Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Radico Khaitan Q3 FY '20 Earnings Conference Call, hosted by Emkay Global Financial Services. We have with us today Mr. Abhishek Khaitan, Managing Director; Mr. Dilip Banthiya, CFO; Mr. Amar Sinha, COO; and Mr. Sanjeev Banga, President, International Business. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ashit Desai of Emkay Global. Thank you, and over to you.

Yes. Thanks. Thanks, Stephen. Good afternoon, everyone. We'd like to welcome the management of Radico Khaitan, and thank them for giving this opportunity. Now handing over to the management for opening remarks. Over to you, sir.

Good afternoon, ladies and gentlemen. Thank you for joining us on our Q3 FY '20 results conference call. Hope you have had a chance to review our earnings presentation and financial results announced yesterday. On today's call, I'm joined by my colleagues: Dilip Banthiya, CFO; Amar Sinha, Chief Operating Officer; and Sanjeev Banga, President in International Business. During this call, I will discuss the current industry environment, followed by an operational overview and outlook. Then, I will hand over the call to Dilip for a detailed discussion on the quarterly performance, followed by an interactive Q&A. During quarter 3, the IMFL industry volume growth was muted at 1.5%. However, despite a subdued industry performance, Radico Khaitan continued to deliver robust growth and outperform the industry. Our volume growth has been broad-based across our brand portfolio across states. In October 2019, we completed the expansion of the malt plant for our Rampur Indian Single Malt. Over the next couple of years, we'll be able to increase our production volumes. After a strong traction in the international markets, we have launched Jaisalmer Indian Craft Gin in India, in select states such as Goa and Delhi. More states are being added in coming months. Over the past few quarters, raw material prices have increased significantly. However, after peaking out during the month of October 2019, ENA prices have been in a consolidation mode in November and December. ENA prices have increased by 2% quarter-on-quarter compared to Q2 FY '20, and 22% year-on-year compared to Q3 last year. We are hopeful that with the improved monsoon and better crop this sugar season, raw material pricing scenario may be stable. With the ongoing product mix change and price increases, we are confident about maintaining our long-term margin expansion trajectory, along with increased operating cash flows. Given the significant cost push, our EBITDA margins are in a consolidation phase in FY '20. And from next year onwards, we expect our margin to resume the expansion path. During the third quarter, Radico Khaitan reported year-on-year volume growth of 13.9%, which was led by Prestige & Above category growth of 21%. Our revenue from operations increased by 17.2% during the same period. Our recently launched brands such as 8PM Premium Black whisky and 1965 Spirit of Victory rum continued their strong growth trajectory and make meaningful contribution. We launched 8PM Premium Black whisky in 3 more states during the quarter, making it now available in 14 states. And we'll continue to increase our penetration of this brand. We also launched Morpheus Blue, super premium brand, in the state of Uttar Pradesh. Our strategy of slowly and steadily expanding a new brand's market presence has been one of the key reasons behind the success of our brands. Given our ability to maintain the IMFL volume growth trajectory, we are confident of delivering improved profitability when the industry scenario stabilizes. With this, I would now like to hand over the call to our CFO for a detailed discussion on the operating and financial performance. Thank you, and over to you, Dilip.

