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Globus Spirits Ltd
Earnings Call Analysis
Summary
Q3-2024
Globus Spirits is poised to benefit from increased maize production for ethanol in East India, where they have 67% capacity. They expect favorable margins with improved maize realizations and a toned-down focus on rice for raw materials. A significant margin shift is anticipated approaching Q1 end due to the expected maize uptick and easing of rice-related constraints. Current raw materials are approximately 70-80% rice. Their IMFL business targets products with 35%+ gross margins, anticipated to bolster future growth. Q3 observed steady EBITDA albeit with compressed margins due to raw material costs and investments with Q1 showing promise for improved dynamics.
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Ladies and gentlemen, good day, and welcome to the Globus Spirits Limited Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Shekhar Swarup. Thank you, and over to you, Mr. Shekhar Swarup.
Thank you. Good evening, everyone. Welcome to our quarter 3 and 9 months earnings call. Our results and other documents have been uploaded on the exchanges, and I hope you've had a chance to go through the same. As we've been discussing in the past, we had a sudden stoppage of supply of raw materials in quarter 2 from FCI for production of ethanol. However, coming into quarter 3, our plants now have operated at full capacity based on rice mainly as the raw material and in parts maize.
In Q3, we had been expecting a cool down of raw material prices given the satisfactory harvest of paddy in the year. However, there has been a unique environment that prevailed where broken rice prices did not correct despite the satisfactory harvest. This is largely to do with the fact that the paddy that has been harvested has not been milled, broken rice is a byproduct of rice milling of paddy milling and that currently remains a standoff between millers and FCI on commercial terms for milling this paddy.
So this year, milling as on February 1 has been around 6% of the total tally purchase in the year versus last year, which was around 43% as on 31st March 2023. We don't have the same data for February 1. But this year, 1st Feb was 6% last year, 31st March was 43% milled of the total paddy purchase of the year. As a result, there's been a shortfall of broken rice in the market.
The good news, however, here is that maize is looking very interesting for ethanol in December. The oil marketing companies announced a satisfactory price for maize ethanol and especially in East India for Globus where there is sufficient maize cultivation. We have started the process of converting most of our capacities to maize in Q3 -- late in Q3 and begin Q4. So East India is responsible for 50% of the country's Rabi maize crop this year, which is up 20% year-on-year. So we're expecting a very interesting outlook from maize based ethanol production in ENA.
Even the raw material situation has impacted our margins, all other input and output dependencies have been favorable. As I mentioned, capacities are running at 100%. Fuel packaging material and all other inputs are stable or downwards. Some of this cost increase in raw material has been mitigated with increase in ENA prices as well as ethanol. And it's worth pointing out that OMCs have increased prices of ethanol 6 times in the last few years. So they remain in support of the ethanol industry.
Coming for CapEx, as of now, the company has decided not to invest in further ethanol capacities. As a result, the Orissa project is currently on hold. We will relook at this once the raw material policies in the country are a little clearer. And UP project will continue at its reduced capacity as well as bottling to focus on the consumer -- the large and growing consumer opportunity of the state.
Despite a quarter of a weak EBITDA margin, the good news is the company has generated free cash, which has been invested in the IMFL business and the growth in the IMFL business is there for all of us to see. Prestige and above brands now contribute to 8.1% of the company's consumer revenue, which was less than 1% in the previous financial year. With many new and innovative products, product offerings and expanding distribution presence, we are very excited about the prospects of this segment.
And I request Param to provide an update on the consumer business now.
Thank you, Shekhar. Good afternoon, everyone. The premium segment is indeed showing very strong prospects. Our volumes in Q3 FY '24 was 0.1% cases, which was up by 40% and 40% on a quarter-on-quarter basis. Prestige and overall brands contributed just above 8% of the total consumer revenues in the quarter gone by.
Our brands are now present in UP, West Bengal, Delhi, Haryana and Punjab. And as we speak to you, we have entered Rajasthan and slowly our availability there will also increase significantly. Our efforts have started paying off glad to announce that in Q3 FY '24, prestige and above volume sales have crossed a run rate of 100,000 cases. The next stage of growth has started coming in from innovative packaging such as the country pack, which has already been introduced for Mountain Oak as well as our SNOSKI vodka and has been very well received and is driving our growth.
Going forward, we expect more sales from this pack as well as our other offerings that are on standby. We have successfully established a strong route to market in Delhi, West Bengal, Haryana as well as Uttar Pradesh already. Other states like Punjab and Rajasthan will soon get stabilized and we are very confident on lending them in FY '24, '25. Rajasthan will take a little more time, but we are very confident of this.
Our flagship product that TERAI craft gin is going strong, and we have decided to widen the distribution of TERAI further in existing markets as well as add new geographies. SNOSKI vodka and its variants are being expanded into Haryana and West Bengal as soon as the new policies kick in.
New brands in premium categories, including Rum as well as Single Malt Whisky are proposed to be launched in the coming oncoming year. We are also launching a new brand called Not Out in the 15% super strong RTD segment, competing with strong beer segments. It will be launched in Delhi in this quarter followed by UP, Haryana and Punjab, in Q1 or Q2 of FY '24, '25.
Coming to value and value segments. In the overall consumer segment, the total consumer business revenues in Q3 FY '24, were up by 4% on quarter-to-quarter basis to 3.68 million cases, led by improved sales in Rajasthan. A key position that I would like to highlight here in Rajasthan is that the favorable excise policy change, which has happened has allowed the option to buy back an allotted quota stock from the other brand owners by paying a fee to the trade partners. Now this will generate more revenues on their behalf and it's received well.
This is supported by another price increase of INR 15 per case in the value and INR 20 per case in the value segment for FY '25. All in all, we expect a mid-single-digit growth for value and value plus categories and an increase in profitability.
In Delhi, a delay in excise policy did cost us revenues. On the positive -- long-term positive side, however, it helped us secure a price increase of INR 40 per case, which will start getting value accretive here and on. I will now request Nilanjan to take the lead. Thank you very much. Over to you, Nilanjan.
