SOM Distilleries and Breweries Ltd
NSE:SDBL
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SOM Distilleries and Breweries Ltd
Earnings Call Analysis
Q3-2024 Analysis
SOM Distilleries and Breweries Ltd
Som Distilleries and Breweries Limited has reported a striking increase in its consolidated income for the third quarter of FY '24, reaching INR 2,665 million, which signifies a substantial 77% year-on-year growth. This impressive top-line performance was complemented by a robust growth in EBITDA, standing at INR 320 million, up by a notable 64%. Furthermore, the Profit After Tax (PAT) for the quarter saw a remarkable ascent of 71%, amounting to INR 180 million. This pattern of vigorous growth was consistent in their 9-months financials as well, with income escalating by 62%, EBITDA by 48%, and PAT by a solid 50%.
The company's volume growth mirrors its financial expansion with beer sales for the quarter soaring by 67% to 44.5 lakh cases. This uptick was led by flagship brands Hunter, Black Fort, and Power Cool, which saw individual volume surges of 68%, 59%, and 57% respectively, showcasing strong market demand and customer loyalty.
Som Distilleries enhanced its revenue per unit with the realization per case reaching INR 518 in Q3 FY '24, up from INR 484 in Q3 FY '23. This improvement in realization per case was primarily driven by a strategic mix of stock keeping units (SKUs), which signals a successful optimization of their product portfolio.
As of 31st December 2023, the company maintained a total debt of INR 1,840 million, balanced by cash and cash equivalents of INR 150 million, leading to a net debt position of INR 1,690 million. This indicates prudent financial management and a stable liquidity position to support ongoing operations and future investments.
In line with growth ambitions, the company has initiated expansion of its beer facility in Hassan and has leveraged regulatory approvals to supply its beer brands to newer markets like Tamil Nadu. These actions underline Som Distilleries' strategic moves to diversify its portfolio while amplifying its market impact, suggesting an optimistic outlook and a commitment to innovation and resilience.
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Ladies and gentlemen, good day, and welcome to Som Distilleries and Breweries Limited Q3 FY '24 Earnings Conference Call hosted by InCred Equities. [Operator Instructions] Please note that this 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, Mr. Yousif. We thank the management of Som Distilleries for bring us this opportunity of hosting their call today. On the management, we have Mr. Nakul Sethi, Director of Finance and Strategy. I would like to now hand over the floor to Nakulji. Over to you, sir.
Good afternoon, Nitinji, and a warm welcome to all the participants on our earnings call. Before getting into the performance of the quarter 3 FY '24, I would like to address the concerns on the announcement in November 2023 made by a company about the income tax search. This was a routine search that was conducted at a gap of around 2 decades. And during the search, no unaccounted assets was seized.
There was no meaningful impact on the business operations during the search as it is evident from the robust Q3 numbers reported by us. Since the completion of the search, we have not received any assessment or demand from the income tax department. We will, of course, inform the stock exchanges regarding any update on this from time-to-time. Our commitment to transparency and compliance remains resolute.
Now on to the quarter 3 FY '24 highlights. Consolidated income reached INR 2,665 million, a 77% year-on-year growth over the same period last year. EBITDA for the quarter stood at INR 320 million, a strong 64% increase. PAT for quarter 3 FY '24 amounted to INR 180 million, marking with 71% growth.
For 9 months FY '24, income was at INR 9,012 million, up 62% from last year. EBITDA reached INR 1,096 million, showing a substantial 48% growth. PAT for the 9 months FY '24 was at INR 665 million, up 50%.
In terms of volume, beer sales for the quarter was 44.5 lakh cases, up 67% over the same period last year. The mainline brands, such as Hunter, Black Fort and Power Cool, registered volume growth of 68%, 59% and 57%, respectively, as compared to quarter 3 FY '23. The realization for quarter 3 FY '24 was INR 518 per case compared to INR 484 in quarter 3 FY '23, mainly influenced by the mix of SKUs.
Our 9-month volume was approximately 150.7 lakh cases per beer. Notably, our flagship brand, Hunter, recorded a 21% year-on-year increase. Black Fort grew by 71.9% and Power Cool saw a 49% volume increase. The overall IMFL portfolio grew by 15.4%. New market entries have been strategic and with the successful launch of a new strong beer, Legend, in Karnataka.
