SOM Distilleries and Breweries Ltd
NSE:SDBL
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SOM Distilleries and Breweries Ltd
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Ladies and gentlemen, good day, and welcome to Som Distilleries & Breweries Limited's Q1 FY '24 Earnings Conference Call hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand the conference over to Mr. Nitin Awasthi from InCred Equities. Thank you, and over to you, sir.
Hello, everyone. Welcome to the earnings call of Som Distilleries & Breweries Limited. From the management today, we have Mr. Nakul Sethi, Director-Finance and Strategy.
Without taking any more time, I would like to hand the call over to Mr. Nakul for his opening remarks.
Thank you, Nitin. Good afternoon, everyone. On behalf of our company, I extend a warm welcome to all of you for quarter 1 FY 2024 earnings call. I am extremely happy to announce that despite the challenging macroeconomic environment, we have finished the fiscal year with a robust financial performance.
During the quarter, we achieved beer volumes of 5.8 lakh cases and 2.12 lakh cases on IMFL resulting in a total volume -- total income of INR 3,866 million achieving a growth of 51% over quarter 1 FY 2023. Our flagship brand, Hunter recorded a volume of 21 lakh cases while Black Fort and Power Cool recorded volumes of 14 lakhs and 29 lakhs cases respectively. The volume in beer recorded a growth of close to 40% over quarter 1 FY 2023. IMFL volumes increased by over 17.4% compared to the same period last year.
Our beer realization for the quarter was INR 559 per case as compared to INR 506 in the quarter 1 FY 2023. While IMFL realization for the quarter stood at INR 760, down compared to INR 791 in quarter 1 FY 2023. Despite the prevailing inflationary conditions, we achieved an EBITDA of INR 501 million with a margin of close to 13% and a growth of 40% over the same period last year. Our PAT for the quarter was INR 337 million, with a margin of 8.7% as compared to a PAT of INR 256 million for the same period last year. Additionally, we have made significant improvement in our debt position with gross debt reducing to INR 1,950 million and net debt improving to INR 1,510 million as on 30th June 2023. This reduction in debt has strengthened our balance sheet and underscored our robust cash flow generation that we will [ produce ].
We are pleased to share that we have seen outstanding market share growth in various markets where we are present, establishing our position as a leader in the beer sector. In Madhya Pradesh, our market share surged to nearly 46% for the month of June '23, while in the highly competitive State of Karnataka, it reached an all-time high of 20.1% in May 2023, showing remarkable progress from the 3.3% which we held in FY '19/'20. Moreover, in Odisha, our market share reached an impressive 18.4% in June 2023, making us the second largest competitor industry. These achievements are a testament to our commitment to express innovation and consumer-centric strategies which continue to drive our success, expansion in the markets where we are present.
Our contract manufacturing tie up with Carlsberg has commenced for the Odisha plant and is set to increase our utilization levels for the Odisha unit. Looking ahead, we are committed to sustaining the growth momentum. Our focus remains on enhancing market share in our key markets as well as increasing our presence in high-growth markets like Rajasthan, UP and Delhi. Additionally, we aim to optimize asset utilization and generate strong cash flow.
With that, I would now like to open the floor for Q&A. Thank you so much.
[Operator Instructions]
The first question is from the line of Bharat Mani from Moneybee Investment.
Hello. Am I audible?
Yes, you are.
Yes. So congratulations for the great set of numbers. My first question was on the capacity side. So post expansion, can you let me know what the beer in the IMFL capacity is now?
So our Bhopal plant is now at a capacity of 1,52,00,000 cases. The Odisha plant is at 60 lakh cases and the plant at Hassan is at 90 lakh cases.
Understand. So on the gross margin side, so you had taken a price hike in the quarter 1. So still, the gross margins are in the range of 36%. So when do you see that going back to 40-plus margins?
See, I mean, as long as the inflationary pressures are there on the packing material and the raw material, we return to normalcy on the gross margin will be a challenge. But we expect that from quarter 3 and quarter 4 onwards, we'll have improvement in the gross margins. As I said, in quarter 1, you tend to have higher percentage of new bottles going into the systems. So that's the main reason why the gross margin was subdued for this particular quarter.
So can you just tell about the raw material inflation had on the grain and the bottle side as well. So as you said, on the bottle side, you get new bottles in the first quarter. So what about...
If you compare between June '22 and '23, there has been an increase of close to 30% to 35% in glass bottles. And about close to about 20% increase in the price of can. So there has been a slight dip in the prices of the mounted bottles over about 6% to 7%.
