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Globus Spirits Ltd
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[Audio Gap] for joining us on our 9 months and quarter ended December 2019 earnings conference call. Along with me, we have Mr. Vijay Rekhi, Chairman, Unibev; Bhaskar Roy, Chief Operating Officer at Globus Spirits; Mr. Ajay Goyal, Chief Financial Officer at Globus Spirits; and our Investor Relations team.We continue our growth trajectory in this quarter gone by, which has been an outcome of our team's efforts and various recent structural changes in the industry. Manufacturing business has experienced robust growth, with bulk alcohol revenues growing by 46% year-on-year in the quarter ended 31st December 2019. Higher contribution from the manufacturing segment thrust the operating margins to stabilize at 11% during the quarter gone by.Lately, in the new -- in a revision of price in the new tender of ethanol, the OMCs have increased the price by about 8% to INR 50.36, up from just over INR 47 previously, demonstrating this will lead to increase in ENA prices across our states. Central government's impetus towards ethanol manufacturing has brought structural change for distillers, and we believe this will sustain going forward.Consumer business witnessed a growth of 6% in value in spite of some decline in volumes amidst a slowdown in the last quarter. Haryana IMIL performance, however, witnessed an improvement on account of reduction in illicit liquor in the state. We also welcome various government initiatives in the Union Budget that should aid to boost rural income and increase disposable income at the hands of our consumers that we hope will improve consumption. Prolonged winter in North India has also helped enhance the demand for country liquor.Going forward, we continue to focus on improving production efficiencies. Some of these efficiencies will be elaborated by Dr. Roy in his remarks. Proactive steps towards restructuring high-cost loans and negotiating borrowing costs with existing banks, steady repayment will further aid rationalizing of finance cost. Return ratios witnessed significant improvement in the last quarter. Current annualized ROE stood at 13% against 7%, and ROCE improved to 11% annualized as against 8% as compared to financial year 2019.I now request Mr. Vijay Rekhi to discuss the developments at Unibev.
Thank you, Shekhar. Very good afternoon to everyone, and welcome to the earnings call. As per our strategy of focusing on expanding geographical presence, we have launched our products in upcountry Maharashtra, various districts and Mumbai Metro as well as in the state of Goa during the quarter ended December 2019, increasing our presence in total to 9 states. Unibev is -- Unibev also achieved its own milestone of highest-ever sales since inception, which was closed at 20,600 cases on a year-to-date basis, thereby demonstrating early signs of brand acceptability by consumers.We are in continuous process of building our brand portfolio in the premium and above segments with niche offerings to the consumers. We continue to be prudent on our marketing expenditures. Currently, spends are channeled through selected digital media and exclusive event -- exclusive events participation where consumer can have a palate experience of the products. Our focus will be towards expanding our brand awareness in the recently added geographies like upcountry Maharashtra, Mumbai and Goa and also planned launch in 3 more states during this year.Along with developing premium products offering in whiskey, which are already in the market, we are considering other categories, such as BIO (sic) [ BII ], that is Bottled in India, scotch and rum to enhance our total offering to the consumers in the future -- in the very near future. Unibev may be small as yet today, but the team's commitment will make it reach new heights tomorrow. This is our belief.I now request Dr. Bhaskar Roy to share operational performance for Globus Spirits.
Thank you, Mr. Rekhi. Good afternoon, and warm welcome to everyone. I will share the operational performance of the company. Optimum utilization of resources and operational efficiencies has always helped us to run at high utilization levels during quarter 3 FY '20. The capacity utilization stood at 92.4%.As mentioned by JMD, Shekhar Swarup, we have initiated various measures to improve production efficiencies. At Haryana facility, initiative towards modernization of power plants has been taken, which will further reduce the fuel cost of the company. We are continuously working towards identifying new measures to improve the production efficiencies.IMIL volumes for the quarter stood at 2.88 million cases in Q3 FY '20 compared to 3.08 million cases in Q3 FY '19. Average realizations for the quarter stood at INR 387 per case against INR 341 per case during quarter 3 FY '19, a growth of 14% year-to-year.Franchisee bottling volumes in quarter 3 FY '20 at 1.03 million cases in quarter 3 FY '20 compared to 1.26 million cases in quarter 3 of FY '19. Bulk alcohol volumes for quarter 3 FY '20 stood at 30 million liters compared to 25 million liters in quarter 3 of FY '19 on account of increased capacities through debottlenecking, whereas bulk realizations stood at INR 56.2 per liter quarter 3 FY '20 compared to INR 46.1 per liter in quarter 3 of FY '19, growth of 22%. On account of higher ENA and higher DDGS realizations, the revenue mix was higher towards manufacturing segment at 66% compared to 59% in quarter through -- 3 of FY '19.With that, I will take -- like to call upon our CFO, Mr. Ajay Goyal, to continue the discussions on the financial performance.
