in terms of profitability. Coming to our manufacturing business, I foresee this to grow to some extent in the coming year, given that our capacity utilization has been low in the current year. But that will be the level at which it then peaks out at. As our consumer business grows, we will naturally increase the supply of products to our consumer business away from the manufacturing business. And therefore, there should be some degrowth in manufacturing starting in FY '27.

So what will be the growth driver, not near term, means maybe after 2, 3 years from here?

The growth driver in manufacturing, I do not see one. The growth drivers in the company are going to be the Prestige & Above segment and the Regular and Other segment.

[Operator Instructions] The next question is from the line of Madhur, who is an individual investor.

Shekhar, did you mention the broken rice prices and maize prices? Sorry, I missed it.

For the last quarter, no, I did not. For the last quarter, maize prices in December, exit December, maize prices were around INR 26. And exit December, rice prices were about INR 2,850, INR 2900.

And I think as we speak, for broken rice, I think it is about INR 2500, INR 2550 and for maize it's low, right?

No, all India would be about INR 2,650, yes, it is about 2500 in say, Rajasthan, but all India is about 2,650. And maize is currently INR 2,450, INR 2500.

And Shekhar has this background of about INR 2250 from rice price from this FCI, do you think this will set the base profitability for the industry or not?

Yes, very much. This will set the base profitability for the industry. And maize will be, in my view, with intelligent procurement of maize as well as with corn oil, maize will be more profitable than this.

So maize will be more profitable. And do you mentioned it, but still confirming, you want to use maximum maize for ethanol, right?

Yes and no. I mean it depends on how much we are able to procure in the summer season. That will be the #1 priority. And thereafter, from the open market in the off-season, I believe the maize profitability and the FCI profitability will get matched.

And coming to profitability from FCI, see, I think when FCI rise was about INR 20, the selling price was same, right, INR 58.5. Now it is INR 22.5. So this is net-net INR 5, INR 6 increase on the raw material cost. So basically, I think this is hardly will get.

It's INR 4, not INR 5,INR 6, INR 4.

So let's say, INR 4. So then out of whatever 7, 8 people were making, INR 4 has gone. And then people are left with INR 3, INR 4 or addbacks INR 4.5 EBITDA per liter. So if this is the base, how would you then reach INR 7 on an average?

Because, firstly, for us, it's not INR 3.5, it's a little bit more because of the way our plants are engineered and our ability to run these plants. But anyway, FCI is the base. We get additional margin from ENA, and we get additional margin from when we run mill. So that's how I foresee us reaching INR 7 a liter average for the coming year.

And one question on the IMFL side. Are you also tracking? I'm sure you are tracking the secondary sales of IMFL because this quarter, we have seen a very, very high growth. Are you also tracking the secondary sales? How has been the secondary sales?

Yes. So these are based on secondary sales. I mean our secondary sales are equal to primary sales. So there will be no primary, if there's no secondary. We are not in a position where we want to cash out or raise funds or any of that. We have no intention of showing higher primary sale as compared to secondary sale.

Just one last thing specifically on Mountain Oak. Can you tell us the growth in Mountain Oak in this quarter? And the channel check suggests that at least the whiskey offtake has not been very, very good in Q3. So just curious to know the growth for Mountain Oak in Q3 and from which states are there to help you with this growth.

So our states, our key states in the 9 months gone has been Delhi, UP and Bengal. There are 6 other states, but there, we are newer entrants, we are still challengers. Our key states are Delhi, UP, Bengal. Nilanjan, what's the growth, please, in Q3 of Mountain Oak?

Q3 versus Q2 growth of Mountain Oak is flat. It's a 1%, 2% growth. Obviously, there are reasons behind it. It is end of Q3, the policy formation of different states start coming, and there is a slower offtake, which gets accelerated from Q4 and Q1. So if the growth is the same. [Ian,] what was your next question tagged with Mountain?

So it was very similar to what you answered. I think I got the gist of it. Yes. So I think that's the last question. Thank you very much.

The next question is from the line of Dhruv Kashyap, who is an individual investor.

So just picking up from your opening remarks on the strategic initiatives, if I was to break it into consumer and manufacturing separately, so picking on the consumer part first, my understanding is that within spirits, as you mentioned, there is a Prestige & Above, there is a Regular. And of course, then there's a luxury segment, which is housed under Terai and Doab and so on and so forth. Apart from that, initiative, I'm guessing would also be beer at some point of time, as will be a building upon the RTD business that you've acquired, I think it's called Not Out or something. Now if you were to put all this together on the vectors of the products and the product categories as well as markets, maybe you could just expand on your opening remarks on the consumer business.

Yes. Sorry, I heard you, but not clear exactly what you're looking for. Could you please help me?

Sure. Shekhar, sir, you were talking about the strategic initiatives in your opening remarks. So if I have to divide your strategic initiatives into consumer and manufacturing separate, so within consumer, you mentioned in the luxury segment, in the regular and above prestige, et cetera. There is also a foray that you're making into beer as well as the RTD business that you've acquired from Not Out. So within beer, RTD, Regular, Prestige and Above, I mean, if you could just expand on your opening remarks in terms of what are your consumer strategic initiatives over the medium to long term?

Okay. So for Prestige & Above, our strategic initiatives are to focus on growth of the 3 brands, the 4 brands that we spoke about earlier, to add new states to the success of Delhi, UP and well, partially Bengal right now. For luxury, we have now created a separate team that focuses only on sale of luxury brands. We are also now looking at states where we will launch just the luxury portfolio and not wait for the mainstream portfolio to be launched in those states to help drive the volumes in the luxury space a little bit faster. Our Malt spirit production facility is another initiative I spoke about, which will help the luxury space as well as the mainstream, but predominantly the luxury space. In terms of regular, the only update there was UP launch of new brands, the distillery coming up. UP is a vast ocean of volumes, and we hope to become a meaningful player there in the years to come. I did not give an update about beer and RTD at the moment because there isn't a whole lot to report. We will start informing you about progress there once Q4 is complete.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Shekhar Swarup for closing comments.

Thank you all for attending today's call. As always, we remain available for questions, and clarifications. If needed, please reach out to us or to our Investor Relations agency, Stellar. All details are available on our website. Thank you, and have a great evening.

On behalf of Globus Spirits Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.