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Globus Spirits Ltd
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Good morning, everyone, and thank you for joining us on our quarter ended June 2020 earnings conference call. Along with me, we have on the call Mr. Vijay Rekhi, Executive Chairman, Unibev; Dr. Bhaskar Roy, Chief Operating Officer, Globus Spirits; Mr. Ajay Goyal, Chief Financial Officer, Globus Spirits; and our Investor Relations team. I'm sure most of you have heard this several times before and its impact is so universal. So please permit me to reiterate this. The last quarter has been one of the toughest periods for India. And hopefully, we do not have to see the situation again in our lifetimes. At Globus, however, this enormous challenge has come with an opportunity. As you're aware, the month of April was a near washout. In the month of May, capacity utilization increased gradually. And by the end of May, we have been operating at optimum levels. In order to explain the quarter's performance, I would now like to take you through performance of each of our business segments in quarter 1. To start with, the Bulk Alcohol segment has been witnessing the impact of a structural change on the account of the government's push towards ethanol blending. This program of ethanol blending helps dry up excess capacities in the ENA marketplace, and therefore, allows us to be able to control our margins and pass through any cost increases that may happen on the supply side. For the first quarter of financial year '21, we sold 20 million bulk liters as compared to 30 million bulk liters in the same period last year. However, what is heartening to note that our monthly run rate in June 2020 was at 9.36 million bulk liters, which is close to our pre-COVID budgeted levels, and we are in the process of ramping up further to surpass our pre-COVID levels. Our revenues and margins for the bulk segment got a boost with the hand sanitizer division that Globus Spirits started in April 2020. For Q1, our revenues for the sanitizer vertical were about INR 7.7 crores and a very healthy profit margin. Bulk alcohol realizations have been strong at INR 54 per liter as against INR 47 per liter in Q1 FY '20, up by 14%. An improvement in our consumer business and soft raw material prices helped increase margins. And as long as market access remains unfettered, we believe volumes and margins can continue to be at these levels during the current fiscal. Further, with our strength in distillery operations, we are at a good position to enhance cash flow generation from our manufacturing business segment. Now coming to the country liquor segment or the consumer segment, the quarter gone by witnessed a strengthening of a trend that we believe to have been emerging in the consumer space. This is the emergence of an hourglass-shaped market away from a pyramid-shaped market, which the base of the economy segments getting stronger with higher volume growth and especially in rural India. And right at the top, premium products gaining over the middle segments, especially from urban centers in India. Globus Spirits is well poised to play in a market of this nature. Our IMIL country liquor segment witnessed positive developments in the quarter gone by. All states that we're operating showed green shoots of recovery, including Haryana, where IMIL volumes have been subdued in the past years because of unfavorable policy and other headwinds in the market. Our strongest performer, however, has been Rajasthan. The company recently launched 42.8 ABV brands within the IMIL channel at a higher revenue than the lower strength IMIL business that we have been playing in. This strategy has paid off and met with huge success in the states. This segment opens a new path for our product offerings, and thus, increases the revenue pie of our consumer business. Our second largest market, Haryana, had been witnessing a fall in volumes due to the presence of a large illicit liquor market in the state. However, state government has taken several proactive measures in this financial year already, which has resulted in a reduction of this unrecorded market. As a result, we have begun regaining our lost market shares, and this can be seen in our quarterly performance. In West Bengal, too, we saw an increase in our IMIL sales, in fact, doubled year-on-year from within the state. At our Samalkha facility, we recently installed and operationalized a brand-new power plant, and this will help us with better uptime at the plant, improve production of byproducts and fuel savings. Our focus for the year continues to be cost rationalization, debt reduction and further strengthening of our balance sheet to help support our business strategies going forward. Be that as it may, this year continues to pose some unique challenges. We, however, have seen our rural economy was the first to restart and achieve near-normal levels of activity after lockdowns become to get eased. We believe this, along with Tier 2 and Tier 3 towns, will drive the growth engine as the nation continues to fight and come out of this pandemic. In the near to medium term, our business is well poised to take advantage of the hourglass shape of the market and will continue to grow revenue of consumer business as long as market access remains uninterrupted. Finally, an update on Unibev. The merger of Unibev, as you're aware, is underway and currently at regulatory approval phase, and we believe this process will be concluded soon. With this, I would request Mr. Vijay Rekhi to talk a little more about the performance of Unibev in the quarter gone by. Thank you.
