Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Radico Khaitan Q4 FY '21 Conference Call, hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashit Desai from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Thanks, Mallika. Good afternoon, everyone. It's a pleasure to host the management of Radico Khaitan for their Q4 earnings call. From the management, we have with us today Mr. Abhishek Khaitan, Managing Director; Mr. Dilip Banthiya, CFO; Mr. Amar Sinha, Chief Operating Officer; and Mr. Sanjeev Banga, President, International Business. I'll now hand over the call to Mr. Khaitan for his opening remarks. Over to you, sir.

Good afternoon, ladies and gentlemen. Thank you for joining us on our fourth quarter and full year FY '21 results conference call. I hope you are all doing well and keeping safe. The impact of pandemic over the last 15 months has led to scaling down of operations and rationalizing of costs across industries. Our top priority during this period has been the health, safety and well-being of our employees and partners. While we have reviewed and rationalized each cost line item, we have not reduced any headcount or cut down any salaries. In the current wave, when there were shortages of medical supplies, we provided medical support to our employees and their families, including arranging for teleconsultations, medicines and oxygen concentrators. We have recently announced a welfare scheme for the extended family of our employees. In an unfortunate event of the demise of a team member due to COVID-19, the company will provide support to the bereaved family member for a period of up to 3 years. Although this cannot compensate for the family's loss, but it will perhaps give them some time to recoup. Last year, we had supported the government with the fight against the pandemic through contribution to lean projects and supply of sanitizers. This year, Radico Khaitan has pledged to give back to the society with the installation of oxygen generators at the government hospitals in 6 districts of Uttar Pradesh. Over the past few years, we have seen our business transformation, where we are focused on strengthening our premium portfolio, guiding value-led growth and generating strong cash flows. We have discussed this in detail in our Q3 FY '21 presentation. Our performance during this year was a reflection of a resilient business model, strong premium product portfolio and excellent execution capabilities of the management team. This will continue to drive our performance in the years to come. Over the last 3 years, we have consistently outperformed the industry. In the year FY 2019, the industry grew by 9.2%, whereas Radico Khaitan grew by 10.8%. Last -- FY '20, the industry grew by only 0.4%, whereas Radico grew by 12.5%. Last year, because of the pandemic, the industry had de-growth by minus 13.6%, whereas Radico de-grew by only 8%. In Q4 FY '21, we registered 8% growth in our IMFL volumes led by Prestige & Above volume growth of 15%. Immediately after the nationwide lockdown started to ease out in May 2020, our operations rebounded very quickly, and we also saw improvements in industry performance on a quarter-on-quarter basis. Out of our top 11 states, 8 states have returned to growth in the fourth quarter. Our export business has continued its strong performance during the year. And today, we have our brands available in over 85 countries. Through the second half of FY 2021, we had seen strong recovery in most of the macroeconomic indicators, but the second wave has disrupted businesses and operations across India, again. The lockdown this time is regional and local, unlike last year, when the entire nation was under total lockdown for a period of 45 days. Our plant operation across India runs smoothly without any major disruptions during this period of second wave. We have also continued to make dispatches as liquor sale is permitted in some of the key liquor consuming states. During FY '21, we have seen strong cash flow generation and were able to reduce our net debt by another INR 184 crores. Our current net debt position is only INR 198 crores now. This takes the total net debt reduction since April 2016 to INR 750 crores. We are proud to result that 8PM Premium Black whiskey registered sales volume of over 1 million case during fiscal year, despite the challenges in Q1 FY '21. The performance of our luxury brand, Rampur Indian Single Malt and Jaisalmer Indian Craft Gin, was encouraging as we continue to expand our distribution. This year, we will be focused on expanding both these brands to more cities across India. Our focus on product quality and consumer satisfaction has won us 1 Grand Gold and 12 Gold awards at the Monde Selection 2021. At the New York International Spirits competition, Radico Khaitan was adjudged as the India Gin Distillery of the Year. And both Jaisalmer Gin and Rampur Asava won Gold awards. We believe that premium brands will continue to grow given the limited impact of pandemic on the affluent society. Now with the pandemic, people have been going out less and, therefore, they want to have the experience at home. Radico Khaitan is on course of its plan for the launch of more brands in the premium brown spirits space during FY '22. Although the industry scenario is still uncertain, we believe that once the lockdown restrictions are eased, recovery will be fast. We are confident of delivering industry outperforming growth during 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, everyone, and over to you Dilip.

