Som Distilleries & Breweries Limited (SDBL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Earnings Conference Call hosted by Sam Distilleries & Breweries Limited. Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakaran Suryanarayana. Thank you, and over to you, sir.

Thank you very much. Good afternoon, all of you. A warm welcome to all of you on behalf of Som Distilleries and Breweries. Thank you very much for joining us today. It's always a pleasure to connect with our valued investors and analysts. Q1, we experienced a significant drop in beer consumption led by unseasonal rains and higher excise duties in the state of Karnataka. Rains were across, not just in Karnataka, unseasonal rains. The unfavorable policy in Karnataka impacted our company, also the volume to the entire industry, leading to a decline of over 20% in Q1 versus Q1 last year. At an all-India level as well, the unseasonal rains have impacted the overall beer consumption. We estimate the industry to be down by around 2% to 3% in Q1, overall industry in the country -- beer industry in this country. However, we expect reasonable recovery in industry and our own volumes in the coming quarters. The key highlights -- for the Q1 that we achieved 89 lakh cases volume, that is 8.9 million lakh cases. Beer volume is 8.5 million cases. IMFL registered 4 lakh cases and with a growth of 58% versus last year, Q1. Beer is down by around 2.5%, mainly led by industry and some issues in Karnataka in terms of policy and unfavorable policy for us. Mainline brands, Hunter and Power Pool drove our growth in this quarter. We also launched Mahou whiskey in the regular, which is mid-premium whiskey segment in Madhya Pradesh, and that is receiving good response as of now. Woodpecker Premium has been recognized as a rising star brand by one of the media agencies in the last quarter. Beer realization stood at INR 566 per case, up from INR 550 in Q1 FY '25. And we expect our future outlook to be a little more better -- much better than what we have done in Q1. We will recover volumes in coming quarters post partial rollback of excise duty in Karnataka. We expect to entrance further in markets like Tamil Nadu, where we have begun to do well. We expect to entrance with Mahavat in part of North markets in the coming quarters. We'll continue to focus on growth drivers, innovation as a growth driver and both in IMFL and beer. We are committed to delivering sustainable long-term value to our stakeholders. Over to Nakul for the financial highlights.

Good afternoon, everybody. Thank you, Deva sir. It's a pleasure to take you all through the financial and strategic highlights for quarter 1 FY '26. We reported a total income of INR 5,301 million, an increase on year-on-year growth of 3.2%. Our EBITDA for the quarter was at INR 721 million with a margin of close to 13.6%. Furthermore, our net profit for the quarter stood at INR 421 million with a margin of 7.9%. With these financial achievements for the quarter, we remain confident in our strategy and execution capabilities as we continue to build scale, expand reach and drive growth across our key markets. Our gross debt stood at INR 1,990 million and net debt at INR 1,800 million for the quarter ended June. We are pleased to report that the Phase 1 execution of our UP project is progressing as per the planned schedule with a capital outlay of INR 370 crores. All key milestones outlined in the project timelines are being met with no major deviation or delay. We expect the commissioning of the brewery to happen in the first half of FY '26, '27. As we enter the leaner season for beer, we are confident of posting encouraging results in the coming quarters, especially on the back of a renewed focus on our IMFL portfolio. Our strategic focus will remain on innovation, deeper market penetration and portfolio premiumization, laying the groundwork for sustained growth and enhanced shareholder value. Before we proceed to the Q&A, I would like to express my sincere gratitude to all the stakeholders for their support and confidence in our endeavors. Thank you.

[Operator Instructions] We take the first question from the line of Manoj Kumar Pal, an individual investor.

Hello. Am I audible?

Yes. You are audible.

It's a great accomplishment for setting up the new set of numbers. Sir, my question is, are we going on some premium products after the Mahavat?

Sorry, can you repeat your question, please?

Sir, my question is, are we planning something in future in the premium product after the launch of Mahavat, which we have launched in this...

Yes, yes. As stated in my brief in the beginning, we will continue to innovate and play much more aggressively in the IMFL segment. Mahavat is just the beginning. And we have a few more premium products in the pipeline, including a single malt. And I think that is where the growth is going to lie in the next 3, 4 quarters. So we will be prepared for that.

Okay, sir. Okay. And what will the timeline for that upcoming product?

See, we want to now focus on Mahavat, which is just about completed 2 months now. right? And we are just in one market, and we still have a lot of markets to cover with the brands. And we don't want to rush and not focus on a particular -- particularly on Mahavat segment, which is a big segment. Premium is, of course, in the pipeline, and it has its developmental space and developmental time, and we are focused on doing that also. But sooner than later, I think you will get that.

We take the next question from the line of Mukund Agarwal from BMC Advisors.

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Nakul should I take this question? You are taking?

Sir, go ahead.

So you're right. [Foreign Language] I mean, season plus the policy change in Karnataka has really put us down a little bit. But our expectation is that although we have said that 20%, 22% is our expectation in the last quarter call, -- but I think we will be going towards between 15% to 16%, is roughly about INR 1,650 crores, INR 1,700 crores is what we are expecting.

INR 1,600, 1,700 crores is what we are expecting?

