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Globus Spirits Ltd
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Ladies and gentlemen, good day, and welcome to the Globus Spirits Limited Q3 FY '23 Earnings Conference Call. We have with us today Mr. Shekhar Swarup, Joint Managing Director; Mr. Paramjit Gill, CEO, Consumer Division; Mr. Bhaskar Roy, COO; and Mr. Nilanjan Sarkar, CFO. [Operator Instructions]
I now hand the conference over to Mr. Shekhar Swarup. Thank you, and over to you, sir.
Good afternoon, everyone. Welcome to our earnings call. Sorry about the delayed start today. There were some technical difficulties at our end.
At the outset of this call, I'd like to address the recent announcement by the company about the income tax search. This was a routine search that was conducted. And during the search, no unaccounted assets were ceased. There is no meaningful impact on business operations during the search. And since the completion of the search, we have not received any assessment on the office from the department. We will, of course, inform SEBI regarding any updates on this from time to time.
At Globus, in the last few years, we've focused on creating steady growth through a well-entrenched destination business as well as laying the foundation for growth in our consumer business. Both these sides of our business continued to make strides in the quarter gone by.
In Jharkhand, we announced the commissioning of our greenfield 140 KL crane, ENA and ethanol plant. Happy to inform you that in the quarter gone by, this facility has produced to 90% of capacity utilization, with efficiency improving every month. The installed capacity of the company is now 765 KL per day, of which 335 KL is dedicated to ENA, and the balance is fungible between ENA and ethanol.
Our second expansion in West Bengal and our first expansion in Jharkhand is underway. There has been some delays due to global supply chain disruptions. However, the delays are now behind that. We expect both expansion projects to be completed in early Q1 '24, adding 60 KL per day at each location. We also now look forward to starting construction at [indiscernible] as soon as all regulatory approvals are imposed.
Energy costs has been a hot topic. And I'm happy to inform you that various initiatives that were taken up by our engineering and operations team have resulted in reducing energy consumption by 5% in West Bengal starting in the month of December, with the potential of going up to 20% savings. Savings in energy consumption that is.
Over the course of next year, we will be implementing these learnings from our West Bengal plant to all our locations. And this will enable us to reduce fuel consumption by 20% at locations in East India and 10% to 15% in our other locations.
On margins, as illustrated in the investor presentation, which I hope you've seen by now, excluding IMFL investments and an exceptional underperformance at Samalkha, Q3 EBITDA margins were in the range of 14%. ENA price revisions over the year has been helpful, with prices up 20% year-on-year and about 13% year-to-date. This quarter saw a marginal softening in fuel costs. However, grain costs remained steady.
From January, we are beginning to see Coal India making large quantities of coal available to the industry, and this has helped reduce cost of fuel further. As long as this continues, coal cost shall remain subdued. As many of you would be aware, though we use multiple fuels, including coal, rice husk and other agricultural base, coal prices drive the entire market for fuel.
In Q4, however, grain prices have started seeing an upward movement. Going forward, I expect margins to remain in the range of 13% to 15%, excluding [indiscernible].
As you go into the next financial year, price increases, especially in our Value and Value Plus categories, will start getting realized, and that will help our margins further. We've been very excited about the prospects of our prestige and above brands hold.
And in the last few quarters, Param and I have spoken to you about all the work that have been happening towards creating competencies and reasons to win in the marketplace. I'm very happy to inform you that this quarter, Prestige and above brands have brought in 7% of our consumer revenue. This is a small but an important step as we start to gather some steam towards getting to our first major milestone of 20% consumer segment revenue share.
I request Param now to talk a little more about this.
Thanks, Shekhar. Good afternoon, everyone, and I hope you all are well. In the overall consumer segment, the aggregate sales in Q2 FY '23 came in at INR 4.05 million, up 7% year-on-year -- I'm sorry, that was Q3.
It is noteworthy to mention that in the quarter gone by, the average realization of the consumer segment further improved INR 400 rupees -- 510 per case in Q2 also for 583 to INR 537 per case in the quarter gone by, that is Q3. This was on account of better mix across sales and continued lower trade spend in [indiscernible] in line with maintaining our focus on better brand profitability. Going forward, with our product mix improving towards Value Plus and Premium segments, we believe realizations will continue to remain with us.
Let me start on the Value and Value Plus segments. Our overall revenue in this segment grew 32%, which is happening. In [indiscernible], RML, the Value Plus segment, continued to demonstrate our brand strength of the marketplace. This was supported by our [indiscernible], which, in its second year of launch, delivered double-digit market share in its segment in the quarter gone by.
Notably, our risk, which is also in its second year, is slowly gaining consumer acceptance and is helping us get stronger in the risk portfolio as well, which is led by our country club, which is our flagship whisky.
We also launched [indiscernible] in the Value segment last quarter, and we'll continue our work in increasing our product offerings to the ever-evolving consumer. [indiscernible], our strategy to creating a sustainable business model is playing out. We have maintained our increased contribution of INR 26 per case, and we'll continue to brand [indiscernible]. Consistent efforts on metro liquor, which is in the Value Plus segment, are bearing fruit as we are seeing our momentum build in this segment, and both our brands in the segment are [indiscernible].
Investment [indiscernible], there was, again, a road to market change in the Value and Value Plus segments at the end of last quarter, which led to some disruption in our service-led industry. The good news is that the new RTM is not tradable to brand building and will help us in times ahead. In this change, a new category in the Value Plus segment has been introduced. This clearly demonstrates that across its opportunity of this segment is now being recognized, which will now go well for us as we go forward.
Coming to the Premium segment, we are happy to report that the previous -- and this segment is going -- is showing very promising prospects. Our revenue in Q3 [indiscernible] almost INR 15 crores against INR 2.3 crores at same time last year and INR 4.4 crores in Q2 of this year.
