Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Results Conference Call of Radico Khaitan Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Ashit Desai of Emkay Global. Thank you, and over to you, sir.

Thanks, Vikram. I think I got disconnected. So good afternoon, everyone. We would welcome the management of Radico Khaitan and thank them for this opportunity. From the management, we have with us today Mr. Abhishek Khaitan, Managing Director; Mr. Dilip Banthiya, CFO; Mr. Amar Sinha, COO; and Mr. Sanjeev Banga, President, International Business. I would now hand over the call to the management for opening remarks. Over to you, sir.

Good afternoon, ladies and gentlemen. Thank you for joining us on our third quarter and 9 months FY '21 results conference call. Hope you have had an opportunity to review our earnings presentation and results announced yesterday. We have stepped into 2021 with a lot of optimism and positivity. Industries have shown strong resilience through innovative ways during the pandemic, and India is now making its way towards gradual recovery and sustainability in 2021. During this call today, I will discuss the current industry environment, followed by an operational overview and outlook. Then I will hand over the call to Dilip Banthiya, our CFO, for a detailed discussion on the quarterly performance, followed by the Q&A. During Q3 FY '21, industry performance continued to improve on a month-on-month basis and normalized during Q3 FY '21. Top liquor consuming states such as Uttar Pradesh, Karnataka, Telangana, Uttaranchal (sic) [ Uttarakhand ], Maharashtra, Kerala, et cetera, have delivered growth over Q3 last year. But some of the large states are still laggards. We believe that these states are also approaching towards normalcy soon. Radico Khaitan has continued to outperform the industry during this period. Over the past few years, you have seen our business transformation, where we are focused on strengthening our premium portfolio, driving value-led growth and generating strong cash flow. This has also enabled us to reduce our borrowings from INR 947 crores in FY '16 to INR 255 crores currently. In FY 2014/'15, we did a detailed review of our future strategy and implemented a number of changes that would drive a sustainable growth in the future. We have highlighted this in our presentation on Slide 7 and 8. Moving to some of the key operational highlights. During Q3, we delivered Prestige & Above category volume growth of 5%, and overall IMFL volume growth of 0.6% against industry degrowth of 1%. We achieved highest ever monthly volumes in December 2020, and entered the year 2021 at a very strong note. We have introduced Jaisalmer Indian Craft Gin in a few more metro cities such as Mumbai, Bangalore and Hyderabad. Earlier it was available in Delhi and Goa. This brand is doing very well, and we plan to roll it out on pan-India basis in the current fiscal. Jaisalmer was rated as the best gin produced out of Asia in 2019 at The Gin Guide Awards. We have introduced 8PM Premium Black Whisky in Jharkhand and Haryana, taking total number of states where it is available to 16. Despite the lockdown and loss of sales in the month of April, we are very confident of achieving 1 million case volume for our 8PM Premium Black Whisky. Rampur Double Cask was launched in Delhi. The investments that we made in expanding our single malt capacity 2 years back will start to bear fruits over the next couple of years with more quantities of Rampur Indian Single Malt being made available in the domestic market. Continuing upon our vodka leadership, we expanded Verve premium vodka offerings through the launch of Lemon Lush and Cranberry Tease flavors. It is now available in plain, green apple, orange, lemon and cranberry flavors. Raw material. Raw material pricing scenario has remained broadly stable with no significant movement on Q-on-Q basis. We believe that ENA prices should stay stable around these levels for the rest of the fiscal year. In the coming quarters, we will continue to focus on new product developments in the premium states and increasing market share. We are very confident of delivering strong performance in Q4 FY '21, and a much stronger performance in FY '22. 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. We have delivered yet another quarter with industry outperforming growth. With the exception of Q1 of FY '21, we have delivered year-over-year growth in every quarter since quarter 3 of FY '18. During this quarter, we reported IMFL sales volume of 6.49 million cases, representing an increase of 0.6% on Y-o-Y basis and 7.3% on quarter-on-quarter basis. Prestige & Above category volume growth was 5%, which was over a very high base of last year. Net revenue from operation during Q3 of FY '21 was INR 684 crores, representing an increase of 5.6% compared to Q3 of FY '20. During this period, IMFL sales value increased by 4.9%. As a percentage of total revenue, the IMFL sales account for 82% of the net revenue from operations. Gross margin during the quarter expanded by 230 (sic) [ 232 ] basis points from 48.5% to 50.8%. The margin expansion during the period was due to the stable raw material pricing scenario, improved realization, better product mix, strong export and price increase. Price increase in the state of Telangana in Q1 had impact of 50 basis points over our IMFL sales in Q3 of FY '21. EBITDA margin during the quarter expanded by 235 basis points, at 18.1% due to the gross margin improvement and cost rationalization. During Q3 of FY '21, A&SP expense increased by 37% to INR 44.37 crores. As a percentage of IMFL sales, A&SP expense was 7.9% in Q3 of FY '21 and 6.9% on YTD in this year compared to 7.1% for the full year in FY '20. Company continues to make judicious marketing investment, which has enabled us to continue market share expansion. Given the improved market condition, we are aggressively investing behind our brands to gain market share and continue the premiumization journey. Furthermore, we have had new brand launches and entered into new markets for some premium products during this quarter. We have also increased on-paid activity and both APL and BPL expense have increased. Finance costs in FY -- Q3 of '21 decreased by 33.5% from INR 8.10 crores to INR 5.39 crores. The company's cost of borrowing has declined from 8.6% (sic) [ 7.9% ] to 5.3% on Y-o-Y basis due to declining interest rate environment coupled with company's stable profitability, strong capital structure and improved liquidity conditions. As of 31st March (sic) [ December ] 2020, our net debt stood at INR 255 crores as compared to INR 382 crores as on 31st March 2020. We have a strong financial position, comfortable liquidity. During these difficult times, we are taking all necessary steps to sustain our financial strength, maintain robust business model and grow consistently, competitively and profitably. With this, we'll now open the line for Q&A. Thank you.

