Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q1 FY '21 results call of Radico Khaitan Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ashit Desai from Emkay Global. Thank you, and over to you, sir.

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

Good afternoon, ladies and gentlemen. Thank you for joining us on our Q1 FY '21 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, COO; 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 the Q&A. We entered the fiscal year 2021 in the backdrop of an extremely challenging macroeconomic scenario. The country was under lockdown, and as you would be aware that the government had stopped the sale of liquor until the first week of May when the lockdown was partially lifted. During this period, we focused on the health and safety of our employees. We also implemented certain measures, which are targeted towards ensuring that we come out stronger after this calamity. There is still a lot of uncertainty around the timing of the recovery from this pandemic, making it difficult to quantify its impact. However, with respect to the liquor sales, we are seeing the trend improving, and we expect our operations to normalize during second half of this fiscal year. Our robust performance during the quarter underscores the strength and resilience of our business model. If you see the volume trend on Slide 1 of the presentation, it clearly reflects an improving trend with early signs of improvement. We were able to expand our margins and also generate strong cash flows. Our margin expansion was due to higher realization as a result of improved state and product mix, coupled with a stable raw material pricing scenario. During the quarter, we also saw strong traction in our export division, which assisted margin expansion. The company also received price increase in one of the key states in South India. During Q1 FY '21, we reduced our net debt by over INR 122 crores. Our current net debt is INR 260 crores, and we expect to be debt-free by FY '22. Since FY '16, we have reduced net debt by over INR 687 crores. I'm very confident of the medium- to long-term dynamics of the IMFL industry in India, and Radico Khaitan is strongly positioned to capitalize on the industry growth recovery. 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 this quarter, we reported IMFL sales volume of 3.54 million cases, representing a decline of 43.5% on Y-o-Y basis versus the industry decline of over 50%. There was no IMFL sale during the month of April, and it has zoomed only after first week of May when the lockdown was partially lifted. However, from June, we are seeing very early sign of recovery. Net revenue from operation during Q1 of FY '21 was INR 409 crores, representing a decline of 34.4% compared to Q1 of '20. During this period, IMFL sales value declined by 40% and non-IMFL sales declined by 12%. As percentage of total revenue, IMFL sales accounts for 73.2% of the net revenue from operation as compared to 80% in Q1 of 2020. Gross margin expanded by 660 basis points from 48% to 54.6% on a Y-o-Y basis. Margin expansion was due to the improved realization. Price realization improved due to a better state and product mix, strong exports and price increase in one of the key liquor-consuming states. EBITDA margin during the quarter expanded by 230 basis points to 18.4% due to gross margin improvement. Q1 of FY '20, advertisement and sales promotion expenses declined by 48% to INR 19.6 crores. As percentage of IMFL sales, A&SP expenses were 6.6% compared to 7.1% during full year of FY '20. Given the COVID-19 scenario, A&SP expense during the period were relatively lower than last year. The company continues to make judicious marketing investment which enabled us to continue market share expansion. Finance cost for Q1 '21 decreased by 11% on Y-o-Y basis from INR 7.38 crores to INR 6.57 crores. The company's cost of borrowing has declined from 9% in Q1 of FY '20 to 6.8% in Q1 of FY '21 due to declining interest rate environment coupled with stable profitability, strong capital structure and improved liquidity position. As of June 30, 2020, the total debt was INR 297 crore and cash and bank balance were INR 37 crore, resulting into a net debt of INR 260 crores versus INR 382 crores as of 31st March 2020. During this period, we saw strong overdue receivable collection, which enabled us to reduce our debt by INR 122 crore. As you are aware, that nature of our industry is such that it has high working capital requirement. It is important to note that Radico Khaitan has a strong liquidity position and is, therefore, able to fund large portion of working capital through its internal accruals. Our current working capital is over INR 900 crores compared to a net debt of only INR 260 crores. We have a strong financial position, comfortable liquidity. During the difficult time, we are taking all necessary steps to sustain our financial strength, robust business model, continue to grow consistently, competitively and profitably. With this, we will now open the line for Q&A. Thank you.

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

Congratulations on very strong set of numbers. First question is on debt repayment. So I just wanted to get some flavor, what exactly led to this decline in debt in this quarter. Have you received any money from corporation market, which were due? And what is the status over there currently?