Thank you. Good afternoon, everyone. As illustrated in the investor presentation, the following the margin and outlook going forward, has been explained by Shekhar. Hence, I will be touching up on certain specific developments. First is the tax regime. During the current year, the company has adopted for transition of income tax to the new regime. Accordingly, the rate of tax under new regime is 25.17% as against the rate of the old regime at 34.94%. This has resulted in rebasing our deferred tax liability in the current quarter after new taxes, which was earlier at a higher tax regime. And accordingly, a benefit of approximately INR 30 crores has been taken in the tax line and has improved the PAT.
Secondly, as on 31st December '23, the company has 38.08 stake in Bored Beverages Limited. Consequently, company has recognized net loss of its share of INR 15.60 lakh towards post-acquisition loss in the consolidated financial results and adjusted in carrying value of investment as for relevant accounting standards.
Thirdly, our value and value plus segment in Rajasthan has been the company's strength in the consumer division portfolio. GSL continues to be indomitable in this segment, not only with respect to market share, but also with respect to margins.
Our margins in the value segment is approximately 24% and value plus segment, which is 20%. With the current price increase, this will be more value accretive. To conclude, we are hopeful about upcoming quarters because of the initiatives that have been mentioned.
With this, I request the moderator to open the call for questions. Thank you.
[Operator Instructions] The first question is from the line of Tushar Raghatate from KamayaKya Wealth Management.
Congratulations for your good volumes in your consumer business. My question is on your raw materials. Are we're going to see that the margin -- in terms of margins in the next quarter in the Q4? And in terms of shift from rice to maize, how do you see that panning out because the maize are getting a good realization going forward. And the government is focusing in order to increase the maize growth ethanol. So that would be my first question, sir.
So in April is when in East India, we're going to see the maize crop or the Rabi maize crop harvest take place. As I mentioned earlier, East India is responsible for -- last year is responsible for 40% of the countries maize crop. And this year, it is expected to yield about half, 50% of the country's maize crop. So there's been a 20% growth in the area under cultivation.
67% of Globus ethanol and ENA capacity is in East India. And as a result, we will stand to benefit from the maize crop. You're right that in saying that maize is being promoted as the future crop for ethanol in India. And that's to do with the water consumption per acre of per tonne of maize as well as yield of ethanol per acre of crop. So in case of rice, ethanol is produced from only 7% of the rice that is produced. The balance 93% of the rice goes for human consumption. So the yield of ethanol per acre is much less. So we are very happy about this development.
Our capacities in East India when they were set up -- were setup as dual feed capacities for maize as well as rice. And therefore, we've been able to switch between the 2 raw materials with ease. It's been completely fungible based on arrivals of raw material, what is more beneficial for the company, we are able to switch. The reason why it's become front and center today is because of the correction of price of maize ethanol. So until now, there was always maize ethanol that was promoted, but the price of maize ethanol was not viable. And in December or was it November, the OMCs revised this price to make it viable. And as a result, maize cultivation is up especially in East India and we are in that region using a lot of maize.
Now to your question about margins in the upcoming quarters. Until now, rice remains the majority of raw material for ethanol in India. This -- in the Rabi crop this year is the first time we're going to see a significant increase in maize cultivation after many, many years. And we have to -- and basis that there will be a significant switch to maize. Until then, rice remains the main raw material.
So until such time as the government does not start winning the paddy that has been procured in the last Kharif marketing season. Broken rice remains in short supply, there is a higher price for rice. So in Q4, I'm not expecting margins to go up dramatically. There will be an improvement based on already the maize arrivals that I'm seeing, but I'm not expecting a huge upward revision in Q4. Coming into Q1 and onwards, I think around end of Q1, Q2, the rice situation will cool down as well. And of course, there's going to be a lot of maize. So that's when I'm expecting a significant change in margins.
Fair enough, sir. And sir, currently, in terms of the raw material basket, how much is the broken rice? And what percentage would be the maize the contribution?
I mean, it's difficult for me to give you that number, but my sense is about 70% to 80% would be rice. But it's difficult to give you an exact number right now. You can confuse that if you'd like an exact number. But in my sense, it would be 70% to 80% as of now.
Okay. And sir, in terms of FCI broken rice, do you see that, that being a temporary issue? Or do you foresee like ethanol industry might get the broken rice going forward, maybe 1 year -- 1 or 2 years.
So I do believe -- so the issue with FCI is a larger issue. The quality of rice that is with FCI contains 25% broken. There are very few people in the country that are willing to buy that material for food. As we've seen -- and I don't know if you've been following this, but the government has announced their own brand of rice called Bharat rice. And in the process of packing Bharat Rice, the Bharat Rice will be made from the rice stocks of the FCI and the process of packing that rice, they will be separating the brokens and making it available for industry.
So FCI eventually has to liquidate its rice position. Otherwise, they cannot move that paddy. If they cannot move their paddy, they cannot buy next year's paddy, which will come up in the current year's Kharif season. So that is why has to find its way into the market. And the way of doing that is to clean up the rice, remove the broken and then sell it. Bharat Rice is a step in that direction, but it's still very small, the kind of quantities that have been given for Bharat Rice. But in my view, in the next 1 to 2 quarters or by the end of Q1, there will be a clear policy on this and the rice market will start to ease at that point.
Fair enough, sir. And my last question, in terms of your consumer business. Sir, in this Bored Business, how do you see the gross margins for this business? And in terms of getting EBITDA positive, what are our internal targets?
Right. So Param, can you take that, please?
So in terms of margins, in IMFL, we are -- we have a brand range at this point of time, which is working in the range of early 30s to mid-30s margin. And in value and value plus, this move between 20% and 24%. Now obviously, we are launching new brands, we are adding states. So the margins will continue to move up and down until they stabilize once the brands level themselves out. So very difficult to predict the composite margin.
As of now, the new brands are still finding their trajectories and some are moving very fast and some are taking a little more time. But suffice to say the range that I have given is the range we are having in the short, medium term. And obviously, as the medium term starts to play out, this will then very slowly start looking up.
