Radico Khaitan Limited (RADICO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Results Conference Call of Radico Khaitan Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ashit Desai from Emkay Global Financial Services. Thank you, and over to you, sir.

Yes. Thanks, Stephen. Good afternoon, everyone. It's a pleasure to host the management of Radico Khaitan for their Q2 earnings call. From the management, we have with us today, Mr. Abhishek Khaitan, Managing Director; Mr. Dilip Banthiya, CFO; and Mr. Sanjeev Banga, President, International Business. I'll now hand over the call to the management for their opening remarks. Over to you, sir.

Good afternoon, ladies and gentlemen. First of all, wishing you all a very, very happy Diwali. Thank you for joining us on our second quarter FY '22 results conference call. I hope you are doing well and keeping safe. Market conditions have normalized during Q2 FY '22, and we saw strong growth momentum led by our Prestige & Above category brands, which have grown by 18% over same quarter of last year. The growth was broad-based across the portfolio and across sales. Demand for premium brand is relatively less impacted by the slowdown due to COVID-19. Consumers are looking to have quality experience at home when the social gatherings and going out is reduced. Our long-standing strategy of focusing on value-driven growth is working well. It is clearly reflected in our Q2 FY '22 volume growth and is also indicative of the increase in premiumization trend. It is important to note that this performance is over a relatively strong base of last year when Q2 was more or less normal. During the quarter, export has been impacted due to global trade scenario and nonavailability of containers. Our domestic volumes have remained very strong. Building upon the growth momentum in the industry and the optimization trends. We have unveiled 2 of our most awaited brands, that is Royal Ranthambore Heritage Collection-Royal Crafted whiskey and 2 variants of Magic Moments Dazzle Vodka. We have been working on these brands for over 2 years, and the launch was delayed due to COVID. Both these brands have been developed after a comprehensive consumer research on the blend, packaging as well as positioning. These brands will create a unique positioning for themselves in a similar fashion as many of our previous premium brands. We believe that Royal Ranthambore is the finest blend ever created in India at this premium positioning where no other Indian company has ever launched its brands. It is unique whiskey with 6 blended malt scotches, 1 scotch grain from malted barley and oak infused grain neutral spirit, reserved for a specific time to assimilate the blend. Dazzle is aimed at capturing the global trend of the premium natural flavored vodkas. It undergoes 7-stage filtration process and is available in 2 variants: Gold and Silver. Gold is an ultra-premium vodka, whereas Silver is creamy vanilla flavor, which is first of its kind in India. As of now, these brands have been launched in UP and Maharashtra. In the second half of FY '22, we made available in other key states such as Karnataka, Telangana, Rajasthan, Delhi, Goa and Haryana. Next year, we will roll these out on pan-India basis. At the moment, we are focused on seeding these brands. Our focus is on placing these brands in Class A and B outlets in selected cities and creating visibility with consumers. We are very proud of both these launches and their initial market feedback is also very encouraging. It gives us more confidence that we are making right progress in developing a stronger premium brand portfolio, which will create Radico Khaitan a future-ready organization. During the quarter, we expanded our distribution for Jaisalmer, and now it is available across 10 states. After Delhi, Goa, Telangana, Karnataka, Maharashtra, it is now available in UP, Haryana, Rajasthan, Uttarakhand and Daman. Over the last 2 quarters, we have seen a steep inflationary trend across industries and our sector is no exception. We have seen a sharp increase in some of the key input materials, which has impacted our profitability margin, particularly in the non-IMFL segment. We strongly believe that this is a temporary phenomena. And given our focus on premiumization, margin trajectory shall improve. During this period, Radico Khaitan is focused on sustainable premium volume growth, which will drive profitability in the long term. As a company, we have taken environmental stewardship and supporting the planet in a big and small ways. For example, in our Rampur Distillery, nearly 70% of the power consumed is from renewable energy sources and around 47% of the renewable power was through biogas generated through waste produced during the alcohol manufacturing process. We have been ramping up our usage of recycled bottles for certain large brands, which stands at 14% in FY 2021 as compared to 4.5% in FY 2019. Other initiatives include water recharging and water harvesting around our factory, educating farmers around water conservation. Currently, we are able to recharge 300% of total water we draw from the ground, giving back more to the ecosystem. We have also undertaken a large water conservation project along with the government and the Art of Living Foundation. Our project will benefit over 40% of the total population of Rampur district of 2.3 million. We believe in creating value and sustainable growth keeping in mind our commitment to environmental and society. I would now like to hand over the call to our CFO for a detailed operational and financial review. Thank you, and over to you, Dilip.

