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Radico Khaitan Ltd
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Ladies and gentlemen, good day, and welcome to the Radico Khaitan Limited Q3 FY '23 Earnings Conference Call 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, Inba. Good afternoon, everyone. On behalf of Dolat Capital, we welcome you all to Q3 FY '23 Earnings Conference Call of Radico Khaitan. We would like to thank the management to give us the opportunity to host the call. On the call, we have with us Mr. Abhishek Khaitan, Managing Director; Mr. Amar Sinha, Chief Operating Officer; Mr. Dilip Banthiya, Chief Financial Officer; and Mr. Sanjeev Banga, President, International Business from the management team.
Let me now hand over the floor to Mr. Abhishek Khaitan for his opening remarks. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. Thank you for joining us on our Q3 FY '23 results conference call. I hope you are all doing well and keeping safe.
Radico Khaitan has delivered another quarter of consistent financial performance driven by a robust brand portfolio and excellent execution capabilities. We are pleased with the performance of our premium brands. During the 9 months of FY 2023, our Prestige & Above category brands have shown robust growth, including the core brands such as Magic Moments Vodka and Morpheus Brandy, where year-to-date volumes has surpassed the full year FY 2022 numbers.
In January 2023, Morpheus Brandy achieved sales volume of 1 million cases and entered the prestigious millionaire brand's club. This becomes our sixth brand to sell 1 million case annually. I would also like to highlight that 1965 Spirit of Victory Rum, which we had launched 5 years ago is also likely to touch 1 million case sales volume in FY 2023.
During the year, we launched after that blue in a contemporary packaging and positioned in the deluxe category. It is doing extremely well, and is going to be one of the core premium brands going forward.
During the last quarter, we discussed the launch of a new expression of Rampur Indian Single Malt Jugalbandi, a series of 8 Indian single malt cask strength whiskey. We are very excited about the response it has received in the international market. Retailing at USD 400 per bottle, the first two expressions of the series are sold out.
We recently placed Jaisalmer Gold Gin at the Dubai Duty Free and are receiving very good consumer response. Radico Khaitan will continue to expand the Jaisalmer brand equity in the domestic as well as the international market. While the raw materials scenarios still remains volatile, we have seen early signs of deflation in certain commodities. We have recently received price increases in the state of Kerala, Rajasthan and some current states.
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 have received price increases in the state of Uttar Pradesh. This will support the profitability expansion in FY 2024.
We are pleased to report that during January 2023, we have commissioned the Dual Feed plant at Rampur and also started bottling operations at Sitapur within the committed time line and estimated CapEx budget. As we continue to drive our premiumization journey, the availability of additional grain-based ENA will strengthen our value proposition. The bottling plant at Sitapur positions us strongly to capitalize on the future growth opportunities in the branded businesses.
Radico Khaitan is progressing firmly on the part of its 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 plans of premium IMFL portfolio expansion with the new brands 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 third quarter FY '23, we reported total IMFL volume of 6.99 million cases, which is a flat on Y-o-Y basis. Prestige & Above category volume grew by 14.1%. In value terms, the Prestige & Above category registered 19.1% growth. Prestige & Above category accounts for 42.4% of the IMFL volumes compared to 33.3% in Q3 of FY '22. Our Prestige & Above category volumes represented double-digit CAGR compared to the pre-COVID level.
We have rationalized volume of regular category brands. This is a conscious strategic decision to mitigate input cost pressure. Had it not been done, our volume growth would have been higher. Furthermore, we have also seen some RTM changes impacting the industry volume temporarily.
Net revenue from operation during Q3 of FY '23 was INR 792 crores, representing an increase of 4.7% compared to Q3 of FY '22. During this period, IMFL sales value increased by 2.4%. Gross margin during the quarter was 41.3% compared to 41.6% in Q2 of FY '23, and 45.5% in the Q3 of FY '22. On Y-o-Y basis, continued commodity inflation resulted in gross margin compression, particularly in non-IMFL business, even a favorable product mix change, impact on cost push on gross margin of the IMFL business was mitigated to a large extent. On Q-on-Q basis, margins have remained relatively flat. The compression is due to the full impact of glass price increase given in Q1 and going -- ongoing inflation in ENA costs.