INR crores to INR 100 crores what we are expecting.

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Are there other outlets or it's only available in one of the outlets out of so many...

The way industry operates is that the big guys, multinationals try to block. We are trying to create a space for ourselves in that market.

[Foreign Language] The company looks very outstanding progress.

We take the next question from the line of Hiten from Sequent Investments.

Sir, I have a couple of questions. The first question is on this Karnataka duty hike. So can you quantify the impact on sales in this quarter?

See, the industry has declined by 20-odd percentage. Sorry? Industry has declined by 20-odd percentage vis-a-vis quarter last quarter -- last year quarter. We are impacted a little more because our segment was affected by the pricing -- I mean, the taxation policy.

Okay. Okay. Assuming there was no such kind of problem in Q1, so can you assume our sales could be around INR 650-odd crores in Q1?

Sorry, please repeat the question.

Sir, I'm assuming there was no any Karnataka duty problem in Q1. So can we assume our sales would come around INR 650-odd crores in current -- I mean, Q1?

Like we promised in the beginning of this year when we did the quarter 4 results and last year results, we would have definitely crossed about 20%, 25% growth unseasonal rains. I mean, rains -- one is the taxation, other is the unseasonal rains and what is also got affected.

Yes. Understood. And sir, my second question is on the UP expansion. So if you can give some data point as what is the size of the UP market in terms of cases, the beer market cases as well as -- I'm assuming this capacity is coming in phase-wise. So what would be the capacity in Phase 1? And when will it -- sorry, yes.

So I answer in terms of the capacity, then Diwa can I answer on the total size of the market. So we are coming up with a beer capacity of 1 crore cases per annum. Okay. And we expect that by the first half of '26, '27, the beer capacity would be on stream.

Sure. Yes. But my question was more on the data point side, sir, the UP market. What is the size...

I will answer that question. Yes. So see, the UP market, as you know, it's the -- UP as a state is the largest state in the country in terms of population. Although the per capita consumption is low, the size of the market is roughly about -- last year, it was about 35 million cases. right? And this year, due to the policy change and when they have allowed to -- allowed the retailers to sell beer as a composite license now. Earlier, there will be beer only and IMFL only outlets. Now it's a composite. So number of outlets -- beer is available now has gone up by about 2,000 or 3,000 outlets, right? Therefore, the market is growing very nicely and which is a very, very good opportunity for us so considering that we are supplying from Madhya Pradesh today, right? When we have our own plan next year, the market size would have gone up to more than INR 4 crores or INR 4.5 crores. So we have a big opportunity there is what we think.

Okay. And just a follow-up on that. Sir, you mentioned the beer capacity of 1 crore cases per year, right? So if you can break this up in Phase 1 and Phase 2...

This is the Phase 1. Phase 2, we have dilly coming up.

See INR 1 crore itself is big. It's almost 25% of the market capacity, plus we'll have the ability to service other markets which are close by.

We take the next question from the line of [ Runransh ] from MB Investments.

My question is SDBL, what is the company basically doing to improve its governance? To be very frank, the company's past has been not so good. What is the company doing in terms of improving the governance overall? The compensation of directors has also been -- which I feel is on the higher side. So if you could tell me about that. And then I have a follow-up question also.

I mean we are trying to work hard on the corporate governance issues which have occurred in the past. But it's our endeavor to have good corporate governance, and we are working towards it. That's why we have got -- we've inducted a lot of independent directors who have got good rep in the market. And slowly and slowly, I think we shall be there.

Okay. Also, if you could tell me more about what's going on in the sector? And how is SDBL's personal philosophy in terms of tapping into the growth? What are the challenges immediate and long term? And also what are the drivers that the company could tap in and that could turn into profitability and cash flows?

Diwa, can you answer that, please?

Yes. If you look at '24, '25 performance, we have been giving an exemplary performance for the past 3 years, right? And it's all come from not just about going into new markets, it's also coming from depth in the existing markets, right, like in Karnataka, like in Odisha, like in Jharkhand, like in Delhi, like in Madhya Pradesh, right? And also, we have now expanded into Tamil Nadu, right? And markets like Telangana, which is a huge beer market, which is almost, you can say, 18% to 20% of the Indian market, we are still not available, right? That's a potential that we see. And if there is a route-to-market correction or the pricing freedom corrections, et cetera, that will be a market that's good for SOM. And SOM primarily is a beer -- I mean, beer company, I mean 95% of our business comes from beer. And Andhra Pradesh, we are not there. And markets like Uttar Pradesh, we are just scratching the surface as of now. So it's a huge opportunity for us in terms of the thing. And secondly, in terms of growth, first of all, the thing is about new markets and entrenching with our existing portfolio. Then we have plans for our new portfolio, and we are still on those innovation pipeline. So many brands are there, and we are working on that and so many opportunities we are looking at, both in IMFL and beer category. That's an opportunity we see. And of course, premiumization. I mean, in our portfolio, if you look at, we are still almost 95%, 97% of our volume is within the mainstream from economy to mainstream, affordable to mainstream. We still have a big opportunity in terms of the premium segment, which is growing at about 25%. And that is where Woodpecker plays. You see Woodpecker as a brand, we kind of launched it with many, many unique features and first-time features in the country. And it kind of signaled a good progress in Bangalore. And now we have put it in Delhi. And slowly and steadily, we are going to go with that into the rest of the country. And we are going to do the same thing that we are doing with mainstream beer, where we have taken in the market that we play where we have taken more than 10% to 15% of the market share in the all India level. We are capable of taking that even in the premium segment. So that's an opportunity that we keenly are following.

