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

Good evening, ladies and gentlemen. I'm Bharthi, moderator for the conference call. Welcome to Som Distilleries & Breweries Limited Q4 FY '21 results conference call. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Vinit Bolinjkar. Thank you, and over to you, sir.

Thank you, Bharthi. Good evening, everyone, and thank you for joining us on the Som Distilleries & Breweries Limited Earnings Conference Call. We have with us Mr. Deepak Arora, CEO of Som Group; and Mr. Nakul Sethi, Director of Finance of the company. We will initiate the call with opening remarks from the management, following which we will have this forum open for question-and-answer session. Before we begin, I would like to state that some statements made in today's call may be forward-looking in nature, and a detailed statement in this regard is available in the results presentation shared with you earlier. I would now request the management to make the opening remarks.

Thank you, and good afternoon, everyone. I would like to welcome you all to Som Distilleries & Breweries Limited Q4 and Full Year FY 2021 Earnings Call. Hope you all are keeping safe and healthy and are looking forward. During today's call, I will discuss the performance highlights, a little bit about industry environment and outlook for the company. I will then hand over the call to Mr. Nakul Sethi, our Director, Finance and Strategy, for a detailed discussion on the performance, post which we will open up the call for an interactive Q&A. Our performance during initial month of the financial year, which are the summer months and our peak season, was severely impacted due to the pandemic related to the nationwide lockdown. Subsequent months, even after the lockdown, was difficult for our business, given the limited opening of the trade channels and various other restrictions, which were beyond the control of the company. All these factors severely impacted our performance. However, prevailing -- however, and despite the prevailing challenges, the loss of our key business season, we continued our focus on gradually increasing our volume sales without compromising on too much of profit. It is evident in our gradual improvement, which is achieved sequentially through the quarters. Building on the momentum, we recorded a beer volume of 20.9 lakh cases in Q4 FY 2021, which is 31% higher than Q4 last year. Strong volume growth resulted in a total income of INR 1,090 million, an increase of 12.5% compared to the same period last year. EBITDA for the quarter was INR 91 million compared to a loss of INR 2 million Q4 last year. We recorded an EBITDA margin of 8.4% during the quarter. Overall, the raw material prices remained flat, expected to remain stable. January, we had infused new glass bottles, which is the main raw material to beer industry in both of our Bhopal and Odisha facilities in anticipation of the peak season demand, which has had some impact on our margins. Our PAT for the quarter was INR 37 million with a margin of 3.4%. Our recently launched Woodpecker beer continued to gain market share and sold over 1 lakh cases in the first year of its launch despite the prevailing challenges. This is a very encouraging sign for us. We expect strong growth in the brand going forward. We will continue to evaluate and launch it in other select markets and outside the country, build on the momentum and the quality of the brand. We had a very difficult start to the year, but the relentless focus of our team has helped us to return back to profitability. We expect to continue the growth momentum going forward. Due to the second wave of the pandemic, our operations were impacted in the month of April and May this year. However, unlike last year, it was not completely shut. Also with the gradual lifting of lockdowns by state, we anticipate a better recovery in the month of June. Second wave has led to short-term uncertainties, but we are confident of strong recovery in the latter part of the year barring any external challenges, which may come. Thank you. With this, I would like to hand over the call to Mr. Nakul Sethi to explain us in detail.

Good afternoon, sir. Our consolidated total income for the quarter was INR 1,090 million, up 12.5% compared to quarter 4 last year. The revenue increased by 16% to INR 928 million during the quarter. IMFL revenue stood at INR 146 million, marginally lower compared to quarter 4 FY 2020. Quarter 4 FY 2021, realization per case of beer and IMFL was INR 445 and INR 708, respectively. In terms of volume mix, beer accounted for 91% of the total volumes for the quarter [Technical Difficulty] IMFL. Of the total sales value, beer accounted for 86% of the total net revenue. As of March 1, debt stood at INR 2,089 million. Cash and cash equivalent was INR 145 million, resulting in a net debt of INR 1,944 million. Gross debt-to-equity ratio was 0.74x. In the quarter, we completed capitalization of the capacity at Bhopal. All our investments are capitalized and reflected in our balance sheet. For the year, we have no major CapEx planned in the near future. In the year, we reduced our total debt by INR 114 million. Cash flow generation for the year remains strong with cash flow from operations of INR 342 million. In terms of performance of our mainline brand, Hunter recorded a volume growth of 47% compared to quarter 4 last year with 9.2 lakh cases. Black Fort almost doubled its volume to 4.2 lakh cases. Power Cool sold 6.2 lakh cases compared to 5.9 lakh cases. [Audio Gap] In terms of utilization levels during the quarter considering the facility at Bhopal operated at around 30% capacity utilization. Karnataka and Odisha facility operated at 45% and 55% utilization level. With this, we would now like to open the floor for Q&A.