Sir, the notable business margin?
I would be speaking on the correction. I don't have it, I can check the number, but I think it should be mid 30s. I'm thinking of the correction, but I will go back and check.
So I mean, as a policy, I think the sweet spot for the IMFL business for Globus right now is products that have gross margins of at least 35%. And some of the products have gross margins as high as 70%, 75%.
The business projections that we've seen internally, I think the growth -- the majority of the growth is going to come for products that are between 35% and 50% gross margin. And the higher gross margin products will help in accelerating breakevens from state to state.
The next question is from the line of Tarang from Old Bridge Asset Management.
A couple of questions from my side. Shekhar, as you plan your production for the next year, what percentage of your overall production you think you'll be able to supply through maize.
Yes, that's a great question. So in Q4 and Q1, I have a better sense of Q4, Q1 right now. I see as much as 50% of our total ethanol being produced from maize.
All things remaining constant, assuming there's no further price increases on rice ethanol. We will move at least 50% of our total capacity to maize ethanol in Q1.
Okay. And by then you would anyway have adequate supply kicking and so hopefully...
My sense, Tarang, is that end of Q1, mid-Q1 and Q1, there's going to be a clear policy on rice, until then there's going to be a status quo.
Okay. That's helpful. Second, I just wanted to get a sense of you've been spending about INR 6 crores to INR 6.5 crores per quarter on the consumer business. Would that trajectory continue? And how much was it in Q3?
Yes. Sure. Param, can you take that?
Yes, Q3 was in the same range. The trajectory will start tapering down as we go into Q1 of FY '24, '25. These numbers because what will happen is the first couple of states will start getting around the bend. We are actually expecting Delhi to become EBITDA positive as the first state. So these numbers will start softening. Though, we are going to expand geographies, I still think we're expanding geographies also, the investment required will start to taper down now.
So Tarang, I mean, from a capital allocation point of view, I'm quite happy investing this money in the IMFL business. As the existing set of brands and states start becoming less capital demanding, we've been looking for opportunities to deploy this in other brands and other opportunities to bolster our growth.
Okay. So I mean, typically, the INR 20 crores, INR 25 crores per annum run rate will continue. I mean, while your initial geographies will start making money, but you'll redeploy that capital to grow your business, correct?
Yes. So I think for another 2 years, we'd like to deploy this money until we get to a certain base.
Sure. Just a couple of more. I mean, the ready-to-drink acquisition was quite interesting. If you could just give a sense in terms of how do you complement it with an existing business? Or it's -- you're more so going to be a capital provider and that business is going to be driven on its own.
It's not a capital. We are not in the -- the intention of this is not to provide capital in the business runs on its own. The idea -- I've always said that we're creating the highway and then we want more cars on this highway. So in these 4, 5 core states, Delhi, UP and few others, we are at a more advanced stage of highways being complete. And Bored beverages is one of the vehicles we'd like to have this highway used by. So there is strategic important support Globus in this business.
Interesting. Just a couple of bookkeeping questions. How are DDGS corn, [indiscernible] trending right now?
So we find that DDGS or animal feed supplement is largely currently in India a protein ingredient. The price of protein, the gold standard for price of protein for animal consumption is the price of soya DOC, which contains between 45% and 50% protein. So if -- so let's say, the price of protein -- a pure protein derived from soya DOC is INR 100 per unit of protein, then rice trades at about 20% discount to that and maize would trade at between 20% and 30% discount of that. But that's made up by having about -- in fact, almost 75% higher production by volume of maize DDGS. So whereas you lose on the value, you make up on the volume of production.
Okay. Okay. I'll probably touch base again to understand this better. Just 2, 3 more questions, power and fuel expenses for Q3. Net debt as on 30th December '23. And what is your CapEx bill like for 9 months FY '24?
Okay. Nilanjan, can you take that please?
So our net debt as on December is that net of cash and cash equivalents is at INR 252 crores. And your next question was on power and fuel spend. The power and fuel spend do you wanted in rupees crores.
Yes.
The rupees crores power and fuel in quarter 3 was in -- about INR 64 crores and what was your last question sir?
CapEx for 9 months FY '24? And how should we see it for full year '24?
CapEx for 9 months '24 -- one minute. INR 125 crores.
So for CapEx going forward, currently, we are completing our UP bottling plant, which will be commissioned by the end of this quarter. Thereafter, there is no significant CapEx plan in terms of new capacity. We do have CapEx that we are undertaking for setting up Malt Whiskey maturation, cast purchases and Malt Whiskey production. But these would be in the range of INR 20 to INR 30 crores per year or rather for the next 6 months. So that's the current CapEx plan. There will be a need to set up a small distillery in UP to take advantage of the country liquor markets in UP. So that -- the engineering is currently on, but it's going to be a much smaller capacity as compared to the past projects we've done.
The next question is from the line of Nitin Awasthi from InCred Research.
Major question revolved around the new segment that you've entered into. I agree to what you were saying that the highway requires more cars. However, this product wouldn't it be more comparable to the pure segment rather than the IMFL segment? And if that is the case, would not you require a different highway than what you already have?
So yes and no. The route to market in terms of the outlets where these brands are sold, except for the UP where it is also sold from adjacent shops and from these shops as well. In most of the other states, the brand is even sold from the same shops using the same fridges, which are existing in these outlets.
So in the larger sense of the term, having a complementing sales team using the relationships, using the basket is accretive to us. Would there be anything a little bit of specialization, Yes, for marketing activities, there will be a little bit of fine-tuning for which we have provided for that the marketing tuning investments as well as the type of investments, there would be a little bit of overlap as well as a little bit of differentiation in that.
Understood, sir. And with the current investment that you have made, I'm guessing that the whole operation is outsourced manufacturing?
Yes. It is indeed.
In that case, are you able to make any EBITDA?
Yes. There is enough delta once we secure the volumes, there is enough delta as one of the esteemed investors that earlier asked, I'm sure it is -- the margins are at 30% plus range while I promise I will recheck it.