Thank you, Shekhar. A very good morning to everyone, and welcome to the earnings call. As we had updated you earlier, Unibev has firmly established its presence in 10 states, starting with Pondicherry, Karnataka, Telangana, West Bengal, Andhra, Chhattisgarh, Odisha, Maharashtra, Goa and Assam. However, on account of the COVID pandemic, our plans to expand presence in 5 more states are being slightly delayed as volumes at the top of the pyramid are yet to recover. Nonetheless, our endeavor will be to extend distribution in at least 3 more states, if not 5, in this financial year. On the trading side, as most of the retail points of sale continued to remain closed for a good part of first quarter, this resulted in our primary sales for the quarter going down. But marginally, our primary sales for the quarter stood at 91% of last year's same quarter notwithstanding the POS not being open. This is noteworthy considering the disturbed trading conditions and, to top it, ad hoc increases in excise duties by most of the states, and some states have even doubled the excise duties to take in some extra tax revenues. In the wake of challenging trading environment, we have had to ensure that we remain prudent with our investments and expansion plans. New product launch of Seventh Heaven blended with, and this is the only one in the country, blended with up to 21-year-old Scotch is on track, and this will be introduced in select states based on profit salience in a phased manner. At Unibev, our focus is to ensure longevity of operations while being mindful of operating circumstances and conditions in each of the markets that we are present in at the moment and we plan to expand in. We will continue working with this philosophy for better results in the future. I now request Dr. Bhaskar Roy to share operational performance for Globus Spirits.
Thank you, Mr. Rekhi. Good morning, everyone. I will now share the operational performance of the company. During this past quarter, we continued to deal with the pandemic-related operational compliances in the additional [indiscernible] of various measures implemented in FY '20 and continued in various measures towards enhancing our operational efficiency. During quarter 1 of FY '21, the capacity utilization stood at 59% as against 95% in quarter 1 of FY '20, largely impacted on account of halting of operations in April due to complete lockdown and a gradual ramp up post that. IMIL volumes for the quarter stood at 2.2 million cases in quarter 1 of FY '21 compared to 2.93 million cases in quarter 1 of FY '20. The average realization for the quarter stood at INR 399 per case against INR 365 per case during quarter 1 of FY '20. Franchisee bottling volumes in quarter 1 FY '21 stood at 0.69 million cases as compared to 1.1 million cases in quarter 1 of FY '20. Bulk alcohol volumes sold for quarter 1 FY '21 stood at 20.4 million liters compared to 30.2 million liters in quarter 1 of FY '20, which was largely impacted on account of lockdown. The revenue mix between manufacturing segment and consumer segment remained largely stable year-on-year with a slight increase in the share of manufacturing segment at 65% compared to 64% in quarter 1 of FY '20 on the back of higher bulk realizations. With that, I would like to call upon our CFO, Mr. Ajay Goyal, to continue the discussions on the financial performances. Thank you. Mr. Goyal?
Mr. Goyal, you may proceed, please.
Yes. Thank you, Dr. Roy. Good morning, everyone. Like my colleagues have pointed out earlier, this quarter has been very different and perhaps one of the most operationally [ difficult ] in the recent times, but we are happy to share that the company has reported a robust performance given the situation. Let me walk you through the key financial highlights for the quarter ended June 30, 2020. During the Q1 FY '21, the stand-alone total income net of excise duty was reported at INR 2,302 million against INR 2,970 million in Q1 FY '20, a reduction of 32.5% year-on-year. However, to put in context, we achieved this revenue with our plants being shut for almost a month. EBITDA stood at INR 415 million in Q1 FY '21 against INR 303 million in Q1 FY '20, a growth of 37%, with EBITDA margin expanding from 10.2% in Q1 FY '20 to a very robust 18% in Q1 FY '21. This is primarily attributable to higher bulk realization, softening of raw material prices and saving on the fuel costs. As a result of this robust performance, we were able to more than double our profit after tax during the quarter, which stood at INR 201 million as compared to INR 94 million in Q2 FY '20. Reduction in finance costs and overall performance enabled a robust growth of 113% year-on-year impact. With enhanced free cash flow generation, our debt reduction drive is ongoing and being implemented well, and we are on course to repay debt as per schedule for the current financial year. This concludes my remarks on the financial highlights. I would now request the moderator to open the forum for questions. Thank you.
[Operator Instructions] The first question is from the line of Priyanka Verma from ICICI Bank.
My first question was regarding the margins. If you can help us with the margin on segment-wise like bulk alcohol and sanitizers.
So the sanitizer business is a much smaller business. And we are hoping that this last quarter, volumes will sustain, but honestly, not very optimistic about that considering that Q1 had a very large amount of panic buying. As far as our margins on our consumer business and manufacturing business goes, Ajay, maybe you can shed some light on that. Mr. Goyal?
Hello?
Yes. Could you shed some light on the margins of our consumer business and manufacturing business?
Yes. The way I highlighted in my speech, basically this quarter, basically, the margins went up drastically due to 2, 3 major reasons. These are higher bulk realizations. And secondly is the softening of raw material prices. During this quarter, our major raw material, which is broken rice, if the prices of the main raw material is subdued due to the better crop availability of raw material and higher bulk realization. And third is fuel costs also because in this quarter, our major raw material [indiscernible]. The prices of those are also subdued in the quarter. All these things resulted into a higher profitability margins in the bulk side. And if our bulk side has higher margins, then it translates to the higher margin in the country liquor business area.