Thank you, Abhishek. Thank you, everyone, for joining us on this call today. During the quarter, we reported IMFL sales volume of 6.45 million cases, representing a growth of 13.9% on Y-o-Y basis. This volume growth was led by Prestige & Above category volume increase of 21%. Prestige & Above category brand accounted for 29.4% of the total IMFL volume compared to 27.7% in Q3 of last year. Regular category volume growth for the year was 11.1% compared to Q3 of FY '19. In value terms, Prestige & Above category brands contributed to about 50% of total IMFL sales value compared to 48.7% during the same period last year. Net revenue from operation during Q3 of FY '20 was INR 648 crores, representing an increase of 17.2% compared to Q3 of FY '19. During this period, IMFL sales value growth was 20.8%. And as a percentage of total revenue, IMFL sales account for 82.3% of the net revenue from operations as compared to 79.8% in Q3 of FY '19. Gross margin declined by 90 basis points to 49.7% on Y-o-Y basis. However, on Q-on-Q basis, there is an improvement of 130 basis points. The increase in raw material prices are partly offset by higher IMFL price realization and higher contribution from IMFL business. Company also experienced a consolidation trend in ENA prices in the later part of the quarter. Adjusted EBITDA increased by 7.4% on Y-o-Y basis to INR 102 crores with a margin of 15.8%, an improvement of 70 basis points on a sequential basis. Radico Khaitan uses essences for manufacturer of various IMFL products. These essences are mixed -- these essences are purchased from various suppliers and mixed in certain proportion, resulting in a mixed essence. This mix essence is then used to flavor its IMFL products. The Central Excise Department stated that such mixing of essence amount to a manufacturer and therefore liable for excise duty. The company has decided proactively to settle the dispute under the Sabka Vishwas Scheme resolution mechanism by paying approximately half of the duty amount, thereby limiting the future liability and penalty and interest thereon. Therefore, the Q3 FY '20 included a one-off charge of INR 8.59 crores since the implementation of GST. From July '17, the company has been paying GST on manufacturer of essence. As on 31st March 2019, net debt is INR 361 crores versus INR 319 crores as on March 31, 2019. During this period, we saw some short-term timing delay in receivable collection, leading to temporary working capital build up in certain corporation markets. However, we don't see any credit risk with these receivable. The finance cost for Q3 increased by 6.1%, from INR 7.64 crores to INR 8.10 crores by -- given the higher working capital requirement. Management is focused on further strengthening our premium brand portfolio and deleveraging the balance sheet, which coupled with attractive long-term industry dynamics places us strongly for future growth. With this, we will now open the line for an interactive Q&A. Thank you.

[Operator Instructions] The first question is from the line of Chirag Lodaya from ValueQuest.

Congratulations on good set of numbers. Sir, my first question is on UP excise policy. So it has been notified a couple of days back. So if you would like to call out some key changes in this policy?

See the UP policy, the press note has come out, but as of now, it has not been notified. The fine print is not out as of yet. But what we can make is the policy is kind of same as what it was last year. And only when the price rate comes, then only we can comment more on it.

Okay. Got it. Sir, there has been a sharp decline in excise duty in this quarter. So what is the reason for the same?

So there are 2 reasons, Chirag, for that. One is that Telangana state has changed the duty point from first point to second point, right? This has been effective from October onwards. And secondly, the state mix has also changes where the incidence of excise duty are different. However, if you notice, in 9-month period, the gross excise -- the gross sales is up by 18.6% and the net revenue is up by 16%. So over the period, some quarter here and there because of the state mix changes, but over the 9-month period, it is in line.

Okay. Because sir, absolute excise duty incident from last 2 quarters was in the range of INR 2,000 crore. This quarter, it is INR 1,360 crore. So there has been a decline of INR 700-absolute crore. So is Telangana is such a large portion of our revenue? I'm just trying to understand.

I said that there are 2 things. One is the state mix and another is the Telangana incident. But as we monitor, most of our parameter on net sales revenue. So the excise duty is relevant only to us from the point of view of debtors.

Okay. And secondly, sir, in the first 9 months, we have seen 16% top line growth. At the same time, we haven't seen any operating leverage kicking in. So what would be the reason for this higher other expense? Because when I look at selling and distribution expense, they have also not gone up proportionally. So what would be the reason for the same?

So you would notice, in spite of a raw material scenario, which is stabilizing from Q3 onward, we have improved sequentially on our gross margin by 130 basis point to 49.7%, and also, on my EBITDA margin by 70 basis point. The other expenditure, which has been higher because, one, Cow Cess, which has been imposed from 1st April '19 in UP is not there in corresponding period last year. And secondly, there are certain expenditure -- one another country liquor, which we transferred to our depots. There is some excise duty component, so which varies depending on the depot stock owned by us in the -- our own depot. And third, there are certain provisions, which is in line with our expected credit loss policy on debtor and inventory. Keeping all these things and general increase in the other overhead, this is in line.