Thank you, Abhishek. Thank you, everyone, for joining us on this call today. Wish you all a very happy and prosperous Diwali. During the second quarter, we reported IMFL sales volume of 6.47 million cases, representing an increase of 7.1% on Y-o-Y basis. This volume growth was led by Prestige & Above category, volume growth of 17.7%. In value terms, P&A category registered 22.1% of growth. P&A category account for 30.8% of total IMFL volume as compared to 28% in Q2 of FY '21. We have continued a similar momentum in Q3 so far. Net revenue from operation during Q2 of FY '22 was INR 709 crores representing an increase of 12.5% compared to Q2 of FY '21. During this period, IMFL sales value increased by 13.5%. As a percentage of total revenue, IMFL sales account for 80.2% of the net revenue compared to 79.5% during the same quarter last year. Gross margin during the quarter was 46%. This was impacted due to commodity inflation, particularly in non-IMFL segment. Over the last 6 months, we have seen prices of packaging and other packing materials go up significantly. Despite a significant increase in the prices of packing material, gross margins for IMFL business remains stable, owing to a favorable product mix, while there is inflationary pressure on most of the communities, P&A price have remained stable. Due to the efficient supply chain, company has been able to manage the impact of the inflation to a minimum. Company is taking all efforts to optimize cost and to mitigate any margin headwind. Over the long term, we expect to continue our margin expansion trajectory given our portfolio premiumization. Employee benefit expenses increased by 25.2% on Y-o-Y basis to INR 37.89 crore. On a lower base of last year, in FY '21, there was no salary hikes and variable pay due to the COVID-19-related uncertainties. In Q2 of FY '22 includes the full impact of variable pay as well as the salary increments. The company strategy to continue to make judicious marketing investment over existing core brands and new launches to sustain the growth and market share. On a quarterly basis, the amount may vary, but we expect to maintain A&SP to be in the range of 7% of our IMFL revenue and to be able to drive the sales momentum. In the packet -- P&A category, we expect this to be in double digit. Finance costs decreased by 43.8% on Y-o-Y basis from INR 5.4 crores to INR 3.06 crores during Q2 of FY '22. The company's cost of borrowing is one of the lowest in the industry and due to a lower interest environment, stable profitability, strong capital structure, improved liquidity position. We have an efficient working capital management and a very strong credit control system. During the first half of this year, we reduced our net debt by INR 79 crores. As on 30th September 2021, net debt stand at INR 119 crores compared to INR 198 crores as of March 31, 2021. We have a strong financial position, comfortable liquidity. During these 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 will now open the lines for Q&A. Thank you.

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

Congrats on very good recovery and numbers. My first question is on the gross margin pressure. So if I see your numbers and other peers in that space, on a 1-year and 2-year basis, your gross margin pressure is on the higher side and you did explain because of the non-IMFL and maybe because your P&A is also lower as a percentage. So I want to understand, going ahead, both glasses and ENA, how do you see inflation? And in terms of price hikes, how are you taking on your own also by premiumizing. And from the state governments, are you getting any kind of a comfort on that?

So Abneesh, as we explained in our opening remark that the gross margin has largely been impacted on account of the inflationary pressure on some of the dry goods in the non-IMFL segment. And the impact of the -- on the gross margin is in the range of around 225 basis points to 250 basis points. However, in case of IMFL segment, because of our product mix and premiumization, as P&A category has grown again by 18%, we have been more or less able to mitigate this dry goods inflation to an extent and the gross margin in that segment is even more or less stable. As far as your second question, regarding the premiumization. So companies premiumization continues and we believe that we will continue to grow our premium portfolio in strong double-digit continuous basis. In this period, for next H2, we -- as the commodity price looks to be continues to be hovering around at these levels, we maintain our guidance of the gross margin to be range-bound in these ranges. However, from next year onwards, the product premiumization is happening. We will also get the price increases because a lot of representation is being done to the state for compensating while the input cost increase, which is coming in, major commodity. So hopefully, in the next excise policy when it unfold in February and March. We are also going to get the price increases commensurate with our cost push. And the product premiumization and cost -- price increase will put again back on our margin expansion trajectory that is what we believe. As we have guided that we will continue to improve our operating margin and we still maintain that in 2 to 3 years' time. We should be back with a late margin with the product launches, new products as well as strong P&A growth.