Corona, where we had launched sometime at the beginning of Q3, has also shown encouraging reception to all our 3 brands, with [indiscernible] launched in the current quarter.
In Telangana, however, we could not get approval for one of our key brands to operate and hence, are relenting our strategy for the state and keep you updated. Investment work, we have expanded our portfolio now to take advantage of the self-owned local manufacturing facility and are hopeful of posting meaningful growth in the coming quarters. We are in the process of launching Mountain of Whiskey as we talked to you.
Rupee as well as [indiscernible] markets also are sitting well, as we inch closer to the end of our first full year. The business confidence to expand our offering portfolio, and we will be launching 3 new products in this calendar year across local markets, 2 of them in the first quarter of FY '24.
Focus have relatively undertaken to strengthen our key accountabilities as we continue to drive our premiumization journey. We expect to close FY '23 with close to about 2.25 lakh cases under our belt, thereby setting ourselves up for a great future.
I will now hand over to our CFO, Nilanjan, to take this forward.
Thank you, sir. Good afternoon, everybody. Since all the results and the investor presentation have been published in advance, I will not take much time and will open the floor for questions.
[Operator Instructions] The first question is from the line of Prithvi Raj from Unifi Capital.
I just have a couple of questions. So first, can you give the CapEx for Q4 and next year? And how much it will be funded through internal accruals and then borrowing?
Nilanjan, could you please take that?
So you are asking the question for the Q4 of next year?
No, no, Q4 of this year and then FY '24 full year. What is the CapEx plan -- and a little bit on that?
I don't speak for next year. It is based on our approvals coming through for this. So currently, we are working on that, sir. Nilanjan won't be able to give you that figure. As soon as approvals are in place, then the CapEx plan will get firmed up.
But for Q4, Nilanjan, please do give the figure.
For Q4, the entire CapEx that we have, pending for the 60 KLPD that is pending to be done, and it will be entirely from our internal accruals.
And what's the figure?
We have spent almost 150 KLPD. We have spent almost INR 35 crores, INR 40 crores and other...
20-ish level?
Yes, another 20-ish level.
And Shekhar, if I assume you get approval for design UP greenfield projects over the next couple of quarters, how much can be the CapEx? And how are you planning it fund?
The capacity of these projects has not yet been firmed up. It's based on the approvals that will come based on approvals. We will then decide how to correctly engineer. But let's assume that each of them are a 200 KL project.
If it is 200 KL, it will cost us about INR 150 crores for each. There may be some debt financing, maybe about 20% or -- 25% could be financed by debt, and the rest would be internal accrued. But as I mentioned, it's all based on when this will come.
This debt amount is also assuming both projects start on the same day. So there's a lot of ifs and buts. That's why I said the -- I can't give you clarity, but each project is roughly INR 150 crores. If it's a 200 KL plan, if you take up one project in this year, then there shouldn't be any need for debt. If you take up 2 projects, then maybe about 20% debt.
That's clear. That's quite helpful. My second question is on the IMFL business. We see the way that revenue has increased this year has been quite good. And what revenue run rate can we reach EBITDA breakeven in this particular business?
So I'll let Param give more details on that. But roughly we are, according to our plans, every state takes 2 years to breakeven from the date we launch in that state. And different states has been opening up different time periods. All states we haven't gone into together.
But as a rule of thumb, approximately 2 years to breakeven in every state. Of course, there are some states that we've had problems like Telangana that I'm just talking about. So aside from any of those problems, we have seen that states have taken 2 years.
Param, do you want to use anything more?
Yes. The first year, and we introduced, obviously, it takes us quite a long lead time to test the product out and get the brand into the market. So from the day the first liquid flows in, you can say, end of third year. Regardless of that year, which are part time of the year we launched it in. So third complete year, we expect almost all the states barring and exceptions here and there to turn around and start contributing to the equity.
My final question, Shekhar, again on margin. See, I mean, last few quarters, I guess you have been guiding that you can reach 220 percentage EBITDA margin, okay? But now we are talking 12 to 14 percentage, that is also excluding IMFL. So what exactly has changed [indiscernible]? Is it because you expect this ENA inflation and fuel inflation to remain for many quarters going forward? Or is there any pricing pressure that you are facing from your customers?
No. I mean, ENA prices, we've been able to pass on our cost increases, as I explained earlier. This sort of margin range, I mentioned, does not include price increases on the consumer business, which will start coming in, in April as was expected.
So if you remember in the last couple of calls, I've said that in each of our businesses, the time it takes to pass on costs are different. So ENA is the quickest, followed by ethanol, followed by our consumer business. So ENA has happened. Ethanol has happened. However, ethanol price increases were not in line with what we were expecting. But whatever it was, has happened, and now we're expecting consumer prices to start getting revised from April onwards, in fact, Rajasthan has already announced a price increase of -- Nilanjan, please correct me. I think it's INR 25 for Value and about INR 40 for Value Plus.
Yes. Yes. Yes.
So all this will start getting implemented next year. So we are still working at new costs in the consumer business without any new prices. So that's going to increase margins. Ethanol price increase has been unsatisfactory, not in line with what we were expecting. So there's been some margin erosion there. But without consumer, 15% is something that I can see clearly right now.
The next question is from the line of Tarang Agrawal from Old Bridge Capital.
Three questions from my side. The first, if I see -- on a sequential basis, your consumer business, as a proportion of your overall revenues, increased, which is also validated by a commentary, your realization is moving up from 510 to 516, so on and so forth.
But for whatever reason, the gross margins are down about 110 bps, right, Q-on-Q? And my understanding in the previous quarter was that you were seeing cost inflation coming off in so far as raw materials are concerned. So has that actually -- if I am the opening commentary, you spoke about maybe grain prices actually inching up in Q4. So if you could just give us some sense in terms of what's happening there? That's one.
