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

Ladies and gentlemen, good day, and welcome to Som Distilleries & Breweries Limited Q3 FY '24 Earnings Conference Call hosted by InCred Equities. [Operator Instructions] Please note that this 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, Mr. Yousif. We thank the management of Som Distilleries for bring us this opportunity of hosting their call today. On the management, we have Mr. Nakul Sethi, Director of Finance and Strategy. I would like to now hand over the floor to Nakulji. Over to you, sir.

Good afternoon, Nitinji, and a warm welcome to all the participants on our earnings call. Before getting into the performance of the quarter 3 FY '24, I would like to address the concerns on the announcement in November 2023 made by company about the income tax search. This was a routine search that was conducted at a gap of around 2 decades. And during the search, no unaccounted assets was seized. There was no meaningful impact on the business operations during the search as it is evident from the robust Q3 numbers reported by us. Since the completion of the search, we have not received any assessment or demand from the income tax department. We will, of course, inform the stock exchanges regarding any update on this from time-to-time. Our commitment to transparency and compliance remains resolute. Now on to the quarter 3 FY '24 highlights. Consolidated income reached INR 2,665 million, a 77% year-on-year growth over the same period last year. EBITDA for the quarter stood at INR 320 million, a strong 64% increase. PAT for quarter 3 FY '24 amounted to INR 180 million, marking with 71% growth. For 9 months FY '24, income was at INR 9,012 million, up 62% from last year. EBITDA reached INR 1,096 million, showing a substantial 48% growth. PAT for the 9 months FY '24 was at INR 665 million, up 50%. In terms of volume, beer sales for the quarter was 44.5 lakh cases, up 67% over the same period last year. The mainline brands, such as Hunter, Black Fort and Power Cool, registered volume growth of 68%, 59% and 57%, respectively, as compared to quarter 3 FY '23. Beer realization for quarter 3 FY '24 was INR 518 per case compared to INR 484 in quarter 3 FY '23, mainly influenced by the mix of SKUs. Our 9-month volume was approximately 150.7 lakh cases of beer. Notably, our flagship brand, Hunter, recorded a 21% year-on-year increase. Black Fort grew by 71.9% and Power Cool saw a 49% volume increase. The overall IMFL portfolio grew by 15.4%. New market entries have been strategic and with the successful launch of a new strong beer, Legend, in Karnataka. As of 31st December '23, our total debt was INR 1,840 million with cash and cash equivalents of INR 150 million, reflecting in a net debt of INR 1,690 million. Our expansion strategy continues with orders initiated to augment our beer facility in Hassan. We obtained permission from Karnataka Excise Department to supply beer brands to Tamil Nadu and enter into a strategic contract manufacturing agreement with J&K for the production of IMFL, diversifying our portfolio and strengthening our market impact. In conclusion, we remain resilient and forward-looking. With these updates, we now invite questions from the participants. Thank you so much.

[Operator Instructions] First question is from the line of [ Ankur Kumar ] from Alpha Capital.

Congrats on a good set of numbers. Sir, my first question is in terms of our next couple of years. As in J.K. Arora, sir, was giving interview yesterday, and he was talking about INR 2,000 crore revenue possibility in the next 2 years, which would imply a good market share gains even from current levels. So I wanted to understand, what are the states which will contribute in this market share gains for us?

Yes, I think to answer your question, we have got headway to grow in all the states, states wherever we are present as well the new states which we have started seeding. So to give it some more color, I think Karnataka, Kerala, UP and Jharkhand and especially some market shares obviously gained in MP will drive those kind of numbers.

Got it, sir. And sir, how are the raw material trending now as in we had -- a couple of quarters ago, we had an issue where raw material was a little high, so how is the situation now? And how we think things for the coming season, which is Q1 like is the best quarter?

See, the raw material prices have stabilized. We have seen a reduction in the prices of barley, but there has been a very minimal price decrease in the -- in terms of glass bottles. And as I mentioned earlier also in my previous call, dependence on new glass bottling is much more than what we get from the recyclable glass bottles. So obviously, as a mix, we will have to look out for the input costs in the coming quarters also.

