Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Q4 FY '20 Results Call of Radico Khaitan Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note, that this conference is being recorded. I now hand the conference over to Ashit Desai from Emkay Global. Thank you, and over to you, sir.

Yes, thanks, Lizan. Good afternoon, everyone. Would like to welcome the management of Radico Khaitan and thank them for giving us this opportunity. With us, we have today Mr. Abhishek Khaitan, Managing Director; Mr. Dilip Banthiya, CFO; Mr. Amar Sinha, COO; Mr. Sanjeev Banga, President of International Business; and Mr. Mukesh Agarwal, EVP, Finance. Handing over the call to the management now for opening remarks. Over to you, sir.

Good afternoon, ladies and gentlemen. Thank you for joining us on our Q4 and full year FY '20 results conference call. Hope you are all well and keeping safe. On today's call, I'm joined by my colleagues, Dilip Banthiya, CFO; Amar Sinha, Chief Operating Officer; and Sanjeev Banga, President, 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 Q&A. Before I get into the performance overview, I would like to discuss how Radico Khaitan is positioned in these unprecedented times. As you are aware, COVID-19 has resulted in significant economic crisis, not only in India, but also across the globe. The nationwide lockdown had brought business to a halt and disrupted almost all sectors of the economy. However, we believe that it is a temporary case for our business. And after the lockdown is over, we shall return to normalcy soon. There is a lot of uncertainty around the timing of recovery from this pandemic. Therefore, it is even more difficult to assert with the impact on the industry as a whole and our business. There are a number of questions in our minds such as the effectiveness and the adequacy of the containment efforts, development and availability of vaccines, et cetera. However, we know for sure that Radico Khaitan has a trusted brand portfolio that our consumers love and cherish. We have a robust balance sheet position and a strong professional management team, which will continue to drive our future growth strategy. We are closely monitoring the situation and has invoked crisis management actions to ensure the safety and security of the team as well as uninterrupted operations. And safety [ in the living ] of our employees is the utmost priority. We have implemented the stricter standards of social distancing in supply chain, use of PPE as well as strict hygiene and sanitization procedures at our offices and factories. Radico Khaitan is strategically focused on a few things which will enable us to emerge stronger after the crisis. First and foremost is our focus on strengthening the brand portfolio. We will continue to launch brands in the premium category, which will contribute to the future growth. As you are aware that digital has been an important part of our marketing strategy, we will reassess and refocus our [ ALSB ] strategy, and we believe that going forward, the share of digital will increase even further. We are also reviewing each and every fixed costs. This will enable us to become leaner on our operations and cost structure. Finally, we are leveraging technology to drive transformation in the work environment and support the workforce. This will make us future-ready. During this period, Radico Khaitan stands in solidarity with the -- with other nation, and we are humbled to have been able to make a small contribution to the nation's fight against COVID-19. In addition to cash donation, we continue to supply sanitizer to various district administrations in Uttar Pradesh and other government agencies. Despite a tough backdrop of the economic slowdown in the first 11 months of the fiscal year and lockdown in March 2020, Radico Khaitan has delivered a strong and profitable growth during FY '20. We delivered a double-digit IMFL growth of 13.1% in Q4 FY '20 and 12.5% in full year FY '20. Industry volume growth during the year was only 0.5%. Radico Khaitan's outperformance is a reflection of a strong brand equity and consumer-focused brand portfolio. Management continues to make strategic and highly targeted investments in innovative marketing and products to gain market share. We are confident that we will continue to outperform the industry and strengthen our market positioning in the years to come. As discussed on our previous call, we experienced a consolidation trend in ENA guidance in the fourth quarter. ENA prices have decreased by 2% quarter-on-quarter compared to quarter 3 FY '20 but have increased 19% compared to FY 2019. We believe that with an improved monsoon, better crop this sugar season and significant decline in the crude prices, raw material pricing scenario may be stable. Revenue from operations increased by 15.7% during FY '20. Two of our brands are approaching the milestone of million case volume in the near to midterm. I'm also proud to report that 8PM family of brands has crossed volumes of 10 million cases during FY 2020. While the near-term outlook is unclear at the moment, we are confident of the medium- to long-term dynamics of the IMFL industry in India. Given our ability to maintain the IMFL volume growth trajectory, we are confident of delivering improved profitability when the industry scenario stabilizes. As we move into FY '21, we will continue to take next [ 3 ] steps to maintain our robust foundation and financial strength, while at the same time, delivering differential consumer experience. 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 year, we reported IMFL sales volume of 24.3 million cases, representing a growth of 12.5% on Y-o-Y basis. The volume growth was led by Prestige & Above category volume increase of 15.2%. Prestige & Above category brand accounted for 29% of the total IMFL volume compared to 28.3% last year. Regular category volume growth for the year was 11.4% compared to FY '19. In value terms, the Prestige & Above brand contributed to about 49.5% of the total IMFL sales value compared to 47.9% during last year. Revenue growth from operations during FY '20 was INR 2,427 crores, representing an increase of 15.7% compared to FY '19. During this period, IMFL sales value growth was 18.5%. As a percentage of total revenue, IMFL sales account for 81.5% of the net revenue from operations as compared to 79.6% in FY '19. Gross margin declined by 200 basis points to 48.6% on Y-o-Y basis. The increase in raw material prices were partly offset by higher IMFL price realization and higher contribution from IMFL business. Adjusted EBITDA increased by 5.4% on Y-o-Y basis to INR 68 crores with a margin of 15.2%. EBITDA for FY '20 was adjusted for INR 24.2 crores pertaining to exceptional items, including the write-off of debtor in behalf of INR 8.56 crores in Q4 of FY '20. INR 8.59 crores was paid on the [ GST ] during Q3 of FY '20 and an environmental compensation of INR 7 crores was paid in the H1 of FY '20. Finance costs during FY '20 decreased by 10.9% on Y-o-Y basis from INR 35.48 crores to INR 31.61 crores. As of March 31, 2020, net debt was INR 382 crores versus INR 319 crores. During this period, we saw timing delays in receivable collection, leading to temporary working capital buildup in certain corporation markets. However, we don't see any credit risk with these receivables. It is important to note that major portion of the overdue receivable has been collected during the next 45 days after the year-end. Abhishek has already discussed in detail about the current business environment and the market position. Let me try and highlight some of the steps we have taken to preserve our financial strength and operational continuity. During the lockdown, the manufacturing of the grain ENA and bottling of IMFL products and [ contributor ] was suspended from last week of March to the first week of May. During this period, we started the manufacture of sanitizer to support the nation's fight against COVID-19. We have developed the company-wide policy framework to reflect how system processes need to change post-COVID 2019. We are starting operation wherever possible with the necessary clearance and permissions. As the lockdown are easing from currently onwards, we are ramping up our operation in both production and dispatches. We have a strong financial position, comfortable liquidity. All fixed costs and planned and unplanned CapEx are being resumed to ensure optimization during this period. Going forward, we expect some OpEx savings due to our tight cost control, which will enable us to grow our EBITDA and maintain EBITDA margin. Further, in line with our strategy of being an employer of choice, we have continued to support our employees with 0 salary reduction or job losses during this period. To summarize, as we step into the new financial year, we are keeping all necessary steps to sustain our financial spend, robust business model, continue to grow consistently, competitively and profitably. With this, we will now put the line for Q&A. Thank you.

