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Globus Spirits Ltd
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Ladies and gentlemen, good day, and welcome to the Globus Spirits Limited Q2 FY '22 Earnings Conference Call. Joining us on this call today are Mr. Shekhar Swarup, Joint Managing Director; Mr. Paramjit Gill, CEO, Consumer Division; Mr. Bhaskar Roy, COO; and Mr. Nilanjan Sarkar, VP, Finance. [Operator Instructions] I now hand the conference over to Mr. Shekhar Swarup. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and welcome to our Q2 FY '22 earnings call. The second quarter gone by witnessed a strong rebound from the first quarter that was impacted by lockdowns arising from the second wave. I am happy to inform that economic activity has recovered to pre-COVID levels. In fact, in some areas, it has grown to pre-COVID levels in the areas that we operate. Before we jump into performance, I would like to draw your attention to the fact that reported financials for Q2 FY '22 and H1 FY '22, include the effects of the merger of Unibev Limited with Globus Spirits Limited. And accordingly, the financials for previous comparative periods have also been restated to ensure like-to-like comparison. At Globus Spirits, our consistent focus remains on growing both arms of our two-pronged business model to continue to help us to grow from strength to strength, namely the consumer and the manufacturing businesses. We are happy to report that both our businesses continue to grow on the back of improved capability building in our consumer business and strong demand for ENA and ethanol backed with high plant productivity in our manufacturing business. Our efforts in creating better offerings to the consumer in the relevant segments, along with strengthening capability at back ends and front lines is playing out to our advantage. And we remain hopeful of translating this into further market share gains in the coming years. Further, the hourglass shape market that I have spoken about in the previous calls, continue to guide our strategy in key markets. Further details on this will follow in Param's remarks. Coming to the Manufacturing segment, while demand for ENA and ethanol remained strong, our business performance suffered due to plant closures to some extent. In Bihar, the facility has been closed since 15th of August this year due to flooding caused by unprecedented rains in the region. Whereas we were able to take precautionary measures to preserve our assets, the opportunity cost of this closure is estimated at about INR 20 crores for the quarter gone by. We expect the plant to restart in December and achieve our targeted productivity budgets shortly after. In addition, planned shutdown for critical maintenance at Haryana and West Bengal further led to an estimated contribution loss of about INR 5 crores. Despite lower capacity utilization due to plant closures, the manufacturing business posted a revenue growth of 7% year-on-year, driven by a robust overall growth in overall realizations. With respect to our plant expansion, the work continues to remain on track. The new facility in West Bengal with a capacity of 140 kl per day is expected to be operational within November of this year, so in this month and is likely to operate at full capacity from quarter 4 FY '22. This marks a record completion of work in about 14 months, despite 3 to 4 months of disruption due to lockdowns and heavy monsoons in this period. Work in the Jharkhand factory is underway, and we expect the plant to be fully operational in Q1 FY '23. In Odisha, land acquisition is underway, and we believe it will be completed by end of December of this year. The company has also received 10-year long-term volume allocation for our units at Haryana, Jharkhand, West Bengal and Odisha by the OMCs for ethanol supply. This is a welcome step to assure volume offtake for our facilities. I now request Param to take you through the performance of the Consumer business.
Thanks, Shekhar. Good evening, ladies and gentlemen. And I hope...
Mr. Gill, this is the operator. I'm sorry. We cannot hear you clearly, sir.
Hello. Is it better?
Yes, sir, it's better now.
Okay. Good evening, ladies and gentlemen, and I hope you had a good Diwali. As Shekhar explained, our Consumer business has seen strong traction with growth in volumes by over 13% year-on-year and 12% quarter-on-quarter, while revenue grew in the range of circa 30% year-on-year as well as around 16% quarter-on-quarter. And we are well on our path of a strong growth trajectory for the forthcoming quarters as well. Further, we are very happy to inform you that the product mix continues to improve with a higher share coming through the realization from the value segment. Let me take you through a quick analysis and strategy for this segment. For our Value and Value Plus segments, the key markets of Rajasthan, Haryana, and West Bengal continue to show growth. In Rajasthan, our market share has increased to above 32% on the back of strong performance of the Value Plus segment where our market share increased to almost 45% in Q2 of the current year. This was in the range of about 29% in the last year. Further new launches have been planned, that is Black Lace Rum and Globus Green whiskey brand in the coming quarter. We are also expanding our whisky and vodka offerings via tetra packs. Tetra pack, as you know, is an interesting modern offering, which not only is efficiently transportable, due to the weight of the glass bottle no longer being a factor, that is the most pilfer proof packaging around in the consumer business. It also offers advantages to the traveling mobile consumer. This move also establishes our ability to move forward and try and capture modern trends in consumer behavior in these relevant segments. In Haryana, we have maintained the market share in the range of 9% and are planning on launching 2 new brands in this quarter to further accelerate our path to gain market share. The new offerings, which have been planned will again play in the Plus segment and have the ability to shore up our margins business performance. Both offerings are in the whiskey flavor, which is the most dominant flavor in that market. And we'll be entering the market with considerable packing upgrades as well as liquid. In West Bengal, there is a huge headroom for growth since our