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Radico Khaitan Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Earnings Conference Call of Radico Khaitan Limited, hosted by Dolat Capital. [Operator Instructions]. Please note that this conference is being recorded.I now hand the conference over to Mr. Himanshu Shah from Dolat Capital. Thank you, and over to you, sir.
Thank you, Rutuja. Good afternoon, everyone. On behalf of Dolat Capital, we welcome you to Q2 FY '23 earnings conference call of Radico Khaitan. On behalf of Dolat Capital, we would like to thank Radico Khaitan management to give us the opportunity to host the call. On the call, we have with us the senior management team of Radico Khaitan, represented by Mr. Abhishek Khaitan, Managing Director; Mr. Amar Sinha, Chief Operating Officer; Mr. Dilip Banthiya, Chief Financial Officer; and Mr. Sanjeev Banga, President, International Business.Let me now hand over the floor to Mr. Abhishek for his opening remarks. Thanks, and over to you, sir.
Yes. Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us on our Q2 FY '23 results conference call. I hope you are all doing well and keeping safe.We have delivered another quarter of a buoyant volume growth and consistent financial performance in an otherwise challenging business environment. This underscores the strength of our brand portfolio, operational excellence, dynamic financial management and our clear defined strategic road map. Business growth continues to be strong and resilient driven by our Prestige & Above category brands which grew by 22% during the quarter. Our premium brands growth is very strong, particularly the luxury brands such as Jaisalmer Indian Craft Gin and Rampur Indian Single Malt. We have already expanded our craft gin production capacity to more than double. We continue to aggressively pursue our new product development pipeline to drive future growth opportunities and announced some exciting launches during the quarter.In September, Radico Khaitan launched another expression of Rampur Indian Single Malt, Jugalbandi, a series of 8 Indian single malt cask strength whiskey. The first 2 expressions of the Jugalbandi series were unveiled at the Whiskey Live show in Paris and will soon be rolled out to the USA, Singapore, Australia and select travel retail destinations.Building upon the market leadership of Magic Moments, we launched a low alcohol ready-to-drink Magic Moments Vodka Cocktail. It is the only vodka-based RTD available in the Indian market. We also launched 1965 Spirit of Victory Lemon Dash Rum which will help the company to tap into a new spirit category of white rum.While the inflationary trend is persistent, we have seen early signs of stability in certain commodities, which is encouraging. Overall, the scenario still remains volatile. We have recently received price increases in the state of West Bengal and pursuing price increase in some [ southern ] states. Recently received price increases in the last 2 quarters, coupled with our ongoing premiumization, portfolio rationalization and value engine will drive profitability growth. With the recent price increases, coupled with a favorable product mix, we were able to mitigate margin headwinds in the IMFL business to a large extent. The impact of the cost push has been much severe in the non-IMFL business where we expect to receive price increases too.Both the Rampur Dual Feed and Sitapur Greenfield projects are progressing well and the civil construction is on full swing. We are happy to report that as for our committed time line, Rampur Dual Feed plant and Sitapur bottling section will be operational by December 2022. Luxury portfolio consisting of Rampur Indian Single Malt and Jaisalmer Indian Craft Gin are showing great momentum. As we have shared in the past, Rampur Indian Single Malt is currently on allocation. But from next year onwards, its volume may triple from the current level.In India, Jaisalmer is now available in 15 cities and in the canteen store departments, and it will be available on pan India basis very soon. This brand continues to receive unprecedented response. Looking at the demand, we have already doubled our capacity. Launched in the last quarter, Jaisalmer Gold is now being rolled out in Europe and the U.K. Our premium brand growth continues to be a very [Technical Difficulty]. New brands such as Royal Ranthambore and Dazzle are performing in line with our expectations. Royal Ranthambore is now available in 11 states, and Dazzle is available in 8 states. This, coupled with the growth of our core brands such as Magic Moments, Morpheus, 8 PM Premium Black and 1965 Spirit of Victory Rum, et cetera, places us very confidently to continue delivering industry-leading growth.Radico Khaitan is progressing firmly on the path of this exciting premium brand creation journey, which will be accentuated by a strong backward integration manufacturing platform. Going forward, we continue to focus on our long-term growth plans of premium IMFL growth with new brand introduction in both white and brown spirits and leveraging the benefits of our capital investments.I would now like to hand over the call to our CFO for a detailed operational and financial review. Thank you, and over to you, Dilip.