The second, on the power and fuel cost. If you could give us the number for Q3 FY '23? And what was the number for the same period last year? And third, if you could just tell us what happened with [indiscernible], which resulted in lower-than-expected yields.
Sure. Nilanjan, can you take you this?
Yes. And the [indiscernible] can you repeat your first question, please?
Yes. So on a quarter-on-quarter basis, if I see your consumer business, the share of consumer business is higher than your -- than the previous quarter, which is Q2 FY '23. Yet the gross margins have actually come off by about 110 bps, right, from 41.1% to about 40%.
And my sense was that as we were going into Q3, the grain prices were actually softening, or at least that will be my anticipation. If I just add the 2, then theoretically, the gross margin should have increased, but that's not happened. So what am I missing here?
We can do a deep dive on this. But the main things that have happened in Q3 are as follows: there's been an uptick in consumer, which you have focused; there has been an addition of the Jharkhand capacity. And all of that has come in as ENA.
The first, say, 30 to 45 days of Jharkhand, the efficiencies were pretty low. That has only started moving up, as I indicated in my opening remarks towards the [indiscernible] part of the quarter. And now, of course, it is as per our target.
The next thing that impacts margins is the IMFL business. Of course, not so much as gross margins but EBITDA, where there is an EBITDA loss. These are the 3 major themes that have played out last month -- last quarter.
With regard to commodity prices, there has been a slight reduction in fuel cost, very nominal. We have seen a much more -- a greater reduction in January, of course, let's see what happens in the rest of the quarter. But Q4, we've also seen an uptick in grain prices. The reduction in grain prices that we were expecting in the season -- in the harvest season has not happened to the extent it was expected.
But to the extent of our ethanol business, we are covered with TI grain. However, this does impact our consumer business. ENA, of course, we're able to pass on grain costs pretty well now. But our consumer business is impacted because of high grain and fuel costs throughout the year. And as I mentioned to the person before you, cost increase -- price increases in consumer are going to start coming in, in April, which will offset the cost increases that would have happened in the current financial year.
Okay. And what was the average grain cost that you [indiscernible] in Q2? And how has that translate in Q3? And how you're looking at it in Q4?
Nilanjan, do you have that Q2 information?
Yes. Q2 average grain cost was 19.63, and Q3 was 19 point -- in the same range of 19.45 to 19.5. So there was hardly a marginal decrease in grain cost. I'm talking about grain from the open market, which is the damaged food crate.
In Q4, we are seeing this go to about 2,000, 2,000 -- INR 2,000 and INR 2,100 per quarter.
Sure. Okay. And how much is the power and fuel cost in Q3 this year? And what was it for the corresponding period in the previous year?
Okay. And in power and fuel comparative mainly up 3 -- as mentioned of 3 coal, [indiscernible], and rice. While rice were sitting at almost INR 5.5 per KD. Last year same period, which goes up to 8.9 in the current period -- 9-month period. Coal, which was at 7, goes up to 10. And multiple, which was at almost 1.9 rose up to 3.2.
But Q-on-Q, there is some reduction in that -- 3%, 4% reduction in that. And then there has been some production.
As I understand, there's about INR 74 crores in the previous quarter. So I'm just looking at the absolute number for this quarter.
Okay. Nilanjan, do you haver the absolute number for power and fuel?
Yes. the absolute number on the rate impact on the 9-month period compared to last year was a negative of INR 77 crores.
77 is the next [indiscernible].
That's not the question. What is the total power and fuel spend in Q3?
INR 105.37 crores.
And now the reason goes up dramatically is because of our contract?
Yes.
And what was that in the same period, same quarter last year?
Sir, I'm giving you the number for last year. The current year number is INR 222.78 crores.
Sir, it is 9 months, right?
9 months. Yes.
Sure. And last on Samalkha.
Samalkha, the planting equipment is in aging. We've seen some -- how do I say it, lower recovery in Samalkha, lower alcohol in Samalkha due to aging equipment. These equipments are being replaced or retired, and we expect all of that to be complete by the end of this quarter.
The next question is from the line of Imran from Longo India Capital.
Sir, can you please share your power and fuel mix? How much comes from [indiscernible] how much is coming from coal?
I don't have -- I don't think any of our team members have that number ready. But roughly speaking, 60% is rice husk and multifuel and 40% is coal.
Yes. It is.
And what was this number roughly last year?
Similar.
Similar number.
[Operator Instructions] The next question is from the line of Jain from RTL Investments.
My first question is the price increase that you have received in Rajasthan, is that sufficient to cover the cost inflation that you've seen in FY '23? And actually, in Rajasthan, would consumer margins go back to normal going forward?
Yes. I mean, if you look INR 26 is about -- on many towns is about INR 8 a liter, which is sufficient.
Okay. Second, you mentioned about the fact that the ethanol price increase is lower than expected, and it seems the levels at which we are operating today, the return ratios on the ethanol plants also will not be great. So why is it then that you still are looking to add more plants...
Ethanol returns are not great. I said that ethanol rate increase was not great. That doesn't mean the return on our investment is not great.
So even with current ethanol prices and current kind of cost reductions that we see, we are still making reasonable returns on ethanol, sir?
Yes.
Okay. And this quarter, there has been a sharp increase in other expenses and employee expenses. Is that all to do with the Jharkhand plant?
Yes. It's all to do with the -- other expenses, comprises of power and fuel also. And it also comprises of bottling expenses and numbers. The higher we bottle the expenses, and bottling will go up.
And also on your question on employee cost, we had the liberty of capitalizing costs. The Jharkhand plant was not capitalized, which was capitalized last quarter -- end of last quarter. After that, we had to charge off expenses -- of employee costs. So that was another blip in the expense.