Okay. And sir, earlier, we were guiding for around 16% kind of margin for this year, but now going with the trend and Q4 generally is a weak quarter for us, so do you still believe this 16% is achievable for us?

So we have achieved 15.7% EBITDA margin in first 9 months. And I think stabilizing of the raw material scenario due to the good monsoon and all that is an indication that next year onwards we will be able to improve on our EBITDA margin by 100 to 125 basis point. And for the next 2 to 3 years, we plan to do that.

Okay. Sir, just lastly on overall cash flow for first 9 months and debt repayment expected by the year-end?

So the overall cash flow because of certain temporary tightness in certain states corporation has been -- the working capital requirement has been high, and we have increased to INR 361 crores, an increase of around INR 41 crores. However, we see that in this quarter, January to March, this will be reduced and we will be expecting something around INR 40 crore, INR 50 crore reduction on a year-on-year basis due to this. And next year onwards, then again the trajectory of debt reduction will continue.

So is it fair to assume INR 270 crore, INR 280 crore net debt at the end of March quarter? So INR 100 crore repayment in Q4, that's what you're hinting?

That is what our plan is.

Okay, sir. Okay. And what is the CapEx plan, sir?

CapEx plan ranges between INR 65 crore to INR 70 crore for this year.

[Operator Instructions] The next question is from the line of Amarjeet Maurya from Angel Broking Limited.

Sir, just wanted to understand on the other expenditure front. So what is the -- how much is Cow Cess as well as how much is debt write-off in that other expenditure?

So INR 7 crore is Cow Cess for this quarter and INR 20 crore in 9 months. And the provision for doubtful debtor and inventory both put together in this quarter is INR 7.5 crores.

Sir, as we know, we have successfully launched 8PM Premium whisky. So is -- you have any plan to launch next level premium whisky in same brand in 8PM?

Yes. So over the next 2 years, we certainly want to upscale our product offering to the consumer, which will be not at the same level as 8PM Premium Black, but in higher segments, with much higher contributions.

Okay. Sir, just last question. Can you give us some volume sense on 8PM Premium whisky in 9 months? What was the contribution in the premium segment in 8PM?

See, in the coming year, 8PM Premium Black should be close to 1 million case. And next year, in 2021, definitely, it will be more than 1 million case.

The next question is from the line of [ AM Lodha from Sanmati Consultant ].

Congratulations, sir, you have good -- for the good set of numbers. Hello?

Yes. Carry on.

Yes, sir. Congratulations for the good set of numbers. I just wanted total debt as on 31st December 2019, total debt in the company?

Yes. So we have already given in our investor presentation the total net debt as on 31st December '19 is INR 361 crores?

INR 361 crores?

Yes.

Out of that, can you give me -- if you can figure a term loan versus capital loan?

Term loan is major amount of around INR 15 crores.

Term loan is?

Yes, term loan and the rest is working capital.

What are INR 361 crores?

Yes, both put together is INR 361 crores.

INR 361 crores, sorry.

INR 361 crores.

Okay, INR 361 crores?

Yes.

Sir, just I was listening to other -- your old con call, when the management indicated that the company would be debt free by 2021. Now yesterday, I was listening to the interview of Sri. Abhishekji Khaitan on the ET Now, and they have indicated there the company will be debt free by 2022.

So the point is that you -- in our opening remark also we said that there are certain working capital increase in certain states, which is a corporation market. And since the state government and central government, there is some tightness in liquidity. So this year, the expectation of creating INR 100 crores plus cash flow has been reduced. And I think the company has also planned for this '21 has gone to '22. However, the trajectory of reduction of debt will continue. And this is a temporary case.

Okay, sir. That's what we see. One clarification in this debt reduction. And the management means debt reduction from as well as working capital, both?

Both, both.

The next question is from the line of [ Neeraj Prakash from Nepean Capital. ]

I just wanted to ask regarding your volume growth. I mean how are you able to execute such a high volume growth versus the very meager industry growth rate that's there? And in that context, do you think you're taking sort of an undue risk when it comes to receivables versus your competitors who are sort of being much more cautious when it comes to growing their volumes?

