Globus Spirits Limited (GLOBUSSPR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Globus Spirits Limited hosted by MUFG Intime. [Operator Instructions] Please note that this conference is being recorded and will be 60 minutes long. I now hand the conference over to Mr. Sumeet Khaitan from MUFG Intime. Thank you, and over to you, sir.

Thank you. Good morning, everyone. I welcome you all to the earnings conference call to discuss Q1 FY '27 results of Globus Spirits Limited. To discuss the results, we have from the management, Mr. Shekhar Swarup, CEO and Joint Managing Director; Mr. Paramjit Singh Gill, CEO, Consumer Division; and Mr. Nilanjan Sarkar, CFO. They will take you through the results and the business performance, after which we will proceed for Q&A session. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to investor presentation and other filings that can be found on the company's website. With this, I now hand over the call to the management for their opening remarks. Thank you, and over to you, sir.

Hi. Good afternoon, everyone. This is Shekhar Swarup. Thank you for joining us for the Q1 earnings call of the company. Param and Nilanjan are also with me on the call today. Q1 has been a good start to the year. Revenue from operations grew 13% year-on-year to INR 7,887 million. EBITDA grew 33% to INR 795 million and PAT grew 50% year-on-year to INR 278 million. EBITDA margins improved to 10% at an overall basis and PAT margins improved to 4%. The point I want to emphasize here is that this performance reflects structural improvements we've been working on across the business, better capacity utilization, improved manufacturing profitability and continued resilience in Regular & Others with stronger traction in Prestige & Above. Over the last few quarters, we have consistently described Globus as a consumer-focused alco-bev company built on a strong manufacturing base. Manufacturing gives us supply security, cost control, quality consistency and cash and free cash flow. Consumer business gives us the opportunity to build brands, deepen distribution and improve the quality of growth over time. During the quarter, the manufacturing business performed well. Segment grew 11% year-on-year to INR 4,720 million. Sales volume stood at 56.1 million liters with capacity utilization at 89%. This business was supported also with strong ENA demand across the states. Overall, the EBITDA margin for this business was INR 6.6 per liter. Manufacturing is not a passive capacity business for us. It is an active operating platform. We continue to optimize between products, raw materials, geographies and customer opportunities. Our objective is not simply to maximize volume in a quarter. Our objective is to optimize margin, cash flow and strategic supply for our consumer business. The Uttar Pradesh facility is also becoming increasingly important in this context. UP is a key consumer market for Globus, having manufacturing capability in the state gives us a structural advantage over time. It improves our ability to service demand, manage costs and support both segments of the consumer business, R&O and ENA in a disciplined manner. On consumer side, both business -- both parts of the businesses have contributed to growth. R&O not only continued to provide resilience in cash generation, but has also started growing volumes, while Prestige & Above has delivered much stronger growth. The consumer business is becoming more meaningful, more diversified and more visible in the overall performance of the company. For the balance period of FY '27, our priorities are clear, keep manufacturing business operating efficiently and within a disciplined margin framework, continue to build R&O as a resilient and growing consumer business, scale P&A with focus on market depth, brand strength and profitable growth and of course, maintain balance sheet discipline while investing behind the long-term opportunity. We are building Globus quarter-by-quarter. The objective is to create a stronger, broader and higher-quality alco-bev company with manufacturing depth, consumer reach and financial discipline. With that, I request Param to take you through the consumer business.