Understood, sir. Sir, on this -- just the last question on the ready-to-drink segment. On the accounting front, your financials disclosed that you have [indiscernible] stake in the company.
Shekhar, you will answer that?
Yes. So you're right. I mean this is part of the definitive documents with Bored beverages. There is some amount that was to be invested in the first tranche and some amount that's to be invested at a certain events. I think that event is after the certain amount of sale or a very small amount of sales, which essentially implies launch. So I think in the next quarter or so, all of that will be completed, and it will be 51% by the end of it.
That is happening at a pre-decided valuation. I mean the value is all agreed. This is just a process of tranching the payment.
Understood. Understood, sir. Sir, lastly, just to understand broadly how things are shaping up. I know that there are complex factors as of now, which are leading to the changes in gross profit margins for the company. However, if you could just name or see how the key commodities are shaping up. Number one, how the ENA prices are shaping up, how have they been, how they would have been going through a curve and they would have been going completely buzzer because of the prices -- sorry, policies that have come in. So if you could just say ENA prices, what has been the trend? What is stabilizing at? And similarly, the cost of grain.
Yes. Sure. So this from a sort of a helicopter standpoint for a minute. ENA prices have been moving along with cost -- average cost of raw material, let's say, 2 months trailing average cost of raw material. ENA prices have been moving along with that.
And the way that the company hedges its bets between ethanol and ENA has really been beneficial for us. We are able to maximize our average realization of our capacities, nonconsumer capacities in that manner. Unfortunately, the reality is that if you can't convert all your ethanol capacity into ENA. As soon as you do that, you will start putting pressure on ENA prices.
So we believe that the current level of spirit that we have or that we maintained in the last couple of quarters, which has been pretty much consistent is a pretty healthy split. In terms of commodity pricing, I think the only commodity in the country, which hasn't corrected or softened in the last few months is rice. And that's moved this word FCI situation that exists today.
As I had explained earlier on the call too, so I won't get too much into that. But I'm very clear that this still meet has to resolve. Otherwise, the entire crop procurement cycle sales in the country. So it's going to take a couple of quarters for it to resolve for various reasons. And at that point, it will resolve. The good news is we have maize and we are able to hedge our bets between the two.
So ENA prices are keeping track with the margin with the raw material price situation. However, ethanol isn't the other factor that obviously impacts us is that our value, value plus pricing, which is a large share of our total business is also fixed for the year, the raw material price increase that has happened this year. We are having to absorb that, but the good news is the price correction that happened in Rajasthan will give those margins back to us. So a couple of quarters just to see how the rice situation plays out. And then I think we'll be back to our original indications of margins, et cetera.
The next question is from the line of Imran from Longbow India.
My first question is on the production of ethanol from maize. Can you tell us the yields that you get when you make ethanol from maize?
So I mean these are -- I can't give you the exact numbers. This is, I believe, competitive advantage for us. I can give you a typical industry range, if that's okay. That ranges from about 370 to 380, 385 liters per tonne.
And yours would be obviously because you do things better than the industry. Yours would be on the higher side or even higher to this number, right?
Yes. I mean that's the industry standard. Yes, let's just stay with that.
Okay. Okay. Got it. And the other question is on Rajasthan who would -- I mean, what would be the market share for the #2 player in Rajasthan, IMI?
Okay. That's a great question. I'll take that. So Rajasthan state Ganga Nagar sugar mill is a state-owned alcohol producer. They stopped producing alcohol earlier and they get us to produce the alcohol and they package it. Get us meaning the private industry will do it and we are one of the suppliers to the distillate to the bottling plants.
In their excise policy of Rajasthan, the excise department has a minimum market share, which they give to the brands of this company. In most of the areas of Rajasthan, the demand -- the consumer demand for their brands does not exist. Up until -- in the current year, they have a minimum market share of 35%, and that makes them the second largest player.
Coming into the next year, that market share or the minimum market share has been dropped to 25%. And because we have close to 50% market share of the balance of the entire industry. But if you look at 50% of the available market -- sorry, if you look at that as a proportion of the available market, it's a significant number. So that reduction in volume or reduction in market share of RSGSM, we will get the 6 to 7 cases of every 10 is what we expect.
Right. Perfect. And on the similar lines, I think the policy document also mentioned that whatever rectified spirit stock RSGSM have, I think they can sell it up to March, right, and which was not earlier allowed. So you think it would have any impact on the overall volumes of the yours and for the others...
You're referring to exactly, but I think that's just procedural -- Param, have you picked up anything?
No, not really.
I think that's just procedurally, they may have written down the procedure that's been followed all the time, but there's no real impact from us.
Adding to what Shekhar has said, in the larger context, the government is of the view that they don't want to be doing business unless there is a specific need to navigate a particular industry, either defend it or it is favorable for the national interest. And my view is that this would be probably also a step in that direction moving from 35% to restricting their commitment factor to 25% could be a step in that direction, which will play out over the next couple of years. .
All right. And on the similar lines, I think the policy document also mentioned that the wholesaler margins would be reduced from 11% to whatever 9%. I think the price increase includes this or this is extra for you?
That's -- yes. So we were to pay a certain margin to RSGSM when we were selling our products. So RSGSM not only was a competitor, but they were also our distributors. So that margin is reduced. So that's within the price increase that Nilanjan mentioned earlier.
Okay. So that's included. So Shekhar, you mentioned that you would be able to pass on cost in Rajasthan, but this is barely -- I think it's not even INR 4 a liter or maybe slightly over INR 4 a liter, whereas the raw material inflation has been close to INR 12 a liter, right? So how would you -- what do you think about this? I mean you would be certainly not be able to pass on the whole or at least even the half of the...
We have also saved a lot of money on glass bottles and on packaging material. So it is a very fair price increase in my view. It's also something that will remain applicable for the whole year. I don't believe rice prices will remain at this level or go higher any further. It's just not possible anymore. So in my view, it's a fair increase thing in view that we've got a whole year ahead of us.