See, we had the overdue in certain corporation market in the March '20 quarter. In this quarter, there has been a reduction in the overdue debtors from these corporations. So both the internal accrual as well as the better debtor collection is instrumental in getting the debt reduced. At the same time, you see this has been the company's strategy to work on the efficiency and working capital optimization. In last 4 years, when we had working capital cycle of 61 days, we have brought it down to 35 days. So the -- ultimately, it is the collection and the working capital efficiency, which is reducing the debt. And last 4 years, the debt has been reduced by INR 687 crores.

Right. So what would be the [ current ] outstanding in this corporation market, sir, now?

See, there are still overdues, but those overdues were much stressed at that point of time in March '20, but we're seeing that the state governments are also making their finances rightly, and then they are releasing these payments in order to get more revenue. So we are getting that to come. I think normalization will take another H2 time.

Okay. So is it fair to assume this kind of working capital improvement, which we are seeing in this quarter, is a sustainable number going ahead? And one should not be worried on at least receivable front in near future now?

See, I would not say quarter-by-quarter, but definitely, the trend is that these corporation overdue outstanding, which has gone one-off in last year should not be there in future. But I can't comment every quarter. It can be, but as we said, that we have a very strong credit risk management, and we afford the credit only where we don't foresee the credit risk. At the same time, in the interest of generating business, these details are being taken.

Got it, sir. Sir, secondly, we have seen very healthy expansion in gross margin in this quarter. And you have mentioned 2 reasons there: one is product mix and another is state mix. Over and above that, we have got some price increase. So if you can help us understand how our raw material trend currently? And what should be the sustainable number in terms of gross margins going ahead?

See, the gross margin increase has been -- this quarter has been a little different because the various states have opened the lockdown in phases. So fortunately, for us, certain states, where the large -- these are large states and higher-contributing states, higher-realization states, they came on normalcy faster than the other states. And there the realization per case as well as our contribution has been higher. So because of 1 factor, this has been higher in gross margins. Secondly, export, which accounted for, in this quarter, 35% jump in volume, there also the margins in the export or contributions are much higher than domestic market. Thirdly, we got price increase in one of the large state, south state, where we have a large market share, so that has also contributed to it. But to your question that what would be the gross margin, we have been in the range of around 50% or so. So I expect with this current scenario of the raw material, where we are seeing, after the December quarter, they continued benign to a declining trend, we see that our gross margin to be in the range of around 50% to 52% in a normalized circumstance.

52%.

Yes, 50% to 52%.

That is very healthy, sir. Good to hear that. Sir, on export front, how does this export for us currently? And what has led to this jump in exports, if you can just throw some light?

See, our brands are currently available in over 85 countries. Yes, there are certain markets, especially the travel retail, global travel retail, which has been decimated. But then there are certain markets which did not have too much of a COVID impact, especially in the Middle Eastern market, South America and part of Africa, where our brands have been market leaders all this while. So there was a lot of consumer demand from these markets, which has helped us to -- on a Y-o-Y basis, increase our export volumes by about 34%. And also in terms of the developed, [ evolved ] markets like the European market or the U.S. market, since there was a ban or closure of the bars and on trade, a lot of people have been buying online and consuming at home where our premium brands like Rampur Indian Single Malt and Jaisalmer Indian Craft Gin have been very well received. So there was a lot of traction for these brands as well.

Got you, sir. But how big is the export market for us, sir? And last year?

So this year, actually, export account for around 7% of the top line in this quarter.

Got it, sir. Got it. And sir, just last question. How big can be a sanitizer opportunity for us? Do you think that can be a meaningful portion of our business going ahead? How you look at that business?

See, we are one of the largest producers of alcohol. So getting into the sanitizer is a natural thing for us. And we just rolled out our brand Sanitize 99.9%, and we started rolling it in about 5 states. And gradually, we'll take it all India. Initial response is very good for the brand. But I think right now, it's too soon to make any assumption that how big it can be, like it all depends on the situation of all the lockdowns and everything, but it can be a good opportunity.

Right. You don't expect any big numbers this year because the trend is very strong in sanitizer?

