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 Q2 FY'24 Earnings Conference Call for Som Distilleries & Breweries Limited hosted by InCred Equities. [Operator Instructions] Please note that the conference is being recorded.
I now hand the conference over to Mr. Nitin Awasthi from InCred Equities. Thank you, and over to you, sir.
Thank you, Akshay. We thank the management of Som Distilleries for giving us the opportunity to host their call today. From the management, we have Mr. Nakul-ji, who is the Director of Finance and Strategy of the company.
I will now hand over the floor to Nakul-ji for his opening remarks. Over to you, sir.
Thank you, Nitin, and good afternoon, and welcome to everybody to our earnings call. The second quarter is typically subdued due to the monsoon season and various music festivals impacting our sales. Despite this, we have shown a growth [indiscernible].
For quarter 2 FY 2024, our consolidated income was INR 2,480 million compared to INR 1,479 million for the same quarter in effect 2023, showing a growth of nearly 68%. Our EBITDA was INR 275 million, up from INR 186 million for the same period last year, showing a growth of nearly 48%. Our PAT for the quarter stood at INR 149 million, an increase from INR 82 million for same quarter in FY'23, showing a growth of [ 82% ].
Coming to the first half of FY 2024, our income was INR 6,346 million compared to INR 4,039 million for the half -- H1 2023, representing a growth of 57%. Our EBITDA for the first half of this year was INR 776 million, up from INR 545 million for H1 2023, a growth of 42%. Similarly, the PAT stood at INR 485 million as compared to INR 339 million in H1 2023, showing a growth of mainly 43%.
In the quarter, we recorded beer [ case ] of 40.3 lakh cases, and half year beer volume amounted to approximately 106.2 lakh cases as compared to 76 lakh cases sold in the same period last year. Additionally, we sold around 2.5 lakh cases of IMFL during the quarter. Key brands like Hunter, Black Fort and Power Cool have seen significant sales volumes in the [ season ]. This performance across our brands can be attributed to the trust in our product quality and execution capabilities of our team.
The decrease in net debt from INR 2,296 million in March 2023 to INR 1,540 million in September 2023 highlights the company's efforts in managing its financial obligations more effectively. Furthermore, our long-term bank loan ratings have been upgraded from BBB to BBB+ by ICRA, underscoring our continued financial strength and commitment to growth.
In line with our expansion plan, we have placed orders to enhance our beer facility at Hassan. These orders involve suppliers from Germany and India, allowing us to add close to 6 million cases per annum to our production capacity. We expect expansion to happen in March or April of next year.
On the operations front, we have successfully obtained permissions to supply our beer brands to Rajasthan as well as IMFL. This will help us in diversifying our portfolio and strengthening our market impact. We have also secured permissions for supply of beer to Chhattisgarh and have [indiscernible] have started. This strategic move aims to establish a significant market presence for our products in the medium term, marking a key milestone in our regional expansion [ of beer ].
With that, we would now like to open the floor for Q&A. Thank you so much.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.
My first question is on your gross margin and EBITDA margin. There is slight fall quarter-on-quarter. And what is the reason for that? And in terms of outlook for your 3 key raw materials, so glass, ENA and barley prices, how do you see in H2 versus H1?
See, the prices of barley has come down, but we are yet to see an impact on the glass bottle. So we expect that some softening of prices on the glass bottles would happen in the H2.
But I think coming to your question on gross margins, it's a function of -- we are growing across the country. You can see in the numbers also in terms of volume growth and as well as the revenue growth. But our dependence on new bottles continues to be there. So I think that is one of the main reasons why the gross margins are a little subdued for the present.
Slight numbers, I would want -- so in terms of barley, how much correction has happened versus, say, Q1 and versus last year's average cost? How much would be the current price for barley for you? And similarly for glass, if you could give similar data?
I cannot tell you the absolute price, what it is costing me, but I can just give you a range that...
I need the percentage...
We have made that correction of around 15% over the last 1 year in the prices of barley.
And further correction you expect from here?
No, I don't expect any further correction. Maybe -- I mean, on the more optimistic side, maybe another maybe 3%, 4%.
And glass, how much correction you expect second half or, say, FY'25?
I think the indication which we have got right now is about in the range of about 5% to 7%.
Okay, that's it. Small correction?
Yes.
Sir, my second and last question is on Karnataka. There was a tax hike, which led to a pricing increase at the customer level, but no increase to the company. So has that impacted volumes for the industry and for you in Karnataka in any of your segments?