Sure, that's helpful. My second question is on your 2 super premium brands launched. So my questions there are -- do you see the advertising and promotion spend inching up for you next 2, 3 years? And second, market leader also under the new MD calling out the strategy refresh and getting more aggressive in general, they are targeting double-digit sales growth also, [indiscernible] is also quite aggressive. How do you see advertising spends for you and for the industry? And second, if you could discuss for these 2 super premium brands, what is the revenue potential from an industry level? So what is the ticket size either in terms of targeting. How big is the opportunity currently?

To answer your first question about the advertisement spend, we've already maintained ad spend between 7% to 8% and -- of the total revenue. And I think with the 2 new brands also, our advertisement spend should be in the same range. And the second part of your question is this industry today is 3 million cases. It's a highly contributing segment and it is growing at about 10% per annum. And we feel that our product is the finest-ever Indian whiskey made at this price point. It is going to be priced at about INR 1,700 to INR 2,500 a bottle. And we started with 2 states. We are going to add another 8 states in the second half, and next year we're taking it national. And hopefully, like our other launches like Rampur, Jaisalmer and 8PM Black, which was -- which we launched about 2 years back and we did 1 million case last year and this year will be close to 2 million. I'm quite hopeful that this product should be well.

My last question. So you have done this premium vodka launch. My question is on your current business of white spirits, I see the market leader also calling out that they want to get aggressive here. So if you could talk about that, do you see your market share coming off there because of the market leaders aggression there?

See, our market share in the vodka segment is growing day by day. And today, we are close to 58% to 60% of the brand vodka sold in India. And with these 2 new launches, we are covering the entire spectrum of the white spirit, especially the vodka segment. And we are very confident that with the Dazzle, especially the vanilla flavor and the Gold and 7 stage filtration, we'll be able to maintain, if not accrete our market share.

And going forward, actually, with the entry of new, I think it will make more margin for the white spirit and that market itself will get expanded. India is a large market, and we have a very miniscule consumption of the white spirit. The white spirit consumption as the overall category is around 3.5% to 4%, which even if double in the next 5 years, it will have the advantage to ready for being the market leader.

Like globally, vodka segment is close to about 28% to 30%, whereas here it is 3.5%. So if more players come in, the market will expand. So which will be a very good sign for Radico.

The next question is from the line of Aditya Gupta from Goldman Sachs.

A couple of questions. First, on the new launches. 2 different strategies from a branding perspective, if I see it correctly. In the whiskey segment, you have launched a new brand and in the vodka segment, some expansion of the brand. Any risk -- so why are 2 different strategies? And was there a case for 8PM being extended in the higher-priced segment also? And second, based on your insights, can you risk that the Magic Moments brand, the consumer is anchored to a certain price point and...

Aditya, could you repeat the last part because we have understood till the Dazzle and the Ranthambore, but the voice clarity is not there. If you repeat, we can answer it better.

Sorry, is it better?

Yes. If you can repeat the last part of your question again, I think -- because voice was not clear.

I will. I will. So I just said is there a risk and based on your consumer studies that the consumer is anchored to a certain price point when it comes to Magic Moments and versus introducing a new brand, how is the -- what consumer insight led you to introduce it under the same brand?

Even if you see Magic Moments like Magic Moments we launched our work, and we've already captured about 15% to 20% of that segment. And Dazzle is absolutely a different set altogether like if you see the packaging, it's wonderful. The blend is superb. So I think the elasticity is there. Like even if you see any competition that are there, they have gone up the ladder. So we personally feel that the price elasticity should be there for the vodka.

You see in many cases what happens is in any category with more and more affluence coming in, the consumers, the loyal consumers are always looking at upgrades and what additional can be offered. So as far as our loyal Magic customers are concerned, we first offered them that and now it is Dazzle, which is completely a very super premium offering to them, also will attract the other consumers who were so far consuming imported vodkas because there was nothing available on the domestic market. So we are very positive on the consumer acceptance for Dazzle.

Got it, clear. And then the second bit on the margin, any benefit that could come out by including the reusing bottle? And where do you think this number is happening? And how much of the margin benefit can there be if at all?

Well, these are early days in any case. And we -- as we mentioned in our opening remarks, we're just seeding the brands at the moment. And next year is when we will roll them out pan-India. So we are very hopeful that it will start contributing substantially to our margins as well.