So I think if you really come to see it, all the investments that we have been making on our brands in terms of marketing are right now paying off pretty well. The brands are buoyant at the tertiary level. The consumer offtakes have significantly improved over the previous year. So if there is liquidation at the tertiary level, which is at the consumer level, we see no risk of any bad debts in the times ahead. So overall, the brands are all very buoyant in the premium segment upwards, and the company sees a very optimistic view ahead.

Okay. And just secondly, what would your 9-month CapEx expenditure be? And I think you had mentioned the cash generation as well. I just missed that figure.

So cash generation is as per the EBITDA number, then profitability and CapEx is in the range of around INR 65 crores.

And the CapEx is primarily being spent on what?

There are 3, 4 items. One is, as we have already told about that malt capacity has been tripled in this year and started commercial production from October 2019. Then there are printing line, which has been further commissioned to -- for the Magic Moments. And there are more CapEx on the bottling line because our volumes are increasing. So these are the CapExs -- major CapExs.

And just if I could sneak in a last one. Post the sort of debt reduction that's going to happen over the next year or so, what is in generally a sort of capital allocation priorities for the cash that you'll be generating, the free cash? I mean would it be increasing dividend payouts, any sort of M&A? Or would it be continuing CapEx?

First of all, it's -- next 2 years, we have to make our debt 0. And thereafter, whatever is good for the shareholders at large, we will be doing whether it is a higher payout or buybacks and all that. So I think we'll have to see at that point of time the taxation system, which is more efficient to give the money to the shareholders if we're using those modes.

The next question is from the line of Naveen Trivedi from HDFC Securities.

Congratulations on a very good set of numbers. Sir, like -- I just wanted to understand if you can share the -- how has been the performance of your brands in the key market? Because like you mentioned about the industry was weak, but despite that, considering your own initiatives has played out really well and that you gain market share, if you can just give us some flavor about the performance of key states?

Right. Actually, our growth in the premium space has been across all segments, like in all geographies, we are growing very well, right, from north, north India, east, west, CSD and south also. Export has also done well. However, in particular, if we talk about, then Uttar Pradesh has been a good growing market where the industry has also grown by 12%, and we have grown around 17%, 18%, then Andhra Pradesh, Telangana, Karnataka, Assam, West Bengal, these are some of the major markets. Uttaranchal, where we have grown better than industry.

And in third quarter, did you also get any opportunity to also channel filling because if you look at the numbers in first half and this third quarter, it seems that there can be some states where you also got an opportunity to channel fill. And just to understand the point of view when -- if I have to see the sustainability in your performance, I just wanted to know what is the real demand for your product? Is it like some benefit was there in the quarter?

So the channel filling means, see, there is no overstocking at corporation market. The stock levels are still what we plan and make. It is -- as Amar Sinha said, that since the brand is buoyant at tertiary level, so the depletion is good and it will continue. The growth will continue because we are watching the tertiaries rather than building the brands on primary level.

Fair point. And in the other expenses side, you mentioned about Cow Cess of around INR 7 crore, and then there are a few overheads cost also is there. So just to understand like-to-like EBITDA growth, is there any -- similar kind of expenses was there in the last year third quarter also? I mean to say the certain provisions...

Cow Cess was not there in third quarter last year, which has been implemented for this year. So this is one single big item, which is for this year. As far as the other like, country liquor duty, it depends on the quantum of stock in our depots. So it can vary depending on increase and decrease in stock level at the depot level. The third thing is regarding the -- some provisioning against the debtor and inventory as a prudent accounting policy, we have ECL policy. So that also is normal with this kind of turnover and volume to have INR 5 crores to INR 7 crores of this provisions and write-off in some debtors and inventory.

So these numbers are also there in the previous -- last year also?

Some number must be there. I can't say how much was the provisioning. But this year, the provisioning has been done looking at the expected credit loss policy of the company.

The next question is from the line of Chanchal Khandelwal from Birla Mutual Fund.