So how do you see it shaping ahead like in quarter 2, quarter 3, do you see it is similar?
Prices should come down in the short to medium term. And like I mentioned earlier, that quarter 2 and quarter 3, we'll have slightly lower sales. So we'll have higher percentage of glass bottles coming back to us and which will be used. And thus there will be easing of the gross margin going forward.
Okay. So recently, you entered into Rajasthan. So the ex-brewery prices in Rajasthan are not as remunerative as compared to the current states that you're in. So has that scenario changed or what -- can you just shed some thoughts over here?
So I think for the last 2 consecutive years, there has been price increases in the State of Rajasthan. So that has prompted us to enter that state. We will start the operations in the State from quarter 2 onwards.
Okay. So -- yes. So can you just give me like a broad figure on the brand mix that you have between Black Fort, Power Cool and Hunter, and how do you see that changing in the favor of Hunter? Do you see changing in the favor of Hunter?
Brand mix in terms of?
Brand mix, sir, in volumes or revenue -- like how do you see it shaping up in the future?
And that figure in the investor presentation. And I also mentioned in my opening remarks that we sold about 21 lakh cases of Hunter and Black Fort, we sold about 14 lakh; and Power Cool, we sold 29 lakh cases for this particular quarter.
And what about the future, sir, do you see the mix changing?
Our endeavor always has been to increase the percentage of Hunter going in because that's a main brand. And I think for the short to medium term, I think we'll strive to increase the percentage of Hunter going forward.
Okay. So as far as I know June quarter is the best quarter that we have. So last year, March performance and corresponding June performance was similar. So do you think this year's June performance will be correspondingly similar to the March 2024 performance?
Sorry, I could not get you.
So last year, if you could see, March 2023 quarters' performance was similar to June 2022. So -- do you think June 2023 performance will reflect on the March 2023 performance as well? Like do you think INR 380 crores of run rate will be...
Every year is a different year. We cannot comment on how the quarter 4 was, I mean, quarter 1 also had its own challenges. We are seeing that certain companies have -- there has been a degrowth in their sales figures and volumes. But I think we have done much better than the industry average. And we are very positive about the future.
[Operator Instructions] The next question is from the line of Nitin Awasthi from InCred Equities.
Sir, So could you elaborate on the strategy to enter Rajasthan -- like what is the time line? What is the game plan, if any, is that shareable with us as of now?
Yes. I mean Rajasthan is one of the biggest consumption markets in the country. And I think we will start generating numbers from quarter 3 onwards in the State. And we hope that it will be significant contributor to our overall sales from the next year onwards. Because -- it takes about 6 to 9 months to establish a presence and sweep the market so that's correspondence.
Understood, sir. And UP, when do you -- you already are doing sales in UP. So when do you expect that to gain a significant share?
So in terms of UP, for this particular quarter 1, we have actually doubled our sales as compared to the quarter 1 of last year. So we have done, I think, considerably well in UP. But I think the base is slightly small because we are selling more in our other all states what we are doing is, I think, considerably well in UP.
[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.
So just wanted to know why the market share gains in Karnataka are very, very impressive? Is the competitive intensity changing now? Or larger players are becoming aggressive again? How confident are we are sustaining this market share? Is there scope to grow this market share?
No, we are very confident of maintaining our market share. We are at about 90 lakh cases capacity and our capacity utilization in Karnataka for this quarter was in excess of 100%, and we are already formulating plans of increasing the capacity in Karnataka further.
Okay. But we don't feel that with the increasing competitive intensity, we will -- in any format, we are losing market share or volumes going forward.
And the increasing competitive intensity is present in all the states where we are present. None of the states are easy states. So I mean -- and we are I think, quite seasoned in taking on competition in all forms. I don't think that's the problem.
That's great. I just wanted to reconfirm what is the total beer capacity after all the expansion that we did?
It's 3.02 crores cases.
And while I understand the business is seasonal, what is the peak utilization that we can do?
If you look at peak utilization, I'll just give you a figure. I mean, in quarter 1, we -- for Bhopal, we have done about 97% capacity utilization. And like I mentioned earlier, Woodpecker, we have done in excess of 100%. And in Odisha, it was close to 50%. But I think that will increase once Carlsberg starts manufacturing. Actually, we had started manufacturing. So I think we can all years around -- I mean, if you look at the annual capacity utilization, we can easily do about 80%, 85%.
80%, 85%. Got it. And is it possible to quantify what is the contribution from Delhi and UP currently?
Sorry?
