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

Ladies and gentlemen, good day, and welcome to the Som Distilleries & Breweries Limited Conference Call. [Operator Instructions]. Please note that this conference recorded. I now hand the conference over to Mr. Arora. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us to discuss our Q3 FY '25 performance call. It's always a pleasure to connect with you valued investors and analysts. And I extend a warm welcome to each one of you on behalf of Som Distilleries & Breweries Limited. Looking at the quarter going ahead, we demonstrated resilience on the value front and adaptability and managed to deliver strong volume performance. Our volumes, we achieved a total of 50 lakh cases with beer volumes growing to 47 lakh cases or 4.7% year-on-year growth. Our IMFL has grown to 3.4 lakh cases, 25% year-on-year growth during the quarter. Key brands such as Hunter, Black Fort and Power have continued to perform well. And our recent launches like Legend and Woodpecker are also gaining good traction in the market. The beer realization for Q3 FY '25 was INR 560 as compared to INR 518 in the previous quarter in Q3 FY '24. And this is mainly influenced by higher sales of the Power brand, particularly in the states of MP and Karnataka and also the introduction of Legend in Karnataka. Growth in beer has been driven by Legend beer, which was introduced by us in Karnataka, which recorded 7 lakh cases in Q3 totaling to 18 lakh cases till 9 months. Major highlight going forward in this quarter was the acceptance of our premium brand Woodpecker. Since its launch, Woodpecker has seen a good amount of success, particularly in Karnataka, where it has been well received. The innovative twist cap beer crafted with premium ingredients has set a new benchmark for quality and convenience in the Indian beer market. We continue to innovate in this forum and the 2 variants of Woodpecker which is Glide, which is the lager beer; and Crest, which is the strong beer, are steadily building their market share and contributing positively to our endeavor to premiumize our portfolio. Production capacity of all facilities was significantly utilized during 9 months, where SDBL stood at 73%, Woodpecker stood at 65% and the unit at Odisha stood at 64%. In the lean season, our capacity utilization stood at the following, which is 58% for SDBL, 60% for Hassan and 34% for the Odisha plant. Price of raw materials was stable during Q3 as well as the 9 months in all our production facilities. As we move towards our premium offerings, we are also making strategic investments to support our future growth. The CapEx execution at our Odisha facility is progressing well and remains on track for a timely completion. Expansion will enhance our production capabilities, ensuring we are well positioned to meet the increased demand during the peak beer season. Another milestone this quarter has been the upgrade of our credit ratings of our subsidiary, Woodpecker Distilleries and Breweries Private Limited, from BBB+ to A-. As a group, we have added 37% debt reduction over 9 months as compared to last year 9 months, showing our financial prudence and positive cash flows. We remain optimistic about the upcoming summer season and the opportunity it presents for growth. We are heavily focused on expanding our footprint in high-potential markets such as UP, Rajasthan, Delhi, Jharkhand and the Northeast, while we are also continuing to innovate and premiumize our portfolio, cater to evolving consumer presence. This includes beer and IMFL both. Now I would like to hand over the call to Mr. Nakul Sethi, who will help in providing further insights into our financial performance for the quarter. Over to you, Nakul.

Thank you, sir, and good afternoon to everyone on the call. It's a pleasure to take you through the financial and strategic highlights for quarter 3 and 9 months FY '25. For the quarter, we posted a consolidated income of INR 3,027 million, achieving a robust 13.6% year-on-year growth. Our EBITDA for the quarter stood at INR 379 million, reflecting an 18.3% increase compared to the same period last year. This translates to an EBITDA margin of 12.5%, showcasing our ongoing focus on cost optimization and operational efficiency. Net profit for the quarter increased by 19.5% to INR 215 million, reflecting our ability to deliver sustainable profitability in the middle of dynamic market conditions. For the 9 months ended December 31, '24, our total income stood at INR 11,074 million, marking a significant growth of nearly 23% compared to the same period last year. Our EBITDA for this period reached INR 1,379 million at a margin of 12.5%, up from INR 1,096 million for the corresponding period last year. Profit before tax grew by nearly 30% to INR 1,112 million, and PAT increased by 21% to INR 807 million for the 9-month period. Our 9-month volume was approximately 178 lakh cases of beer, up 18% over the same period last year. The overall IMFL portfolio grew by 14% on a year-on-year basis. As of 31st December, '24, our total debt was INR 1,110 million, with cash and cash equivalents of INR 230 million, reflecting a net debt of INR 880 million. Thank you for your continued support and confidence in our company. With that, we now open the floor for questions. Thank you so much.