But going forward, we should assume this kind of order to continue?
Yes. Yes.
Okay. In this margin guidance that you gave of 12% to 14%, that is only for 4Q? Because -- in FY '24 at least 1Q onwards, the Rajasthan price increase should come in?
Q4.
FY '24, I mean, any guidance you would like to give us?
Difficult to say -- it's difficult to say right now, but this should be the base for FY '24. We have to see how coal volumes continue through the year. Last year, we saw Coal India reduced coal volumes dramatically and increased their own stocks. So I hope that doesn't happen. It doesn't make sense why Coal India should do that.
I hope something like that doesn't happen. If coal continues to be available for industry, then I don't see a problem increasing on these margins as the year goes by.
Sure. Sure. And on the ethanol price, any chances of you getting any price revisions? Or will this now happen only next year in December once -- for the next season comes in?
We are trying -- if coal prices is a public domain that information. So the information is available with the decision maker. But let's just -- to be conservative, let's assume it will only come next year. But working on to get some sort of interim [indiscernible].
The next question is from the line of Saket Kapoor from Kapoor Company.
Sir, firstly, regarding the darkened units. When will the units start contributing the expenses, which we have debited for the quarter? When it will commensurate with the revenue, sir? What's the date on it?
It's making profits today. There is no problem. As of late, profits in Q3, it is also making profits today.
Okay. But since it was the higher expenses that are highlighted on account of Jharkhand, so if you could explain the reason then for the price?
Jharkhand facility was not end in Q2. In Q3, it was commissioned, and you saw impact of revenue and expenses in Q3.
Okay.
So it is a startup of a new factory. And therefore, in the first quarter, revenue will jump as well as expenses will jump. And thereafter, it will stabilize.
So what should be the -- I'm going ahead. So [indiscernible] this quarter, we are not getting the entire benefit of the revenue. That is [indiscernible], sir?
90% capacity utilization in Q3. This will go up by maybe 4%, 5% points. Average, we are able to utilize 95% of our capacity. So to that extent, revenue will increase. But most of it is there.
Okay. And the expense line item will remain the same. It is not that -- the running of -- the ramp-up cost is no different than what it is a regular course of business?
Yes.
Okay. Sir, you did spoke about this softening of coal prices. I missed your earlier commentary. So going ahead, sir, how is Q4 currently shaping up in terms of the -- in content of the raw material basket? If you could give some more color, [indiscernible].
This is a reputation. I'll quickly summarize an interest of taking the other question. And then when the transcript is available, you can get more details. But we have seen coal prices soften in Q4. However, grain prices have been upward.
It is my expectation that without IMFL losses, we will have an EBITDA margin of around 15% in Q4. Going forward, we will get an increase on consumer prices, especially in Value/Value Plus. It actually help us show our margins further.
Right, sir. Sir, and if you take this packaging part and also how do the glass prices affect our input cost? So if color on these line item?
Glass prices -- if glass pricing goes up, our input costs go up.
Yes. So that's a [indiscernible]. I wanted to have the impact better. There is a dent on the margins because of higher glass? Or how are we dealing...
There has been, but for us, most of the impact has been on account of coal and grain prices -- coal/fuel and grain prices. There has been some impact on glass as well. Our draft procurement is much lower. By volume, the majority of our business is in PET bottles. The premium brands are in glass bottles.
Right, sir. And coming to lastly to the expansion in the West Bengal facility, sir, taking into account the expansion guide is supposed to pick up in Q1 of next financial year, what should be the geographical mix in percentage-wise? Or which states will garner the highest in the attending order?
Are you saying which states will have the highest capacity?
The highest capacity, yes, sir.
The highest capacity will be West Bengal.
West Bengal. And what would be then our market share there, sir, in the IMF in the product for 5 years looking forward?
I mean, these are 2 different things. Size of the unit and market share and consumer are 2 different things altogether. And these things are not -- they're not directly proportional at all.
With the scale up of our capacity in West Bengal, with the nearest competitor. I just wanted to understand what would be our market share with the expanded capacity? That was my question.
Market share of what?
Of the IMFL segment, sir?
Our IMFL segment volumes -- I mean I cannot -- our market share will be 2 percent points at best. And our market share is not relevant.
Sir, the capacity increases to serve the ENA and ethanol opportunities and not to -- and so with the RFM requirement, just in case if that clarity was [indiscernible] ?
Okay. So our dependence on the external purchase of ENA will go down. That is the main.
Sir we do not...
[indiscernible] beside we already have our capacity. We already have a capacity. We already have...
If you don't mind, let us set up a call and I can explain this to you more in detail [indiscernible].
Okay. Sir.
[Operator Instructions] The next question is from the line of Agastya Dave from CAO Capital.
Shekhar, what exactly happened in [indiscernible]? You said that one of your key brands was rejected. What exactly was an issue? Is it a permanent setback in the state? What were the parameters on which the brand was...
Param, could you take?
Yes. So [indiscernible] have not approved the reserves. The red color [indiscernible] is a little bit risky. Their contention is that 2 brands having the owner ever made. We do not want to approve at the same time. And while there are enough competition brands who play in the different price points and yet have similarity of some part of the name, there are many, but we have not been able to secure that approval.
And in the absence of that approval. Now we've been, obviously -- the brands have got approved and we have done a soft launch. But since [indiscernible] has not got approved, we are reevaluating our thought process of how to proceed. But be less assured that this is not going to any way impact our overall strategy of higher metal. Now is it going to impact the overall top line and bottom line business plan objectives.
These things can happen from time to time. And we haven't seen it yet because we've got approvals everywhere else like all other companies?
Right.
There are [indiscernible] behave in a unique way. And as an organization, we are dependent and we can only wait so far and then we have to evaluate ourselves.