We've experienced inflation in ENA and glass. On Q-on-Q basis, ENA price have increased by 5%. We have also seen a 12% increase in glass cost from the middle of Q3 of FY '23. However, certain commodities such as PET resin, paper, et cetera, have been early sign of softening in the near term. We expect raw material pricing situation to remain volatile.
In near term, the EBITDA margin is expected to be inbound. In long term, we are confident of continuing our margin expansion trajectory given our portfolio of premiumization and backward integration.
During the year, company has planned INR 472 crores on Rampur Dual Feed and Sitapur Green Field projects. Therefore, the total CapEx of INR 541 crores incurred since inception.
We have a strong financial position, comfortable liquidity and during these times, we are taking all necessary step 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 Pritesh Chheda from Lucky Investment Managers.
So I have one question. If you could give us the gross margin bridge of the loss in gross margin of about 400 basis points in the quarter and, let's say, 400-odd basis points in 9 months, considering the fact that the Prestige & Above is now almost 60% of our business and has moved about 8%, 9% in 9 months and has moved thus to -- 10% swing in -- as a percentage of sales in the quarter 3. So this 400 basis point loss in gross margin, if you could give the bridge as to where this 400 bps gross margin loss is coming, and if you would portion it out to IMFL, non-IMFL, within IMFL, regular and others. If you could just give that bridge?
First of all, as we've said that the main reason for the gross margin compression is the inflation in the input costs. The compression in the 3 months and 9 months is almost 400 basis points. We have received the price increase with the various states, 8, 9 states put together, roughly to the tune of around 300 basis points. So as an overall macro, the gross margin has impacted by 700 to 900 basis points looking at the premiumization and other things. However, in non-IMFL, which was the main reason of the drag, we have received recently in the UP excise policy, the price increase, which will make the non-IMFL business from a negative EBITDA to a positive EBITDA. And that will support us in the future to retain our margin back to mid-teens kind of things.
As far as the regular and the premium portfolio is concerned, since the premium portfolio and this quarter has been a little exception from the point that there has been various reasons for a degrowth in the regular category. Some of them attribute to the RTM change, some of them rationalization of the portfolio in view of the cost pressure. And this has been and temporary, I think when the cost pressures come back to a normal level, we will again regain our volume in the regular category as well.
So I say that with this price increase in non-IMFL, which was negative to positive, we will be able to get back to mid-teens kind of thing. And then as we have already guided that we will -- in 3 to 4 years with the kind of premiumization luxury portfolio and a lot of other levers for '23, '24, we will be back in 2 to 3 years' time in the late 15 kind of EBITDA margins.
So within that, when you said you got 3% price hike, what was the corresponding cost inflation that you saw?
As I said that when gross margin has compressed 400 basis points, this is an impact, which has been compensated by 300 basis from the IMFL business and rest. So I can't quantify exactly, but it should be around 900 basis points or so on the gross margin side. It's complexed with so many things, because ENA price has increased continuously. Year-on-year, the impacts ENA prices around 20% plus. Glass prices have increased by 25% plus or 30% -- some of first came in of -- first quarter of the current financial year, the second price increase came in the middle of this quarter. Hence, to quantify, but this is reflected very much in the gross margins.
So for a 3% price increase, and you got the corresponding cost increase was 9%, that's what you mentioned?
I say that in IMFL business [indiscernible] to a large extent, able to mitigate the cost push by product premiumization and the price increase, which has been done in this. But in non-IMFL, it will be reflected in '23, '24.
Yes, yes. That I understood, sir. So if your first observation is that, to a large extent, the price increase plus product mix has mitigated the impact, then which means the gross margin correction is largely then relevant to the non-IMFL portfolio, right?
I say that it has been partly compensated this year by price increase and product premiumization, that's -- yes.
And how much price increase have you got in non-IMFL? And when will it start flowing? It will start flowing from quarter 4 or it will start flowing from next year?
The delta of that is around 15%. And from a negative EBITDA too, it will come in single digit.
So there is a 15% price hike which is right?
It looks like the management line has got disconnected. Request you to please remain connected, Mr. Chheda. We'll just reconnect the management. Thank you.