current market share is only about 2%. Our upcoming expansion at the West Bengal facility is about to give us an added impetus to not only expand our portfolio of offerings, but will also allow us to capture sudden market surges in that geography. We have reintroduced our original Goldie brand in the market. And basis initial feedback, I can say that it has been well accepted. New launches are expected in this quarter not only in the Plus segment, but we also plan to expand our offering by including rum. We have successfully started energizing our current portfolio across the chain by not only improving its overall delivery to the consumer, but also expanding as well as upgrading the range of our offerings to cater to the evolving taste and preferences of the consumer. We are also taking into account the seasonal as well as occasion-led changes in the consumer behavior to capture these opportunities. Globus Spirits will continue to participate as a meaningful business in the premium and core segment given the potential in the industry and the economical benefits that accrue to the players in the segment. In the IMFL business, as earlier mentioned that in the post-COVID scenario and is our philosophy or playing where we have a right to win, depending on ease of entry, cost of doing business, contribution profile, business environment, et cetera. We are about to go in for local production of our brands in West Bengal. This will allow us both to expand efficiently into the total state of West Bengal, which as of now is being serviced in the Greater Calcutta area. Entering key markets of Delhi, UP, Haryana over the Q3, Q4 period through in-house sourcing is almost around the corner and is going to be a very exciting phase in our journey. We have increased our offering as well in the IMFL segment to also include participation in the semi-premium segment in our portfolio to help accelerate our progress. These -- through these markets, we are hoping to contribute significantly to the semi premium and premium segments where these markets play a significantly salient role. I'm looking forward to a very exciting journey ahead with the support of all the stakeholders. I request Dr. Roy to now lead the conversation.
Thank you, sir. Good evening, everyone. Let me now take you through the operational and financial performance of the company. We are happy to report that our higher-margin consumer business has seen an increase in share of the total revenue. The contribution of the consumer business has increased from 42% in Q2 FY '21 to 47% in Q2 FY '22 on the back of robust growth in volumes and realizations, led mainly by Value Plus segment, also known as medium liquor. In the Consumer segment, we have seen a strong growth, not only in revenues, but also the contribution of the Consumer segment to the overall business in Q2 FY '22. Revenues from Consumer business in Q2 FY '22 came in at INR 181 crores and growth of 30% year-on-year and 16% quarter-to-quarter. The manufacturing business on the other hand, while growing, has seen its contribution come down from 58% in Q2 FY '21 to 53% in Q2 FY '22. In the Manufacturing segment, our bulk alcohol revenue came in at INR 138 crores for the second quarter of FY '22. Quarter FY '22 show plant closures, which already was mentioned by Mr. Shekhar Swarup Ji giving details. Despite this, the capacity utilization came in at 90% in Q2 FY '22. In terms of volume, the consumer segment saw sales of 3.80 million cases, a growth of 13% year-on-year and 12% quarter-to-quarter, of which, Value Plus stood at 1.30 million cases, a growth of 63% year-on-year and 19% quarter-on-quarter. Our cash flow generation in FY '21 was strong, and we generated INR 148 crores of net cash flow from operations, whereas for half year FY '22, the cash flow generation was INR 138 crores. Our finance cost has reduced by 37% year-on-year from INR 9.9 crores in half year '21 to INR 6.3 crores in H1 FY '22 on the back of reduced bad debt, as mentioned above and reduced the average cost of debt to 7.4% H1 FY '22. Our insurance cost for the quarter, last quarter, is 5.95% on long-term loan. As a result of the improvements in the financial risk profile of the company marked by healthy operations, margins and comfortable capital structure and debt coverage indicators, our credit rating for our long-term and short-term bank facilities stand reaffirm that we are stable with enhanced credit limit as of January '21. We saw our EBITDA margins improved by almost 412 bps year-on-year to 23.3% in quarter 2, FY '22 and remain within expected range. However, quarter 2 FY '22 saw fuel inflation of 20%, 25%, which was offset to some extent by upward moving ENA prices and AFS prices, whereas EBITDA margin for FY '22 expanded by 652 bps to 25% from 18.4% in FY '21 half year on the back of higher share of consumer revenue and improved realizations. As mentioned in the previous call, we continue to avail the MAT Credit available to the company on account of the benefit of setting of plant and older section of the income tax that reduces the effective cash payout of tax to around 24.83% in half year. Since last time this credit is fully utilized the company's cash outflow will be in this region, and we are expecting that this year, we will end with the tax expected current year of cash outflow of 21.33%. Now coming to the working capital, the MAS Credit, which is -- which would be fully utilized this year. And from next year, there will be no income tax MAT Credit will be available, our rate should be in the range of 24% to 25%. Now coming to the working capital cycle, overall, working capital cycle has seen an improvement. However, there is an increase in the accounts receivable on account of strong growth in higher price of Consumer Value segment. Of this, the duty paid is funded by the company. The NWC days is 11 days as of now. Despite this increase in working capital, our return ratios have significant expansion. ROE and ROCE have gone up from single-digit FY '19 to 31% and 39% in FY '22, respectively. We have calibrated our operations to ensure that any disruptions are not only temporary, but can also resume quickly as a result. We believe we are in a strong position. This concludes my report on the operation and financial highlights. I would now request the moderator to open the forum for questions. Thank you.
