RADICO — earnings call

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Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day, and welcome to Radico Khaitan Q1

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

First question is from the line of Abhijeet Kundu from Antique Stock Broking.

Abhijeet Kundu

Congratulations on a great set of numbers.

Primarily our P&A has been growing extremely strong.

My question was on the ad expenses, selling and distribution expenses, which has declined by about 8% during the quarter, which has in a way helped to aid your margins.

What has been the thought process behind this?

This would be a quarterly phenomenon because one of your other competitors also have spent less on ad spends during the quarter 1 and which has aid into our margins.

So how should we think about it?

What has it happened during the quarter?

My first question was on that.

Amar Sinha

First of all, the ad spend that we have always guided would be around 7% to 8% [of our IMFL revenue] annually.

The first quarter this year is an aberration.

One, primarily because the first quarter industry growth has been muted.

There were various delays of excise policies and buying and stock sales were also low because of policy delays.

So, elections are also there.

So, we try and rationalize the expenses based on the volumes.

But this will catch up in the quarters following the first.

Abhijeet Kundu

Understood.

Sir, other thing was on the popular regular category.

One part has been because of your own strategic intent that you have, 5 | P a g e Q1 FY2025 Earnings Call Transcript there has been a moderation in the popular segment.

But other than that, when do you see things improving in this segment because still it is a sizable part of our portfolio in terms of volume?

Dilip Banthiya

So regular, as we have guided earlier also, because we rationalized in certain states due to the low contribution and because of the input cost increase.

Secondly, in this quarter, particularly, as Amar just mentioned, there has been delay in some state excise policies where there were elections.

And in Telangana also, the pipeline inventory and the receivables were checked.

However, we see that we will be on a muted growth.

And overall, we guided that 4% to 5% growth, which we aspire from the regular category.

Abhijeet Kundu

In Telengana what is the status of the receivables now?

I mean, have they paid major part of it or good part of it is still remaining?

What is status because that also impacts volumes, right?

Amar Sinha

The payments in Telangana are coming on a slower pace.

But payments are coming, that's most important.

The government agrees that payments will be released to also build up their margins and their stock supply.

So, I think we have been getting payments on a very frequent basis.

And accordingly, we are supplying based on payments.

This trend is likely to continue for some time.

Dilip Banthiya

Industry also is represented to the government on these aspects and there is a regular interaction between the industry and the government and I think there will be improvement in future.

Moderator · Conference Operator

Next question is from the line of Harit Kapoor from Investec.

Harit Kapoor

Congrats on good results.

I just had two or three questions.

One was already external issue with elections, certain state issues, delay in excise policy.

In your best estimate, what would be the extent of volume that industry lost on account of this -- on account of these fluctuations in the quarter.

Just trying to understand what could have been steady state growth I know had some of these things not happened?

Abhishek Khaitan

Yes.

I think it would be, it is just an estimate, but I think it should be close to about 3% to 4%.

Harit Kapoor

The second thing was on pricing.

You mentioned 175 basis points on pricing on a Y-o-Y basis.

Given that the policy this time a bit later in the year, later during the quarter also because of the elections, do you 6 | P a g e Q1 FY2025 Earnings Call Transcript expect the 175 bps to be higher as the quarter progress or to be in the same 1.5% to 2% kind of range for the year in your opinion?

Dilip Banthiya

So, on quarter-on-quarter basis, I said sequentially it was 55% but the impact of the price increase on annual basis.

Y-o-Y basis on 170 basis points.

And we expect the price increase for the whole year to remain between 150 basis points to 170 basis points.

Harit Kapoor

Any more states left for pricing in this year?

Or do you think that's largely done with most of the policies through now?

Dilip Banthiya

Some are considering it and you will come to know soon.

There are some certain big states which are going to get.

Yes, we are hoping it will happen sooner than later.

Harit Kapoor

And lastly, on the capex side, obviously, the large capex is now done with.

But if you could just give us a sense of now what the steady state from this year onwards?

How are you looking at capex?

Dilip Banthiya

So, after the major capex or maintenance capex and some capex from brand etc. will be ranging between INR 70 to INR 80 crores annually.

Harit Kapoor

Which will be reflected in this year as well, right?

That '25 should be...

Dilip Banthiya

This year, there will be left out capex of the major project, which will be INR 80 crores to INR 90 crores and then maintenance capex of INR 60 crores to INR 70 crores.

Harit Kapoor

So, INR 150 crores this year and then it goes to INR 70 crores, INR 80 crores something.

Moderator · Conference Operator

Next question is from the line of Vishal Gutka from HDFC Securities.

Vishal Gutka

Congrats on a good set of numbers.

Three questions from my side.

First is on there was a news article stating that in the restricting surrogate advertising for liquor brand.

