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

Ladies and gentlemen, good day and welcome to Som Distilleries & Breweries 9 Months FY 2020 Earnings Conference call. [Operator Instructions] Please note that this conference is being recorded. Joining us today on this call are Mr. Deepak Arora, CEO; and Mr. Nakul Sethi, Director, Finance and Strategy. Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For a list of such considerations, please refer to the earnings presentation. I would like to hand the conference over to Mr. Deepak Arora for initial comments. Thank you, and over to you, sir.

Good afternoon, everyone, and I thank you all for joining us in the Som Group of Companies 9-month FY 2020 Earnings Call. I would like to welcome you all. And I will be running through the performance highlights, the industry environment and the outlook for the company going forward. I will then hand over the call to Mr. Nakul Sethi for a detailed discussion on the performance, post which, we will open up the call for an interactive Q&A. During the 9 months of the FY 2020, our beer volume grew 22.4% on a Y-on-Y basis to 69.6 lakh cases, and the IMFL volume grew by 60.7% Y-o-Y to 9.9 lakh cases. The growth in volume was driven by a combination of growth in existing markets, a pool with a better penetration in relatively new markets. Driven by the strong volume growth, we were able to register a robust total income growth of 30.1% on a Y-on-Y basis to INR 3,666 million in 9 months of FY 2020. Our EBITDA for the same period increased by 7.5% on a Y-on-Y basis to INR 481 million. Our EBITDA margin for the period was 13.1%, a decline of 276 basis points compared to the same period last year. The decline in margins is primarily attributed to increase in raw material costs and higher concentration of new glass bottles in relatively new markets. Margins of our IMFL products were also impacted during the period as prices of ENA also experienced a steep increase compared to the same period last year. Given that we are in the value-oriented mass segment of IMFL products, we have limited scope to absorb such increases. As a result, we have undertaken a cautious decision to enhance our profitability of IMFL by improvising our products mix in the segment. PAT for 9 months FY 2020 stood at INR 200 million, an increase of 6.8% on a Y-on-Y compared to the same period last year. Our utilization on an annual basis were at 61% for beer and 60% for IMFL, respectively. Existing beer facility at Bhopal offset it at optimal capacity levels. Karnataka beer facility operated on an annualized utilization level of 42%, and the Odisha facility, in its first year, operated at around 31% annualized utilization levels. The general business environment for the industry has remained challenging for the last 9 months for the ongoing fiscal year. The impact of the Alcobev industry was further felt due to higher raw material costs. All the key raw materials, such as glass bottles, barley and ENA experienced considerable price increases compared to the same period last year. Furthermore, prolonged monsoon and cool waves in key markets impacted the beer demand across most parts of the country. During the quarter, we commissioned the canning line for beer at our Odisha facility. This is an important development, as it helps us enhance our margins by providing a better SKU mix to our consumers in the states. We also anticipate that this will lead to a margin enhancement to reflect in our performance from our Odisha unit from Q4 FY 2020 onwards. We have also started supplying to Chhattisgarh State from our Odisha facility, which we will also add in terms of reducing costs, in terms of logistics and better realizations. We are excited to inform you that Hunter is one of the -- Hunter Beer is one of the sponsors of the IIFA 2020 Awards, which are being hosted in Indore and Bhopal this year. We believe that this association is in line with our objective of financing our brand visibility, recall and acceptability as a PAN India brand across Indian states. Our performance during the first 9 months of the year has been in line with our expectations, and we are poised to capitalize on the upcoming peak season demand as we have invested in our capacities. Going forward, we are confident of continuing our growth momentum to deliver a robust volume and top line growth. We are also under object -- we are also having an objective of making Hunter Beer as one of the visible brands in the coming quarters. We do see some challenges on the margin front, for which we are taking various steps to minimize and ensure that our EBITDA margins remained closer to our historical averages. With this, I would like to now hand over the call to Mr. Nakul Sethi, our Director of Finance, to take the discussion forward.