[Operator Instructions]
While the question queue is building up, I just want to highlight 2 points that were raised in Dr. Roy's comments. One is that our effective tax rate, whereas you read as 33% is due to the availment of MAT credit that we have available. Our effective cash payout is only around 18%. From next year onwards after 1st of April 2022, our effective tax rate will come down to 25%, which is currently 33%. The cash payout will increase from 18% to 25%, but effective tax rate will come down from 33% to 25%. Therefore, there will be a significant impact -- positive impact on EPS. The second thing is that you would have noticed our excise duty share has been increasing this quarter faster than our revenue, and that's essentially due to the product profile changing, our revenue mix changing in favor of higher value consumer products. So operator, if there -- if the question queue is ready, we can begin with questions.
Sure, sir. We have the first question from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
Yes. Congrats for a good set of numbers. Sir, I have 3 broader questions. First, on your consumer business, if you could help you with the growth in your key markets, such as Rajasthan, Haryana, West Bengal, how was the growth in this quarter?
Right. Param, could you, please?
Yes. So if we look at Rajasthan, Rajasthan has a strong double-digit growth over 15%; Haryana is a single-digit growth, close to about 7-odd percent; Delhi, of course, is extremely high growth in 480-odd percent; and West Bengal is very marginal growth as of now in the range of 2% to 3%.
Okay. And sir, this quarter, we have seen the revenue contribution from Consumer business have gone up to 47% and the Manufacturing contribution has come down, but this can be attributed also to the factory shutdown, which happened in Bihar and Haryana? And maybe from next quarter, the mix would again change, is it a right understanding?
Yes. So one needs to do that calculation. We frankly haven't done that. There has been increase in consumer revenue, obviously, and also reduction in capacity utilization. So both things have helped increasing the consumer growth -- the share of Consumer in revenue. I also mentioned that the Bengal factory, the new capacity, is starting this quarter, plus Bihar will resume operations. So there will be significant growth in manufacturing revenue, obviously.
Right, sir. And sir, in West Bengal, since we are focusing on our own -- I think our own capacity is coming up and the production will start to. So currently, we have a market share of around 2%. So what is your target? Like once the distribution increases beyond Kolkata, what kind of share you are expecting in West Bengal?
So from a strategic point of view, we'd like to have greater than 25% market share in every state. West Bengal poses the greatest opportunity for us in terms of volume. It's a similar sized market as Rajasthan. It's conducive to business with the changes in policy that have been announced and to be implemented in a matter of weeks. It's difficult for me to say on a quarter-by-quarter basis, what will be the growth, but our aspirations are to be north of -- to be around 25%.
And I'll just add that, see, we are working towards a situation where the geographical expanse of the states, especially the far flung areas of North Bengal are adequately catered to through our route to market because in the Value segment, efficiency of service also is equally important. And the Greater Calcutta point that I alluded to in service is Unibev brands. For the current Value segment, we are in areas beyond Greater Calcutta, though we are not present in the whole of West Bengal. I just wanted to bring it out on the table for clarification.
One last one on the margin. So first half, the EBITDA margin stood at around 25%. We have been seeing the cost pressures around. So should we expect some kind of dip in the margins in the second half? Or you will be comfortable enough with 25% kind of margins in the second half as well?
I've always maintained that -- so commodity prices go up and down. To some extent, we have the ability to pass it through. Some parts of our business, we don't have that ability. But again, as a principle, I have maintained that Q4 margins, Q4 of last year, those margins, I believe, are sustainable into the medium term. And there may be ups and downs quarter by quarter, but Q4 is something that I believe, will sustain for medium term.
We have the next question from the line of Anshul Verdia from Edelweiss Wealth Research.
Congratulations on the good set of numbers. I have a couple of questions first on the gross margin. So we see that the gross margins we have been able to maintain on a quarter-on-quarter basis despite we have seen the high prices of the rice as well as the DDGS realization coming down and the other plant was not operational. So could you throw some light? Is it that -- do you think it is the realization driven gross margin maintenance? And second thing, so in that case, your prices would be maintained mostly for the Consumer segment, so how does -- how shall we -- is it a fair expectation to expect margin accretion going forward in the second half?
So inflation pressures are all around with fuel inflation, obviously, driving a lot of inflation pressures across commodity -- across different commodities. Most of Q2 margins and realizations were stable. But towards the end of Q2, we started seeing inflation coming in. We are seeing inflation continue past Q2 into Q3 as well. And to the extent possible, we are passing on the impact of that. Like I said earlier, regardless of inflation or deflation, our Q4 margins, I believe, are sustainable. Any increases beyond that are due to commodity fluctuations, but certainly, Q4 margins are sustainable.
That was helpful. Sir, a couple of questions on the bookkeeping side. One is that we are seeing that the other expenses have increased substantially in this quarter. So could you please comment on that? And second, earlier, it was notified that the claim would be there for the Bihar lost production, so have you already accounted this in the Q2 or this will be accounted in upcoming quarters?
Yes. Dr. Roy, Nilanjan, could one of you please take that?
Dr. Roy, we're unable to hear you.