So our bulk business has about 15% margins, and our consumer business has about 20% to 25%.
Sir, is this margin sustainable as in we will be seeing this margin going forward in Q2 or Q3 also? Or this is a...
Yes. That's a very important question. So like I mentioned, our margin expansion has come from an improvement in revenue share towards consumers -- the consumer segment, as well as improvement in costs of the bulk segment. But more importantly, the structural change that has come in from -- due to the government mandating the ethanol program and insisting on large volumes of ethanol to be used for fuel, that has given us an ability to pass on cost increases in our bulk business quite easily. The consumer margins have sustained for several years at north of 20%. Yes, there are certain tailwinds on packaging costs, but those are smaller attributes. We have seen several years of greater than 20% margins in consumer. But what's important is that the bulk business, we have control on our margins and our costs because of the ethanol blending program.
The next question is from the line of [ Bhavesh Premji ] from Whitestone Financial Services.
I have a question. Sir, our other expenses have gone down in this quarter. It is INR 42 crores versus INR 74 crores. So could you explain how -- why this number is so low compared to INR 74 crores?
The CFO will be able to answer that.
Yes. See, in those other expenses, our fixed cost is very low. In the other expenses, major portion is, basically, we club in this [ head ] is the fuel cost and our chemical consumption part, which are variable component. If you can see, there is a complete washout in the month of April. Consequently, you can see there is no expenses in the month of April per se because our fixed cost is very less.
Okay. So is it fair to assume that the INR 74 crore run rate is the right mix for other expenses?
Yes. [indiscernible], yes.
Because from July onwards, we would be producing at least 1.1 crore liter -- bulk liter alcohol, right, ENA. So other expenses will also increase in the same proportion.
Yes, you are right.
So margins will expand, but other expenditure is going to go up. Is my assessment correct?
Yes. You're correct, [indiscernible].
[indiscernible], okay. Sir, one more question on ENA realization. So in the coming quarter, we are expecting to have a better ENA realization than Q1 or the same rates. Are there some contracts with OEMs?
I think if you go back to the point I made earlier, which is that the current spread between cost and selling price, so the current gross margin on ENA, is what we expect will sustain because...
Sir, my point is whether we have some contracts with the OEMs to supply or are we supplying at the bulk rates to other people?
There are all sorts of contracts. They are not able to...
All sorts of contracts. Okay, okay.
Contract by contract. But what is more important to understand is how our margin on ENA is, we believe, will remain sustained because any increase in costs will be able to pass through due to the structural change that has happened by higher offtakes of ethanol in India.
Understood. Understood. So your benchmark guidance, that 13% to 15% kind of EBITDA can be maintained in bulk or ENA business for coming 2, 3 quarters, right?
Yes. The current level of realization on ENA will sustain.
The next question is from the line of Harshal Mehta from ICICI Direct.
Congratulations, sir, for the great set of others. Sir, my question is pertaining to the -- what would be the CapEx number for the year?
For this year?
Yes.
So we have a maintenance CapEx of about INR 10 crores to INR 15 crores. And for our current plants, that is the maintenance CapEx that we have projected. There is no -- last year, there was an additional CapEx of about INR 20 crores for the new power plant in Samalkha, which is now up and running, fully operational. So there is no such CapEx that is planned. So maintenance CapEx for these plants is about INR 10 crores to INR 15 crores.
Okay. And sir, I missed out on your debt reduction plans. How is the working capital situation now?
Yes. I'll hand over to the CFO to answer that, please.
Working capital reduction, basically, it is based on the business cycle. Frankly, the utilization level is below 60% at the moment. And we anticipate, considering the business requirements, we don't see -- we would have any major requirements in the working capital cycle. And in terms of debt reduction, debt reduction is as per schedule. And we are going to repay approximately INR 32 crores more in this financial year as per the plan.
Okay. And sir, actually, I have a similar question asked by Bhavesh.
So I just want to add something to that, please. All of this is, of course, assuming that market access remains the way it is. And that is an uncertainty of operating in this current environment. So I must put that caveat out there.
So we can be conservative as we don't pay. So the absolute amount could be lower than INR 32 crores.
I'm talking not specifically about debt repayment. I'm talking about general performance, and free cash is a result of that. We saw the month of April being extremely horrible for industry in India. And if that month is to repeat, then it will create further issues. So market access is important. As long as we have market access, our performance should sustain.
And sir, I have a similar question asked by the previous participant regarding the EBITDA margin expansion. If I see Y-o-Y basis, even if I consider most of the other expenses variable, there is a 22% decline on revenue front, but 43% to 45% decline in other expenses. So this is purely due to the power and fuel costs.