Sorry, my question was not clear, was on the rebottling of -- on the re-usage of bottling -- 14% now...

Yes. Yes. So in certain brands, we are taking in the state-to-state basis, and we are -- actually in these brands, which are medium in level. So there is a large consumption of the glass bottles. And where we have started using, so it has come from 4.5%, 5% to now 14%. And I think regularly, it will ramp up, I think it's 20%, 25% is a range which will be achieved in due course of time and it's an optimum level to reutilize the glass water bottles. So there is still scope and it will definitely also improve on our margin. But it's a swing purpose. One is to look at this from the perspective of the recycling of the waste and second is from improvement in our gross margin as well. So yes, there is a scope, and we are constantly working on that.

The next question is from the line of Harit Kapoor from Investec.

Congrats on a good set of numbers, especially in the P&A side. The first question was slightly more 2-, 3-year base. So if you look at the last, say, 4 years, the realizations for the IMFL segment are up almost 7% annually. And the P&A realizations are up even a little bit more. I just wanted to understand, given that all the launches that you're doing are materially higher than your current realizations in P&A. And P&A itself is growing at a faster pace -- materially faster pace than regular. Do we see the 7% kind of price mix growth to -- is there a possibility that this number can materially increase over the next 2, 3 years?

Yes. So actually, the -- a couple of reasons. One is the product mix, as you are saying, is continuously improving and now it is 31% of my total overall volume. These launches, which has been done is at a luxury category, which are very, very high price point and all that. The gross margin in these categories are also very good and much better than the existing brand portfolio. So it will also definitely expand the volume value differentiation. And I think in future, as these brands, which are the -- even Magic Moments, Morpheus, Morpheus Blue, Jaisalmer, Rampur Indian Single Malt, then these 2 launches, I think it will -- and that is what we are guiding for that we are going to expand our gross margin as well as EBITDA margin, and we'll take it to the late teens in 2 to 3 years' time. That was back in these premium portfolio.

Got it. Got it. Got it. The second question was on the next 6 to 12 months. So we have a slightly lower off-trade -- sorry, a slightly lower on-trade mix compared to some of the other peers. I just wanted to know how do you look at this as a concern because on-trade is opening up in a bigger way, our growth compared to peers to that extent may not look comparatively that much better? Or do you look at it as an opportunity because some of these premium brands can be seeded in the on-trade and you can get a higher growth. So just wanted to get your sense on how are you looking at this on-premise opportunity now?

Honestly, our on-trade especially in the segment A category was very limited so far. But with Rampur, Jaisalmer and now Royal Ranthambore and Dazzle, that becomes a great opportunity for us. We already have a team in place, and we've already started with Jaisalmer. So Ranthambore and Dazzle are -- should be a relatively easy entry into the on-trade and the A Category 1, all the 5-star hotels as well, fine dining also. So overall, from our marketing mix or sales mix, on-trade is becoming more and more critical for Radico, which was not so far. It was more the B and the C class outlets. Now A and A plus become very significant for us. And obviously, we do expect a lot of movement into those outlooks.

So just a follow up on this that your 4%, 5% or whatever, mid-single digit, whatever number it is, which used to be historically the mix on on-trade versus off-trade. Could that number kind of look more like double digits, say, in 2, 3 years' time? Is there a target? How are you thinking about it?

See in terms of picture on-trade, whether it is for us or other peer companies as well, it has never been a substantial volume driver. It is more of an image driver over there. And then it gives a rub off in the other outlets and the off licenses as well. For us, the most important thing would be to have visibility and placement of all our luxury and super premium brand in all the relevant outlets. So in terms whether it is -- and it's a slow burn. So whether if today it is 5%, whether it will go to 6%, 7%, 8% or 15%, I don't think it will be jumping ramping up at that faster pace. But what is important is it will be available in all the significant and key outlets.

And you're saying that you ramped up the team there as well too, kind of drive this because it was historically not -- you didn't have a portfolio, now you do, right?

Yes. That's true.

The next question is from the line of Dhaval Mehta from ASK Investment Managers.

My first question is with respect to non-IMFL business. So how difficult it is to increase prices in that business? And what is our long-term thought process in that business? I understand that it is not a key focus area for us. So what's our thought process behind that?