[Operator Instructions] The first question is to the line of [ Neeraj Prakash ] from [ Nepean Capital ].

I had my first question on costs. If you can just sort of break up the gross margin impact that you had this quarter from the inflation in ENA versus, I guess, price increases taken from glass players and packaging. And secondly on cost is -- your other expenses has fallen year-over-year as well as quarter-over-quarter. So what has sort of driven that reduction in other expenses?

Yes. So your first question regarding the gross margin, in this period on Y-o-Y basis, our gross margin was down by 200 basis points at 48.6%. This is mainly on account of the raw material prices, the molasses prices, the ENA prices, the grain prices have gone up. This, after having a higher realization from IMFL business and higher growth. As I said that IMFL business during the year has grown by 18.5% versus the normal -- the non-IMFL business growth [ sale ] was just 5%. So because of that some compensation, so the 200 basis points is on account of the raw material prices on a absolute figure basically we pay, that approximately INR 90 crores was the impact on Y-o-Y basis on account of the higher raw material prices, which has been absorbed in this year. As far as your second question regarding the other expenditure, we're all, at Cow Cess, levied by the Uttar Pradesh government. And because of that, there has been an increase of INR 20 crores during this period. So other expenditure is mainly increased on account of that. And rest is the normal capital expenditure. And as we said in our opening remarks that we are looking at each cost item and looking at tighter control, so we will have some saving on the other overheads this year.

Sure. And just lastly on your receivables front. As you mentioned, you've seen an increase in receivables by roughly INR 200 crores year-over-year on your balance sheet, so -- which has been a significant drag on your operating cash. So can you give us some color on who the receivables are from? And sort of what and when do you expect to sort of collect them?

Yes. So as I already explained in the opening remarks that there were some timing delays from corporation market. And because of that, there were overdue as on March 31, 2020. In next 45 days of this, we have collected almost INR 100 crores from these over dues, and my debt today stands at INR 300 crores from INR 382 crores, which are on March 31, 2020.

Okay. Sure. And just lastly, in terms of the delivery of alcohol, which is now happening to people's homes across many states, are you seeing that being -- are you seeing any trends in terms of it being widely adopted, and therefore, you're seeing more traction in terms of incremental volumes?

See, I think the trend of home delivery is a huge structural change for our liquor industry. As of now, it's too soon to make a comment because only in a few states like Jharkhand, et cetera, delivery has started. But I think the most important is the trend because the minute it gains space, the distribution becomes very free for alcohol, which was earlier restricted. And, especially, people, who are little hesitant to go to alcohol starts to buy, especially the women, et cetera. It's not that -- home delivery would be a boom for the customers.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Yes. This is Pritesh. Am I audible?