[Operator Instructions] We have our first question from the line of Abneesh Roy from Edelweiss.

Yes. Sir, congrats on good numbers. My first question is on the Delhi market. So the market leader yesterday commented that they expect reforms and good news in the Delhi market. Also, you have also protested to the Delhi government that on the fee pricing and registration of brands, not to do the changes. So what could be the impact? And why this is happening because the government doesn't get more revenue as per your protest? So what is the reason why this is happening?

So there are a couple of progressive measures that have been suggested to the Delhi government. We have not really opposed the complete policy. The government has basically talked about quite a few reforms in Delhi market, which are anyway progressive. What we as a company have proposed is some measures that will add to the revenue earning capacity. We have asked them -- we have requested them to maintain parity between the government shops and the private shops, which is very essential because that prevents cartelization and helps more and more brands to sell as per consumer choice. So these are very progressive suggestions that have been made to the Delhi government, which would only increase their revenue capacity manyfold.

No, but in the news, it says you are protesting. I don't understand what you're saying.

No, we are not protesting. We have suggested a few modifications in the intended policy announced by the Delhi government.

Sir, that was my question. Why is the government doing this? And if your recommendations are not accepted, then what could be the impact?

No. See, if our recommendations are not accepted, the market of Delhi will continue to still grow. There is no ambiguity as far as Delhi market is concerned because Delhi is a showcase market. Now what the government is trying to do is increase the number of private shops because they feel that the corporation-owned shops are very heavy on overheads. And they are losing money as far as expenses are concerned. So they want to increase the private shops. What we have recommended -- so if the number of outlets grow and the private shops grow, sales will also grow, but what we are saying is that there is a risk of, if the private shops increase in number, there is a chance of monopoly and cartelization, which we have suggested they should avoid.

My second question is on the home delivery in any of your markets. Any update you can share?

So see, as far as home delivery is concerned, let me tell you, this is a very progressive outlook of the government. They have right now announced in few states of India. But it's in a very nascent stage right now because, see, when they announce these measures, the entire liquor industry was passing through a difficult phase because of the pandemic. So this is a new step taken by different states. It's having its teething problem. In the months ahead, it will settle down. But it is right now too early to comment on the efficacy of the model.

And last question on the ethanol mixing, what could be your view in general on ethanol pricing? And on glass pricing, do you expect any inflation, given in the past, when crude moves up, there is an indirect and lagged relationship. So do you expect some inflation in glass prices next 1 year?

So the ethanol pricing, government has already given their directions and their targets and aggressive pitching has been done. But however, the prices of alcohol were a little higher than the ethanol prices. So the supply of the alcohol has not been impacted. At the same time, last year has been a very big year for the crop point of view where we had the bumper crop. And because of that, the prices of grain and other things have been -- have come down. And more and more industry player, like we are also using around 65% to 70% of our products from grain-based alcohol. So the molasses-based alcohol will definitely be diverted toward the ethanol. However, grain-based alcohol is available and many more capacities are coming. So I don't foresee -- and if at all, there is some inflationary pressure on the grain-based alcohol, the company's strategy to premiumize its product and keep the impact to a very marginal level will continue to be there.

[Operator Instructions] We have next question from the line of Harit Kapoor from Investec.