Thank you, Abhishek. Thank you, everyone, for joining us on this call today. Wish you the best of health during this second wave of pandemic. We ended the financial year 2021 on a very strong and optimistic note. With the exception of April 2020, we observed improving trends each passing quarter, which was a reflection of the industry performance as well. During the fourth quarter, we reported IMFL sales volume of 6.27 million cases, representing an increase of 7.8% on a Y-o-Y basis. Prestige & Above category volume grew by 15%, which was a high base of last year. During the last year, there were certain regulatory changes, which also impacted the industry. If we were to look at our volume growth during Q4, excluding the impact of route-to-market changes in Andhra Pradesh, the volume growth would have been strong double digit. In Andhra Pradesh, we are focused only on premium brands. Most of the recent FY '22 excise policy changes have been progressive without any significant tax increase, which is encouraging for the liquor industry. Net revenue from operation during Q4 FY '21 was INR 695 crores, representing an increase of 18.7% compared to Q4 of FY '20. During this period, IMFL sales value increased by 15.8%. And as a percentage of revenue, IMFL sales account for 80% of the net revenue from operation during the year. Gross margin contracted by 143 basis points from 49.8% in Q4 of FY '20 to 48.4% in Q4 of FY '21. It is not a reflection of the secular trend. We should look at gross margin on annualized basis. On a full year basis, our gross margin expanded from 48.6% to 50.3%. Despite gross margin compression, EBITDA margin expanded by 107 basis points from 13.6% to 14.8%. Raw material prices overall [indiscernible] during '21. Towards the end of the year, we saw some inflationary pressure on the dry goods, such as packing material, but we believe that worst is over, and it shall remain stable around these levels. ENA prices have been benign during the quarter. Given the ethanol blending policy of the central government, we may see some headwinds in ENA prices, but that should not be any significant. Furthermore, we have the advantage of backward integrated distillation capacities with insulator, to a great extent, from any significant movement in ENA prices. With our portfolio premiumization, we don't see any major impact on our raw materials on our operating margins. The company is taking all efforts to optimize costs and mitigate any margin headwinds. Given approved market conditions, 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 the previous quarter. We have also increased on-trade activities. Both ATL and BTL expenses have increased. During Q4 of FY '21, A&SP spend increased by 52.1% to INR 45.77 crores. As a percentage of IMFL sales, A&SP expenses were 8.3% in Q4 of FY '21 and 7.3% for full year of financial year FY '21. This is in line with our guidance of 7% to 8% of IMFL sales as investing in the marketing. In Prestige & Above segment, we expect this to be in the double digit. Finance cost decreased by 45.3% on a Y-o-Y basis from INR 8.46 crores to INR 4.62 crores. Company's cost of borrowing is one of the lowest in the industry due to the lower interest environment, stable profitability, strong capital structure and improved liquidity position. We have an efficient working capital management, a very strong credit controls. Our focus is on quality of revenue and collections, as a result of which, we have been able to reduce our working capital days from 61 days in FY '16 to 33 days of gross sales in FY '21. We have a strong financial position, comfortable liquidity. During these difficult times, we are taking all necessary steps to sustain our financial spend, maintain robust business model and grow consistently, competitively and profitably. With this, we now open the line for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.

My first question is on Delhi home delivery. So it has been allowed. Now in other markets, home delivery has been below initial expectation because you have to go via the liquor shop, and they don't want to share the data. And then for customer, it is more expensive. So is Delhi home delivery anyway different? And what would be your hope from that market?

So first of all, as far as online home delivery is concerned, there are about 6, 7 states in India, who have allowed it. It is at a nascent stage. This whole process is going to take some time to settle down. On the whole, for the future, it is a progressive direction being taken. Having said that, Delhi has allowed it, and they are in the course of settling this policy to find the most effective ways of reaching the consumer. In today's condition, more so in the second wave of pandemic, people are really hesitant more so in the premium segments of this business to go out. And therefore, this comes at the right time. I'm very -- we are all very hopeful that Delhi will find a good model to adopt as far as reaching its consumers is concerned. So we need to see over the next 3 months. But on the whole, the online delivery system is taking its time, but it will settle down. It's a progressive policy being pursued.

But sir, why will it settle down? Now wave 2 is almost ending, and we have seen the kind of crowds in Mumbai, for example, first day of unlock. So customer -- Indian customer also goes for value, right? He will not pay INR 1 extra, if he can buy from the neighborhood shop. So why should it settle down? I couldn't understand that bit. If it is not what really worked till now, now when vaccination is going to pick up so much, wave 2 has kind of ended in the big market, why should now it should do better? What is different?

Okay. I'll tell you what. See, first of all, you have to -- I would like to draw your attention to the fact that most of the people, who throng to the outlets are those, which consume segments of products, which are not premium, which are in the prestige and below. As far as premium customers are concerned, we either -- if they consume outside home, they go to bars and restaurants or they want to procure material to their home through the -- through domestic help or through friends. Now it is that part of the consumers, which are going to benefit from this policy of online ordering and delivery. Therefore, that's the major reason that having experienced this huge pandemic over the last 2 years, this change in attitude is already coming down, first. Secondly, the women consumers, particularly who have started consuming more and more in India, are now going to find it also very easy in the times ahead to avail this facility of online ordering and delivery. So that is why the Prestige & Above will benefit from it, and these are the segments which will reel this channel.