See, our non- IMFL business is only in the state of UP, which we call as the country liquor business. And the prices are fixed once a year and mid of the year, it's impossible to change the price. But given the present scenario, we are quite hopeful that in the coming fiscal, we should get a price increase there. In the long term, if you see the southern states, there is no country liquor, it's all IMFL. And I think UP being one of the most progressive states of the country and we feel the government is taking -- they have introduced this grain country liquor. And I think gradually, it's a matter of time like the southern states, the country liquor also might change into IMFL. So that is what our long-term vision for this segment is.

Okay. Okay. And normally, in the state of UP, this business happens on a tender basis like we are the only producer and supplier...

It is not on a tender basis. It is absolutely as per market forces where the brand strength plays a very key important role.

Okay. Okay. So it's up to us to defocus on that business or produce lower considering that the way raw material prices are, it is up to us to act accordingly, right?

See, yes and no, because we like saying -- because our largest plant is in Uttar Pradesh, so we are obligated to supply the country liquor. But our thing is that this country liquor can become the huge opportunity for Radico because in the long term, what we are seeing that they still -- like the Southern states, I repeat, this segment is going to get converted into IMFL.

Okay. My second question is with respect to the Pandora news, which we have recently read, the articles which has been floating. So I understand it's an old news that we have closed that account almost 6, 7 years back. But my question is what was the motive behind opening an account. And second, as things stand, what's the current juncture? Is there any inquiry going on? Or what's the current status?

See, we have already issued a statement in the press that we do not hold any illegitimate account anywhere in the globe. And as and when we get an inquiry from the government, our stand is the same.

Okay. So as you stated that there is no such account, which was there even earlier?

Yes.

Okay. And there is no such inquiries right now, government has not asked for any details or anything that is not pending as of now?

No.

[Operator Instructions] The next question is from the line of Sonaal Kohli from Bowhead.

And firstly, many congratulations on your new launches. I did try all of them and made some other people also try. It was a very fine quality. But the icing on the cake was the packaging. I haven't seen that kind of packaging even with $150, $200 products in some cases. So my heartiest congratulations on -- design team and people who launched this product. Now coming to my queries. Firstly, sir, the new whiskey which you have launched, Ranthambore, you mentioned, I think, 3 million volume size. What would be the value size other markets for the company, in terms of revision, any ballpark where you would...

As far as this market is concerned, as we said, that this is a market of 3 million cases and the average retail price in this price point is around INR 2,000. So we can multiply and this is a large market. We envisage as we are feeding the product to pan-India next year. I think we are -- as we have done in our previous launches and all that, once the product is established and rolled out and seeded to almost all relevant segments, we have been aiming to get a good market share in coming 2 years. So actually, if your question is, if I understood it, the market price and the opportunity on these point?

Yes, sir.

We're very hopeful. We are very confident about the product. And the product has come out well. The initial response is very, very encouraging, whereas in UP and Maharashtra. And for the first time, actually, as an Indian company, we have made this price point. And Radico's strategy historically has been that we go step by step, but for this product, we are taking it 2 states and 6 more states this financial year itself. This shows the confidence among this product where you go ahead.

Okay. Secondly, I wanted to understand what was the export growth this quarter on a Y-on-Y basis and on a 2-year CAGR basis if you have the data handy?

See, in terms of export, as I'm sure everyone is aware, there's been a huge increase in the freight rate, and in some cases, about 5 to 6x, they've gone up and also availability of containers. So if I was to look at on an H1 basis because quarterly basis can be a little different. On an H1 basis, we've actually grown over last year by 17%. Our order book is fairly solid. A lot of buyers have put on hold the shipments because there is a double impact, not only of the freight, but the [ DCs ] were also on CIS-basis. So it's putting a lot of pressure on the market, but we are pretty hopeful the freight sheds and container availability will ease up in the coming months, and we should be bouncing back. Also for the new launches, we've already received the export orders both for Ranthambore as well as Dazzle. They will also be introduced in the international markets within this quarter.

Is it fair to conclude based on what you said that in the first half year sales would have been immediately higher, had it not been for these freights? And can one expect that once the freights normalize at some point of time, in the next 6 months or so, you would see a much business in exports?

Absolutely. In fact, a lot of orders we had to hold back, we could not ship either because of the container availability or very, very high freight rates. So we are very confident once the freight rates stabilize and availability becomes easier, we will be back on our growth.

Due to higher freight prices and the fact that exports are higher margins, if my understanding is correct, has it therefore impacted your overall EBITDA margins or gross margins to some extent or the impact is very margin?