What is the contribution from the new markets of Delhi and UP?
We would not like to comment on that one.
Okay. And just 1 last question. We saw the growth in Hunter was relatively lower compared to Power Cool and Black Fort, because the growth in Hunter, was it only in single digit. And is this one of the key reasons why the gross margins are significantly lower and does this mix improve as the year goes by?
No. I think if you look at the realization in prices, it has gone up from, I think, INR 506 to INR 559. So it's not a question of the price increase, it's a question of the cost of raw material and packing material, which has impacted the gross margin.
Okay. What is the price hike that we have taken, how much is price hike? How much is mix, will it be possible to understand that?
So the price hikes have been in the region of 6% to 8% in all our key markets. And this year, we have sold more of cans also as compared to bottles. But still, because of the inflationary trends in both cans and bottles, the gross margin has been subdued.
Okay. And last quarter, we had highlighted that we target to do about INR 1,000-odd crores of revenue this year. Would we like to revise that guidance?
I think we'll have a better idea about where we end after we end Q2. So I think for all practical purposes, let's stick to about INR 1,000 crores.
[Operator Instructions] The next question is from the line of Sanjaya Satapathy from Ampersand Capital.
Congratulations on a good set of numbers. Sir, you talked about your cost pressure. Can you just give some color about exactly what -- which all things went up and how is the outlook?
So I mean, I -- like I mentioned earlier, we have seen escalation in glass bottles and cans, which has impacted the margin. The cost of barley in fact, has come down, but the other things are manageable.
And is there any softening there or they are still going to...
No, no, there is softening of prices. Yes.
Okay. And sir, my next question is that you mentioned that you are more keen that Hunter brands would grow much faster than your remaining beer brand. What could be the reason why you were saying this because you mentioned that the mix did not really affect gross margin, then what really is the reason why you want to be?
Because Hunter is our main brand, and it has a better realization per case as compared to the other beer brands.
And what could be the reason why it did not really grow that well then?
Because it -- in fact the market in Odisha where Hunter sells the most and MP, it has done quite well, but Odisha has not grown as much. And in Karnataka, also Hunter created stiff competition from Kingfisher Strong. So that is one of the reasons why Hunter has not grown as much as Black Fort and Power Cool.
And what initiatives have been taken to -- taken competition and grow this Hunter brand?
That is the reason why, for example, if you look at one of the press releases, we had mentioned that Hunter has become the #1 beer brand in a segment in Delhi. So that's why, I mean, Delhi is one of the key markets where we want to concentrate and so is UP and Rajasthan. For that matter of fact, I mean, I would also like to highlight that in quarter 1, we had 11% market share in Delhi for the whole of quarter 1.
Understood. Sir, my last question is that this excise duty changes that has happened in Karnataka at the same time, you also have permission to expand in Rajasthan and all these things. So overall, will there be any meaningful effect on your performance going forward because of the changes? And lastly, because you are not -- despite such a strong Q1, you're not really changing your guidance of INR 1,000 crores. So I'm just trying to understand what is the thought process behind it?
We are not changing the guidance in spite of a very strong quarter 1 because we expect that because generally in our industry, quarter 2 is slightly weak. So I think we can guide the market better once we end quarter 2. So that was the thought process.
Okay. Nothing to do with the changes in excise duty in Karnataka?
No, nothing to do with that. As we said, the change in excise duty in Maharashtra has only increased the MRP of the beer bottle by, I think, INR 4 or INR 5. So there is not much difference as such.
The next question is from the line of Kuber Chauhan from Anand Rathi.
Am I audible? .
Yes, yes.
Yes. First of all, congratulations for a good set of numbers. And there are 2 questions from my end. So I'm witnessing a lower realization in IMFL compared to beer. So what all things have driven to that? And my second question is on price hike. As you said that you have taken a price hike of 6% to 8%. So moving forward, how we are looking at it? And are we -- and are we going to take any price hike in Q2 and Q3?
So the price hikes, which we get are only once a year as soon as the excise duties formalized. So we cannot get a price hikes during the year. Secondly, I mean first, I think we sold more on lower range of IMFL, that is the reason why the realization of IMFL has gone down. When you sell close to about 66 lakh cases of beer and 2 lakh cases of IMFL, it does not make [ difference ] on your margin as well.
Okay. And going forward, how you are looking at the business, as you said that you are going to clock INR 1,000 crores revenue. So what are things are leading to that? Are we witnessing any kind of a fall in upcoming quarters? And secondly, you said about the peak utilization, right? So what would be the peak utilization? And any plan for CapEx? .
