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 the Som Distilleries & Breweries Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions]I now hand the conference over to Mr. Nakul Sethi, Director, Finance & Strategy. Thank you, and over to you.
Good evening, gentlemen. We welcome you to the quarter 4 FY 2023 earnings call of our company. Last year was a eventful year for us. We achieved a number of milestones. Our annual volume for FY '23 registered a substantial growth of 2.1x, reaching 149 lakh cases of beer, as against 68.3 lakh cases of beer in FY '21-'22.In the IMFL segment, we sold 8.9 lakh cases in FY '22-'23 as against 5.7 lakh cases for FY '21-'22, reflecting a growth of 65% over the last year. This growth was driven by strong demand for our products and our focus on delivering high quality offerings that cater to customers' preferences. We are especially proud of the performance of our Hunter and Power Cool brands. Hunter volume almost doubled from the previous fiscal year, indicating a strong market demand for this product. Similarly, Power Cool's volumes saw a 2.8x growth, having registered strong volume growth in Karnataka and MP, which is remarkable and demonstrate our abilities to identify market opportunities and respond effectively to changing customer tastes.On similar lines, our company has registered a significant financial performance for both quarter 4 and FY '23. For the quarter 4 FY '23, our total income increased to INR2,530 million, a year-on-year growth of 73.7%. Our [ EBITDA ] stood at INR286 million, a year-on-year growth of 142% and net profit grew by 148% to INR159 million. For the financial year '23, our total income increased to [ INR8,080 ] million, a year-on-year growth of 121%. The EBITDA surged to INR1,034 million at a EBITDA margin of 30.8%, reflecting a growth of 5.2x on a year-on-year basis. Our net profit margin stood at 7.5%, resulting in a net profit of INR603 million. The impressive financial is triggered for quarter 4 and FY '23 on a year-on-year basis signify the success of our growth-oriented strategies and its effect on our [indiscernible].During the financial year 2023, we started expansion in all our 3 plants. Hassan and Bhopal has commenced commercial operation, while we expect completion of the expanded facility in Odisha by the month of June '23. Post-expansion, our capacity for beer would stand at 3.02 crore cases of beer per annum. As we look ahead, we are confident in our ability to sustain the growth momentum and capitalize on emerging opportunities in the market. We will continue to focus on delivering high-quality products that cater to our customers' evolving needs, while also leveraging our strength and expertise to drive growth and improve profitability.We are optimistic about the coming peak season which is expected to further drive total capacities of [ breweries ] that will result in further margin improvements in the coming quarters. We owe our appreciation to all our stakeholders for showing their support and confidence.With this, we would now like to open the floor for Q&A. Thank you.
[Operator Instructions] Our first question comes from the line of Nitin Awasthi from InCred Equities.
[Technical Difficulty]
Sorry, I am not able to listen to your question.
Am I audible now, sir?
Yes, much more clear enough.
Okay. So the question was regarding our home state, sir. Significant changes in the excise policy. One -- as one deep-dive into the excise policy one, realizing that in MP, the point-of-sale for beer has expanded significantly. Is it true on ground our country liquor shops now selling beer in Madhya Pradesh and is that having an impact on the ground?
Yes, definitely that has been a positive move for the industry and for us also. And the impact has been from last year when the point-of-sales had increased from about, I think, close to about 800, 900 to about 3,000 plus now. Yes, definitely that has had a positive impact.
Okay. And because of that, do you see the market is still expanding rapidly in Madhya Pradesh, which was stagnant for some years now?
Yes. So we have seen that the market has expanded last year and we expect the market to expand this year also.
Understood, sir. Sir, secondly, on the Karnataka market, there has been news flows that there is a shortage of liquor. Are we doing and are we holding our gates well in Karnataka? Is this liquor shortage for the industry as a whole, but not at the company or what is the on-ground situation?
I think there has been a excessive demand or you can say the demand for beer is tremendous currently in Karnataka and companies are finding it difficult to fulfill the demand, but we are trying to match the demand right now.
So, as of now have we lost any sales?