Thank you, sir. Good afternoon, everyone, and welcome to our 9-month FY 2020 Earnings Call. Our consolidated total income for 9 months FY 2020 was INR 3,666 million, representing an increase of 30% compared to the same period last year. Beer revenue increased by 36.8% year-on-year to INR 3,007 million. IMFL revenues stood at INR 636 million, an increase of 69% compared to the same period last year. Our consolidated EBITDA for the period increased by 7.5% year-on-year to INR 481 million. The EBITDA margin for the period was 13.1%. We were able to achieve this margin despite the prevailing cost pressures for barley, new glass bottle and ENA. Higher employee cost pertaining to newer markets also had an impact on our margins for 9 months FY 2020. Risk cost for the 9-month FY 2020 increased by 32.5% to INR 115 million. Depreciation expenses increased by 27.4% to INR 79 million in 9 months FY 2019. This increase was primarily attributed to higher depreciation due to Odisha and the Karnataka facility. Our consolidated PAT for the period was INR 200 million, an increase of 6.8% year-on-year with a margin of 5.5%. As of December 31, 2019, our total debt stood at INR 1,773 million and cash and cash equivalent of INR 107 million, resulting in net debt of INR 1,666 million. Gross debt-to-equity was 0.5x and gross debt-to-EBITDA ratio was 3.1x. Our flagship brand, Hunter, recorded a volume growth of close to 30%, reached 29.6 lakh cases compared to the same period last year. Black Fort recorded volume of 12.3 lakh cases, a decline of around 11% compared to the same period. The decline was primarily on account of shift of customers from Black Fort to Hunter. Our mass brand, Power Cool, recorded a growth of close to 33% to 25.7 lakh cases in 9 months FY 2020, compared to the same period last year. We have been able to shift customers from local brands or lower category alcohol to our products. It has supported the growth of Power Cool brand. Our IMFL volume recorded a growth of 60.7% year-on-year to 9.9 lakh cases. During the 9 months ended FY 2020, the realization for beer was INR 432 per case, and for IMFL was INR 642 per case. The realization for beer and IMFL improved by 11.7% year-on-year and 5.2% year-on-year, respectively, compared to the same period last year. With this, we would now like to open the floor for Q&A. Thank you so much for your patience.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment.

Yes, sir. Just wanted to know how much in 9-month FY '20 was the beer cases sold and the growth? And how much was the IMFL cases sold and growth? And did MP market, what was specifically the growth rate in MP market in beer?

Do you want to know the quarter or do you want to know the...

What was the 9 months number?

Nine months. So the beer sales volume was up by 22.4%.

How many cases it is?

That is 69.6% lakh cases, and IMFL was up by 60% to 9.9 lakh cases.

And 9.9 lakh and up 60%?

Up by 60%, yes.

Specifically, how did the MP market did for us in 9 months in beer?

The MP -- the most of the growth has come from outside the MP. MP registered a growth rate of roughly 2.4% on the beer volumes from last year.

And what would be your outlook in terms of volume for FY '20 and FY '21?

We are -- we had -- we are okay with our volume outlook of our projection, which is converted into a top line figure, which was around 475 crores on a consolidated basis for the year.

And FY '21?

This is for the current 2020.

'21, sir?

'21, as I said that we are looking at a robust volume and top line growth for next year. We would be commenting on that from next quarter onwards.

And lastly, sir, just from the opening comments you made on margins, there were a peak margin about 14%, 15%. So what should be your margin trajectory from the current 10% that is getting reported?

As I said, there are a couple of -- the margin is under pressure on a couple of accounts, mainly because of higher cost of barley and glass bottles. And also, for us, it is also because we are opening up new markets where the supply of new bottles tends to impact the costing. But in the long run, it's like an investment in the cost of bottles because as we develop new markets, our RGB cost also tends to -- which is the returnable glass bottle cost, tends to square off at the -- so while quarter-to-quarter you might see a lot of shifts, but on a consolidated basis, it should turn out, in the long-term, to square off the -- any increase in costs. And to convert that into figure, it's roughly -- we are looking at 14.5% on a long-term basis EBITDA level.

The next question is from the line of [ Abishek Agarwal from Gems Quest Capital ].

I have a couple of questions. My first question is have prices of ENA and our raw material value increased quarter-on-quarter also?

In this, Abishek, there are 2 things. One is, some forward contracts are already done. So you don't tend to see it in the H1 results. But as you start doing tie-ups for next year, that's when the cost margin starts hitting, which has been the case with us also. Since we do annual forward contracts, and if you have a significant growth as we did, we tend to run out of those forward contracts. And then that cost tends to come into this year. So that is what is -- has been happening with us in terms -- because our growth trajectory on a Y-on-Y basis is good. So this year, we would power that as well and try to keep it. But yes, there has been a pressure on barley and glass prices this year, significant -- and ENA.

Yes. Sir, just a follow-up on this. And I said are these contracts related to White Owl Brewery that we -- I mean, I guess, there was no section in annual report that said we are tied up White Owl Breweries for speciality beer. So has that contributed in this quarter in terms of revenues? And what is the outlook going forward?

No, no, no. White Owl has nothing to do with the everyday operations in terms of the top line. So that has no significant -- from the margin basis for our mainline brand. [indiscernible]

And sir, just last question. Sir, you've been saying we're looking -- we're having good response from export markets. So we bring down presence in export markets? And what are the revenue contribution from the same?

Right now, currently, it's 2% of our total top line in exports. But it is a prestige point that an Indian company is able to export to more than 18 countries worldwide. I will take it as a business strategy, but as well as a testimony to other's acceptance of our quality of our products. So for export, is an indication where we get to know that our products are getting accepted worldwide. And as discussed in a couple of previous calls, we have got a fantastic response from the U.S., and recently, from Dubai, which is the trading capital of the world in terms of alcohol and beer business. So from that perspective, it is acceptance that, yes, our products can compete on a world level.

[Operator Instructions] Next question is from the line of [ Sachin Ji from Advanced Securities ].

Sir, have you taken any price hike, industry-wise, has any price hike been taken to combat this raw material inflation?