Mr. Lodaya, may we request you -- this is the operator. Mr. Chirag, may we request...

We will see, Chirag. When -- actually, when there is a traction, we will continue to talk about it. But at this point of time, we are also watching the market, how does it evolve.

[Operator Instructions] The next question is from the line of Madhu Kela from MK Ventures. Mr. Madhu Kela, your line is in talk mode, please go ahead with your question. The current participant has placed his call on hold, so I have muted the line. The next question is from the line of Avi Mehta from IIFL.

Sir, I just wanted to delve into this input cost a little more. You said input costs are on a benign trend, have they actually seen a decline in particular, ENA prices, have they already corrected? Or is there -- or it is more an expectation right now?

See, the extra neutral, the ENA price, if you see Q-on-Q has corrected by 3.8%. And going forward, we -- yes. So going forward, what we feel is the sugar production has been good, and we feel that the prices should remain at this level or if not, go down a little bit more.

Okay. And this is across the board, right? It's not specific only to a particular state, it's across different states that you're operating?

Yes, the 3.8% is for the total alcohol what we consume.

Okay, sir. Okay. And second, sir, just wanted to clarify on this debtor reduction bridge. Are you seeing debtors kind of reducing across cooperatives? Or is this more prior debtors that have got repaid? How should I look at going forward? Should I expect now the debtor situation to improve? Or it is still a fluid situation, it might go up still given the state finances, if you could help explain that, sir?

See, what we feel is like we cannot predict what happens to the state, but each state like generates a lot of revenue about, I think, 20% of the states', 25% of the states' revenue is alcohol. So they also, if they pay in time, they'll generate more revenue. So I think it can be a one-off case. On a normal circumstance, I think now a lot of states have come back to normal.

So there has been an improvement, but -- and you expected. Sir, I understand that it will not go bad, but do you see this as a stress possibility or any expansion possibilities is what I was trying to understand from you, sir?

So as I said, that normalized, it was a strag that March '20 level but normally, some overdue remain. It is not that everything comes on time, but those overdues keep on coming. So this was an exceptional period where it has gone by INR 170 crores, INR 160 crores higher, only on account of some overdues. So I think there are -- they will continue to be, but it cannot be -- that it cannot go that high. And we see that it has to be on some overdue but normal.

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

Sir, could you elaborate a bit more on the premiumization trend that we are seeing?

So see, what's happening is that largely the premiumization trend has been very healthy for Radico in the past years. This year as well, we are finding similar traction for most of our premium brands like Magic Moments; Verve Magic Moments, the normal variant; Morpheus; and 8PM Premium Black, which has been the latest addition in the launch of new brands. So all these products are maintaining their market shares, which have been very consistent. Magic has continued to be 60% plus market share. Morpheus has continued its market share dominance with more than 68%. Magic Moments -- 8PM Premium Black is continuing to become stronger and stronger with its expansion in 14 states. In fact, in the previous month, we have done more than 100,000 cases of this brand, which is a very, very encouraging trend. So we are finding that most of our premium brands continue to become stronger and this year, we are hoping that 8PM Premium Black will cross the million case mark. So that's how Radico is poised to take the premium brands forward.

Okay. And by any chance, would you know as to what proportion of your sales for 1Q would have been generated by the online distribution mechanism?

So let me say that the online distribution mechanism, though the trend is emerging, it has not been very significant from -- for any company so far in India. However, the governments are trying out. There are a few states like Maharashtra, Odisha, West Bengal, Chhattisgarh that have opened it up, and the trend has to stay. There are many logistic issues and particularly considering the fact that COVID has created some of own challenges of delivery despite delivering new mechanisms being allowed, there are still teething issues. So we will come to know of the trends in the quarter ahead. But right now, we have not done too much as far as online sales is concerned.

Okay. Just 1 last question. What is the quantum of price hike that you got in the southern state?

See, another states, we got a price increase of close to 10%.

The next question is from the line of Neeraj Parkash from Nepean Capital.

First, I just wanted to know what kind of trends are you seeing post the first quarter in this month? And are you sort of willing to give some sort of a rough guidance for the full year?