Participants, please stay connected. We are rejoining the management line. Please do not disconnect.
Ladies and gentlemen, thank you for your patience. We have the line for management reconnected. Sir I -- you may go ahead, sir.
So you said that delta 15% swing. And when will this price increase flow into your numbers, quarter 4 or next year?
So it will be effective the first month of the new fiscal, which is April -- 1st April.
We will take our next question from the line of Vaibhav Gupta from Bowhead Investment Advisors.
Sir, I just wanted to understand, if we take into account...
Mr. Gupta, could you speak a bit louder? Your volume is really very low, sir.
Is it better now?
Yes.
Sir, I just wanted to understand if we take into account the royalty volumes and that calculates the growth rate, it seems the adjusted volume growth in P&A segment is 30% plus Y-o-Y. So just wanted to understand, what led to this type of growth and which brands are the major contributor?
So you are absolutely right. If you add back the royalty brand, which is in the base, so it will come to 30% plus, you are absolutely right. And the flagship brand, Magic Moments, Morpheus, 8PM, 1965, and some more, everything is growing and it's just well spread out across India in all regions.
Okay.
But in terms of royalty that you are talking about, it's largely Morpheus Brandy, 8PM Premium Black and Magic Moments.
Okay, sir. Got it. And sir, which brands can we expect to be in the millionaire club in 2023 and '24, like apart from Morpheus and 1965? Is there any other brand which is in the running?
'23, '24, we will actually assess again the situations. But definitely, as early said in the first opening remarks, one brand which is close to this will cross in this year, '23.
We take the next question from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
Sir, my first question is on your earlier comment about the changes in trade margins affecting the volumes of the regular brands. So can you just elaborate that point that, what kind of changes have been happened in the trade margins, which led to this volume moderation in quarter 3?
No, we said 2 things. One is the changes in RTM of certain states where the supplies were affected in this quarter. And these are 3, 4 states, which is in the public domain itself, Delhi, this Punjab, et cetera and all that.
Second is consciously, as a strategic listing because of the input pressure, there are certain brands which are not making money, and that has been curtailed -- reduced. So this is another factor. So once we see that either price increases happen in those price segments. And the RTM change is just a temporary phenomena. I think in a month or 2 it will come back to the normalcy. So we will -- in next year, be back on some growth in the regular segment, though our focus is Prestige & Above category, but this is an exceptional degrowth in this quarter.
And sir, my second question is on margins. You mentioned that once this price increase in non-IMFL segment gets through, you see margins coming back to mid-teens in -- maybe in first half of FY 2024. But when can we see also the benefit of this new facilities serving in, because that was also supposed to add to your benefit from quarter 4. So can you just give us some kind of guidance in terms of when can we see those benefits coming in? And how you will -- how it will help your margins to shape up in the quarters ahead?
As we said, that there are various factors. One is the backward integrated facility will come into stream and that will support the branded business. The Rampur Indian Single Malt and Jaisalmer volumes are rising, and I think next year because at this point of time, it is on allocation in global as well as in Indian market. We've already rolled out Rampur Indian Single Malt in defence also, that will get momentum because we are not able to supply at this point of time. The natural growth in our premium portfolio will happen. UPML and CL will also reflect in the single EBITDA margin.
So all put together will play a combined role in making the margin next year in mid-teens to better, as we were earlier in 16% kind of category before '21. So we will be back on those stream. And in due course of time, our target to achieve in high-teens will -- should definitely be on course.
And one last one on the Prestige & Above brand volume growth. So if we look into this quarter, we have achieved a volume growth of 14%. Last quarter, it was around 22%. So there is a bit of moderation in the volume growth. So any particular reason for this? Or this is like a phaseout effect from -- you still maintain the guidance of volume growth of around 18% to 20% in this space?
So P&A growth continues to be heavy. This quarter, it has been 14%. But you see, as we said that there were certain markets in Q3 where we deliberately tempered, moderated our volumes, because there was a route to market change that was happening. So it's purely because of that. But the quarter-to-quarter, the variation is a little -- it's something that we don't look at. We maintain our mid- and long-term guideline of maintaining more than 15% growth on P&A.