It's due to certain variable. Power and fuel was one example. So as per accounting practices, some variable costs get clubbed into other costs. So that would even include freight, for example. So when we didn't have any operations in April, we didn't have those variable costs.
[Operator Instructions] The next question is from the line of [ Agastya Dave ] from CAO Capital.
Congratulations on an amazing performance. Sir, I had a number of questions. Starting with your raw material again, can you give the average price of the raw material this quarter compared to last quarter? And at what prices are you procuring as of now?
So I'm not in a position to give that for the reason that in each of our states, the pricing varies. There is a -- the method of procuring broken rice is fairly complex, and not able to give you a number off the bat like that. But coming back to the issue of how margins on ENA will sustain, because I think that is what this will feed into, we have now a level of comfort that the market is more of a seller's market. There is less surplus capacity in India as compared to the same time last year because a lot of the capacity has gone into ethanol. And as a result, if there is any movement in agri prices, we'll be able to pass it on.
Sir, my question was actually feeding into a different question. The question was that, compared to how you are procuring today versus the changes that have been done in the APMC Act, do you see any additional benefit coming? Because I could -- I can see as of now procuring getting more complicated with respect to logistics once you are going beyond mandis to procure. So what's your sense -- will this add...
So we are not buying in mandis. We are not buying from mandis at all. We have not seen any impact of this act on our purchasing so far. We buy from mills because we are a waste product of a mill -- of a rice mill. We don't buy from farmers. We don't have any cooperatives that are selling to us. So it's very party to party kind of contracts, yes.
Sir, is broken rice 100% of your raw material? I was under the impression that's like closer to 80%, 20% is other raw materials.
No. It's -- no, no. So as of now, it is 100% broken rice. But over a longer term, you would find that maybe 10% to 20% would be other raw material. So we do go up to maybe 50%, 60% other raw material at a time when the rice prices are higher. So for maybe a couple of quarters -- sorry, maybe for about 1 quarter or so, we might go to 50% some other raw materials. So over a longer period of time, you'll come to about 10% to 20%. But currently, it is all rice.
So will that -- I mean in those quarters where it is 50% to 60% of other grains, would this APMC Act change anything for the industry as a whole or for your company? Will it make it like...
I need to understand that more. I'm not able to comment on that right now. But as of now, we have not seen any change.
Sure, sir. Sir, on the utilization side, you said that you are back to pre-COVID levels, and you will slowly see some growth coming in. And your presentation is also explaining that. But -- so when do you require additional ENA capacity? Is there any sense on that, sir?
Yes. It's a good question. So ENA capacity depends on states. And I don't know if I've spoken to you about this before, but we have -- we see India having 2 types of states when it comes to ENA capacity, surplus states and deficit states. Surplus is where there is more alcohol production than the state can use. And the deficit is, of course, the reverse of that, less alcohol capacity, and state needs to bring in from other states. So we have 2 deficit states in our "portfolio," Rajasthan and West Bengal. As of now, when it comes to our own utilization, we do not need more surplus capacity. We do not need more ENA capacity because we have a surplus of alcohol than we're able to consume, but there may be some players emerging where you're able to take advantage of some deficit state opportunities. But as of now, there isn't anything on the [indiscernible].
Great. Sir, on the -- there is one question that I had, which I cannot figure out just looking at the financials because the duties have moved so much. Could you give some estimate, if INR 54 is the realization when you're selling ENA in bulk, what would be the equivalent number in IMIL in terms of alcohol, excluding the taxes?
Excluding taxes and excluding packaging material?
Yes, sir. Just pure alcohol-to-alcohol comparison. So when you're shifting from...
Yes. Yes. Okay, I'll give you that. So you would add another about INR 10.
Sorry, sir?
About INR 10 more.
INR 10 more. Okay, okay.
CFO, is that right?
Yes.
[Operator Instructions] The next question is from the line of Pranav Gala from i-Wealth Management.
Sir, congratulations on a good set of numbers. Sir, I just wanted to understand one thing. Looking at our previous run rate, we were on an average run rate of around INR 90 crores to INR 100 crores. So in quarter 1, if we take that April was a washout, and there was no capacity, the run rate has changed to -- has increased to around INR 115 crores. So is this sustainable when it comes to going -- like going forward, is this sustainable? Or will INR 100 crores -- INR 90 crores to INR 100 crores be our average going forward as well?
So there are -- if you were to understand Globus very simply, there are just 2 businesses that Globus has. One is the consumer business and the other is the bulk business. The consumer business has displayed, over my entire life in the company, high levels of margins. So well over 20% kind of margins. On the other hand, over the same period, the manufacturing business has not displayed high margins, right? And that is what I mean by structural change, that this -- in the last 4 quarters, the government has been pushing for ethanol to get lifted -- to get blended into petrol. And this has really dried up the surplus capacity that existed in India. As a result, the spread on ENA has increased. The gross margin on ENA has increased, number one. Number two, we also have control on passing on costs going forward. Whether ENA margins will further increase, I'm not sure. But whether these will sustain, yes as long as market access remains uninterrupted.
