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

Ladies and gentlemen, good day, and welcome to Q2 FY'24 Earnings Conference Call for Som Distilleries & Breweries Limited hosted by InCred Equities. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Nitin Awasthi from InCred Equities. Thank you, and over to you, sir.

Thank you, Akshay. We thank the management of Som Distilleries for giving us the opportunity to host their call today. From the management, we have Mr. Nakul-ji, who is the Director of Finance and Strategy of the company. I will now hand over the floor to Nakul-ji for his opening remarks. Over to you, sir.

Thank you, Nitin-ji, and good afternoon, and welcome to everybody to our earnings call. The second quarter is typically subdued due to the monsoon season and various music festivals impacting our sales. Despite this, we have shown a growth trajectory. For quarter 2 FY 2024, our consolidated income was INR 2,480 million compared to INR 1,479 million for the same quarter in FY 2023, showing a growth of nearly 68%. Our EBITDA was INR 275 million, up from INR 186 million for the same period last year, showing a growth of nearly 48%. Our PAT for the quarter stood at INR 149 million, an increase from INR 82 million for same quarter in FY '23, showing a growth of 82% (sic) [ 80% ] Coming to the first half of FY 2024, our income was INR 6,346 million compared to INR 4,039 million for the half -- H1 2023, representing a growth of 57%. Our EBITDA for the first half of this year was INR 776 million, up from INR 545 million for H1 2023, a growth of 42%. Similarly, the PAT stood at INR 485 million as compared to INR 339 million in H1 2023, showing a growth of mainly 43%. In the quarter, we recorded beer sales of 40.3 lakh cases, and half year beer volume amounted to approximately 106.2 lakh cases as compared to 76 lakh cases sold in the same period last year. Additionally, we sold around 2.5 lakh cases of IMFL during the quarter. Key brands like Hunter, Black Fort and Power Cool have seen significant sales volumes in the key markets. This performance across our brands can be attributed to the trust in our product quality and execution capabilities of our team. The decrease in net debt from INR 2,296 million in March 2023 to INR 1,540 million in September 2023 highlights the company's efforts in managing its financial obligations more effectively. Furthermore, our long-term bank loan ratings have been upgraded from BBB to BBB+ by ICRA, underscoring our continued financial strength and commitment to growth. In line with our expansion plan, we have placed orders to enhance our beer facility at Hassan. These orders involve suppliers from Germany and India, allowing us to add close to 6 million cases per annum to our production capacity. We expect the expansion to happen in March or April of next year. On the operations front, we have successfully obtained permissions to supply our beer brands to Rajasthan as well as IMFL. This will help us in diversifying our portfolio and strengthening our market impact. We have also secured permissions for supply of beer to Chhattisgarh and have commenced initial dispatches. This strategic move aims to establish a significant market presence for our products in the medium term, marking a key milestone in our regional expansion effort. With that, we would now like to open the floor for Q&A. Thank you so much.

[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.

My first question is on your gross margin and EBITDA margin. There is slight fall quarter-on-quarter. And what is the reason for that? And in terms of outlook for your 3 key raw materials, so glass, ENA and barley prices, how do you see in H2 versus H1?

See, the prices of barley has come down, but we are yet to see an impact on the glass bottle. So we expect that some softening of prices on the glass bottles would happen in the H2. But I think coming to your question on gross margins, it's a function of -- we are growing across the country. You can see in the numbers also in terms of volume growth and as well as the revenue growth. But our dependence on new bottles continues to be there. So I think that is one of the main reasons why the gross margins are a little subdued for the present.

Slight numbers, I would want, so in terms of barley, how much correction has happened versus, say, Q1 and versus last year's average cost? How much would be the current price for barley for you? And similarly for glass, if you could give similar data?

I cannot tell you the absolute price, what it is costing me, but I can just give you a range that...

I need the percentage...

We have made that correction of around 15% over the last 1 year in the prices of barley.

And further correction you expect from here?