Thank you, Abhishek. Thank you, everyone, for joining us on this call today. During the second quarter of FY '23, we reported total IMFL volume of 7.18 million cases, representing an increase of 10.9% on Y-o-Y basis. This was led by Prestige & Above category volume growth of 22%. In value terms, the Prestige & Above category registered 25% growth. Prestige & Above category accounts for 37.9% of IMFL volume as compared to 30.2% in Q2 of FY '22. Our Prestige & Above category volume represents a double-digit CAGR as compared to the pre-COVID levels.We have rationalized volume of regular category brands in certain states, which is a conscious strategic decision to mitigate input cost pressures. Had it not been done, our volume growth would have been higher. Net revenue from operation during Q2 of FY '23 was INR761 crores, representing an increase of 8.6% compared to Q2 of FY '22. During this period, IMFL sales value also increased by 8.5%. Gross margin during the quarter was 41.6% compared to 43.6% in Q1 of FY '23 and 45.3% on Q2 of FY '22 too. On Y-o-Y basis, continued commodity inflation resulted in gross margin compression, particularly in the non-IMFL business. Given a favorable product mix change, the impact of cost push on gross margin [indiscernible] business was mitigated to a large extent.On Q-on-Q basis, margin compression is due to the full impact of glass price increase even in Q1 and ongoing inflation in ENA costs. While we have experienced further inflation in ENA and glass, certain other commodities success as [ pack ] resin, paper, et cetera, have seen early kind of softening in near term. We expect raw material pricing situation to remain volatile. However, from Q4 onwards, we shall see the benefit of backward integration from our Rampur Dual Feed plant. In near term, EBITDA margin is expected to be rebound. In the long term, we are confident of continuing our margin expansion trajectory, given our portfolio premiumization and backward integration.During the quarter, the company has incurred INR154 crores on the Rampur Dual Feed and Sitapur Greenfield project. Therefore, the total CapEx of INR318 crores [indiscernible]. We have a strong financial position, comfortable liquidity. During these times, we are taking all necessary steps to sustain our financial strength, maintain robust business model and grow consistently, competitively and profitably.With this, we'll now open the line for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Harit Kapoor from Investec Capital Services India.
Congrats on strong volume growth. Just had 2 questions. First is on the price increase side, so you mentioned West Bengal, if you could just...
Sorry to interrupt, Mr. Kapoor, may we request you to please speak a bit louder?
Is it better now? Can you hear me now?
Yes, please go ahead.
Yes, sure. So first question was on the price increases. So could you give a sense on what's the kind of quantum in West Bengal and now what's the weighted average number that you got? And just a follow-up on that also would be, any more states we expect to get price increases from in the near term?
So Harit, as we mentioned in our last call that weighted average price increase till Q2 was approximately 3% and it was in the state of Uttar Pradesh, Uttaranchal, Punjab, Rajasthan, Haryana and Delhi, et cetera. And now there is a price increase in West Bengal, which is effective on current days, and it is in the range of 12%. So weighted average will be around -- because our volume in West Bengal is around 3% presently so it's something around 25 basis points. We are expecting some more price increases in large southern states. Within next 15 days, it should materialize and it'll be in public domain. You want to add anything?
Right, sir. The second question was on the status check on some of the kind of new launches that we did same time last year. I mean, you did the Royal Ranthambore and Dazzle. Could you just give us kind of an update or it's been a year now since they're in markets? How many markets now, how have they done versus your own actual standards and what the [ purpose ] is going forward?