Thank you, Shekhar. Good morning, everyone. I will focus specifically on the consumer business. Q1 was an encouraging quarter for both parts of our consumer portfolio. Regular & Others delivered steady growth and profitability, while Prestige & Above continued to scale across markets and brands. Let me start with Prestige & Above. P&A revenue grew 35% year-on-year and 38% sequentially to INR 550 million. Volumes grew 45% year-on-year and 45% sequentially to 0.42 million cases. The growth was broad-based across states and was supported by stronger traction in brands such as TERAI, SNOSKI and Brothers & Company. The key point is that growth is not dependent on a single brand or a single market anymore. It is coming from geographical expansion, deeper distribution and better market execution across the portfolio. EBITDA for the quarter was negative INR 13 million. We are comfortable with this at the current stage because the investments are going into distribution, brand visibility as well as market development. Our focus is not just to deliver volume growth, but to build markets that can become profitable and sustainable over time. We continue to think that P&A through the same market architecture we discussed earlier, core markets as well as emerging markets. Core markets are where we are building depth and profitability. Emerging markets are where we are making the foundational investments so that they can become future growth engines. The framework is important because it keeps our expansion disciplined. We are not entering markets merely for presence. We are entering markets where we believe the portfolio has a right to win, where route-to-market execution can be strengthened and where the market can move towards profitable scale over time. In Regular & Others, Q1 was steady and healthy. Revenue grew 10% year-on-year to INR 2,564 million, volumes grew 13% year-on-year to 4.48 million cases and EBITDA grew 13% year-on-year to INR 440 million. Rajasthan continued to deliver stable and consistent performance. This remains an important mature market for us and demonstrates the strength of our execution in R&O. Uttar Pradesh is now scaling well. UP R&O volumes grew 2.4x year-on-year and crossed 0.2 million cases per month during the quarter. This is an important milestone because UP is not only a large market. It is also a market where our manufacturing presence, distribution capability and portfolio strategy can work together sustaining growth over time, surely due to the size of the business revenue there. Across the consumer portfolio, our strategy is to build value in layers. R&O gives us the foundation for scale distribution and cash generation. P&A is the future core where we are expanding reach and improving mix. And our luxury portfolio is intended to strengthen aspiration, innovation and long-term brand equity. This balanced architecture allows us to generate cash today, premiumize the business for tomorrow and selectively build brands that can shape the category over time. At the same time, we will remain disciplined. We will continue to build this business market by market and brand by brand. Q1 gives us confidence that the strategy is moving in the right direction. With that, I hand over to Nilanjan for the financial performance update.

Thank you, sir. Good morning, everyone. Let me briefly take you through the financial highlights for the quarter. Q1 FY '27 reflects a continuation of the stronger operating and balance sheet trajectory we delivered in FY '26. The company reported a revenue of INR 789 crores, representing a year-on-year growth of 13%. EBITDA for the quarter stood at INR 79.5 crores, registering a growth of 33% over the corresponding period last year, while EBITDA margin stood at 10%. Profit after tax for the quarter was INR 28 crores, reflecting a strong year-on-year growth of 49%. PAT margin for the quarter stood at 4%. Alongside the refinancing and debt optimization actions already undertaken, including the improvement in current ratio to 1.01x and the interest coverage to 3.14x. With that, we now conclude our remarks and open the forum for questions and answers. Thank you.

[Operator Instructions] The first question comes from the line of Abneesh Roy with Nuvama.

Congrats on good numbers. I have 3 questions. First is on the manufacturing part. So on ethanol, of course, one positive news which has come out is government is thinking of ethanol being used for the cooking fuel also. Of course, this is currently in initial stages. On the other hand, there has been the controversy on the E20's ethanol mix pool damaging the passenger cars, et cetera. So if you could tell us how the industry is likely to see the demand drivers? And on profits, you always said that broadly 5% to 7%. And this quarter also, you have demonstrated that. But if you could discuss on the demand side. That is the first question.

Thanks, Abneesh. So regarding your first question regarding ethanol for cooking. So ethanol does have a lot of applications. In Africa, we've seen a massive adoption of ethanol stoves. However, there needs to be a lot of distribution and also packaging of those canisters for ethanol in India. I think adoption of that is not going to be very fast to begin with. However, if gas supply cylinder refill start becoming a problem again, then perhaps the speed increases on that front. I think the main demand driver is going to remain ethanol blending. Government has clarified that E20 is very much part of India's petrol supply situation. There has obviously been certain, how do I say, pushback on whether -- ambiguity rather on whether E20 is damaging petrol engines, especially in the social media and the press last few weeks, but automobile association, automobile manufacturers as well as petrol companies has clarified that there is no such damage that is being reported. So E20 is very much part of the country's supply -- petrol supply. We are expecting ethanol demand at this scale to grow at about 7%, 7.5%, which is in line with petrol growth. There is also talk about multiple more blending grades, so whether it's E85 or E50. But however, for that, cars need to be made compatible. We've seen some launches from Maruti recently. But as far as I know, there aren't enough cars compatible for higher blends yet. And the focus will remain E20 growing at the same rate as petrol consumption grows in the country. What's interesting for our business, Abneesh, is that at E20, there is a significant oversupply of ethanol, overcapacity of ethanol in the country. and that's been the case in the last few quarters as well. And despite that, we are able to perform our facilities, utilize our facilities at well over 85%. In fact, this quarter, we've seen a record 89% at a higher installed capacity base. And that's due to this flexible product nature that our facilities have between ENA and ethanol.