The increase in excise policy has made the selling side of beer costlier by about, I think, INR 5 to INR 10 a bottle. So I don't think that's much as compared to IMFL. So in terms of volume, it does not have any margin side.
But on IMFL, for the industry, you think there is an impact?
Yes, yes. For IMFL, yes.
The next question is from the line of Sagar Tanna from Alchemie Ventures.
If you can give us the breakdown of volumes in the second quarter in terms of our 3 brands?
The -- sorry, you wanted the?
Breakdown of volume -- what is the breakup of volumes in Q2?
All brands, you said?
That's right.
So we sold about -- close to about 11 lakh cases of Hunters in the quarter. We sold close to around 4.75 lakhs for Black Fort and about 22 lakhs of Power Cool.
And anything on Woodpecker?
Okay. Woodpecker, we have -- okay, let's classify it that we have got another segment for other beers. So Woodpecker [indiscernible], we sold about 2 lakh cases of the other beers.
And sir, what would be the realization difference between Woodpecker and Power Cool?
Now that depends upon state to state.
But if you were to look at Karnataka or Madhya Pradesh?
If we come to, say, Power Cool sales for INR 551 per case in Madhya Pradesh, and Woodpecker sales for about INR 650 per case.
6-5-0?
Yes, 6-5-0.
Okay. And in Karnataka, what would be the realization, sir, just for a broader understanding?
Power would be about, I think, about INR 450 per case, and Woodpecker would be about INR 520.
The next question is from the line of Mayank Dugar from Moonbow Investment Advisor.
Congratulations on a good set of numbers. I had a couple of questions. Firstly, we have done some contract manufacturing tie-ups in the state of Jammu...
You are not that audible to me.
Am I audible now?
Yes, sir.
Yes. So we have done 2 strategic contract manufacturing agreements, one in Jammu and the second one in Punjab. So what -- how much is that going to add to the topline?
My second question would be -- so the capacity that we have on the IMFL side, that is 3.9 million cases. So how much of that is being utilized currently? Yes, that's it for me.
So coming to the capacity utilization on IMFL, the capacity utilization in MP is about -- I think we're doing quite well in terms of the capacity utilization in MP, but IMFL capacity utilization is very less in Karnataka. We have got a big capacity, that's why we had Radico there. But unfortunately, their offtake also has not been so great.
Coming to the contract manufacturing, which we have done for Punjab -- we have done in Punjab and in Jammu, that's very initial and that is for supply of IMFL to the canteen stores. So let's see how it goes. I mean it's very difficult to give you any idea what the kind of volume which we will do from those facilities as of now.
The next question is from the line of Nihar Shah from Crown Capital.
[indiscernible]
Sorry, sir, we can't hear you.
The next question is from the line of Gunit Singh from CCIPL.
So what is the outlook for FY'24 in terms of topline and bottom line? I mean looking at the current run rate, can we expect to reach around INR 1,300 crores topline this year? And what kind of margin...
I'm more comfortable between the range of about INR 1,100 crores to INR 1,200 crores for the current year.
What kind of EBITDA margins are we looking at for the entire year?
I think in the range of about -- anywhere between -- I think we should aim at about 12% to 12.5%.
All right. And you mentioned that there's a new capacity coming up in March, April next year. So what would that be capacity used for? I mean, are we expanding to some other states? Would that be used to supply our brands to other states? Or would that be so contract manufacturing? And...
The [ resin ] capacity which we have in Karnataka has not been sufficient for the kind of traction our brand is enjoying. So that was the need for setting up additional capacity. And of course, we want to establish states like Kerala and Puducherry, which are not being served from the Karnataka facility as of now.
All right. So I mean, what kind of revenue -- additional revenue should we expect from this capacity? And I mean this is commencing in March, April next year. So I mean can we expect this to be running at full capacity, say, from beginning, I mean looking at the kind of demand that we're getting?
So I think the aim is to have the facility ready for the next season. So our, I think, strategy is to maximize the capacity utilization. So right now, for example, the Karnataka plant for this half year has been running at a capacity utilization of 90%. So we are pretty optimistic about the capacity utilization levels of the new plant also next year.
What kind of -- at optimal capacity utilization, what kind of revenues would this add?
So if you consider a 90% capacity utilization, so it can easily give us about INR 270 crores of net revenue.
All right. And by when can we expect, I mean, of 90% capacity utilization?
I can't give you a guidance on that. Let's see how things pan out during the second half of this year.
The next question is from the line of Sanjaya Satapathy from Ampersand Capital.
Sir, congratulations on a fantastic set of results. One question is that can you give us some kind of sense about your market share gain, anything that happened during quarter 2?