Okay. Sir, actually, my question was pertaining to our revenue. So I mean, we have increased our run rate as on quarter 1, which is really very good even after not having 1 month in our hands. So is this sustainable is what I was wanting to understand, sir?
So I mean I've answered that question from a profit point of view.
Yes, sir.
So I think -- I mean if we just stay with that, if that's all right with you. If you have specifically revenue-related questions, then we need to factor in taxes and duties and other issues so we can get back to you with that.
The next question is from the line of [ Ayush Agarwal ] from Mittal Analytics.
I had one question. When I look at our results in note numbers is I see that we have deposited around INR 8 crores of money towards GST dues. I would like to have more clarity on it. One, in which line item did we recognize this? And second, what was this for? And I have some more clarity on this.
Yes. So this event occurred in Q2, not in Q1, firstly. Secondly, I can give you some reasons behind this. This was a voluntary deposit made to the GST department as the GST department has raised inquiry as to whether our DDGS are -- is, in fact, DDGS, which is a distillers waste, or is it an animal feed supplement. The 2 of the issues have a different GST rate. The difference is at the rate of 5%. So animal feed is 0 and DDGS is 5. The entire industry in India has been recognizing this item as an animal feed supplement, and we have to now see what is the case that GST department has on this. But as of now, there is no sort of claim. There is no notice. It's a voluntary deposition of INR 8 crore that took place in quarter 2.
Right. So just a follow-up on that, does that mean that if the GST claim is not in our favor, but then going ahead, we'll have to give that GST on DDGS that you make?
Yes. So we can give you a detailed piece on this on what we are doing. But currently, the issue is a little vague. We can give you the detailed note on this once it is a little clearer. It is vague because there is no case that has been brought to us by the department. There is no notice that has been issued. So we have to wait and see what the department says before we understand the nuances of this issue. As mentioned, this is a voluntary deposit of INR 8 crore. It has -- there is no case. There is no claim. There is no notice as of today.
Okay. And where have we recognized this line item, sir?
It's not been recognized in Q1 because it did not take place in Q1.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Sir, this quarter, basically, you did mention that from July onwards, we are back to kind of optimum utilization level and kind of a normal volumes that we are doing. But given the excise impact also, sir, what sort of revenue decline trajectory? Any comment on that for this year, FY '21, would be helpful.
As of now, we are actually growing over last year. So that's one data point. Second data point is, of course, 1 month was practically 0. And the third data point here is that there is uncertainty with regards to the pandemic and the impact of that on market access. So as a result, I am unable to give you a guidance on what will be the growth this year because I don't know the impact the pandemic is going to have on market access. However, what I can say is that if things continue to remain as they are, then we are growing over last year.
Even after impact of excise?
Yes. Net of -- this is net revenue that I'm talking about.
The next question is from the line of [ Shirish Shankar ] from JB Arsen.
First of all, congratulations for a good set of numbers during this tough environment. Now my question is -- I've got 2 questions. First of all, in the way you have -- hello, can you hear me?
Yes. Please go ahead.
Yes. Can you give an idea of what is the kind of a CapEx program that you have in what kind of segments, et cetera, going forward? That's the first question. Second, more on the quarterly results. What are the kind of changes or reduction in your sales and marketing that you have actually done in the first quarter in comparison to Q4 or even Q1 of last year? And third one is, when I look at Unibev's brands, et cetera, there are a large number of products in every IMFL segment, whether it is in premium whiskey, normal whiskey and vodka. I think except gin, I could see everything narrowed. What is the program for actually getting it across to almost all states and also making it more known? Because I have not seen any of the brands in many of these shops as well.
Right. So I lost track of your first question, but let me start with Unibev.
My first question was regard -- regarding your difference or reduction in the promotional advertisement against the promotional expenses.
Yes. So unlike other FMCG companies where there's large share of revenue that goes to advertising costs. In our business, because advertising is basically -- it's banned for alcohol -- for beverages, we do not have any traditional type of advertising that takes place. Our entire strategy for our country liquor or IMIL segments is based on retail spread, and we do a lot of activations at the retail. But to be honest, that is not a significant portion of revenue to analyze further. When it comes to Unibev, Unibev sales and marketing is really at a nascent stage where products are being put on shelves. We are not in a growth phase, so there has been 0 to very little marketing investments in Unibev up until now. Mr. Rekhi, maybe you could talk a little bit about Unibev's plan and address that question, please.