Congrats team on good set of numbers. Just 1 thing, Andhra, what are the changes in policy which has happened? And how is that impacting the industry in general? You are gaining market share, but what are the changes which has happened in the industry?

So I think the significant change that has taken place in Andhra is the route to market where the retail points have been acquired by the government. And it is taking its initial phase to settle down, which we see happening over the next quarter.

And also, is there a policy of reduction in the number of retail outlets over the next 2 to 3 years? Is there a time line defined?

So they have talked about reduction of few outlets, but those numbers will not affect the market because whenever there is a contraction in the selling points, the per unit sales, which is per retail outlet sales goes up, which is what we have seen by experience. And -- so we don't see any major threat as far as that is concerned. Andhra will continue to be a buoyant market.

Sure. And the disruption which happened in last quarter would have hampered the industry by any chance?

See, what has really happened is that there is no fading out of consumer demand. The stocks which were held by depots by the government have virtually come to 0 levels. So it's just the initial phase of disruption, which will normalize in this coming quarter.

Sure. Lastly, on the volume growth, you have gained volume growth, both in Prestige and Premium. So how much of this growth is coming because of handling of new geography or new territory? The reason I'm asking is, most of the consumption companies are talking about the slowdown or slower growth as you have been accelerating in terms of growth. So if you can help us understand better.

So I think the overall market in India continues -- the geography continues to remain the same. We have been in the market for substantial number of years. Therefore, our width of distribution is complete. So there is no new geography. But as I mentioned earlier that we've made significant investments into marketing our brands over the last 2 years, which has now started paying off, and that's what we are seeing. Also, if you see what has really happened is that the 2 or 3 new launches like 1965 rum; the premium version of Magic, which is Verve; and 8PM Premium Black, all 3 brands, which have been launched have been showing signs of success, which is also adding to the growth.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, what is the progress on the whisky portfolio of ours in terms of growth, in terms of contribution to our volumes and in terms of market share? And we have this whole ambition to grow our whisky portfolio in a couple -- next couple of 2 years. So where are we on that strategy?

So as far as the current whiskey portfolio is concerned, which is dominated by 8PM and 8PM Premium Black, and the volume side, we account for around 40% of our portfolio coming from whisky segment. However, as far as the new launches are concerned, I think Amar has already spoken about that we have 2 new brands to be launched at a much higher price level. So we will see, as with a different concept. So you will see these launches with higher prices and higher contribution. Do you want to add more?

So as you are aware, that 60% of the IMFL market in India is controlled by whiskys. So we have made significant progress with 8PM Premium Black at the Royal Stag equivalent level. However, as I mentioned, the 2 products that are already on the drawing board will see the light of the day in the next 2 years with significantly higher contributions. That places Radico in a unique position to exploit the opportunities of the whisky market in the times ahead.

What will be the volume growth in whisky 9 months FY '22 [ for us ]?

See, we see this growth actually not segment-wise but by the price point-wise. So the price point in Prestige & Above has been growing by 21%. And in 9 months, it has been growing by 17%.

So the overall growth of 8PM by itself is more than 12%, which we see it consolidating even better in the times ahead.

Okay. My next question is, this year, we had this capacity-related environment expense for that facility of ours in the 9 month. What would be that figure expensed in the P&L?

So we have already intimated in our Q2 results that around INR 15 crores has been the impact on account of buying of ENA from outsourced for our country liquor and INR 7.20 crores has been paid as penalties and all INR 22 crores is the direct impact. And then there are certain legal and other -- all other expenditures. So you can say that INR 25 crores has been on account of the -- impact on account of the reduction in our capacity.

Okay. And lastly, sir, on the RM...

Sorry to interrupt, sir, but for any follow-up requests, would you rejoin the queue, please. The next question is from the line of Himanshu Shah from Dolat Capital.

Most of my questions have been answered. This -- you would like to call out any specific time frame for new product launches? 2 years, we have been guiding even last year for new product launch beyond 8PM Black. So any specific time line you would like to call out?

Yes. So we are seeing the launch of a new whisky. One of them is planned for July 2020, which is 1 segment above.

