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 Q2 FY 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nakul Sethi, Director, Finance and Strategy. Thank you, and over to you, sir.
Yes. Good afternoon, everybody. We welcome you to the quarter 2 FY 2023 earnings call of Som Distilleries & Breweries Limited. Historically, quarter 2 is one of our subdued quarters due to the onset of monsoon and other related festivals, which hamper sales. But our company has reversed the trend and posted encouraging results, which have set a trend for the remaining part of the financial year.
Despite the prevailing inflationary conditions due to geopolitical situations and which led to increase in raw material prices and packaging material prices, we were able to post decent margin. Our focus on improving operational efficiency and net utilization of our plants have resulted in a margin enhancement.
For quarter 2 FY 2022/'23, our consolidated income stood at INR 147.86 crores as compared to INR 78.32 crores for the same quarter of FY '21/'22, a growth of 89%. Our EBITDA for the quarter 2 was 18.62% as compared to INR 5.51 crores for the same period last year, a growth of 238%. Our PAT for quarter 2 FY 2022/'23 stood at INR 8.26 crores as compared to the quarter 2 loss of INR 2.5 crores.
If you look at our half yearly results, our first half '22/'23, our net income stood at INR 403.95 crores as compared to net income of INR 128.97 crores for the half year '21/'22, a growth of 213%. We, in fact, had surpassed the net sale of the last full financial year. For the half year '22/'23, our EBITDA was at INR 54.51 crores at a margin of 13.5% as compared to INR 1.1 crores for the half year '21/'22. Similarly, the PAT for the half year '22/'23 stood at INR 33.91 crores, up from a loss of INR 15.1 crores in the half year '21/'22.
For the quarter, we recorded a beer volume of [ 28.7 ] lakh cases of beer and for the half year have reported a volume of 79.60 lakh cases. During the quarter, we sold about 1.7 lakh cases of IMFL. Our mainline brands like Hunter, Black Ford, Power Cool registered strong volume sales. In fact, our recently launched Woodpecker brand also sold around 80,000 cases in the first half -- H1 of '22/'23.
The robust performance across our brands has attributable to the confidence in the quality of our products and our team's execution capabilities. Strong consumer presence for the product is a testimony for our strength in acquiring additional market share across all our products. Our net debt stood at INR 162.8 crores on 30th September '22, and gross debt was INR 176 crores. Our net debt has improved by INR 19.2 crores as compared to 30th September 2021.
The total debt-to-equity ratio is now at 0.5x as on September '22, against 0.7x in September '21. Our net debt to LTM EBITDA ratio improved significantly to 2.2x in September '22 as compared to over 25x in September '21. We continue to keep the growth momentum and focus in the future. In the last year, we have been able to expand our market share in all our key markets, and we'll continue to increase it further to drive our volume growth.
Furthermore, in the short to medium term, we intend to focus on high volume and high profit market, likely the existing markets where we are present as well as take on additional markets like UP and Delhi by giving our presence. We continue to enhance our capacity utilization rates to ensure better returns on our assets and strong cash flow generation.
With this, I would like now to open the floor for Q&A. Thank you so much.
[Operator Instructions] The first question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.
Yes, can you hear me?
Yes, you're audible.
A couple of questions. Firstly, can you just confirm the -- can you just mention the volume again for beer?
Sorry?
Can you just give the volume number of beer again?
Yes, so we sold about 28 lakh cases of beer during quarter 2. And for the half year, it stood at 79.6 lakh cases.
Okay. Now my question was the MP government has changed the excise policy, and it was mentioned in the annual report that our reach has grown 3x. So if you can just elaborate, let's say, before this policy, how many retail outlet or how many outlets we were present and now how much it is?
Altogether, I mean, before the policy, they were about -- close to about 1,100 points of sales. Now it has increased to 2,500. So we are present in about 95% of all the outlets.
Okay. And can you give me the realization in IMFL in beer for this quarter?
The blended realization across all the plants is about -- for the quarter, you wanted?
Yes. Because generally, you gave it in the presentation, but I couldn't find the presentation on the -- at this time.