See, in the second quarter, as of now, the trend we are seeing like if you see our sales in May, we were down 29%, and June, we were down 10% and we are seeing things returning to normal. And hopefully, this quarter, we should be pre-COVID levels. And going forward, it all depends on how the situation emerges. But we'll do better than the industry, what we see.

Okay. And just my second question is you've also cut your employee expenses as well as your other expenses year-over-year and quarter-over-quarter and which has sort of helped your EBITDA margin as well. So is this sort of what we can expect going forward as well? Because your EBITDA margins was very, very healthy this quarter. Is this sort of sustainable? Or should we look at more of a 16-ish percent EBITDA margin for the annual sort of level?

See, as far as the employee cost goes, we have not cut any salaries, and it is same as last year level. So we don't expect any reduction in the employee cost. But other overheads, definitely, like travel, et cetera, has got reduced and we've also renegotiated certain items. Going forward, what we feel is the EBITDA -- we should increase our EBITDA margins 100 to 125 basis points for the next 2 to 3 years.

Okay. So what was sort of -- what is the target sort of in your mind? Is this sort of a 19%, 20% target, let's say, 2, 3 years going forward?

Yes, of course, by the CAGR, we will be in late teens by 2023.

'22, '23.

The next question is from the line of Mayur Gathani from Ohm Portfolio Equi Research Private Limited.

Sir, can you specify which state has given this 10% hike? And has the impact been seen in the first quarter? Or we will see it in the coming quarters as well?

See, the Telangana gave us the price increase, and we got it at the end -- middle of May. So about -- the impact has been for 1, 1.5 months. So next quarter should be the full impact.

Okay. And what's your target for the debt -- being debt-free, sir, by which year? You did mention it, but I missed the point.

So we will be debt-free by this -- by '22, financial year '21-'22.

Okay. And sir, on the export side, 7% was the contribution in this quarter. So where are we looking at, I mean, if we look at the annual numbers, do we have something in mind that we will do 7%, 10% or so?

So actually, our export account for between 5% to 7%. In value terms, it is between -- the volume has been 5% throughout earlier also, but a couple of years in between, it has taken a knock. Now again, export is doing better in African market, Middle East and all that. So we see 5% to 7% composition of exports.

Okay. So 5% to 7% contribution? Or will that be volumes only?

No, I'm talking about value-wise, top line-wise. Contribution can be high.

Okay. Fair, sir. And margins are better on the export side. Is that what you said?

Yes, of course.

The next question is from the line of Amar Kalkundrikar from HDFC AMC.

Good set of numbers, congrats for that. I have 2 questions, sir, you shared that in quarter 2, you expect business or volumes to be roughly at pre-COVID level. This is also including mix?

Amar, can you repeat? It is including?

Mix, mix. Will the mix also be broadly similar to what it was earlier in terms of Prestige & Above and popular or state-wise?

Yes, yes. It should be the same.

Okay. And can you share a little bit more on what's happening in the UP market? Are the recovery trends there similar to national or better than national? Or how is it?

See, UP compared to the rest of the country has done phenomenally well. Like if you see for the month of May, May, the industry was down by -- like for the quarter, the industry has been down by 41%, but like for the month of June, it was same as June last year. And we feel that now going forward, the industry should be same as last year for Q2 or if not a little better.

The next question is from the line of Amit Ganatra from HDFC AMC.

I just have 1 question. See, last few years, as you rightly mentioned, your cash flow generation has been used -- utilized towards debt repayment. But by FY '22, at the current run rate, obviously, you should become debt-free. Just wanted to know what is the capital allocation thought process beyond that? Does the business need huge CapEx or investors can expect higher dividends? I mean what's the thought process on capital allocation beyond FY '22?

See, under normal circumstance, our CapEx should be in the range of about INR 50 crores to INR 60 crores on a yearly basis. And once we are debt-free, which looks very round the corner, is we will do -- we will think of buyback or higher dividend, whichever is better for the shareholders' value. So either of the 2 things we do.

The next question is from the line of [ Meena Sonia Walnekar from Aequitas PMS. ]

Sir, if you see the month-on-month performance, it has seen a good improvement. But now if we look currently, many -- cluster-wise in many states there is vertical lockdown seen. So do you see this impacting our volumes again in this quarter? Or the month-on-month trend will keep on continuing in Q2 also?