Right. And just one last thing on the consumer side. I just wanted to understand your UP strategy better. I think as of now, you are only doing IMFL, right? And even in IMFL, if you look at our typical World Cup [indiscernible], I think for the competitor who is also a market leader, I think -- and between your prices, it's only INR 5, INR 7 different or maximum INR 8 or INR 10 difference when a consumer is buying. So what do you think, why would consumer will take your model compared to the leaders bottle?
Okay. That's a great question. Param, do you want to take that?
Yes. See, what happens is, obviously, there is a whole value it. First thing is we have to start believing that the new brands that are entering the segment, especially we can say that is true for global is that our offerings are significantly superior at similar prices. And when we see offering the superior, we believe our packaging is better, our innovation is better or liquid delivery stronger as our resources to reflect because we do intend to serve third-party defers before we introduce a brand. And as a result, we are giving the consumer an opportunity to upgrade and sometimes we're paying a little bit of premium and in other instances, without paying any premium.
Now the second challenge is, how do you get the consumer to try it out these, actually really recognizes the fact and become our consumers. And that is that really we are on where we induced trials. We do all the leaders that are required depending on the state applicability of law to make the consumer to try our products and then be reflected in the growth of our brand as it is happening now. So I would not want anyone to believe that since the products are priced the same, the [indiscernible].
Right. And similarly, in UP, how would you think about going into IMIL and UPML? And what could be your strategy there?
Do you want to take that, Shekhar?
Yes, sure. So there's one other aspect I'd like to talk about in any consumer category, just because a brand has a leadership position doesn't mean that they have an impregnable moat around themselves. In any category, consumer -- whether it's consumer power -- we have seen that new brands are able to come up, make a profitable business and grow.
So I'm very much to deliver in the compelling forces of competition, which ensure that brands that are coming up, various good consumers better offerings and therefore, create space for themselves. There is room for innovation at every category. As the value of the product is higher, brands have a larger sort of elbow room for innovation.
But as the price point reduce as the value of the product is less, the amount of innovation is limited, but yes, there is still scope for innovation. And a lot of that comes from packaging from liquid. I think liquid is where our greatest strength lies being producers of alcohol for such a long time. And we are using all of these levers at every single price point, granted that in country liquor and medium liquor especially in UP or pretty much any other market for country liquor or medium liquor distribution plays a much larger role than innovation, consumer power reduces as the price point comes down. So we have to be cognizant that as well.
So we would like to give our distributors good margins so that they promote our products.
Yes, happy to hear that. The other last question that I have, and I'll fall back in the queue after this. I have at least witnessed an operating leverage or something of that sort in your other expenses, if I remove power and fuel, is it going to stay? Or do you think this is temporary? And then again, the other expenses will go up as you grow?
I think one of the aspects of other expenses was our pre-operative expenses at the factories as they are expanding in the last say, 6 quarters. As all of our capacities are now commissioned, barring an expansion in Jharkhand and West Bengal which we're just waiting for consent to operate, the CapEx is complete. We've been doing some trials there. A lot of these pre-operative expenses will naturally come down as revenue -- as a share of revenues because the revenue will start coming in from unutilized capacity.
The next question is from the line of Saket Kapoor from Kapoor & Company.
Thank you for a very detailed discussion. Firstly, if you could just quantify in terms of the savings that we are going to have in the power and fuel, especially for the coal part with the type of linkages, as mentioned in your PPT. What should be the absolute number in terms of the savings annually?
So I think what the deck says is, and I'll have a look at it again in case there's some sort of an error but what the deck says is that power and fuel should now remain pretty much at this level despite going into monsoons and summer where power cost, the fuel costs typically go up because of the linkages we've done to 30% of our East India demand is taken care of the -- I think it's a bit more actually. A large part of our East India demand is taken care of by the linkages, which is fixed price for 5 years.
In addition to that, the plants where we don't have leakages. We do now have multi-fuel capability between rice husk, [indiscernible] and paddy straw and other biomass, which to we have done long-term contracts in the season to get supplies in the off-season.
So the point really is that carbon fuel should remain in control at these levels. And in the past, the wide fluctuation we've seen between winter periods and summer periods, that fluctuation should be a thing of the past.
So sir, taking these aspects and other optimization of cost, what should be now a steady set EBITDA margin in trajectory for us? I think Q-on-Q also, we have seen a 100 basis point reduction in our EBITDA margin from [ 7.22% ].
What I mentioned earlier was every business perimeter has been favorable for us in Q3 aside from raw material. Raw material, Q3, Q4 is typically a time where raw material is favorable. This year due to the reasons I mentioned earlier, it's not favorable. We will have to wait in Q1, Q2 for -- sorry, not Q2, but at least Q1 for things to change on the raw material front. For another 1, 1.5 quarters raw material is expected to remain at present levels.
So to conclude, the EBITDA margin will be in this band of 6.5 -- 6.2% to 6.5% only? That should be fair...
I think the band can be little bit larger 6% to 7%, 6% to 8% should be the band for the next one or two quarters, till the rice situation eases out, which will be mid-Q1 to end Q1.
So sir, if the margins expand from 6% to 8% in that trajectory, if we remove the RM part, what will add to the efficiency of 200 basis points?
It will be RM.
In the RM only?
Yes, there will be some efficiencies of RM. The other factors are pretty much we expect them to be constant.
Next point is about the ENA market dynamics, sir. We have seen that in inter-state also, there is a duty structure that gives advantages to some states in terms of the imports. So I think so we are expanding our capacity in the state of West Bengal. So currently, do we have any duty protection? Or do you find any change in the...
Largely duty protection is a thing of the past. You are able to gain on logistical advantages from being located within the state. Globus Spirits endeavors to sell its ENA capacities within the state, we do not like to do inter-state sale. There are other companies out there that have specialized on inter-state sale. Our strategy is intra-state sale only. So all of our capacity will be sold between the states, the duty protection is gradually a single of the past.
Okay. And do you have any specific duty protection for the state of Bengal or not as...
No.
Right, sir. And lastly, about this maturation part in your PPT , maybe you have mentioned that INR 85 per bottle, I think so in on procurement.