Thank you, Dr. Roy. Good afternoon, everyone. I will take you through the key financial highlights for the quarter ended December 31, 2019. During Q3 FY '20, the total income net of excise duty was reported at INR 3,268 million against INR 2,608 million in Q3 FY '19, a growth of 25% year-on-year basis, backed by higher bulk alcohol revenues, which grew by 46% year-on-year.EBITDA stood at INR 360 million in Q3 FY '20 against INR 250 million in Q3 FY '19, a growth of 44% with EBITDA margins at 11% in Q3 FY '20 against 9.6% in Q3 FY '19. Part benefits of higher bulk alcohol realization was offset by increased raw material costs. Profit after tax during the quarter stood at INR 147 million compared to INR 58 million in Q3 FY '19.Reduction in finance costs and overall performance enabled a growth -- robust growth on a year-on-year basis. As mentioned by Mr. Shekhar Swarup, during the quarter, we have successfully restructured our high-cost debt and other loans has been rationalized, bringing effective weighted average borrowing cost below 10%.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 [ Yash C. ], an individual investor.
First of all, congratulations for the good set of numbers. At the moment, if government is also focusing towards methanol-based blending due to cost constraint, how are you foreseeing the situation? Do you have any steps or strategies to tackle this situation in near-term future?
We -- as of now, we neither see this as a threat or an opportunity. Firstly, our own company's allocation to ethanol isn't going to be more than 25% or 30% of our capacities. We remain focused on beverage-based ENA or bottling of country liquor or IMFL along with supporting our own brands of IMFL at Unibev.Whereas government has announced a methanol program, it's not something that affects us in any way. The route to produce methanol is not viable through fermentation methods. So I don't see this as an impact to our business.
Okay. How are your projections towards bottom line and top-end growth in financial year 2021?
Well, it's -- we have refrained from giving forward-looking projections on such calls. But the structural change that has come in place due to ethanol, we saw a little bit of a slowdown on that when there was a delay in revising prices in line with inflation in agricultural commodities. But some of that has happened already in January, February. And we hope that this trend should continue what we've been able to demonstrate.
Okay. Okay. So how much the total debt is on the current level?
Total debt -- as on today, long-term debt is INR 179 crores.
The next question is from the line of Vikram Kotak from Ace Lansdowne Investment.
My question is actually towards the IMFL business. What is the burn right now on the business? And what's your own view or what's Mr. Rekhi's view that how long this is going to sustain because I think you invested for almost 2.5 years now in the business? So where are we seeing that point where you start not expecting cash flows from the company but rather you have a less burn on the -- on your -- on overall balance sheet? That's the first question.
Vikram, so Unibev this year had certain projections and basis those projections that were made earlier this year, the company has not been able to achieve those for a variety of reasons. The -- first and foremost, the reason is largely due to registration of new brands in some markets. We find that the team had underestimated how difficult that would be. And in fact, most of our registrations that were planned for this year only came through in Q3. And already in January, we are seeing results of that. So suffice it to say, the plan for this financial year has been delayed by about 6 to 9 months. And as a result, the burn sort of continued -- previous year's burn continued into this year.The good news is the second -- the registration of labels for the second time in the same stage were renewal of label, not a first-time registration, is far easier as we have already seen in this financial year for some of the states we had launched in the previous financial year. And therefore, next year is really the test for Unibev to be able to demonstrate its business plans.Mr. Rekhi, perhaps you could add to this on -- if you think I missed out anything.