Right. Right. Sir, next question is on this IMFL target that you have shared over the last few quarters that we are targeting a 20% revenue share coming from our IMFL branch. So what kind of time line do you foresee for achieving these targets? Because so far the scale-up has been fairly decent. I would say, almost impressive. How do you see things going from here?
Because you also have a lot of capacities coming in the other segments.
Yes. So just to clarify, the 20% is the segment revenue share.
I understand, sir. Yes, yes, yes. I understand, sir. In the consumer segment, right?
Go ahead, Param.
Sir, I think it's a little further down the line. Let me put it like that, that's what we set ourselves up for. And we have all [indiscernible] available to us how to grow this category.
In the short term, let me take the liberty of taking it upfront that we are -- our plan is to -- for sure, more than double our revenues in the coming year. And as the pace picks up, our ambition is going to get bigger and bigger because we are introducing new brands.
A little difficult to put a time line, and then be held accountable to the time line and to the state. But what we will do is, as we keep demonstrating quarter-on-quarter how we are progressing, we are very confident that the larger stakeholders will derive a lot of confidence and comfort to see that we are not only on a current part, but we are well on it. I think that should surprise, sir.
Yes, I just want to add something to what Param said. One of the reasons it's very difficult to give a date on this is also because the Value and Value Plus segments are growing at a pretty good rate.
Yes. Yes. Yes.
So that's why it becomes difficult to give an exact date.
Yes.
Because if that number was a static number, it would be a lot easier.
A lot easier. Yes.
Both are growing. It's something that we're working towards. You appreciate that despite a strong growth in the Value and Value Plus segments in Q3, we've landed at a 7%.
Yes, that's impressive. Yes.
And haven't been for that growth in Value/Value Plus, we could have been north of 10%.
Right.
So we've got to balance both of these things and see how we land in terms of share of segment revenue.
Right. Shekhar, I'm sorry to repeat this question about coal and the cost side. You've, obviously, gone into great details. But kindly help me understand this better. When I look at the international prices, when I look at the coal prices, our problems started on the margin side when the coal prices jumped up after the Ukraine attack, right, Russia-Ukrain war started. And the prices went through the roof, and they stayed there for...
Let me the [indiscernible]. Last 3, 6 months, I've spent a lot of time modeling Indian Coal prices with the international coal prices.
Right. And the link is not working out, at least for me.
There is no link. There is no link. The link was established when the war started.
Yes. And it has not gone away.
It has not gone away. I am 100% seeing the same thing we're seeing. It does not make sense to me, but that is how the Indian coal market is behaving, and I don't know why.
And when I tried to figure it out at the international level, the reasons for the prices coming down by 50-odd percent in coal over the last 30-odd days, the reason given is that the Indian imports have fallen. So that is -- just adding to the paradox here...
And the data that I'm seeing for Indian coal prices is not just our [indiscernible], but also a wider auction results of various Coal India options that took place in India. That link is broken. I don't know why. But the good news is that it can't remain broken forever.
Right. Right. Right. Shekhar, would you -- so if I look at our [indiscernible] performance, right, the 20-plus percent margins and when the going was really nice. What would be the #1 [indiscernible] in for you? Which has dragged down the margins the most? Is it just the lag effect of ability to pause the consumer prices much more slowly than what you would like to? Or is it the coal prices?
[indiscernible] reason is coal.
Yes. Okay. That is what I thought. And that is behaving very artificially, right? That's -- it's not being driven by market forces as of now?
Yes. No, upstream Ukraine war and before, there was a link. After Ukraine war, there was a link. But after that, the link is gone.
Yes. Yes. Yes. Great. One more thing, Shekhar, some of your competitors have actually mentioned that. So I have been tracking the grain prices, and I saw that the wheat prices, even though international prices were collapsing, the wheat prices are very, very steady in the domestic market.
But now they have started coming off. And at least the data I have, and I'm pretty sure your data is much, much better than mine. But the data that I have, I have also seen around the rupee fall INR 1,150 per KG fall in the broking rice price also. So again, I -- immediately, I own up to the fact that my data quality could be bad, especially in the grain side. But you mentioned that...
There was a reduction, but -- and that was in early January.
Right.
But thereafter, the markets have gone the other way.
Okay. And let's hope that the coal -- the market link actually start working again. I think that's a big drag on the company as of now.
For the economy.
For the economy. I know, I know. Everything has come down international prices of crude and coal, botgh have come off, but Indian prices, I don't know why they are staying up like this.
[Operator Instructions] The next question is from the line of Tarang Agrawal from Old Bridge Capital.
Just a couple of more questions. One, on the IMFL investment side, can you give us a sense on how your IMFL investments were for 9 months FY '23 versus what they were for the same period last year?
Sure. Nilanjan Sarkar, do you have that?
Yes. IMFL investment, basically, on the fixed cost was almost -- for the 9 months was almost INR 14 crores, which included a breakup of INR 4 crores in marketing and [indiscernible] personnel costs. That's on the fixed cost. And [indiscernible] before contribution, we have trade spend in all those costs.
A complete breakup can be made available from...
Last year, what was this INR 14 crores last year?
INR 14 crores last year was bare minimum. I don't have the number right now, but I can provide you. I don't have the number.
It would have been -- my sense would have been under INR 5 crores.
Yes.
Yes, it would be somewhere around 4-ish.
4-ish. Okay. So IMFL spends have actually come in Q3, right?
Yes. Yes.
No, no this is 9 months versus 9 months.
I know if I go through the presentation, it speaks about -- that's a negative INR 8 crores EBITDA that you've laid out in the [indiscernible].
The second question is from [indiscernible], must have been an issue [indiscernible] some time, right? I mean it's not something which may have glaringly shot up in Q3 alone?