Sir, one or two quick follow-ups. So first is, in spite of very high oversupply, which you mentioned on the ethanol, if you could tell us which industries are driving demand for you? You did mention the flexible nature, but if you could elaborate on the end customer, which one is driving. And second, one small follow-up on this controversy, does this impact demand because customer doesn't have a choice, right? It might be in the news flow, but does it influence the overall demand?

No, it does not impact overall demand, no. We have not seen any of that. I mean it's -- our ethanol offtake -- the ethanol offtake of the industry is very sticky, as you can imagine. It's been fairly consistent over the last few months. Of course, it's growing year-on-year at about 7.5% or so. However, month-on-month is fairly sticky.

With regard to how... [Technical Difficulty]

Ladies and gentlemen, please stay connected, while I get the management reconnected, thank you. Ladies and gentlemen, thank you for staying connected. The management has been reconnected. Please go ahead, sir.

Sorry, the line dropped there. So I was just talking about that we are able to utilize our capacities by increasing ENA supplies, both in India and overseas. We've got a significant international sales function, and we've seen prices firm up overseas, and therefore, we've taken advantage of that.

Sure. Now 2 quick questions. One is now the new Bihar Chief Minister has been there for a few months. And of course, adjoining state UP is one of the gold standard in terms of how alco-bev policy should be there, and you have an increasing presence in Uttar Pradesh. So any update if you can share of any discussions happening in the government corridors on any prohibition getting lifted at some stage in Bihar? And second is yours is the first alco-bev company in this quarter. Other alco-bev companies are saying that because of Iran crisis, glass inflation is a reality. So if you could talk about your R&O and P&A, what is the impact of glass inflation?

Yes. So regarding Bihar, it's difficult for me to say to give any time lines on the change of policy, obviously. But our belief is firmly that prohibition in Bihar is a thing of -- or will be a thing of the past. In terms of time lines, my expectation is 1 to 2 years of the new Chief Minister for it to -- for a change to start happening over a 2-year period would be a complete reversal. That would be my sort of sense to what's going on there. With regard to glass prices, in fact, we've seen recent inflation across the board, glass PET. But Param, maybe do you want to talk a little bit about that and our mitigating strategy?

Yes. The cost-push of glass, Abneesh, depending on the brand and the pack is in double digits. It is in mid-teens. It moves between 10% and 16%, 17% depending on which brand, which pack. And this yo-yo of cost-push, we are expecting that looking at the current situation of the environment, we are expecting that this cost-push is going to be here with us for a while now in both glass as well as PET. And I mean, energy prices end up coming in various forms across various parts of the business.

The next question comes from the line of Nitin Awasthi with InCred.

Congrats on a good set of numbers and also delivering on all the promises you had made during -- once you had entered UP and what you call stabilization of your plant and operations there. So looking forward for that market to also grow going ahead. Two questions from my side. One was, given the U.K. FTA is now a reality, will you be seeing a gross profit expansion due to lower scotch prices because you have -- your whiskey segment is still dominating in your whole pie. If I'm not wrong, Mountain Oak and Brothers & Co. are still the 2 dominating whiskeys in your overall sales?

Should I -- you want me to take it, Shekhar?

Yes.

Yes, Nitin, it's a good point. We do, like most of the industry players expect to benefit out of that as we go along and when the inventory is getting transitioned. I think a lot will depend on if partners on the other side start changing the base prices. It's still a bit of a vague situation. But overall, we are expecting a tailwind here and a favorable climate going forward for sure. The actual numbers, while their workings are very easy on paper, but to see them transformed, I think we need a little more time. to actually see them lively getting transformed onto the paper.

Understood, sir. So just getting a little further on this. Since now it's a reality, what has flipped? Is it the sellers now like one thing you pointed out, the sellers could increase the base price? Or is it to the substitutes or not substitutes rather the co-prices, let's say, malts from other places, even India. Are those prices now moving downwards for you?

