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Globus Spirits Ltd
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Thank you for joining us on this call to discuss our operating and financial performance in the quarter and 9 months ended December 31, 2020. On the call today, we have with me Mr. Paramjit Gill, CEO of our Consumer Division; Dr. Bhaskar Roy, Chief Operating Officer and Interim CFO; and our Investor Relations team, Stellar IR. Consumption in rural and semi-urban areas have continued to drive overall economic growth as things reached pre-COVID levels and beyond. We are likely to see a continued period of growth in our industry as well. This growth-focused budget, along with the thrust on infrastructure, health care and agriculture, is expected not only to drive sentiment but also herald economic well-being. Higher employment and greater disposable income outside of the country's major cities will be favorable for our company. As we have been updating you on the past 2 briefings, our operations across the board have been quick to bounce back, and after the lockdown earlier in the year as consumption returned to normal levels very quickly. We are happy to report another strong quarter of good performance. While bulk alcohol continues to be the backbone of our business, our conviction to building a strong consumer portfolio in each state -- in each of our states has begun to pay strong dividends. In the quarter gone by, our brands contributed 45% of total sales, up from 34% year-on-year. This better quality of earnings, coupled with strong operational performance at our distilleries, has resulted in better cash flow generation and better margins. Our ROE and ROCE has steadily increased from low single digits in FY '18 to 21% and 25%, respectively, in the 9 months ended December 31, 2020. Free cash flow has been used to pare high debt -- high-cost debt, and as a result we have decreased our gross debt from INR 252 crores in FY '18 to INR 155 crores as on December 2020. The net debt to equity ratio has improved from 0.66 in FY '18 to just 0.17 as on 31st December 2020. Free cash has also been used to invest in growing our consumer business as well as our capacities. Another unique position of the company [ with ] cash flow is MAT credit that we have generated on account of our power production facility which uses biomass as fuel, as a result of which our effective cash payout for tax stands at around 16% to 17%, which is the lowest in our industry. Coming to our segment-wise performance. In our spirits segment, the government's push on ethanol blending has resulted in expediting a 20% rate of ethanol blending with petrol by 5 years to 2025. This continued thrust will benefit by drying up surplus capacities of alcohol and giving us greater control on margins in all states. It also enables opportunities to expand our capacities in areas that continue to remain deficit in ENA for beverage and ethanol for petrol blending. For the quarter ended December 31, 2020, bulk alcohol sales were a bit lower at 26 million bulk liters as compared to 30 million bulk liters in the same period last year, as capacity utilization in Bihar was impacted in this quarter due to a flood situation in the region. However, currently, conditions have normalized and utilization at Bihar has reached well above 90% as well. In our brand segment, over the last few calls we had explained that the Indian market was shaping into an hourglass-shaped market, with product development efforts being aimed either at the top where margins are high or at the base where volumes are high, backed with high growth as well. We are seeing this to continue to pan out, and our strong presence in product portfolio in both the significantly large segments of IMIL and IMFL are helping us generate growth across the board. For the company, Rajasthan and Haryana posted strong growth in the back of rural consumption growth and new brand launches in the medium liquor segment, which approximately halves the pricing difference between IMIL and IMFL for the consumer. West Bengal saw a temporary dip in volumes due to a change in excise policy. Overall, volume sold for IMIL segment stood at 3.27 million cases in Q3 FY '21 as compared to 2.88 million cases in Q3 FY '20. Going forward, we will continue to make investments in growth accretive areas. As we had updated you during the last call, we are investing about INR 100 crores in West Bengal for setting up 140 kiloliter per day capacity plant for ENA and ethanol in the state. This expansion is amongst the lowest cost expansion in the industry and will help us improve our return on equity further. We are in process of expanding our Rajasthan facility from 140 KLPD to 160 KLPD. This is a very low cost but a very high ROE expansion that is expected to be completed by 31st March 2021. Further, we are in the process of examining other greenfield opportunities and will invest judiciously behind both new capacities and our consumer business. On the Unibev merger, we are hopeful of being able to complete the merger process in this fourth quarter, and this will help us combine our synergies and focus our energies on building a strong consumer business that is well poised to take advantage of the hourglass-shaped market. I now request Param to please throw some light on the consumer business segment.