Yes. I could not understand your question in between, but -- on the CapEx, like I mentioned earlier, we will be doing CapEx in the plant at Hassan, that is for sure. And -- can you please repeat the rest of the questions, I could not hear it.
Yes. And your peak utilization, I'm sorry, I missed that for beer as well as for IMFL.
Peak utilization, like I mentioned earlier, can be in the range of 80% to 85%. For this quarter, we -- for 2 plants, we achieved nearly 100% capacity utilization. Odisha plant, we achieved about 50% capacity utilization.
Okay. That's it from my side and all the best.
[Operator Instructions] The next question is from the line of Rahil Shah from Crown Capital.
My question is on Woodpecker, which is the new entry, not so new now, but -- how is that doing? I know the base is really small for that. But do you have any plans and expansion in Woodpecker. So do you think it will be gaining momentum ahead? How are you seeing the trend?
I think Woodpecker is doing quite well in the markets where it is present. We actually launched it in Bangalore this summer. And we have already seen that it has grown in numbers. Plus, we have also introduced Woodpecker in 5-liter kegs particularly for the Bangalore market. So I think Woodpecker in the times to come should do well.
Which are the locations as of now?
Sorry?
Where is it present as of now? Only Bangalore?
It's present in Bangalore and it's present in MP and in CSD.
What was the last one?
Canteen stores.
Canteen stores. So are you seeing any other markets for it where it could be lucrative?
I think we'll roll it out slowly over a period of time.
Okay. And secondly, just on this revenue target, which you have set. So -- what is the outlook on the margins then will it be maintained at such levels?
Yes, yes. I think we should be able to maintain the margins.
So 12% to 13% can be maintained?
Yes.
All right, sir. All the best.
[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.
Just an update on the Radico contract manufacturing, we signed that also late last year.
Right. That is not picked up so much as we had expected.
Are we expecting to pick up later during this year?
Yes. We expect maybe we can give you an update in the next call.
Okay. And we mentioned that we're entering the Rajasthan market from Q2, Q3 onwards. Are there any other markets that are looking lucrative stocks 1 or 2 quarters back that we were evaluating Maharashtra, you obviously to enter. Is there plans of entering any other geographies during the year?
So I think we are -- during this quarter, we have also entered Jharkhand. And we have -- I mean, like I mentioned that we have consolidated our position in Delhi. We have also grown in UP, but we could not sell in Kerala and Pondicherry because we have run out of capacity from our Hassan plant.
Post the Hassan expansion, do we think Kerala and Pondicherry will be markets, which will be addressable during the year?
So Kerala and Pondicherry can only be serviced currently if we put additional capacity in Karnataka, because right now, I think this plant is only capable of servicing the demands, which are coming from Karnataka.
Okay. And plans for entering Maharashtra?
Maharashtra is a very small piece for us currently. Maybe we can develop this market maybe later, I guess, because our hands are full right now. I mean, there are a lot of markets to consolidate and take market share in.
Okay. And you said that peak utilization for the full year could be about 80-odd percent. For the expanded capacity, can we hit that kind of utilization this year onwards?
I mean, let's see how things turn out, then we can maybe discuss maybe after this quarter, then when we have a call, we'll get a guidance.
Just looking at the current demand and like you said, the market share gains, what is the internal outlook or aspiration looking now?
Sorry.
I'm saying considering the current demand and the market share gains in most of the geographies that we operate in, is it looking achievable during the year?
It can be -- it can be, yes.
Sure. And just 1 last bookkeeping question. Our tax rate for the last full year was relatively lower. So what is our effective tax rate?
So I mean, last year, because there was some -- because of COVID, we had losses and due to which our effective tax rate was lower for last year. But this year, I think that's why we have provisioned for about close to 21% tax rate. We had some credit or MAT also available. So I think our tax rate should be in the range of about 24%, 25% for this year.
[Operator Instructions] The next question is from the line of Karthi Keyan from Suyash Advisors.
Can you talk a bit about the market development initiatives that you undertake when you get into a new market? Talk about some of the unique things you're doing here? .
Sorry?
I was asking you, can you talk a bit about the market development initiatives that you undertake when you foray into a new market, what specifically are you able to do to attract customers to your products? I understand rebrand standing, of course. But could you highlight some of the initiatives you are undertaking?
I can't answer that question at this forum please.
Sure, sure, sure. Fair enough.
[Operator Instructions] The next question is from the line of Dhwanil from [indiscernible].