So I think we are -- the growth which happened in quarter 1, we have been able to maintain our market share in all the key markets where we are present. Plus, we have done quite well in the new state like Chhattisgarh where we have recently made, I think, good inroads. We are also very hopeful of doing well in Rajasthan in the second half of this year. So that's the [indiscernible].
And any kind of numbers in terms of what are your market shares in your top 3 states as of now? That will -- and the reason why we're asking this is that as you are rolling out to new states, I mean, we can really expect something -- some similar performance probably pan out in some -- couple of years' time in those new states as well.
Yes. So I mean, if you -- so for example, year-to-date, we have got close to about 18.5% market share in Karnataka, close to 13% in Odisha and about 11% in Delhi for the 6 months, and I think 43% in MP.
Understood. So you -- in your core market -- in the existing market itself, you have a significant scope of markets in there.
Yes, yes. Plus, I mean, obviously, we are adding new markets. So we are looking at good traction coming from those states also.
Understood. And you also spoke about some kind of easing of cost pressure from what you saw in the first half of the year. And there will -- so -- and the fact that your utilization level, et cetera, are improving. On a medium-term basis, is there any kind of a margin guidance that you can share with us?
So I think the previous caller had also asked me this question. So I think about 12% to 12.5% would be the range [ of a healthy level ] where we will be comfortable.
Understood. And have you shared your full year revenue guidance or you are not giving that now?
So I think revenue would be -- we are expecting -- earlier, we had given a guidance of about INR 1,000 crores, but now we have revised it anywhere between INR 1,100 crores to INR 1,200 crores.
Okay. Okay, that is good. And last question, if I can take that. While you are expanding in new states, you have plans for acquisitions, et cetera. On your core -- on your other business, which is your IMFL business, how are the traction? And last thing that I want to check there is that you are getting into -- there will be elections and all that. So does it help or hurt your performance during this period?
During the time of the election, there are certain disruptions in the terms of supply because the excise also becomes more strict. But I think given the kind of volumes we are expecting, I think those short-term negotiations will be negated.
Coming to IMFL, IMFL is also an important piece for us. It complements our beer business, especially during the rainy season that is from the third quarter. But considering that we have got a good market presence in the Southern India, that is the reason that the share of IMFL is a little less as compared to the total pie. But still, I believe that IMFL will continue to be an important piece of our business.
[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.
The first question, the capacity expansion at [ Rajasthan ], we're expecting our capacity to increase by how much? And as in what -- the 30 million cases will reach to where? And what is the CapEx that we're incurring for this?
So right now, our capacity is about 90 lakh cases, and we are increasing this capacity to 160 lakh cases. So altogether, the Karnataka facility will have a capacity of 1.5 crore cases. And we are expecting that we should be spending about close to about INR 70 crores to INR 75 crores for this expansion.
Okay. And there's no capacity expansion plan at MP currently?
No, because we have that in March of this year, we have put up a new canning line. I don't think that there's another need for expansion currently in MP.
Okay. And while you did mention the market share in your key states, would you like to comment on what is the kind of response you've seen in duty or maybe what is the contribution to our topline from duty currently or market share that has gained there? What is the kind of volumes you're doing there?
See, I mean the share of the newest states, I mean, if you look at UP, it is about close to about 3% of our sales. So it is slowly gaining in prominence because if we compare it to last year, it was maybe less than 1%. So I mean as we are growing the share of the newer markets also are improving.
Okay, sure. And you were mentioning that the -- on full year basis or annual basis, the peak capacity utilization can hit 90%, considering the seasonality across quarters?
Yes, it can. For example, currently, I mean, if you look at the way we are growing in Karnataka, our annualized capacity utilization is about 92%.
Okay. So once we hit the 1.5 crore cases, we should be able to do 1.3 million -- or 1.3 crore cases from Karnataka. 90% is achievable?
Yes, it is achievable. But it depends upon -- I'm not too sure about the time it will take or how fast we can do it, but it is very much achievable. And I'm very optimistic about the way we are growing in Karnataka, let me put it that way.
Sure. And with the current contract manufacturing that we're doing in Jammu Kashmir and Punjab, both of these are for IMFL. Is there an aspiration of what is the split between beer and IMFL that we want to hit in 3 or 5 years? Should we expect the split to be largely be 90-10 as it is currently?
I think it should be in the range of 90-10 only.
The next question is from the line of Imran from Longbow India Capital.
Sir, I joined the call a little late, so pardon me if my questions are repetitive. I just wanted to check your thoughts on the raw material inflation and other input cost inflation in the last quarter and in the current quarter.