Thank you, Shekhar. Good morning, ladies and gentlemen. It is indeed a pleasure to interact with you on this earnings call. The consumer business at Globus, as you are aware, is an amalgam of IMIL as well as IMFL segments. I'll take you through one segment at a time. Firstly, the IMIL or the country liquor segment. The country liquor segment has been witnessing a structural shift, driven by increasing income in the rural and semi-urban markets in the country. As a strong player in this segment, we've been witnessing strong growth too across our markets. In line with our confidence in the future potential of this segment, we are further investing in creating better offerings for consumers of the segment, in line with evolving tastes and are confident that this, coupled along with the work that we are doing to strengthen our frontline capability, will further cement our position. Let me share some of the key trends in our important markets. In Rajasthan, we have seen an increase in the market size as the consumer continues to favorably respond to the IMIL segment. Hence, the Rajasthan medium liquor that we recently launched continues to see very strong growth. We have been able to benefit from our large product range that occupies a very sweet spot for consumers. And accordingly, we have witnessed strong volume growth of circa around 9% year-on-year of 2.42 million cases. Our market share continues to be strong at over 28% at the end of Q3 FY '21, and we are hopeful of continuing to do well here. In Haryana, which is our second largest market, here also our sales have seen a significant increase from 0.5 million cases in Q3 of F '20 to 0.67 million cases in Q3 of F '21, registering a growth of approximately 34% year-on-year. As a strongly regulated market, the state government's recent crackdown efforts on the illicit liquor trade have helped tremendously push the quality of sales that is happening at the local points of sale. We are hopeful of seeing this upward trajectory continue for the forthcoming quarters as well. This strong increase in sales is also coupled with improving market share that has continued to inch up for 3, 4 successive quarters and now stands at around 9% in the last quarter. In West Bengal, we sold about 0.09 million cases in the last quarter, that is Q3 F '21. The average realization in this market has also improved year-on-year. You heard Mr. Shekhar, during his opening comments, had given a quick brief on the short setback which we had because of the change in the excise policy, and we are in the process of having recovered from that. As we have updated you in the previous quarter, we restarted sales in the Delhi country liquor market. We are assessing the situation, and we'll continue to sell if the realizations remain attractive for us. Now coming on to the IMFL or the premium liquor segment. As you are aware, our IMFL or premium liquor that is sold through the Unibev umbrella already has an established presence in Pondicherry, Karnataka, Telangana, Andhra in the South; and West Bengal, Chhattisgarh, Orissa in the Middle and the East; and Maharashtra and Goa in the West. In view of the pandemic, competition has realigned their strategies, and so are we in the same process. Going forward, we will be making sharper choices with respect to prioritizing geographies, brands basis our right to win, new profitability equations based on recent and expected excise policy changes and the investments that are required commensurating our ambition. For now, we are working at marginally expanding our product offering. On the trading side, Unibev's primary sales for 9 months FY '21 stood at 94% over the same period last year despite retail point of sale not operating fully and considering disturbed trading conditions due to increase in excise duties by most of the states in the immediate wake of the pandemic. Our secondary dispatches grew 4% year-on-year in the 9-month FY '21. Our existing brands, Oakton and L'Affaire have demonstrated growth in the 9 months FY '21 over the same period last year. In wake of a challenging trading environment, we'll have to ensure that we are prudent with all our investments on expansion. Our product launch of Seventh Heaven blended with up to 21-year-old scotch is on track, and this will be introduced in premium outlets in select states based on profit salience. A new 3-year strategic plan outlining our vision for our IMFL business is underway and is expected to translate into implementation from around April this year. With this, I now request Dr. Bhaskar Roy to share operations performance for the Globus Spirits. Thank you.
Thank you, Mr. Gill. Good morning, everyone. I will now share the operational and financial performance of the company. As discussed earlier, with the opening up of most of our markets and a resumption of demand, we had already crossed our pre-COVID capacity utilization in the previous quarter. However, the Bihar floods led to some disruptions and caused some loss of revenue in the quarter under review. But on an overall basis, our capacity utilization remained in the 90% plus range. IMIL volumes for the quarter stood at 3.27 million cases in quarter 3 FY '21 compared to 2.88 million cases in quarter 3 of FY '20. Franchisee bottling volumes remained largely flat in quarter 3 FY '21 at 1.02 million cases. Bulk alcohol volumes sold for quarter 3 FY '21 stood lower at 25.68 million bulk liters compared to 30 million liters in quarter 3 FY '20 on account of impact of Bihar floods as mentioned earlier. The revenue mix between the manufacture segment and the consumer segment year-to-year saw a change with the consumer segment increasing from 34% in quarter 3 FY '20 to 45% in quarter 3 of FY '21 on the back of growth in both volumes and realizations. Let me now walk you through the key financial highlights for the quarter and 9 months ended December 31, 2020. During quarter 3 FY '21, the stand-alone total income net of excise duty was reported at INR 3,159 million against INR 3,268 million in quarter 3 of FY '20. For 9 months FY '21, our revenue was INR 8,759 million against INR 8,966 million in 9 months FY '20. The quarterly and year-to-date net revenues are lower on account of steep increase in excise duty. On a gross basis, revenues grew at about 22% for both quarter 3 FY '21 and 9-month FY '21 on a year-to-year basis. As explained earlier, we were aided by several tailwinds. And as a result, our EBITDA almost doubled to INR 703 million in quarter 3 FY '21 as against INR 360 million in quarter 3 of FY '20. The EBITDA margins expanded by 1,125 bps from 11% in quarter 3 of FY '20 to a very robust 22.3% in quarter 3 of FY '21. This is primarily attributable to higher realization, softening raw material prices and saving on fuel costs. In 9 months FY '21, EBITDA stood at INR 1,778 million, a growth of 80% year-to-year and accordingly, accounting for a margin of 20.3%, up from 11% in 9 months FY '20. As a result of this, our PAT came in at INR 403 million in quarter 3 of FY '21 as compared to INR 357 million in the previous quarter and INR 147 million in the corresponding quarter of the previous year. For the 9 months ended December 31, 2020, our PAT of INR 961 million, up 155% year-to-year and translates into a PAT margin of 11% from 4.2% in 9 months of FY '20. With our constant paring of debt, a strong focus on working capital management, while continuing our CapEx plan, we believe that Globus is operating from a position of great financial strength that has been arrived at by strong and prudent operating discipline. This concludes my remarks on the operational and 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 Abneesh Roy from Edelweiss.