Yes, yes. Of course, yes.

Yes. Just 2 questions. One, across the states, there are these multiple excise or indirect taxation increase, and different states have different percentage. Is it possible to share what would be the blended excise increase, considering the states which you've announced? And is there a corresponding MRP increase which have already been effective? So that's one question. And second question is, we have a lost volume in the first 60 days or, let's say, first 45 days of the year. Based on the trends that you are seeing now, is there -- that the stock out would have happened? And do you think that there is a probability that these lost volumes can be covered up for the year, and there can be some growth for the year?

So I will say this increase in excise duty -- you can have it. Increase in excise duty is 100% passed on and MRP has been increased to that extent, okay? Second, your question regarding the -- for the inventory pipeline. I take Amar to speak about it, inventory pipeline.

So first of all, I will read to repeat. Most of these tax increase is [ RMP ] last month. And therefore, there has been a commensurate increase in MRP without impacting the bottom line of manufacturers, point one. Point number two, the pipelines in the trade are actually very low. And therefore, as trade normalizes, the pipeline filling will actually take place, and the consumers will start picking up their preferred choice of brands. So demand is going to come back.

So based on that, do you think that this lost volume of, whatever, 30, 70 days that's lost, primary volumes of the 30, 40 days can be recovered for the year?

Right now, to make any comment would be too soon because the -- but what we can say is that [ if you go to like ] those places where the shops have been opened, our sales have come back to 80% of the normal rate. So I think as time passes and how the government plays out, it is quite subjective. But in radical, we will be outperforming the inventory in terms of volume. And I think the demand for user would be the soonest to come back.

And from supply side, are you ready? Or are there any challenges there from the supply side now?

We've got total in 32 units. And as of today, all the 32 units have started operations.

It can be ramped up to that 80%, 90% of the demand filing if required, or there are challenges there?

The challenges in the beginning are there, but once the unit starts to ramp up [Audio Gap] problem because labor-wise, et cetera, all our labors are local, so I think we don't have that challenge.

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

Congratulations on a good numbers. So sir, could you please explain us about the -- your relation growth in the P&A side. It was very strong versus what we have seen the -- between the previous few quarters. And why the regularization was down 8% this quarter?

See, P&A in this quarter had grown by 11.3% Y-o-Y basis. Yes, Q-on-Q basis, there has been -- because the [ third ] quarter, you're almost see that in volume. As far as the 12 months is concerned, our P&A has grown 15.2% versus the regular brand at 11.4%. So both have grown, but Prestige & Above had outperformed. So the regular category, lower growth, as our focus is -- because our focus is mainly on the Prestige & Above category. So we are continuing to focus on Prestige & Above category. And as I currently told, onward, there has not been any dispatches. And that is the period where the dispatches takes place before the year-end new excise year starts and the pipeline filling also happened. So that -- we lost those sales, which is also a significant sales. But in spite of that, I will say that the quarter volume has grown by 13.1%.

Sir, my question was more with respect to the realization growth which we have seen during this quarter. I assume that the P&D relation was up 4% to 15% this quarter.

So actually, realization in Prestige & Above category, sometimes, it depends on the state mix also. State mix and where -- because of the last [ 7 ], 10 days, the pipeline inventory filled up. Amar can speak on that in detail.

Yes. So the last quarter, we saw a healthy growth in our premium brands in the southern markets, which has really impacted well for us.

The price realization also depends on the EDP of that particular prestige brand in various states.

Okay. I assume that the north market is relatively positive for your [ realization ].

Yes, yes. North markets are having higher EDP in prestige category.

Fair point, fair point. And with respect to the -- what we have also observed for other consumption categories also, the aggregate demand is also -- seems to be more muted for FY '21. So do you see that this will also impact to your P&A journey, which in FY '20 was very robust? Do you think that this can impact to your P&A growth? Or you think that this can be an opportunity for you, considering the price points at which the P&A is available for you, this can be an opportunity for you?

See, what we feel is, as I said back, we have to see how the COVID plays out. And if the lockdown is lifted and everything returns back to normal, I think the P&A will start going faster than the regular range.

Okay. And just lastly, on your -- the P&A realization side, although there were lots of -- you're saying the mix also has changed. But even if I look at your annual realization also is pretty healthy. So do you think that this INR 1,400 crores to INR 1,450 crores kind of a realization is sustainable going ahead?

See, the realization per case depends, as I said, on the state mix. So basically, P&A, we'll look at the contribution per case, and those are in almost same bracket. So I think that realization per case sometime is a matter of the metric of the state mix. But in general, yes, it should continue.

[Operator Instructions] The next question is from the line of Vishal Biraia from Aviva Insurance.

Sir, what is the current capacity utilization across our 32 plants that you said were operational?