That's useful. My second follow-up question is, again, on Delhi market. So on the new liquor policy in Delhi, we had seen initially -- some of the liquor players were opposing to some of the changes. So what would be your thought process on the policy? Do you see some gains because of it?

So see, first of all, the objective of the Delhi policy is more to follow a free trade policy. If you see today's liquor scenario, the most progressive policy in India comes from the state of Uttar Pradesh where we have de-linked the manufacturing, wholesale and retail process. Delhi is following the same direction. And today, the market of Delhi, particularly, is unexploited. It is actually not exploited because in the previous case, the policy wasn't clear to lots of players. This time, they have de-linked the channels, and it is coming out to be a free pre-economy, free trade economy. So I think overall, this is going to turn out good. You will get brands that are demanded, premium brands, which the consumer wants will be available more freely. And I think that channels will find it easier to purchase stocks from different companies themselves. So I think on the -- overall, if you see, Delhi has adopted a very, very progressive policy.

And sir, the last question. It was very useful. So the last question is on pubs and bars. So we are seeing the market leader invest on supporting the pubs and bars. So does that become an issue for other players because the market leader will have a better visibility within pubs and bars? And when do you see customers coming back to this channel? Or will the in-home consumption remain a more established norm even when the vaccination, et cetera, is done? What would be your thought process on this?

So first of all, I want to make a qualifying statement that pubs and bars are like show windows of a good retail stop. If you look at the way consumption happens in India, less than 10% of the total liquor consumption takes place from pubs and bars across the country. So it's less than 10%. Having said that, it is still an important channel because it gives you the opportunity for trial and visibility. So this channel is going to take some time to come back to its normalcy. And it is a good trend that we are seeing that online delivery has started happening or it is taking -- it is in the process of evolution. So there will be some kind of a trade-off in the times ahead between online and pubs and bars. But of course, pubs and bars will still continue to be an attractive channel for the youth of this country for consumption.

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

Sir, I have three questions. One, is there any restatement of volumes that we would have done for last year? If yes, then why? My second question is, based on our strategy of growing Prestige & Above portfolio and also the higher-end portfolio, is there any direction that you could give us on EBITDA per case or EBITDA growth rates on that strategy? And my third question is in the states that we're operating, in the 3 months or in the 2 months gone by, which is April and May, what kind of disruptions, if any, were there because I am not sure on liquor being allowed sale, what format? And if you could comment on the disruption in sales, if any, which have gone by? These were the 3 questions, sir.

So first question, regarding the restatement of the volumes, so there is no restatement of the volume and reclassification because it is on the same pattern we are doing it. Second question is regarding the EBITDA per case. So as you have noticed, the trend for last 4, 5 years, when the company continues to grow on the Prestige & Above category better than the regular category, and that is the area where management focuses, and we are investing behind the brand sense. Last couple of years, our investment has continuously been increased over ATL and BTLs. So we say that there will be continuity of the product mix towards the better price, and EBITDA per case is improving continuously for last 2, 3 years. So that trend of [indiscernible] the EBITDA barring these few months -- which, pandemic and all that, we see that these 3 months, which you said in the third question, there is some disruption. However, it is in certain large states. The manufacturing and sales, both are continuing, so is the retail outlets. So there is sales happening, but there is definitely some disruption. 50% of the retail vends are nonoperative and like 70%, 80% of the on-trade is also nonoperating. But I think this is a matter of only time. By second half of the FY '22, we will be in normalcy. And our Prestige & Above category, which is growing in double digits, will continue to grow in high double digits. So this is, I think, the whole strategy of the management.

So just one clarification on the second and the third answer -- third question. So on the third question, the sales in the states that you're operating, the same is allowed, right, of the liquor?

Yes. Some of the large states, like we are talking about Uttar Pradesh, Karnataka, Telangana, even Maharashtra, some large states are allowing this. Rajasthan is restricted, Haryana with a restricted timing. So all these states are allowing the liquor sales through retail.

Okay. And on the second question, sir, what is the incremental EBITDA per case that you would have made -- we would make usually in Prestige & Above?

So we don't actually give the EBITDA per case on the Prestige & Above separately. However, you will see that our EBITDA margin, which used to be around 11%, 12% in -- 4, 5 years back, is at 17% now. And this is the -- because of the product mix, improvement in product mix and, at this point of time, 29% of the products are being through the PP&A category, which is around 51%, 52% of the value. So this trend and our -- most of the launches, which are in pipeline as well as which have been done last in 3, 4 years, have been all in the Prestige & Above category. So the EBITDA is a reflection of the product mix.