Okay. Fair enough, sir. Sir, secondly, you would like to call out -- you've already called out UP state and a couple of other names. So can you just call out at the top the growth percentage and volume for top 3 states? What would have been the growth percentage?

Himanshu, your voice is not clear. Can you repeat it, please?

Yes, sir. Can you just call out top 3 states, what would have been the growth percentage, like UP was around 17%, 18% besides another 2 or 3 more states where you would have grown higher than the company average of 14%?

Yes, there is Uttaranchal, there is Andhra, there is Telangana. Everywhere, we have grown more than double digit. There's the Assam, we have grown. West Bengal, we have grown. Maharashtra, we have grown more than double digit.

Okay, okay. Even in Andhra too because Andhra, I think, sir, the market has shrinked by around 30%, 35%. And in such a shrinking market, we have seen such a large growth?

Yes. As Amar told that there are good traction about our premium brands, especially the Morpheus brandy, the Magic Moments flavors, the Old Admiral Brandy. So we are gaining market share.

The next question is from the line of Sachin Kasera from Svan Investment.

Congrats for a good set of numbers. Sir, on the margin expansion, you mentioned that from next year, we are looking at 70 to 100 basis point for the next 2, 3 years. So is it cumulatively or every year?

It will be CAGR, every year.

Okay. And second was, you mentioned that you expect the raw material prices to become a little benign going ahead. So can you tell a little bit more about what you see the confidence for this reduction in RM prices?

So we have seen worst in this scenario, like in first 9 months. The grain prices are up by around 25% plus. The ENA price has been up by 22%. And now from October, [ November ], [indiscernible] seeing this declining trend. So we expect this trend to be here and consolidate a bit here. At the same time, the prices of ENA have gone much higher than the prevalent ethanol prices. So there was a comparison when it started going up, that ethanol -- supplying of ethanol is better than making ENA. But when we have seen that it has gone much higher than ethanol price, so there is now correction happening in ENA price.

Sure. And can you tell a little bit us around the pricing scenario of your products? How are you seeing any price happening or...

So it is a continuous process, Sachin. And when we have seen around 22% increase in our raw material prices, there are interactions happening with various states. And some of the large southern states might consider in ensuing time. So we expect price increase to continue, and this development takes place we will be informing you.

The next question is from the line of Sangeeta Purushottam from Cogito Advisors.

Congratulations for a very good set of numbers. I joined the call a little late, so I don't know whether this -- it has already been asked. I just wanted to understand that in the -- there has been a fairly sharp increase in other expenses in this quarter. If you could just help me understand what that is on account of? The second question I had relates to a previous question, where you said that there has been -- there was a INR 25 crore hit that you took on account of the temporary reduction in the capacity because of the environmental issues. Now out of that, you have, I think, shown about INR 7 crores as exceptional item. So does that mean that the rest of the INR 18 crores has been absorbed into the normal P&L, and this is an expense that we should expect will not repeat next year?

So Sangeeta, to your first question regarding the other expenditure, the first point is that Cow Cess which has been imposed by Uttar Pradesh government, so for this quarter there has been an impact of around INR 7 crores on account of that. Then there are excise duty component on our transfer of stock of country liquor to the depot, so there is also 5 4 -- INR 4.5 crores impact on account of that, which goes up and down depending on our stock level in the depots. And it is a contra entry because it comes in the stock valuation. Third thing is that, as per the accounting policy, prudent accounting standard, we have created a provision of around INR 7.5 crores on account of the debtors and inventories. These are the major items. And then there are some general increase in our other overheads because of the volumes, et cetera. Now to your second question regarding -- what was your second question? Can you repeat?

My second question was that you mentioned earlier that because of the temporary shutdown in your capacity...

I have understood, I recall it now. So the second question regarding this that this INR 7 crore is an exceptional item, which is as an environmental penalty which has been paid and the rest INR 18 crores is part of the raw material consumption. So it is not a repeat and it has been absorbed.