So, in case you heard from industry, if you can elaborate more on this because since we are creating a lot of new brands, how it should impact us?

Amar Sinha

First of all, we must state that the government has not said that you cannot advertise.

Actually they are talking about advertisement of surrogate brands, which the objective is to prevent misleading ads.

However, the government is talking about brand extensions, which can be advertised with the same brand name and you must have a revenue model for it, which is quite justified and logical.

So as far as 7 | P a g e Q1 FY2025 Earnings Call Transcript Radico is concerned, we feel that we will respect the law of the land.

We are geared up to follow the guidelines that we are being sensitized with and we'll follow that.

Secondly, this will also result in companies that are bigger and organized to adopt more innovative and creative marketing on the ground.

So, where the consumer interfaces and results in impulsive buying, we will be able to showcase some of our brands more creatively and I think it's fine with us.

It will not impact us negatively.

We will be able to handle it proactively.

Vishal Gutka

Got it.

Question on non-IMFL.

So, in the last call, you highlighted that annual sale will be around INR15 million to INR15.5 million in FY '25.

Going forward in the coming years because we'll be captive using this the product coming out from here.

So how we see sales in the coming years '26, '27 for non-IMFL segment?

Dilip Banthiya

So, the non-IMFL segment is basically, we are utilizing our Sitapur Greenfield Facility now for 90%.

So, the non-IMFL segment growth, which has been there because of the growth effect and from Q3 onwards, growth will be in line with the industry.

And where we see because of the base effect going out in the country liquor UPML 6% to 7% growth and otherwise in the alcohol.

So, it will be in the range of 10%, 15%.

Right now, it is 50%-50% because of the base impact.

Vishal Gutka

10%, 15% growth will be there in the '26, '27 you're highlighting?

Dilip Banthiya

'26, '27.

Vishal Gutka

Yes, on non-IMFL segment.

Amar Sinha

See, I'll tell you what the state policy actually states that there should be a 7% to 8% growth in the lower segment.

And I think we will grow in line with the excise policy structure, which is about 7% to 8%.

Vishal Gutka

Sir, last question is on , I think a lot of states have come out with budget -- states budget during this -- during the quarter maybe 2Q.

So, any of the state you see drastic increase in taxation in any specific state and what is the action plan you are taking, where you’re allowed to take price increase and certain things dependent upon the government.

I just wanted your thoughts on this?

Dilip Banthiya

States are proactively looking at increasing the revenue.

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Abhishek Khaitan

In fact, there are few other states, which are planning to rationalize the duty.

So, if that happens, it is very good for the industry.

So, I think if the governments are now quite proactive and they feel that if it's highly taxed, then it leads to less of sales, etc. So, in fact, they are talking of duty rationalization in states, which is a very good sign for the industry.

Vishal Gutka

Sir, just last question on the margin trends.

I think last call, you highlighted you're targeting mid-teen margins by end of FY '26.

So that holds right 15%, 16% margins by FY '26 margins?

Dilip Banthiya

Yes.

Vishal Gutka

Got it.

Great sir.

Wishing all the best for future quarters.

Moderator · Conference Operator

Next question is from the line of Mr. Himanshu Shah from Dolat Capital.

Himanshu Shah

Just a couple of questions.

One in past few quarters back, we had indicated that you will be looking for launching one more whisky in the upper prestige segments.

Are those plans still on?

And by when do we expect to launch that particular whisky?

Amar Sinha

So, first of all, Himanshu, as you are aware, we have launched four luxury products just in the last 30 days.

And these products are what we are going to focus on in the near future.

However, the new products that we have spoken about in the past are also on the growing trend.

And sooner than later and when the time is appropriate, you will get to hear from us on them.

Himanshu Shah

Okay, sure.

And that should largely fill the gap in the portfolio or we would have any further gaps in the portfolio from a positioning perspective, especially in the whisky segment?

Amar Sinha

Yes.

First of all, that will fill the current gap that there is.

But if you look at the trend of Radico, now we have started creating segments by launching products in the luxury segment.

So, we are the ones who are creating gaps for others.

And there's a small one, which we will fill up in the times ahead.

Himanshu Shah

Secondly, sir, are we seeing any increased competitive intensity from regional or national players in the P&A segment and then even in the luxury segment because we are seeing a lot of new brands coming up in this space.

So that creating any kind of headwinds or that should be careful of?

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Amar Sinha

See, I'll tell you there are two situations.

One, regional players are introducing new brands in P&A and below, actually, not in P&A.

P&A upwards only organized companies are creating brands and we are ahead of others.

As far as the regional players creating brands in the luxury segment is concerned. today, it's a nonissue right now and we are not too worried about it.

Himanshu Shah

Okay, sure.