As of 31st December '23, our total debt was inr 1,840 million with cash and cash equivalent of INR 150 million, reflecting in a net debt of INR 1,690 million. Our expansion strategy continues with orders initiated to augment our beer facility in Hassan. We obtained permission from Karnataka Excise Department to supply out beer brands to Tamil Nadu and enter into a strategic contract manufacturing agreement with J&K for the production of IMFL, diversifying our portfolio and strengthening our market impact.
In conclusion, we remain resilient and forward-looking. With these updates, we now invite questions from the participants. Thank you so much.
[Operator Instructions] First question is from the line of [ Ankur Kumar ] from Alpha Capital.
Congrats on a good set of numbers. Sir, my first question is in terms of our next couple of years. Even J.K. Arora, sir, was giving interview yesterday, and he was talking about INR 2,000 crore revenue possibility in the next 2 years, which would imply a good market share gains even from current levels. So I wanted to understand, what are the states which will contribute in this market share gains for us?
Yes, I think to answer your question, we have got headway to grow in all the states, wherever states wherever we are present as well the new states which we have started seeding. So to give it some more color, I think Karnataka, Kerala, UP and Jharkhand and especially some market shares obviously gained in MP will drive those kind of numbers.
Got it, sir. And sir, how are the raw material trending now as in we had a couple of quarters ago, we had an issue where raw material was a little high? So how is the situation now? And how do we think things for the coming season, which is Q1 like is the best quarter?
See, the raw material prices have stabilized. We have seen a reduction in the prices of barley, but there has been a very minimal price decrease in the -- in terms of glass bottles. And as I mentioned earlier also in my previous call, dependence on new glass bottling is much more than what we get from the recyclable glass bottles. So obviously, as a mix, we will have to look out for the input costs in the coming quarters also.
Got it. And sir, one more question is on the tax payment, as in if I look at my income statement, there is a good amount of tax expenses. But if I look at the cash flow statement, the tax expense directly paid isn't much. So can you comment on that, please?
I think for FY -- this is -- you're referring to this year?
Last year, sir, FY '23.
FY '23, the tax expense was very less in terms of -- because of the losses, which were incurred during COVID.
Got it, sir, got it. And sir, when you are doing -- trying to do another QIP, can you comment on that, please? Is that QIP? Or is it -- and what is the use of that fund, sir?
I would not like to comment on that currently at this point of time.
But actually, as in you don't want to comment on the mode of fundraising, but any comment on requirements for fund? Will it be CapEx and working capital? Or how should we look at that?
We will -- we have taken -- we are going to take approval from the shareholders. And as and when we'll get an opportunity to acquire assets, then we'll open the issue.
Next question is from the line of [ Rohan Aveth ] from [ Third Capital ].
Sir, I just wanted to understand, how are we placed in terms of capacity now and for the upcoming season which is strong? We have a 30.2 million capacity. And given like the kind of growth that we've been seeing, do we have enough capacity for Q4 and Q1, which are strong quarters for us?
When I was -- I did some math and I was looking at my annualized capacity utilization, so I'm utilizing the [indiscernible] facility at close to about 85% on an annualized basis. And we are adding another 60 lakh capacity, which would be there by April of this year.
So that will take care of the Karnataka and the Kerala operations. Currently, Bhopal is running at close to 65% capacity and Odisha, their annualized capacity utilization of close to 40%. So I think for the next year, I'm pretty sorted on the capacity.
Okay. And when you say -- I mean, you are obviously taking the peak capacity, right, because all the peak sales will do. Because this quarter, if you annualize, that would not be the right number, correct?
Yes, yes.
Okay. So Karnataka should come by Q1, and we'll be dependent on that coming by Q1. But other than that, we have capacity that will facilitate this.
Yes, I think hopefully, if things goes well, we might have the capacity before that also, before ending Q1 also.
Okay. And sir, on the beer realizations, we've seen a slight drop Q-o-Q to INR 518 from INR 547. So can you -- what is the outlook on this in terms of your product mix? And thus, the realization, where should they end?
I think it depends because we had a larger share of Power Cool in our total sales mix for this particular quarter. That's why you saw a slight dip in price realization. But going forward, I think about close to about INR 530 or INR 535 would be the ideal number for realization.