Right. So this is something which will not happen next year, right, because you don't have to buy ENA from outside next year and you don't have to incur any other disruption. So does that mean that if you are comparing the 2 next year, this cost should be lower by this amount?

Yes, it should be lower by this amount.

Okay, fine. And just 1 clarification on your first answer. This Cow Cess and this -- is it a recurring item? I mean is this something going to be part of the expenses going forward or was that one time? What is it really?

Yes, Cow Cess is going to be continuing because UP has levied this as a levy to protect the cows. So it will be a continuous thing. The more the sale goes, it is per case which we have to pay to the UP government.

It is per case. Okay, okay.

Yes. It's part of the Cow Cess.

And you paid whatever has been shown in the third quarter, is it accumulative of the whole year because you've paid it in Q3? Or it will be INR 7 crores each quarter?

So it's INR 7 crore -- INR 6 crore, INR 7 crore each quarter depending on our volume. So this quarter, volume has been high. So it is higher. Otherwise, it is for 9 months, INR 20 crores.

Okay. Okay. Wow. And it was already there in the earlier quarters also?

It has been, yes.

No, this Cow Cess started from April 2019.

Okay, fine. All right. And this is volume linked?

Yes. But already...

Okay. So this will grow -- if your volumes are growing 15%, the next year, this will grow 15%?

No. It depends on the volume of Uttar Pradesh. This Cow Cess is only pertaining to UP, no other states.

Right, right, right. Okay, fine. Then this provision for doubtful debts that you have made, do you -- the INR 7.5 crores, what is the annual provision or what is the, say, 9-month provision? And is this like a normal provision, which will be made each year?

So we have a policy, which is as per the accounting standard of expected credit loss. So if that does -- age goes beyond 6 months, then certain percentage is being provisioned out. The recovery -- yes, and if it's recovered, then it is returned back, right? If it goes beyond 1 year, then, of course, there is, again, the certain percentage, which is being created. So based on that policy, this provision. And there are certain normal inventory losses in various SKUs this kind of -- in 26 states. So those are normal provisions.

Right, right. Is this -- if you're modeling it, then is this something we could take as a percentage of sales? And is that how you would look at it? And what would that end up being? So let's say, for the first 9 months, what are your total provisions have come inventory losses?

Yes, first 9 months, it is approximately INR 10 crores.

It's approximately INR 10 crores. Okay. So it was a bit sort of effectively loaded on to this quarter?

That's right.

The next question is from the line of Mayur Gathani from OHM Group.

This may be a repeat, but your current net debt is INR 361 crores. And did you say that you will have the net debt come down to INR 270 crores by the next 3 months?

See, the point it is all because of the -- some overdues. We have around big amount, INR 150 crores of overdues from these markets. So I think that INR 50 crores overdue if we continue with, then INR 100 crores which is released out of it and some cash flows and all that. So we expect this to be -- the last year, it was around INR 309 crores, INR 310 crores as our borrowing. So we expect that to come at INR 280 crores to INR 270 crores.

Okay. Any specific states that you can refer to where this has actually gone up?

See, it has basically gone up in 3 corporation markets, that is, one is the CSD, one is Telangana and one is Andhra. So here, the monies are absolutely safe because it is sold to the government. So the minute the government funds come, the overdue will be all released. So I think it's a matter of time before they release the payments.

Okay. And what is the exact 9-month cash flow?

9 months cash flow, basically, out of the EBITDA number, the interest and the CapEx and dividend has to go out. Otherwise -- actually, I can't give you the number, right now, but it is all in my results.

Fair. Okay. I'll clear that out, sir. Fair. And the industry only grew 1.3%, whereas you have grown 16%?

Yes. In Q3, the industry grew by 1.5%, and whereas we have grown around 13.9%.

The next question is from the line of Jasdeep Walia from Infina Finance.

Sir, can you highlight the major changes in state taxes in the first 9 months of this year? And if any changes are expected in the fourth quarter?

There has been no major change in the tax structure in the last 9 months.

Okay. And any major changes expected? Or any major state is going to come out with its taxation policy in the fourth quarter?

It's difficult.