So Royal Ranthambore has received unprecedented response in all the 11 states that we have gone to. It's welcomed by the trade. The best thing about Royal Ranthambore is the pricing where we have breached all IMFL level prices and gone above certain well-known scotch prices. So that's something that we have done. We have created a new price band where contributions are pretty healthy. And the response that we've received, as I said, is unprecedented. We are in 11 states, actually, and there are 4 more to be added in the next 6 months. So it's available right now in Uttaranchal, Chandigarh, AP, West Bengal, Assam, these are states where it's going to be launched. But we are available in rest of the 11 states, which are the big ones UP, Delhi, Rajasthan, Haryana, Maharashtra, Telangana, these are all states where it has already gone and it's doing pretty well.Jaisalmer is available in about 15 states. North India, we are available in all the states. In South Zone, we are available in Telangana, Karnataka, Pondicherry, there are 3 states. Andhra is soon to be coming in about, say, 1 month's time. East Zone, we have just launched it in Orissa, and we will go to Assam soon. In the West of India, we've gone to Maharashtra, MP, Goa and Daman. Now Jaisalmer is 1 brand that we have created. As it has been the tradition in Radico, we always breach the price points of the market leader. It is the most expensive gin. But despite that, the packaging, the quality is so well accepted that it's received extremely good response. We are now broad-basing the width and depth of distribution of Jaisalmer. And I think this is a brand that's going to create ripples in the times to come, like Royal Ranthambore.
And further to add, as Abhishek said in his opening remarks, we have already doubled the capacity looking at the response, and we'll be adding further capacity depending on the market demand.
Yes. Got it, very clear. The other question was on the quarter's performance. So if you look at the popular business, which is down from about 4.5 million cases to 3.8 million cases, how much would you attribute that to your own rationalization initiatives? Would that entirely -- that fall be due to your own rationalization initiatives in your opinion?
Yes. Majority of that would be because of our actions because we don't want to meet -- I'm not looking at selling a brand below our threshold profitability and certain states where we're expecting price increase to happen soon, we've restricted our supplies. So that is how we'll get the price increase also.
So fair to assume that once some of these price hikes comes through, some of these volumes will also come back, right?
Absolutely, absolutely.
Got it. Any color you can give on the states where that is slightly lower, I mean, if one must just assume that they are the states which haven't given [Technical Difficulty]
Your question is not -- your voice is not audible -- little -- actually not clear. Can you repeat?
How's it now, Dilip Ji? Is it better?
A little better, yes, little better.
It is very low and muffled, Mr. Kapoor.
Sorry, I think this will be better. So I just -- my question was really on -- do we have to assume that wherever you've rationalized in other states, which are not yet given the price hikes, that's a fair way to look at it?
Yes, absolutely.
The next question is from the line of Abneesh Roy from Nuvama Institutional Equities.
My first question is on your recent launches. For example, the low-alcohol Magic Moments Vodka Cocktail. So what is the addressable market you think and do you need to expand beyond current distribution? I understand it still has alcohol content. I understand this is the only vodka with RTD. So will you have to first seed the market so this is more a longer-term opportunity? Similarly, the [ top ] focus and the additional markets for the Lemon Dash Rum because that, again, is a very niche but focused launch. So how big can we be from a 4- to 5-year time frame if they succeed?
So see, it's like this that, first of all, we don't want to leave any premium segment in the alcohol category untapped because the future belongs to brands that are in the premium category, they are actually growing. Having said that, you see the objective of launching RTD is lot bigger than the volume. We want to create an aura around Magic Moments. We want to do brand extension. We want to make sure that every millennial has the opportunity to carry something by convenience, ready to drink. So Magic Moments Vodka Cocktail is actually the first of its kind, it breaches all price points. And the first of its kind because, you see, traditionally cocktails have been made by vodka but there is no one who had tapped this opportunity of putting it in a can, which is the fashion today.So we've seized that opportunity. And I think the price point is much higher than any cheaper competitive brands because what you get cheap today does not really gel with the generation there than the millennials. So I think it's quite a much larger objective. Yes, it is in the mid-to-long term, this is a product that will be reckoned with. But today, it needs to be seeded. The initial response that we've received to do the brand in Bangalore is extremely encouraging. And that gives us more confidence to expand it across the country. That is something that's on the cards.As far as white rum is concerned, this is a category we have tapped. It's a small segment, 1.5 million cases market. But I think we didn't want to leave this untapped because of our capability to produce premium brands and the quality of spirit. So yes, this is 1 product which we need to wait and watch.