And last question, just on raw material basket.

You had already provided color but some more granular color, if you can provide maybe on broken rice because that has seen significant inflation.

And now the elections are over, I think the FCI is also sitting with significant rice.

So, are we envisaging any kind of softening taking place?

And why hasn't taken place till now in the broken rice prices?

Dilip Banthiya

So actually, Himanshu, these prices, which had risen up to INR28,000 or so the broken rice and have seen some softening in the April and middle of May.

But after that government has taken one decision of increasing the MSP, again, the sentiment went toward the little price increase.

And since it is a non-season, government is also having stocks with FCI, which is much more than what they require even for distribution in PDS etc. But still, the decision on FCI rice is awaiting.

If there is some allocation for the ethanol in the FCI rice, I think sentiment will come down.

What we see with next crop being strong and the monsoon in the country is good.

We still feel that these prices are the peak and what should be over, but let's hope we can't predict it.

Himanshu Shah

Okay.

What would be the inflation in glass bottle prices or deflation, both on a Y-o-Y and Q-o-Q basis?

Dilip Banthiya

Last year, we had seen a steep inflation and it was to the tune of something around INR 9,000 to INR 10,000 per tonne.

But after that, the gas price and the other input cost price have come down.

So, some softening from Q2 onwards, we can see in this.

Himanshu Shah

Okay.

And what kind of softening, sir, we are looking at?

Dilip Banthiya

Some corrections.

There's some corrections that will take place in Q2 itself.

Moderator · Conference Operator

The next question is from the line of Prolin Nandu from Edelweiss Public Alternate.

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Prolin Nandu

I have a slightly longer-term question.

So we have come to an end to our very large capex plan of backward integration, both at Rampur and at Sitapur.

When we started this capex plan, you had a certain IRR for this project in mind.

As we stand today, how different is that IRR expectation going ahead?

On those projects that we have incurred capex for.

And also, we had a number of around INR 180 crores to INR 200-odd crores of savings due to backward integration over the period of time, when do we think we'll be able to achieve that number?

Dilip Banthiya

So, when we envisaged this project, it was for us a very, very strategic project.

It was not for commodity.

It was for our branded business.

And since we are having a strong growth in our P&A category and we were almost at the neck-to-neck for utilization and distributing to our tie-up units.

So, keeping in view last 10 years, we did not do any capex on distillation.

And keeping in mind the growth story of India and Prestige & Above and specially the premium luxury and semi-luxury, we wanted our own alcohol to be there.

So, this decision was taken at that time.

So, first of all, this is a long term for us, not for the IRR of the commodity, but for the strong backward integration for our main branded business.

Second point is that time, if we say that we thought that even in commodity since the time we fill up our own consumption and captive consumption by our brands in UPML and IMFL.

We will fetch a revenue and that will give us an IRR on 16% to 17% on capital.

But right now, it is something around 7% to 8%.

I think these are aberrations, which has not been there for past many years.

But for some time, we have to live with it and when the situation again come back to normalcy, I think 12% to 15% kind of IRR for the fill-up arrangement of the community will be fine, but the major objective of the capex was to carry strongly our branded business.

And as far as the other capex, which is also part of the large capex is the malt capacity increase.

And there, it is very much our strategic priority that we want to go strong on malt because of success of Rampur and seven expressions for Rampur.

Globally, in India, we are also doing, last year also, we tripled our volume.

And this year, again, we will see 25%, 30% jump in our last year volume on the Rampur.

So, maturation capacity is also being increased that will give very strong bandwidth and bottom line to the company in the future.

So, malt 11 | P a g e Q1 FY2025 Earnings Call Transcript maturation and malt production is another capex, which is for long- term growth strategy point of view.

Prolin Nandu

No, I appreciate that.

I mean I understand that this was for long term in terms of sourcing our own ENA for our own P&A sales.

But having said that, again, I mean I've been tracking this company for quite some time now.

So, this might sound as if these are repetitive questions.

But if we look at some of the larger players who have a very large share in P&A as well, they still depend on external ENA for their P&A alcohol as well.

So, is it something very specific to the kind of alcohol that we make, kind of brands that we make, which requires a backward integration?

And I mean some of our peers not wanting that backward integration.

Anything on that, sir?

Dilip Banthiya

So, first of all, yes, you are right.

But the point is it makes a lot of strategic sense for us to create our own alcohol.

And you see our market share on the white spirit, which is based mainly on account of the quality of alcohol, extra neutral alcohol, which we use and throughout India, we use our own alcohol rather than taking from anybody else.

And that is reflected in 60% plus market share in the whole vodka family.

Again, we have been able to create a craft gin.

One of the reasons is, again, our own alcohol, which is superior quality.