Okay. And sir, lastly, if I look at the last 4 quarters, our raw material cost is roughly 64%, 65% range. In the past, we were at significantly lower ranges. So not immediately but over a 12 to 24 months perspective, where can this head? And what would be the outlook on the EBITDA margins, therefore?
I mean, we are pretty comfortable that we can see EBITDA margins would be in the same range, but say about close to about between 12% to 13%. And the gross profit is slightly lesser because as I mentioned in the -- to the previous caller also that our dependence on new glass bottle is much more than what -- when you're growing, obviously, you have got a higher requirement of new glass bottles. So that is the reason why the gross margins are slightly less.
The next question is from the line of Umesh Gupta from AMBIT Wealth.
Congratulations on good numbers. I just had one question on this seasonality path. Looking at your quarterly number, it seems that the seasonality playing out as expected in Hunter and Black Fort but not so much in Power Cool, which is actually going against the trade. Could you highlight that why is that the case?
The Power Cool, the idea of putting a plant in Karnataka was to slightly reduce the seasonality of the beer business in our company. And that is why you have seen that our growth has been quite robust in the last 2 years. Because Karnataka as a market has contributed substantially to our overall growth. And Power Cool continues to be our brand, our go-to brand in the state of Karnataka. So that is why Power Cool has grown much more as compared to the other beer brands.
So you don't sell Hunter and Black Fort in Karnataka?
We sell, but Power Cool does really well in Karnataka.
Okay. Sir, but -- so you think that the other parties, the Hunter and Black Fort, they will continue to show the same trajectory in terms of seasonality, but Power Cool could, for some time until you get a reasonable market share, will grow faster?
If Hunter does very well in, for example, in Madhya Pradesh and Delhi. And obviously, this quarter, because of seasonality, we still get affected. So that's why you will see that the growth is not as much as we would have wanted Hunter to grow because of this whole condition in these markets.
But could you explain this Q4 thing? Because the Q4 conditions are also similar to Q3 in terms of weather. Then why does Q4 does better than the Q3 historically?
Because Q4, you start doing dispatches from middle of February and March to all the warehouses for the season ahead so that's why. And then you have got the onset of slightly favorable conditions for beer consumption all across the country in the months particularly.
Next question is from the line of Manan Shah from Moneybee.
Congratulations for good set of numbers. I wanted to know the Legend that we launched in Karnataka, whether it is priced above Power Cool or it is price below Power Cool?
It is priced below Power Cool.
Okay. So we are not trying to push more premium brands in Karnataka then?
We have to respond to the -- how this competition also reacts, right? So I mean, we've seen that most of the consumption that is happening in the beer industry in Karnataka is at those price points only. That is what we are there. So I mean, that's how the situation is right now.
Okay, understood. And our entry into Tamil Nadu, from when do we expect start seeding into that state or you already have started?
No, we haven't done it. I think we should start by, I think, February or March, we should start.
Okay. I mean, that would be contingent on the new capacity coming online?
No, it would -- because initially, the volume will not be that big. But by the start of the season, I think then we'll have much more -- we'll be much more comfortable in terms of capacity also, so we can start the supply [indiscernible]
Understood. And the seeding that we have been doing into Rajasthan and Jharkhand, how has the response been? And how long until you think before we take a decision whether you want to go inside of a plant in any of these states?
See, Jharkhand and UP both are doing very well. It will take slightly longer time in Rajasthan. I think our decision to set up a capacity or to do a contract manufacturing with somebody, I think about -- we can take a call on that by maybe by August or September of the next financial year.
Okay, understood. My last question was on this approval regarding a related party transaction with a promoter entity. What is the primary nature of these transactions that we'll be entering into with the promoter entity?
The promoter entity makes or manufactures ENA. And we require ENA for the blending and bottling of IMFL. And we get about 9% to 10% of our revenue through the sale of IMFL. That is the specific purpose of that related party transaction.
We have a last question from the line of Alisha Mahawla from Envision Capital.
Sir, first question would be setup of canning line for the UP market. How is that doing? How is the utilization? How is the entrance into the market?
Of the?
For the canning line, the beer cans, we've done a canning line in MP -- for the UP market.