For beer, it's about [ INR 466 ]. And for IMFL, it's for INR 712.
[Operator Instructions] We have the next question from the line of Nitin Awasthi from InCred Equities.
Sir, firstly, I would like to understand what are the utilization levels at various plants that we have?
If you look at the half yearly utilization at the Bhopal plant, we are at about 60%. The Odisha plant is 50% and the Hassan plant is at 100%.
Okay. So Odisha at 50% and Karnataka plant is at 100%, you said?
Yes.
So given that you're growing your markets, more CapEx spend?
So we will review the situation going forward. But I think looking at the way the Karnataka unit is performing, I think we'll have to soon think of a small CapEx there.
Okay. And because your Karnataka plant also has significant portion of its supply going to the other markets at Kerala, if I'm not wrong?
Yes. So that plant basically is catering to markets of Karnataka, Kerala and Pondicherry.
Okay. Would it make more sense for you to set up a plant in, let's say, Kerala because of the cross-border taxation?
No, because Kerala, as such, currently reports 10% of the sales, which goes -- I mean of the total sales, which happens on the Woodpecker plant.
Okay. Okay, sir. So the next question was, there is a mega giant mergers, let's call that happening in your backyard in MP of a company in MP itself which will become similar to your -- IMFL manufacturer as of today, which will get integrated into [indiscernible] into that, which is unlisted as of now. So it will become a company, which is similar to [indiscernible]. Any thoughts on that, sir? Will that give more competition? Do you see more tougher competition coming in the home market?
No, I don't think that it will have any change in the dynamics of the business, in which it is conducted in Madhya Pradesh because they are already present in the BS, so I don't think it will make much difference to us.
Okay. And any such plans of your own company because merging the private arm with this arm itself because you also are in ENA production unit in the private arm?
See, what our perception always has been that ENA and for that matter, they were also into B2B sales. So ENA business is B2B. And when you have a branded play, it dilutes the investor interest, if you merge a B2B business. So -- but I would like to commend on their strategy as such.
Okay. Got it. Just a last question from my side, what is the strategic partnership that you have with the 2 industries?
Sorry? Please come again.
There is a partnership that you have got into with Jagatjit Industries, right?
With? Sorry?
Jagatjit, the North Indian brewery manufacturer.
Sorry, I can't hear you.
Okay. So no -- I was talking about the Jagatjit strategic partnership, but any which way, if I'm not audible, then I'll take it offline.
Strategic partnership?
Yes, you have 2 right now with White Owl and the other 1, Jagatjit.
No, no, no. So White Owl, we are not producing anything for White Owl currently. We are not -- we are producing beer currently for 7Ink. We are selling in Maharashtra basically, and that only [indiscernible] plant in the South Hassan.
The company that you mentioned right now?
7Ink.
Our next question is from the line of [ Darshika Khemka ] from AV Fincorp.
Am I audible?
Yes.
A couple of questions from my end. Firstly, just wanted to understand the reasons for the drop in the gross margin this time around. And do we plan to take any price hike or anything of that sort, firstly? And that was the first question.
So the price hike, generally taken...
Regulated, I do understand that...
There are no price hikes which happened during the year, especially in the states where we operate.
Got it. So what is the reason for the drop in the gross margin for this quarter?
There has been, you can say, because of Power Cool selling more, which has a lower EDP as compared to the other brands. That's one of the reasons for a lower gross margin.
Okay. And could you help us with the volumes of IMFL?
The IMFL volume for the half year was about 3,60,000 cases. And for quarter 2, we sold about 1.72 lakh cases.
Okay. So 3.6 lakhs for the half year and 1.2 for the quarter?
1.72.
Okay. Sorry, 1.72 for the quarter, perfect. One last question from my end is that you have entered into a partnership -- a contract manufacturing agreement with Radico Khaitan. What do you think would be the sort of revenue addition from you and considering that you are -- this is also in line with one of the questions that the earlier participant asked that this is going to be supplied from the Hassan plant, which is already working at 100% capacity. So how will you be able to cater to their demand? And what is the sort of revenue that you expect and -- over a period of time?