You see in certain markets, yes, we had to do a freight sharing with our buyers to ensure our brands are continuously available in the market. So it will have a short-term impact on the margins. But as we said, in the last couple of months, once things go back to normal, we should be bunching that to our double-digit growth.

Secondly, I wanted to understand, would you have any plans for any further whiskey launches over next is -- this financial year or next financial year? Because we thought that you were planning to launch 2 whiskeys based on our prior interaction at some point of time?

There is a lot of things are on the drawing board. So we've launched 1 whiskey and 2 variants of luxury vodka at the moment. There are couple of other things as well on the drawing board. So things are moving on the premiumization trajectory on a very strong footing. So you will expect some more announcements in months to come.

Sir, my last question, sir, your raw material...

Sorry to interrupt sir, but for any follow-up, may we request you to rejoin the queue, please. [Operator Instructions] The next question is from the line of [indiscernible] from Sharekhan by BNP Paribas.

Congrats for a very volume growth. Sir, my question is on the demand environment in various states, where you have strong presence and whether you have gained any market share in the states?

See, the demand -- as demand goes, we are seeing a very strong demand coming back, not only for the industry, but for Radico also. And lot of places, especially in the P&A, we are gaining market share in majority of the states where we are present and -- unlike if you see like UP, Karnataka, Telangana, everywhere the demand is now going up.

Okay, okay. And sir, in one of the questions earlier, you mentioned that though this year, the margins would be lower, you are targeting heighten margins over the next 2 to 3 years. So to better understand that -- so we should expect your premium P&A segment, volumes to reach to around 34% to 35%. So that your margins would be somewhere around high teens by FY '24. Is it the right understanding?

Yes, absolutely right. Absolutely right. That is what our aim is.

Okay. So P&A volumes would be around 34% to 35% of your overall IMFL volumes.

Yes.

The next question is from the line of Pankaj Kumar from Kotak Securities.

Congratulations on very good volume growth in the quarter. Sir, just more on the margin side, as you stated, like in the non-IMFL business, the margins got impacted and the price hike that we can see is possibly by the end of the year. So keeping that thing in our mind, so can we expect like lower gross margin will continue in the second half as well, less than 48% kind of gross margin in second half as well?

Our gross margin actually on an optimum level has been between 48% to 50%, right? But this is an exceptional time. And I think next 2 quarters, we have to be in the range bound margin on gross as well as EBITDA margins, where we have already. And thereafter, this -- because of the product premiumization and price increases, which are going to be coming from even IMFL and both non-IMFL segment. So we expect margin back to be in the expansionary trajectory. And as we guided, it will be late in 2 to 3 years' time based on this product premiumization and price increases.

Okay. And sir, on the ENA side, how is the outlook?

ENA has been more or less stable till now. And we have seen that good crop and grain side also. We don't foresee much headwind in the ENA side. Minor headwinds can be expected, but this can be taken care of with this kind of product profile.

Lastly, if I can ask, we are focusing -- we are very strong in UP, Karnataka, and all. So just wanted to check, like which are the geographies where we can ramp up our market share where we can gain market share in the future? Or we are focusing on that?

We are actually expanding everywhere. Even in North and South also, we are gaining market share. For the last 4 years, we have been giving data to all investors that we've been continuously growing and outsmarting the industry better than on volume trends and particularly in P&A category, right? So our growth is broad-based and across all geographies. So even in South, we are growing and North, we are growing. East and West also, the growth is happening. So I think it is a broad based. It's not single geography.

The next question is from the line of [indiscernible] from ICICI Prudential Life Insurance.

Yes. First of all, congratulations to the team for a good set of operational numbers. My first question is on the CapEx and our future capital allocation policy. So what I want to understand is that government will come out with a policy on the ethanol blending. So do we have any plans to increase our contribution from the existing level. And what about our current capacities that we have, specifically for Rampur single malt? Do we see our CapEx intensity increasing probably over the next 2 to 3 years. And in -- on top of that, how do we see our current capital allocation policy since we have reduced our debt from -- in the past 5 years massively. And our working capital requirement has also come down significantly. I believe we would be in a position to generate a decent set of free cash flow. So do you have anything in your capital allocation framework, which you can probably guide us?