That's correct. Because canning predominantly, I mean, especially during the summer season in MP, this -- it was more than what we had expected. And especially UP also is a major can market. So the canning line is going pretty well.
And is it fully utilized?
I mean, it depends upon the capacity utilization of the old plant. So you cannot say it is fully utilized because it's a very big canning facility. But we are more than happy at the utilization levels of that canning line.
Okay, got it. And the CapEx and the capacity expansion we're doing in Karnataka, what is the CapEx we are incurring for it?
It will be about between INR 55 crores to INR 60 crores.
And we're not doing any other expansion anywhere for the upcoming season?
So we are doing a small expansion in Bhopal also. We are setting up basically a packing line here. But besides that, nothing I don't know.
So this INR 55 crores, INR 60 crores is including Karnataka and Bhopal?
I think for Bhopal, it would be another INR 5 crores.
Sure. Sir, my next question is any -- would we like to quantify what is the kind of revenue we're getting from the newer states of Delhi, UP, where we've been present for more than 1 year now?
Sorry, sorry, please come again?
What would be the contribution from the newer states of Delhi and UP, where we've been present for more then 1 year now?
For 9 months, I think Delhi is -- would be about close to about 5% of our sales.
And UP?
UP is about 3%.
Okay. And sir, my last question is we have got into a contract manufacturing in J&K to manufacture IMFL for CSD. What is the rationale for that? Because it's contract manufacturing for IMFL because the focus has always been on beer.
We are getting a brand manufactured from those specific parties. And the basic logic is to save on transportation and breakage of the finished goods.
And when do we expect this to start from?
This has already started.
Okay. And it will not require any investment from our side because it's contract manufacturing?
No, no, no.
Next question is from the line of Sanjaya Satapathy from Ampersand Capital.
[indiscernible] And though I understand, I have no idea about how big this Pune market is and...
Sir, I can't hear you.
[Technical Difficulty]
Next question is from the line of Pranay Jain from DealWealth Capital.
First of all, I wanted to understand what is the realization that we expect on the beer side as well as IMFL over the next 12 to 15 months?
It's slightly difficult to give an idea because it depends upon the various SKUs which we sell and as well as which brands selling with scale. But you can take maybe a 3% to 4% increase in the SKU prices for the next year.
All right. And what is size that we're expecting our IMFL business to grow to over the next 1 to 2 years?
I think it will continue to be in the range of about 10% to 15% of our total sales.
And could you give us a sense how our talks on the contract manufacturing have been? What are our partners expecting us to do for them over the next 2 years or so?
Yes, I think in terms of contract manufacturing, we currently have a contract manufacturing tied with Radico in our Hassan and with Carlsberg India in Odisha. And we are basically using those arrangements as until we fully utilize the capacity. So we have them manufacture their products there. So that is it.
If you could just give some color on the products, I mean, that we'll be launching. And anything that we are developing at our own end, not necessarily in terms of brand, but where you see opportunity based on consumption trends?
I could not get you. Can you please repeat?
Are there any new products that we are aiming for foray in the next 1 to 2 years, IMFL?
IMFL?
Yes.
No, as of now, we want to concentrate more on beer. Because beer is 90% of our portfolio sales. And we -- because if you look at our capacity expansion, also we have concentrated more on beer sales. So I think maybe for the next -- at least for the next 1 year, we'll want to grow more on the beer side.
So any new product opportunities you see on the beer side? And the reason why I asked on the non-beer is because we are seeing faster growth in alcobevs, in mead segment, in craft segment. So I'm sure we would have looked at these trends and find something exciting for us.
Yes. So these segments are very small as compared to the overall market size of beer and IMFL. And we -- for example, we have introduced Woodpecker. So we would, I think, want to create and make Woodpecker as bigger and larger recognizable brand in the next 2 to 3 years in the beer portfolio. And we would want that Woodpecker should also become a millionaire brand for us.
And we expect this in the next 15, 18 months?
I think that we should be able to make it in the next, say, 2 to 3 years.
All right. And lastly, how do we see the taxation structure, I mean, based on our conversation across different states? Are we seeing some kind of predictability over there?
In terms of?