[Operator Instructions] We have the first question from the line of Aditya Singh from [ MultiBagger ] Stocks.

Congratulations on a great set of numbers. My question was that could you please tell me the excise policy that we have on different states at least on each of our products?

The excise policy, sir, comes at various times of the year. It's all published there. So you've got to be more specific on what excise policy, which state, because...

Because in the quarter sheet, I'm seeing that this time the excise policy was quite less than expected.

Sorry, sir, I don't understand your question. Less means?

That was the only question. I'll get back in the queue. Okay.

If it can be more specific, it will help.

No, no, I'll get back to you. I'll get back to you in the queue.

We have the next question from the line of Upanshu Das from Tracxn Technology.

So first of all, a very congratulations on a very good set of numbers. So my first question is, so do you think that -- means, we are hearing some kind of news of the ban of alcohol at some of the key cities at Madhya Pradesh. So do you really think that it can hamper our turnover in the medium to long term? Can you shed some light on that?

I'm glad you asked that question. Let me make that clear that the ban at Madhya Pradesh is in capsuling areas of where the religious temples are there, which already had a very controlled environment for liquor consumption. So we don't see that affecting the liquor consumption as there were already a very muted consumption already. So in terms -- so if you look at the number of shops, I think there are only approximately 47 shops which have been closed down out of a universe of 3,500. So I don't see a material impact of that on the consumption pattern in the state.

Okay. So very good to hear on that. So -- means, I have my last question. So sir, I'm closely monitoring that our company Som Distilleries have been trying to raise some funds from various fund houses like the Kotak Securities or the SK Securities. That means I'm very sad to say that for a very long time, we are not able to raise funds and get the desired result. So can you please elaborate on this issue that being a company of such a -- means good fundamentals and means, it is at present at such a tremendous valuation, so why are we not able to raise the funds?

Sir, let me make it clear. Thank you for asking that question. As I already mentioned in my address that we are actually looking at -- we have actually done a debt reduction of 37% which shows that we have good enough cash flows to sustain our growth story. And secondly, we are not actively looking at raising any funds right now because of our cash flows. So our cash flows are sustainable and they are -- as we -- another number which you will be pleased to know is that our realization in the beer has gone up from INR 518 to INR 560, that's a 10% increase. Which is a very healthy sign, which shows that our existing products by optimizing the prices, we are able to generate enough cash flows that we don't need fund raise to fuel our growth story. So I would like to humbly say that we are not actively looking at raising funds for any use because our cash flows are very healthy right now.

But I'm saying this that don't you think that if you are getting some kind of a big mutual fund means in this shareholding, so it can positively impact all the shareholders and the company in a longer run? Means it can give some kind of a credibility to the company.

These are -- the biggest credibility is our numbers, I would say. And it's up to the market to decide then how do they perceive it. I can deliver good numbers and good performance. And while we will actively work on your suggestion, but I see no problem with the company going ahead miles. I don't see any problem.

We have the next question from the line of [indiscernible].

Sir, my question is on the volume front. So 2 of our brands have been like losing volumes for like last 2 quarters. So just wanted to understand that when can we see a pickup or is there -- is this a thing that will continue for the upcoming quarters?

That's a good question, I would say. For the last 2 quarters, if you see on the volume front, you're right. But as you see on the value front, we have been gaining. That's primarily because we have taken a lot of price increases. So brand like Power Cool although lost a couple of lakh cases in the quarter, partly because of the season, but it has shown a 11.7% growth in the value on 9 months. So that has been the case. And there has also been a shift in Karnataka excise policies, which has led to a change in -- you know the price brackets. The people consuming a certain section of price band have moved to a lower or higher price band, which has affected the other brands. But we continue to grow -- in terms of the total value, we have a good 17.6% growth overlap.

Got it, sir. Got it. Sir, so on the new brand that we've launched and that has almost covered up the gap also that we've lost in terms of these 2 brands. So can we -- can you please give me a color on the new brand and what our plans are for that brand?