We have -- actually, the capacity, as Abhishek has told in his opening remarks that all the 32 units are well prepared to cater to the demand in this bracket. But at this point of time, as we said that 60%, 65% of the shops have opened and operated. Next 2 weeks, we see that most of the shops will come in play. And as we have to also see how the consumer behavior takes place and these excise duty hikes in particularly couple of states where there's abnormal hikes, so how the industry behaves. So we will cater to the market demand, but our preparedness, as far as supply chain is concerned, is geared up.

So I mean, assuming that 60% of the shops open in the next few weeks and we are back at about 80% level across India, so would the plants be currently preparing for such an eventuality? So would they be operating at plus 75% utilization currently? Would that be a fair understanding?

Absolutely. Absolutely. Yes.

Okay. Okay. And any specific states that you want to highlight where the dues are much more than normal?

Now you mean to say dues?

Yes, or receivables that we want collect from the states.

No, actually, there were only a couple of states, which were like timing [ netback], and those -- for last 45 days, we have collected most of the high over dues. So that's how the debt is down to INR 300 crores. So there is no specific where the dues are -- over dues are high now.

Okay. Okay. So just one last question. Is that -- because of the increase in excise duty across many states, would a regular grow -- would they be down trading? Would regular grow more than P&A? And in case happens, would that impact on margins in FY '21?

See, in the states where the excise has been increased from 10% to 20%, there, where we don't see any down trading happening. But like certain states like Andhra and Delhi, where the excise has been increased by 70%, definitely, if it continues, there'll be a down trading there. But we believe that it is a temporary measure. And because if the volume is lost, the excise would be -- if this will be a COVID state, it will be -- got back to normal levels.

Okay. So if this happens, there would be a decline -- there would be some impact on the gross margin, sir, at least for the near term or until that and because of the down trading?

See, right now, there are only 2 markets like Andhra and Delhi, whether it can be down trading. So in the overall scheme, it's not that significant. Also, I would like to say that considering the brand portfolio that Radico has, we have brands to cater to every price segment. And that will play there -- play its role in that kind of a scenario.

The next question is from the line of Shirish Pardeshi from Centrum.

Just 2 questions from my side. If you can help us -- help me to understand massive movement volume last year and this year.

See, as we said that we do not give brand-specific volumes, and our overall volumes have grown by 12.5%, where the Prestige & Above is up by 15%. So Magic also has grown at the same level.

Okay. Any color on how big is now Morpheus for the [ years ]?

Morpheus now has become close to 1 million. So hopefully, if everything goes well, next year, we should be in 1 million case range.

Okay. My second question is on -- if you can give us and throw some light on UP and AP market of how is the growth. And what other issues which you are facing in current context?

See, out of all the markets, Uttar Pradesh has really done a commendable job, and majority of the shops are opened there. And so UP has done very well. And I think in another month or 2, the sales will be back to normal, if not more. The excise hike is also only about 10%. So UP, I think, will recover the fastest. As far as AP market goes, deferred tax increase, there has been 70%. Today, the industry has taken a huge [ debate ]. It's down to about half in Andhra, less than half.

UP in FY '20 would have grown excess of 17%, 18%?

Yes. UP in FY '20 has grown by 10%, and we have, again, outsmarted the industry.

You said 10%?

This is 10% in spite of the lockdown of the last 7 days, where a major stocking goes for the new trade.

And Radico continues to have the maximum market share, the largest market share in UP.

Sir, just a follow-up on that. AP would be about 10%, 12% of ARPU annual volume?

AP?

Yes.

AP would be about 7%, 8% -- 7%.

Okay. And there, you are saying that the excise, which has happened at 70%, the volumes are under pressure?

Yes.

Any quick feedback initially what is the demand scenario on right now?

Rajasthan is coming back to normalcy. So Rajasthan is not an issue much.

Sir, I'm asking about the AP.

Yes. AP, as I said and already told, that after this increase in the excise duty, we are seeing 50% of the industry. So -- but what happens is like if the AP, the excise is higher, the neighboring states like Telangana, et cetera, you'll start getting material from those states. So the volume in the other states keep increasing. So it's a self-check mechanism.

Sir, I was asking in the sense that if AP has a higher taxes, there will be stock which will come from neighboring states. Is that the scenario which is happening right now?

See, right now, it's too soon because the boundaries are locked down because there's a lockdown everywhere in India. So travel is difficult. But as it opens up, definitely, it will happen, that you'll have seen it wherever the duties are higher, the neighboring states for material comes in.

The next question is from the line of Amarjeet Maurya from Angel Broking.

Sir, just wanted to understand on the demand front, like we are following social distancing. So a lot of [ alcohol ] demand come during the sort of socializing like a party and all that. And second is that closure of bar and restaurant, how much we are contributing in the bar and directly bar and restaurant? Apart from that, like nowadays, people are looking for like value for money, and this product -- I mean our product is more or less in a discretionary nature. So what do you think -- how the demand will impact?

To answer your second part about the restaurants and bars, in India, alcohol is still a home-driven subject because bars and restaurant only -- the market share there is only about 3% to 4%. More is in home drinking. So I think the bar and restaurant closure does not affect so much.