No. I think, Shekhar, all the aspects are covered by your statement.
Okay. One more question, Mr. Rekhi, for you, that how is the response in the -- like you said Maharashtra and Goa, you just launched. And how is the response in Pondicherry and Karnataka, where you launched 1 year, 1.5 years back? What are you -- what's the traction you are seeing? What's the first response? Or what's the learning from there?
The first response is a wow, W-O-W, with regard to the product offering and the palate experience the consumer gets.Specific query regarding Maharashtra is concerned, we are in about 3 or 4 districts of Maharashtra, and we have just entered, in the last 6 weeks the Greater Bombay area. It's a little too early to comment on the acceptability of the products, but the initial response is very encouraging. There has been a massive appreciation with the total product offering. And as the distribution rolls out in terms of relevant outlets where this product is -- this type of product of competition is franchised, we will track -- actually track what is the movement of our product, which initially is looking very attractive, and be able to firm up our opinion in terms of total acceptability of the product.But to add to this, if we were to support this outlook in Maharashtra with regard to success of products in the other markets where they have been launched, I think we are very optimistic that these products will be accepted in Maharashtra in serving market, particularly Greater Bombay and we look towards the market with such an optimism.
Right. Great. Great. All the best. I think this wow should come from everyone, from customer to financial controller to shareholders anyway. Ajay, I have one question for you that -- this one, what's the debt repayment the last 2 quarters? I actually missed last quarter's debt repayment. So what's the debt repayment in the current financial year? You can say that?
Current financial year, debt repayment is approximately INR 24 crores. And next year, I think, INR 35 crores.
Okay. So even last quarter, you will pay something?
Yes.
Okay. Okay. And next year, you're planning to do INR 35 crores. So then your long-term debt will go to INR 140 crore or so -- INR 135 crores, INR 140 crores?
Yes.
Okay. And one more question for either Shekhar or Mr. Roy, is Bihar fully utilized, Bihar ethanol? Or is it -- you have further scope to kind of make more from the current capacity as well as adding up the capacity?
So the capacity is fully utilized, and we are making ENA at this moment. We have not started making ethanol, but we will through the time -- from the third -- second quarter of this month -- year, we will start producing ENA and supplying to the oil companies.
Okay. So you need -- you will need more capacity at the same place, right?
No. We will -- don't need capacity. We can -- we are putting modifications in the plant. We can manufacture ethanol and also manufacture ENA.
So I'd just like to add to that, please. We have in the -- after the price of ethanol, after the revision, we have taken a decision to supply some quantity of ethanol from Haryana and from Bihar. We have recently made our bids, and we will know the result of that in a few days. But we would like to supply anywhere between 20% to 30% of the capacity of Haryana plus Bihar because this will help us with our ENA -- our capacity utilization and also ENA pricing.
[Operator Instructions] The next question is from the line of [ Dhwani Sanghvi ] from Sanghvi Investments.
I would like to know when would our company become debt-free? What is the plan for the debt repayment? As you mentioned that you will be repaying the debt for this financial year and the next financial year, so when are we expecting that we'll become debt-free, like in how many years?
So assuming the -- there are a lot of assumptions in that to be able to get to the answer to that question. But assuming the current level of work that's happening in terms of EBITDA as well as debt repayment, it should be about 4 years. But we have a lot of decisions to make in terms of accelerating debt repayment or even using some of the surplus cash in higher-ROI activities, such as Unibev or even some other opportunities we have in our "legacy business."So it's difficult to tell you exactly when we'll be debt-free, but we have cash that we are generating, and we are deploying that according to our debt repayment schedule. But some of the other variables, we have not yet decided for the next 3 to 4 years.
Okay. Okay, sir. And also I would like to know, sir, the Haryana IML market has seen growth. So can you share, sir, what has helped this growth come in?