Third thing is that as far as competition is concerned, competition is also shown their intent that they want an integrated backward facility, two of the large competition have already announced that.

And looking into the government’s very aggressive plan on ethanol, biofuel, everybody wants their raw material security.

And we are large player of 30 million volume and growing by 15% plus, we want our raw material security for the next 5 to 10 years.

Moderator · Conference Operator

We have our next follow-up question from the line of Abhijeet Kundu from Antique Stock Broking.

Abhijeet Kundu

Yes.

So, it is a follow-up of one of the questions asked earlier by one of the participants.

When we look at your overall product portfolio, you have a very strong vodka portfolio, which spans across P&A and then the luxury segment as well.

But in the whisky segment, you have a very strong brand now in 8PM Black in the mid segment.

But then there is this upper prestige which you had alluded to last time that you would come out with a product.

Upper prestige and up to INR 2000, just below Royal Ranthambore.

That segment in whisky is remaining and 12 | P a g e Q1 FY2025 Earnings Call Transcript that has a good volumes, we believe because their competitors, the largest competitor has a very significant chunk of its their volumes coming from upper prestige segment and they are also very profitable.

So is the work on that because your work in the luxury segment has been excellent.

Now that you have the experience of coming out with very strong brands in the luxury segment for you coming out with a high-quality upper prestige whisky should not be a big task.

So, what's your thought process by when we can expect something in this segment was the INR 1,000 to INR 2,000 in Maharashtra, so to say, that is a segment which is hitting up amongst the competitors, the two bigger MNCs.

Abhishek Khaitan

You are absolutely right.

Like if you see the history of Radico in the last 25 years, we will be the only company which has been able to launch 20 brands organically out of the 7 brands are millionaire.

So, we have mapped out the entire industry.

And as far as whiskey gold, 8PM Black is there, which we launched, which is doing very well.

Second, we also have another whiskey After Dark, which hopefully in the current year will become a million-case brand.

Then we attempted Royal Ranthambore, which is the first Indian whisky at a scotch price and that brand also is growing by more than 50%.

And is seeing lot of traction.

And in the luxury, Rampur is very well accepted with the consumer.

And it's about INR 8,500 a bottle.

Now we've launched Asava at INR 10,000.

And as far as the segment, what you're talking, as Amar also had told earlier, we have all the products there on the drawing board.

And at the right time, we'll get it to the market.

Abhijeet Kundu

Okay sir, understood.

Timeline per se you have right?

Over 2 years whatever...

Abhishek Khaitan

Right now, after the success of Jaisalmer and Rampur, this is a quarter where Radico has launched four luxury brands at one time into the domestic market.

So, our focus would be to consolidate that and grow the distribution for Rampur Asava, Jaisalmer Gold, Sangam World Malt and 1999 Spirit of Victory.

So, I think we need to be justice to the luxury at the moment.

Abhijeet Kundu

So just one thing.

I mean, these are excellent products, but the volumes and the market for upward prestige to the gap between the upper prestige and the luxury but volume is also quite large.

And the 13 | P a g e Q1 FY2025 Earnings Call Transcript way the upgrades are happening and the premiumization are happening even in the middle to upper prestige is quite significant, that's why I had asked that this is a segment where a lot of profit can be made and a lot of profit pool and a lot of volume pool is also there?

Abhishek Khaitan

And as I said, you are absolutely right.

It's on the drawing board and at the right time, you'll know about the launch.

Moderator · Conference Operator

Next question is from the line of Kushagra Kejriwal, an Individual Investor.

Kushagra Kejriwal

Congratulations on the good set of numbers.

So, I had to just get an idea about the trajectory of food grain inflation and if it can affect the margins further.

Abhishek Khaitan

I think the food grain inflation, I think the worst is over because the government is sitting on a lot of stock of rice, which they have to dispose.

So, I think as far as the industry goes, I think we've seen the worst of the inflation.

And I think now onwards, it will be the same or it will soften.

Moderator · Conference Operator

As there are no further questions, I would now like to hand the conference over to the management for the closing comments.

Dilip Banthiya

So, moving forward, we will continue to deliver a strong Prestige & Above volume growth driven by our diverse brand portfolio.

Secondly, we will further develop our luxury brand portfolio, which we see as a major contributor to our profitability.

Furthermore, we are focused on ensuring that our investment operates as efficiently as possible which will enable us to generate cash, repay debt and return cash to the shareholders.

We look forward to interacting with you on our next earnings call.

Meanwhile, if you have any query or follow-up questions, please feel free to write to us.

Thank you.

Moderator · Conference Operator

Thank you.

On behalf of Dolat Capital, that concludes this conference.

Thank you all for joining us and you may now disconnect your lines.

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Note

This transcript has been edited to improve readability.

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