So I mean like I mentioned earlier, we have seen a reduction in the prices of barley, but the prices of glass bottles have not decreased as of now. But we expect that maybe they will have -- we will have a reduction in the cost of the glass bottle by about 4% to 5% towards the end of the -- towards the second half of this year.
But as I mentioned to one of the callers previously also that when you grow by in excess of 50% in terms of your volumes and, of course, your revenues, then the percentage of glass bottles which we require, new glass bottles is obviously more. So I mean that puts somewhat of a pressure on your gross margins. So that is what we are achieving currently.
Right. All right. And sir, any downward trend on the, let's say, usage of coal and the coal prices?
No, I think we are stable as of now.
So not going further down?
Yes, yes, not.
Can you share your per liter maybe cost of power and fuel, if it is possible?
I don't think we'll be able to share that.
The next question is from the line of Sandeep Dixit from Arjav Partners.
Just maybe I missed this, but can you please tell me when is the Karnataka capacity expected to go online?
We're expecting by March or April of next year.
So that's March, April of 2024, correct?
Yes, yes, correct.
The next question is from the line of Foram from Abakkus.
So just one question. Like the capacity expansion that we are planning, how will it be funded, via internal accruals or will we require some debt as well?
So as of now, we had issued some preferential warrants to promoters and some of the investors. So we have got about INR 42.5 crores of that, and we expect another INR 100 crores to come over the next 1 year. I think partly that is going to be funded through the money from the warrants and partly from the internal accruals. As of now, we don't expect that we'll borrow anything for the expansion.
The next question is from the line of Hiten Boricha from Sequent Investments.
So I have only one question. But before that, I just missed the number. You gave the Karnataka plant, which you're running at 90% utilization. Will you give us revenue of how many crores, sir? I just missed that number.
Sorry?
Sir, you told when Karnataka plant will be running at 90% capacity utilization, the new expansion, I'm talking about the new expansion.
I said about INR 270 crores.
INR 270 crores, okay. Sir, my question is on the market share gain strategy. You mentioned we have around 90% in Karnataka, 10% in Delhi and Odisha. So just wanted to understand the strategy and the plans we are looking to gain the market share there and what kind of advertising and promoting expenses and strategy, if you can share your thoughts on that, sir.
Yes. As a company, we -- in terms of advertising, and we are mainly focused on the trade channel or the point of sales. So we are not into surrogate advertisement or something like that. So we are an Indian company, we kind of want to conserve our capital. So our strategy is to focus on the point of sale. And we believe that there is sufficient margin for us to grow in the states where we are present as well as the additional states, which we have identified where we want to grow.
Sir, do we have any internal target to reach what kind of market share? Just -- so any internal targets currently?
No. So internal targets are not for external audience. So I don't want to pour into -- have a call on our internal target. But I mean, having said that, if you look at our -- the way we are growing, we are very much optimistic about the growth in the short to medium term, and the growth trajectory is very firm.
The next question is from the line of Yash from Stallion Asset.
Sir, my question is that as you said in your initial comments that Q4 is normally subdued because of the weather and other factors, but we've seen a very strong growth. So I just wanted to understand, what are the factors that have sort of led you to post such growth as we compare it to the industry? And do you think we can also, at least in the near term, let's say, Q3, Q4, grow around about 40% volume growth?
Yes, I mean in terms of -- obviously, during the last 2 years, we have been growing much more than the industry average. So we are pretty focused on our growth. And we have all the natural market for us where we have a plant and there is also neutral market because none of the competitor has got a plant there. So these are markets where we are wanting to concentrate. And our focus on value-for-money products and to give consumers right taste and the right packaging has gone very well with the consumer, and that's how we have been able to again manage the growth.
Okay. And then just maybe just on the volume front, sir, do you think Q3 would be -- because of the festive season and Q3 and Q4, you expect volumes to be higher than what you've generated on in terms of percentage?
We should be able to maintain our -- in our -- the kind of growth which we have done. I think we should be able to maintain that.
The next question is from the line of Manan Shah from Moneybee Investment Advisor.
My question was regarding the 2 new markets that we're looking to enter, Rajasthan and Chhattisgarh. What would be the size of these markets and the average realization in these markets? Would that be similar to our current realization, company realizations? Or they would be better or for worse?
I mean Rajasthan is, I think, one of the top 5 markets in terms of consumption in the country. The realization is lesser there, but we have seen, during the last 2 years, there have been 2 price hikes given by the industry -- by the excise there. So that is a very positive impact because we are seeing that there is an increase in consumption there. And Chhattisgarh, I think, is a market of about close to 1 crore 25 lakh cases of the year per annum. I mean Rajasthan would be in the range of [ 30 crores to 45 crores ] cases.