Okay. Can you hear me? I'm Nilanjan speaking.
Yes.
Yes, go ahead, Nilanjan.
On the other expenses, a major portion of the other expenses, including direct manufacturing expenses, which includes repairs and maintenance on buildings and power and fuel. Our power and fuel has slightly increased, and that has been into our budgeted norms only. It's on account of our planned maintenance in Samalkha that we had done. And obviously, in North, because of the humid climate in quarter 2, the cooling -- there is a higher usage of cooling tower there [ Bhairav ] and the North units as a result of which our power and fuel expenses have gone up. On repairs and maintenance, as I mentioned, that we had a planned maintenance in the later stages of Q1, which got spilled over to Q2, resulting in a higher expenses of repairs and maintenance. Having said that, these are all a part of our budget, and this is not something extraordinary, and we are within our norms.
And sir, anything on the Bihar loss production claim from the insurance?
Loss of profit -- there isn't a policy for loss of profit that's in place. Loss on assets and repairs that would be required due to floods that is insured, but loss of profit is an opportunity loss that has happened in this quarter.
Sir, last one on the broadly, like people are seeing the increased penetration of your medium liquor as a new optionality coming in West Bengal and Haryana. So can you give some thoughts on the traction of medium liquor volume in these states? That would be helpful.
Yes. Param?
Yes, so West Bengal, obviously, the Value segment and the Value Plus segment, both are behaving in a different way. The Value segment is static right now more or less and the Value Plus segment, which is very nascent is starting to accelerate. And as of now, the segment is very, very small. It's only about 2% and a bit over it, but we are expecting that with evolving consumer preferences and the quality of offerings that are entering this segment, this can go sky high. And my guess is as good as anybody else's, but we definitely expect it to start moving into a double-digit zone of the total value segment sooner than later. And we expect to play a strong role in it and are preparing ourselves for both purposes. It's accretive, and it also gives the consumer a lot more satisfaction that he has got a better offering.
So I'd like to add to that, please. So just as in Rajasthan, we saw this, Rajasthan has really been the flag-bearer for this category and most states are following that model. And just like in Rajasthan, it took them well over 12 months to start prioritizing this as a serious category. What is the correct price point for it? Where should it be sold, so on and so forth? With states and because Rajasthan was really the first state, they probably made more mistakes than other people would because now a successful model is in place. So it's a slow -- it's a start. We have seen this in Haryana and West Bengal that these are starts right now. And just like in Rajasthan, where this becomes a very large business that comes right in the middle of in terms of price point of country liquor as well as the starting range of IMFL and becomes a very serious volume segment, we believe it will become that in Haryana and in West Bengal. But it will take a few quarters for that to play out.
And to supplement what Shekhar has said, it is key to be an early participant in that because we can fuel the growth of this segment as well. We can participate in the growth and make sure that we are able to accelerate growth in a meaningful and a faster way and, in the process, also carve out a share for ourselves.
Sir, last one, if I could squeeze...
Mr. Verdia. I'm sorry. [Operator Instructions] We will take the next question from the line of Pritesh Chheda from Lucky Investments.
Sir, I have a question on the Value Plus segment, which is defined as, I think, IMIL, right, on the new created segment in Rajasthan. This INR 500-plus case segment, does it lined up eventually channelizing the IMFL, which is the popular segment of IMFL, which is, let's say, INR 900 or INR 800, INR 900 a case. And how do you see this whole market then eventually evolving?
So Param, if you can...
Yes, thanks, Shekhar. So here is my take on it, sir. So the consumer fluctuates and moves between price points within his comfort zone. And it is always a tight race between players in different price points as to who is balancing out and giving a better offering to the consumer, all in terms of quality, packaging as well as price. So if we continue to be tilting the scale on the winning side of this, then we will -- we are confident that we will keep on bringing in consumers, one, from upgrades of the value segment below it. And second is, we are hoping that a portion of consumers from segment above it will start seeing a lot more meaningful opportunity to find brands and liquids, which are a very strong offering at a softer price point. So it's an evolving thing, very dynamic. But yes, if we continue to give strong delivery, like in any consumer business, we also expect consumers from one level below and one level above to enter into our price band.
Just for a clarification, first of all, you mentioned that price band already has reached 40% as value share plus contribution, right, in that particular IMIL. Is that you mentioned?
No. Our market share is more than 40%. That is on -- of the total segment, it would be a little less than that, probably, but very strongly that -- what is the number, Shekhar?
Sorry, there were so many numbers mentioned [indiscernible] that Value Plus segment...
Yes, it should be in the range of 40%. Shekhar is right. It is in the range of around 40%.
The Value Plus?
The value plus. Yes.
Yes, 35% to 40% would be for the Value Plus.
35% to 40%, the range is correct.
And our market share is north of 40%.
Okay. So this 3 million case, so let's say, you did about -- let's say, I think, you did about 10 million cases last year, right? In Consumer?
In Rajasthan?
No, no, total for us.
Total was more than that.
Yes, could you please [indiscernible] we can answer the question.
Yes, in the range of a little above 10, probably.