I just had 2 questions. Firstly, you spoke of industry degrowth of 1%. I just wanted to get a sense from you as to what, say, December, our exit rates probably would have been for the industry? Or if you could give any sense of how early Q4 has been? Are we seeing industry back to kind of positive growth level?

So let me tell you, Q3, particularly in the liquor industry has seen a reversal of the slowdown caused by the pandemic. And in the quarter, which was the second quarter end, the degrowth of the industry was a much -- at a much higher level, which has come down to 1% in Q3. So you will see that there is a complete reversal, point one. Point number two, now that the reversal has happened, the -- most of the states have the outlets opened. They are -- the on-premise is functioning. The retail outlets are completely operational. And the fourth quarter is all set to see the progressive policies being implemented in FY '20. So the fourth quarter, in our opinion, is going to be a good quarter to work on.

And second question which was on the new products. So I know 8PM Black has done well, and we've also seen the launch of Jaisalmer in the markets. And also, you said that more capacity benefits will come through. So is the thought process over the next 12, 18 months around these brands? Or do we expect also some more in the pipeline going forward? That's it from me.

See, in our industry, the minute you reach 1 million case, then the volumes really jump. So especially for our 8PM Premium Black, in spite of a 1-month lockdown, to do 1 million case is a great achievement. And going forward, we feel that the Black volume should increase significantly, number one. Jaisalmer should take a spread across most of the Indian metros. And what we are planning is, in the next fiscal, we are going to launch 2 more premium whiskeys. So the way we have launched our 8PM Premium Black, in the same manner, in a very phased manner, we'll be launching 2 very premium whiskeys also.

We have next question from the line of Mayur Gathani from Ohm Portfolio.

Great set of numbers. So what is happening in the AP market? And how much contribution do you get from Andhra Pradesh?

So let me tell you, we have a 4% industry share in AP. But the point is that AP is still a large market, which has been affected because of the change in the route to market and the policy of the government. It is still settling down. The first 9 months has been turbulent because of the frequent changes in the consumer price. But the UP -- the AP government has in the last 2, 3 months started seeing a spurt in volumes because they have tried to bring about some normalcy in consumer prices. We hope that moving forward, the AP market will come back to its normal levels of almost 30 lakh cases plus, which is now at 23 lakh, 24 lakh. So the market is buoyant, and we hope this market to respond in the quarter ahead.

So what about the government's point that some -- a year back or so that they had mentioned that they want to bring about a complete ban in liquor. How is that progressing? Because that was supposed to be a slow implementation there?

So see, the point is that they earn a huge chunk of revenue from liquor. And in today's context, practically speaking, prohibition is really impractical because every state is so heavily dependent on revenues from liquor that this seems to be a distant dream, prohibition. Now incidentally, if you see, we have a live example of Bihar before us. The consumption in Bihar because of prohibition has gone up manyfold and they are bankrupt, because they are not getting money from the legal channels. Similarly, I think AP is now, if you see, they are liberalizing their policies in the last 3 months because of which the volumes have started moving up. If they had any plans, as I understand, or we understand, of bringing about prohibition, they would not move towards a more liberalized consumer policy. So I think it's something that needs to be seen with time.

Okay. Great, sir. And any price hikes that we expect or have we seen in the previous quarter?

So -- well, we have just seen a price increase in Kerala effective 1st of February. And as far as the liquor industry is concerned, the CIABC association keeps talking to -- engaging with every state government, and that policy will -- that situation will continue in the years ahead because of factors like input costs and stuff like that. And -- but the governments have also started responding just like Kerala in the recent past.

We have next question from the line of Aaron Armstrong from Ashmore.

Could you give an update on the outlook for new product launches, please? And specifically, which areas of the market you're most interested in? Are you going to focus on the super premium, the highest end, or something more accessible? Or what kind of demographics you're most interesting in? So where do you see the most exciting opportunities for new launches, please?

Sure. First of all, we have been working on a strategy of premiumizing our portfolio. And we have so far been successful. Our brands like Rampur Indian Single Malt, Jaisalmer Craft Gin, 8PM Premium Black, 1965 Premium Rum, all of them have been launched in the last couple of years, and all of them have succeeded. Having said this, if you look at the Indian liquor industry space, it's the premium brands which are growing in the double digit -- at the double-digit growth rate. We see a clear opportunity in a segment which is above the 8PM Premium Black and upwards. In fact, Radico as a company does not see the existing brands as a competition because we have always challenged the paradigm by launching brands at a higher price point compared to market leaders in different segments. So we will continue to work on that strategy. And 2 of our brands, which are on the drawing board, are going to be one of its kind in the liquor industry of India. And it will be much above competing brands in the super premium and premium categories.