So I think, Shekhar, you already alluded to that. We are not in the growth mode. We are basically at the moment in the distribution expansion mode. And therefore, while one can do proactive advertising, we have thought it prudent that let's first have the distribution. And thereafter, do any promotions, whether it's digital, TV or anything else, it is otherwise putting a cart before the horse. I can give you an example. Recently, Kia Motors introduced one of their midsized SUV. Big, full-page advertisements came in Bangalore and all other cities, and they are now coming on television also. But if you go to the dealership, they will say, we don't even have the car, sir. So we don't want to put the cart before the horse.
Okay. So my -- the way I ask this question is, I agree that none of your liquor brands can't advertise on the market, but everything is what should I say, a camouflage advertisement of whatever, whether it is soda, mineral water or any kind of things, et cetera, or any other products. That's the way a lot of advertisement goes. But the key factor is, if you are talking about Unibev and the company, Globus, coming together, how and when are we going to see the impact of this or the benefit of these products in the company's overall turnover and going forward? Otherwise, will it remain -- though we call it as Globus Spirits, which is the branded product in the liquor space, the alcohol space plan, do we remain at a bulk producer or into IMIL, which I think is more of a commodity? That's my question.
So as I explained in my opening remarks, we have an hourglass view on the market in India with a very strong volume base in terms of the economy segments, whether it's at the IMIL strength or at the IMFL strength, but very much in the economy price point. And then there is a premium sort of top end, which has sort of very high margins but lower volume. And that's where Unibev operates. So I would invite you to a discussion on whether -- what IMIL is, whether it is commodity or not, and we can have a chat about that one-on-one, if you like. But when it comes to when Unibev will start impacting Globus' performance, I think that is a long-term play for us. And like Mr. Rekhi said, we are at a nascent stage right now where we are putting our products in the shelves. Some markets have seen even less than 1 year of operation as of today. So given time, we will start seeing some impact of Unibev.
The next question is from the line of [ Sai Narayanan ], an individual investor.
First of all, congratulations for the good set of numbers. So I got 2 or 3 questions, actually. The first thing is on the structural changes, which is happening. As we know that the ethanol blending, which the government had initiated because of some policy changes, it has given a big boost to the company's revenues and profits the last 1 or 2 years, as I see, having following up the company from 2015, and I'm an investor also. So the question is in the context of the government's push on Atmanirbhar campaign, made in India or the government is giving a lot of trust on manufacturing. So in this context, are you seeing any structural changes, which is happening, which is going to be a big boost not only to Globus Spirits and also to the alcohol industry as a whole? So this is the first question. And the second question is in the context of the raw material cost, actually. As you know, the broken rice and the fuel cost or power cost, these are the 3 major components in the cost structure, which is going to have an impact on the margins. So are we doing anything to reduce the cost of this key components of the raw materials, fuel costs or power? This is the second. And third one is an interest in -- on the Terai brand of gin, which we have introduced in the market in the last 2, 3 months back, how is the response for it? So these are the 3 questions I have got for you Mr. Shekhar, yes.
Yes. Okay. So the structural change is exactly what you said, ethanol offtake, how that impacts our marketplace is that surplus capacities of ENA were flooding the market for the last 2 or 3 years. Since the last 4 quarters, those capacities have moved off to ethanol. And as a result, a, there was a catch up on margin. So there was a margin expansion. And b, we have control on this margin. So we can pass on our cost increases to customers. I've mentioned earlier I don't know if margin expansion will continue. We have been seeing margin expansion quarter-on-quarter for the last few quarters. I don't know whether it will continue, but I do believe that the margin will sustain because we can now pass on costs. So that is the structural change that I've been talking about.
Are there any other structural changes, which is happening, which can benefit the alcohol industry as a whole? Because now the government is pushing for Atmanirbhar -- the government [indiscernible]...
Can you speak about -- is there some change that you have on your mind? I mean I don't see any other change that's happening. It's business as usual, otherwise. When it comes to reducing costs, well, that is -- that's pretty much what we do at Globus. There is complete control on our operations. We run the most efficient grain distilleries in the country. We run it for the longest time in the year. So we are the only company that's able to run our distilleries for over 350 days in a year, whereas the market standard is 330 days. We have higher recovery from grain as compared to other players at about 2% more. So this is something which is our core, but there is a certain element to cost, which is cyclical, which is based on agri inputs. And there, there is not so much control that we have. But as I mentioned earlier, this -- as a result of the structural change, this becomes not so relevant because now it becomes a pass-through issue for us where any changes in costs will be able to pass through to our customers and sustain our margins. With regards to Terai, this is not yet in the market. So you are very up to date, I must say, on your communication of alcohol brands, but Terai is not available in the market right now.
[Operator Instructions] The next question is from the line of Nitin Deveriya from Augmen Catalyst.
Sir, I just had one question. What has been our debt level as on June 30 for this quarter?
Ajay G., could you please answer that?
Yes. Debt level, INR 173 crore is the total outstanding for debt.