Congrats on the recovery you have seen. My first question is on the Restaurant Association, NRAI, recommending that they be allowed to sell premium country liquor. Do you see this happening and if any time line you expect this could happen? And how does this impact your noncountry liquor business?
PSG, can you take that one on, please?
Yes, I will do that. Abneesh, so overall, this is a positive development because we are significantly a large player in the country liquor business, and this will bring country liquor into the fold of being our tradition and bring it to a very high, respectable level. And this scenario of projecting local traditional liquor in best restaurants and bars is already happening in many advanced countries in the world. As far as its impact on the premium liquor business is concerned, we are still very small players in that market, and we do not see anything which is going to create an anxiety. So all in all, for us at Globus, it's a positive move in a good direction.
So -- but do you see this happening? And do you really see customers buying the country liquor in a bar restaurant given he's a very value-focused customer?
Large volumes will not happen. But you see, foreigners will come, tourists will come and this is more to bring the experience out. It is not going to trade in any significant volume is my understanding. But foreigners come, tourists come and this becomes part of a one more pit stop that why don't we try what traditional liquor was. And the larger game of this is not additional revenue or the additional business we will get, it's about bringing pride into what we have traditionally been consuming and using.
Sure. That's useful. My second question to Paramjit Gill, again. So daily we keep hearing now new regulation, recommendation, et cetera. So what would be your take on 4 key things? One, they are saying that lower end of the liquor should not be allowed to sell, say, INR 140 kind of pricing. Second, definitely, the government shops will be phased out and private will happen, so that I would guess will be positive. Third, of course, is they are going to jack up the pricing by around 50%, today's news. So how do you see all this? Is this a big negative for the local players because the bigger 2 players, multinational players, they are quite happy about this. So what would be your take on this?
So the way we at Globus see it as -- you see at the end of it, in every market, there is a consumer for every price point. And where I see it from, it is always beneficial for the existing business players as well as for the state excise to graduate the consumer by making favorable pricing and duty structures to a higher price point. Knee-jerk swapping of price points I don't really think is going to be of any significant benefit because there is always that risk of illegal liquor flowing in from neighboring states. That's on the first point. The move to try and index a little more on private and a little less on government, I think the larger context is that along with this move, there is also -- if you notice, there is an intent to bring sort of a performance-driven approach to the government outlets because there is a contemplation that the government outlets must also have a performance target, which has been missing so far. So what the government is looking for is that regardless of the outlet being private or government, we are going to expect that this is going to be the minimum revenue performance from the outlet and they are going to be measured on that. Because they find it a little more difficult to try and implement it in the government, so the initial indexation is that private entrepreneurs would quickly fall in line. At the end of it, it will lead to a little added pressure on the outlets to make adequate brands available, to make sure any mischief that could possibly be happening is weaned away and consumers start getting more and more brands of their preference and choice, which will help them in turn meet their revenue targets, which the government will set for them. Coming lastly, the third question which you had pointed out on the increase in pricing. So I am also surprised by it. I do not have enough details on it at this point of time. But the initial report which indicates that it could be as high as 50% delta appears in a bit of a wrong direction because Delhi being a poorer state, it would again start inviting the neighboring states' liquor illegally. And it's early stage for the policy, and I'm sure there will be enough interactions and all industry bodies would advocate that this is going to be beneficial for the neighboring states and not necessarily Delhi. And let's see what happens on this one.