[Operator Instructions] First question comes from Vijay Ramchandani from Pragya Equities.

My first question is with regard to the realization for beer. It has come down for Q4 as compared to Q3 as well as last year. So what was the reason for it because the percentage of Hunter is high actually in this quarter?

Yes. But -- so in certain markets, the realization for Hunter is lower as compared to other states like, for example, Odisha is lower as compared to what we sell in Karnataka and in MP. We sold a lot of Hunter, so about 4.5 lakh cases of Hunter was sold alone during the quarter.

So what is the realization in these 2 states?

I think about INR 550 is the rate in -- for example. It's about INR 450.

Okay, sir. Next, I want to understand what are the challenges that we are facing for our IMFL sales? Because in last 3 quarters, it has been on the -- like similar levels with respect to IMFL. So could you please highlight what challenges exactly do we have in this?

I think the main challenge, which we are facing for IMFL, is that Karnataka is a tough market for IMFL. I think it's taking more time for us to take market share there as compared to what we have done for beer.

Okay. Also, if you can share some more light on the recent -- today's press release actually, on our export order. Can you please throw some more light on this? What would be the contract value and other stuff?

So I mean, about -- export is about close to 2.5% of our total sales, of our net sales. With this order, we expect that it would add -- I would say, we expect to go to about...

I'm sorry sir, I missed you.

3.5% if we're taking...

3.5%.

Of export as a percentage of our sales.

Okay. Okay. And lastly, if you can share in detail the impact of second wave of COVID for us because Q1 -- what would be the impact on Q1 with Q1 being the most important season for us?

So I think in terms of numbers, we will not be able to give anything directly on the numbers. But luckily, some markets were opened during this period. For example, Karnataka was partially opened and so was Odisha. And we are seeing a lot of pent-up demand coming in from MP and the other markets once the lockdown restrictions have been opened.

So now all the markets are open for us?

Almost all the markets are open, yes, with restrictions, with certain restrictions.

Okay. Also, if you can share till how much time will we have the impact of this new glass bottles on the margins? I mean just want to understand when we can actually get back to our mid-teen EBITDA margins?

I think it will be better if -- we are looking for a year of normal operations. I think for that, I think, '22, '23, we expect that all the investments as far as bottle -- I mean, we start getting those returns back for all our investment, which we have made.

Any internal target we have kept for the utilization for current year, for all 3 plants, sir?

Very subjective question. See, we cannot guarantee a third wave or second wave, right? It is difficult to answer that. No one can answer that question. It only depends on external factors and challenges, which the country will face. Very difficult to give a number to that. Just hoping that the 8 months at -- of the quarter, we run with no frictions.

Okay. Sir, just assuming if we were to not face any other issues, any external issues for the rest of the year, the question was actually for that, assuming no problem for the rest of the year.

There are other restrictions or other challenges in terms of operation of business and all. So about INR 350 crores to INR 360 crores at the top line. So this is about... [Audio Gap]

So INR 350 crores, INR 360 crores for the entire year you're saying?

Yes.

[Operator Instructions] Next question comes from Chirag Maroo from Keynote Capital.

Sir, I want to ask a broad-based question that since last 7 to -- 6 to 7 quarters, we are seeing that on a Y-o-Y basis, beer sales have been decreasing in entire India. So what's your outlook over there? And how do you see that panning out in future?

Good question. See, as far as the brand traction is concerned and the acceptability of the products are concerned, we're getting a very good response in the states where we are operating. Unfortunately, we have made these estimates in the last 2 years, which were supposed to come to fruition in terms of capacity utilization in terms of branding. However, we've not got a clear run in the last 12 months to actually show that. But keeping the brand traction in mind and keeping the market share percentages in mind, we're very confident of doing well this year, provided things go unrestricted, because as restriction happens, there's a lot of things like availability, efficiencies of...

Sir, sorry to interrupt, your voice is breaking.

I said in terms of the tractions of the brands, we are in a fantastic place right now where the acceptability is really, really good. The only thing is that it needs an unrestricted run for the next 8, 9 months to actually show that apart from our mother state, we are actually doing very, very well in the other states where we are participating. So -- but those numbers have not come up on board in terms of expectations because of the last 2 years the peak seasons being affected because of corona. But as I said in my address, if we get an 8-month unrestricted this thing, you will surely see very good numbers.

Okay. Sir, my second question is related to advertisement spend that we are doing over the years. So we are penetrating into new markets where...

Sorry to interrupt. Mr. Chirag, sorry to interrupt your. Sir, your voice is breaking, sir. Can you please come to a network area and speak?

Yes. Am I audible now?

Yes, sir. Please go ahead.

My second question is on advertisement spend, like currently, on basis of net sales, we are doing around 10,000 to 12,000...