No.
Okay. Got it. And Odisha is the only plant where our expansion is not complete, if I'm correct?
Yes, sir.
Okay. But Odisha as a State, our plant was the only plant again which was under-utilized and now we are expanding in the State of Odisha, are we targeting the states around Odisha, for which we are expanding in Odisha?
Exactly. And so this year, we expect that the plant should do quite well, Odisha plant. And we are also looking at some strategic tie-ups in the short to medium term for that particular plant.
Understood, sir. Understood. Best of luck for the coming quarters.
Our next question comes from the line of Abhishek Getam from Alpha Invesco.
Yes. Am I audible, sir?
Yes, very much.
Congratulation on a good set of numbers. So just expanding on the last question, you said you're looking for strategic tie-ups at Odisha plant. So does that mean you have contract -- looking for contract manufacturing for other players?
Let us see how things evolve. We'll announce in the market whenever we have a development on that line.
Okay. Okay. Understood. Sir, another question was what has aided the volume growth year-on year? I mean, which states have contributed the most or any volume-wise breakup for states that you could give?
So all the states where we have plants and since -- contributed significantly to the growth. So that's the whole point. But in terms of volume growth per case, we'll be not able to give you that number.
Okay. Okay. Understood. So, apart from the 3 states we operate, did we sell any major state that we export to that aided the volume growth?
90% of our sales comes from the states where we are present. And the remaining comes from the other states. But last year we had a lot of difficulty in meeting the demand in the states where we are present. So let's see how things pan out this year.
Understood. Next, another question on that is when we sell in the state or when we export to other state, what is sort of the gross margin differences between that?
It depends from state to state. Very difficult to define, but obviously you incur additional transportation charges, as well as [ the current ] excise duty has to be paid for the states where we want to sell. So it varies from state to state. But obviously, it makes more sense to sell it in the states where your plant is, of course.
Yes. Because, I believe that if, let's say, if manufacture in MP and sell in Maharashtra, that would not be much profitable, right, it might just would be a volume gain?
Yes, yes, exactly. And once you achieve critical volumes or significant volumes then obviously we will want to install a plant or acquire a plant in Maharashtra itself.
Okay. So out of the 10% is Maharashtra significant in the remaining 10% right now?
Sorry?
You said 90% is in the states where we have plants, the rest of the 10% is exported. So out of that is Maharashtra significant out of the 10%?
Not right now. Our -- the other states would be say just like [indiscernible] canteen stores and that should be a profitable business.
When we open canteen, sir. Okay. Sir, another was recently Mr. Arora on a TV interview mentioned that we're looking for a Maharashtra acquisition plant and sort of INR300 crore, INR200 crore for plant and INR100 crore for working capital. So any updates on that?
I think he mentioned that Maharashtra and some other states could be probable states where we could enter next. So we are looking at various opportunities.
Our next question comes from the line of Ritwik Sheth from OneUp Financial.
Sir, I have a few questions. Firstly, if we see our gross margins this quarter, it has been lowest in last few quarters. So can you point out what is the reason for this sharp decrease in gross margins?
See, I mean, there has been cost pressures all around and especially in the case of glass bottles, which has seen, I think, close to in the last 1 year we have seen a 35% to 40% price increase. Similarly, we have seen the case of barley also, but now barley has stabilized. So, I think that is one of the reasons. And we continue to use new glass bottles as we grow. So that is one of the reasons why gross margins are low.
Okay. And sir, what would be the impact of barley in Q4? How much that would be up versus the previous year?
Barley has now stabilized. So, it is down to quarter 1 of last year level. In quarter 2 and quarter 3, there was a slight increase, but now it has come down to quarter 1 level.
Okay. Okay. And sir, do we procure ENA as well for our IMFL?
Yes, we procure ENA, yes, we do, but IMFL is 10% of [indiscernible].
Right. Right. And any comments you would like to draw in the trend of ENA pricing in the last 4 quarters and say in the coming few quarters?