And perhaps to tag on to that. Do you see similar launches, similar strategies from competitors when they notice you being so successful in the premium space? Or are you generally left to access that space with your products?

So see basically in India, if you look at the way the Indian companies are structured, India -- Radico is the largest Indian company. And we are competing today with international companies who are already having large brands in their respective premium spaces. We have grown despite not being adequately present in those spaces. And therefore, we don't see that competition will launch brands in those spaces to compete with us and compete with their own portfolio. So strategically, I don't see competition affecting us in any which way.

We have next question from the line of Avi Mehta from Macquarie.

I just wanted to understand whether post the pandemic, have we seen any changes to the competitive intensity with number of brands or players reducing or something of that sort, A. And second, sir, connected question was that in terms of price increases, you mentioned about Kerala. Do you believe that with the pandemic now probably behind us and the consumption picking up, is the possibility of price increases higher than what it was probably last year? Those are my 2 questions.

So let me tell you, first of all, the intensity of competing companies in the liquor space, if at all, is going to be as intense in the times ahead because the Indian liquor market is buoyant. It has shown resilience to the crisis that we've seen in the last couple of months. These were the worst of times the industry has seen. But despite that, the intent of any liquor company or any liquor player has been clearly felt because everyone tried to gain as much volume and market share as was possible. So this market will continue to be buoyant in the coming year, particularly because more states would like to grow on the revenue that they earned in FY '19 as compared to this year, current year. So the quota and the requirement of liquor will go up, one. The second most important thing is that the premium brands are showing a double-digit growth. And in the year ahead, this growth will further get consolidated because the consumption will increase compared to the previous year. So the next year is going to show a remarkable improvement actually in the industry.

Okay. And sir, on the pricing part, do you see the possibility of pricing kind of rising? And just a follow-up. You mentioned the quota system. So you are saying that companies are forced to kind of ensure competitive intensity to benefit from the recovery. Is that -- is my reading correct, sir?

No, I'll tell you what. All the liquor outlets that you have in India have a target to fulfill in terms of consumption and sales because they are directly linked to the revenue collection of the government. So therefore, we -- since the current year has seen some decline in the revenue collection because of the pandemic, in the year ahead, the government is going to give a thrust to collection of revenue, which will obviously reflect on the sales of the brands in a positive way. And answering the question regarding price increase. In fact, as I said, in the last 2 years, we have seen a very clear outlook change in various governments as far as costs are concerned, realization of increasing costs are concerned. And therefore, you will see that the last 2 years have seen more states giving price increases, which were very difficult in the earlier years. So I think if we conceived in a practical manner, I think our representations next year would certainly yield results. That's what we hope in terms of price increase.

We have next question from the line of Himanshu Shah from Dolat Capital.

Congratulations for good set of numbers. Sir, just want to check country liquor revenue growth has outperformed both in third quarter and 9 months period. Is this by any chance due to down-trading by customers on the popular category?

So Himanshu, the country liquor is altogether a different segment and pricing is also different in that segment. However, we have seen that we are only present in 1 state, Uttar Pradesh. So the -- actually, the increase in the consumption has been there, but it is not at the cost of the IMFL. You see, in first 9 months, the liquor industry, and particularly in Q3 of this year, the liquor industry in UP has grown by 6.5%. So it is not at the cost of the IMFL being and down-trading happening. Moreover, we are also watching this, that, is the down-trading happening? We don't see that. In our portfolio also, if you see that our Prestige & Above category has grown by 5%, whereas in Regular has degrown by 1.9%. So the point is that down trending is not happening, as Amar has just said, that we see in '21, '22, more and more prestige and premium brands growth to happen. So country liquor, I think there is -- itself, some growth is there.

Okay, sir. Excellent. That was helpful. And secondly, sir, can you just provide some color on region-wise mix of revenue, including that of CSD and exports?

Himanshu, can you repeat your question, it's not that audible.

Okay. Region-wise mix of revenues and -- including share of CSD and exports in our business?

CSD and exports?

CSD and Export. Export, Sanjeev will tell. CSD, we're pan-India present. And region-wise, is not that -- this thing, most of the -- this thing is there. However, CSD industry has been degrowing by around 12% to 14% still, and it has not stabilized. We maintain a market share of 28%, 29% in that market and continues to be at that. So if the industry next year pick up, we will again then come back on the growth path. As regard the export, I think Sanjeev will...

I'll add on to CSD part. CSD is about 10% of our volumes currently. And how we see that, from Q1 of next year, the industry of the CSD should be the same. It should come back. Plus, a very important thing what has happened in -- for Radico is with the focus of Modiji's government on Atmanirbhar. Recently, our Rampur Indian Single Malt and Jaisalmer Indian Craft Gin has both been approved in the Canteen Store Department, which is a huge opportunity for Radico because all the imported scotches have been banned.