So directionally, till the time you grow Prestige & Above faster than the overall company growth rate, directionally, the EBITDA per case should continue to improve, right?

That's right.

Okay. Any number on the mix where you can head to based on your strategy over the next 3 years? Today, what is 50% of your revenue, what -- which is Prestige & Above and 30% of your volume, what should it head to over the next 3 years?

So next 3 years, we aspire to be between 30% to 40% on Prestige & Above side, which will be around 60%, 65% of the value terms. Actually, the Prestige & Above category will grow in high -- double digits. So this will continue to have a higher proportion, both on the volume side as well as on the value side.

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

Sir, I just wanted to check on the backward integration. Can you throw some more light? I mean if the ENA prices do go up, which are likely, then how much are you shelled with? What is your production there?

So the backward integration is our traditional business. We have not added any fresh distillation capacity. In last 7, 8 years, the distillation capacity between our mother plant at Rampur and Aurangabad is around 150 million liters of alcohol. But because of the logistics and other -- because we are operating in 32 states, almost 50% of our, this thing, we also procure from outside with the quality checks and all that. And 50%, I'm talking about IMFL business, 50% is being used from our own alcohol.

Okay. So to the 50% end, you're kind of protected from the price increases?

Yes, that's a fair, this thing, but it depends on the raw materials. But this -- keeping in view our premiumization and product mix, the ENA is not going to be any significant, this thing, headwinds for the operating margin.

Okay. And there has been a significant drop in working capital over the last few years' time, and it's incredible. What do you -- what use -- what are the reasons for this? I mean it's -- end of the day, it's still the government in most of the states that are buying for you. Has there been a change in the government policy that is making it faster for you?

So there have been a couple of changes, which we did, like if you've seen notice from 2016, '17 and all these 2, 3 years, we scaled down certain volume in certain states where the margins for [indiscernible] very small margin was being made. So that has eased out. At the same time, with this last 3, 4 years, we have seen that there is a lot of the credit, which has been impacted of our competition and all that. So we have been very strong in our credit controls. We have -- we are very tight on our credit norms, et cetera. We've also done some improvement on our inventory management systems. So keeping in view all put together, we have done each and every line item and seen that where the efficiencies and resources can be taken out and can be allocated to the better return accretive resources or the SKUs, we have done it. So by that, we have come from 61 days to 33 days. So it is all put together, various small, small things have been done, where -- credit control management, inventory and all that.

Okay. And we continue to look at new launches on the premium and above (sic) [ Prestige & Above ], right? Any light that you can throw on that?

Yes. So we realize that the Prestige & Above segments are the future of the liquor business in India. Our 8PM Premium Black was launched in the whiskey category, and we made it, successfully, a 1 million case brand just last year. This brand has tremendous potential to grow in the future and add to record brand contribution of this company. Having said that, we are already working in some new spaces in the premium whiskey segments, which are 2 in numbers. And over the next 2 years, we are going to launch the super-premium whiskeys with very, very high contribution. Probably, it will be one of its kind in the country that will -- this sector is going to witness. There are some other premium brands in the whiskey and -- in the gin and vodka category as well, where we are already strong. There also, we are going to bring premium products. So yes, we are on track, and we are just waiting for the economy to normalize, and the company will be able to bring these products forward.

The next question is from the line of from Saptarshee Chatterjee from Centrum PMS.

My question is, again, follow-up to the earlier participant about -- you have talked about super-premium whiskeys to come in 2 years. I just want to know your strategy, like what will really work for us so that we can gain market share from the very incumbent leaders in the industry in the whiskey segment? And currently, what is the portion of whiskey in the mix? And how it can really be meaningful in coming years, 2, 3 years?

So see, whiskey contributes to 60% of the alcohol consumption in India today. Now what we are looking at is strengthening our presence in the premium whiskey segments. What we find is that there is a huge chunk of opportunity available in the Prestige segment even today, which is 35 million cases in India. And there is another 15 to 20 cases -- million cases available in the super premium category. Now this is a huge scope canvas available to Radico as a company, which is in its growth stage of the life cycle to exploit. And that's how we are working at these new brands, which I said would be -- where we are going to bring products, which will be the first of its kind in the country.

Okay. But for us, how much is the contribution of whiskey in overall revenue?

So presently around 54%, 55% of our volume portfolio comes from whiskey.

Okay. Very useful. And secondly, wanted to know, on a quarter-on-quarter basis, if I see your volumes on the P&A side, it has been reduced on a quarter-on-quarter, even the mix had also been reduced. So are you seeing some pressure in the P&A? And what is our stance on the market share on P&A?

P&A, you're talking about?

Yes, P&A volumes.

So P&A as a whole -- year as a whole, we have grown. And basically, as the industry has de-grown in this year by 14% on P&A side also, but we have de-grown less than 8%. So actually, the P&A continues to grow in better proportion than the regular category. And this December quarter generally is very high because of winters, activity, and the demand is higher. So it is a seasonal trend. Otherwise, the P&A trend -- secular trend is much higher as compared to the regular category.