So if you've been tracking our performance over the last few quarters, we had mentioned that Haryana volumes had been low due to a high incidence of illicit liquor being sold by other players in Haryana. And we've seen, in the last quarter, sort of beginning of a crackdown perhaps on that, and that has helped to grow the organized market in Haryana. It's difficult for me to say whether this will continue going forward, but we see -- did see that crackdown in Q3, and that immediately helped volumes for us.
[Operator Instructions] The next question is from the line of Ankita Singh from MAN Financial Services.
Congratulations on the good set of numbers. We've just seen that your EBITDA has grown to 11% as against 9.6%. Can you throw some light on the steps you'll take for further improvement of EBITDA hereafter? And do you think that it will sustain at 11% or 12% level?
So I think that's really the most important structural change that I was talking about in my opening remarks. So firstly, growth in volumes came in due to better capacity utilization across the board in the company. We've also seen small increases in capacity in almost all of our factories due to better utilization -- due to debottlenecking and better utilization of the equipment that we have. And we are hopeful that some of this increase through what we call debottlenecking will continue in the next financial year.In terms of margins, number one, we are now -- due to large amount of ethanol offtake happening in India, we are seeing a lot of capacities of alcohol being diverted to ethanol. As a result, ENA is becoming a little more premium, ENA capacities are becoming a little more premium.And the other is that there is what we are seeing this year, especially this Kharif marketing season for rice, a dip in price of broken rice going forward due to a large amount of inventory with the government. So they are looking at offloading rice stocks. So as a result, there is a very good environment for us in terms of subdued rice prices and high ENA prices. Also the team is doing great work to increase capacities and deliver high utilization of capacities.
Okay. Okay. Sir, can you throw some light on the plans for utilization of funds, the free cash?
So this year, the priority has been as follows. There's, of course, debt repayment and taxation. After that, we allocate money for Unibev. That has been the commitment we undertook a couple of years ago. And thereafter, some amount of money in maintenance CapEx. Dr. Roy spoke about the new power plant in Haryana that it would be commissioned soon.Going forward, taxation, debt repayment, that priority, of course, remains. But besides that, the call that we have to take is how to prioritize free cash between Unibev and other high-performance, high-opportunity projects that we've identified. And hopefully, in the next couple of months, we'll be in a position to take that decision.
[Operator Instructions] The next question is from the line of [ Ravinder Singh ], an individual investor.
First of all, congratulations to entire management team for posting such good numbers. So actually, while analyzing financial performance of our company since listing, I noticed that remuneration of the promoter has been increasing almost consistently over the years. Even after like for financial year '14 onwards, when company was facing challenges, management has not paid dividends since then, but there was a consistent increase in management payout.In fact, a remuneration of promoter has a percentage of PAT, while looking into last previous years, has increased from 2% to around 15% to 20% over the last 6 years. But management seems not willing to reward minority shareholder. We did an EPS of around INR 8.5 last year with comfortable level of debt impact, but the dividend was not paid out. We are expected to achieve EPS of around INR 15 this year on consolidated basis. Promoters have already recently taken increment on their remuneration, which seems to be around 50% compared to last financial year.So being a shareholder, my question is regarding the dividend payout. May I know the management plans towards dividend payment to minority shareholders? Can we expect a minimum of around 20% of EPS as dividend payment for current financial year?
Right. Thank you for your question. So your question is about dividend payout policy. Company has been investing its cash in debt repayment, taxation and future growth not only in terms of its legacy business, but also futuristic businesses such as Unibev in order to get the company to a certain scale for all stakeholders.This current year is the first year when the company has started demonstrating healthy cash flow and PAT. You would recollect that our projects, Bengal and Bihar, after commissioning, Bihar went into prohibition, and the company needed to service the loans taken for that project despite one factory being closed for, I believe, over a year.That said, going forward, dividend policies are something that are being discussed by the relevant committees in the company. And hopefully, as and when they have a decision, that will be made public. And your suggestion about -- you've made a certain suggestion about how much percentage of EPS, that has been taken under advisement.