On exports, our brands are currently available in 87 countries. And on a quarter-on-quarter basis, we grew at about 120% this year. And for the 9 months, our growth has been about 82%. We expect the Q4 numbers to also follow the same path, and we're pretty positive and buoyant on exports.

Great, sir. And sir, what will be exports as a percentage of IMFL revenue?

So export is around 7.5% of the IMFL revenue. And by volume, it is 6%. 7%, 7.5% by revenue.

[Operator Instructions] We have next question from the line of Nikhil Chowdhary from Kriis PMS.

Congratulations on a good set of numbers. Sir, I have 2 questions. Apologies, I missed the initial commentary. So if it is a repeat, I apologize. Sir, Pondicherry, Maharashtra and Rajasthan had not grown in quarter 2. So could you share the outlook like how it has done in this quarter?

So Pondicherry is going through some problems as far as retail outlets are concerned. It's slowly responding now. And we hope that this market will respond from the fourth quarter or the early part of next fiscal. As far as Rajasthan and Maharashtra are concerned, these are markets where the opening up of outlets post the pandemic has been delayed. So it's taking its own time. So these are 2 markets which we feel will respond in the quarters ahead, like the other markets have responded.

Okay, sir. And sir, Andhra Pradesh, like, although it is 4% -- like we have a 4% market share, like could you share like how it has performed in this quarter?

So Andhra Pradesh, we have started -- see, this quarter has been lower than the previous quarter. But the reason for that is very clear, that we are trying to reduce the volumes of low contributing brands and shift the volume towards more premium brands. So that's the reason you will find that in numbers, compared to the quarter 2, we are lower, but in terms of revenue and profits, we are higher. And the coming quarter will be even better.

Got it, got it, sir. And sir, last question. There was one new rule that like we read it recently on the license permitting in UP. How likely will it impact us? Could you throw some light on that?

So I think we need to look at this new provision in UP more from a positive light. See, UP so far, if you see, with a 200 million population, has been -- has still not exploited the complete potential of the liquor industry. It's now doing it with the current government in dispensation. What they have done is they have liberalized the policy by imposing this fee because they are now permitting every individual to store at least 2 cases with them at a nominal fee of INR 12,000 a year. So this is a good policy in fact and it will encourage consumption of premium brands. Because most of the time, if you see, it's only premium brands that get stored in-house for consumption and serving amongst friends and families. So this is a good policy. I think this will get emulated in more states of the country going forward.

We have next question from the line of [ Nilesh Jethani ] from Envision Capital.

2 questions from my side. One on the geography. Sir, in terms of Andhra Pradesh market, just wanted to understand, we are lower on a Q-o-Q basis. But on a Y-o-Y basis, at what percentage we would be? That is the first question on geography side.

So see, if you look at Andhra Pradesh, as I've mentioned, Andhra Pradesh, the biggest change that has -- that AP has seen this year is basically the change in the route to market. Earlier, the wholesale was controlled by the government and there were private shops. This year, particularly, government shifted to converting the private shops into government-owned shops. So there has been a slow pace of adaptation to this policy. But because of the pandemic coming in again and the consumer prices changing because of the route to market changing, the market was disturbed. So the first 9 months has not been so encouraging for AP. But the last 3 months are the clear indicator where month after month, now they are going back to their original volumes pre-COVID.

Still on a Y-o-Y basis, we would be at what percentage in AP market?

So Y-o-Y basis, the industry is degrowing by 20% versus same period last year. And Andhra accounts were 4% of our total volumes only, which we hope to build better in the year ahead.

Okay. Okay. Sir, second question is on the margin trajectory. Can you please shed -- throw some light on the raw material price movement on Q-o-Q basis? And also this trend of higher gross margin, is it because of lower raw material or the mix improving?

So as far as the alcohol is concerned, we have seen that benign scenario. And on Q-on-Q basis, the prices have remained more or less stable. As far as the Y-o-Y basis is concerned, we have seen a very high increase in the last year in the grain prices, and which has been corrected from Q4 of FY '20 onwards. And we have seen around 7% to 8% reduction in the alcohol price versus same period last year in this quarter. So there has been an improvement on the raw materials, which has also impacted and even related to our gross margin as well as EBITDA margin.

We have next question from the line of Jasdeep Walia from Infina Finance.

Sir, with regard to your premium brands like Rampur Single Malt and Jaisalmer Gin, what kind of quantum increase in malt capacity have you implemented? And when would this volume be available? So what kind of scale up could we see in these brands in the next 2 years?