Yes. So as I said, there has been some uptake on the prices, particularly in our key states like Karnataka. So that has been partly covered by the introduction of Legend beer, which has grown from 7.3 lakh cases -- basically it has grown to 7.3 lakh cases this year. So this is also a function of adapting to your consumers and ensuring that they do not suffer. So Legend has been well accepted as a group in the state of Karnataka, and it has clocked 18 lakh cases a year already. So it is already a millionaire brand in the first 9 months of the launch. That just shows the brand acceptance, which has happened partly fueled by the fact that there has been instability at the price level in the state of Karnataka. So we are trying to accommodate all our consumers at all the price points and it reflects in the product quality and the pricing, which we have done for Legend.

We have the next question from the line of [ Jahnavi Dodai ] from [ Rise Equities ].

Congratulations on a great set of numbers. Just wanted to ask regarding UBL lately posted -- set out a press release that they have been facing issues with the Telangana government. So -- and I think we also received an approval from Telangana lately. So on -- in the states that we supply, just wanted to specifically understand that if we're facing a delay from the government's end in clearance of dues?

We currently do not operate in Telangana. So we do not have any dues there already. And whatever previously we used to operate have all been cleared.

Okay. And sir, in other states, have the number of days increased for us in terms of clearance of dues from the governments end, Karnataka, MP, Delhi?

No, ma'am, all the states continue functioning as normal, and we have not experienced any increase in debtor days.

Okay. And also, sir, one last question. So sir, in Karnataka, lately, the price increase that they have taken. So for the premium segment, they've taken from -- they've taken a lesser increase compared to the beers priced at INR 100 to INR 130, so what sort of consumption pattern change are we seeing? Are people upsizing their patterns or people are shifting to cheaper beers?

Not really. It is too early to say as it came into effect, I think, on the 20th or 23rd of January. We are progressing on -- we are monitoring the matter. And -- I mean, it will take us a month-or-so to actually realize what is the consumer feedback on the sudden increase in prices. But of course, it's not a small jolt in terms of pricing, where they've taken a 40% increase on the price affordability, which is detrimental to the consumer and detrimental to the society where you are actually making a low alcohol beer more taxed, more expensive. So we'll have to see how the consumer reacts. It's too early to say that.

Okay. Sir, just a follow-up on this. So I remember in the last con-call, Power Cool reached with an MRP of INR 100 -- we started with an MRP of INR 100, which you mentioned had started retailing at INR 130. So that was already a price hike that we'd taken in the state in Karnataka on the MRP. So now again, taking a price increase and that would -- it's like from INR 100 to almost INR 130 and then again a INR 30, INR 40 increase on that would take the volumes down massively?

Not really because if you see the beer consumption pattern across the country and across Karnataka, especially Karnataka is a well-to-do state in terms of the GDP contribution. So I don't see a much impact there. Also the price increase in the total of INR 100 -- from INR 100 to INR 130 is not exactly -- not all INR 30 has come to the company. There have been 2 price increases on the excise by the government. So you can safely say that more than 50% of the increase has gone actually to the government in terms of the revenue. So that is the case. Also, the price has gone up for everybody. So -- but I don't see a problem in terms of the current pricing in terms of how they are perceiving -- I mean, it's -- at the end of the day, the consumer has to decide what he wants to do. But I don't see a massive change in terms of the industry. There will be certain jolts to start with, but I think in the medium run, the consumers should get adjusted to the price.

Right. And sir, in terms of licensing for new states, so whenever we plan for a newer geography, what are the sort of entry barriers that we come across? And like what are our plans in terms of newer geographies?

So we are actively scouting for opportunities where there is more -- where there's a conducive environment in terms of stability of policies. We're already looking at some states which are growing higher like UP. UP has a very stable policy as of now. I also mentioned Northeast. Northeast is another where the Government of India is actually focusing. So there will be a consumption story happening because of the amount of money being pumped into the Northeast. And so we are looking at actively these 2 markets where we can actually -- where the pie is growing substantially, and we want to be part of that growing pie. As far as the government's attitude towards this is concerned is governments -- we are a net contributor to the state exchequer. So every government would want more and more exchequer to come in, whether through new products, whether through new factories, whether through anything else. So I don't see a problem there either that there is some issue on getting into states which are growing because we directly are linked to the state exchequer, we contribute revenue to the state exchequer. So while we may not get incentives, but we do contribute to the state exchequer.

We have the next question from the line of [ Jitesh Gupta ] from [indiscernible].

I have 2 questions. So the first is, as we can see the -- recently, the volume for Black Fort has gone down while Legend has gone up. So can you help me understand company's plan with these 2 brands? And also after the capacity expansion at Odisha, what will be the new capacity post expansion? So these are my 2 questions.