Yes. Just one more thing, which I looked into while analyzing other listed companies, other listed players from the same segment. So I need not name, you can check on your own with a similar market cap or even a bit higher or lower. They have rewarded shareholders. I understand, I agree that we have taken our CapEx and due to market conditions we were not able to encash on the opportunity due to Bihar ban and other factors.But I firmly believe that -- in fact, I was expecting, being a shareholder, last year also to get some reward based on the company's turnaround performance. And now with a comfortable debt position and also being a general practice cum looking at other similar and other listed companies from the same segment, I should -- I think management should look into this as a serious thing because since listing, actually minority shareholders, the company management has not made any significant returns by investing in the company. So please do consider this.
We thank you for your patience and your suggestions.
[Operator Instructions] The next question is from the line of Sai Narayanan, an individual investor.
Congratulations for the good set of numbers. So I was just going through the -- your last call. I was just going through investor presentations where you have underlined 3 things actually. So one is on the hikes in ethanol prices. That is one. And second thing, you are saying on converting this bulk alcohol into IMIL business. That is the second one. Third thing is on Unibev.So my question is on the second part where the share of consumer businesses actually has to improve where you are investing on bottling this to the consumer business. So there actually, as you see, to back in 2014 or '15, from -- starting from 2012, '13, '14, so we see actually the share of Haryana business is coming down. So what are the major challenges there? One is that you told illicit liquor is flowing there. That is one. Apart from that, do we see any other challenges? Because as you see, some of the companies like Piccadily Agro, they have a strong marketing position there. That's what I feel.And second question is with respect to enhancing the IMIL business, so last call you were discussing that Bengal is showing a lot of promises. So is there any update on the IMIL business in Bengal also? So these are the 2 questions I had got.
I'll quickly take this up and Dr. Roy can give you a little more details. One of the reasons that -- there are a few reasons why the consumer share has de-grown. You are absolutely correct. Our focus is to prioritize allocation of spirit to consumer businesses to the extent possible.Number one, Bihar capacity is entirely selling bulk. There is no share of consumer there for the reasons of prohibition. Secondly, we have grown our capacities through debottlenecking, what I was talking about earlier. And that, of course, has -- that has grown far more than the consumer business. As a result, consumer business, as a share, has come down.And finally, the Haryana issue that you spoke about. So these are the reasons that the consumer business quarter-on-quarter has reduced. As far as the prospects are concerned in Bengal, Rajasthan and Haryana, we have good prospects.Dr. Roy, perhaps you can talk a little bit about this.
Number one, in Haryana, which previously what we were telling, there were illicit functions were going on which has stopped from the last quarter a little bit, and hopefully it will continue. So the organized sector is growing, and our share will go. And from the last year, whatever cases we have sold, we will sell more than that cases this year in Haryana.For Bengal, we have made our strategy and planned accordingly, and we are trying to open up distribution channels in the state by having presence in other parts of the states so that the distribution can -- is more and we can reach the consumers which we are not able to reach from the factory level through the distributions and setting up warehouses at those parts.
Right. Sir, another question I've got for you, Mr. Roy or Ajay. I know that last quarter or 1 quarter before, we announced actually a new set of brands, which is between IMIL and IMFL actually, a new set of class of liquor we introduced in Haryana and Rajasthan. Can you just update us on how is the response actually? Is it gaining traction?
So you're absolutely correct. This was launched last year in Haryana and Rajasthan. The retailer -- unfortunately, the way this -- the pricing of this product has been done in the current financial year is that the retailer is not incentivized to sell this product. The retail margin in IMFL and IMIL is much higher. And as a result, they haven't been supporting this category.We have just, a few days ago, received a copy of the Rajasthan excise policy for the year 2021. And in initial reading, it seems like they will be pushing this category further. But it's a bit early days for us to talk about it right now. As of now, the response from the trade for the medium liquor category, as what it is called now, remains quite muted.
Right. So -- and one more actually. I remember discussing this sometime back when we were discussing on the challenges on the Haryana front. So we were saying one is the illicit liquor and another is on the distributors. Actually, distributors, they want higher margins from IMIL business. That was one of the reasons, actually, I remember 1 or 2 years back, we were changing the distributors also, wholesale distributors to the market. So is there any change on the distributors' front actually in Haryana market for IMIL?