No. I think, I'll not give any comment on ENA, because ENA is a very small component on what we operate. And I think, going forward also our first tag will be on beer. IMFL is just for complementing our sales.
Okay. Got it. And sir, any price hikes we have been able to take in any of the states?
Yes. So we have taken price hikes in MP, Karnataka, Delhi, Orissa, 4 states we have taken price hikes.
MP, Karnataka, Delhi and?
Orissa.
Orissa. Okay. And what would be the range of these price hikes?
It would be in the range of about, on an average, about in the range of 4% to 5%.
4% to 5%. And this would majority be beer only, right?
Yes, because, I mean, volumes come from beer only.
Right. Okay. Sure. And sir, how has the consumption been so far in March, April versus last year?
I would not like to comment on that.
Our next question comes from the line of Rishikesh Oza from RoboCapital.
Am I audible?
Yes sir, you are.
Sir, my first question is, if you could provide market share in Madhya Pradesh, Karnataka and Orissa.
Currently, we will be not in a position to share the market share numbers. We don't have in front right now. [indiscernible]
Okay. Also, sir, regarding our expansion plans in other states, what exactly is our plan and the target market share to?
We can't answer that question right now.
Okay. And [Technical Difficulty]
Sorry?
What would be our [Technical Difficulty]
I'm losing you. Sorry.
Am I audible now?
Yes, you're audible now.
I'm asking for marketing spends for [Technical Difficulty].
Marketing spends?
Yes, marketing spends.
Spends would be in line with what the competition does.
[Technical Difficulty]
Rishikesh, are you there?
[Technical Difficulty]
Hi, Rishikesh. This is the operator. Your voice is not audible to us.
[Technical Difficulty]
I think, it would be better if you can do something offline. I think, let's shift to the next caller.
Our next question comes from the line of Manan Shah from Moneybee Investment Advisor.
Congratulations for good set of numbers. My first question is this CapEx of INR35 crores in the Odisha plant, how do we plan to fund it?
So we have already taken a term loan of about close to about INR25 crores from DNB. And we have taken about I think about close to about INR16 crores, INR17 crores of disbursement also.
Okay. And this expansion is largely towards the brewing or bottling, if you can just mention there is about that.
So we are increasing the bottling capacity from 42 lakh cases to about 60 lakh cases. And certain balancing equipment also is in set up.
Understood. And post this CapEx and including the working capital debt that we would take, what sort of peak debt are we anticipating this year?
I don't think that considering that whatever the debt is currently, we don't expect any further increase in the debt for the current financial year.
Okay. Understood. My next question was a bookkeeping question. In the balance sheet for the current year, we have seen a significant increase in current tax assets -- sorry, in other current assets from INR55 crore to INR96 crore. So if you can just highlight what led to this sort of increase.
Let me get back to you on that separately.
Okay. And just wanted -- my last question was regarding have the plant stabilized? I mean, that expansion that we did at Bhopal, as well as Hassan, have these plants stabilized and at what utilization would they be operating?
Yes, obviously the plants have stabilized and we are operating at maybe close to about 85% to 90% capacity currently.
Our next question comes from the line of Deepak Poddar from Sapphire Capital.
Sir, just first of all I wanted to understand with this doubling our capacity in Karnataka, what's our total capacity as of now?
It's about 90 lakh cases in Karnataka.
19 lakh cases. And ideally we did around 15 lakh cases -- 19 lakh cases overall, right?
9-0, 90 lakhs.
90 lakh, 9 million, right?
Yes.
Okay. And our volume in FY '23 in beer was about 15 million?
Yes.
Okay. And this capacity that you said 90 lakh, so I was just trying to understand overall, as a company level, what is our capacity as of now?
Currently we are at about [indiscernible] when we complete the Orissa expansion to be about 3 crore cases.
3 crores. And Orissa would be how much separately?
60 lakhs.
6 million. So around -- if we exclude that, around 24 million would be our current capacity, right, 24 million cases?
No, no. So, Orissa currently is at 42 lakh cases.
Okay. So incremental is 18 lakhs?
Yes.