See in terms of capacity increase that we -- just a couple of years ago, we've more than tripled our malt capacity. And as you know, it's a very long process, the aging and maturation and which has already been happening. We expect in the next 24 months or so, we would have some additional quantity of single malt available.

Got it. So you'll have incremental availability of -- single malt available only from FY '24 onwards?

See in any case, we've been using malts since our malt plant started almost 28 years ago. And as the aging process takes time, we are -- the fact is we've launched other expressions as well, means that there are certain special malts that are available and maturing, and we will continue to do that. We just launched our latest expression of Rampur Asava in October this year -- October last year, which is the first time in the single malt history, a single malt that has been finished in an Indian wine cart. So we will keep coming up with these special expressions. And we would have far greater malt availability in the next 2 to 3 years.

Got it. And sir, what kind of price points have you launched these products at in India? What are the lowest price points at which these products are available?

Rampur Single Malt is available between INR 7,500 to INR 8,500 a bottle. Jaisalmer Gin is between INR 3,500 to about INR 3,800 a bottle.

Got it, sir. Got it. And sir, with regard to the new excise policy which is coming up in Delhi, I just wanted to understand, is the industry expecting reduction in taxes as well? Because I would presume taxes are higher in Delhi versus neighboring states. So if they want to increase their revenues, they would have to bring down taxes. Am I right?

See, they wouldn't compromise on the tax collection. But they will make -- they will, in fact, ease up the business -- the practice of doing business here. So I don't think tax will be reduced.

Got it, sir, but how high are taxes in Delhi versus neighboring states? If you could give an example of MRP of your popular product in Delhi versus UP and Haryana?

Delhi is actually, in fact, comparable now. It's not very different.

We have next question from the line of Shirish Pardeshi from Centrum Broking.

Sir, I have 2 questions. The first question is on the gross margin. We have seen that we are comfortably at -- in the range of about 51% gross margin. I just wanted to understand, from a 1-year next perspective, right now, the prices has been stable. Do you think there is a room for further growth in gross margin? And what are the levers which we are banking on if there is at all any gross margin growth?

So our gross margins are hovering around 48% to 52% band in last few years. And I think that 50%, 51% is the margin, which we think in spite of inflationary pressure, we have continued to maintain around 48.5%. So I feel, looking at our product portfolio and all that, the gross margin will remain between 50% to 52% in coming year and -- coming quarter and coming year.

Okay. Okay. My second question is that when I'm looking at your volume, regular and others, and Prestige & Above, you have shown a significant growth. Is there a tendency or what I read from the channel interaction that when consumption happens at home, people will always look for value for money products? That could be temporary. I mean once the economy opens, probably, that may not be relevant. But when I look at your number, that is different. So can you throw some light on the consumption part and consumer behavior? Of course, you are in a large market, which is north. So what are the changes which you're seeing? And what are the changes you expect can happen maybe once things normalize?

See, actually, it's a reverse thing that when the consumption at the house takes place rather than the institution, people are paying less price. That means, if you go to a restaurant, for a peg if you pay INR 500 or INR 1,000, so person is always feeling why doesn't -- if he's drinking at home, he buys the more expensive product. So automatically, it is helping the premiumization. And once a person gets used to drinking a premium product, he does not like to downgrade once he returns back. So I think in a way, it is changing the consumption habit of people to come into the more premium brands. And that is why the premium brands in the liquor space are growing at a double-digit growth.

Sir, I do understand that point. What I was trying to say that is if that is the trend, which you have just mentioned, do you think a significant growth in the following year when things normalize because now the consumer has become used to drinking a premium brand of ours. Do you think then next year, we can expect more than 15%, 20% growth on the volume?

See, as far as next year goes, as it is, we'll have an advantage of the 1-year -- 1 month of lockdown. So we are quite confident that next year, we should have a strong double-digit growth.

We have next question from the line of Jignesh Kamani from GMO & Company.

I just want to know about volume decline and revenue growth of IMFL in domestic market since large part of the volume growth is coming mainly from the export?

No, actually, our domestic market volume has grown except 1 state, which we have already talked about that, that is catching up because of route to market changes. Otherwise, if you exclude that state, our volume has grown by 9% to 10% in this quarter also. It is because of that, it has remained almost flat and -- or rather 1% higher. But volume growth overall is happening.

No, but if you take about this 0.7 percentage volume growth and assuming 6 percentage of volume coming from the export, which is up 120 percentage, so 3, 3.5 percentage volume growth has come from the export to the consol level. So if you remove them, then there will be to 1 or 2 percentage kind of volume decline in domestic market, right?

