Tilaknagar Industries Ltd. (507205) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tilaknagar Industries Limited earnings conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us on Tilaknagar Industries Limited's Quarter 1 FY '27 Earnings Conference Call. We are joined today by Chairman and Managing Director, Mr. Amit Dahanukar; Chief Strategy Officer, Mr. Ameya Deshpande; and Chief Financial Officer of the company, Mr. Rajesh Choudhary; and Growth and Innovation, Ms. Sanaya Dahanukar. We shall commence with views from Mr. Dahanukar on the brief performance and financial highlights, followed by commentary by Mr. Deshpande on the strategy going ahead. This shall be followed by an interactive question-and-answer session. Before we commence, I would like to state that certain statements made on today's call could be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation that was shared with you earlier and which is also available on the stock exchange website. I would now like to request Mr. Dahanukar to make his opening remarks. Over to you, sir.

Good morning, everyone. Happy to have you all join us on this earnings call to discuss the quarter 1 FY '27 results. I will provide an update on the current quarter's performance, which will be followed by Ameya taking you through the updates on Imperial Blue integration and guidance on future performance. Before I begin with the quarterly performance, there are a few achievements I wanted to highlight. Firstly, we achieved the highest ever monthly volume of 3.4 million cases in June '26 with Imperial Blue emerging as the largest selling Deluxe Whisky. Secondly, Tilaknagar maintained its position as the largest P&A player in India amongst domestic companies and the third largest overall. In our stronghold region of South India, Tilaknagar is the largest P&A player overall with 40% market share. In fact, in the state of Telangana, Tilaknagar emerged as the largest IMFL player overall in the month of June. As promised, we have delivered on our guidance to introduce Imperial Blue in newer markets by reintroducing the brand in Delhi during July '26. We have high hopes for the brand in Delhi and are committed to taking it back to its historical legacy and beyond. In quarter 1, our overall volumes increased by 172% on a Y-o-Y basis and 9% on a quarter-on-quarter basis. The quarterly growth was led primarily by IB, which increased by 18% to reach 5.4 million cases. On a year-on-year basis, MHB has grown by 7%. We have achieved this growth despite some disruptions in the month of April. Now moving over to the financial performance. The overall NSR increased by 1.5% to INR 1,183 per case for quarter 1 FY '27 from INR 1,166 per case in quarter 4 FY '26 and by 5.3% from INR 1,123 per case in quarter 1 FY '26. We witnessed a strong growth of 166% year-on-year basis to reach a net revenue of INR 1,046 crores during the quarter. Adjusted for subsidy, we recorded a growth of 189% to reach INR 1,026 crores. The ongoing geopolitical tensions led to inflationary pressures across packaging inputs, particularly glass, resulting in a meaningful increase in packaging costs during the quarter. Consequently, gross margins were under pressure. However, these pressures were partly offset by softened ENA prices. Adjusted for subsidy, we have achieved a gross profit of INR 432 crores in quarter 1 FY '27 and a margin of 42.1% compared to 45.2% in quarter 4 FY '26. Excluding the impact of inflationary pressures, the margin would have been higher, closer to 44.5%. EBITDA stood at INR 169 crores for quarter 1 FY '27, clocking a growth of 79% year-on-year and margin of 16.1%. Adjusted for subsidy, the EBITDA grew by 166% to reach INR 148 crores and a 14.5% margin on the combined business. Excluding the impact of inflationary pressures, the margin would have been approximately 17%. Looking ahead, we remain confident of improving upon the 15.5% baseline EBITDA margin achieved in quarter 4 FY '26. PAT adjusted for exceptional items and acquisition-related amortization stood at INR 96 crores for quarter 1 FY '27, clocking a growth of 9% year-on-year and margin of 9.4%. Adjusted for subsidy, the PAT grew by 52% to reach INR 76 crores and a 7.4% margin on the combined business. Excluding the impact of inflationary pressures and subsidy, the margin would have been approximately 10%. We incurred an exceptional expense to the tune of INR 30 crores during quarter 4 FY '26, predominantly on account of TSMA fees and integration-related expenses. As on 30th June 2026, our gross debt stood at INR 2,241 crores and net debt stood at INR 2,100 crores. The increase in net debt is primarily on account of complete working capital cycle investment. However, I want to reassure you that our target is to take the net debt in March '27 to approximately INR 1,700 crores. I wanted to reiterate that our focus going forward will be divided into 4 parts: continue our journey to generate and fulfill demands for our brands to deliver a double-digit volume growth, optimize packaging, processes and supply chain, and reap benefits of operating leverage and economies of scale, helping us achieve an EBITDA margin of 16% to 18% on combined business in the next 2 years. Focus on efficient capital deployment, disciplined debt management and working capital investments, facilitating the reduction of net debt-to-EBITDA below 1 by FY '29. Ride on the pan-India distribution strength of Imperial Blue and Mansion House franchises to expand TI's luxury and premium portfolio, including SSL. On the brand front, our priorities have been clear: increased trade and consumer engagements for Imperial Blue. We have successfully carried out new activations in 28,000 outlets during quarter 1 with consistent on-ground communications. Lastly, I wanted to update on the Super Premium and Luxury side of the business housed within House of TI. We have expanded the presence of our Luxury brands, Monarch Legacy Edition Brandy, Seven Islands Pure Malt Whisky, and Samsara Gin owned by Spaceman Spirits in West Bengal during the quarter. SSL has more than doubled their sales in quarter 1 FY '27 versus quarter 1 FY '26, demonstrating strong market for craft spirits in India. The growth is led by Samsara Pink and the new launches with Indian flavors, Jamun and Pink Salt, and Raw Mango and Jalapeno. They have also launched a ready-to-pour drink in the fast-growing agave and tequila space called House:Pour Picante towards end of quarter 1. During the quarter, we also doubled down on our investment in Bartisans by increasing our stake from 36.2% to 41.5%. The proceeds from this investment will be used to expand within the quick commerce segment, product and packaging innovation, and for collaborative launches with TI. We are extremely optimistic on our luxury play, both organic and through our strategic investments. I will now hand over to Ameya to take you through the integration of Imperial Blue and provide guidance on the future performance.