As far as P&A brands are concerned, if you look at quarter 4 itself, our growth in the P&A segment is 3x the growth of the industry as a whole. So I think P&A has started showing the way forward, and our growth has also started showing in its results.

Wonderful. Very helpful, sir. And just lastly, you have touched upon EBITDA with increase in the P&A mix. So are you holding the similar guidance of 100 basis point plus increased EBITDA as for next 2, 3 years, every year?

See, as far as the EBITDA is concerned, basically, we have already stated that it is an expansionary trajectory. So the -- last year, we had achieved 15.3% to 17 -- 16.9%. So the continuity of the expansion on EBITDA will continue. At the same time, we can -- we, as a management, are of the firm opinion that we will continue to grow our top line EBITDA and bottom line. So continuously, there will be an improvement on both the -- all the parameters in coming years.

See, the moment we say that we are in the process of bringing forward more premium brands, this would also give you some direction in terms of the EBITDA margins for the future.

The next question is from the line of Aaron Armstrong from Ashmore Group.

Firstly, around the margins over the last quarter, please. Can you talk about the GP margin pressure that we saw quarter-on-quarter? And how you would expect that to normalize over the coming quarters? And then similarly, in Q4, we saw EBITDA margins rise despite the pressure on GP margin. So can you talk about some of those savings around SG&A, please, last quarter? And whether they're short-term cost-saving measures that would need to normalize as things unlock into -- over the next few quarters? Or if there are sustainable structural cost savings there, please?

So as far as your question regarding the margin compression, which is this quarter, and since we are operating in 32 states and with various SKUs and products, so there is the variations between the product mix and the state mix. However, the secular trend of our gross margin is on upward trajectory, which is, on an annualized basis, if you see that the gross margin has gone up from 48.6% to 50.3%. And as we have explained that with premiumization gaining more momentum, the margin expansional trajectory will continue to be there in future. To your second question regarding the -- in spite of some compression in the gross margin, there is an improvement in the EBITDA margin. This is on account of that we have taken various line items and looked at -- to rationalize wherever possible. So in spite of an increase in our A&SP, which has been up in this quarter, 8.3% of the IMFL sales were -- and 7.3% during the whole year versus last year 7.1%, we have been able to improve the margin by having the rationalization in other line items. So it is a combination of all.

And those rationalized line items that you mentioned, are those short-term measures to deal with the current situation? Or are those longer-term savings that, in future, will help to drive EBITDA margins?

So right, these have been the areas where I think some rationalization was possible without -- with -- the pandemic has taught us a lot of things, where this could have been avoided. We have reduced our -- the cost on those line items, but most of them are sustainable.

And in terms of the GP margin pressure that we've seen just over the last quarter, how much of that is to do with product mix and state mix? How much of that is to do with raw material prices increasing?

As we've stated that raw material prices have been almost benign, barring some dry goods, which is the packing material, some inflationary pressure has been seen, which most of them have been done with. I think it should stable -- it should remain stable here. So this quarter margin is not a secular trend, as I said, that the margin expansion on gross as well as on the EBITDA side will continue to be with the current product mix, state mix. But since it is -- we can't mix -- differentiate between how much is out of product mix, how much is out of the state mix. It is -- on a quarter-on-quarter basis to monitor, this will be not easy. It will be on a regular -- annualized basis if we see our margin, it is continuously improving.

That's great. And then on the working capital side, could you talk about how much of the improvement in the working capital cycle, again, is it short term? Is it related to COVID and things slowing down around lockdown? And therefore, would working capital increase as you then grow and unlock over the next couple of quarters? Or again, are you seeing sustainable improvements in your working capital cycle?

The working capital has a sustained -- we have done the correction over the years. July 2016, it was 61 days. So we have had the better credit control systems. We are focusing more on as well sales as well as collections, and inventory management are -- also, we see improved software system and online monitoring and all that has been done. So this working capital cycle, which has improved to 33 days from 61 days, this continues to be a sustainable trend.

And that 33 days number, is that the level at which the management team is happy to operate longer term? Or do you still have ambitions to bring that down further?

So these are at optimum levels. Barring few here and there, I think these are the levels where most of the things have been done.

We are much better than the industry, actually. And we would say that the working capital levels at which we operate today is substantially better than the competition, and we would still like to see some improvement, if possible, in the design.

Understood. And then in terms of being able to grow your Prestige & Above revenue faster than the overall portfolio, could you talk about whether that's either you gaining market share within the Prestige & Above category? Or it's Prestige & Above as a proportion of the overall liquor market in the country, expanding and taking share?