[Operator Instructions] Next question is from the line of Ajay Thakur from Anand Rathi.
Sir, just wanted to understand a bit more on the volume growth. If I have to adjust for the RTM changes, what would be the volume growth we would have in the overall portfolio?
The impact of that is roughly 600 basis points.
Okay. And sir, secondly, just wanted to check on our employee cost, which has actually risen by almost 20% plus during the quarter. So I wanted to check what would be the run rate going forward or margin purposes?
So the normal increase will be between 11% to 12%, 13%. But this quarter, there has been an incentive also, which can't be worked down in advance. So this has been charged in this quarter.
We'll take a next question from the line of Sonaal from Bowhead.
Congratulations, sir, on healthy growth in volumes...
I'm sorry, Sonaal, we can barely hear you. Can you please switch to handset and speak?
Am I audible to you now?
Yes. Thank you.
So firstly, hearty congratulations on volume growth, which seems to have been exception similar to the consumer companies. I had 2 queries, sir. Firstly, the volume which you have lost in the regular category. How easy would it be for you to get these back as and when you choose to -- as and when the inflation is under controller or you get price hikes?
Secondly, I also wanted to understand your long-term guidance is 15%, but you're growing 30% this quarter. So I mean 15% -- 30% equivalent to 2 years of growth, would be to a 30% kind of growth. So I wanted to understand, like is this 30% growth an exception? Or just 15% a more conservative kind of guidance? Or how do I read when I see your numbers?
And lastly, you mentioned something about the incentive. So while incentive may be a yearly phenomenon, but is there any seasonality in this, like this is a Q3 number, it may not come in Q4 or Q1 of next year? How do I read this increase in employee cost?
So Sonaal, first thing first, as far as the regular category is concerned, as we have already explained and I again reiterate that there has been a couple of factors, RTM cost pressures and all that. But in normal course, it should be in the range of 3% to 5%. Normal is when normalcy returns. And we will regain this thing because our brands in regular category are also robust. So the point is the new launches and all that are being done in P&A category, but the existing brand will be able to take that much of growth.
As far as your second question is concerned, as we guided, that we will be having a 15% CAGR growth. Next year, when the base impact of the royalty will also stabilize on a Y-o-Y basis, so the 15% is what we guide for. If the industry and other things also grows in that, which is a structural phase, then we will see that it can be higher even. You're absolutely right that this quarter, it has been better because all brands. And you see the vodka, which was growing in single digits and all that. In the premium vodka, there has been a good growth. And mainly driven by Magic family and the whole industry even. So we have seen a fantastic growth in vodka. Morpheus has been growing very well.
1965 is the brand, which is growing very well in civil market as well as in defense. 8PM Premium Black, we -- in 2 years, we have 3 -- 3, 4 years, we have crossed 2 million and, again, growing by a very good margin. I expect close to 3 million cases kind of things by '23. So I think it's a robust brand portfolio.
Sir, just one comment is if you allow me. This vodka growth you mentioned about -- is vodka growth much higher than this 30%? And is it because of the base impact because vodka is used more in pubs? Or if you remove the vodka also the growth remains healthy in Q3. Secondly, what would have been your growth in exports in the first 9 months and in Q3?
Yes. As far as the vodka segment, if you see like post-COVID, vodka is more of day drinking and going out and drinking and everything. Now with the economies opening up, vodka has grown a lot because the outdoor drinking and going out has increased. And as far as export goes?
Well, as far as export goes, in terms of volume, we've been kind of stable like last year. But in terms of value, we've grown. In terms of volume growth, despite all the headwinds that were happening in Africa, which is a very large market for us, especially in the regular brands that we have, there have been N number of problems, be it in terms of the devaluation of the currencies, availability of ForEx. Also, the freight rates, the ocean freight rates increased tremendously. So because of that, we had to hold back a lot of shipments, especially into the African market or the Central American markets.
But now the freight rates have more stabilized. The currency still remains a bit of an issue in Africa, but we do expect growth to come back. Meanwhile, what has happened is the European and the U.S. market where the on-trade opened up, so our luxury portfolio is doing exceedingly well in all those markets. So value term, profitability wise, we are much healthier than last year. But volume, yes, we've taken an impact on the lower range of our export offerings.