So how much we are contributing towards -- in terms of our revenue?

It's negligible. It's within the same range, 2% to 3%. That's it.

2% to 3%.

Yes.

And what's your thought on the social distancing, like party and all that also sliding?

It's a universal phenomena. So I think -- with the social distancing and all that, basically, the home consumption continues to be there and when people don't go on the on-premise and the consumption at home might increase, but it's too early to comment on that. Too early how the -- these price increases, these excise increases, how the consumer is behaving. So we have to wait for at least a month or 45 days to look at what kind of trend it might be.

Okay. So sir, what I understand, are you -- you're developing like 80% of sales are normal, right, back?

We are talking about [indiscernible] 65% to 70% of the states where the excise duty has been increased by only 10% -- or 15% and where the shops are fully open, there, the demand has started coming back to the normal level. But in like a lot of places, the lockdown is still continue like Mumbai. Mumbai is still under lockdown. So there are a lot of containment areas, et cetera. So wherever it is open, the demand is coming back. I think another 1 month or 2 months, depending on the COVID situation, we know how the market pans out. But we get data from our background, from our side for the supplies.

[Operator Instructions] The next person is from the line of Rahul Ranade from Goldman Sachs. As there's no response from the current participant, we move on to the next participant, the line of Chanchal Khandelwal from Birla Mutual Funds.

Congrats on a good set of numbers. My question is on the write-off of INR 8 crores from Bihar. Can you explain this? What was this regarding?

Yes, Chanchal, actually Bihar has prohibition time. We had some outstanding from the corporation. And out of that, some recovery has happened on that side. So the balance amount of INR 8.56 crores was lying in our books. As I said in my remarks that there has -- this has been contested by the industry. It is on merit that the corporation must owe the quantum of the supplies boom before the prohibition. However, keeping in with the prudence of this thing, because it's already [ 54 ] years we are fighting, and the date of the next hearing is not coming in Supreme Court, we thought it prudent to put it as a write-off. Whenever recovery takes place, we will write-back to the extent of amount recovered from this outstanding. So there is no outstanding on account of Bihar after this is written off in the books.

Second is on receivable days. Now Andhra is a big portion, if I'm not wrong, taking a cue from the last calls. Now Andhra, there is excise hike also. So how are you looking to play Andhra Pradesh, and will there -- that will define whether there's money coming back? Or has the money come back from Andhra Pradesh?

Yes. So I said that this counterparty risk is not there, first of all, in Andhra Pradesh because it is through the corporation. Secondly, the most of the money collected, as I said, that is down to INR 300 crores and INR 100 crores plus of overdues that have been collected. Most of it...

Sorry. How many has been collected?

INR 100 crores have been collected on account of overdues in the -- from April till date and most of the money collected is from the corporation market only. So we have now a very moderate kind of -- now the outstanding is not that great, which used to be at 31 March 2020.

Okay. Okay. But Andhra supply is back to normal. With Andhra, the excise hike and a lot of liquor stores not opening, how is the condition in Andhra Pradesh now?

So the shops are -- have started opening up. It has not yet optimized but in the month ahead, which is by June end, we hope that Andhra will be fully operational because the plants have started to manufacture.

Lastly, on the Uttar Pradesh, with this new regulation on the liquor stores in the mall, any other change in regulations do you think has happened in that state?

No, I think there are 2 things: One is the home delivery and the allowing of premium brands in the malls, I think it's a very positive sign for the industry. So I think UP has taken a lead on that, and it should really help the Premium Black sales.

We will move on to the next question, that's from the line of Jasdeep Walia from Infina Finance.

Sir, my question is on this -- the news that we have read on UP allowing retailing of premium liquor in malls. So can you elaborate it a bit in the sense that how is the government proposing to implement it? And how -- what kind of increase in retail product sales do you expect out of this new ruling?

I think right now, it's again too soon. This is the intention of the UP government, and I think they're still feeling the rules of how to allow and what to do. But I think the thinking is in the right direction where we have been always asking that the premium brand should be allowed in the mall so that you also increase the number of distribution points. So again, repeating both home delivery and allowing our premium liquor in the malls is absolutely the -- a step in the right direction. So once it crystallizes in Uttar Pradesh, we'll be able to tell you much more about that, about the mall.

The next question is from the line of [ Amarpal Sandrigal ] from [ ACAC ] Asset Management.

Sir, I have just one question on receivables. So as you mentioned, there were some timing differences from certain state corporations in the month of March, plus, we all know that most of the state governments are financially stressed. Are there any self-imposed credit restrictions that you have in mind which you will implement going forward to keep receivables in shape?