I'm sorry to interrupt you again Chirag, sir. Can you please join back the queue, sir, because your voice is breaking. So can you please join back the queue for your questions, sir? We will check your line.

Sure, sure.

Okay. Sir, we'll take the next question. So the next question comes from Chetan Cholera from Pragya Equities Private Limited.

So I just wanted to understand, if we want to create the same capacity plants, which we have now and even creating a brand, what kind of overall money is required? Like our current enterprise value is roughly around INR 500 crores. So what your guesstimate is, if we want to create another same capacity like you have and creating a brand, what kind of money is required?

Sir, it actually depends that ours is now a state-of-the-art facility in Bhopal and Karnataka. So we have invested in the latest technologies to have existing plants where there is old technology being involved. But I would say, around INR 750-odd crores what is required to build up facilities per unit, I think.

How much was it? Your voice was breaking.

See, around INR 750 crores today's valuation.

And the brand -- creation of brand?

And brand is separate. The brand valuation, obviously, will depend on the volumes which we achieve. Brand value is a very objective and open question. But equipment-wise, it's worth around INR 750 crores.

See, I'm a shareholder in almost all the alcohol listed companies. The only losing stock, which I'm holding is Som Distilleries. And various forum, I have suggested you that you need to increase your promoter stake, whatever means you manage to do. People will not believe words before you reach to certain level of promoters' holding. So I don't know, there were many opportunities, even pricing-wise also. I don't know what's there in you people's mind, but I mean [Foreign Language] nobody is going to believe you, unless and until you reach certain threshold promoter stake.

Sir, if that was the case, why would the promoters ascribe to warrants at INR 271 when the share price was not even INR 100.

Yes, but there is a giving [Indiscernible] of 20%. That is the only requirement as such.

If that is the case, the promoters would not put their companies under subsidiaries if they wanted to do anything of that, sir. The idea is to grow the business...

Sir, I'm not doubting your integrity. I'm telling just you, you got many opportunities and what -- I'm in the market for last 30 years. So I know the word market believes, what market don't believes. Market believes where the promoters' stake is at a certain level. So whatever you do, what are the efforts -- other efforts you do, it won't be impressed for me. So I still suggest that you try to think over it and give open offer up to 30% and increase the stake. And these are one of the lives -- people are not getting this type of opportunity in lifetime. The only line or queue I have seen in lockdown is still outside the close of the alcohol shops. These are the only place I see the queue. So -- and see the young people we have in our country. I don't know what -- why you're taking so much of time and...

Sir, I respect your suggestion. However, we are right now focusing on the performance of the company. And we are looking to grow the company, it's not about promoter, it's about the company and its brands. But we will take your suggestion, sir, in a positive note.

Next question comes from Chirag Maroo from Keynote Capital Limited.

I'm so sorry, I missed my question at earlier time, that I just wanted to ask, like, as we are penetrating into new areas, we already are doing 10% to 12% of our net sales as advertisement spend. So what's company's outlook over there? Are you willing to keep it in the same levels? Or you are willing to increase? As you said, newer areas are seeing some good traction to you. So what's your outlook over there?

We have a very balanced outlook, Chirag, in this. There are 2 components to it. One is the distribution, and the second is the advertising, as you said. Because the advertising space is restricted, and we are relatively new in the new market since -- because we've been operating in the new market since 2018. So for us, its -- first thing is to achieve optimal distribution. So optimal distribution itself gives us very good traction in terms of numbers. And once we have the full distribution in place, that's when is the right time to increase your visibility and advertising spend. So unfortunately, the last 2 years where we wanted to be, we have been literally pushed back in the last 2 years. So the idea is to first complete the distribution properly and then go for the visibility.

Sir, can you give me some distribution touch points that you have currently, the number?

So it varies from state to state. As -- for example, Odisha has 1,100 points of distribution, while Karnataka has 9,000 points of distribution. And...

And what was it last year?

And compared to -- these are the industry distributions, which I've told you. Now Odisha, some parts were totally shut. So if I give you a distribution number, it sounds very skewed. So I don't want to -- same thing with Karnataka. Karnataka, on a good run, when everything was open, we were at 65%, 70% of the distribution. And in Odisha, we were at around 55% of the distribution. And we were clocking those revenues in '19, '20 on those distribution points. So if we optimize our distribution, we automatically get the numbers. And then once we are available everywhere, then it's the time to be seen. That's how we look at things.

Okay. 2 more questions. One, on base of subsidiaries. So currently, our subsidiaries are still making losses. How long do you think that it will take them to become profitable? And second question would be, if we see such good, big amount of size of industry available to us in India itself, why are we thinking to export the brand that we are having right now?