Sure. Very helpful. Last question, Rajasthan is a key state. So beer prices have been cut by INR 30, INR 35. Also surcharge continues on spirits, but has been removed for beer. So what is the reason for this in your view? And could this impact any of your business?
So time to time, there is always that play, if you would notice, across many state policies that if one segment starts coming under pressure, one of the weapons that the state excise has is to consider is there a substitution of share of throat between the 2 segments, and in this case, being beer and IMFL. So with the beer performance being under pressure, the government has deemed it appropriate to try and soften the purchase power on that for the consumer. As far as we stand, I really don't think it's something which at this point of time will be on our grid in terms of what affects our business. I really I do not see it having a significant impact.
[Operator Instructions] The next question is from the line of Prithvi Raj from Unifi Capital.
The first question is on your gross margin. If I look on a sequential basis, your revenue has declined by 5 percentage whereas your gross margin went up by 3%. What expense list do you want to implement in the gross margin?
So the main reason for expansion of gross margin from Q2 to Q3 is the increase -- further increase in our consumer business, both in terms of realization as well as volume. There has been some marginal changes in alcohol prices and raw material prices. Year-on-year, of course, the main reason is a combination of both these reasons.
If I'm correct, higher share of country liquor versus ENA has been higher margins. That's right?
Yes. Some cost changes as well.
And is it possible for you to give the breakup of, say, average gross margin for your country liquor and ENA business?
That's a little bit difficult to do that because it depends on how you price the transfer of ENA or spirits that you move to your country liquor division. But suffice it to say that country liquor is, in terms of gross margins, at least 15% to 20% more than ENA.
Okay. That's clear, sir. And second question is on your ENA realization. So for the last few quarters, we've seen it as 52, 53 level, which has been flattish. So whatever price hikes that we have seen over the last 2 years, is that completely over on the ENA side? Or do you know, will there be any, again, further hike in the prices?
I do think that this year -- this ethanol supply year, which started on 1st December 2020, there has been a significant growth in ethanol commitments, from grain-based ethanol commitments. So in the last ethanol supply year, the ethanol deliveries from grain were 15 crore liters, and this year the commitment is 40 crore liters. And this is for -- at a pan-India level. It's not about Globus. And all of this growth is coming from existing capacities. There are no new capacities that have been set up to contribute to this growth. As a result, I do think that as time passes, more alcohol is going to go away from the ENA market to ethanol, and there should be further positive pressure on ENA prices. But as of now, ENA prices are stable. And we have control on our margins, we are able to pass through cost changes.
Sir, one final question. So again, on the gross margin level, in the last 5, 6 years, the company has never crossed 41, 42 percentage, whereas this year it has -- it's almost 49% in this quarter. There seems to be a benefit from better monsoon and all. So how sustainable are these gross margin trend?
So the better monsoon, I would not attribute that as the foremost reason for this. I think there are 2 significant changes that have happened in the company in the last, say, 8 to 10 quarters. And this quarter's result is really the -- all those changes coming to effect in terms of our financials. One is the structural change in the spirit balance in the country, where a lot of alcohol is going towards ethanol and companies like Globus are able to -- because of our capacity in deficit states, we are able to increase our margins further over there. And in our capacities in surplus states, we're able to control our margins and there's been an increase in margin in fact there, too. And secondly, there's growth in the consumer business. Haryana has been firing. The Haryana market is now at about 25 lakh cases, where some time ago, about 4 or 6 quarters ago, it was around 12 lakh cases a month, if my memory serves me right. So Rajasthan, the launch of medium liquor, which halves the pricing difference between IMIL and IMFL has been a fantastic success for the company. Similar trends we are seeing in Haryana with a new medium liquor product over there. So it's the work that we've done in all of this which has led to increase in gross margins.
The next question is from the line of Agastya Dave from CAO Capital.
Sir, congratulations for an excellent set of numbers. Sir, I have 2 questions. One of them is a continuation of what the previous participant asked you. Sir, with this acceleration in government's commitment towards 20% mixing, how will the long-term player pan out now? Because more and more capacities have been announced and people are setting up -- or at least planning to set up capacities everywhere. So will this reduce volatility of prices? Or will this increase volatility of ethanol prices? That is my first question. Second question is, this year has been pretty disruptive, especially the first half. And now Q4 onwards will be overlapping some very low base numbers, especially on the expenses side. So particularly on other expenses, how should we look at our other expenses going up over the next 4, 5 quarters? Are there any major changes that you're planning because of Unibev merger? And will you be pushing a lot of ad spend? Or are there any other fixed costs which will come in with the expansions which we have planned?