Sir, minus the vodka, would you still be growing at a healthy growth rate? Or the entire growth rate of 30% was driven by vodka? Or if I remove the vodka, can I still say that you would have grown 25%, 30% for Q3 specifically? And secondly, my question regarding the employee cost. And your outlook for exports, do we expect exports to grow now considering the freight rates have fallen by almost 90% on some routes?
See, on your question whether -- if you leave aside Magic Moments Vodka, whether we would still continue to maintain the growth rate, the answer is absolutely, yes, because all our Prestige & Above brands are growing at a very, very healthy rate. And the response from the consumer in the marketplace is unprecedented. So this clubbed rate with the launch like Royal Ranthambore Dazzle, Morpheus brandy, 8PM Premium Black, all taken together after that the newly launched brands. All taken together, we see these brands responding extremely well in the growth rate to be maintained.
In terms of export, we see the growth coming back very soon because the trade rates, you're absolutely right, have stabilized. The only issue is a bit on the currency, but that's also getting more and more stable now. So we do expect our volumes to come in very soon back to the growth trajectory.
Question about employee cost. It's concerned this is will be -- again, the growth will be in the range of 10% to 12% kind of things.
Sir, when you take a -- this quarter employee cost, does it have one-off incentive? or this number, whatever incentive was in this quarter that should come also in Q4 -- Q1, Q2, Q3, Q4 of next year?
So this is actually cumulatively being given in this quarter.
Okay. Understood. So there's an element of one-off.
Last year, which has been paid out in Q3. So you should look at YTD number for the base. Yes.
We'll take a next question from the line of Nikhil Chowdhary from Kriis Portfolio Management.
Most of my questions have been answered. Sir, just probably confirming, like you alluded that the regular and other category growth will be coming back in the coming quarters, right? As soon as the -- you said the RTM will be resolved in a month or 2. So probably, we will start seeing the growth from the coming quarters, right?
As we said, this also depends on the inflation and the contribution we can make. So this growth has been consciously being strategically done that we have degrown in certain markets. But we feel that with the cost impact and all that, when we are able to have the positive contributions in certain percentage, we will be able to cater with these brands. The brands are robust. It is not because of the brand saliency, it is because of the contribution being made. And as RTM, it is very [indiscernible] the phenomenon.
Our next question is from the line of Vikas Tulsyan from Vision Ahead.
Sir, when is your ready-to-mix vodka will be launched or it has already been launched? If it's already been launched, what is the response? And what does the management expect from this product?
So what we are talking about is what vodka cocktail. So first of all, it has been launched in Karnataka, and that too in premium outlets of Bangalore. The response has been extremely encouraging and seeing the response, we are now planning to extend it to Maharashtra, Daman and Goa. And the brand is, in fact, responding more than what we had expected.
It will take some market share from beer also -- that I am expecting little bit.
I'll tell you, I've understood. See, let me explain one thing. We are not -- the purpose of launching vodka cocktail is very simple. One, because cocktails have traditionally been made out of vodka in our country and nobody had taken the first move, I had so far taken the first-mover advantage. We are the vodka cocktail available right now. So that's one.
Secondly, the purpose of launching this product category is to build an aura around the Magic brand. You see, this brand in the hands of youngsters, the new generation. It will be -- it will have widespread distribution, and it will only strengthen the brand equity of Magic. So here, we are not looking at big, huge volumes, but we are looking at value. And that's what we are finding from the response that we have received in Karnataka.
Okay. I think it will be a big product. And sir, since that the FDA has been signed with the Australian government, you will also target the Australian market?
We are already in Australia. Our brands are already there in both Australia as well as New Zealand.
Our next question is from the line of Krishna from Niveshaay.
So my first question...
Krishna, we can't hear you clearly. Please switch to handset mode and speak, please.
Hello? is it better?
Yes, please go ahead.
Yes. So my question is on the raw material side. So can you give us a clarity on, like what's the trend you are looking ahead on the raw materials, especially ENA?