You said contract manufacturing for whom?
Radico Khaitan?
No, that is for IMFL. So we are not doing much IMFL down south. So that is, in fact, a strategic step which we took to have better capacity utilization of our Woodpecker plant in Hassan.
Okay. And what is the current capacity utilization in the IMFL plant there?
It's very low, maybe 15%, 20%.
And what is the sort of revenue potential from this?
It's very premature to give you any guidance on that number. We just started about week, 10 days back, so we just don't know.
You've already started supplying, I believe?
Yes. Yes, we have.
The next question is from the line of Aditya Sen from RoboCapital.
Sir, I believe that IMFL have premium margins as compared to beers. So can you please throw some light in this regard? Is this reduction correct from me? And if yes, then what levels of margins do we have on IMFL?
See, currently, IMFL is just about 5% to 7% of my volumes, right? Hello?
Yes.
And I do not do, I mean, the manufacturing. I only buy the ENA and do the blending and bottling. So obviously, my margin would not be as exciting as somebody who does the complete manufacturing and then does the whole.
If someone does the complete manufacturing, then what levels of margins can we expect?
So that is mainly to complement the beer sales in the lean season. So it's not something that it is adding great margin to my whole business.
Okay. So it's mostly sold during the winter. like not summer?
Not summer. Summer will reduces even less.
The next question is from the line of Avinash Nahata from Parami Financial Services.
Yes. Am I audible, please?
Yes, please.
I am slightly new to the company. So I have 2 basic questions. The one is how much of our business, what we do, we do under our own brands, and we produce for others all put together.
So I think about 98% of our -- or maybe 99% in our own brands and maybe 1% to 2% in other brands.
So what you mentioned, you manufacture beer for some company the balance 2%, is it?
Yes, yes. That's very less.
And 5% to 7% of your volumes is IMFL. So [Foreign Language] it's a seasonally subdued quarter -- this quarter. So can you break your quarters -- 4 quarters in terms of volumes percentage ballpark? How does it move more or less? Or if you're not comfortable this quarter then half yearly, H1, H2.
I will not be -- I would not like to give any number as such currently.
Percentage, in the sense 60-40 or 55-45 what I mean...
Generally first quarter [Foreign Language] 40% to 45% [Foreign Language].
Okay. And the balance 3 quarters are more or less equally distributed, the balance 60%?
Quarter 4 is slightly better in terms of volumes. Quarter 2 and quarter 3 [Foreign Language].
The next question is from the line of [ Ankur Kumar ] from Alpha Capital.
Sir, congrats for a decent set of numbers. Sir, my question is regarding kind of similar as in we had a very good first quarter. So you think any of that was some kind of pent-up that because people were not having kind of things, then they suddenly went up. So pent-up demand and so we are seeing some reduction now?
See all these, I think 1 thing is very clear that we lost 2 years because of COVID. And our season starts from quarter 4, you can say, March onwards. So I mean when you have got a free run, obviously, the volumes will come back. But I mean, one thing is for sure, we think the last 2 years had the facilities to manufacture more beer, and we had the team to execute the plant.
So I don't think that is a question of pent-up demand because you cannot -- the consumers are very -- they want a particular brand, they will take a particular brand. So you cannot have pent-up demand as much.
And sir, now coming in festive season, 3Q, so do we expect some improvement over this current second quarter? Or how do -- how are we looking at things for the second quarter?
I think we are expecting that quarter 3 should do well than quarter 2 that is our internal assessment, though I would like to caution you also that it is not our one of the biggest quarters.
So you are saying quarter 1 is the biggest quarter, then quarter 4, then quarter 3, then quarter 2. Is that right, sir?
Yes, yes. That is our understanding. Yes.
And sir, any full year volume kind of guidance for the current year?
No, no, we are not able to -- we will not be able to give any guidance.
And margins, we kind of maintain at the current kind of things because costs have come down.
Yes. Costs have considerably gone up.
[Operator Instructions] The next question is from the line of [ Aditya Maheshwari ] as an individual investor.