A little above 10%. So at what pace do you think sum total of these regions that you operate, which is Rajasthan, Bengal, Haryana, Odisha, this 10 million cases. And with the spec change now in Bengal, you said, right, so Rajasthan and Bengal are the 2 places where the spec changes has happened, right? It's not happened in Haryana or Odisha as of now, am I right on that? And if I'm not right, you may rectify it. And these 10 million cases at what pace do you see it growing over the next 2, 3 years?
Do you want me to take it Shekhar?
Yes, please go ahead.
Okay. So the Value Plus segment has also entered Haryana. So across all 3 states, West Bengal actually is the latest entrant. So Haryana entry was a little earlier than West Bengal. So as of now, it seems to be one-by-one safe journey where it seems to be expanding. And we are quite hopeful that this will -- this trend will continue even in some other sales. In terms of growth ambitions, we are obviously expecting strong volume growth of double digits across -- and the focus is as much as on volume growth as on trying to find accretive growth. So it is always a fine balance for us. It will be difficult to peg down number that when do we see the 10 million becoming 15 million or even further. But suffice to say that we are tracking opportunities. We are sometimes even influencing opportunities. And at the back of our mind, there is always a balance between let's get volume, and let's keep looking for accretive margins. So you have to understand the question and all excise policies are year-on-year. So you have to be very nimble-footed rather than just keep taking long-term projections because opportunities keep coming. It's about finding them quickly and trying to be, if not the first mover, among the first couple of movers there.
Just 2 additional questions. On the margin side.
I'm sorry. You'll have to come back in the queue, sir. We have participants waiting. We have the next question from the line of Harsh Sheth from HDFC Securities.
Congrats on a good set of numbers. Sir, just a basic question to begin with. So is the Value Plus segment the same as medium liquor? I mean, have you re-branded this? And despite further categorization to whisky, rum, et cetera, the duty structure here would be similar as it was earlier, right?
Yes. So the -- there are 3 segments that is: country liquor or IMIL, which we are now calling Value. There is Value Plus, which is medium liquor. And there is IMFL, which is the premium liquor and the brands of Unibev, which we inherit.
And just to add on to that, just the offerings of medium liquor a few years back and the offering of Value Plus segment, there is also a distinct difference in the quality and variety of offerings. So while, as a principle, at that point of time, also something called media liquor sat between the lower end of the Value segment and the IMFL. Today, also, it sits in between. But I'm referring to our earlier discussions. It is about how you add value to the offering and make it enriched and respectable and desirable to the consumer. So that's why we are treating with it -- with the [ drum ].
Understood, sir. And sir, you mentioned that the market development for country liquor portfolio will precede the commercialization of capacities in Jharkhand. So have we launched any products here and any efforts undertaken here that you would like to highlight since you are expecting commercial...?
No, construction is on in Jharkhand of our bottling capacities as well as our distillation capacity. So no business as yet.
Understood. And sir, there was a recent stake sale by promoters, so if you could throw some light on that? Is it kind of internal restructuring? Or are there any plans to...
No. So the details of this were disclosed to the exchanges, and you'll find all the explanation there. But very quickly, one company, one entity, which is listed as a promoter entity, their shares were sold by IARC. So that's the only thing. But it doesn't impact the company in any way.
We have the next question from the line of Darshit Shah from Nirvana Capital.
Congratulations for a good set of numbers. Sir, I understand we were doing geographical expansion in Jharkhand as well as now in Odisha. And we were about to finalize third state as well. So is anything there on the roadmap for that?
Yes, there are plans that are in place. There are a couple of opportunities we're working on. Unfortunately, I do not have any information to offer at this stage on the third opportunity.
Okay. And sir, continuing on that, I mean just we're reviewing on the risk front, like we saw in a lot of southern states where country liquor is banned. Do you kind of foresee such situation happening in any of the states which we are present?
So that's one of the reasons for reclassifying how we look at these and what we call these segments. You have to understand that by -- if a state stops calling, it stops or rather bans marketing of a certain nomenclature of product, it doesn't mean that they have banned consumption. So consumption merely shifts to another product category, which is available either at the same price point or perhaps a slightly more premium price point. So these categories are not to be seen as sort of heterogeneous categories or categories which operate in silos just like perhaps tea has different price points, but just because you are in a particular price point that's discontinued, that doesn't mean you stop consuming tea. So similar to that, one must look at alcohol. So if a certain category is banned or becomes uneconomical for some reason, it does not mean that we won't participate or we will lose our consumers.
Okay. So what do you mean to say is that probably if something like this has happened in South, so a category has been probably banned, but then there is a different kind of product and category has come up for a similar kind of country liquor segment? That's what -- is that a better understanding?
Yes, for the consumer who wants to pay a certain amount of money, who has a certain budget, there is a category for them. And they removed the category that was called something, and we created a new category, which was called something else. So the entire consumption shifted to that category.
Okay. So essential is that kind of rebranding or whatever you say, but the price point eventually remains the same for the consumer.
Net-net consumption, you can't ban consumption.
Yes, yes. Got it. Got it. And sir, any thoughts on the recent ethanol price increase by the government and would it be helpful for us?