Okay. So your first question about ethanol capacities. There is a plan that's been announced for going up to 20% blending at that level. I think the country needs another 600 crore liters of ethanol. Today, there is about -- there is a deficit of about 50 crores or 70 crore liters of ethanol. So that entire 600 is deficit. Even if you assume that today's demand and supplies match, that entire 600 or so is deficit. And those capacities need to come up in India. I don't know whether all 600 are going to come up. I don't know whether 600 will be 700 that will come up, but there is opportunity for a lot of people to set up capacity. The company is also undertaking expansion. The company is also evaluating 1 or 2 greenfield opportunities. I don't see volatility in margins to be there for some time because the government has fixed ethanol prices. They have even allowed a window for distilleries to purchase grain from FCI. We are not doing that, but there is an opportunity available, which -- so therefore there is a fixed margin that the government is willing to give. There are 3-way agreements that are being signed secure margins. I don't see this being very volatile. Be that as it may, there will be some states which will be, again, surplus. Globus' strategy has always been to look at deficit states, deficit for ENA and now deficit for ENA and ethanol, and that has been our sort of success factor. And I wish to say that further capacity, further investment from the company is going to happen only in the states which are deficit in ENA and ethanol, and that gives us a little more visibility in our earnings. What was the second question, please? I'm sorry.
Sir, the -- we will be overlapping now a low base effect from the expenses side, especially on other expenses. So any major...
At a consolidated level, Unibev expenses have always been sort of consolidated with our results, so there will be no change over there. But as our consumer business begins to grow, of course, the other expenses section will grow as well since we have items like freight, advertising, et cetera, with that. But something that Mr. Paramjit said earlier, we have a low base. We don't see that level of change coming in, in the next quarter or a couple of quarters after that. But over a long period of time -- over a sufficiently longer period of time, yes, as consumer business grows, other expenses will grow, too.
Right. Right. Right. But not disproportionately, right?
What do you mean to say? I mean we would like to -- we are...
Sir, no. So not from that point of view, but were there any one-off large expense cuts during the COVID period which will now start hitting the P&L going forward?
No. I think Q1, we were [ handling dispatch and things ], so freight costs and other expenses would have been lower in Q1. But manpower, overheads, employee expenses, et cetera have been the same throughout. We have never had high advertising. So it's not like in Q1 or Q2 of this year, there was no advertising. We've always had very low advertising. But freight expenses certainly would have been very low in Q1, Q2.
That's okay, sir. That's understandable. That's understandable. Superb, sir, congratulations again and best of luck for the next quarter.
The next question is from the line of Nitin Awasthi from East India Securities.
First question, sir, there's a Globus -- entity called Globus which has got permission to set up a grain-based distillery in Orissa. Is that an affiliate or our company or just somebody named Globus again?
No, no, that's our company. As a matter of process, we keep a few -- we keep working on a few states. It's not a project that is approved internally yet. It's not something that we've earmarked capital to. It's a way of sort of staying ahead on approvals. Approvals take up to 2 years. So currently, we have one other state which is fully approved and ready to receive investment. Orissa is at least 2 years away from there. So 1 or 2 states we keep taking approvals and having the state ready before taking the decision of investments.
Got it, sir. And apart from this news -- all the questions I have today are all news based. So one more news-based question. Is the company launching vodka, rum? And will the company also launch beer?
So stepping a little bit on Paramjit's shoes over here, but our 3-year strategic plan, like he said, is underway. We're not really in the position to confirm what are the products that we want to launch over this 3-year period until that plan is accepted. We don't really have any plans, per se, in beer. So I hope that answers your question. I don't have anything definitive to say on any of those things.
Got it. Lastly, sir, UP market has gung-ho on country liquor because of the illicit trade completely stopped there, which has opened a very big opportunity for country liquor. So I just wanted to understand from you, how is that state in terms of -- is it a deficit state? Is it a surplus state? Could you shed some light on it?
So UP is very much a surplus state. UP has far more alcohol than it needs. UP exports alcohol to other states. But on the country liquor and the consumer opportunity, Paramjit, do you want to talk a little bit about that, please?
Yes, thanks, Shekhar. So UP, obviously, is a populous state. And like most markets of north, being a populous state, it just drives higher volumes of country liquor. And that continues to be an opportunity for players who are considering to expand their horizons. And as far as we are concerned, when we make our and sign off our strategic plan, we will make sure that we have taken on board all variables that are available to us on all states in India, across all segments that we play in. So be rest assured that we will prioritize our investments and profit opportunities, including all of them.
[Operator Instructions] The next question is from the line of Hiten Bharucha from Sequent Investment.
Sir, my first question is on the margin side. So our margin was around 21% in current quarter. So do you think this margin is sustainable for FY '22 or '17, '18 kind of margin -- we will go again back to '17, '18 kind of margins? This is the first question, sir.