In Q2 and Q3, Q3 was much worse than Q2, but it is there in Q2 and in Q3.
Okay. And last...
Your question is what was the impact in Q2? We can pull that out and make it available to you.
I don't have that.
Okay. And the last question, I mean -- Shekhar, I mean, the coal pricing has been quite onerous in terms of managing in this environment. At the same time, if you look at how our gross margins have trended, they're significantly lower than what they were -- perform primarily because of how the rice costs will move now.
Given the government's endeavor to -- their trust on having grain-based ethanol, right? How are your conversations happening there? I mean because -- I mean, at some point of time, this could be an industry pervasive issue, right?
I mean in this -- this has been taken up with the Ministry of Petrol as well as the oil marketing companies. They are sensitive to the issue. They understand that coal prices. The coal price impact has not been fully factored in while computing prices for this ethanol year.
And frankly, work is on to see if an interim price revision can be made. But someone else asked earlier on this call what should we expect. Work is on. I cannot say expect a price increase. It's an incorrect -- it's a speculative statement by me if I was to say that. And therefore, I must say that let's assume what we know. The work is on pricing of ethanol.
The next question is from the line of Jatin from Invest Savi.
So I had -- I was looking at the projections on EBITDA. And you have EBITDA loss on IMFL. Now with...
[Technical Difficulty]
Sorry, sir, the line for the current participant seems to have disconnected. We will move to the next participant in the queue.
We have the next question from the line of [indiscernible] from Minerva Asset Advisors Private Limited.
I just wanted to know why the West Bengal and Jharkhand plant that came online in Q4 and Q2, respectively, they are operating at 90% capacity in dilation as well? Or the like [indiscernible]?
Overall, Samalkha -- if I leave out Samalkha, our capacity utilizations are generally around 95% Jharkhand came in at 90% this quarter because of the first time it will be started up.
Okay. And the new expansion of [indiscernible] had happened in West Bengal, Jharkhand [indiscernible], how do you see them ramping up in terms of capacity utilization?
I'm sorry, your line is not very clear.
I'm saying West Bengal, Jharkhand and [indiscernible] projects expansions that are going on in the [indiscernible]. How do you see the capacity utilization ramping up for these new expansions?
I see them running at full capacity utilization.
Okay. So like as soon as they commissioned, they should be guiding at almost full utilization?
Yes.
[Operator Instructions] The next question is from the line of [indiscernible], an individual investor.
Most of my questions have already been answered. But I have 2 questions. Can we have -- how much was the utilization level overall, including the new capacities during this quarter?
Nilanjan?
I will -- can you repeat that?
Utilization, average capacity utilization all in?
The average capacity for Samalkha, which was at almost at 79%. Overall average capacity utilization in all the plant was more than 94%, except for Jharkhand, which was stuck at 90%.
And can you have anything in our mind on the growth in the utilization we are expecting going forward, especially in the bulk [indiscernible] ethanol or ENA?
This is -- on ethanol, we are not expecting any increase. We've spoken a lot about that today. I won't [indiscernible] to that. On ENA, if there are cost changes don't get passed on, whether it is upwards or downwards. So this year, we have seen an increase in cost. So that's been passed on as increasing any prices.
One more question I want to ask. [indiscernible], you are adding a little capacity, there is 19 KLPD, right?. So I want to understand why if there is a more capacity utilization that we are taking -- integration?
From an ROE point of view, it's very interesting.
Is there any scope and dislocation in large expansion [indiscernible] going forward? Or you have [indiscernible]?
Our expansion opportunities have been identified. And those are what we are working on. Besides this expansion in [indiscernible], we do not foresee any further expansion.
We have the next question from the line of Agastya Dave from CAO Capital.
Sir, this is a small question. In [indiscernible], while you're awaiting the clearances, have you firmed up any like local partners that you would need for bottling or setting up a bottling plant or managing your distribution? Will you go that route? Or will you be doing everything in-house?
No. Our business model so far is to do everything in-house. I don't foresee any change in that whereas it may it is a compelling reason to appoint such partners. We'll examine it. But as of now, we don't see any reason.
Sir, in all the states that you are active in the consumer segment, you control the distribution completely in-house. There are absolutely no partners?
Param, could you stand up, again, please?
Sir, are there any local partners in the consumer business that you partner with, for example, setting up a bottling plant or managing your distribution? Or is it completely in-house?
Yes. So I understood the meaning of your indication of partners. So the places where we have our own model units, all the [indiscernible] are economically viable to service [indiscernible] and I'll give you a specific example. [indiscernible]. [indiscernible] we are feeding from our current unit investing. [indiscernible], we are seeing from our current [indiscernible] at Haryana. However, in Telangana, we have a bottling tie-up. That is the decision of the partner. And we make choices, goes on, which is a more efficient model. And we can ensure that quality is not compromised.
And specifically, related to [indiscernible], you are not going to do it with a partner? Because you're going to have a very large distillery in the state, it makes sense to keep it in-house, right?
So as of now, we are not operating on [indiscernible]. And when the time comes, we will, at that point of time, would make an announcement to this.
Right. Right. And Shekhar, just a follow-up on one of the comments that you just made, that the oil -- the Ministry of Oil and the OMCs are well aware of what they have done. Like short change you guys with respect to the coal price side. Because the pressure is also coming from a government agency, which is Coal India.
So are the state governments also accepting that there is a need to increase the consumer prices more than what is actually the norm because of [indiscernible]?
It's difficult to paint all the states in one brushstroke.
Okay.
Sir, I can't do that. But I just have given us a price increase. So let's see how that shifts up well.
And you are happy with [indiscernible] increase, right? There, you are absolutely not complaining whatever of getting [indiscernible]? That's sufficient.
We have the next question from the line of Jatin from Invest Savvy.