See, we are seeing definitely an improvement in the month of July compared to June. And until like some major lockdown happens, we feel that the industry should be back.

Okay. Okay. And sir, my second question is on the reduction of A&P spends, which we have done in this quarter. Will this be continuing going ahead? Or since now the volumes are picking up, so we'll be back to that level, earlier level, sir?

See, our A&P spend on a general is always between 7% to 8%. For this quarter, it was 6.6%, so it was quite in line. So it will be in the range of 7% to 8%, and we are very judicial in what we spend as far as A&SP goes. And we'll continue to invest behind brands.

Okay. Okay. Sir, last question on the P&E contribution. Can you just share the number, how much of it is contributed in IMFL revenue?

So it has been by volume around 30% and by value, more than 50% in this quarter.

The next question is from the line of [ Saket Kapoor from Kapoor & Co. ]

Sir, firstly, if you could give the mix for the raw material basket, sir, how has been that trend? And what is the mix of our raw material?

So we have around 65% of the grain ENA usage and 35% from molasses ENA. This is the mix between grain and molasses for raw material side.

And sir, this is after the alteration we have done, I mean, we envisage a higher degree of grain ENA going forward? Or this is the optimum level?

As more and more premium brands are rolled out, in premium brand, it is 100% by grain ENA, so we see then the grain ENA proportionately will go up.

And sir, what are the factors that will determine the price trends going forward for both the segments, the grain ENA and for the molasses ENA?

See, one of the factors is like good monsoon. It's the grain crop, which has been the highest crop, and we see a good monsoon this year again. So good crop of the grain will bring the prices toward a benign to a declining trend side. And same is applicable, if we have a good crop, there's a good sugar cycle, good sugar season and the molasses prices will also be down. At the same time, there because of the lower fuel consumption, there is the lower supply of these ethanol also in the [ ONCs ] as the availability of molasses alcohol is also for the alcohol segment would be comfortable.

Right, sir. And sir, how are other expenses behave, sir? Since this is the lockdown impact quarter, what is the trend here? Any one-off items that has been factored for this quarter?

So there has been actually some reduction in the other expenditure where mostly it is traveling, which is not happening than certain other expenditure, which the company incur, there has been negotiation and resetting of those. So those are the ones which has been done by many of the companies at this testing time.

Sir, by grain, sir, there's only 1 product -- [Foreign Language] 1 crop or basket of agriculture products?

So there are 4, 5 grain which are available. The biggest one is the broken rice, then there is a millet, then maize is there, sorghum is there. So depending on the crop at the nearest area of the distillery, we buy these grains at the competitive price.

And last point, sir, what was the last year components, which grain we have used?

So mostly, it is the broken rice, which is available.

The next question is from the line of Aditya Joshi from Alchemy Capital.

Sir, my first question is, what would be a spread for on and off-premise sales pre-COVID?

On-premise is...

So pre-COVID, the extent of on-premise sales is about 5%. Now basically, in the months ahead, this will depend upon how the emerging trends with regard to opening up these outlets will unfold.

Got it, sir. And sir, the second question is with respect to CDS (sic) [ CSD ] channel filling. What kind of growth have you seen there?

I won't follow. Can you repeat it?

Sir canteen, our government department store, what kind of growth would have been there in that particular department, canteen store?

So I'll tell you what, the industry trend that you see in the domestic market is also mirrored as far as CSD is concerned. The trends are similar. What we would like to emphasize on is that we've continued to retain our market shares of more than 30%, being the largest player in CSD.

Got it, sir. And sir, what would be innovation pipeline or new product pipeline for FY '21?

See, in the next 2 years, we would be launching about 2 brands in the premium space, and that also in the ground segment.

The next question is from the line of V.P. Rajesh from Banyan Capital.

One question [Technical Difficulty]

Sir, your voice is not audible.

Hello? Is it better now?

Yes, it's better.

Okay. So my question is regarding the impact of these localized lockdowns that are currently going on, let's say, in Pune or earlier last week in Bangalore. So are you implying that it is not impacting your business? If you can provide some color around that?

Yes. We said that definitely, it is impacting our business, all these local lockdowns but like last year, our volumes had grown by about 13%. So we are saying this quarter, we will be back to pre-COVID levels. As it is -- local lockdown would not be there, we would be growing quite faster.