Too early. As of now, no indication whatsoever of any tinkering on any other front. At this point of time, the only focus is on this tailwind and how to effectively materialize it in the quickest possible time. At this point of time, that's the only. And obviously, our discussions are on a very hectic basis to try and land these opportunities before some other variables which we can't see come into play. Overall, it is going to be a favorable anyway.

I just want to jump in here a little bit on this. Nitin, like Param said, we're expecting some improvement, obviously. However, if you just look at the FX position, the rupee has depreciated by 20% over the pound in the last 1 year. And so overall impact on our business is not going to be very significant in my view and therefore, we are 100% focused our efforts on just execution in markets. So when this benefit comes, we'll get it as well the other people, but we are not the market makers for scotch prices -- scotch price revisions.

Fair enough. Okay, sir. Second question, moving to a place where you are one of the market makers. In Rajasthan, you had a very big position in your consumer segment, Regular & Others. And you obviously use that to jump on with the consumer Prestige & Above segment. In Uttar Pradesh, it was the other way around. The Prestige & Above had started earlier, Regular had started using another supplier. And then Regular, you guys have started once your plant came online, now you have scaled it up. There is a similar situation in West Bengal, but West Bengal is, again, Prestige, you have been pushing it for some time, at least the market is recognizing the product there. Regular & Others, although it started some time back, has not gone as planned in West Bengal. What is the status currently of that? And because there have been certain changes, at least we are hearing that regulatory changes, et cetera, have happened, making it easier and some actually news flow is saying that's making it harder. Some news flow is saying it's a stalemate right now. So just some clarification on the West Bengal front, Regular & Others segment.

So with regard to the R&O of West Bengal, we are only going through the steps of getting regulatory approvals. So we are still confident that we should be around the corner. These things do regulatory for the final last hurdle regulatory approvals can always be a month or 2 months this way or that way. But as soon as the regulatory approvals are in place, and as of now, there is a reasonable view that this quarter, we should be able to secure them. We will, after that, within 60 days or so, we should be able to get back into the market. So we see the market environment as applying for everybody. If the market gets a bit more complex, it will be for everybody. If it gets a bit favorable, it will be for everybody. We have to fight our way. Having said that, I do not see the market getting unfavorable in West Bengal. At worse, it could be status quo or it may move for slightly better is my view as I see West Bengal going forward.

Understood, sir.

Yes. We will be entering R&O in West Bengal hopefully sooner than later.

The next question comes from the line of Parth Sodha with Trinetra Asset Managers.

My question is on utilization. Like with utilization now close to 90%, how much additional volume growth can be achieved without any major capacity expansion? At what utilization level would the next CapEx cycle becomes necessary?

I can take this. Thanks for the question. So we -- aside from maintenance CapEx, which we have a guidance of about INR 50 crores, INR 60 crores a year, we don't have any plans for CapEx in increasing ENA/ethanol capacity. So we run at these utilization levels. Our guidance is around 85%. So this quarter has been significantly higher than our guidance. Our capacities are at about 334 million liters, aside from incremental changes by maybe 1% or so due to certain new technologies that might come up over time. I do not see any significant change in capacity as part of our FY '29 strategy at least.

The next question comes from the line of Himanshu Shah with Dolat Capital.

Sir, can you just disclose the debt number as of June '26? And how does it compare versus March '26?

You want the debt number?

Yes.

The debt is the same level at INR 650 crores. March was at INR 660 crores...

Okay. And this is net debt, right, sir?

Net debt. Net debt, yes.

Okay. Secondly, on the manufacturing side, our spread has came down a bit. Is it more due to the mix of the business? Or is it due to the increase in raw material prices?

Sorry, what has come down a bit? Your line broke.

EBITDA per liter has came down -- come down in the manufacturing business. So is it due to the change in mix of ENA versus ethanol? Or is it due to the increase in raw material price? And where do we see the spread moving forward in the next couple of quarters or for rest of FY '27?

Our guidance on margin per liter is about INR 5 to INR 7. We are firmly within that in Q1. Going forward, I'm expecting similar range-bound performance in this business. Certain parts of the business, certain customers are obviously more profitable. Other customers are less profitable. So with this 89%, 90% type of capacity utilization at INR 6.5 or so per liter margin, I think that's a pretty solid performance in this quarter. I'm not concerned about margin changes within the INR 5 to INR 7 range, Himanshu. And going forward, I maintain that our margins will remain in that range.