So the OMCs, the government has announced a price increase for molasses-based ethanol. Grain-based ethanol price increase has not yet been announced, which is to be announced by the oil companies. And we are expecting that to come in, in the next few days. Regardless of what that increase is, even if there is no increase, the margin levels that we are anticipating will continue. If there is an increase, it will only be margin accretive.
[Operator Instructions] We will take the next question from the line of Nitin Awasthi from InCred Equities.
My first question would be why has the pricing been given to the OMCs for green-based ethanol? And why is the government not announcing it and why is it handed over to the OMCs to decide? And will it be all the OMCs come together and then decide on a price? Or individual OMCs, as they wish as per peaks and the kinds of things?
Well, if that's a question, that you'll have to ask the Prime Minister's office. Unfortunately, I do not have complete clarity on that either. But this is the way it has been for the last 3 years since green ethanol has been procured by the OMCs.
Okay. Okay. Sir, second question would be, as a company, you have been very strong on the IMFL side, sorry, IMIL side and now you're very strongly positioning yourself for the IMFL journey. The ENA journey, there is no question about it. My question now pertains to the ethanol segment, given that we have such a strong balance sheet, and we are like the [indiscernible] in this industry and you have the technology, know-how, the geographical expansion that nobody has in the country, specifically in grain. Why aren't we taking the subsidized loans for the ethanol plant and setting up ethanol plants all over?
So there are 2 questions from what I understand. One is regarding our borrowing rates for setting up capacities and the other is why aren't we setting up more. Am I right? Those are the 2 questions?
Yes.
Okay. So to answer the first question, yes, we are availing subsidized loans for our capacities to the extent that we would like to take debt. We are also working on reducing our debt. As of now, our long-term debt is about INR 120 crores of which around INR 70 crores is the subsidized debt and INR 50 crores is the nonsubsidized debt. The INR 50 crores, which is nonsubsidized, over the next few months, will get replaced by debt, which is subsidized. So the entire long-term borrowings will be at subsidized interest rates. With regard to why we aren't setting up more capacities? Well, we believe that we must have a balanced approach to growth between consumer as well as manufacturing. We are growing -- setting up ethanol capacities in states where we believe for a long -- in the long term will remain deficit in ENA and in ethanol. There are a lot of new capacities that are going to come up for ethanol, and there will be more states in India will become oversupply states. We want to remain in the states that will remain deficit stage for the longest period of time. Whilst doing so, investing in consumer businesses in that state, that is our business model. It is not our business model to go all over the country and set up ethanol capacities in every state or in 2 or 3 states that we are present in to set up very, very large ethanol capacities because then essentially, you remain a company that's converting from one commodity to another commodity. Ethanol for Globus Spirits is to be seen as an avenue, which gives us an option of either to sell extra neutral alcohol or ethanol during the time we are investing in our capacities. Just like we have done in Rajasthan, where about 80% to 85% of our capacity is used for internal consumption. We would like to get to that kind of levels at all our facilities.
Lastly, on Northeast...
Mr. Awasthi, you'll have to come back in the queue. We have the next question from the line of Kshitij Saraf from Tusk Investments.
Congratulations on the results. I have one question on taxation. As Mr. Swarup mentioned, on a sequential basis, how has the INR 52.5 crores of PAT that we have in second quarter compare on a normalized basis after taking into account MAT Credit impact? If you could just throw some light there?
Yes. So Nilanjan, could you take that, please?
Can you repeat the question once again, please?
Yes. So in quarter 2, we have INR 52.5 crores of PAT. So in this, right, on a normalized basis if we remove impact of MAT, so what would be the adjusted PAT for us in the quarter?
So our cash payout, our tax -- cash rate for tax, the amount of tax we actually deposit is 18% of PBT. Our effective tax rate, however, is 33%. So the balance amount is the MAT credit that is available for us to use.
Okay.
Now from first of April or rather up to 31st of March of this year -- of this financial year, we would have exhausted all the MAT credit that is available to use. As a result, we will then opt out of the old tax regime and move into the new tax regime under which income tax is to be deposited at about 25%. So on a cash basis, our tax outlay will go up from 18% to 25%. But on an accounting basis, our tax rate will come down from 33% to 25%. As a result, our EPS will be positively impacted.
Okay. Okay. Got it. And secondly, interesting point on the consumer business and move to focus on the consumer business and brand. So is there any broad aspiration that laid out for Globus in the next 4, 5 years? What would be the size and the margin you see for Unibev or the overall consumer business for Globus? Is there any aspiration or -- yes, any sort of growth, not estimate, but any sort of guidance you can give there?
It's difficult to give that guidance. We do have internal targets. It's very difficult to get that guidance. I do -- I have stated in calls and so has Param that in each of our states, we'd like to be north of 25% market share. In the premium categories, that is a little more challenging in the Value, Value Plus categories that's something that we are more confident on. So it's a little difficult for me to give you that number, but suffice it to say, we are not trying to create a niche business. We are in this for creating a meaningful business, but to walk that journey without -- or rather investing what is prudent and not making irresponsible investments.
We have the next question from the line of [ Suhas Nayak from Kreeda Capital ].
I want to know about the West Bengal market, the size of the market, and we say we have 2% market sales right now. So have we introduced all our brands there or we are in the process of introducing all our brands in the Value segment?