Yes, sir. My question is -- so my question is you have gained market share in Karnataka region. So what exactly are we doing differently over there so that we are gaining market share?
We are working very well with the trade channels. And I think that is very important, and we are doing our trade settlement also pretty fast. Our brands are being accepted in Karnataka. We have been in Karnataka for the last now 4 years. We have an excellent team in the state of Karnataka, and we are doing the right execution at the right time, basically.
Okay. Okay. Okay. And which most case are we targeting to expand our product portfolio?
The natural markets which we have, Madhya Pradesh, Karnataka and Odisha. Besides that for quarter 1 and quarter 4 of this year, we are looking at newer markets like Delhi and UP.
Okay. Okay. Okay. What is the market size of these 2 states?
Sorry?
What is the market size of these 2 states, if you can give some color on that?
I think UP could be about 3.5 crore to 4 crore cases of beer per annum, and Delhi would be about, I think, 1.5 crore cases.
Okay. Okay. Okay. And sir, 1 last question on the working capital requirement side. So next quarter and also next quarter are going to be subdued. And so we will have some stretch on our balance sheet. So how are we going to manage that?
So if you recall, we had done this preferential issue. So we got about INR 6.8 crores, and we are expecting that by March, we should get the remaining about -- I think, about -- just a minute, let you know what is the exact amount. So we'll get about INR 22-odd crores. So that will take care of my -- and plus we have got those internal accruals, which we are making. And we also would take in, I think, more of nonfund-based limits like LCs to prepare for the quarter 1 of next year.
[Operator Instructions] The next question is from the line of [ Vellaisamy Jayaraman ], as an individual investor.
Actually, I have a couple of questions. First question is that you said from Hassan plant, we are shipping to Pondicherry, right? Why we are not covering Tamil Nadu...
Sir, your voice is not very clear. May I request you to use the handset, please?
Okay. See, we are supplying to Pondicherry from Karnataka. Why we are not supplying to Tamil Nadu. Tamil Nadu State why we are not covering. Is there any legal issues over there or interstate supply issues are there?
Yes. So according to my understanding, for supply to Tamil Nadu, you need to have a brewery there in Tamil Nadu. Interstate are not allowed from outside the state.
Same with Maharashtra?
No, no, no, Maharashtra, we can sell. Yes, we can.
We are not going because of the competitiveness over there or?
No, because I think Maharashtra is a pure private market. So we want to maybe enter that market at a later stage, not currently.
Okay. We need to have some kind of premium brands...
No, no, no. Most of the states where we operate, the wholesaler is the state government.
State government, correct.
Yes. But in Maharashtra, the distributor is private and the retailer is also private. So you always see carries a risk of delinquency of your money. So we want to take Maharashtra maybe at a later stage.
That's a valid point, right. My second question is slightly different, sir. See, my point is that slowly, I mean, I don't know how you are in the field. IMIL consumers, low end of the people, slowly they will move towards IMFL, right? So what I'm asking is that in the longer run, say, 5 years down the line, the growth of the beer, percentage of growth would be slightly lesser than IMFL, right? Because IMIL people, consumers move towards IMFL, right?
Sir, what has generally happened is that the IMFL market per se is also bigger than the beer market currently also, right? But if you look at the youth and the aspiration, people more want to consume beer as compared to IMFL or IMIL, right?
Yes, correct.
Because it's considered to be a lighter drink, and you have a more diverse population, which is going to join the drinking population, which will be more of beer. That's what our thinking is.
Correct. That is also right thinking on it. My question was because slowly -- because in Tamil Nadu, they have phased out IMIL totally. So similarly, slowly other states also would follow the suit, right?
I think 1 more thing that the market is huge, whether it's for beer or IMFL. So you've got enough of traction left in beer for the long term. So we want to concentrate on beer only.
No, but I mean, [indiscernible] to your company, but I think we are -- I mean, since I'm also a shareholder...
Sir, what we can do is, I'll take in your suggestion. And maybe after 6 months, 1 year, we'll review. Okay, sir?
Okay.
The next question is from the line of Pratik Kedia from Kedia Securities Private Limited.