Right, that's what I'm explaining to you that if we include that state, the volume growth has been around 1%, right? If we exclude that state, our volume is growing by 9% to 10%. So the point is, we are growing except at 1 state, which is actually coming back to the normalcy, and route to market has been one of the big reasons for that state to continue to degrow. And from this quarter, it is ramping up. So it is not that because of export the volume growth in domestic market is not reflected. It is 9% except that state. And as we said, that export is around 6% -- 5.5% to 6% in volume. It has been a low this thing last year. So with a low base, actually, this year, we are growing at 120% but it is still low as the volumes are not that much as compared to the domestic market volume because we are selling around 6.5 million cases. Out of that, mainly, it is -- 93% is -- 94% rather is in the domestic market.

So safe to assume that, if you think about industry, which declined 1 percentage in third quarter, our volume is also similar level. So we will not gain any market share in the third quarter?

So, right. Actually, it is an aberration that 1 state has given that, but in future, as our MD has just said that we are going to target a strong double-digit growth next year. I think industry is going to grow at double digit, and we will be at strong double-digit, and we will continue to outsmart the industry and gain market share.

See, if you look at the industry, actually, all the companies operating, all the competitors have lost market share. Radico has continued to maintain its market share in a difficult economy. Against the industry degrowth of 19%, we have still maintained a static market share because our brands that we are present in segments, premium segments, have continued to hold on to their market shares. There is a very large chunk of market where we are still not present, which is the upwards of 8PM Premium Black, which we plan to tap in the years ahead. So if you really see the performance of Radico in terms of maintaining market share in a declining industry, has been phenomenal, whereas others have lost market.

Sure. And the second question on the export margin, is significantly higher than the domestic or in line? Because if they increased to around, say, almost 10 percentage next year, what will be the impact on the margin on account of exports?

Export margins are definitely higher than the domestic market, but it is not much significantly higher. It is definitely higher. It is in the range of 1 to 1.5x.

We have next question from the line of Mayur Gathani from Ohm Portfolio.

Sir, just coming back on AP. You said the retail was private and now the government is taking control over it. But with the volumes increasing in the last quarter, as you said, is there a change in the government's purposes? Or they still continue to own -- continue to change the retail to government?

No, they have already taken over the government shops. There, they are now all owned by the government.

See what has happened in the last quarter is they had increased the price of the products very high, that means they had put a COVID tax, which they have now relaxed it. So the volumes are coming back in Andhra Pradesh because the MRP of the products have -- is higher than last year, but little -- is normalized.

Okay. So now AP as a market will be wholesale as well as retail both being controlled by the government, and that was a transition period and now we have more or less done with and government is going to manage the wholesale and retail both?

Yes. Right.

And something on UP, you mentioned there is a normalized fee of INR 12,000. So what was that? I missed it, I'm sorry.

No. See, the UP government has taken to a very progressive policy. They are allowing individuals to store liquor at their home for consumption on a nominal fee. So basically, this has been done because during the pandemic, they saw people -- they wanted people to stay away from public places. And therefore, in this year, while the market is normalizing, they have also given an incentive to the consumer to store at home and consume more, but with a nominal fee imposed on it.

Is that a onetime fee? Or is it an annual fee?

No, it's an annual license fee.

We have next question from the line of Ashit Desai from Emkay Global.

Just 1 question from me. UP had announced some excise policy changes relating to country liquor and IMFL. Could you highlight what are the changes? And is there a benefit in terms of trade expansion or profitability for us in both country liquor and IMFL?

So let me tell you, I think, as far as the good thing about UP excise policy is that they have, first of all, not increased duties and taxes. The reason is that the consumption is growing, and they don't want to create any road blocks for this consumption, which is showing a rising trend. Secondly, they have also now allowed, in the IMFL section, a small pack of 90 ml, which basically Radico had been suggesting for long and it has been accepted by the government. This will give people the opportunity to move upwards from the lower segments of the consumption like country liquor to IMFL. So this is a very progressive policy change they have made. And they are basically -- they have, this year, in terms of country liquor, also allowed country liquor to be made out of grain in tetra packs. So basically, this price, they want to encourage the lower segment consumers to slowly shift to IMFL with a better quality being given down.

Okay. Okay. And does -- do these factors have any impact on your profitability or margins in the state?

No, the duties have remained the same. So there is no increase in duties. And the consumer prices are also the same.

But this will help in increasing the volumes because of the smaller pack, there'll be more trials. So it will help in increasing the volumes of the state as well as Radico.

[Operator Instructions] We have next question from the line of [ Anurag Jain ] from [ Incamco Advisory ].