So we are actually gaining market share. We are gaining market share. Our growth rate is better than the whole of the industry, including in Prestige & Above category. If you notice that in last 1 year, we have gained our overall market share from 6% to 7% on a whole volume basis also. So the gain in market share of Prestige & Above is better than the industry growth rate.

The Prestige & Above segment is the future of liquor in India. As I said earlier as well that in Q4, we grew 3x higher than the industry growth. And we see that with all the premium brands that are on the drawing board and are likely to be launched in the course of the next 2 years, we will continue to gain market share substantially.

That's great. And then in terms of new launches, either...

Mr. Armstrong, I would request you to rejoin the queue for follow-up questions. [Operator Instructions] The next question is from the line of Dhaval Mehta from ASK Investment Managers.

Congrats Abhishekji and team for a decent performance. So I have only one question. So we are planning to launch whiskeys in super premium segment. A few years back, we launched our brand, Rampur, which has done extremely well and have got really greater acceptance in international as well as domestic market, but we are low on its overall capacity. So we have also increased the capacity. So why not focus on that brand where the acceptance level is quite high rather than, let's say, launching another similar product in that particular segment?

No. We are not launching in the same segment. Rampur is in the luxury category. And we are launching whiskeys in the super premium category. So these are 2 very distinct segments. At the same time, we are planning to expand distribution of Rampur and Jaisalmer within the domestic market as well. We also have plans to launch it in the CSD channel. So you will see a fair amount of activity on both these luxury brands of Rampur and Jaisalmer in the domestic front. Also, we will have the super premium whiskey for the domestic market.

Okay. Okay. So what will be the price difference between, let's say, super premium and the luxury segment?

Well, just to give you an example, Rampur retail in the daily market is at about [ INR 7,600 ] to INR 8,000, whereas the super premium is in the range of about INR 1,500 to INR 2,000. So there is vast gap.

The next question is from the line of Alok from AMBIT Capital.

Two questions. Firstly, as you mentioned about the super premium range, and pardon our ignorance, but would the super premium range have largely the scotch portfolio or the non-scotch portfolio is also there? Because, of course, the Japanese whiskey, et cetera, are insignificantly small in India. So that is my first question. So what sort of blend it would be? And secondly, in terms of your current retail reach, what would be that overall count? And of that, what were the P&A's share within your overall retail reach? This were my 2 questions.

Sir, in terms of super premium, it is going to be a mix of either 100% scotch as well as a super premium blended whiskeys as well. And this is the segment that is growing at a very fast pace in the domestic market. We've been missing out on this segment all this while. So that is a segment that we will be focusing in the next 1 to 2 years.

Sir, just to confirm, you say that you will also look at scotch portfolio, right?

That's right.

Okay. Okay. Got it. Got it. And the second was on the retail vends, and of our whole coverage, what portion would be our P&A portfolio also reaching it?

So as far as P&A portfolio is concerned, we are reaching out to almost 100% of the retail universe of India. Right now, if I just have to get -- take an example, we are in 16 states for this 8PM Premium Black. We plan to introduce it to all other states during the current year. So yes, availability and reach would be 100%.

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

Congratulations on [Technical Difficulty] Sir, if you can just give us some sense about how...

Sorry to interrupt, Mr. Trivedi. Sir, your voice is not audible, sir.

Hello? Is it better?

Yes, sir. You may go ahead.

Yes. So if you can just give us some sense about the international business, considering COVID is impacting less in the international markets than in India, so how the business is shaping up? And what are our revenues from international markets for the entire F '21? And if you can also give us some sense about what is the potential to achieve over the next 3 years?

See, in terms of international business, there are 2 channels over there. One is the global travel retail and the other is the local duty-paid market. In terms of the travel retail, as we all know, that's been hugely impacted because of hardly any travels that's happening. The good thing, the good positive out of that is the duty-paid international markets, where there was a lot of focus on in-house consumption, online sales, where our brands have been very well received, and we've seen growth over there. Lot of western markets, be it U.S. or Europe, the on-trade has also started opening up. So we have actually seen growth in those segments and those channels for our luxury brands. The global travel retail, obviously, has been depressed. But we are confident as more and more international travel and airports open up, we will be bouncing back on those channels as well. In terms of overall volume, our international business is about little over 6% and -- but at a much higher profitability than the domestic one.

And like, what is the potential to achieve over the next 3 years from international business?

Well, you see, in terms of our Rampur Indian Single Malt, we've actually been constrained by the capacity that we had and the malt that was aging all this while, and we tripled our malt distillation capacity. We expect the additional volumes to kick in, in the next maybe 18 to 24 months. Right now, it's strictly on allocation. As mentioned, our brands are available in 85 countries. But our Indian Single Malt is only in about 45 countries. So we have all our partners in the other markets screaming when can they get their hands on Rampur. So in terms of distribution, we still have a long way to catch up, and we are very confident whatever we will be able to bottle, we will be able to sell that off. But having said that, we are really not chasing volumes on our luxury portfolio. It is a work of art. We want our consumers to taste the finest, and we've been very patient in launching our single malt, and we are in no hurry to flood the market just to gain volume.