No BL is the bulk liter.
Bulk liter, Very sorry, sir. So taking into account our sales why should be the absolute amounts saved?
At present these would be small numbers. I don't think any of these are going to be significant contributors to our margins. I think the point that's been made on maturation facility is the preparation that we are doing in advance for our IMFL business and also the innovations that we would have access to with our own maturation facility. Currently, we are dependent on others.
Thank you for all the elaborate answers and all the best to the team.
The next question is from the line of Rahil Shah from Crown Capital.
So firstly, you mentioned a certain percentage of total ethanol to be produced from maize in quarter 4 and quarter 1 FY '25, that was 15%, right? 15?
50%.
50%. Okay. Now the second one was on the margins, sir, on the previous question. So you expect them to be in the band of 6% to 8% for the next 1 to 2 quarters. But you had mentioned earlier that you also expect significant change in this rice situation, right, by early quarter 2, I guess?
Yes. I think by the end of quarter 1, there will be a policy.
So post that then to what degree can the margins be benefited?
I mean -- yes, let's chat about that in the next quarter. Let some more visibility come around. But we should go back to our earlier trajectory. It's difficult for me to give you a number right now. It's completely speculative. There's a lot of events -- large-scale events taking place between now and quarter 1. So that's just wait and watch a little bit.
Okay. No problem. And just lastly then just if you -- given your view of the market, what do you expect overall business growth next year, just a directional or if you're able to provide a ballpark guidance that could be...
Yes, sure. I mean, Bengal and Jharkhand new capacity trials have been on. We are waiting for consent to operate so that we can fully utilize this. So that 120 KL per day of production is going to come in. I think there are some quarters in the current year where our capacities were underutilized because of FCI and for some other reasons. So there should be no such event in the current year. We don't foresee any such event in the current year.
But the real growth is going to be in our consumer business. I think Value, Value Plus, we're expecting, like Param said, mid mid-single-digit type of growth. But the IMFL business is looking very, very interesting. We've closed the last quarter with 40% quarter-on-quarter growth. I think Q4, typically, we'd like to be a little conservative on our dispatches because of changing policies. But then getting into Q1 and onwards, we're really excited about the growth prospects here. I think we could well exceed growth that we've demonstrated in the current quarter.
The next question is on the line of Tarang from Old Bridge Asset Management.
I think I missed the comment on power and fuel hedging that you spoke about -- you said 30% is it of your Eastern capacity that are...
There are 30%, 35% of East India fuel requirement, has been linked with the long-term linkages that Coal India has, we've gone in for that for the next 5-years. So for 5-years, our price of fuel to that extent is fixed.
Okay. Got it. And last, I mean, as you gear up for Q4 and Q1, my sense is a large part of your raw material would have been procured or would be in the process. So how are prices trending right now from both maize and rice?
Maize is a little more profitable than rice, but I think margins are similar as Q3 right now.
Okay. Okay. Because at least from what we -- I have been seeing, Maize prices have been hovering at about [ INR 24, INR 24.5 per kg ] Would that be accurate?
Yes, that's completely correct. But the margins on maize are higher as -- and that's why I've said that our margins will expand a little bit. But that's the range, 6% to 8% till the policy of rice clears out.
The next question is from the line of Nikhil Chandak from JM Family Office.
So Shekhar, if I see the company as a whole, manufacturing is almost 65%, 66% of the business and consumer is roughly 34%. Now I just wanted to understand, say, over the next 2, 3 years, how do you see this share moving because frankly as an investor one would be more or should we more focused on the consumer business because that's where the longer-term value clearly gets created. But how does the business move, say, over the next 2 to 3-years?
Is the focus more on manufacturing less on consumer? Or how should one -- or would it be equal? Because if I see the margin trajectory also over the last few years, I'm saying, the margin has now gone from at one time from somewhere in the range of 20% to as low as what it is at this point of time because of the manufacturing business.
And in the process, what is happening is as the market, I'm seeing the investors have completely got focused on the manufacturing business rather than the consumer business and the value of that is somewhere getting lost in the stock completely. So how should one understand the trajectory set from a 3-year perspective?
Right. So the consumer business is the business that we want to grow, and we have been working on growing. Unfortunately, or fortunately, it depends how you look at it. We have had more capital available to deploy than what the consumer business could take.
During this period, we saw a very good opportunity in the ENA ethanol space, and we deployed capital there. Most of the CapEx that was made has already been paid back. because of the higher margins we enjoyed for about 3 years. And now we do not see the need or rather the rationale to make any further investment in pure ethanol plants. Any investment being made in capacity now is going to be done to supplement the consumer business. For example, in Uttar Pradesh, where we need capacity to make country liquor, we will set up a small distillery over there. The company's focus has been and remains the consumer business. Now onwards, we do not see any capital deployment taking place in pure ethanol capacities.
So over the next year, 2 years, 3 years, The way an alcohol and ethanol manufacturing capacity works is that we just -- we deploy -- we utilize it 100% as soon as it starts up. So you get this massive growth spurt. But thereafter, there is no further growth. On the other hand, in the consumer business, there is regular growth that comes in as the business gathers scale. So over the next year or 2 or 3, we do see this number looking like the inverse of what it does today. And that is what our goal is.
Understood. And say, 3 years out when this number inverses or 4 years out went number inverses, I know it's a long shot, but where do you see the margin moving towards?
Okay. I think the margin of -- well, it's -- the margins of the consumer business will start looking like about 20%, 25%, 30% at that point because that's the kind of margin we are able to generate today. Of course, right now, our other expenses as a share of margins is very, very high because we are growing this business. But it's very clear to me that as soon as states start becoming profitable, what Param mentioned as Delhi is becoming profitable this year. You start getting 20% to 30% margins from this business.
Now how that averages out and gives us a blended margin is difficult for me to say. I do believe that a fair long-term margin for the manufacturing business is around 15%, but a few policies need to get rearranged for that. So if 25% you're getting, say, from the consumer business, say, 15% from the manufacturing business, around 20% is what your margins are looking like at that stage. Maybe a little bit higher. It's depending on the share of the consumer business.