I'm a bit new to the company. So I just wanted to understand a bit about what are we doing? Like I understand...
Sir, may I ask you to use the handset, please? It is not very clear. There is some disturbance.
So what I was saying is that I just wanted a little bit about the company as to what exactly are we currently doing? And what exactly are the growth prospects going forward? Where do you see the growth coming from? Are we looking at other markets? Are we looking at different products to venture out into? So a little bit about your vision for the next 2 or 3 years for the company as well as for the markets, please.
And a little bit about -- second question would be about -- a little bit about the competitive landscape that you see currently. Yes. So these are my 2 questions, please.
Currently, we are selling beer. And our key focus markets are Madhya Pradesh, Karnataka, Odisha. And going forward, we want -- and of course, canteen stores. Going forward, we want to grow in these 3 markets as well as grow in states like UP and Delhi and maybe in the next 2, 3 years, we want to grow in Maharashtra also.
The competitive landscape is that we are present in the strong beer segment and our competition is with mainly Hunter compete with the likes of Kingfisher strong. And we have various other brands, which are at various price points, and they compete with different beer brand from the national players. And this industry as such is dominated by the multinational. So you've got Heineken, which controls Kingfisher and Carlsberg and [indiscernible]. So that's the competitive landscape. So in all states, wherever we are present, we are in the top 3.
That's correct. Correct. So sir, if you look at more capacity going forward? Sorry, sorry, you were saying, sorry.
Yes. So like I mentioned in the call, it is imperative for us to expand capacity, I feel in state in the Hassan plant because we already -- in the lean season and we are doing 100% capacity utilization there. So I think we might run out of capacity pretty soon if you want to do well in Karnataka for quarter 4 and quarter 1.
Okay. So sir, understanding like your shareholding of the promoters are a bit low, also you have debt on the book. How exactly do you think this capacity would be funded? What would be the plan, sir?
This capacity expansion, which we are talking of would cost us about INR 35 crores, INR 40 crores, not much. So we just need to put up a bottling capacity.
Okay. And what capacity would that bring us?
It would -- I don't have the exact details, but I think about -- let me get back to you on that.
Got it, sir. Got it. Also just to understand, does the location of this particular plant would have any implications on your strategy going forward? Or just could not matter. Will your expansion -- whichever you will expand to be a greenfield or a brownfield project? Sorry, I should have asked this before.
No. So this is -- this will be within the same complex where the Hassan plant is there. You got enough of land area there. So there's not -- it will be less of civil and more of planting machinery, which will be installed in the existing facility.
The next question is a follow-up question from the line of Dixit Doshi from Whitestone Financial Advisors.
Sir, you mentioned that last year, we entered into the UP and Delhi and these 2 are a quite big market. So any plans, let's say, over the next 2, 3 years, what kind of volume these 2 states can give?
No, no. For that, I mean, I don't have any idea about the kind of volumes they will give, but they are going to be the volume drivers in the short -- in the medium term.
Okay. And recently, Delhi government has changed the policy of selling through the government outlets. So can that impact our growth potential?
I mean quarter 1, we lost a lot of sales because of the excise policy because there was no clarity, but we're expecting that the uniformity in the excise policy will lead to good volumes coming from Delhi in the remaining 2 quarters.
Okay. And so we'll be selling in Delhi and UP throughout the year and not only during the season, right?
Yes. I mean that will depend upon how much market share we are able to generate in UP and Delhi.
Okay. Otherwise, we'll only sell in, let's say, Q4 and Q1?
No, no, no. I mean it depends now if quarter 1, obviously, we would want to sell more in Delhi and UP going forward. And why not sell in the remaining 3 quarters also. We don't -- I mean that's not the point.
[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference back to Mr. Nakul Sethi for closing comments. Thank you, and over to you.
I would like to thank you all for joining us on the quarter 2 FY '23 Conference Call. Should you require any further information or clarification, please reach out to our Investor Relations team. We will revert to you with all the necessary details at the earliest. Thank you so much all and wish you all a very happy Diwali. Thank you.
Ladies and gentlemen, on behalf of Som Distilleries & Breweries Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.