If I can just ask one question, the reason for higher other income this quarter?

The higher other income is on account of -- that we have a subsidiary, Radico NV Distillers (sic) [ Radico NV Distilleries ]. So we have had the good dividend payout from that in fourth quarter. So INR 8.5 crore is out of the dividend income, which is the differential between last year and this year.

The next question is from the line of Ashit Desai from Emkay Global Financial Services.

Am I audible?

Yes, sir, you may go ahead.

Just two questions. One is, given the -- given all the new launches that you've announced, any guidance on ad spends? And in light of that, should we look at more margin expansion ahead? Or you would probably maintain margins at these levels? And second question is on CapEx. We've seen slightly higher CapEx this year at close to INR 100 crores. So for next -- where is that incurred? And what is your CapEx guidance for next 2 years?

So answering your first question on the launch of new brands, which is on the cards, we would maintain our A&SP spend guidance between 7% to 8%, which has been our track record for the last couple of years. If you look at it, even while we have launched 8PM Premium Black whiskey or expanded the premium offering of Verve, which is now 20% of the premium vodka market, all of them have come within the stipulated A&SP spend levels. So we intend maintaining it within the 7%, 8% guidance. And yes, you're right, if we launch brands with higher margins in the higher segments, that will certainly expand margin levels.

To your second question regarding the CapEx, so as we have been discussing that we have tripled our capacity on the malt side a few years back, to back this malt capacity, we have increased the maturation and storage capacity for the malt, which is going to yield good results in future. As we have also seen that the brand Jaisalmer gin has taken a very good traction from the international consumer. And now we are rolling it out in domestic market with 5 states being rolled out now and to more cities. So we have expanded some production capacity there also. A couple of more opportunities in the branded business. So we have increased the tetra capacity, which is a large market in UP. So there, we have invested and increasing some bottling capacity and all that. So these are the -- all the CapEx, which have been done are return accretive, EBITDA accretive and will continue to give higher return in future.

Got it. Sir, any guidance for next year?

So we will have actually maintenance CapEx and some brand-related CapEx, which will be between INR 70 crores to INR 80 crores.

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

Sir, I just have a small follow-up. On the super premium side, which is basically Rampur and Jaisalmer, what is the total volumes that we sell? And with this capacity, what kind of volumes is possible? I'm not asking in how many years you will do that, but what kind of volumes that capacity will support?

Well, we actually don't share the brand-specific volumes. So as we mentioned, whatever is ready to be shared with the consumers, we are decanting those and bottling that much quantity. And we are able to meet the demand of only a part of our consumer universe. We still have a lot of markets where we have not yet launched this product, so we are in no hurry. As and when the product is ready to move into the market, we bottle it and start distribution. We are, at the moment, not looking at expanding any more international markets because we are under strict allocation with the existing markets itself. Once we have more malt available, we will first try to meet the requirement in our existing markets. The moment we have additional quantity available, we will open up newer markets.

So sir, to one of the participants you answered, 6% of your sales volume is international volumes. So that's about 1.3 million cases. Lot of -- so part of this would obviously be the super premium, right?

I wish the whole was super premium. That may be [indiscernible] I'll go back, no?

I was just asking, a part of it, if whole was super premium, then your market capital have also been different.

Hopefully, in the years to come, it will be a substantial portion of that. And we also mentioned our margin in the international business are substantially higher than the domestic business. And we have a large footprint, yes, in the evolved developed markets of U.S., Europe, Australia, New Zealand and Asia Pacific. But we have significant presence in Africa, Middle East and South America as well.

So is it possible to share as a percentage of sales what it should be, if not as a percentage of volumes?

I'm afraid, we will not be able to at this point in time.

The next question is from the line of Dipen Sheth from Crystal Investment Advisors.

When I zoom out and take a longer-term view of what the management has done, and most of it, I would say, all of it is pretty creditable. If I look at a 5-year view, we've gone from somewhere around 17 million, 18 million to 24-odd million. Actually, we've done 22.5 million this year, but I will treat last year's volumes as indicated. P&A would probably have gone from 4.5 or thereabouts to close to 7 now. Revenues have jumped up by 50%. Debt has fallen continuously from close to INR 1,000 crores, INR 950 crores, if I remember, was the F-16 exit, we are at INR 200 crores now. Net debt-to-EBITDA has gone from 5x to maybe half or some such. So what happens now with the money you are generating? Is there an intent to allocate more aggressively to the business rather than just pay down debt and tighten working capital? Okay, working capital also leads to some cash being generated if you tighten working capital. I think we are close to the end of that, much of the creamy yield from there. So what do you do with the money you generate over the next 2, 3 years? Can we see substantial CapEx into capacities? Or would you launch brands or take over brands? Is there M&A activity being planned? Do you want to do a buyback? I think from a value-creation perspective for a current shareholder, some understanding of this is very, very critical.