So as I said, [ Amar ], this was also March 31, we are very, very conscious about the counterparty risk and controlling our credit in the open markets. So as far as the credit risk is concerned, we are very conscious about it, and we will continue to monitor it very closely. Secondly, as far as your train on the financials of the state revenues, so we actually still believe that the state get maximum revenue out of liquor, and they will do most of the steps after this normalcy takes place to normalize it so that volume come back. And the payments to the manufacturer, supplier makes normal or come on the normalcy. Because if this is not done, their volumes suffer, the supplies suffer, and the revenue suffers. So it's a chain reaction in this sense. So we don't foresee any concern as far as credit. At the same time, it is in the self-interest of these states who have these outstanding payers so that supplies are smoothened.

The next question is from the line of [ Bob Singh ] from Investec.

This is Harit here from Investec. My first question was on the price increases. Obviously, states have taken up the taxes. And typically, it's around the time of April -- March, April that you also discussed price increases with the states. Probably this time, it's been a bit harder because of the environment. Just wanted to get your sense about, do you see the opportunity in the next 3 to 6 months to discuss pricing with states also or you think this year is one where the pricing is something that's going to be hard to come by?

See, as a normal practice, we continue discussing about price increases with especially the corporation state. And last year, we got certain price increases in a few of the states. And in the current year, Telangana has given us a price increase of close to 8% to 10% of their EDP. And recently, even Tamil Nadu announced the INR 96 per case price increase. And we're in discussion with a few -- certain states. I think Kerala might give a price increase. So it's an ongoing effort.

Okay. Got it. And the second thing was on the material cost. Why do you believe that the material cost environment will be flattish going forward? And may not in fact be beneficial to you, given that liquor prices are low and demand is not very strong. So do you think we could have -- you could be on the benefit as far as material costs are concerned, specifically on ENA in the next [ 90% ]?

I think we definitely see there should not be an increase in the ENA prices. Logic says, yes, the prices should go down because even after 1 month lockdown, the ethanol consumption has gone down and the lifting is low. But being on the conservative side, we feel that the prices now should not increase. And the crop is also good, especially UP, et cetera, everywhere. So it should be stable or it can be on a decline also.

We'll move on to the next question. That is from the line of Shivam Sinha from [indiscernible].

Yes. So congrats for the good set of numbers. My question is on the -- you gave us some plan on the new brand launch. What is the plan? Is there any delay? Or is it going to happen in the second half of this year?

Okay. So see the Radico has been working on a set of new premium brands for the last 2 years. The work is on track. Normally, we would have launched one of them in the short term, but we will wait to see how the market and the economy shapes up. On our side, we are ready with most of the work behind these premium brands.

And this will be on whiskey and vodka, both?

Primarily whiskey.

Okay. And it will be priced above 8PM brand, right?

It will be in the premium segment, of course.

Okay. And my last question on the taxes. Both Delhi and AP, as you have said it, as tax have gone up by around 70%. Is there any possibility or do you see any possibility for rollback once the lockdown normalizes?

Definitely, we really feel that there will be rationalization of tax because Delhi is closely bordered with Uttar Pradesh, Haryana. And I think it's a temporary measure and the taxes should come down very soon in Delhi.

The next question is from the line of the [indiscernible] from Kotak Securities. As there is no response from the current participant, we'll move on to the next. That is from the line of Vishal Biraia from Aviva Insurance.

So with the new launches that you're talking about, is it only the whiskey or any other segments? I mean it would cover brandy as well?

So see, as the marketing strategy, we have already been working on upscaling of the vodka range and the brandy range that we have. But it's all in the premium segment upwards. So that effort will continue because it is basically nothing but broad basing the existing set of brands. These efforts shall continue, and this will impact the bottom line even more favorably, point one. Point number two, as far as whiskeys are concerned, yes, this is one opportunity area that Radico has been seeing, and it has actually experienced it with the success of 8PM Premium Black already. And we are working on the other new premium segment brands, which will also happen in due course of time as said, depending upon market conditions.

Okay. And one last thing on glass question, how have they behaved? And any perspectives on -- when you're talking to the glass manufacturers?

The glass prices had increased last year and I think now it is stable. We don't see any increase in the glass prices going forward because a lot of demand of soft drinks, beer, all is down. So I think glass prices should be stable.

The next question is from the line of [ Anand ] from [indiscernible] Capital.

In the opening remarks, you mentioned about digital. Can you expand a little bit on that and tell us how you can, as a company, explore the digital opportunity?

So as far as digital is concerned, Radico in the last 2 years has actually taken all its marketing initiatives a notch above by concentrating on the social media platforms and with the various other options of Google network. Now this has given us very positive results in the sense that we have now been filtering down to who our consumer is, what his geography is and we know exactly who are our consumers for brandy, vodka and whiskeys. So that's the kind of details we have gone into. The other aspect that we see is that because we are finding huge interface with the right kind of target audience and consumers directly with our brands, we have taken all our brandy, vodka and whiskey on the social media platform, and we are right now concentrating on events which are largely online. Radico had forayed into being the main sponsor for the largest musical event, Sunburn, in the world. And we have gone on the digital platform with this. We are seeing huge interaction with our consumers. We are also now interacting with consumers on the music and party front, with the music performances, which are online. A lot of our TV commercials that we did with brand ambassadors, like Jacqueline Fernandez, Tiger Shroff, have now gone online. So most of our efforts are towards communicating with our consumers on the social media platform and Google Display Network. There are many innovative steps that we are working on to increase the interaction, and you will see it in the course of the next 3 months.