Got it. And sir, one more question is on the tax payment, as in if I look at my income statement, there is a good amount of tax expenses. But if I look at my cash flow statement, the tax expense directly paid isn't much. So can you comment on that, please?

I think for FY -- this is -- you're referring to this year?

Last year, sir, FY '23.

FY '23, the tax expense was very less in terms of -- because of the losses, which were incurred during COVID.

Got it, sir, got it. And sir, when you are doing -- trying to do another QIP, can you comment on that, please? Is that QIP? Or is it -- and what is the use of that fund, sir?

I would not like to comment on that currently at this point of time.

But actually, as in you don't want to comment on the mode of fundraising, but any comment on requirements for fund? Will it be CapEx and working capital? Or how should we look at that?

We will -- we have taken -- we are going to take approval from the shareholders. And as and when we'll get an opportunity to acquire assets, then we'll open the issue.

Next question is from the line of Rohan Advant from Prad Capital.

Sir, I just wanted to understand, how are we placed in terms of capacity now and for the upcoming season which is strong? We have a 30.2 million capacity. And given like the kind of growth that we've been seeing, do we have enough capacity for Q4 and Q1, which are strong quarters for us?

When I was -- I did some math and I was looking at my annualized capacity utilization, so I'm utilizing the Woodpecker facility at close to about 85% on an annualized basis. And we are adding another 60 lakh capacity, which would be there by April of this year. So that will take care of the Karnataka and the Kerala operations. Currently, Bhopal is running at close to 65% capacity and Odisha is at annualized capacity utilization of close to 40%. So I think for the next year, I'm pretty sorted on the capacity.

Okay. And when you say -- I mean, you are obviously taking the peak capacity, right, because all the peak sales will do. Because this quarter, if you annualize, that would not be the right number, correct?

Yes, yes, I've done that.

Okay. So Karnataka should come by Q1, and we'll be dependent on that coming by Q1. But other than that, we have capacity that will facilitate to.

Yes, I think hopefully, if things goes well, we might have the capacity before that also, before ending Q1 also.

Okay. And sir, on the beer realizations, we've seen a slight drop Q-o-Q to INR 518 from INR 547. So can you -- what is the outlook on this in terms of your product mix? And thus, the realization, where should they end?

I think it depends because we had a larger share of Power Cool in our total sales mix for this particular quarter. That's why you saw a slight dip in price realization. But going forward, I think about -- close to about INR 530 or INR 535 would be the ideal number for realization.

Okay. And sir, lastly, if I look at our last 4 quarters, our raw material cost is roughly 64%, 65% range. In the past, we were at significantly lower ranges. So not immediately but over 12 to 24 months perspective, where can this head? And what would be the outlook on the EBITDA margins, therefore?

I mean, we are pretty comfortable that we can -- see EBITDA margins would be in the same range, but say about close to about between 12% to 13%. And the gross profit is slightly lesser because as I mentioned in the -- to the previous caller also that our dependence on new glass bottle is much more than what -- when you're growing, obviously, you have got a higher requirement of new glass bottles. So that is the reason why the gross margins are slightly less.

The next question is from the line of Umesh Gupta from AMBIT Wealth.

Congratulations on good numbers. I just had one question on this seasonality path. Looking at your quarterly number, it seems that the seasonality playing out as expected in Hunter and Black Fort but not so much in Power Cool, which is actually going against the trend. Could you highlight that why is that the case?

The Power Cool -- the idea of putting a plant in Karnataka was to slightly reduce the seasonality of the beer business in our company. And that is why you have seen that our growth has been quite robust in the last 2 years. Because Karnataka as a market has contributed substantially to our overall growth. And Power Cool continues to be our brand, our go-to brand in the state of Karnataka. So that is why Power Cool has grown much more as compared to the other beer brands.

So you don't sell Hunter and Black Fort in Karnataka, is it?

We sell, but Power Cool does really well in Karnataka.

Okay. Sir, but -- so you think that the other parties, the Hunter and Black Fort, they will continue to show the same trajectory in terms of seasonality, but Power Cool could, for some time until you get a reasonable market share, will grow faster?