Right. That's helpful. One follow-up on that. Do you need to expand distribution for these products? And what is the pricing status in Bangalore on that new launch? Or what is the alcohol content in that? Vodka Cocktail?
So we have launched it at INR150 a can. We will need to -- we have just done a test market in Bangalore in select outlets. We will -- now that we know the response to the product, we will have to tap the width and depth of distribution. Once we do this in Karnataka, we will spend -- go to the other big markets, which have a traction for RTDs like Maharashtra [ in similar manner ].
Right and alcohol content?
4.5% is the alcohol content. This is unisex actually. Both male and female can enjoy the drink.
Sure. My last question is on the gross margin. Every liquor company has faced pressure this quarter. So would you say the worst is behind because you've got 12% price hikes in Bengal? But when I see last prices, they continue to remain under more inflation in H2 because of the gas prices being up 60%. On a balance, how do you see H2 margins versus, say, 31.6% GM in Q2? Do you think it should improve from here on?
So as I said that the gross margin in spite of the price increases have been on Q-on-Q basis, down by 200 basis points largely on account of the impact of the glass prices, which has been for 2 quarters and the ENA uptrend in prices. The prices which we are going to get in the West Bengal and a couple of large southern states will mitigate more or less on the IMFL side, right? So the gross margin for Q3 till that time will be range bound. And Q4 onwards, we will have a backward integration facility also coming in. So you will see an uptrend from there and '23, '24 there will be multiple levers for increasing our margins and a couple of that is like both our Rampur Dual Feed will be up and running, Sitapur Greenfield project will be up and running. The UPML price increases will come. The volume of UPML will increase. And as we said that Rampur Indian Single Malt and Jaisalmer is having mixed traction in the volume. So there are multiple levers for us to go back to our mid-to-high teen margin in '23, '24.
Sir, just one follow-up on the Bengal market. So the 12% price hike is quite good, but it's also a very sharp price hike for a customer who is already facing multiple inflation concerns. So do you think the players will take that full hike? Because in the past years, although the government may allow a hike, but ultimately, industry players may not take the full hike. So what's your sense?
No, actually, everyone has taken the price hike and the MRP only changes by INR10 for the next hike. So that's not much of an increase. And all the players have taken the hike.
Okay. So INR10 MRP hike is 12% for you?
Yes, yes.
The next question is from the line of Vivek Sharma from PGIM India.
My first question is post your CapEx, which is a little bit...
Your voice is not clear. Can you make the mic little closer?
Is it better now?
A little better.
Yes. My first question is on your CapEx, when it gets over in December, what portion of your ENA needs would come from captive and what would be the mix of outsourced? And what would be the allocation of this ENA? Will it be used for your premium brands, regular brands or the country liquor?
Still not clear. Your point is regarding the ENA capital consumption?
Yes.
So from dual feed our -- as we said earlier, when we did the CapEx that the increased capacity will be used on the UPML, which has been converted by the UP government on 25% in future, the rest of the categories are also likely to be converted. And whole of the ENA from dual feed plant and greenfield Sitapur plant will be used in next 3 years. So interim, we have to sell some exports from ENA, et cetera, and come to the local manufacturer -- local users, rest will be used by us. So 3 years completely used by -- captively by us.
Okay. And second question is on the UPML segment. What is the gross margin at current juncture for this quarter?
Gross margin, see, actually without the price increase, there is a negative impact on the [ UP ] -- I talk about country liquor as a whole. There is a negative impact, and we are losing presently around 6% to 7% on account of that, which soon will be made good. There's discussions. It is a matter of time, maybe another month or it can be in the next policy. But the point is there is greater realization that there is a cash loss in that segment, and it could be made good because government is also one of the key stakeholders having large revenue from this segment.