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

Congratulations on good set of numbers. Sir, 2 questions. One is, over a longer period now, if you look at pre-COVID, our ad spend, we had been increasing significantly. And even in this environment in Q1, when there was lesser promotions and everything, our key brands have continued to grow very strongly and have actually gained market share or maintained market share. Over a longer period, next 2 to 3 years, do you think that there is a possibility of more targeted ad spends and selling and distribution costs as a result there's cost escalation, which we were looking at all these years could remain lower? Or do you think that this amount of investment which we were doing will continue at this rate?

See usually, if you see our ad spend is in the range of 7% to 8%. And the last 4, 5 years, it's always remained that percentage. And going forward also, I feel that we will be spending about 7% to 8% on the ad.

Okay. You don't see that because the brands are now scaling up and gaining market share and all. There is an operating leverage or a benefit which we can get out -- get from that line item or...

I think for a brand to remain healthy, you need to spend on marketing, that is the food for any brand. And in Radico, we continue to spend on the ad, 7% to 8%.

Okay. And lastly, on our RM cost, we also have this glass bottle and packaging material cost. How frequent are the negotiations on that cost item? Because for them, gas and fuel is a much larger cost element. And if the costs go down for them in terms of production, do we get the direct benefit? Or if you can just help me understand what kind of negotiations do? And what -- over what period these negotiations happen in that cost element?

So we are constantly reviewing the cost implications on a real-time basis. And as far as -- you're right, as far as gas and fuel is concerned, depending upon the variations, we keep interacting with our glass bottle suppliers, which constitutes about 70% plus cost on our brands. So we are constantly reviewing that, and we will continue to do that in the near future as well. On a 6-monthly basis, we always review our costs.

The next question is from the line of [ Parchit Shah ] from Prabhudas Lilladher Private Limited.

Am I audible, sir?

Yes, yes. Yes, please.

Okay. So my question was more towards the excise rate hike which happened last quarter or regularly earlier this quarter, which was 70% around roughly. And you had said about tax rationalization, which can be expected in Delhi because the neighboring states are UP, Haryana. Do we have any visibility on that front?

See, if you see basically, there are only 2 states where this 70% was increased, that was in the state of Andhra Pradesh and Delhi. And Delhi has already rolled back to levels of 5% to 10% and a lot of -- lot of states are considering to bring it down because their volumes have suffered. So I think it's a matter of time that it'll come down to a rational level of about 10% to 20%.

Okay. So Delhi have already rolled back to 5%, 10% your normal rate?

Yes.

Okay. That's good. Okay. That's helpful. And one -- second question is, what is the capacity utilization we are on right now? I might have missed the earlier 5 minutes of comments, if not repeated?

See, our 2 plants that is Rampur and Aurangabad are at 100% capacity. And in fact, all our 32 bottling plants are all operational right now.

So what could be your peak -- what will be your revenue at peak capacity utilization? And like are you planning for any further expansion?

So if you see we've got 6 of our own units, rest we have all outsourced. We have got bottling units, which is third-party bottling. So for us, we do not need more capacity because we are outsourcing our production.

Okay. Okay. So mainly the outsourcing, so you can as and when increase and particular to when demand flows in. Okay. And 1 last question. How many shops are currently operational, which you had -- you were expecting to reach to 80% maybe soon. So like have you reached that, sir?

About 85% to 88% shops are operational as of now.

The next question is from the line of Sonaal Kohli from Bowhead Investment Advisors.

Sir, congratulations on good set of numbers. I wanted to ask you more from a medium-term perspective, let's say, between 2020 and 2023, what kind of growth rate range do you see over and above the industry growth rate for yourself? Secondly, broadly, what kind of range of margin do you see, let's say, 3 years since a range would do?

See, to answer your first question is, it is -- right now, the environment is quite uncertain. So to predict the growth rate would be very little difficult. It all depends how the pandemic plays out and everything. But we feel, as of sitting today that the liquor industry, the sales should return back to the normal levels in H2. And as far as the margin goes, we've already said that next 3 years, we feel that the EBITDA margin of the company should increase by about 100 to 125 basis point year-on-year.