Sorry, the line got disconnected earlier. So going back to the question I was asking. One, on IMFL, how do you see your EBITDA shaping up going forward? And two, on Samalkha, how long do you think -- how much will be the impact in the coming quarter? And then by when does that get shorted? And therefore, what I'm coming at is how do you see the projection on...
Yes. Your line is still bad, but I think I heard most of it. IMFL, we addressed this. Earlier 2 to 3 years from the time we launch in the state, we hope to be breakeven. Each state is launched at different time periods. So it's not possible for me to say on this date, all will be breakeven. We've completed our first full year. However, there was [indiscernible] that was launched during the course of this year.
Samalkha will take all of this quarter to stabilize, and we expect that, from Q1 onwards, we'll be firing on all cylinders again. What will be the impact in this quarter for Samalkha? I do not have that calculation, but let's just hold on for some more time. And at the end of the quarter, we'll give you that update.
So in terms of your assets [indiscernible], how do you see the EBITDA margins, let's say, to take -- good guestimate on the EBITDA margin going in the next quarter under one after the Q4 and then Q1?
I've already given that guidance in my opening remarks. 13% to 15%, excluding IMFL, is what we expect in this quarter. Next year onwards, we'll start getting in price increases of our consumer business. And we have to wait and watch how the coal situation continues to unfold in India.
[Technical Difficulty]
So my question is that in the current quarter, in your calculation, excluding the IMFL bid, it was around 14%. And now in the quarter going forward, IMFL being the highest growth segment which you are seeing. And that has larger negative EBITDA, obviously, with growth slightly as the EBITDA goes lower. So are we saying that the EBITDA margins, on an overall basis, not excluding IMFL, would possibly be dipping going forward from what it was at 10% this quarter?
Sir, I don't see that. In fact, IMFL is profitably. With more volume, we have less [indiscernible]. You don't increase loss with more volume. You...
That's actually what I had asked a little earlier that are we seeing the losses as a percentage go down? Because yes, it takes 2 years to stabilize.
Yes. So with more volume, there is less loss.
Obviously, you don't expect EBITDA losses to grow further than INR 8 crores in the coming quarter in IMFL?
So -- Param, can you comment on that? I'm not sure what our budget is for Q4.
So yes, I think the way you -- yes, I think your number is in the zone. We, obviously, can't nail the number down because we are in an evolving launch situation at any point of time. We are busy launching Mountain Oak Investment as we talk now, which is in completion for next year. So there is a lot of overlapping between this year's strategy as it undergoes into next year's strategy. But yes, the numbers that you are indicating are in the range.
The other overall guidance I've given earlier or not today, is that we expect to invest INR 20 crores to INR 25 crores a year -- this year in the IMFL business. So we've invested INR 14 crores already, invested INR 10 crores more. So yes, [indiscernible].
The next question is from the line of Nikhil Agarwal from Task Investments.
It's on the consumer business. On the next couple of quarters before we getting to the next [indiscernible] season, what's the outlook like for the overall consumer business?
In terms of what the top line, bottom line or the trend? What exactly are you looking for?
In volume terms and then the trends here now.
So as I have said, we are intending to volume, obviously, in this quarter because it's the early closing [indiscernible] will continue to build up. [indiscernible] renewal policies, we will not overdrive top line in [indiscernible]. West Bengal will continue normal. It will depends whether the policy is extended or not.
So there will be a slight push or holding in the last quarter of this year. But otherwise, we are expecting to more than double our top line and bottom line next year. I had said earlier on this call, without narrowing down the numbers, to sort of give you a sense of the aggression that we are intending to bring in. So that will translate obviously among the quarters. And we keep getting addresses as we keep moving further into the next year.
So Nikhil, at this stage of the business, it's very difficult to say one quarter to another performance is shaping up. But the trends are very clear in the business. And Param's target of doubling in the next financial year is something that I strongly stand behind as well.
Okay. Just a follow-up on that. So when you say doubling, you're talking about the IMFL?
Yes. So we are targeting to close about 2.25 lakh cases this year. So doubling on that.
Okay. Okay. And with regards to the IMFL, what should we expect for the coming year?
I think a lower growth rate going forward is something which is reasonable, around 7% to 10% in Value and a little higher, around 15% in Value Plus. There are reasonable numbers to expect.
We have the next question from the line of Kush Patia from SKP Securities.
I wanted to ask this question. Since [indiscernible] is a big market, has been gone basically. So what have been done to actually capture the Bengal market so that we can be aggressive? And the sales of either IMIL or IMFL can go up in West Bengal?
There's a lot of work on that. Param, could you please?
Yes. Yes. So let me pick West Bengal one. In IMIL, obviously, in West Bengal, the recent past -- it was very expensive to -- in terms of transportation cost to service the brand requirement beyond a certain geometry.
The reason is the route to market made it less and less viable as you travel the distance. That policy has been amended. And as we are going forward, it is going to start playing out there -- even if you have one [indiscernible], we can service in a much larger efficient way to the larger market, which gives us an opportunity to start building the [indiscernible] now.
In terms of the Value Plus segment, there are green shoots. The Value Plus segment has started showing some good strong early signs. And in the route to market change, obviously, the industry was not serviced for 40, 45 days when the market was, again, being changed. And we are now accepting to start building up the Value Plus segment as well.
Coming to IMFL. we are sticking to our strategy. And as we keep clearing internal benchmarks, our product offerings will keep widening up. And maybe in the medium future, our geographical expansion in West Bengal also will keep expanding. So it is a matter of clearing our internal benchmarks. Does that clarify?
Yes. Yes, that's good enough.
The next question is from the line of Sai Narayana, an individual Investor.
I want to ask the management that what is the return on investment that we have only for the ethanol division? If there is no subscription or any margins we have only for the ethanol division?