What seems to be the delay? I mean we have been hearing about this UPML price hikes in some time, but where it seems to be the delay and what is the bottleneck?
Bottleneck is actually the process sometime -- you see this government -- UP government have some processes to be followed, and they are working completely transparent and all that. So they have the knowledge about how much cost push has been there. It has been in their record, it has been given via representation by the industry forum. So I think there is an assurance from the power that, yes, it'll be made good. It can be 1 month, it can be [indiscernible] next policy, that is anybody's guess.
The next question is from the line of Mehul from JM Financial.
So my first question was on this non-IMFL segment. Just wanted to understand, obviously, in last few quarters, we are making losses on that. But in a normalized scenario, how much EBITDA contribution comes from the non-IMFL segment?
Traditionally, we were making around 9% to 10% on this segment, EBITDA contribution.
EBITDA contribution, okay. And right now, you are saying that we are making loss in this segment?
Yes.
And that is all right. Okay. Okay. And second thing, there is a lot of talk about -- from Diageo and [ Cosmo ] about removal of mono cartons as an ESG initiative and definitely, that helps in terms of reducing packaging costs also. And I think mono carton removal will be more beneficial in the lower and popular segment as well as some of these entry-level P&A segment. What is your take on that? And do you see that benefit actually playing out in next 2, 3 quarters? Is it a material benefit for you guys too?
So first of all, removal of a mono carton becomes important in the regular segment downwards. But as far as premium brands are concerned, we feel that it gives you the premium imagery and it gives you a competitive edge. We are anyways doing a lot of value engineering around our premium brands, which will give us the desired savings. So as far as removal of mono cartons is concerned, we will go by the market trends and the market requirement. So as of now, yes, in 1 or 2 states, we would have removed it, but this will depend purely on market trend and demand in the future. So we are not too sure about it.
Okay. And lastly, just wanted to understand volume contribution from these new launches. I mean, if you remove our traditionally strong brands like 8 PM family, Magic Moments and all and after that whatever launches that we have done in last 2, 3 years [indiscernible], what is the kind of volume mix that is coming from some of these new launches?
So I'll tell you what, we will restrict it to 8 PM premium brand. This is a segment that we have tapped. We were not present in this. It's a huge, huge segment and 37 million cases is the size of the segment. We launched our product in the first year itself -- first 1.5 years, we hit the first 1 million. In the next year, following year, we hit the 2 million. And this year, we are likely to hit the 3 million also. So we are growing at a rate of about 56% -- 50% to 55%. And the brand has been received very well. It is actually available in more than 20 states and it's making a dent in that category and segment.
[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment.
Sir, on the UP country liquor side, what is the gross margin at the company level that should come in on that price hike?
So you are talking about after the price hike.
Yes. So after the price hike, what is the delta in the gross margin? So what you are at 41.5%, let's say, this quarter, where do you head to if just that comes in?
So actually, as we said, I said that there is already the cost push and all that data has been already provided to government. Traditionally, we were making 8% to 10% EBITDA margin on that business. And I think that margin is ideally the one where the brand owner as well as the prices, given the markets are perfect and optimum. So we think after that, we should somewhere be between that EBITDA margins. But till the time it happens, let's hope for the -- this thing -- let it come out.
And the Rampur Dual Feed, when we start utilizing it fully, what is the gross margin benefit on that backward integration? So how much gross margin improvement do we see on this particular asset?
Rampur Dual Feed is a 150 KLPD plant, which will get converted and based because of that, some 200 basis points roughly.
And this plant is supposed to start in December. When do you see the optimum utilization of this plant?
So the optimum utilization comes in 10 days only from the start of the plant.
Okay, immediate.
Yes.
So you'll see 200 bps pure gross margin expansion on Rampur and you haven't quantified on country liquor, what is the gross margin?