No, I don't expect any further correction. Maybe -- I mean, on the more optimistic side, maybe another maybe 3%, 4%.

And glass, how much correction you expect second half or, say, FY '25?

I think the indication which we have got right now is about in the range of about 5% to 7%.

Okay, that's it. Small correction?

Yes.

Sir, my second and last question is on Karnataka. There was a tax hike, which led to a pricing increase at the customer level, but no increase to the company. So has that impacted volumes for the industry and for you in Karnataka in any of your segments?

The increase in excise policy has made the selling price of beer costlier by about, I think, INR 5 to INR 10 a bottle. So I don't think that's much as compared to IMFL. So in terms of volume, it does not have any impact.

But on IMFL, for the industry, you think there is an impact?

Yes, yes. For IMFL, yes.

The next question is from the line of Sagar Tanna from Alchemie Ventures.

If you can give us the breakdown of volumes in the second quarter in terms of our 3 brands?

The -- sorry, you wanted the?

Breakdown of volume Sir. What is the breakup of volumes in Q2?

All brands, you said?

That's right.

So we sold about -- close to about 11 lakh cases of Hunters in the quarter. We sold close to around 4.75 lakhs for Black Fort and about 22 lakhs of Power Cool.

And anything on Woodpecker?

Okay. Woodpecker, we have -- okay, let's classify it that we have got another segment called Other Beers. So Woodpecker comes in that now, we sold about 2 lakh cases of the other beers.

And sir, what would be the realization difference between Woodpecker and Power Cool?

Now that depends upon state to state.

But if you were to look at Karnataka or Madhya Pradesh?

If we come to, say, Power Cool sales for INR 551 per case in Madhya Pradesh, and Woodpecker sales for about INR 650 per case.

6-5-0?

Yes, 6-5-0.

Okay. And in Karnataka, what would be the realization, sir, just for a broader understanding?

Power would be about, I think, about INR 450 per case, and Woodpecker would be about INR 520.

The next question is from the line of Mayank Dugar from Moonbow Investment Advisor.

Congratulations on a good set of numbers. I had a couple of questions. Firstly, we have done some contract manufacturing tie-ups in the state of Jammu...

Sir, you are not that audible to me.

Am I audible now?

Yes, sir.

Yes. So we have done 2 strategic contract manufacturing agreements, one in Jammu and the second one in Punjab. So what -- how much is that going to add to the topline? My second question would be -- so the capacity that we have on the IMFL side, that is 3.9 million cases. So how much of that is being utilized currently? Yes, that's it for me.

So coming to the capacity utilization on IMFL, the capacity utilization in MP is about -- I think we're doing quite well in terms of the capacity utilization in MP, but IMFL capacity utilization is very less in Karnataka. We have got a big capacity, that's why we had Radico there. But unfortunately, their offtake also has not been so great. Coming to the contract manufacturing, which we have done for Punjab -- we have done in Punjab and in Jammu, that's very initial and that is for supply of IMFL to the canteen stores. So let's see how it goes. I mean it's very difficult to give you any idea what the kind of volume which we will do from those facilities as of now.

The next question is from the line of CA Nihar Shah from Crown Capital.

Congratulations.

Sorry, sir, we can't hear you.

The next question is from the line of Gunit Singh from CCIPL.

So what is the outlook for FY '24 in terms of topline and bottom line? I mean looking at the current run rate, can we expect to reach around INR 1,300 crores topline this year? And what kind of margin...

I'm more comfortable between the range of about INR 1,100 crores to INR 1,200 crores for the current year.

What kind of EBITDA margins are we looking at for the entire year?

I think in the range of about -- anywhere between -- I think we should aim at about 12% to 12.5%.

All right. And you mentioned that there's a new capacity coming up in March, April next year. So what would that be capacity used for? I mean, are we expanding to some other states? Would that be used to supply our brands to other states? Or would that be so contract manufacturing? And...

The present capacity which we have in Karnataka has not been sufficient for the kind of traction our brand is enjoying. So that was the need for setting up additional capacity. And of course, we want to target states like Kerala and Pondicherry, which are not being served from the Karnataka facility as of now.