Param, could you please take that?
Yes, so the West Bengal market plays in the zone of between INR 27 lakhs, INR 28 lakh to INR 30 lakhs in general in these segments. And that...
That's per month, that's INR 27 lakhs.
That's per month. That's correct. Thanks, Shekhar. And no, as of now, all our plant portfolio is not on the self at the outlets. A couple of them are going into the market in this quarter. And then there is another lineup planned for next year. So we are expecting them to also help us on the journey.
Is the distribution also in place for us there? The entire state or it's selective right now?
So distribution is leading our current position. So at any point of time, we have distribution footprint, which is almost 1/4 leading. So which means we have to -- as you want to -- whatever you want to expand in the next 3 months, that distribution footprint is in place. As we enter within this quarter, we will put the distribution mechanism in place for the next quarter because we hire colleagues also prudently, but distribution leads our speed and the route to market is created, and then we start launching the brand. So distribution is always ahead of our plan. So that they are ready to receive the portfolio and the brands, which are being planned in the offering.
Can I add one more. I just want to understand the premium liquor. Are we investing enough in this segment right now because we saw the revenue of INR 1 crore for the quarter. So are we not going aggressively in this segment? What are the plans here actually in terms of size?
Didn't get your -- it was a -- didn't get your question. Can you say it again, please?
I want to understand about the premium segment. After the merger because the size is very small right now. And -- what -- are we investing enough in this business for growth or we're going slow on that?
Got it. Got it. Thanks. So premium segment, as I had mentioned a couple of quarters ago, post COVID, we have readjusted our site of action in these segments, and we have started moving our focus to the geographies where we, within our framework, see ourselves as having reasonable had a strong right to win. And these states also contribute significantly in terms of salience to the segment if we compare them with all India position. And we are very niche players. We have tested our brands. Our brands have found acceptance. And we are -- as we talk to you, we are almost at the verge of diving into the sea -- deep end of the pool. So West Bengal, followed by Delhi, followed by Haryana and UP are all likely to happen. And as quarters progress, we will be getting more and more aggressive in these segments, in these states. Now investments, obviously, are prudently balanced. Investments are ready and waiting, and we intend spending money at the right time in the right geographies and prudently, of course. So it's not as if we will be deprived of investments as we traverse to accelerate this journey.
Are we also approved at the defense depots and all? In the defense, any of our brands are sold there?
So as of now, it is not an area of priority because we are planning to play in the big markets where our recoveries are also stronger. So at this point of time, it is not on the data point for us. A little later down the line, surely, it is something which will come through.
We have the next question from the line of Pankaj Saraf from Shearwater.
My first question is on the cost side. In the last conference call, Q1, you had mentioned that the principal raw material for the company with broken rice and we did not have any shortage of broken rice in India. And therefore, when the question was asked on the cost inflation side, you said you don't really expect much. So my question is, have you seen cost inflation on the broken rice side? And is that indeed the principle of -- well, because I think you mentioned that there was some increase in the cost. And so I am trying to understand where did that inflation coming from?
Yes. So no, I think there may be some miscommunication or misunderstanding. There is obviously a seasonal factor that comes into cost of any agri commodity. Q2 into Q3, maybe half of Q3 is the lean season for rice all over India. And every year, we do see increases in cost here. There is no shortage of broken rice. We have not, in my memory, ever lost production for considerable time period because of shortage of raw material. But during the off-season, yes, there is an increase in cost, and that's what we've seen. In addition, the fuel cost inflation that we've all been impacted with regardless of the industry we operate in, also impacts price of any commodity. So that has been sort of an additional factor to keep in mind for this period.
Got it. And second question is, on the income statement, where can I see this effect of the cost of inflation risk with materials because when I look at your...
It was very nominal last quarter, and raw material consumption has also been lower due to the closure in Bihar. So it will be very difficult in the results for you to pick this out, largely because it was very nominal in Q2. So it's not something, which is affecting business, it's normal inflation, which is expected during this period.
Right. I mean, honestly, when I analyzed income statement, I'm seeing the cost of materials is still at 31%, 32% or roughly the same level as the previous quarter. So I'm not able to actually map out what that means, what the cost inflation means in terms of margin?
So like I said, cost of material consumed is based on total consumption of material. Bihar factory was closed for some time in the quarter. So the results will not reflect quarter-on-quarter position. Happy to answer this off-line and give you the data you require to the extent we can.
We have the next question from the line of [ Vivek Gautam ] from [ GS Investments ].
Congratulations on consistently coming out with a good set of numbers. Sir, my question is regarding this -- there was a press item in Patrika and the local magazines of Rajasthan regarding the contractor going on strike because they were being forced to have 50% RML quota along with the IMIL quota. So as far as IMIL wise is concerned, they were okay. But as far as the forced selling of RML quota was there, Rajasthan-made liquor, they were protesting against it. So is our company affected in any way? Or is it Rajasthan Sate Ganganagar Sugar Mills or what exactly is that nitty-gritty and because I think some -- that quota was reduced to 35% also from 50%, if you can say something?