All right. One last question I have is how much time do you think Mahavat is supposed to take to come to fruition in terms of sales? And where are we at with the Woodpecker? Is the company satisfied how the Woodpecker brand is growing? And if you could give what are the further plans to penetrate the market with brands like Woodpecker?

[ Maha ], I think it's too new for us to tell you anything and give you any forecast on that at this point in time. We have assessed the market opportunity for that brand, and we are playing in the mid-premium segment, and it's a profitable segment. And that's a segment that where not many Indian IMFL, Indian liquor company play other than Delhi and a few other places. That is dominated by multinationals. So it's a profitable segment. I mean, and therefore, that will continue to be focused on. And probably in the next quarter or the third quarter results or something, you'll find us or hear us telling you more about Mahavat. [Indiscernible], we started in Bangalore. It's received good response. We have placed it in about 700, 800 outlets. We are not in a hurry to go and place it in 1,000 outlets because most of the time, when new beer comes, it's because of the dark market scenario, it's very difficult to communicate with the consumer. So therefore, we are slowly and steadily building the brand, and we are seeing good results of good repeats. Same confidence is being taken to other markets. And markets like Odisha, we have not planned this year because of poor weather. And probably end of October or end of November, I think we should be putting in that market as well. So there is opportunity for that brand. And like I said in the previous -- answering the previous question of yours, almost 15% of the market -- 12% to 15% of the market is growing at 25%, 30%. And in that market is where Utakar is playing. And it is dear to us, and we continue to...

We take the next question from the line of Prabhu, an individual investor.

A couple of questions. Sir, out of the INR 370 crores CapEx you have planned for UP, how much has been the CapEx outflow till now, sir?

We spent close to about INR 55 crores.

Okay, sir. Any IMFL is planned in there or only beer?

We are setting up a bottling plant for IMFL as well as the distillery in the second phase.

Okay. I understand, sir. Sir, some years before we tried to enter Telangana and that ended up with some opposition of political party and all, are we seriously considering reentering because that's like you said, it's a 20% market in India for beer. Yes, it is in the cards, and we are constantly in touch with the government there and the authorities. right? But in terms of priority, I would rather get it to AP first than Telangana because Telangana continues to be not very profitable for the existing business and the new business, it will be really difficult for setting it up. Okay. Understood, sir. Sir, one question about the bookkeeping actually. We had a 12% reduction in the total income in consolidated level, but the state excise duties are almost 33% down from last Q1, around INR 50 crores down to INR 35 crores. Why is there so much less state GST -- sorry, state excise duty we have paid this quarter compared to last quarter, sir?

Sir, it depends upon the composition of sales. For example, Karnataka, you have got -- the excise duty has to be paid along with the dispatch from the plant. But so is not the case with Madhya Pradesh -- so because there has been a dip in sales in Karnataka, that's why you'll see that gross sales are lower as compared to the gross sales of last year quarter 1.

Okay. And sir, ongoing quarter, we are seeing recovery for Legend in Karnataka? Legend beer?

Yes.

We are seeing -- what happened was in between this -- because of the taxation changes in the first 2 months of this quarter, the previous quarter, which is quarter 1, that brand also did suffer, right? But however, after end of June, I think we have started recovering on that brand. It is beginning to do well. And definitely, we will register a growth vis-a-vis...

We take the next question from the line of Naagraj, an individual investor.

Sir, my question is your UP plant neutral first phase will start in first half of '26, '27. Yes, the timeline is not very clear to me. What do you mean by '26, '27 first half? Can you just tell me approximately the month and the year?

I cannot tell you the exact month as of now.

2, 3 months plus or minus.

Sorry?

You can tell me 2, 3 months, plus or minus because first half of '26, '27 is not quite clear to me.

I mean I cannot tell you the exact month, but we expect that by August or September of next year, it should be done.

August or September '26.

Yes, yes.

Okay. That is fair enough. And my second question is, do we have any plans to launch rum in Tamil Nadu and Kerala, which is a high-consuming market?

Kerala, there could be a possibility. Tamil Nadu is quite too far because the policy there doesn't allow us to import IMFL brands into the state if the ex-Blue distilliary price is below INR 3,500.

You have some plans for Kerala...

Of course, I mean, there is. I mean we are looking at that. And first, we are fixing the beer business properly. We want to make it as robust as possible so that our team can focus on IMFL. But it's not happening -- it's not going to happen during the year '25, '26.

Okay. My just clarification is, can we expect IMFL to contribute 15% of our revenue for this financial year?

Which financial year?

Financial year FY '26. Since we have seen 26% growth since we are seeing 60% growth in IMFL in the first Q1, can we expect IMFL to contribute 15% of our total sales this financial year?