Okay. Understood. So basically, I think, FY '23 our volume was close to about 15 million, right. So there is a big scope for growth in terms of utilization level that we can improve, right, going forward?
Yes. So we have added capacity in March to April, so we have added 45 lakh cases in Karnataka, which was earlier 45 lakh cases only. And another 18 lakh cases we are adding in Orissa.
Fair enough. And what sort of volume we might be looking at in beers in FY '24?
We are looking at about 20% to 25% growth in our sales, which should I guess to reach about INR1,000 crores.
INR1,000 crores, you're saying from beer or overall -- beer revenue or overall?
Yes, sir.
So I was just asking this INR1,000 crores is revenue you're talking at the company level or at the beer level?
At the company level.
At the -- and what sort of margin trajectory we are looking at? I mean, earlier we had said in the past that maybe 13%, 14% is our aspirational margins, right? I mean, but we...
Yes, that's our aspirational margin, but we are in a -- we actually -- [ we're hesitant ] in terms of cost pressures are there. So, let's see how quarter 1 performs, then we'll have a better idea about how the year will end at.
Fair. But do you see all the cost pressures have already been factored or there are any more pressure that we expect to come in first quarter?
No, I said that now, for example, I've seen that [ soda ash ] prices have also decreased for April. So we are hopeful that the glass bottle prices also have now picked up as for our expectation is. Let's see.
Our next question comes from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.
Most of the questions have been answered. Just one point, considering the seasonality, what could be the peak utilization any plant can do?
See, we have operated plants considering the peak utilization also at about 85%, 90% in the past. And for that matter, the capacity of the Woodpecker plant was at 45 lakh cases. We have seen it operate at about 100% also. So, we can easily achieve, I think, about 85%, 90%.
[Operator Instructions] Our next question comes from the line of Kuber Chauhan from Anand Rathi.
Congratulations on good set of numbers. Most of the questions have been answered. And I would like to know what could be the ad spends towards to improve our brand visibility? And secondly, what would be the first year utilization for the Odisha plant after the expansion?
I missed your first question.
Two questions were there. Are you planning for any spends on brand visibility, and just to enhance our brand and just to do more kind of a marketing? And secondly was on the utilization for the Odisha plant after the commencement in the June.
First, on the marketing spend, we -- I only assume -- previous calls also I mentioned that we love to work with the trade channels. So our marketing spends or our spends towards promoting our brands would be at the point-of-sales and the distribution channels. So we are happy with that strategy, because that has given us good returns in terms of volumes as well as sales. Coming to your question on Odisha capacity utilization, let's see, I mean, we obviously we'll want more utilization having spent INR35 odd crores. So, let's see, I mean, how things work out for the remaining part of the year.
Okay. And also are we planning to tap any other states, new states which are into your focus.
So we are looking at increasing our sales in Delhi, UP in the current financial year.
Delhi and UP. Okay. And any sort of price hike if you can -- if you are planning for this year, in FY '24?
Sorry?
Any kind of a price hike, which you are wishing to take in FY '24?
No. On the price hikes, I have already mentioned in the call that we have taken price hike in 4 states.
Okay. And any further price hikes?
No, no. I mean, these are the key states where we want to operate. And I mean, there's no use of taking a price hike in a state where you don't have volume. So, I mean, these 4 states are the states where we want to sell more.
[Operator Instructions] Our next question comes from the line of Pawan from Compound 26 Capital.
Couple of questions. So most of our revenue growth was driven by Karnataka this year, right? Could you talk a little bit about what drove this kind of rampant growth just in terms of the market?
Sorry, sir, can you please repeat your question again?
Sure. So, most of our -- I'm assuming most of our growth was driven by the Karnataka market. So, could you talk about what happened within the market and how did we -- because I'm assuming that the market is pretty saturated. So how did we get this kind of a growth rate in this market?