So we actually, at this point of time, can't predict beyond. Basically, this has been seen as an inflationary condition on account of the grain prices, the fuel prices, et cetera. But there is definitely a check on that because simultaneously, there is ethanol prices being fixed by the government looking into these grain, et cetera, and all that. So otherwise, if you say that we don't foresee big inflation from here onwards, but I can't predict because the situation at this point of time is also volatile.
So from the CapEx that we were doing the backward integration, so do we see additional benefit because of that, because of the situation?
Yes. CapEx backward integration benefit will definitely arise and accrue. Because basically, as you see, the current producer, whosoever sells ENA and all that, these inflationary things is being reflected in ENA prices. So that differential margin should continue to be there.
So what kind of margin improvement we expect from the backward integration?
This has been ranging between INR 12 a liter to around INR 16, INR 17 a liter.
Okay. So INR 4 gap. So we would benefit by INR 4 from the [indiscernible].
No, no. I am talking about in general a producer versus buying from outside.
Our next question is from the line of Anurag Jain, an individual investor.
Am I audible?
No. Anurag, we can't hear you clearly.
Good afternoon, am I audible now?
Yes, it's a bit better. Please go ahead.
Okay. Basically, my question relates to the macro side. The imported scotch, whiskeys have become cheaper significantly in the last few years. For example, as an illustration, if I take the state of Haryana, Royal Ranthambore sells for INR 1,600 a bottle at some premium to a Red Label or an Irish Whiskey, like Jameson. So if my question is, how is the tax -- how much is the tax incidence on these whiskeys? How does the total taxation combined for -- at the central level and state level compare for these three as an illustration? Basically, my question is to understand what is the value generation in local manufacturing for a higher value alcoholic drinks?
See, in one of the points that need to be understood is that for companies like Radico particularly, where the mix is skewed towards Prestige & Above premiumization, the reduction of price by BIO brand really does not affect us so much because now, brands from Radico are being positioned at prices higher than market leader, even higher than scotch, whiskeys. And your example is absolutely correct. Royal Ranthambore is a burning example. It's India's finest whiskey now positioned much above 100 Pipers.
So what I'm trying to say is that these small aberrations in some states where they reduce prices, it does not really affect us so much. And we are constantly upscaling our selling prices and consumer prices.
Well, just to add on to what Amar said, our brands today, the quality is comparable to the finest in the world. Just to give you an example, Royal Ranthambore, where here you comparing to, say, a Red Label or Jameson. In U.S. market, it's cross-lined by Johnnie Walker Black Label. That's the strength of the liquid that goes into Royal Ranthambore.
Okay. So basically, sir, what you are saying is that the taxation asset does not impact you reduction in taxation does not impact you for the higher value alcoholic drinks? It doesn't...
Because the luxury and super premium brands where we are competing in all the international markets also. Just to give you an example, the minimum price of, say, a Rampur is about $100 a bottle, which is way ahead of all these normal single malts, a 12-year old or a 15- or 18-year-old single malt. And we are competing in all those markets and still can't meet the requirement of the market. There's so much demand for our brands. So we would not be too worried about the price positioning or the competition over there. All that we need to focus is the brand building, and that is happening with Royal Ranthambore.
All right, sir. And sir, if I take the same question to the popular drinks category, which are priced lower, and my question is -- one reason for my question is, it appears that the competition, they are giving up the popular category. So is there a disadvantage now in manufacturing the popular drinks, which have a lower price?
See, I'll tell you what, basically, the drinks that we have in our portfolio, in the popular or the regular category are robust brands, which have withstood the test of time. For example, 8PM is a 10 million cases plus family brand. So it has a consumer pull. And when there is a consumer pull, we need to continue to serve our consumers that we've done over the decades. So we will continue to do that. It's just that for the time being, the economic pressures, the cost pressures are humongous and therefore, we are moderating our values. But yes, in the times ahead, depending upon economic situation, we will get back.
All right. So basically, what I wanted to clarify is that amongst these all these cost pressures, is taxation also a factor that -- the taxation for an imported drink versus what is locally manufactured has reduced so much that taxation provides no barrier as such for local manufacturing in the lower price drinks category?