Based on social media activity, one can see that brands Rampur and Jaisalmer have achieved good penetration in terms of brand awareness and distribution presence in liquor shops in U.S.A. If you could share some insights on your business in U.S.A.? What is the -- what are your 5-year plans? And when can we hit INR 100 crore sales from U.S.A.? And at what level of sales do we achieve breakeven for the promotion and distribution costs in U.S. market?

See, we have a fairly large presence in the U.S. market. Currently, both Rampur as well as Jaisalmer are available in almost 30 states in U.S. The response has been exceedingly positive, not only from the Indian diaspora but even from the mainstream consumers. We are also with all our other brands, including Magic Moments Vodka, After Dark Whisky and 8PM, are also available in the U.S. market. We do expect the business to grow even faster once the bars and on-trade open up in the U.S. because all these super premium brands are largely consumed in the on-trade channels also. The other factor that is also going to boost these premium brands is the travel retail. As you know, last 10 months, travel retail has been decimated. But we do expect in the next 4 to 6 months, more travel will start happening, and the travel retail channel will come back, and that should also facilitate the distribution, consumption and purchase of our premium products. So we are very positive on our U.S. operations.

Sir, what kind of plans you have for the next 5 years? And what kind of targets you have for the U.S. market in the next 5 years, not something immediate, but 5 years down the line?

See, U.S. will continue. It is one of the largest liquor market in the world, and it will always continue to be our #1 priority in addition to the European and U.K. market and travel retail. We are expanding our footprint into the other control -- like India, even lot of states in U.S. are also government controlled. So they have those controlled states and we've already made headway into a couple of those states. We are also getting into the large chain stores now. Both Rampur as well as Jaisalmer are also available in Costco, which, again, is a very large chain across U.S. market. They have given us approvals for a few states and depending upon the performance, they keep on adding more states where we can retail our products. So we are very positive on the U.S. market. And we would also be going aggressively into the on-trade once it opens up.

Ladies and gentleman, in the interest of time, we will take the last question. We have the last question from the line of Bharat Shah from ASK Investment Managers.

Just 1 question. When we look at how UP has progressed in last 3 years, in terms of changing the ecosystem on liquor in a very progressive way, whereby consumption has increased, collections of the state have improved dramatically and have continued to follow a progressive tax policy, aided more lateralizing features like individual permit or home liquor or tetra pack or now sachet size IMFL trial at 90 ml. When evidence is so clear that sensible and honest policies are win-win, both for the state as well as for the industry, are the other states learning lessons or they are observing, not observing? Or they don't want to do it for their own peculiar reasons? I mean what is going on?

See, this is a very interesting question, is seeing the way the revenue of duty has jumped, it has jumped to INR 28,000 crores from INR 11,000 crores or INR 16,000 crores. And next year, they are targeting INR 34,500 crores, which is a jump of 22%, which for any industry is huge. So definitely, all states are looking at UP and trying to copy or emulate UP. Like even Delhi, the changes what they are asking us to increase the number of shops because if you see Delhi per person a shop is the least. So any time you go to a Delhi market, there'll be at least 300 people in the queue. So by increasing the number of shops, immediately, our sales also increases. So definitely, people are looking at that. The 2 states like Haryana and Punjab are the most backward in terms of policies because they still have the auction system. So those states are also looking at. Karnataka is one of the most liberal states where in spite of the pandemic, the volumes are increasing because there they have freely got the alcohol available. So definitely -- like West Bengal has marginalized -- capitalized the duty. So there also, we feel that the industry will come up. So definitely, all states are trying to look at UP. But every state takes time. So -- but I think eventually, UP will be the role model for the whole of India.

And do you believe any peculiarity of the individual state in their own specific interest or whatever apart, in general, the kind of a progressive UP model is being watched and kind of being sought to be imitated by others? You believe that things are moving on a positive note rather than remaining regressive the way it has been for the other states?

Absolutely, absolutely. Because see, every state, excise is a big revenue earner. And what UP has delivered is phenomenal. And in fact, they are targeting a revenue of about close to INR 50,000 crores in next 3 to 4 years.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir.

So I thank everybody for joining us on this call and giving us this opportunity to explain you the company's operation. We will continue to do our work on the brands, continue to invest behind the brands, we'll continue to expand our premium portfolio by the existing brand launches in the new states as well as by new launches. And I think company is working on aspect of improving and giving the cost rationalization equal importance, and by this, we will try and gain market share. So that is all as far as the operational part is concerned. And as far as the financial strength of the company, it is well-established that the company is also giving it equal importance and focus towards strong balance sheet so that we can continue to have the investment in the brands. Thank you very much.

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