So our growth has not only come from the Karnataka market, but yes, Karnataka has also contributed its fair bit. And the growth -- the Karnataka market itself has grown, but we have grown more as compared to the industry players. And we had grown in '19, '20 also, but due to COVID coming in and 2 years where vodka was especially in the peak season. But our brands have been very well accepted in the state and especially the state has also supported us. So we have seen phenomenal growth of our 2 key brands, Black Fort and Power Cool in Karnataka.
Understood. And in terms of your sales strategy, sir, could you talk a little about what is it that you kind of did different in terms of sales strategy versus competitors? How many sales force -- sales people did you recruit onboard to kind of get these kind of growth numbers?
So our sales strategy is simple as others. I mean, I don't think that we are differing in any way. But I think, the first starting point for any brand to be successful in the market is that it should offer good value-for-money, good taste, good packaging to the customers. So that we have trials at first, then you have customers coming in and asking for your product. And of course, your product has to be available at all the points of distribution, distribution has to be there. So it has to cover all the point-of-sales in the state. And your brand is available to all the consumers. So that's basically has been the way we had been able to taking more market share in new states where we entered.
Okay. Got it. And did we make any kind of large recruitments within our sales force through this year?
So, I mean, see, you have a strategy of you cannot have a sales force, which is large initially. So obviously we will keep on adding more people as you grow. So obviously, we have added more people as we grow and as we want to grow. So that's how we have been doing this.
Our next question comes from the line of Nishant Sharma from Nuvama Wealth Research.
Congratulations for good set of numbers. So my first question is related to the new areas where we are planning to enter like Delhi and UP, what will be your strategy to expand our footprint in these 2 states and at a Pan-India level, what is the POS for us?
So, there are certain questions which I obviously do not answer like POS across India. Either we can discuss strategy of how we sell more in Delhi or how we want to grow. But to give you something from POS in hindsight, yes, I mean, about 10% of our sales was coming from Delhi in '19-'20, it's unfortunately because of COVID reduced and there was a change in the excise policy of Delhi, which has a very material impact on the way business was being done in Delhi. And last year there was so much of demand from our existing state, where it does not make much sense to sell in Delhi, but we have got a good presence in Delhi. We are establishing our presence in UP and with our numbers going forward we'll justify our growth plans in these 2 states.
And sir, in terms of debt level, how are we seeing our debt levels going forward?
Our debt levels would be at similar level and actually we would want them to reduce going forward.
Okay. And you are pretty confident in achieving this, if I'm not wrong, you have guided for about 20 to 25 kind of percent a topline growth.
Yes.
And if I talk about on the margin side, you mentioned that gross margins were under pressure due to certain raw material -- escalation in raw material prices and also we are focusing on the glass bottle [ we are marketing ]. So, can we see some improvement going forward or these are likely to remain at those levels?
No, it's our endeavor that our gross margins would improve, that's why we have set up our canning facility in MP and we are trying to sell more of cans as compared to glass bottles, so that our gross margin improve. Because cans give you -- one, there is -- the cost escalation in cans has been limited to about 15% to 20% as compared to 40% in glass bottle, plus cans also give you the advantage of a higher realization from the glass bottles. So we are trying to improve our sales mix from glass -- pure glass bottle to cans in the coming short to medium term.
Sir, what would be contribution currently?
Cans would be, for example, in Karnataka, is about 10%. So we are improving it there also. In Bhopal also about 10% with cans. So we are trying to improve that also going forward.
Okay. So this 12%, 13% kind of a EBITDA margin, which we were able to clock for last 3 quarters, will it be sustainable levels or it is likely to be around 11%, which we achieved in the current quarter?
See, I mean, as the strategies, which I mentioned to you, we are working on them. Let's see how quarter 1 comes out. And then, I think, it would be better if we can talk about the margins then.
Ladies and gentlemen, we have reached the end of the question-and-answer session. And I now hand the conference over to Mr. Nakul Sethi for closing remarks.
Thank you all for joining the call. I trust that all your queries have been adequately addressed. Should you require any further information, please reach out to our Investor Relations advisors or me. We will revert with all the necessary details at the earliest. Thank you so much.
Thank you. On behalf of Som Distilleries & Breweries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.