So as you're right, above, actually, we have been very, very conscious on our capital allocation. Last 5 years, we have repaid debt of around INR 830 crores in total. Our current debt level is INR 120 crores with a working capital of more than INR 1,000 crores. So this is a virtual debt-free kind of situation. At the same time as a growing company and looking into our product portfolio and the growth in our branded business, we definitely look for these kind of things. But any CapEx which the company takes will be, first of all internally funded mostly. At the same time, it has to have a value accretive and have to have a 20% plus kind of ROCE. So these will be evaluated in due course of time, as you rightly said with the ethanol blending program of the government. In the past also, we have had a strong backward integration. But these -- at this point of time I've not on the card. As and when it materializes, we'll come back to you with full details.

Okay. Okay. Sure. My second question is on -- as a follow-up to another participant question, our geographical we are very strong in a few particular select states, namely UP, Karnataka but salience in other states have been quite flattish. So do we see this as a particular on a geography basis or we operate as a company from a brand perspective, as to where do we see the possibility of increasing our share in particular geographies. Can you comment anything on your geographical presence and your shares in mid markets?

This thing is quite widespread. We are on pan-India basis widely selling our products, premium as well as the regular product. As far as [indiscernible] is concerned, around 38%, 37% comes from North, again, 35% to 38% come from South. And East and West also come around 10% to 12%. So previously put together -- all put together, I think it is an industry-wide, we are much better on north side than south because south industry is more than 50%, whereas we are around 37%, 38%. And north -- our market share is much higher. So we -- it is state to state. We work on brand basis that with other states which have this flavor and this price point as an opportunity and based on that. So it is not like that where this is -- the company's strength on the distribution. And on pan-India, listing on A and D class outlet, is very, very strong. It is as good as anybody -- any leader in the industry. And we are actually focusing again on the profitable growth. So our decision is also driven by that where are we, which are the segment and which are the price point in one particular state which are more profitable. So given the capital allocation based on the profitability, so focus is on profitable growth driving.

Sure. That is very helpful. And just a last quick question. When do we expect a new capacity for Rampur coming in, I believe the demand is very good, but we have some shortage on the supply side. So do you -- when can we expect more supplies for single malt, coming in for Rampur and the newly launched products?

First of all, we are very happy to say that in the current quarter, we should be entering into the Army canteens and this is a huge opportunity for Rampur. And about 3 years back, we had tripled our capacity of malt. And gradually, the capacity of Rampur is getting ramped up. And I think from 2023 onwards, we should have enough capacity of Rampur to cater to even the Indian market as well as the international markets.

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

Sir, is it possible for you to share the industry growth rate in quarter 2 and the first half, both in terms of value and volume terms. As well as if you can share the -- how are you seeing industry demand in the ongoing festive season?

So we have grown better than the industry. In the second quarter, the industry has grown more like 6%, 7% or so, whereas we have grown 12%. 7% on volume terms but in other category 18%. But because of the export, there has been some this thing. Otherwise, the domestic growth has been much higher.

And what about the -- how would you see the industry demand shape in the ongoing festive season?

See, we are seeing a huge -- demand is coming back quite robustly, and the demand is quite good in the season time.

Just lastly, you mentioned that for the new product side, you received a very good consumer response. Just wanted to know if the response is good primarily on account of the product quality or the pricing is also by mechanism where we are getting a good response...

If you see any new product which is launched, the first thing which a consumer really see is packaging. Second, which is the most important in any whiskey or vodka, any liquor product is a blend. So luckily for us, we are getting response on both the sides. And we are quite positive on the brand. As far as pricing goes, this is a high price item, so gradually and fully like a Rampur, it will take its time, but it will get to the consumer's heart.

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

I have 2 questions. The first question is on CSD business. So if you could help me to share what was the volume what we have got in this year versus last year?

See, CSD was highly impacted last year because of COVID and they were following a very strict protocol. And volume-wise, I think this year, we've grown more than -- we have grown about close to about 30% compared to last year H1. And we have a market share of about close to 30% in the Arm forces.

Sir, absolute million cases if you can share, what we did this year versus last year?

Shirish, this is about 12% of our volume.

No, what I want to know, sir, last year, it was significantly impacted. And that's why I was more interested in this year. So maybe this 12% is this year, you are saying?

Yes.

And what was last year?

In terms of volume, we have done about 13 lakh cases in H1 and compared to 8.85% of last year.

Okay. So it's a significant growth.

Yes. It's about 48% in nutshell.

So it's ramping up. The other question is on the CSD again related. What are -- I mean you mentioned that Rampur is now getting listed. In last one year, how many new products have exclusively got listed in CSD business?

See we won't be -- we can answer that later on because...

No, I'm not -- number, if you can share the number?