I'm not able to comment on this call regarding nuances of government policy, which have not been implemented. We can talk about the government policy that has been implemented and the performance of our products in that environment. Your question relates to things that may or may not have happened. But basis the policy that is in place, our performance in Rajasthan has been satisfactory.
Yes. It's fantastic, sir. So 47% Consumer business is a really good achievement, sir. And the second thing sir is that there is a lot of changes happening in the excise policy in Delhi, I think, in Bengal also, and Jharkhand, Odisha also, you're venturing into it, all these states are a country into itself as far as alcohol sale is concerned. So Delhi, for example, we were earlier quite dominant and now we are having a negligible presence. So in IMIL and other segment, how are we placed? And what is our plan of action, sir, in all these 4 states?
There is a significant amount of information regarding our plans that we have discussed and also on our presentation that has been published to exchanges today. May I request in the interest of time and several other questions that are in the queue that -- in case, sir, you feel that the information is inadequate, you reach out to us, and we will be happy to schedule a discussion on this.
No, Delhi, specifically, if you can say because that has been the major change in the excise policy and attracting a lot of press attention. So what are the hopes we have for the Delhi, sir?
Our hopes are very high for Delhi. The policy implementation is obviously very key. We are at the cusp of change. It's -- in Q2, there was a very limited impact. Q3 is where change is taking place. So we'll have to wait and see how the change unfolds. But from a long-term point of view, our hopes are very high about Delhi.
We have the next question from the line of [ Varun Seth ], an investor.
Congratulations on good set of numbers. Sir, just a clarificatory question from the previous participant on the risk side, assuming like there is a ban in South for the country liquor, what I understood is, similar ban is there in, say, Rajasthan where only the nomenclature of the country liquor may change, Value segment or a Value Plus segment and rest the product margins, et cetera, will continue as it is, consumption will continue as it is. And as such, there won't be any impact on the company like us. Is the understanding correct, sir?
See, we are talking a very hypothetical situation. So a hypothetical situation is -- has the weakness of being based on the assumptions that come to mind right now. But let's say that this hypothetical situation was to come true, the point I made was consumption will not reduce. It will merely shift to another price point. And even from the government's point of view, they would like to grow tax revenue. I do not see any reason in the post-pandemic or rather during pandemic era why governments would like to reduce their revenue of tax. So it may be nomenclature change, but they will continue to provide a product to -- for every wallet, for every budget. And for that reason, we will always participate in Value, Value Plus segments and with the position of dominance and as a position of a disruptor in the premium segments.
Got it. Got it. So you mean consumption would change to the price point. So maybe IMIL might shift to a lower price point of IMFL, something like that? Or IMIL continuous in IMIL?
Sir, I don't know. It's a very hypothetical situation in terms of volume...
Sir, today what is happening in South, if you can give those idea on -- because country liquor is not -- is banned there. So today, how does it operate in South, if you have any idea?
As far as I know, we don't operate in South India. So I don't have an understanding of the nuances of that market. But as far as I know, there are cheap IMFL segments, which are at subsidized duty rates. So it effectively comes to the same thing as a country liquor, which is also a subsidized duty price point.
Sure. And my second and the last question is on the third state of expansion, which we are looking at and what we understood was that during the third quarter time you will announce, so is that expansion still on drawing board and something can be expected by December or...?
No, no, it's very much on the plans. And we had asked for a time until Q3. So kindly do give us that time.
Ladies and gentlemen, we will take the last 2 questions. The next question is from the line of [ Vinay Roy ], an investor.
My first question is how long will it take us to achieve maximum capacity utilization in the new West Bengal plant?
45 days.
So the 100% utilization, will it be 100%?
Yes.
Okay. Okay. Sir. And how variable are the margins in the manufacturing business? And are these current realization sustainable?
As mentioned on this call earlier and the previous calls, Q4 margins as overall for the company is what we expect to -- that will sustain. I believe we are operating a little bit above that currently, but it is my belief that Q4 margin is sustainable.
We have the next question from the line of [ Sai Narayan ], an investor.
Congratulations on the good set of numbers. So I joined the call late. So I just want to know, actually, regarding the geographical expansion. So one is the West Bengal plant, actually, which I understand will become completely operational in the next 45 days. And Jharkhand, I just want to know update on Jharkhand? And apart from Jharkhand and Bengal, is there any other state or something we are planning to venture into? That's my first question.
Thank you. All information regarding this is contained in our quarterly investor presentation that was published today. Please do have a look at it. In case, there is any inadequacy that you find in information, we'll be happy to set up a call to discuss it further.
So the last question -- second and last question is, so I remember I used to attend these calls, so you were saying about the pricing power, which we got because of ethanol blending. So does it still hold good actually, the pricing power we have in the bulk alcohol segment?
Yes, no change from last quarter.
Ladies and gentlemen, that was the last question. I would like to hand the conference over to Mr. Shekhar Swarup for closing comments. Please go ahead, sir.
Thank you, everyone, for taking out the time to join us today. As mentioned, in case we missed out on questions or if our information is inadequate, please do reach out to us, and we'll be happy to set up a call to address the queries. Thank you again, and wish you a good weekend.
Thank you members of the management. Ladies and gentlemen, on behalf of Globus Spirits Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.