Thank you, and a very warm welcome to everyone joining us today. On the post-acquisition integration front, I'm happy to inform you that we have additionally transitioned from 2 more states, taking the tally to 90% of the IB business being successfully transitioned into Tilaknagar-operated units. Now only one state remains under TSMA, and we expect to transition them over the course of the next few quarters with an outer date of March 2027. I would now like to provide some guidance on the combined business going forward. We maintain our guidance for FY '27 of achieving a high single-digit to low double-digit volume growth for the combined business. We are upgrading the guidance beyond '27, including new launches planned from '28 onwards. We expect an annual volume growth in mid-teens over the next couple of years, and our revenues are expected to grow at least by 300 basis points higher than the volume growth. In terms of margins, we expect the consolidated EBITDA margins to reach 16% to 18% for the combined business by FY '29 with upward bias on the range. For FY '27, we expect our margin to improve from the base of 15.5% set in Q4 FY '26. As guided in the past as well, we expect the net debt-to-EBITDA ratio going below 1x by March '29. Lastly, I would like to explain a small change that we have made in the NSR calculation. While calculating the NSR, we have now reduced cash discounts, breakages and wastages. This change is limited to the NSR calculation only, and there is no change in reported net revenues in the current or past quarters. The NSR for the current quarter was INR 1,183 per case compared to INR 1,166 per case in Q4 FY '26. With that, I would now request the operator to open the call for Q&A.

[Operator Instructions] The first question comes from the line of Abneesh Roy with Nuvama Wealth Management.

I have 2 questions. First is on the IB overall scale-up. Specific question was if you could tell us which states are seeing more traction and where there are more challenges? And specific question was also on Karnataka. Karnataka clearly all the liquor companies are highlighting good recovery post the reforms. If you could tell us how has the competition shaped up for IB in that market? My sense is there will be a lot of changes in terms of the pricing given there's a lot of flexibility, number of tracks are also reduced. So if you could update on the Karnataka also? That is my first question.

So on Karnataka post price reduction, we have seen a good uptake in our volumes since the price reduction has taken place. And our market shares also have significantly improved in the operating segment.

And...

Sorry, go ahead, Abneesh.

Yes. The other question was in which states you have seen more traction in IB because clearly, there was a lot of opportunity given it was underinvested last few years. So which states you are seeing more challenges versus the company average and where you're seeing more traction also?

So broadly, when we have taken over the business, what the market share was at the time of exit, we have seen improvement in all states. Of course, the improvement would have been varying magnitudes. But without exception, we have seen improvement in market shares post acquisition compared to the average, say, the 3 months average at exit.

Okay. Improvement I understand, obviously, there will be improvement. But any...

Improvement in market share.

Yes. But relative basis, which states have been easier, which states it's more work to do versus average? See, everything will be better, I understand because clearly, your overall aggression and your local connect, et cetera, will be faster. But I wanted to understand which states are doing better, which states are not doing better versus your national average?

So without getting into the flavor of individual states, Abneesh, I would say that South on the whole has been an easier and more seamless transition for us given our size and scale before. So improvements over there perhaps have been better than some of the other regions. But even in the North and the East, we have seen improvements and also West. In Maharashtra also, we have increased our market share.

So Abneesh, again, like Mr. Dahanukar mentioned, we won't get into details of the states. But needless to say, in each of the 4 regions, right, we have expanded our market share over what we actually got it when we acquired the business.