There's been changes since then. Every year, there are some changes when the excise policy comes. But I think the more pertinent issue is the size of the addressable market for us in Haryana. That has come down quite dramatically. And as a result, the volume too has reduced.
The next question is from the line of Navneet Bhaiya, an individual investor.
Congrats on a very good set of numbers. I have 2 questions. In the last call, you had mentioned that there are some debottlenecking exercises going in Rajasthan and West Bengal, which will increase your capacity by 20% and which would come into effect by Q4. So I just wanted a status on that. Are we looking at additional capacities in this quarter from Rajasthan and West Bengal?
West Bengal, we have delayed to some extent the capacity increase as the plant was running steadily and there was a demand of the spirits heavily there and this shutdown would have taken 10, 15 days. We have delayed it to the year-end and the first week of the month of April to take it and do the necessary work.
So in a nutshell, the work is complete. But in order to increase the capacity, we need to close the plant for about 10 to 15 days. And considering that, we have pushed this to the next financial year but -- hopefully, within the first quarter.
This is for both West Bengal and Rajasthan, right?
This is for West Bengal. For Rajasthan, the work is all complete. We are awaiting clearance from the environment department. That has not yet happened. Hopefully, 3 months more, but it could take a little more time.
Okay. So in terms of capacity FY '21, we should -- assuming all these things happen, we should see some volume growth in terms of capacity available?
Yes. So this work on debottlenecking continues. There's, in fact, more work that we've taken on for next financial year. And if you see that our regular allocation to maintenance CapEx is between INR 10 crores to INR 20 crores, most of that money goes into this. And I think the debottlenecking work for this year, whereas it's complete, we haven't seen a lot of the capacity increase due to that, but this will come in next year, and there should be some more work next year as well.
Okay. And second question was in states like Haryana and West Bengal, I wanted to understand what does it take to actually increase your market share from 8% and 1%, respectively. Is capacity a bottleneck? Or what does it actually take? I mean how do we see it increasing from 8% to what you have in Rajasthan over a few years?
So in Haryana, it's policy, to be honest. So there's not a whole lot I can say right now. The policy needs to focus on increasing the regulated portion of the industry. But in West Bengal, what Dr. Roy was talking earlier is largely distribution and branding-oriented. Unlike other states, in West Bengal, we supply product from our bottling plant direct to customers, direct to retail. As a result, our logistics cost as a share of revenue in West Bengal are far higher.Therefore, we have only been able to focus our work in a certain -- in a few certain geographies in West Bengal so far. Just a few weeks ago, we saw an increase in price of country liquor in West Bengal, which allowed us to spend a little bit more on our selling and distribution network. And we are now working on taking up bottling capacities in geographies where we are not able to supply and also working with excise to permit stockists warehouses in some areas of Bengal.So these are some of the works that are happening. Of course, there is the angle of product quality, packaging and all of that. On that, I believe, Globus' teams have created a very good product. Our route to market, our distribution needs to grow. And I think in the next 1 to 2 financial years, we will see a lot of that work coming through.
[Operator Instructions] The next question is from the line [ SB Bhaiya ], an individual investor.
Last quarter, actually, there is a dip in the volumes of Rajasthan. So how do you see this panning out this particular quarter and the next year?
So this year, we have seen in the last couple of quarters, consumption across the board in Rajasthan has been lower, IMFL and IMIL. Our market share remains at between 29% and 30% every month. So there's no concern on that. But I think net -- we need to start seeing increase in consumption. And hopefully, some of the steps being taken by Government of India as well as Government of Rajasthan should help that in the next financial year.
But how do you see panning out -- this quarter, are you seeing some green shoots?
We've just ended January, sir. So January has been, as per past performance, it's difficult for me to say how it's going to pan out for the next couple of months.
[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Shekhar Swarup for closing comments.
Thank you for joining us, everyone. Please -- in case there are any questions, please be in touch with us or our Investor Relations team. And we look forward to speaking to you very soon.
Thank you. Ladies and gentlemen, on behalf of Globus Spirits Limited, that concludes this conference.