Sir, when you refer to 100 and 120 basis point increase every year, are you referring to the base of 2020 from that, so you mean to say that from 2020...

Yes, yes, 2020, from 2020.

And sir, I wasn't actually referring to the growth rate for the industry or for you, are we referring to the outperformance or extra growth do you see because of the investments in brands and brand launches and the initiatives you've taken over the last 4 years and you'll continue to take. What kind of growth rate could be higher and even [ HP ] growing higher than the industry for last few years. So what kind of growth rate do you see over and above that of industry for yourself from a 3-year perspective?

Actually if you see last couple of years in 2019, industry grew by 9% and Radico brand growth was 18.5%. In 2020, the industry growth rate was benign, almost 0.5%, and Radico grew by around 12.5% in volume. This year, again, first quarter, the industry has been declined by around over 50%, and Radico degrew by just 43%. So we are gaining market share across all brands. At the same time, the new launches, which has been an 8PM Premium Black, 1965, all these are getting consumer traction and building up these volumes in various states. At the same time, 8PM Premium Black, which is currently at 14 states, we are planning to roll it out to pan-India basis. And as we said that there will be a couple of more launches in the brown space. So we will continue to grow our premium portfolio and main market shares.

Great, sir. And just 1 as a suggestion as a shareholder, would it be possible for you in a normal time frame, let's say, 6 months or 1 year from now, to hold the analyst meet with all your leading team members present or a video conference, so that we get an opportunity to interact with them and a perspective of what kind of changes -- I guess, there have been a lot of things in the last few years. And to understand what kind of changes you have been making over the 3-year period?

Sure. We've taken this thing. I think let the time be a little normal, and we will do that in Mumbai.

The next question is from the line of [ Mihir Desai from Desai Investment. ]

Sir, my question would be, sir, what is the share of EBITDA, which comes from non-UP businesses, sir?

So actually, we have like east, west, north and south. So we -- there are certain states, 5, 6 states, which are larger in the liquor consumption itself, so we have a very large presence in those states. So it is not only UP. There are other states in Southern India. There is other states in Northern India. So it is in 6, 7 states, which are bigger for us in volumes. And those states are also larger liquor-consuming states.

Sure, sir. Sir, just wanted your outlook on molasses price. Sir, being that all distilleries are increasing their distillery capacity, sugar players, so just wanted to know your outlook on molasses prices, sir?

I think we had very bad year last year where the Southern State and Maharashtra had a bad crop. And this year, as we see that the government is predicting a very normal monsoon, which has come very much in time. So we see a good sugar cycle in this year in Maharashtra and Karnataka. UP did well last year also. And I think this year, again, it's going to have a good crop. So I think molasses prices would be stable to benign kind of a little decline.

Okay. Sir, last question from my end is, sir, what is the EBITDA share from our Maharashtra distilling, sir? And if possible, what would be the capacity utilization of it?

See, there is a line item, which is being added in my consolidated results. And there, we have around 36% equity holding. So according to that, we club it. I think March '20 results, there is some amount. What is the amount? Maharashtra -- but it is not that significant, which -- actually, the stand-alone Radico is a major part, 95% of the EBITDA is from that Radico and Radico handle just 5% to 7%.

Okay. Sure. So do we do any captive utilization? Or how much captive utilization, sir, it needs from the Maharashtra capacity?

So Maharashtra, we are bottling our products for the Western India, like from Mumbai and rest of Maharashtra, so there we have a captive utilization. However, we sell in the local market and export ENA as well.

Correct. So sir, just -- so what...

Mr. Desai, sorry to interrupt you. Sir, may we request that you to return to the question queue for follow-up questions we have participants waiting. The next question is from the line of Rakesh Roy from Indsec.

My first question is regarding, sir, can you highlight...

Sir, please increase the volume of your phone. It's not audible.

Hello? Hello? Yes, now it's okay?

Now it's audible, yes.

Yes. Can you highlight on the company performance on a regional-wise, like a south, west, east? And how is the current situation currently?

We are actually pan-India player. And you see in Northern India, our saliency is around 34%, 35%; in Southern India, also, it is 36%, 37%; east and west account for around 15% to 16%; and CSD account for around 10% to 11%.