Okay. My second question was a clarification. You mentioned that ENA prices are expected to be flat or possibly may go down. But in the light of the fact that ENA can now also be used or is being used for sanitizers, do you see that putting ENA upward pressure on prices?

See, the sanitizer is coming out of the molasses in ENA, right? At the same time, we have seen the demand reduction in ethanol, which is a large supply. And we are seeing that the quantitive base is also less, and they're practically 45 days, the demand has been virtually 0. So this, at the same time, molasses Indian production in the state of Uttar Pradesh has again been highest in this season. So we don't see the -- and actually, the grain prices, which has moved exorbitantly high last year, where we have taken most on the knock, have started a declining trend. So this is also a counter to the high ENA prices. So the grain prices have come down. So we are seeing that stable to a moderately declining scenario on ENA centered.

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

The question, which I was asking, obviously that why do you think this online delivery or delivery of omni structural? And why do you think this will continue? Anything from the industry body or anything you want to highlight?

See if you actually see for the state, petrol and alcohol are the major source of revenue for any state government, and seeing this COVID situation and the GST, every state is looking to increase its revenue source. And this is a structural change where with the online delivery, the minute you increase your distribution network or it becomes clearly available, the consumption goes up. Now if the consumption goes up, the revenue of the state will also go up. So that is what we personally feel that the state would encourage this to happen. And with the COVID thing, you never know when lockdown again happens. So this also helps to -- for the social distancing part.

Whatever the problems of online delivery shake -- after lockdowns and 36 months from now when things are normalized, are normal liquor store -- and there are 5 liquor store in my vicinity. Now which liquor store will deliver? How will things work out? Someone will lose revenue. A lot of problems which can happen from that perspective. I'm asking that. So our liquor guy may not allow -- one liquor store may not feel good about it because someone else is delivering to my area. So how will this pan out because then that structure has to be well-defined for this to continue successfully?

Each state is working out their own structure. Just to give you an example, like certain states, they will go online and there, they would ask the retail, which are interested in home delivery. And there, it will be allocated. So the minute you type in your address, the closest shop will get the order. So that is one pattern. So every state is trying to work their own pattern. So eventually, they can also happen from the depots. So every state is trying to work on its own pattern, what is the best.

Sure. Also, do you see number of outlets going up in various states, number of liquor outlets? Or anything -- any such thoughts?

See, right now, in this situation, I think the number of outlets, which are there, if they open and function properly, I think it will be a big task. How the containment and the COVID situation is.

The next question the line of Jayesh Shah from OHM Portfolio.

My question is that on the last call, you had actually summarized a couple of cost advantages. I think the figure was something like INR 50 crores benefit in FY '21 per cost savings besides some one-offs as well, which were there in the last quarter. Can you review this? And again, what could we expect in FY '21 on account of, say, gross margin and cost-cutting initiatives?

So the point here you are talking about, we talked about the one-off items. And those we have already clarified. I'm not clear that what kind of INR 50 crores you're talking about. As I said in my opening remarks that this year, in FY '20, we had a knock of around INR 90 crores on account of our raw material prices, okay? So that has been absorbed in this. And as far as this raw material prices, we already cleared the scenario and expenditure side. The big item has been the Cow Cess, which will continue to be there in Uttar Pradesh. Rest of the -- each overhead item, we are reviewing and we'll face -- make it leaner and cleaner as far as possible. So those are the cost measures, which is already being taken by the company.

Okay. How much could be the gross margin savings due to the one-off impact on raw materials?

See, we think that the gross margins are going to stay near to this. 48.6% was our gross margin. So we are thinking that whatever suppose is down trending or based on -- which is not -- which can't be predicted as of now. But with this scenario of raw material and our premiumization, the gross margin to continue to be between 48.5% to 49%. That is what our anticipation for this year.

That is despite the certain duty hikes in states like Andhra Pradesh and all? So...

Also duty hikes are actually resulting in the reduction -- might be in the time that UP [indiscernible], reduction in the demand in particular state, and might be some spillover from the neighboring states. So it doesn't impact the gross margin.

The next question is from the line of Avi Mehta from IIFL.

Sir, I just had a question on the ENA costs. In the comments you indicated, all your -- were suggesting that ENA prices should come off. Why are you arguing that ENA should remain stable, sir? I'm still unclear. It should go down only, right? Sir, what can go wrong?

See, as a management, we believe in being conservative. We told in our remarks also that we believe the ENA price not to increase, stable or it can be on the declining curve. But to predict how much it can go down would be making a wrong assumption there.

But sir, would it be fair to say it should be declining trend? Whatever percentage may not be, but -- or do you see that there is a possibility of it being stable because -- and if I -- if you expect it to be stable, why?