Sure. My last question is on the specific comment you made on Delhi. So Delhi, clearly, you have launched IB again. So I wanted to understand peak market share or peak size in Delhi for IB. And when do you see that getting achieved? And second on North India and, say, other parts of South India, clearly, is the team scale up done or still in terms of team and network still there's work to do, given you were a South-focused company earlier, but now with IB being done pan-India, I wanted to understand team's overall depth and network depth? Are you happy with current level of performance in those markets?

So the team scale up, Abneesh, that has been totally completed. I think pre-acquisition, our strength was approximately 350 people. As on March 31, it was 850 people. So the scale-up has been completed across India with particularly most of the additions came they were feet on ground in terms of the sales operation because obviously, we were well covered in the South, but we have added capability across North, West, Central and East India, both in terms of sales and in terms of manufacturing footprint as well. So that has already been completed. And what was your second question? -- in terms of Delhi. So Delhi, I think at the peak, the volume of Imperial Blue would have been 0.5 million cases, and we expect that within the next 12 to 18 months, we should be seeing those levels.

And this 0.5 million would have been 3 years back?

It would have been perhaps slightly more than that.

Understood...

2019, 2020.

Pre-COVID?

Yes.

The next question comes from the line of Nitin with HDFC Securities.

My first question pertains to like when we say Odisha, Punjab, Uttarakhand and Karnataka were impacted, is it only for IB or the entire portfolio? And I also wanted to check on like what are the reasons in Odisha, Punjab and Uttarakhand?

So see, Nitin, when it comes to the question, yes, it was predominantly for IB itself because we've mentioned over there that these were TSMA-related issues, right? TSMA was only relevant for IB. So those were the challenges that we had. I won't get into the details of what each of these challenges were. But yes, these are TSMA related.

I was of the view that if there is any market-related challenge, but if it's TSMA then it's fine. Second question is like how are we planning in IB price segment where other brands have strengthened formulation and another brand is looking to grow at a faster scale, like ICONiQ White 50% growth for this year and McDowell's also like increasing the scotch and targeting this segment. So do you see any sort of increased trade spending on the ground? That is the first thing. And second, like how is the growth for the industry in this low Prestige segment, like where we also want to sort of expand IB's presence?

So I think this competitive intensity, which you have mentioned that is absolutely correct. I think this segment after a long time, it is seeing the activity. One of the reasons why this segment has perhaps not grown at a high rate has been because of inactivity of the leading players. But we are seeing a lot of activity by all participants in this category, which should be helpful for the overall category growth. Let us not forget there is a large volume of regular range products and country liquor, which is sitting just below our price points. So activations and marketing activities in this particular segment will only help in growing the segment. And of course, let us keep in mind also that we, as a company, also are increasing our A&SP reinvestment rates. So we will also be active in this segment. As I had mentioned during my opening remarks, we have activations now present in more than 28,000 outlets across the country. So we have also become very active.

This is quite helpful. Like my last question pertains to your margin. So like we wanted to recover to 15.5% EBITDA margin. Like how soon we can expect that to be achieved like this packaging material inflation impact we are seeing. So what is your view? How long it will continue?

So see, when we say that we want to increase our margins beyond the base of 15.5%, we are not assuming any kind of reduction in -- or we are assuming that inflation is status quo as such, right? But having said so, in Q3 and Q4 is when you will see significant uptick in margins because from a seasonality perspective, those are the largest quarters, right, from a saliency. Q2, you should be looking at margins in a similar range, but this would be on account of incremental A&SP reinvestments as well.

And it would be great like if you can sort of help us understand like how are you planning for next 3, 4 years in terms of like, I guess, we are in the early stage where like we got a national brand. And looking at the past of like other domestic players, like they have been entering the premium space, plus they are also strengthening their back end. So any thoughts what you can offer? I guess the near term, the focus will be more on the IB stability and then you will go for that. But any thoughts if you can offer, that would be great.

So currently, as we have given in our earlier narratives also, this year will be focused on the IB integration and increasing the width and distribution of our existing products. Going forward, of course, there are a few vacant spaces in our portfolio, and we would be looking at new launches in the next 12 to 36 months to complete our portfolio. And with the new launches in place, we expect the volume growth to be in mid-double digit. We'll have a CAGR of mid-double digit till FY '29. So broadly, I think the company is pointed in the right direction. And on the back of this distribution, of course, we will be introducing our premium products as well. Our own House of TI products, which is the Monarch Legacy Edition Brandy, Seven Islands Pure Malt. We also have the extensive Spaceman Spirits portfolio, which we are taking to new markets as well. So in terms of our Luxury and Super Premium offerings also, our portfolio is fairly complete, and we have the distribution infrastructure now, which we will leverage.