The next question is from the line of Nitya Shah from Kamakhya Wealth Management.
I just wanted to ask for TERAI quarter then been the sales growth and volume growth of Q3 FY '24 versus the same quarter last year?
Param, do you have that?
Just one sec, it should be -- I think in general we are looking at just short of [indiscernible] percent growth. So my take is -- it will be a little less in Q3 because Q3 is peak quarter, the growth is a little less. But it will take you couple of minutes for you to dig out the number. You want me to come back, circle back to you, Nitya? You can leave you details and we can come back...
Sure, we can do that . Just a few more questions regarding this -- like how do you see this business shaping up, like, say, for craft gin there's a lot of other players in the market in India today. So how would TERAI gin try and create a mark in that market? And even though coming out of the Single Malt Whiskey list next year, so I just want to understand what are the initiatives you would take to make a mark for yourselves since there are so many players already.
Param, is it okay if I take that?
Yes, yes, you can.
So I think the way we see the Prestige & Above, ecospace evolving going forward is that there is there are going to be 3 categories. One is IMFL, which we all understand very well. The other is imported products, whether bottled in India or bottled overseas. Scotch BII, scotch BIO. And I think there is there is evidence, there is reason for us to believe that there is going to be a third category, which is going to be high-end Indian label product. This category of this share of wallet has still now been reserved for imported products.
But there is a change now where Indians are looking to spend high -- give their share of wallet to high-priced Indian liquor. And that's where the India Crafts Spirit Company comes in. India Crafts Spirit company is not a separate company. It's a brand of Globus Spirits, where we have sort of housed all of our high-end Indian alcohol, TERAI India craft gin is the first of that. The Single Mall is the next brand under that, and we are hopeful for many other variants of these 2 products or new brands entirely within this umbrella. So that is our strategy with the India Crafts Spirit company.
Okay. So gin and whiskey are the only 2 spirits which you will be focusing on in the craft segment, no other?
No, no, I did not say that. Currently, gin was the first, the next is a whiskey. In the future, there will be more. And within gin and whiskey there will be several expressions of variance that will be launched.
One minute, [ TERAI ] between Q3 and Q2 has grown by 18%.
I meant Q3 of this year versus Q3 of last year for TERAI volume growth.
Okay. We will wrap up that and announce it on the call.
The next question is from the line of Tushar [indiscernible] from Kamakhya Wealth Management.
[Technical Difficulty]
Mr. Tushar, again, we lost your audio there, we are not able to hear you. Maybe request you come to the network area, please?
I think I got a sense of the question. It was price of Single Malt Whiskey. I'll just go ahead and answer that. As of now, we'd rather not make the announcement of the price, but suffice it to say that there is a price band, an accepted price band of Indian Single Malt that's emerging. There are 3 or 4 other brands that are operating in India at those price points. So we're evaluating within that price band.
Can you go to the next question please if any?
The next question is from the line of Dhruv Kashyap, an individual Investor.
Unfortunately, I'm always the last one, so I know there'll be a paucity of time, so I'll try to hasten my question. I think on the consumer front, if I was to look at IMIL and sort of IMFL separately, let's take IMIL first. So there will be an external consideration to all the various state excise liquor policies, and there will be an internal strategy. So currently, you have a favorable Rajasthan excise policy, I think Param touched upon of the Delhi part as well.
So given the other states we operate in Haryana, West Bengal, et cetera, I mean, if you were to give a 1 or 2 or 3-year out view on the IMIL shape of business in terms of both geographies and products?
Yes. Unfortunately, it's very hard to do that for Haryana and West Bengal, the political affiliation there make it very hard to make their prediction. I mean states like Uttar Pradesh, Delhi, Rajasthan, these are clear -- the government is a single-party government largely or a majority of it is single party. In the other states, when you -- West Bengal actually, but that's a completely different animal.
Unfortunately, I'm not able to give a guidance on how Bengal and Haryana will shape up. And accordingly, our investment in these states behind Value and Value Plus segments are structured. We are in a holding formation. We are very much speculative over there. If things change for the better, if we believe that there is a strategic shift or structural change over there, then we will reassess our capital allocation strategies for growth. The growth in the consumer business is very much based on Prestige & Above brands as well as UP Value, Value Plus categories that we are now looking to create for Globus.
So Shekhar, let me rephrase that question. Maybe I didn't frame it very well. So there is a Rajasthan, which is a massive part of our business, which is very favorable in terms of the excise policy for next year. There is Delhi, which also seems to have some sort of favorable facets to the policy. Then there could be an entry into new markets and you have created a sort of a Value Plus segment. So I just wanted to understand of those vectors as a product segment and as geographies, where do you see it go in the next 1, 2, 3 years in terms of the IMIL business?
So UP has the possibility to give us a very large growth rate. UP Value, Value Plus market in 95 lakh cases per month. the IMFL market is 35 lakh cases per month. For Globus, UP is going to be a significant focus in -- especially, in this year for sure, but even in the years to come.
For Value Plus for Globus, it is going to be Rajasthan and UP as the main horses currently. We've got presence in Haryana and West Bengal. We are not letting go of that, but I'm not expecting much growth from there.
Okay. Perfect. So my last question would be on the IMFL part where you've explained it beautifully in terms of the Prestige Plus, let's say, a sort of Craft [indiscernible] space. And then below that, you spoke about the regular IMFL. So if I was to ask you a similar question that in terms of the product white spaces and the geography white spaces, in the next 1, 2, 3 years, where do you see the IMFL business progress in terms of the product categories, in terms of the geographies, where we are today and where we will be 1 or 2, 3 years later?
I can answer that from a Globus point of view. It's difficult for me to give a guidance on where the industry would go and hopefully Globus' fixed will be based on our understanding of industry. There would be some categories, some products that would be a high volume brands which have lesser innovation. So a Mountain Oak, for example, it's a phenomenal product. It's a great liquid but there is little room for innovation. And within what there is the brand has started to do very well.