Okay. And sir, if it's possible, could you provide a breakup between short-term and short-term debt?
Is.The short term [indiscernible]. INR 173 crores is the long-term debt.
The next question is from the line of Krati Rathi from Perpetuity.
This is Krati Rathi from Perpetuity. My question is about the realization increase, which we have seen in the IMIL business. This quarter, it was around INR 399 per case. And if you see the last 2 years quarter-on-quarter trend, we are seeing a good improvement. So can you explain that what is driving this trend and where do we see this going?
Thank you, Krati Rathi. That's a great question. So IMIL is a very, very important business for us. And as mentioned earlier, on top of the ENA realization, we make another INR 10 if we are to make IMIL. So really at Globus, it's about converting as much of our capacity into IMIL as we can. So there are 2 reasons for growth -- 2 or 3 reasons for growth in IMIL realization. Number one is that each of our states has a different sort of ex-distillery price of IMIL. Our most profitable state for IMIL is Haryana, where rather than INR 10, we make more like INR 15 on top of the ENA price. And over the last 2 quarters, 3 quarters, we have seen a growth in Haryana country liquor volumes. In fact, Q1 of Haryana '21 has been higher than Q1 2020 despite 1 month of closure of shops in Haryana. So that is one reason. Second reason is a new category that we've introduced in Rajasthan, which I mentioned in my opening remarks, which is a 42.8% ABV country liquor or 42.8% ABV alcohol. Country liquor is usually at about 30% to 33% ABV, and this is 42.8%. So it has more alcohol. And as a result, higher revenue coming from that business. That's the other reason for growth. The third reason for growth is that, typically, we find that every 2 years, pricing is revised by every state to the tune of about 10% to 15% over 2 years. So every year, you expect a 5% to 7% increase in realizations. So if you add these up, I think you'll get to the -- to this trend, which should continue going forward in the country liquor business in terms of increase in realization.
Sure. This has -- are we seeing any price increase in the next 1 year in any of the regions, which we have -- I believe that Rajasthan, we got some time back, right?
Yes. That's difficult for me to say whether we are expecting price increase. This is a decision taken by the government. I would always say we expect price increase because I need to increase my prices as a corporate sector. But I think the safe thing to assume for the longer term is about 5% growth every year. But coming in, in spurts of every 2 years.
The next question is from the line of [ Suhas Naik ], an individual investor.
Congratulations from good set of numbers. Only one question on the IMIL business. You are present in 3 states, out of that, West Bengal is the latest one, and we are growing in Haryana. So what do you -- how do you expect these 2 markets to behave in the next 2, 3 months in terms of scaling up the operation? And your next plan to enter new states, typically, how much time does it take to stabilize the operations once you enter a new state? Can you...
Well, I'll answer both your questions. We've been operating Haryana and Rajasthan for well over 25 years. Rajasthan, of course, is a mature market when it comes to IMIL. But that said, with this new 42.8 ABV, IMIL, we have seen a resurgence of growth. We've also seen a resurgence of growth in Rajasthan, Haryana and West Bengal because of this hourglass concept that I've been talking about this morning, with strong volume growth at the bottom of the pyramid or rather at the base of this hourglass. So scaling up further is needed, largely investing all where our distribution is limited to maybe 33% to 40% of the state. But as of now, we feel that we should focus on growing market share here rather than going to parts of West Bengal that we are not present in. Those parts of West Bengal need a second manufacturing facility in terms of a bottling plant due to the geography of West Bengal, so especially the North Bengal region. So as a result, as of now, we are going to focus on increasing market share in the southern part of West Bengal. New states, right now, there is nothing planned. For Globus setting up -- entering new states for IMIL need setting up distillery capacity. We are not interested in states where we bring in alcohol from outside to bottle there because the margins just does not make sense. The risk reward is completely not rewarding. So as a result, there are no further plans right now. But to set up a new distillery takes 3 to 4 years.
And in terms of scale up in these 3 states, how large one can -- you can grow, say, in the next 2, 3 years, kind of any estimate you can give?
Well, these states are very large. Haryana has a 25 to 30 lakh case country liquor consumption, which is similar to Rajasthan. So -- and West Bengal, again, has about 25 lakh cases of IMIL consumption. So the headroom is quite significant.
The next question is from the line of [ Navneet Bhaiya ], an individual investor.
Congratulations for a great set of numbers. Just going forward from the previous person's question on IMIL. My question was on ENA. I believe the government has come up with a -- or the OMCs has come up with a 5-year procurement plan of ethanol, which is double the capacity that all the manufacturers together can produce today in India. So on that background, how do you see this space expanding? And are you also looking at expanding your ethanol capacities?