As I said, stable for sure. It might decline. But it's better to take it as stable.

Sir. Okay. And so what's the headwind? I mean, I'm sorry, I just didn't understand that that's why I was insistent. Why are you saying it can be stable?

The headwind, can be -- I think it is uncertain time with the current day. But as we prepare our model, we already taken -- until there are clear signals that this decline will be sustainable and sizable. However, we still made our model based on the stable ENA prices.

So sir, let me kind of repeat, has current prices come off? Or have you seen any correction in ENA prices?

Yes, we have seen 2% to 3% reduction in Q4 versus Q3, and the prices are stabilizing near to that. And at this point of time, we can't say because full of the distillation capacity has also not come in our operation. As and when the full distillation capacity comes into operation, the demand increases, the supply increases and it will be the commodity, which is a demand and supply side. So I think our assumption at this point of time is a stable to a marginal decline kind of trend.

Okay, sir. So okay -- I understood, sir. As of now, you've not seen anything. We'll wait till you kind of argue that there is definitely a decline. Fair enough, sir.

[Operator Instructions] The next question is from the line of Chirag Lodaya from Valuequest.

Yes. I have 3 questions. First one on receivables. So now with state financing being under pressure, do you envisage overall working capital requirement for us will go up this year? And what can be the quantum increase if ever?

Chirag, actually means state finances are strained but that gives them this -- that they have to increase their revenue from the domain where there is a -- they can increase the volume. So the point is to continue to have a supply. They will -- that is why the distribution points are being increased, be more open shops and all that is trying to be done. So we see that the clearances and overdue should stabilize and should -- the money should be recovered. And that is -- that can only make them to have this continued supply. So as we can't say from here, INR 20 crores, INR 30 crores, INR 50 crores plus/minus, depending on the volume growth or the supply. Otherwise, we don't see that there is a significant gain in our working capital needs.

Got it. Second one on overall industry volume. So first, there has been some -- so there has been COVID disruption. And now many states have taken state excise increase. So how is the overall industry volumes shaping up for this year?

Yes. Like right now, it's too soon to make any judgment on this. And also, we do not know how the COVID is going to play out, whether the lockdown is going to continue, whether they're going to allow shops, et cetera. So right now to make any kind of assessment would be wrong. But the only thing we feel is seeing by the global trend that alcohol would be the industry which will bounce back the fastest. So we can only see that what is happening in U.S., et cetera.

Right. Okay. Got it. And just lastly, on overall margin, operating margin, so how one should look it at FY '20? And what kind of cost-cutting measures you will undertake? Will you cut A&P expenses if there is no demand? Or what kind of cost measures do you have? How one can recover?

See, as a company, we've not decreased any salaries, number one. But what we are looking at to say is we are renegotiating all the fixed costs, whether it is rentals, whether it is fees, et cetera, and so we are working on every angle. And we will see how the situation pans out. So...

The gross margin continues to be, I think, 15.2% has been our margin for this year. So we expect this margin to be stable at these levels with this product mix and all that, kind of raw material scenario we have already explained. But it is, as we always maintain that level, but future is uncertain at this point of time. So as thing evolves, we will be more clear about it. But we expect margin to be near to these levels.

Right. Do you plan any A&P cut this year because of now lower demand and [indiscernible] has gone? So I want to look at A&P as a line item? How you are thinking of that.

So A&P, we would be adopting a more rational and cautious approach. The larger part of A&P will go towards digital. And that, obviously, in today's scenario cost much less than the traditional medium. So yes, that's a good area to look at and be cautious.

The next question is from the line of Nikhil Upadhyay from SIMPL.

Sir, on this A&P, just to understand it better because as I understand a lot of the promotion and brand promotion cost is basically dependent upon the promotion which we do at the bar or at the events. Now with the bar being closed and even large events like marriages or some of these events not happening, is there a significant possibility for the rationalization in this cost structure? Just to understand how much of it is variable and how much of it is like a fixed brand investment, which we keep on doing? So just to understand this expense a little better?

See, definitely, what you are seeing, like bar promotions, events, et cetera, will be all cut down. And there would be a rationalization of the A&P spend and going forward.

So is there a mix that you can give, how much of it would be towards brand -- bar promotions or events-led promotional costs and how much would be...

So we never give a mix. On an average, our A&P spend is in the range of about 7% to 8%. So that is what it has been traditionally, but actually this year, it should be lower.

Thank you. Ladies and gentlemen, that's the last question. I now hand the conference over to the management for your closing comments.

So actually, we have explained our position. At the same time, we are fully geared to take this opportunity as and when the market normalizes, the demand comes back. Radico has quite comfortable liquidity position. Our balance sheet is strong. We have a very low interest rate on our debt, and we can take this opportunity in future so with these remarks, we will continue to grow our portfolio work and invest on our brands. So we will be consistently delivering competitively and profitability in the future.

And outsmarting.

And outsmarting the industry growth rate. Thank you.

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