Yes. All our efforts is to make sure our margins continue to grow based on 2 factors. One is higher share of consumer revenue, which is what we have demonstrated this quarter, 45% over 34% last year. And we'd like to grow our consumer share further as time passes. The other is growing our margins on bulk. This is something that we have less control on. It is more market driven. But the current levels of margin are very much sort of in our control for the reasons mentioned earlier because there is capacity that's dried up from ENA, we exist in deficit markets. And as a result, we have -- it's a bit of a seller's market rather than a buyer's market when it comes to the spirit space. So we would very much like to see our margins grow, and that's what we're [ working on ].
Okay. Okay. And my second question is like we are investing INR 100 crores in ENA and ethanol plant, and Rajasthan facility is also increasing, which will be completing in March '21 next quarter. So sir, what kind of revenue growth we are targeting for the next 2 to 3 years?
So 140 KL per day distillery in Bengal will give us about 5 crores -- just shy of 5 crore liters of alcohol per year. If you multiply that by average selling prices currently, that will give a sense of the growth that's going to come in from there. Consumer business growth, like it was mentioned earlier on this call, we are working on our 3-year strategic plan, which will be put into effect in April, and that's when we can talk about how much growth is expected from there. But it should be more than what we have seen in the last 1 year.
Okay. Okay, sir. And my final question, sir, what will be our annual tax rate in FY '21 and '22? And if you can guide for the CapEx spend for '21, '22.
'21, '22 tax rates will continue at the same level as it is currently, which is about -- well, effective tax rate is about 16% to 17%. CapEx plan, we have a couple more opportunities that we have identified. As I mentioned earlier, we have one state that's ready to receive investment. Another person who is on the call spoke about Orissa that we're working over there. So it's possible that we take up one more project next year. Currently, it is not something that we have started to work on. And I think by the end of this quarter -- end of Q4, we'd be in a better position to disclose our CapEx plans for next year.
Okay. Okay. And sir, just a follow-up, the final one. What was the average selling price of ethanol in Q3 versus last year?
So Q3 is when the year changed actually for ethanol. 1st December of every year is a new ethanol year. So from 1st December, our prices are INR 41.55. And for the year before that, so you're ending in November 2020, our price was INR 47, I think. Dr. Roy, is that right, INR 47?
INR 51 and INR 47, yes.
INR 51 in December '20, right?
INR 51 is right. Right.
Okay. And INR 47 for November '20, the last year. Okay. Okay. I have a few more questions, I'll get back in the queue, sir.
The next question is from the line of Pranav Gala from I-Wealth Management.
Sir, just one question I wanted to understand was on our gross margin. Sir, through our channel check, we've come to know that broken rice prices have increased around 10% to 15%. So just wanted to understand how will that impact us going forward? And what can be the sustainable gross margin that we can see?
Thanks for that. Broken rice prices have not increased for us, in fact. So for us, broken rice prices have been flat Q-on-Q. Year-on-year, they have come down dramatically, in fact. However, we don't see this as a very significant factor because any changes in broken rice prices, we are able to pass on to our customers for ENA very quickly. ENA is a month-on-month contract. In case of ethanol, which is a much smaller part of our revenue currently, ethanol prices are reviewed every year based on grain prices. There's a formula that is set, so that moves up or down based on the formula. The current margins on ethanol are secure. And on country liquor or IMIL or consumer, we see sort of price increases happen every 2 years, which take care of the cost increases during that period.
Okay. Okay, sir. So currently, the margin that we have, which is 48%, it can be sustainable seeing that IMIL is doing good. And also seeing that the ENA prices are on our hands because we are in deficit states. Is that understanding right?
We are in deficit as well as surplus. So Bihar is, of course, an infinitely surplus state because there's no consumption there. Haryana is a surplus state. Rajasthan and Bengal are deficit. So what a surplus state gives -- what a deficit state gives you is a higher margin than a surplus state. Ethanol has ensured a certain minimum margin for even our surplus states, and as a result, our deficit states are making an even higher margin.
Okay. Okay. And there's also been -- and there is no -- on your end, you are not seeing any broken rice price increase?
There is no increase in broken rice prices; in fact, we've been on the down.
The next question is from the line of Prithvi Raj from Unifi Capital.
My question, again, is on gross margins. This year, we benefited lower sourcing cost and higher ENA prices. Sir, say in a bad monsoon year, are we in a position to pass on this increase in sourcing costs to our OMC contracts?
Yes. So the price is set every year based on -- and this is why the ethanol year is from December because they take into account effect of monsoon, estimated production of raw materials, et cetera. So every year during, say, August or September, the pricing is reviewed and data is collected from various sources. So that is -- there is a fixed margin sort of formula that the government and the OMCs apply to determine what the prices should be for next year.