Okay. In this quarter, we've seen almost 15% jump in our IMFL realization whether I look at on a quarter-on-quarter or on a Y-on-Y basis. So what led to this sort of increase in our IMFL realization?
I think we have sold more in MP as compared to Karnataka. And the exclusive price is much higher in MP as compared to Karnataka because it depends upon the price segment in which we are playing. So I mean we are playing in a lower segment in Karnataka in IMFL, and we are playing a slightly higher segment in MP. That's the difference.
Okay, understood. And looking at the success that Indian single malt players have had, any plans on entering this segment in the near term?
Let's see. But as of now, no, because we are pretty focused on beer. And you can see that about, say, 90%, 92% of our sales still comes from beer. So I mean we're pretty focused on that.
Okay. And my last question was that in the interview, Mr. [indiscernible] had indicated plans of acquiring some unit either in Maharashtra or some other state. And now with the delay in the QIP, any delay in those acquisitions also or anything on that side?
Delay in QIP was due to the fact that the types of conditions which were put in -- which were being put in by some investors and were not in the interest of the company that we put in that way, but we will revisit it maybe at a later stage. But in terms of the internal accruals and the kind of reserves which we have, those plans of acquisition or setting up a greenfield will not be delayed due to that fact.
Okay. So we don't expect any delay in our acquisition or in the greenfield project that we were planning, right, because of this...
Yes, yes, yes, as in it is immaterial. So that won't have any impact.
The next question is from the line of Piyush Gandhi from Cognizant Capital. Next question is from the line Mukund Agarwal from Sovereign Global Market Private Limited.
Sir, I have 2 questions actually. The first one is a continuation to your earlier comment on the distribution channel. So how many echelons are there in your distribution channel? Is it 2 tier? 3 tier?
How many?
I mean, how many tiers are there in your distribution channel? Is it CNF to -- distributor to retailer? Or is it from super distributor to distributor?
Yes, it depends upon state to state. Most of the states where we are present are the government markets where the distributor is -- or you can say the wholesaler is the government and you have vendor private retailers through which the consumers pick up the products.
Okay. And in that case, it actually ties back to my earlier question that you talked about that we will be doing some activity on the distribution front, right? So it will be -- you will be branding those shops or it would be more of like giving higher margin to the distribution channel.
So you want a confirmation from my side or I'm not getting it?
No, I'm saying that it would be -- whether it would be marketing in those like in those shops, branding in those shops or we have kind of margins [indiscernible].
There's a lot of disturbance from your side. It gave more margins, then obviously, I'll be not making EBITDA margins higher than the competition, right?
So the marketing activity will be in terms of branding those retail shops or something like that, those kind of activities you are thinking of?
So I mean it is, I think, ensuring that the settlement of the schemes which you promised the retailer happened at the right time, and all your products are stocked properly and are available at all the distribution points. I think these are the 2 key points to ensure that you work well with the distribution channel.
Understood, sir. Now my next question or the last one is that how many employees are there on roll, sir, as of now? Who are EPFO impaneled?
Who are, sorry?
Who are EPFO impaneled? How many employees are there?
I'll have to check that, please.
The next question is from the line of Aman Singh Bhadoria from GYR Capital Advisor Private Limited.
Congratulations for such strong figures. Actually, I have 2 questions regarding the debt repayment. So if I see in quarter 1, there has been a significant repayment of around INR 280 million. And even in quarter 2, we are seeing a repayment of INR 300 million. So how exactly are we proposing in future about the debt repayment structure on the leverage part?
So your question is, sorry, what? What were you saying?
I'm just asking, how are we proposing in future the debt repayment structure since in the first 2 quarters, we have significantly repaid our debt. So are we going to go for no debt? Or is it a part of the QIP scheme that you were telling about earlier?
QIP has got nothing to do with this.
Okay. And how exactly, in the future, are we proposing the debt repayment thing?
So if you look at cash flow from operations, we have generated about INR 48 crores in the first 6 months. We also did a rights issue of INR 48 crores in April or May. Then we have got another, say, INR 42 crores from the preferential issue.
Okay. In future also, we are expecting the debt to be reduced significantly, right?
Yes, that depends upon -- I don't know how much you know about our industry, but most of the states now have moved to a duty case structure where you have to incur the excise duty at the time of dispatch of the goods. I'm expecting that the debt level should remain or stable at this level.
Ladies and gentlemen, that was the last question for today. On behalf of InCred Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.