Currently, we are at 35.2 million cases, that's 3.52 crore cases combined capacity. And after the Odisha capacity comes on stream, the capacity will rise up to 3.82 crore cases.

Okay, sir. And sir, your plan with the new brand Legend and Black Fort? Since Black Fort has -- volume is going down.

Yes. So Black Fort the volume is going down, you're correct on that aspect. We plan to increase the base of Black Fort by launching it in new states. So we are actually pursuing that because Black Fort was primarily participating in Karnataka and Madhya Pradesh. So we are looking at arresting that growth by launching in new states. As far as Legend is concerned, Legend has shown a very, very positive trend in the market and the consumers are actually liking it. Otherwise, we wouldn't have had these sales. So we are going to focus on keeping the bandwidth going on with Legend and opening -- increasing the base for Black Fort because it is at the price point, which it is, is kind of saturated at that price point. The industry is actually not growing in that -- on those price points. We are looking at increasing the base. We are trying to add more states so that we can reverse this trend. And we are also looking at Woodpecker adding to the premium portfolio, which should add to the total portfolio of the group. So while some segments do get redundant due to excise changes, but some get the benefit. So we are trying to play in all the segments so that such changes, the company, the group is insulated from that. So that's why we're playing a portfolio where some brands sometimes degrow, but the other brands take over that degrowth, maintain the healthy growth story for the group.

Understood, sir. And sir, just one last question. Can you please repeat the utilization of each plant for Q3 and 9 months?

Yes, of course. So the -- during the 9 months, SDBL was at 73%, Woodpecker was at 65% and Odisha is at 64%. These are all above industry averages, by the way. And in the lean season, SDBL was at 58%, Hassan was at 60% and Odisha was at 34%.

We have the next question from the line of Rishikesh from RoboCapital.

Sir, firstly, if you could indicate what sort of revenue growth and EBITDA margins are we looking for in FY '26 and FY '27?

At this point, we'll be not in a position to give out the estimate for the next 2 years. Maybe after we finish the year then we can give you the guidance.

Okay. Given that we're expanding capacity, do we have any sort of visibility that you can share or whether we can do say around INR 2,000 crores of revenue by, say, FY '27. Could you -- do you have any comments on that?

I think we can look at that kind of growth by FY '27.

Okay. Got it. And what sort of volume growth do you expect for Q4 season, assuming there would be good volume growth in Q4?

So the CAGR has always been at 9% for the industry. Again, it is based on seasonality as well, how the weather plays out. So -- but it will be, I think, over last year, it should be a bare minimum 9% more than previous year -- previous Q4.

Okay. And lastly, your EBITDA margins, would it be fair to expect that EBITDA margin would be in similar range what we are doing currently?

I think this year, we have delivered more EBITDA margin as compared to last year because -- so I think we should be able to maintain these kind of margins going forward.

As our bottle pool is going up and we are recycling more and more bottles, we look at it because that's a major cost. So we look at that table from a midterm perspective. So we don't see any changes in that.

We have the next question from the line of [indiscernible] from [ MV Investment ].

My question is like what are your projections for growth in the upcoming years, like a couple of years, if you would want to throw some light...

I think that question has come a couple of times. So if you look at the industry standard, right? The industry has been growing at 7% to 9%, while we have been delivering numbers much above that, right? And the whole idea is to continue that growth momentum in the coming years. Of course, the base has grown tremendously for us by our numbers. We continue to -- as I said, there are 2 avenues for growth for us. One is consolidating market share in the existing markets where we are playing, where we are very confident of doing the same and also opening up new markets from our production footprint standpoint. So the minute we get that and we get those activated. We see no problem in growing in double digits for the coming years.

We have the next question from the line of Rahil Shah from Crown Capital.

Yes. Hi. Sorry, my questions have been answered. Thank you.

We have the next question from the line of Hiten Boricha from Sequent Investments.

Sir, only one clarification question. You mentioned a Q4 volume growth will be around 9%. Is that what I heard?

No. I had mentioned the industry is growing at 9% CAGR. So someone had asked me that what would -- what do you see that Q4 will grow more than the industry average or less than the industry average? To that I had answered that no, last year Q4 would be at 9%. Last year -- whatever the last year Q4 growth for the industry was plus 9% is what we expect it to grow at. It was my submission on that.