Got it. Sir, my next question was on plant expansion. So is the Bengal expansion on track to come in by July this year?
Yes.
[Operator Instructions] The next question is from the line of Vivek Shah, an individual investor.
Sir, would you be able to give some kind of a revenue and EBITDA margin guidance for FY '22, do you think?
This is -- thanks. That's a little bit difficult for us to do. We have a lot of work that's underway. We've given a lot of detail about our consumer business and how we expect it to fare and the reasons for that. We've also given a fair amount of information about new projects and how -- what are the margin profiles of our spirit business and our consumer business. Now it's difficult for me to really give an indication on what will be margins next year.
Sure. So then from a growth perspective, I understand that one is the new ethanol plant, right, with the INR 100 crore CapEx which you are doing?
Yes.
And second is the new facility capacity expansion in Rajasthan, right, which will come online by March 31?
Yes.
Right. And the West Bengal distillery with 140,000-liter capacity?
Yes, that's the same thing as the first thing you said. So 140 KL in Bengal, 20 KL in Rajasthan plus growth in consumer, that is what is on the cards for next year.
Okay. And then my second question is that, if I understand correctly, your consumer -- the margin in the consumer business is around 25%, right, EBITDA margin and the bulk is about 15%, is that correct understanding?
No, it would be a bit higher than that. Otherwise, it will be difficult to get to our current levels of margins.
Okay. So any -- can you add a color there that what will be the EBITDA margin for the consumer versus bulk in Q3?
Dr. Roy, do you have that estimate?
As already told, because there are a lot of things on transfer pricing happens, at what pricing we are costing the consumer business. So we can always take into granted that the bulk -- from the bulk, 15%, 20% higher will be in the consumer business.
So what is the margin in the bulk? If you can give either Q3 or 9 months average, whatever is available.
So if you take it around INR 16, INR 17 EBITDA margin on a bulk basis, then you consider that above that, there will be 20% higher in the -- 20%, 25% higher in the consumer business.
So bulk should be about 25%.
The next question is from the line of Sai Narayan, an individual investor.
Congratulations for a good set of numbers. So I got 2 questions actually. One is with respect to the West Bengal capacity augmentation. So we are planning to invest close to INR 100 crores. So I want to ask actually, what is the current debt level with the company, both short term and long term included? And how are you -- so how much amount of money we are planning to borrow out of the INR 100 crores from the bank?
So current debt is about INR 155 crores. We are, as of now, not planning to borrow anything for the Bengal project. There is an opportunity for us to replace our current loans using a low-cost loan provided by the government for setting up more capacities. So as and when that is sanctioned, we will take a loan for Bengal but use it to pay off our existing loans.
So this INR 155 crores is long-term -- both long-term and short-term debt? And for this INR 100 crores, we are not planning to borrow anything and it is going to be funded through internal accruals, right?
Yes. There will be no increase in borrowing. Despite commissioning this project, there will be no increase in borrowing.
Okay. Next question is on revenue, Shekhar. So I think it's been 3 years actually. So is there any idea when are you going to break up [indiscernible], any idea?
So our strategic plan is underway, and I hope to give you more information on this in the next conference call.
And as you know, actually, we have softening of raw material prices. This is one of the reasons you are able to build up the margin. And in the context of the new farm laws, actually, so do you see the prices going up or going down? Because raw materials is one of the major ingredients, right, in the context?
So firstly, I must say that our margins are more under our control now than they were in FY '17, '18 or any other time before because there is a much lower surplus in the alcohol sort of capacities than there was earlier. Yes, there has been a softening in prices of raw material that has translated to -- some part of our margins have gone up due to lower raw material prices and some part of our margins have gone up due to higher prices of ENA. But... [Technical Difficulty]
Sorry to interrupt you, sir, but we lost the audio from your side. Members of the management, we lost the audio from your side.
Hello?
Is it clear?
Now we can hear you, yes. We lost the audio for 3 seconds, so we'd request you to please repeat.
Hello?
Yes. Sorry. Are you able to hear me?
Can you repeat that because maybe Shekharji is not in the line? We disconnected him somehow.
No, I got the answer actually for the question. So what is -- the last thing, we are introducing a new brand, right, the TERAI brand? TERAI, the gin brand, right? So I heard that you are planning to introduce in Singapore. So the question I was about to ask Shekhar is, is there any plans of taking the other brands outside of the country, liquor brands globally? So that was the question, sir.
Country liquor brand cannot be global, but I will ask Mr. Gill to answer it.
Yes, yes. So, Narayan, we -- in the short, medium term, we do not see our IMFL Unibev range of brands going global because there is enough work for us to do in the domestic market. Only after that, we will explore new possibilities.
When will this new TERAI Gin brand will be introduced in India? Any idea on that?