The alcohol being used out of that will be also going in the UPML. So I'm talking about as a pure play of the alcohol being bought from outside to the alcohol being manufactured, and that is something around 150 to 200 basis points.
Okay. And lastly, sir, on the premium and above the -- basically the Jaisalmer and Rampur brand volumes, so let's say, if it is x this year, what is the ramp-up that we'll see from now till next year? Is it 2x? Is it [Technical Difficulty]?
See, as far as Rampur goes, Rampur is strictly on allocation because the demand is so much. So basically, wherever it goes, it gets presold. So -- but as we said that we had invested a lot of money into the maturation facility about a couple of years back, and now next year, the volume what we'll be getting would be 3x of the current volumes and which we expect to be sold easily. And as far as Jaisalmer goes, we have doubled our capacity. And the kind of response we are getting, I think, Jaisalmer also from current year should be at least 2x next year.
Okay. So 3x in Rampur and 2x in Jaisalmer.
Yes.
And these businesses will be, at that level, what percentage of the revenue?
That actually is difficult to tell you because there are other multiple levers, as I said, on UPML and all that. The top line is mixed of so many things. But as we said, absolutely these 2 brands, 3x and 2x of the current volume.
Just to give you an example, like, Rampur we are retailing depending on the expressions from INR8,500 to INR18,000 a bottle and Jaisalmer we are retailing at about INR3,700 a bottle.
The next question is from the line of [ Sneha Agarwal ] from SageOne.
Just a small question on the backward integration CapEx that you've done, that is currently ongoing in Rampur and Sitapur [Technical Difficulty]. Sir, generally, in the industry, we are seeing several lot of players also consolidating their plans and, in fact, going towards a trend of own plants reducing and rather increased outsourcing. But on the other hand, we are seeing you announcing a CapEx and going backward integration. We understand from a gross margin perspective, there could be a [ huge ] improvement of 200 bps you said. But from an ROC perspective, how effective could it be overall? And do you think this is a way forward? I mean, from a strategy perspective, is this the right strategy to use capital? Or is this the best way the capital could be utilized?
So as you know that for last 7 to 8, 10 years, we have not done any CapEx on our distillation capacity. We have been continuing on our volume in the premium category in last 6, 7 years from around -- like now it is around 38% and value wise at 60%. And most of our premium product uses are on alcohol. So first of all, as this CapEx has been done after a gap of 7 to 8 years, and we are gearing up ourselves for the future growth, which is going to be there on the premium portfolio of Radico. The UPML opportunity, which we explained that for years together, the country liquor in UP was manufactured out of molasses ENA, which is coming out, like in South it'll be grain-based alcohol, which will be used for that. It is a 19 million cases industry, which has a large volume. So it is an economy IMFL kind of thing, which is going to be there. So our strategy is -- for these CapEx has been to keep in mind our future growth, the requirement of our alcohol and as lot of alcohol from molasses side, the ethanol blending program, this molasses is going through for ethanol blending, so our security of raw material, all this put together, and we have single facility catering to around 22% of UPCL market and 30% of IMFL market in UP. So we have to diversify also. So there were a lot of points debated before we went on CapEx, though company is -- philosophy is not to go on a CapEx-run model, but this has been done after a long time. And for 7 to 10 years, we don't expect to do big CapEx on any, other than the brand CapEx's.
Sir, you also mentioned at the same time that the next 3 years, all of this or most of the CapEx capacity that has been created will get utilized. So after that...
Your voice is really cracking...
You're not clear. Could you please clarify...
Yes. Is it better now?
Yes, it's a bit better.
Okay. You also mentioned that over the next 3 years, this capacity will more or less get fully utilized. So subsequently, do you think there will be more CapEx pertaining to increasing capacity? Or will it then again move to outsourcing model?
We are presently also outsourcing around 8 crore liters -- 7 crore to 8 crore liters of alcohol. The point is we will continue to do that. But for the first 3 years, as I said, because of our own consumption in UPML as well as in IMFL, we will be captively utilizing this. But we foresee that after that, [ we'll ] not to do the CapEx for the next 7 to 10 years on distillation.