Yes. Let me take your export question first. It's a very proud feeling for any Indian beer to get exported, number one, because there are not many Indian beers available apart from big ones like Kingfisher. So it's actually a very good thing that someone is able to export to countries like U.S., Scandinavian countries, where the drinking standards and the quality of the product is very, very high. So it's actually a proud thing that an Indian company is exporting and getting orders, key orders. Regarding your first question now, of subsidiaries, see, it's a function of EBITDA, where the EBITDAs are positive. It's just that, again, there's no continuity, which has been given to these 2 subsidiaries in the last 2 years because of COVID. So once we get that run, obviously, the cash flow is positive. There's no question about it. It's just that if the scale doubles, your variables come down and you start getting -- you start showing profit in the companies. Because you've already invested a lot on your fixed costs, it's just a matter of time where we get 12 months and we deliver the numbers.

So what's your current outlook for the company? How you're thinking to pan out in this particular year? And your short-term view for this year and your long-term view for next 5 years? Like how you're looking for the company? And where do you want to reach? And how do you target it, sir? What's your strategy towards that?

I think, Nakul ji, first, I'll do a little bit of numbers, give a precise idea. We're looking at INR 350-odd crores turnover this year, which -- if next year by God's grace, we get 12 months, we'll take this up to around INR 500 crores of turnover. And once we touch that INR 500 crores figure, you'll see that then year-on-year projection will be easily say 20%, 25% growth because then you have optimized your distribution, as I said. And it's more about advertising and visibility. Regarding your second question on my outlook about the company, see, at the end of the day, the product should speak for itself. If the product is getting accepted, it's just a question of market efficiencies. If your product is not accepted, then you do whatever you feel like, you're not going to win the value, because with the limited spend on the basis of distribution strategy, if we are able to clock the numbers, which we have been clocking, there is no other Indian company in the last 3 years, who have clocked the numbers in new states, which we have. So in spite of having Indian companies, which have been there before, Som. So the product is accepted. It is only a question of expanding that footprint and getting a consistent environment to do that. If -- no amount of advertising will help if the distribution points are shut. So that's the thing. And we are very confident of optimizing the distribution bandwidth for us, if we get a good consistent run in the next 8 months.

Okay. So for the complete current quarter, means Q1 FY '22, was the home delivery kind of thing available to you?

See, home delivery -- see, for example, Karnataka had home delivery; Madhya Pradesh, didn't; Delhi, did not; UP did not; so Odisha had. But if you look at the industries here in home delivery footprint, industries have crashed by 70%, 75% of that month. So even if I have a good market share, you will not see it in the base value. And in spite of the market crashing and home delivery being available to us, we have gained market share in these states where home delivery was allowed. So -- but because the industry itself has fallen, I'm not able to show you the number, but I'm able to show you the market share. So the correct metric would be market share gains. So wherever -- it's very safe to say that wherever there was home delivery, we have gained market share.

[Operator Instructions] Next question comes from Mr. Vinit Bolinjkar from Ventura Securities.

I would like to understand what is the moat of the company and competitive strategy that you're adopting that is helping you gain market share in all these areas? So what separates your company to -- that is helping you accelerate your growth?

So there are 3 factors. Our investment in technology is ahead of the curve. We're one of the very few companies, who got our bottling lines completely outsourced from Germany. Our process techniques are also all exported into the country, which match with the world leaders, which helps us to churn a good product. Number two is our distribution bandwidth. Because the product itself is good, the first category, and there are not many options available in the mainstream, it gave an opportunity for us to get into the distribution and get our product straight. Once we did that, we realized that our products have a very high value for proposition in terms of what -- the perceived value of the products versus the pricing of the products, so -- which is helping us gain market share in all the markets where we are operating, even in brand sensitive markets. So that is what -- and third is the -- we are -- I'm now probably the second -- or the third generation into the business, and the leadership team is also a very sound leadership team, which has been in the market for good 15, 20 years. It's not just splurging the cash and building the brand and this and that. It's actually a very hardcore business where accruals are being used to grow the share. But that comes with an experienced leadership team and an experienced team, who believes in this vision. Those are the 3 points, which I think differentiate us from anyone else. It's because we are not dealing with a business where we are just spending cash. We are actually making EBITDA positive margins from day 1, wherever we were operating.

And who would be your closest brands that -- who are giving you the run for the money?

We're competing with all mainstream brands like Kingfisher, Tuborg, Haywards, SABMiller and Bira. So these are the mainstream that we compete.

That would be the last question for the day. Now I hand over the floor to the management for closing comments.

Thank you, everybody, for joining the call. I would just like to thank you for listening to us patiently and believing in the company. I would like to assure everybody that the last year has been very, very tough for everyone. However, we are committed to the company and its cause. We're Looking at growing this company and taking it to the next level, and we are fully committed to the company to take it to the next level. Thank you very much, everyone, for giving your time today. Thank you.

Thank you, sir. Thank you, everyone. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's Conference Call service. You may disconnect your lines now. Thank you, and have a pleasant evening.