In terms of our brands, I don't think we got any new brand listed in CSD in the last 1 year.

I was asking overall in the industry.

Overall, we will possibly know offhand. But what has happened is they have now as part of [indiscernible] India, they have decided to delist the DIO bottle in origin. So that creates a huge opportunity for brands like Rampur and Jaisalmer.

Exactly that was the intelligence, which I got. So I just wanted to reconfirm that there is a scope for us to go from 30% to maybe 35%, 40%.

Hopefully, yes.

The second question is on the premiumization journey. So I think, Abhishek ji did answer that, in the short term, we will reach about 35%. But what I'm saying that over I see last 2, 2.5 years, we have now fairly good handle, how the premiumization is driven, what is the distribution angle and what is it that consumer wants. So there is a lot of learning curve you have gone. So why don't we look at the accelerated expansion, in maybe another 3, 4 years, why can't we go to beyond 50%? Is there any bottlenecks? Is there any issue with the company? Or what is it that's stopping us?

In any case, we believe in creating brands. That's the most important thing. And we take our own time. In fact, if you look at our new launches, they were in the making for almost 2 years. So we -- only when we -- we think we're confident this is the product that the consumer will like and appreciate is when we get into the market with that, and we launch that product. So in terms of whether the share will be 50% or 40% or 60%, it will all depend upon the offering that we make to the consumers and the consumer acceptance. In terms of all our new launches, whatever we've had in the past so many years, they have all been success because of the liquid. Eventually, it is the liquid that matters. And we are consistently providing a liquid which much beyond the expectation of the consumers at the price position that we launch our brand. So we would leave it to the market process to decide whether it is a 50% or 50% plus. We will create brands and offer them to the consumers. And then we will wait for the consumer response.

Wonderful. My last question, if you can spend a minute or 2. This ethanol policy, which is just around the corner. Any new take, your understanding or if -- because you are a leading player, obviously, you will also have some consideration in the industry. So maybe any quick word on this?

As government has already guided the medium-term target for the ethanol blending program and by 2025, it is to be 20% and where grain-based ethanol will also make a sizable part. And I think the investment in the grain based distilleries are being happening on that account. So we see this 8.5% or 9%, which is the present state, has to go in the next 3 years at that level. I think there is a progress happening on that side. And as a new ethanol policy will come in November, we will see. But more or less, the policy will be on the broad guidelines given by the government last year with -- in paper by the NITI Aayog and all that.

Thank you. Ladies and gentlemen, due to time constraint, we take one last question from the line of Nikhil from SiMPL.

My question sir, just to clarify, if the mix of on-trade is higher versus off trade, that would be more profitable as a business, right? Or would it not make...

On-trade is always less profitable compared to the off trade because there you have to spend a lot of money on visibility and everything. It is more -- also drives on premise business. So the margins are less than compared to the off premise...

Okay. Secondly, sir, if we are moving to the premium brands, in fact, launched 3 or 4 premium brands. And as we have to increase our -- their presence in the on-trade channel, would you say there would be more promotional cost and everything can go...

We've always -- we believe that our marketing spend should be in the range of about 7% of our total sales revenue.

Hello? Your voice is breaking.

See, our ad spend would be in the range of about 7% of our net sales revenue. So that will be maintaining that.

But sir, with 3 brands, and we -- as we are trying to enter into the on-trade channel, would we require some more promotions, incremental higher promotions, could you say because there are incumbent brands, which are companies with like a larger basket of brands, that's where I'm trying to come to.

See. Eventually to see in the turnover side, our new brands are quite -- it's going to grow. And second is it's quite small in terms of the total revenue of the company. So overall, 7% would be what our spend should be on marketing.

Thank you. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, Ashit. And once again, thanks to all for joining us on this call today. As we have continued to deliver upon our premiumization strategy, which is reflected in strong P&A volume growth during the quarter. The launch of 2 new luxury brands is very exciting. It will be a key future growth driver. There has been a short-term margin pressure due to the commodity inflation but we are confident of maintaining our medium- to long-term margin expansion given the premiumization of our portfolio. Radico Khaitan has robust brand portfolio and have continued to invest behind our brands. The company has a strong balance sheet and cash generation, which provides us ability to invest behind our strategic growth plans. We look forward of interacting with you on our next earnings call with further engagement. In the meantime, any queries, please follow-up on our mail or calling to our IR team. Thank you. Stay safe and healthy. Thanks to everybody.

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