Nakul ji, congrats for a great set of numbers. A couple of questions. Sir, first was on the Carlsberg, the deal which we have done with them, right? So when I see annually, how much of capacity will be placed there?
How much of?
How much of our total capacity would be given to that on the...
Carlsberg is confidential. So we cannot discuss the capacity which we will use or the margins which we will get.
So top line or something -- can you share that?
I can't give you a guidance on that.
Okay. Got it. And sir, second thing, just wanted to understand more on the market share which you would be gaining, you've been saying that the Hunter, lower growth rates as the Black Fort and Power Cool, right? So what went right for Black Fort and Power Cool, sir? Is there a category which is not there currently in the market. And hence, these 2 were very well placed and got accepted by the customers now?
No. So Power Cool and Black Fort have been doing well for the last now, I think about maybe 4 to 6 quarters. So this category is very much there and each competitor is there in that particular category. So there's nothing that it's weakened market and nobody is wanting to enter that market. It's just that we are offering a superior product with a good taste, which is being liked by the consumers.
Okay. And sir, these 2 are also in the strong beer category, right?
Sorry?
The Black Fort and Power Cool are also in the strong beer category.
Yes. All are in strong beer category.
Strong beer category. Okay. And the market share data which you've been giving, right? So in certain states, we've reached more than 50-odd percent, right? So how much of the more headroom so you think we can have now?
I think there is a lot of headroom for us to grow in each of the states where we are present. But still in order to mitigate the risk, we are -- like I mentioned that entering into new states and trying to gain market share there also.
Got sir. And sir, just last 1 question was on the overall capacities and new CapEx. So if I take the ballpark 50% of utilization on 3 crore cases, so we could do roughly the INR 1,350 crores to INR 1,400 crores of sales at current utilization at 80% of 100, right? So now you [indiscernible] certain preferential allotment also where you guys are raising more money that the promoters are putting in, right? So what are the future plans on the CapEx side once we utilize this?
One, like I mentioned earlier also in the call that we are very actively discussing and trying to implement expansion of the facility in Woodpecker.
Karnataka.
Karnataka, because like I mentioned earlier, it has run out of capacity and we were unable to service the market of Kerala and Pondicherry in the quarter 1. So I mean, you will have to do a capacity expansion there. With that capacity, what we are going to put is still being worked out. But the work is on the -- I mean, we are working on it that how much is to put. And we expect by whatever capacity we put in that by the end of this financial year, we'll have it up and running so that we can take advantage of the quarter 1 of next year.
Got it. So from Karnataka, we only sell Woodpecker, right? We don't sell the other 3 brands?
No, no, no. We sell all 4 brands. We sell Hunter, we sell Black Fort, we sell Power Cool, we sell Woodpecker.
Got it. Got it. And sir, for the rest of the year, similar kind of volume growth numbers are fair enough to assume, sir, 35% on the back of increasing capacity?
Tracking the company for the last maybe 1 year?
More than that, yes.
And you are well aware of the...
I know.
Volume, which can be done. And but we are very hopeful of showing good numbers in the remaining 9 months.
The next question is from the line of Harsh from Chris PMS.
I wanted to understand a couple of things. One, do we have a possibility of getting more brands like Carlsberg in future, like similar deals? Is there a scope for that because this was one-off to get Carlsberg onboard?
Yes. I think the main agenda or main point was to have better capacity utilization of the plant. Now if I'm running at maybe 100% capacity utilization at my other plants, there is actually no sense of getting external guy to use the facility. I think it was a kind of a strategic decision, which was to have Carlsberg in. Or depending upon the situation going forward all the opportunities we could enter into a similar kind of agreement going forward also. But I can't comment on that right now.
Got it. Perfect. Makes sense. This is of spare capacity is what we could export, makes sense. And when would this engage and discuss where you're adding capacity. So when would that capacity go live in Karnataka?
So I think like I answered in the previous question also that I think by March or April of next year.
[Operator Instructions] The next question is from the line of Aditya Sen from RoboCapital.
Sorry to come back on this question again. I missed the capacity expansion number. Can you please answer that?
Sorry.
I missed the capacity expansion number, the volumes that you are spending in Karnataka.
We haven't decided on the exact capacity.
Mr. Sen, does that answer your question?
Yes, yes.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.
Thank you so much. I would like to thank all of you for joining us for this conference call. I trust all your queries have been adequately addressed. Should you require any further information, please reach out to our Investor Relations team, and we will try to revert with all the necessary details at the earliest. Thank you so much.
Thank you. On behalf of InCred Equities, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.