The different costs across states based on the incentives that we have and the kind of investment proposals that the many states have put up, where we are expanding capacity also. Do we see that the taxation structure is going to get a little simple and similar? Or is it still going to be quite varied across different states?
Quite varied across states. And each state has got its own unique taxation structure. So I think that is the way it's going to be unless you've got a uniform tax structure like GST in which the alcohol is [indiscernible]
Okay. Because it seems quite arbitrary when states make moves very [indiscernible], for example, you would have seen Maharashtra bringing back incentives for promoting [ mine ]. So that's why I asked you if you get any visibility on the taxes going forward.
Like I said that I think it's quite unique in -- the structure is unique for each state in its own way. So I don't think that it's going to change much.
Okay. And on the debt profile, if you could just share a picture how is the net debt going to look, say, 12 months down the line?
So we might borrow more for working capital in the next maybe 6 to 12 months. But besides that, I don't think we are borrowing anything in the long term for any CapEx.
Okay. And so would the requirement on an annual basis would be how much?
I mean, if we set up a new plant, then obviously, it would be much more about, say, INR 150-odd crores. So in terms of -- we're talking about working capital?
Yes.
So working capital, I think, annually, we'll see an increase of maybe INR 20 crores, INR 25 crores.
The next question is from the line of Arpit Shah from Stallion Asset.
Congratulations on a good set of numbers. I just wanted to understand if there is any idea on what kind of growth are we targeting for FY '25? Because this year, we actually exceeded our estimates for FY '24 quite handsomely with 60%, 65% growth.
I was not able to hear you properly.
Yes. So what kind of growth are we targeting for FY '25? That was my question.
Growth?
Growth.
Yes, yes. So I mean, we haven't had any conversation as to what the next year growth would be. But I think about -- let's see how the quarter 4 pans out and then maybe we can have a conversation about how next year is going to look like.
Because your Madhya Pradesh facility or Odisha facility, they're currently underutilized at 65%, 45%. And you also added a new plant at Hassan. So how will you be catering -- like what kind of volumes are you targeting for next year? Because you have ample capacity and room to take up your volumes for next year. So do you think that you will be able to, let's say, cross INR 1,500 crores of revenue next year?
That's what I told you. I mean, let me answer that question after quarter 4.
Got it, got it. And any evidence you see in terms of margins?
I think the margins are pretty stable as of now. We expect that we'll close the year also at these levels only.
So higher the growth, higher -- the lower will be the margin, given that your new glass bottles will be entering the system, right?
Yes. So I think you can say that we are -- already, we were making about 14.5%, 15% earlier. We're down to around 12%. So we are already at the bottom now.
Got it, got it. So next year, margins could be higher, given that your revenue base is a lot higher in FY '24. But FY '25, your PAT will be significantly higher than the revenue growth.
I mean, that depends upon the kind of growth we achieve next year also.
Yes. If the growth rate is similar to what we have done in FY '24, of course, the margins will stay around 12% as you have guided right now.
Let's see anyway.
We have our next follow-up question from the line of [ Ankur Kumar ] from Alpha Capital.
Sir, you talked about price hike of 3% to 4% we can take. So can you comment when exactly do we take that price hike?
Normally, the price hikes generally happen in February and March of every year or whenever the case the excise policy is formulated.
Sure. So for this year, we're expecting a 3% to 4% price hike?
No, I didn't say that. I said because it depends upon my price realization, depends upon the kind of SKU and the brand which we sell. So I was just telling that you can take a price hike of 3% to 4%, depending upon a favorable mix of the brand which we sell.
Got it. So price hike will be more like product mix due to -- otherwise, we're not taking any every level product to price hike?
I mean, for example, if we sell more of Hunter, for example, in MP, then obviously, the realization will go up as compared to if we sell more of Power Cool.
Yes, that I understood, sir. But just -- and then on, say, Hunter level, we're not taking any price increase?
I cannot comment on that.
Got it, sir, got it. And in terms of overall India, whole India, what will your market share be in the beer?
I think it should be in the range of about 5.5% to 6%.
5.5% to 6%. So any direction where do we want to go to in, say, over the next 2, 3 years?
Obviously, our wish list would be that we reach 10% in the next maybe 2 to 3 years.
Thank you. Ladies and gentlemen, that was the last question for today. On behalf of InCred Equities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.