All right. So I mean, what kind of revenue -- additional revenue should we expect from this capacity? And I mean this is commencing in March, April next year. So I mean can we expect this to be running at full capacity, say, from beginning, I mean looking at the kind of demand that we're getting?

So I think the aim is to have the facility ready for the next season. So our, I think, strategy is to maximize the capacity utilization. So right now, for example, the Karnataka plant for this half year has been running at a capacity utilization of 90%. So we are pretty optimistic about the capacity utilization levels of the new plant also next year.

What kind of -- at optimal capacity utilization, what kind of revenues would this add?

So if you consider a 90% capacity utilization, so it can easily give us about INR 270 crores of net revenue.

All right. And by when can we expect, I mean, of 90% capacity utilization?

I can't give you a guidance on that. Let's see how things pan out during the second half of this year.

The next question is from the line of Sanjaya Satapathy from Ampersand Capital.

Sir, congratulations on a fantastic set of results. One question is that can you give us some kind of sense about your market share gain, anything that happened during quarter 2?

So I think we are -- the growth which happened in quarter 1, we have been able to maintain our market share in all the key markets where we are present. Plus, we have done quite well in the new state like Chhattisgarh where we have initially made, I think, good inroads. We are also very hopeful of doing well in Rajasthan in the second half of this year. So that's the whole situation as of now.

Good. And any kind of numbers in terms of what are your market shares in your top 3 states as of now? That will -- and the reason why we're asking this is that as you are rolling out to new states, I mean, we can really expect something -- some similar performance probably pan out in some -- couple of years' time in those new states as well.

Yes. So I mean, if you -- so for example, year-to-date, we have got close to about 18.5% market share in Karnataka, close to 13% in Odisha and about 11% in Delhi for the 6 months, and I think it's 43% in MP.

Understood. So you -- in your core market -- in the existing market itself, you have a significant scope of market share gained in.

Yes, yes. Plus, I mean, obviously, we are adding new markets. So we are looking at good traction coming from those states also.

Understood. And you also spoke about some kind of easing of cost pressure from what you saw in the first half of the year. And there will -- so -- and the fact that your utilization level, et cetera, are improving. On a medium-term basis, is there any kind of a margin guidance that you can share with us?

So I think the previous caller had also asked me this question. So I think about 12% to 12.5% would be the range where -- at the EBITDA level where we will be comfortable.

Understood. And have you shared your full year revenue guidance or you are not giving that now?

So I think revenue would be -- we are expecting -- earlier, we had given a guidance of about INR 1,000 crores, but now we have revised it anywhere between INR 1,100 crores to INR 1,200 crores.

Okay. Okay, that is good. And last question, if I can take that. While you are expanding in new states, you have plans for acquisitions, et cetera. On your core -- on your other business, which is your IMFL business, how are the traction? And last thing that I want to check there is that you are getting into -- there will be elections and all that. So does it help or hurt your performance during this period?

During the time of the election, there are certain disruptions in the terms of supply because the excise also becomes more strict. But I think given the kind of volumes we are expecting, I think those short-term aberrations will be negated. Coming to IMFL, IMFL is also an important piece for us. It complements our beer business, especially during the rainy season that is from the third quarter. But considering that we have got a good market presence in the Southern India, that is the reason that the share of IMFL is a little less as compared to the total pie. But still, I believe that IMFL will continue to be an important piece of our business.

[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.

The first question, the capacity expansion at Hassan, we're expecting our capacity to increase by how much? And as in what -- the 30 million cases will reach to where? And what is the CapEx that we're incurring for this?

So right now, our capacity is about 90 lakh cases, and we are increasing this capacity to 160 lakh cases. So altogether, the Karnataka facility will have a capacity of 1.5 crore cases. And we are expecting that we should be spending about close to about INR 70 crores to INR 75 crores for this expansion.

Okay. And there's no capacity expansion plan at MP currently?