Yes. So firstly, that data, I'm a little unsure about how OMCs double of what is the capacity. So maybe we can talk a little bit about the data offline. But suffice it to say, if you add a portable alcohol, a beverage alcohol and a fuel ethanol, there is a deficit of alcohol in the country. So to that extent, you are right. The 5-year purchase policy of OMCs is very, very interesting for the reason that they have clarified that they will procure about 450 crore to 600 crore liters, going up to 600 crore liters over the period of this 5 years. Now that allows companies like Globus Spirits to create a longer-term plan for the bulk alcohol business. It allows new investors to set up more capacities if they would be interested in that. So that is the impact of that 5-year policy. Now at Globus Spirits, the ethanol opportunity is very interesting for our surplus states, which is Haryana and Bihar, because it gives us an additional outlet for our ethanol. But on the other hand, our deficit states like West Bengal and Rajasthan, there, the ethanol opportunity is not so interesting because we make significantly higher realization on ENA by supplying ENA within the state to other beverage players. So I hope that answers your question.
I understand. So are you looking at expanding given -- my understanding is the current production capacity is about 250 crore liters. I may be wrong. But yes, the 450 or 600 is higher than what the manufacturers can produce, all the sugar companies and companies like yourselves. So are you looking to expand to cater to that opportunity in Haryana, Bihar?
Let's see. Right now, there is no plan. This year has a lot of challenges in terms of the uncertainties. I think this year, the focus is to consolidate and strengthen our balance sheet and then look at expansion later on. But we are mindful of the opportunities, and we'll probably take a call on it as the year goes by.
The next question is from the line of Priyanka Verma from ICICI Bank.
My question was -- you mentioned that ethanol production has been, in this quarter, has been 20.4 million bulk liters. Is this ethanol given for the petrol mixing or how this has been used? And who are the major customers in ethanol segment for us?
So that's our bulk segment, which comprises of ENA and ethanol. In the ENA segment, our customers are Diageo and Pernod Ricard are the 2 biggest customers, and there are a bevy of other customers as well. And when it comes to ethanol, of course, it's the 3 OMCs that buy from us.
Okay. And sir, bulk alcohol is what we use for internal consumption as well?
Correct. Bulk alcohol is a segment. And within bulk alcohol, there's extra neutral and ethanol. ENA is what we use for drinking -- to make drinking alcohol. And ethanol is what we use for fuel.
The next question is from the line of Pranav Gala from i-Wealth Management.
Sir, just a follow-up. Sir, is it fair to assume that going forward, the bulk alcohol side of our -- the bulk alcohol side will have a higher growth?
So in terms of capacities or rather volume, no, I don't think that volumes can grow too much more because we are limited by our capacities. But in terms of realization, perhaps, I mean, like I said, costs will get passed through. So if there are increases in costs, the realization will increase. That may impact [indiscernible] revenue. But in terms of volume, no, I don't think there's much growth that's possible with our current capacities in the manufacturing or the bulk segment.
Okay. And sir, just wanted to confirm that earlier, our CFO said that the cost run rate of INR 70 crore to INR 74 crores, it is sustainable and not what happened as steep fall, which happened this quarter. That's correct, right?
CFO, could you please take that?
So based on the [indiscernible] in the month of April, there are no production. The run rate of INR 70 crore is more or less on that [indiscernible].
Yes. Okay. So INR 70 crores to INR 74 crores is sustainable, right? I just wanted to confirm.
Yes. Correct, correct.
Ladies and gentlemen, due to time constraint, we take the last question from the line of [ Sai Narayanan ], an individual investor.
So the last question is on the Haryana market, which is the second biggest market for us. So Shekhar, you were earlier saying that because of the policies, there is a lot of illicit liquor from the [ unorganized ] segment. So do we see any changes from the government side in the policy front so that we can have significant amount of Haryana in an area, which is our second biggest market?
Yes. I don't think there's need for more policy in India or in any state, to be honest. There's plenty of policy. I think it's more regulation. So -- an enforcement. So I think what has happened this year is the policy has been enforced, and such practices are being prevented. So as a result, the recorded market has gone up dramatically. And this is something that I have always maintained that there is consumption in Haryana, but we just don't have access to it for this reason. And as soon as we started getting that access, we've seen our volumes go up. But again, I'd like to also say that this is the beginning. We have to see how this sustains over the course of this year. So yes, that's where it is.
So regarding Unibev, actually, now we are starting our own brands actually, super premium brands. So do you see, strategically, will it have any impact when we receive the business from the major players like Diageo or Pernod Ricard because they may have some conflicting interest?
No. No, I don't think so. The IMFL market is very large. Unibev is -- it has a long way to go, let me put it that way. So there's no conflict really between Diageo and Unibev.
Thank you. I now hand the conference over to Mr. Shekhar Swarup for closing comments.
Thank you, everyone, for your time and participation. Sorry if there are some questions that got left out. Happy to take them on. Please reach out to our IR team or to our -- to us directly, and we'd be happy to take them. Thank you again, and wish you all the best.
Thank you.