So as far as the cash flow generation, our focus in last 5 years has been free cash flow generation. And we -- firstly, we have repaid a debt of around INR 750 crores, as you rightly said, from peak debt of INR 950 crores plus to sub-INR 200 crores levels. After this debt is repaid, I think because there are no big plan at this point of time on card, so the money can be used to create the shareholder value. It can be the medium of anything. It can be higher payout of dividend or buyback or something, but there is still a time of a year or so. So we'll come back with our correct strategy at that point of time. But the -- ultimately, the distribution of the cash after that will be one of the factors, which will be taken into as -- by the management for returning to the shareholders.

Okay. Why I'm thinking about this is -- and I don't want to belabor the point. Volumes have grown something like 50-odd percent, maybe we were at 18-odd million 5 years ago or some such. Now there is -- if you get aggressive on wanting to grow volumes, then maybe you will have to reinvest aggressively in the business. And maybe that's one way of doing it. Despite the bump up in cash generation over the last 3 years, return ratios are not fantastic or extraordinary. We are yet to cross 20%. So the -- whether reinvesting in the business is going to be at higher incremental returns is something I would worry about and your overall low volume share in the market, although it's been steadily increasing, and that's a great job, but you are still nowhere near the larger player in the industry or players in the industry. So reinvesting aggressively and at perhaps incremental return ratio is higher, how would that play out? That's a tricky one. That's what I'm thinking about. I think there's no credit to be taken away from the achievements of the last 5 years. And you have my salute for that. Anyway, I'll leave you with this thought.

So first of all, states that -- today, we are a significant largest Indian player in India as far as business is concerned, whether on brand portfolio or on the financial parameters. Having said that, we are now at that stage where incremental growth does not require us to reinvest in proportion -- the same proportion because volumes can come to us from outsourcing because there are plenty of capacities available across the country. So volumes will now grow, more so in the premium segments where the returns are very heavy, and investments will be far less. So that's what will give us incremental margins at a lower investment.

So through the franchise route, if I may interrupt?

Pardon?

So a franchise kind of arrangement, if I may interrupt you here, is that what you're looking at?

Yes. See, it is the third-party tie-up arrangement of bottling. So not giving the brands to the franchisee like the -- any other competitors, but...

Outsourced contract production.

Yes, outsourced contract production.

Fantastic. Fantastic. That's very encouraging. A buyback would also inspire, but anyway.

The next question is from the line of Aaron Armstrong from Ashmore Group.

My question was around the distribution potential of some of the existing brands. And you've mentioned 1 or 2 brands that are only present in a few states, and there are still more states that you could roll those out to. Can you talk about that as a potential growth driver for the company, please, where you already have the brands, the products are well established, but you're still getting approval and distribution in different states? And how meaningful that process could be for you over the next couple of years, please?

So there are some brands which are good brands, but preferred in few states. And these brands have regional preferences and appeal for their taste. So they will continue to be regional. However, we will try and evaluate opportunities, if required, as and when they come depending upon various state excise policies in the times ahead to expand them. But as of today, we feel that they will continue to remain regional brands. And they are high contribution brands also.

As far as the other point like the -- in the existing portfolio, there are brands which are available, like take an example of 8PM Premium Black, which is available at 16 states now. And last year, it was available in 14. So we have added 2 more states. So likewise, the expansion of the existing brands is being done, and it is being done on those states now where it is not available because the traction of the consumers in this category is coming. And then depending on the consumer demand, we are putting this brand in more states. Take an example of 1965, this rum, which has been started with defense, and then we have taken in the civil market. So we presently hold around 9% market share in defense, and its brand is being rolled out in more rum-consuming states. So I think these are the areas where the company will continue to explore the possibility and keep increasing the distribution.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

So thank you, everyone, for joining us on this call today. As a management team, we can assure you that we have a robust brand portfolio. We have continued to invest behind our brands. We are looking to expand our premium offering with further new brand launches in FY '22. We have a strong balance sheet and cash generation, which provide us the fire power to invest behind our strategic growth plan. Overall, we believe there may be short-term challenges in the industry due to this pandemic, which shall not last too long. Once things start to normalize, the industry shall return to growth path as we had seen in Q4 of FY '21, and the Radico will continue to outperform the industry. We look forward to have interaction with you all on our next earnings call engagement on the platforms. In the meanwhile, if you have any queries, you can follow up with us through e-mails, et cetera, or write to us on our mailbox. Thank you very much. Stay safe, healthy. Once again, thank you for joining us today.

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