No, it always happens during the month of April. So I think next 3 months, there's not going to be any hearings.

The next question is from the line of Vishal Biraia from Aviva Insurance.

Sir, this year, we saw extended monsoons. Would it -- did it have a negative impact on the industry? Would you think so?

So as far as the estimate of the government says about the grain production and all that, as we have been now watching that, it is all-time high. So we don't foresee that extended monsoon has any impact on the grain production as a country as a whole, so grain prices to stabilize or decline. As far as [ molasses ] is concerned, yes, the UP, we have good this thing, so it's a benign kind of situation.

And sir, also in terms of demand, would -- extended monsoon, would it have affected the demand, say, October was a very month -- very wet month, rains continued in some of the states till November as well -- mid-November as well. So had that not been the case, would demand have been higher?

Demand of what, our finished product?

Yes. For the finished product, yes, sir.

So demand, as we said, that industry is growing by 1.5% in Q3 and 9 months 2.5%. So it is part of the general slowdown in consumption across the various categories. Last year, the industry growth was around 9%. So if we see a good budget and all that and if consumption is again being brought as a center point in that budget, then we see that demand to again come back in this industry.

The next question is from the line of Rakesh Roy from Indsec.

Sir, my first question is related to your branch in Jaisalmer. You have launched in Delhi and Goa. Is there any plan to launch in other states? And how they perform in market, sir?

Well, the response to Jaisalmer both in the international markets and the 2 markets that we've launched in India has been very encouraging, and we would be launching it in a lot of other states also in the coming months.

Okay. Sir, any other brand you would like to launch in the Indian market also, apart from Jaisalmer or like Rampur?

We have our Rampur Indian Single Malt. As we said, we are kind of constrained because of the production capacity that we have. And we've enhanced our malt production capacity. So once the fresh volumes start kicking in, we will definitely be launching it in Indian market as well.

Okay, sir. Sir, can you give me a number of unit for Jaisalmer for this quarter? Any idea, sir?

I'm sorry, but we don't share specific brand numbers.

Okay. Right, sir. Okay. Sir, my next question is related to, say, any price hike in near future, sir?

For?

A price hike?

No. Across our IMFL categories or what?

Only for IMFL, sir?

So as Mr. Banthiya just mentioned a little while ago that considering the cost impact inflation that's around dialogue with various state governments in the north and south is on. We hope to see some breakthrough in the next fiscal.

The next question is from the line of Chirag Lodaya from ValueQuest.

Sir, just 1 clarification. This Cow Cess is 0.5% of the gross sales you do in UP. Is the number right?

No, Chirag, it is depending on the SKUs, like this is on quad-term pricing, some per case is there on pine, which is 375 mL, there is some amount per case is there, which is very well prevalent in the policy itself. And you can see those things on the UP excise website also.

Okay. And now this Telangana, you mentioned this taxation has moved from point A to point B. So in that sense, then working capital will be freed up for us in coming months. That is fair assumption?

Yes. It's a fair assumption in a status quo situation. But since the state is reeling under this liquidity tightness, so that impact of the better realization or lower working capital has not yet resulted.

So this -- currently, this is excise duty -- who's paying this excise duty now? When you are not paying, then somebody else would be paying, so.

The retailer while lifting the stock is paying, but there is a certain proportion in that also.

See, earlier the excise duty was paid by the brand owners and then we used to pay the excise duty and put it into the depot stocks. But we had talked with the government and fortunately they listened to us, and now we do not have to pay the excise duty. The excise duty is paid by the retailer when they come to lift the stock from the depots.

Okay. Is this a temporary situation where this arrangement has been made because there -- I mean your outlets are going up?

This is permanent.

This is part of the policy now.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, what is the price increases we would have got in the last 9 months, if you could give blended, if possible?

Yes. So it is 1.3% to 1.4% in a blended basis on IMFL turnover.

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for closing comments.

So we will continue to do our work on markets and would give the choices to the consumer. That's all our endeavor to create their brand portfolio, which can -- which is unique and better from our competition. That's all. We will continue to do our work. Thank you.

Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.