See imported -- the duty is 150%, that has not changed. There are some states where the local excise duties have changed on BIO products. And it doesn't matter. It doesn't bother us because we are on a premiumization journey. Just to reiterate the point, in Maharashtra, Royal Ranthambore sells at a price of INR 2,700 a bottle whereas Red Label and Valentine sell at for INR 2,100 a bottle. So it doesn't bother Radico because our journey is different, and we are continuing to upscale our premium offering to the consumer with the best in India.
This is some good insight into the branding for Radico Khaitan.
We'll take a next question from the line of Dhiraj Mistry from Antique Stock Broking.
So my first question is related to raw material prices. So given that if raw material prices remains at current levels, when do you expect your EBITDA margin will reach to 15% plus or 15.5% margin? And what kind of price hike it would be required?
So first of all, actually, the premiumization -- product premiumization and price increase, which has happened in the non-IMFL should take us back to the -- our historical margin level. So '23, '24 I think we will be at the historical margin level of 15% plus. So this -- and if the raw material prices stays where it is, some price increase will definitely happen in the popular category as well, because the representation is a continuous process by the industry forum with the various state governments. It's a pain for everybody.
Yes. And my understanding is correct that in Q4 also, the margin will remain subdued that given that the effective price hike for non-IMFL business is from April?
You're right, it will remain inbound.
Okay. Okay. And sir, what would be your effective tax rate for this year and next year?
25%.
25%. And any CapEx guidance for FY '24?
What guidance?
CapEx?
CapEx.
CapEx, as we have already taken these projects, and there are -- the projects taken on increasing that tripling the caption -- gin capacity and all that, those CapEx's will be matched. And basically, as we have guided that this CapEx will be funded out from the internal approval as well as taking the loan. So in next 3 years, the company should be back on the negligible debt or zero debt kind of level.
Our next question is from the line of Sumit Agarwal, an individual investor.
Congratulations for good set of results. My question is...
Mr. Agarwal, could you speak a bit louder? We can't hear you or use your handset mode, please.
Am I audible now?
Yes, please go ahead.
My question is regarding the volume share of different liquids, like rum, brandy, whiskey in the total capacity. And which segment is getting more traction?
So you will be amazed. Let me tell you, we are in times that after having crossed this pandemic era, first of all, the volumes in India on alcoholic drinks have come back to the pre-COVID, and they are growing at a CAGR of approximately...
We've grown at 11%...
And let me tell you what is more amazing is that every category and every segment in India is growing. The consumer is looking forward to his -- drink eagerly and every segment, every category is growing at a very healthy rate. Whiskey, for example, is growing at a 17% growth rate. And that's on a very heavy base as well. So I think what we need to see is that there are good times ahead for the drinks and industry. We only need to overcome the cost pressures and there is no looking back.
So I'll add further to that, that for last 6 consecutive year, we have been outsmarting the industry growth. And that we will continue in the P&A category.
Perfect, sir. And my question is that in the Delhi NCR region, because that's a premium market and a lot of influence on other markets as well. So are these new launches which are very, very promising, like Royal Ranthambore, are these also being extensively marketed and advertised and distributed in Delhi NCR region because I haven't seen so much of that?
So no. I'll tell you what, we are extending all these brands into the Delhi market. The Delhi route to market is fairly new. It's still settling down. And we have great hopes from this market in the next 6 months. So yes, the distribution -- base of distribution is being expanded. The brand will be present.
Our next question is from the line of Gaurav Lohiya from Bowhead India.
A couple of questions. Firstly, I wanted to understand Royal Ranthambore is now present in how many states? And in next 1 year, by end FY '24, how much further can we increase our distribution in that? Secondly, you had plans to launch some whiskeys, gin and some more products. Do we see any of those launches in FY '24 or in Q4 of FY '23?
And lastly, you mentioned that certain pricing could happen, either regular category or in some other states. Is it fair to assume that by end of Q1 or Q2, whatever price hikes we are supposed to happen would have happened by then? This is my third and fourth. When would you get your -- for Rampur, you're supposed to get 8 alcohol. By when do you think you should be able to get that in FY '24? Would it be second half, first half?
So on the question relating to Royal Ranthambore's availability, we are currently launched -- we have currently launched in 12 states. The distribution is taking place in primarily A-class outlets. But seeing the response, we are going to expand the width of distribution in new fiscal FY '24, and we will expand all India during FY '24 as well.