Say that again. I did not -- I couldn't hear the question.
This new gin brand, right, TERAI.
Yes, TERAI. TERAI, yes.
So when is it supposed to be -- TERAI, when is it supposed to be launched in India?
So TERAI has already been introduced in a couple of markets. It has already been introduced in Delhi. And the future of TERAI also will be part of our strategic plan, which we should be in a better position to divulge and share in the next call.
[Operator Instructions] The next question is from the line of Abhinav Sharma from Step-by-Step Consultants.
Shekhar, a lot of quarterly results have been discussed. I was just wondering if in case -- if you can just enlighten us what could be the major difference between country liquor and IMFL?
Thanks for that. PSG, can you take that, please?
Yes. Just to elaborate on your question a bit, Abhinav, when you say, "major difference," is it in terms of offering, in terms of price?
No, no, no. Both. Both. Both.
So obviously -- so both go hand-in-hand. Country liquor business at this point of time is the bottom of the ladder of organized legal spirit that is being sold for consumption. Now obviously, over time, aggressive business players like us have been augmenting these offerings by improving the quality of the offering, which is a natural consequence across all industries. And price-wise also, the IMIL segment and then the IMFL segment, their offerings are far more richer in terms of the contents of the liquid, the packaging, the overall experience, and hence are chargeable at a much more premium rate. So it is just the typical value chain ladder that as the consumer wants a better experience and a better brand and a product offering and a better portfolio choice, he keeps moving up value chain. So the value chain is -- country liquor is at the bottom of the value chain. It is -- the next comes IMIL or RML, as we call it, and then comes the steps of the IMFL chain.
And I was just hearing to -- somebody was talking about the government is allowing country liquor to be offered in restaurants. Is a whole lot of big opportunity opening up here?
So I don't think business-wise it is a big opportunity, but it definitely brings a lot of futuristic opportunity in terms of enhancing the image of the segment. Because the whole objective, to my understanding, is to bring pride into what we have been consuming over centuries. And I don't think there's going to be a real volume impact, but it is definitely going to be a pride. And of course, it will become an experiential thing, which probably will get experienced not on a regular basis, but definitely to a wider consumer base and could have an overemphasis on tourism and may get some good positive hype also around it.
The next question is from the line of [ Jatin Arokiya ] an individual investor.
Sir, this is related to the sales revenue compared to last year and this year. So what I infer, last year the sale was INR 328 crores, and this year it is INR 316 crores, which is like INR 12 crores lesser than last year. But it was mentioned that the consumer business sales was up from 34% to 45%, which means I was expecting that the sale would have been at INR 350 crore or INR 360 crores. However, is it at INR 316 crores. Can you please throw some light so that I can understand?
Sure. So the main reason for the dip in revenue is what happened in Bihar for nearly 2.5 -- there was a flood situation over there. In October, our capacity utilization was about 10%. In November, it was between 20% and 30%. And in December, it went, I think, above 50%. So practically, for one whole quarter, we had very low production, in fact negligible amount of production there, and that has impacted revenues.
Sir, can I assume that this is not going to happen in Q4 and it will be back to track?
Yes, the flood is gone, and we are running at 100% capacity.
The next question is from the line of Hiten Bharucha from Sequent Investment.
Sir, just a sort of clarification. So our West Bengal capacity, which is commercializing in Q2 FY '22, the total capacity is 140 KL, right?
The new capacity is 140, yes.
Yes. So 140 of West Bengal and 160 of Rajasthan, so our total capacity will be 300 KL, right, sir?
No, no, no. Our current capacity in West Bengal is 110,000 liters per day. Our current capacity in Rajasthan is 140 KL per day.
Okay. Rajasthan is 140 KL per day. Okay.
Current capacity. Rajasthan will become 160 KL per day on 31st March -- by 31st March 2021, so another 1.5 months. And by around July of '21, Bengal will become 250 KL per day.
250 KL per day. Okay. Okay. Okay. And the second question is on bookkeeping side. What is -- if you can give the free cash flow generated in 9 months, if it's available?
Dr. Roy, is that available with you? Dr. Roy, are you there? We can get back to you with that number.
No problem. No problem, sir.
The next question is from the line of M. Nikhil, an individual investor.
Sir, so regarding the West Bengal market, sir, your sales have dropped from around 1.5 lakh cases to around 90,000 cases. So has it normalized now? And what is the...
Yes, it's in the process of normalizing. We are nearly at the 1.5 lakh case number a quarter.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Shekhar Swarup for closing comments.
Thank you, everyone, for taking out time to join us. Happy to answer any further questions you may have. Please do reach us -- reach out to us directly or through our Investor Relations agency, Stellar. Thank you again, and wish you a good day.