On the other hand, there are going to be brands like TERAI where there is immense scope for innovation. Some of the products that we are looking at in the office are scenes that the industry has never seen before in India and in some parts and never been done anywhere in the world either. So there are categories which do not allow for us to do something like that, but then there are categories that do. As a company, the way we are creating our portfolio, we are, as I mentioned earlier, a category, which have at least 35% or so margin is where we'd like to begin, and we go all the way based on our current portfolio to about 70% margin.
In every state, we look at opportunities that exist in this sort of pyramid and we decide on which brands are to be launched, in which market based on the opportunities in that state. So I hope I've been able to answer your question. I know you were asking something else, but I hope this gives a bit of a flavor.
No, absolutely. In fact, I was asking from a Globus perspective and not in the industry that in the next 1 or 2, 3 years out, which would be the geographies that you would be participating in IMFL and with what kind of product portfolio?
Right. I mean, Param, do you want to take that? What are the new states?
Yes. So we, at this point of time, are looking at adding 2 types of states, one states are which will carry a significant part of our portfolio as it keeps emerging and the current portfolio. And second will be states where which will be in service of our super premium range, which, as of now, we have TERAI and we have some more weighting on the wings. So 2 types of geographical expansion will happen.
For the first one, which will carry a more comprehensive range, we are expecting that in '25 we see ourselves adding 2 to 3 states if we time them well because we are waiting for the policies which may get dragged a bit because of our elections schedule. In terms of the second category, where we are widening the net to offer our super premium range, a much wider platform for consumers to experience, It could be beyond 2 in the coming year and similar pattern at this point of time, I'm hopeful we'll be able to continue to build a couple of states every year.
A little less aggressive here. We will end up with maybe 1 and then with probably 3 in a more aggressive year. So at this point of time, 2 are definitely looking on the horizon for each category, 2 plus 2. So that's the way we are looking at '24, '25. Yes.
The next question is from the line of Dinesh, an Individual Investor.
Actually, pardon me, this was already answered. I just want to know about why -- what is the reason behind the hold on Orissa greenfield CapEx plant? Is it majorly because of the conflict that has happening in the raw material that is rice -- broken rice made in the ethanol segment? Or is there any other reason behind that?
There's no conflict really. I mean the reason is very simple, we don't believe that without a clear raw material policy anymore, the ethanol business warrants any further investments. In the past, there's been a clear policy where distilleries can buy raw material from the open market. In case that doesn't -- it's not viable, then FCI would supply raw material. Now suddenly, FCI will not supply raw material. So there is a fixed contract I have with OMCs, but the supply side is completely open. So till the time there's a clear policy on raw material for the ethanol industry. I do not believe it makes sense for further investments into ethanol.
Okay. Got it, sir. And my second question is on the Bored Beverages limited -- So -- it was mentioned in the filing that the status of Bored Beverages had has been changed from subsidiary to associates. So what is the reason behind this?
That just for accounting purposes, there is no change in the business, in our investment, that's mainly for accounting reasons. And if you'd like to know more, I can ask Nilanjan to answer that.
Yes, no problem. Got it. And lastly, so it was mentioned in the presentation that in this quarter, that Ready-to-Drink segment, Not Out, we are entering the product into the Delhi state. So consequently, it was mentioned that after Delhi, we will be entering Punjab and Haryana. So will it be in Q1 FY '25? Or what can be the timeline for those markets?
I think between Q4 and Q1, we'll launch it in all the states that we intend to. So in another 3-months...
I think UP will be the second one, too. Between UP, Punjab and Haryana, as soon as we can get the formalities done, they will be launched followed by Delhi. All 3, depending on which sequence they queue up.
Okay. So within these next 3 months, sir?
I mean, definitely, Q1, we definitely see because if the excise policies in these states get dragged and then they get pushed off to, let's say, towards the end of April, then yes, probably the end of Q1 then it will happen. So it all depends on the -- whether the excise policies get released before the court kicks in or do they get affected by the court. So it depends on that.
Okay. Sir, got it. Just lastly, the Not Out one completely beer product or is somewhat [indiscernible] kind of a product layer, beer and the wine mixture, like that of a product?
So to the extent the similarity is that this is also a fortified product. We are not using wine. We are -- however, we are fermenting it. We are not using wine, but it is a fortified product, yes.
The next question is from the line of Imran from Longbow India.
Just one question on UP again. How does the distribution works in UP? Is it through a government entity or is it like a stand-alone wholesalers, how does it work?
So the market is private. So the government does not do wholesale. The stock is supplied to private wholesalers. And from there onwards, it moves to private retail to the consumers.
And the margins are fixed by the government on the wholesale side or this is open?
No. So the margins are fixed by the government for the wholesalers as well as the retailers. Having said that, obviously, there are other things into play of how the market competes with each other. They have the margin....
Understood, sir. well understood. And how does the other markets like West Bengal and Haryana works? I mean, very similar to this? Or...
I'll answer specifically the 2 questions, states, so West Bengal, the depos belong to the WBCL, which are now being managed by what they call distributors. It is a new development probably a year back, a year and a bit back. And these distributors have a fixed margin given by the government under the [indiscernible]. And then again, the market plays out with competition. These distributors all have a few [indiscernible], but they are not allowed to take other companies and other brands and the companies at this point of time cannot change distributors so easily. The retail, however, is totally private and works independently and they pick up stocks from the distributors.
Similar in Haryana?
Haryana is totally private. The wholesalers are appointed by the government. Most of the wholesalers are those who also own retail outlets. Very few of them are there who only have wholesale and not retail. As a result, they have high leverage because they also own the outlets and they also own the wholesale.
Here, wholesalers are free to buy any stock from the company and companies are obliged to supply to the wholesaler, provided the terms and conditions of both parties are met by each other. So private wholesaler, private retail.
I now hand the conference over to Mr. Shekhar Swarup for closing comments.
Thank you, everyone, for attending this call today. We remain available for any further questions. In case you have kindly reach out to us, our details are on the website and today's release. Thank you again, and have a good night.
Thank you. On behalf of Globus Spirits Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.