See, let me tell you, UP is the market which is the most progressive state in the entire country today. It's growing at about 15% to 18%. The CapEx that we have done is keeping in view our requirement over the next 3 years. So we don't see this as a big challenge and bring us lot of economies.
The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
So my question is again on the rationalization of the regular brand volumes. So you said that it was done basically to safeguard some of your margins. So what kind of benefit you got in this quarter because of this rationalization and whether this will continue in the quarters ahead? Or with price increase, you expect the regular volumes to come back and the volume growth in this space would be around 3% to 4%? Is it a right understanding?
So the rationalization in the regular category is mix of that where the margins are [indiscernible] we have cut down on our volume. Secondly, in certain [ listing sales ] when we have given the brand on royalty, there [Technical Difficulty] category brand in that. So that has also come down in the royalty volumes than in the regular category there. That's why you see the double impact of that in this quarter.
Okay. So Q3, I think, it should come back on that. And the growth you are not expecting much in...
[Technical Difficulty] from actually '23, '24. Basically, we have been growing on the regular category in a single digit. And in the premium P&A category above 15%, like this first 6 months has been in the range of around 22%. So we will continue to grow our P&A category more than 15% and regular in normal state of affair should grow by 5% or so.
[Operator Instructions] The next question is from the line of [ Gaurav Doria ] from Bowhead India.
Am I audible?
Yes, audible.
Sir, my question is again the royalty volumes. So out of this 1.03 million cases, how much would be P&A volume and how much would be regular volume? Just an estimate will do.
Yes. So it is 60% regular and 40% P&A.
Okay. 60% regular and 40%. And if I adjust for that, sir, still the P&A volume growth would be north of 30%, 35%. So is that number correct?
Yes, if it's added, it will be much more. It's a math so actually if 40% is added then that premium growth will be plus 35%.
Understood. And sir, how much of volume we would have lost in CSD and certain other markets because of the margin pressure that we willingly let go?
We have done this rationalization in CSD and some markets, I think it is...
It's in Kerala.
Yes, yes. But some of the southern states where the margins are thin. And as the price increase will come, we'll again relook at these markets and can ramp up if we make money.
Yes. So I understand, sir. So I am just asking how much of volumes would have been there because of this, let's say? If we had not let go of these volumes, what the actual volume would be?
About 4% to 5%.
4% to 5% of total volumes?
Yes.
Understood. And is it largely regular or P&A?
Regular.
And sir, when we say that our Rampur volumes will triple next year onwards, do we mean FY '24 or FY '25, because onwards would mean FY '25, right?
So triple, what you're seeing in FY '23-'24, that is next year.
We'll move to the next question, which is from the line of [ Apurva ], an Individual Investor. As there is no response, we'll move to the next question, which is from the line of Vaibhav Gupta from Bowhead Investment Advisors. The participant has left the queue. We'll move to the next question, which is from the line of Neeraj from Orion Capital.
This is [ Abhishek ] from Orion Capital. I just want to know one thing. Have you taken any price hike in UP? And what is the [Technical Difficulty] of the price hike in UP?
Yes, UP we got a price increase in the IMFL segment of about close to 10% overall, if you take -- on our total volume. So that we got it in the 1st April. And as far as the non-IMFL business goes, which we expect the price increase to come.
So is there any approval from the state government for the non-IMFL for price hike?
Yes, in due course of time, it will come.
So they are inclined to -- they appreciate the cost push. So they're inclined to give it to us. And it's a matter of time.
Okay. Could we expect it by end of this quarter, sir?
It could happen at the end of the -- in the third quarter or in the new policy. It could go any which way.
The next question is from the line of Sonaal Kohli from Bowhead.
I had 2 queries. Firstly, after this ramp-up of Rampur, is my understanding correct that in [ 2,000 ], you have another round of increase in volumes with availability of alcohol and in which years would that happen? And how much would be the increase?