If Hunter does very well in, for example, in Madhya Pradesh and Delhi. And obviously, this quarter, because of seasonality, we still get affected. So that's why you will see that the growth is not as much as we would have wanted Hunter to grow because of this whole condition in these markets.

But could you explain this Q4 thing? Because the Q4 conditions are also similar to Q3 in terms of weather. Then why does Q4 does better than the Q3 historically?

Because Q4, you start doing dispatches from middle of February and March to all the warehouses for the season ahead so that's why. And then you have got the onset of slightly favorable conditions for beer consumption all across the country in March particularly.

Next question is from the line of Manan Shah from Moneybee.

Congratulations for good set of numbers. I wanted to know the Legend that we launched in Karnataka, whether it is priced above Power Cool or it is priced below Power Cool?

It is priced below Power Cool.

Okay. So we are not trying to push more premium brands in Karnataka then?

We have to respond to the -- how this competition also reacts, right? So I mean, we've seen that most of the consumption that is happening in the beer industry in Karnataka is at those price points only. That is what we are there. So I mean, that's how the situation is right now.

Okay, understood. And our entry into Tamil Nadu, from when do we expect start seeding into that state or you already have started?

No, we haven't done it. I think we should start by, I think, February or March, we should start.

Okay. I mean, that would be contingent on the new capacity coming online?

No, it would -- because initially, the volume will not be that big. But by the start of the season, I think then we'll have much more -- we'll be much more comfortable in terms of capacity also, so we can start the supply...

Understood. And the seeding that we have been doing into Rajasthan and Jharkhand, how has the response been? And how long until you think before we take a decision whether you want to go inside of a plant in any of these states?

See, Jharkhand and UP both are doing very well. It will take slightly longer time in Rajasthan. I think our decision to set up a capacity or to do a contract manufacturing with somebody, I think about -- we can take a call on that by -- maybe by August or September of the next financial year.

Okay, understood. My last question was on this approval regarding a related party transaction with a promoter entity. What is the primary nature of these transactions that we'll be entering into with the promoter entity?

The promoter entity makes or manufactures ENA. And we require ENA for the blending and bottling of IMFL. And we get about 9% to 10% of our revenue through the sale of IMFL. That is the specific purpose of that related party transaction.

We have our last question from the line of Alisha Mahawla from Envision Capital.

Sir, first question would be setup of canning line for the UP market. How is that doing? How is the utilization? How is the acceptance in the market?

Of the?

For the canning line, beer cans, we've done a canning line in MP -- for the UP market.

That's correct. Because canning predominantly, I mean, especially during the summer season in MP, this -- it was more than what we had expected. And especially UP also is a major can market. So the canning line is doing pretty well.

And is it fully utilized?

Yes, I mean, it depends upon the capacity utilization of the whole plant as such. So you cannot say it is fully utilized because it's a very big canning facility. But we are more than happy at the utilization levels of that canning line.

Okay, got it. And the CapEx -- and the capacity expansion we're doing in Karnataka, what is the CapEx we are incurring for it?

It will be about between INR 55 crores to INR 60 crores.

And we're not doing any other expansion anywhere else for the upcoming season?

So we are doing a small expansion in Bhopal also. We are setting up basically a packing line here. But besides that, nothing I don't know.

So this INR 55 crores, INR 60 crores is including Karnataka and Bhopal?

I think for Bhopal, it would be another INR 5 crores.

Sure. Sir, my next question is any -- would we like to quantify what is the kind of revenue we're getting from the newer states of Delhi, UP, where we've been present for more than 1 year now?

Sorry, sorry, please come again?

What would the contribution from the newer states of Delhi and UP be, where we've been present for more then 1 year now?

For 9 months, I think Delhi is -- would be about close to about 5% of our sales.

And UP?

UP is about 3%.

Okay. And sir, my last question is we have got into a contract manufacturing in J&K to manufacture IMFL for CSD. What is the rationale for that? Because it's contract manufacturing for IMFL whereas our focus has always been on beer.