Sir, can you just provide some color how broken rice and maize prices are hovering? And where do we see the prices in the quarters ahead? Are we seeing some inching up because of lower monsoon or something?

So Q2 is -- we've always seen every year, Q2 is a slightly more inflationary quarter with regard to agri commodities, both fuel and raw material. So no surprises there this year either. With regard to the effect of the monsoons, I'm not seeing any dramatic impact on the maize crop that is scheduled for this time, right? We've managed to secure our inventories there, which gives us a good cover going into Q3 and Q4. We also have, obviously, the cover from FCI for a certain part of our purchase mix. So I'm not seeing any red flags, Himanshu, this year compared to how things have gone last year or the year before. Q2 is inflationary, but it's already budgeted for.

Okay. And sir, on our Regular & Others business, our margins have been quite healthy. I presume we would have some benefit of price increase in Rajasthan plus we would also be having some carryforward inventory of PET bottles and the raw material for PET bottles. From here on, should we see a higher inflation and therefore, margin impact in our Regular & Others business because of the inflation in PET bottle prices that should have taken place?

So I think the big impact on our margin profile for R&O is actually going to be the mix from UP. In terms of impact of PET bottles, et cetera, it's not much. We keep a pretty slim inventory. It's a pretty large operation in Rajasthan. So we're not able to keep meaningful inventories to take positions in PET prices or take positions for PET prices. So the more meaningful number here, the more meaningful trend that's emerging is that UP is growing exceedingly fast. And compared to Rajasthan, just the way the market is structured, UP is a lower price point or lower -- slightly lower margin profile than Rajasthan. So it doesn't structurally affect the business. Our guidance for R&O has been around 15% to 17% EBITDA margins. So rather than if you see the last couple of years, we've been sort of 17%, sometimes 18%. That's going to come down to maybe 15%, 16% level. So it doesn't structurally impact the business, but it is slightly lower margins in UP.

More mix -- State mix change. But you are not seeing any significant impact from raw material price increase as we are able to...

Whatever has to happen has happened in Q1. I'm not seeing any further impact coming here.

We haven't got any real red flags as of now. Further, obviously, there could be a little bit of an impact of a spillover in the first quarter of the previous year's inventory. But as Shekhar called out, we really do not carry significant inventories. But it's a wait-and-watch situation every day. Let's see how this plays out. But I think our aggressive growth will sort of position us much better to sort of withstand this challenge as compared to some of the other peers.

And can I just take one more on the IMFL business part?

Yes. Please go ahead.

Sir, how has been a repeat consumer behavior? Because while this quarter has been healthy on the volume growth front, I believe it has not been driven by Brothers & Company. But Mountain Oak, I believe, has been struggling a bit from an overall growth perspective. And even earlier, we used to have Governor's Reserve, which I think so now we have scaled down significantly. So the challenge that I personally see in our branded IMFL business is one brand is coming up, other brand is going down and second brand is coming up, third brand is going down. So -- if you can provide some color on this.

Yes. So Himanshu, what happens is as we are increasing our geography, different brands are driving growth in new geographies for a simple reason that the category sits in a different way in those geographies. The way the category sits in UP is not the way the category P&A sits in Delhi. And similarly, West Bengal, Assam, Jharkhand are very different. So a significant portion is being dependent to which market is a high vodka market, which market is a high semi-premium market and which market is a high deluxe whiskey market. So that is the bigger driver. Time to time, there will be brands which will see an opportunity and drive growth much ahead of the curve, but there is nothing to call out that any brand of ours regardless whether it's Brothers or Mountain or SNOSKI is in a situation where we can say another brand is growing and this brand now, we don't know what the line of sight is. I think that's a misconceived perception. That's because we are entering geographies basis on a lot of analysis of our right to win and the portfolio that we have, the markets are so different in terms of which segment constitutes a high salience in that market. And that is the primary reason for this. And that's going to be continuing to come our way for the next couple of years till we continue to add markets in terms of geography as well as growth. So that is the primary reason why you will see these fluctuations happening. So it's not at all a concern as we see it.

[Operator Instructions] The next question comes from the line of Hardik Jatheliya with ARDEKO PMS.