On the issue relating to price increase, let me tell you, the Indian market and different state governments have been quite receptive on the issue relating to cost pressures. And in the last 1 year, almost -- about 17 states have given price increases. So we -- this is a continuous process of representation. And I think in FY '24 as well, some states will -- where we are continuing to represent will respond favorably.
Sir, lastly, these two questions regarding new launches of whiskeys and maybe gin. Are they likely put up in Q4 FY '23 or in FY '24? Or some broad -- how many kind of products are you looking at? What are the size of pie these products could cater to? And on the Rampur, the old -- alcohol -- when do you expect that to happen on an incremental basis? Would it happen in the second half of FY '24 or first half of FY '24?
Okay. So first of all, I want to tell you that we've always maintained that new product development is a forte of Radico. All our brands have been -- have developed -- been developed organically. So it's a continuous process. New products are being worked upon. There is one white spirit and one brown spirit on which we are working very actively. And hopefully, in FY '24, they should see the light of the day.
In terms of Rampur, we expect the additional volumes to start trickling in from second half of FY '24, and then it's an ongoing process. We need to understand we matured our model for a very, very long time, and it's been aging. So we will see the impact coming in from second half of '24 onwards through the next few years ahead. And we already tripled our malt capacity a couple of years ago. So all that malt will also start flowing in a few years.
So sir, as far the whiskeys are concerned, this planned to launch only one whiskey in the financial '24? Did I hear you correctly?
As Amar said, that the pipeline of product development continues to be there. So what he said is one white spread in the high range and one brown spread. But the point is how much can the sales team also will have to -- with the launch and all that. So this one plus one is in the card and the planning state.
Our next question is from the line of Pankaj from Affluent Assets.
Sir, as I understand, earlier -- even now, our products are available back, what we should do?
You are not audible.
Pankaj, could you please switch to handset mode and talk?
Hello? On handset itself. Am I audible now?
Yes.
Okay. As I understand the products -- our products are available by allocation, either both domestically and overseas. Just wanted to understand by when we would have it available freely off the shelf.
I don't think, sir, we will have that freely available off the shelf in any time soon because the demand is outstripping what we can supply. Just to give you an example, our brands are currently available in about 88 countries, but Rampur is only available in 30-odd countries. So we've not even expanded to all our existing markets.
Similarly, in the domestic market, we are only available in NCR, in the defense and 1 or 2 other states. So we've not even pan-India available over here. So it will remain on allocation for the next couple of years, but the volumes will substantially grow year-on-year. So the demand, the way it is and the feedback that we keep getting from our consumers as we would never be in an oversupply sort of the situation in times to come.
So would that be your strategy to maintain the brand pool? Or otherwise...
Not as much as we would like to supply and meet the entire demand. It is also a question of the aging and the time that is required for a malt to be ready to be bottled. So we would not look at a short term. This is a brand which will be there for generations. And we have to maintain consistency of the quality.
True. So as I understand it takes around 2 to 3 years for aging of the liquid. So...
No, no my friend. It is much, much longer than that. But unfortunately, we don't make any hedge statement. So Rampur has matured for a fairly, fairly long time.
Okay. Sure. So there will all a cap at which we would be able to supply, right?
Yes.
Ladies and gentlemen, we take that as a last question for today. I would now hand the conference over to Mr. Dilip Banthiya for closing comments. Over to you, sir.
So thanks for joining us today, and we have continued to deliver on our premiumization strategy, which reflected in strong P&A volume growth during the quarter. All our core premium brands are seeing strong growth. The traction of our luxury brand Rampur Indian single malt, which we have said that on allocation basis and is Jaisalmer Indian Craft Gin is above expectation. Next year onwards, Rampur allocation will increase, and we have already expanded gin distillation capacity to cater to the growing demand. There has been near-term margin pressure due to the commodity inflation, but we are confident of maintaining our long-term margin expansion given the premiumization of our portfolio and backward integration.
We look forward to interacting with you on next earnings call. In the meanwhile, if you have any queries or follow-ups, please feel free to write to us. Stay safe and healthy. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.