Okay, okay. But we are maintaining our guidance of INR 1,500 crores, INR 1,600 crore this year, right, sir?

Yes, yes, yes. So we are actually above the CAGR. So we are maintaining that.

[Operator Instructions] We have the next question from the line of [indiscernible].

I think we have been quite strong in the beer market. And I think the number for the IMFL also is growing. What's the plan around it? And is there more focus on IMFL market as well?

I am glad you asked that question. Yes, we are now -- because of our distribution strength, and the point of sale being the same for the nickel industry, we are actually now planning to transition to a complete alcobev company, which encompasses IMFL and beer operations, both. So we have been testing our products where our distribution strength has been the strongest. And we are very happy to inform that, yes, that has led to an increase in the IMFL performance. And that has given us confidence that, yes, we can go ahead in this market and premiumize our portfolio and play the portfolio game in terms of a total alcobev's perspective, not just a beer company or just an IMFL company, we want to be a complete 360-degree alcobev company and the numbers on IMFL are encouraging us to transition to that phase.

Yes. All right. So are you also planning to launch more brands around it or expand the current ones?

So to be more specific in the coming quarters, we would be launching more products in the IMFL space. We will be leveraging our existing distribution strengths to push those products and create some sort of standing in the IMFL sector as well.

Sure. Sir, my understanding is that the beer as such is an urban phenomenon. And do you see that playing out? And how does that work out in the rural areas?

So I don't see that as an urban phenomena anymore. I think with the demographics of our country and with the social media in place, there's nothing known as an urban or a rural phenomenon now. It's more about the pocket size. So you've got to really understand the demographic from the pocket size perspective that where -- what pocket size suits which part of the state in the country. And Karnataka is a living example of that. When we started, we started at INR 100 MRP beer, today, we are at INR 130, going up to INR 150. So the pocket size has definitely increased, but the idea of trials only can start with -- by attending the consumer at his pocket base, not at a base level of saying that, okay, beer cannot be less than INR 200 or INR 150. That's not how the trials happen. With the ethanol project, I see a lot of money getting pumped in the rural sector because of good prices for the farmers. So I see that going up. I don't see any reason why the rural phenomena will not be having a higher growth rate than the urban phenomena. In fact, the urban phenomena is kind of flat is what our numbers tell us. So the future is the rural phenomena.

Sure. Sir, one more question. So I think my understanding is some of the raw materials are imported. And do you think that's sustainable? And are you looking at sourcing locally as well?

Yes, I'm glad to inform that there are a couple of new furnaces coming up in India due to the demand-supply situation. And we are very confident that the imports will get cut down, and we will start sourcing it locally. Because our delta is higher than the industry average, we tend to insulate ourselves by ensuring that we have foreign suppliers so that we don't come under any sort of pressure due to the scarcity of supplies. That has always been the case, whether it was barley, whether it was glass bottles. So we have always maintained that strategy.

We have the next question from the line of Rohit Deshmukh from Vishwai Investments.

Sir, are there any plans for expansion or entering new markets in this year or next year?

Yes. I had addressed that in that we are looking at expanding our footprint in markets like UP and the Northeast, which is on our agenda. The fact that we are increasing capacity in Odisha is also a testament to that because this is the second round of expansion, which has happened in Odisha in 3 years. So we're trying to reach a critical mass scale where we can actually derive profitability through economies of scale. So while we do that and as the cash flow is also improving, we would have to -- whether we like it or forcefully, we'll have to expand to new territories. There is no question. And we are very, very confident that with our portfolio, we'll be able to do well in the markets, which I mentioned, in the UP and Northeast.

Okay. And sir, have there are any recent regulatory changes that could impact the business? And how are you addressing them?

Not really. It's a state subject. So it varies from state to state, but I don't see any regulatory hurdles as such right now. I don't see that.

And my last question is that are you seeing success in premium products offering?

Yes. With our launch of Woodpecker beer in Karnataka, I'm happy to say we have been very successful in spreading the product and getting repeats from the customers, which has given the retail a lot of confidence. So with the coming season, we should definitely see better numbers there [indiscernible].

That was the last question. I would now like to hand it over to the management for closing comments.

Thank you, everybody, for joining the call. We are committed to growing the company forward, and we thank you for all your questions and support and look forward to seeing you in the next quarter.

Thank you. On behalf of the Som Distilleries & Breweries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.