And how is the current situation, sir, on this region, sir?

See, actually, the current situation like UP and certain states have gone much faster in normalcy. So of course, this has been skewed for certain this thing, but I am talking about on a normalized circumstance.

So the current trends in the north and south, which are the largest markets for alcohol category, are doing pretty well for us. And we are -- the brands are all buoyant. We are retaining our market shares that we had pre-COVID levels.

Okay, sir. My next question is, sir, any disruption due to -- in supply chain due to lockdown in some pockets in area supply chain, sir?

The challenges are there on supply chain, et cetera. But all those challenges are being -- we are taking into account, and we've been able to produce our things. So it's not so much of a major issue right now. But initially, it was a big challenge.

Yes. But there is a diversified supplier portfolio, so we have options.

Sir, my question is regarding, sir, some pocket has lockdown, complete lockdown like Pune, a few areas are totally lockdown. So any issue relating to supply chain of a...

So the markets which are already under lockdown, it is the similar situation for the whole industry. As far as those markets, which are beyond the lockdown markets, are being catered by multiple suppliers within the geography, and it doesn't affect our business adversely. It is only going to get better.

The next question is from the line of Chirag Lodaya from Valuequest Investment Advisors.

Yes. Sir, my question was on margin. So you mentioned that this year also you're reaching at 100, 120 basis points margin improvement. But if I look at Q1 performance and the kind of commentary you have given for coming quarters, so are you being a bit conservative on margin front because gross margin itself, we are talking about at least 200 to 300 basis point improvement on growth coming back from next quarter onwards, sir?

So Chirag, we have actually already guided that this improvement in margin year-after-year by 100 to 125 basis points. Certain time, it can go up. This has been a different quarter where the sales have been a little skewed in better margin areas. But these are the ones which are actually achievable. Anything above -- over and above, I think, because of the market or this thing, it will be reflected. So definitely, 125 basis points, what we see every year, the improvement.

Right. Got it. And sir, in terms of new launches, you talked about rum -- premium rum being launched, right?

Can you repeat it again?

Sir, in terms of new product launches, which you are talking about in terms of wine. So in that, we are talking about a premium rum individual launches. That is what you are highlighting? Or it will be at the...

So see, as far as the premium rum is concerned, we have already introduced 1965 Spirit of Victory Rum starting with the defense services. And there, we are already in process of achieving a 10% market share, which is huge. As far as the domestic market is concerned, we have launched it in certain states of north and east, and the response to the brand is very, very encouraging. We see this brand expanding in the domestic market pan-India in times ahead.

So I wanted to understand what are the new products launch you will be doing? It would be in whiskey category, if I understand? And what would be the time line if you can help us?

See, as I said, in the next 2 years, we launched 2 premium products, and it'll be in the brown space.

Okay. Okay. Okay. And just lastly, sir, to states where there has been fast increase in taxing. How has been the trend currently if you can help us, mainly if you can highlight how things are...

See, the states where the tax has increased more than 40%, and there are 2 states where the tax had gone to 70%, there, the industry declined by more than 50%. Delhi already has reversed the tax, and I think now the tax is about 5% or 10% only. And second is Andhra where, again, it has seen a decline. And a lot of states are now reviewing their policy and trying to bring the corona tax down.

Right. Sir, have you got some corresponding benefit in state of Telangana?

Can you repeat your question, please?

Have we got some corresponding benefit from state of Telangana because charge increase in UP factory, is that you have witnessed?

See, Telangana industry is doing well and it is growing. So I don't know about the cross-border, but the industry is increasing.

Ladies and gentlemen, we'll take the last question from the line of [ Kiran Naik from Mody Fincap. ]

Sir, I have -- you can consider avoiding answering. Sir, as fast-moving consumers are having SKUs, small budget products, so is our company also planning something like that?

So let me tell you, the SKUs in the alcohol category are regulated by the states, the government. So we are catering to all particular sizes of SKUs, which are currently allowed. In future, whatever the governments decide, we will follow the same trends.

So thanks a lot for joining on this call. We actually will continue our journey for premiumization, bringing the value to the stakeholders and creating a robust balance sheet. I think management is focused, and we'll continue to do that. Thank you.

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