We stated, it varies. So I don't have a number to give you right now on that. We can conclude something and get back to you.
Okay. Does this mean, double digits, the margins for the [indiscernible]?
Yes, very much so.
Okay. And what is the best level currently? And what is the expected EBITDA for this year?
Can you repeat the question, please?
What is the current [indiscernible]? And what is the current expected EBITDA you plan to conclude this financial year?
We are not giving any guidance on total EBITDA expected this year. We're giving a guidance on EBITDA margin. Nilanjan, what's our debt level, please?
Our debt, long term, is almost INR 150 crores. And short-term borrowing on the INR 90 crores to INR 95 crores.
The next question is from the line of Navneet Baya, an individual Investor.
Congrats for the good show on your IMFL and [indiscernible] commercialization as well. Shekhar, I had one question on your manufacturing setup. You mentioned your cost pass on and ENA happens much faster than ethanol. And most of your plants are taken to either ENA or ethanol. So I just want to understand what stops us from shifting from ethanol to ENA if the price of ethanol is not good?
Sure. We are producing in each state, the material, which is the most profitable. ENA -- so for example, in Jharkhand, we continue to make ENA. We have not yet started production of ethanol.
Let's see how the rest of the year shapes up. We may change that production mix. So we are producing whatever is the most profitable at every stage.
Okay. So you mean even at current unsatisfactory price hikes that we have got for ethanol, it may still be more profitable than ENA in some states?
In some states. So for example, Bihar, where there is no ENA market. it continues to be more profitable to make ethanol. Fortunately, [indiscernible] right cash prices are the lowest in the country.
So every state has its own nuance. And that is the work we do in the company to make sure that each state is running in the most profitable fashion possible.
I understand. Just -- in West Bengal, you would be doing ENA or ethanol right now?
The mix is both. That's taking place in West Bengal. Roughly 50% capacity in ENA, and the other half is ethanol.
Okay. Perfect. I understand that. A couple of data points that I didn't see in the presentation. One, was your market share across the 3 states, Rajasthan, Haryana and West Bengal. And second, I think you used to give the breakup between volumes of Value and Value Plus still about 2 quarters back. You just given the total now. So is the breakup also available?
Yes. So we can provide that subsequent to this cost.
Okay. And the market share as well, right? In West Bengal, is there any improvement in market share from the 2%, 2.5% that we were at?
Param?
No. No, not at this point of time. As I said, there's not much in the last quarter for the simple reason that route-to-market change was happening in IMFL. So as of now, no. No change. They are in the same zone.
But a new category in Value Plus segment has been introduced, and we are very excited about this quarter 3.
Okay. It'd be great if you can include the data points in your presentation, which you used to provide earlier as well?
It will take time.
Yes. And one last question regarding your IMFL. So are these IMFL likely to be visible in some of the urban cities and the liquor shops? Or where exactly are they distributed? The [indiscernible] and the other brands that you have?
So these are available in premium shops in the state of West Bengal in Delhi. As we are talking, [indiscernible] has other brands -- on 3 brands were made available in [indiscernible]. A few months ago. [indiscernible] as we are talking, has been launched a week. So should be available in [indiscernible] and [indiscernible] develop is available and readiness.
In UP also in the main towns, most of our brands you'll be able to see across prominent shops. So yes, when we are entering a sure these brands are available and in if anybody does tend to take a look to the is available in Bombay as well and if you're interested in?
Bombardier making a purchase is have a look at our Sea Instagram page, which has details of availability.
The next question is from the line of Udit Gupta, an individual Investor.
Sir, my question is regarding, sir, what are the inputs that we're using for making our ENA, sir?
Grain?
I mean [indiscernible]?
[indiscernible]?
I'm sorry, is this from the FCI or is it a market rise that you buy?
Both FCI is only for use for making ethanol which is the market we purchased potentially for our other applications.
And sir, the SCI price of rice is only [indiscernible] fixed [indiscernible] or is it variable, sir?
It's fixed for the whole year.
Ethanol, more or less the size?
Yes. Ethanol price is linked to the price of FTI.
Okay. And sir, like the power cost that we were talking about [indiscernible]. So can it be reduced by going into green sources, like solar or wind, or something of the sort?
No, we cannot do that. We require power to convert this said rice to alcohol or ethanol. We have, as mentioned in my opening remarks, several initiatives that have played out to reduce power consumption, fuel consumption in West Bengal and the potential of further increasing this all the way up to 20% saving.
And we are taking these learnings to our other plants as well. So these are some of the things that we do to mitigate cost increases, but going to solar or wind is not an option.
And sir, one more question is that, sir, what is the processing cost per liter for alcohol? And is it any different for ethanol or so like they're the same?
I am -- the number for processing costs, we do not make available publicly. The cost difference between the two is about 10%. Ethanol is 10% cheaper to produce -- not 10%, I'm so sorry. It's more like 5% cheaper to produce as compared to [indiscernible] and alcohol.
And sir, do you think [indiscernible] that come out as the process is more or less [indiscernible] for both?
Yes, it is.
The next question is from the line of [indiscernible], an individual Investor.
I've got only one question. When do you expect this income tax metric to be sorted out? Is it this quarter? Is it going to ascend to the next month area?
I don't know the answer to that question. We are still awaiting a notice of some nature from the department. So I don't know the answer to that question.
Okay. And any financial improvisation due to that? That also you do not have any idea?
We have not received any notice. As soon as we do, we will inform our shareholders. As of now, there is no financial impact.
I now hand the conference over to Mr. Shekhar Swarup for closing comments. Over to you, sir.
All right. Thank you, everyone, for joining us today. We remain available to answer further questions. Please reach us directly on our IR e-mail address or to Stellar, our IR agency. Thank you again, and have a good evening.
Thank you. On behalf of Globus Spirits Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.