See, in terms of Rampur, there is -- we tripled our malt capacity or malt distillation capacity a couple of years ago. We increased our malt maturation capacity also, and we are further increasing the malt maturation capacity in Sitapur. So a lot of malt is under maturation and aging. As we go along, the volume and the quantity that will be available will keep increasing. So we do expect in the next few years, it will become a substantial volume.
[Technical Difficulty] in 5 years?
Yes. It's an ongoing process. Malt maturation takes a long time, and we've been maturing malt for last so many years. So it will keep on adding year-on-year.
Just to give you a sense of little numbers, like say, next year, the volume of Rampur should become 3x. And, say, in a matter of 4 to 5 years, it should become about close to 6x of current volume -- 6 to 7x of the current volume.
And sir, would your profitability also increase as you start retailing more in India because the distribution margins would be received?
Absolutely. Absolutely. Absolutely. Right now, there's no stock in India because we don't have the Rampur so much.
You just have the double cask Rampur in India.
Yes, that's the only expression that's currently available in India. Internationally, we have 8 expressions, and that also very selectively.
Sir, my second query was, let's say, we wake up in 2028, 5 years after this year, obviously, over a long period all these inflation issues get sorted out, price hike happen with a lag, et cetera. Is it possible to conceive in that year, let's say, 5 years after this financial year, your top line being 2x of what it is in financial year '23 and your EBITDA margin being 20% or I'm asking for too much?
Now with 15% CAGR math works out to that, what you said.
And in terms of EBITDA margins, with this backward integration and all this premiumization story and inflation being passed through over a period of time because your margins used to be 17%, 18% even before this -- 16%, 17% even before all this premiumization and the backward integration. So is 20% too much to ask or that's a fair -- more than reasonable to presume?
That is what exactly we are aspiring for, but like what we have seen with this inflation, right now, to predict itself is like a herculean task, but definitely, we are aspiring for that kind of margins and prices.
The next question is from the line of [ Apurva ], an Individual Investor.
Yes, can you hear me now?
Yes, audible.
Despite premium brands, why are traditional brands not available in most of the clubs and bars in Mumbai, despite those brands available at the retail wine shops? I don't know whether it's same with the other cities and states, but what's the strategy there, actually?
So let me tell you, see, first, we were concentrating -- we started from the regular segment, and we are upscaling to the premium segments. In the last few years, we have been able to now have more premium brands like 8 PM Black, Morpheus, Magic Moments, Rampur Single Malt, Jaisalmer. So now we have a whole lot of premium brands. And our strategy is to now penetrate into the on-premise, which is clubs, bars, lounges in the years to come. So that is what. Earlier we didn't have the complete portfolio. But today, we do have. So that's one area that's going to give us phenomenal returns in the year-end.
Okay. And other question is, recently, there has been decreasing excise on imported spirits. So does that affect you?
Can you repeat the question, please?
Recently there has been few states who have been decreasing excise on imported spirits. So does that affect you?
See truly speaking, let me tell you, I have already told you that Radico has been launching products, breaching the market leader's position. For example, Royal Ranthambore has been launched above the price point by one of the popular scotch whisky. So really, if you ask me the kind of premium brands we have and what are in the pipeline, we really are not concerned about it so much.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
So thanks, everybody, to be on call, and we have continued to deliver on our premiumization strategy, which is reflected in our strong P&A volume growth during the quarter. All our core premium brands are registering strong growth. The traction of our luxury brand, Rampur Indian Single Malt is strictly on allocation and Jaisalmer Indian Craft Gin is above expectation. Next year onwards, Rampur allocation will increase, and we will have already expanded our gin distillation capacity to cater to the growing demand. There is near-term margin pressure due to the commodity inflation, but we are confident of maintaining our long-term margin expansion trajectory with premiumization of our portfolio and backward integration. We look forward to interacting with you in our next earnings call. If you have any queries, please follow up with us, and please do feel free to write to us. Thank you. Stay safe and healthy.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.