RADICONSE17 August 2022

Radico Khaitan Limited

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113turns

9analyst exchanges

0executives

Key numbers — 40 extracted

29%

her quarter of a strong IMFL volume growth led by Prestige and above category, which increased by 29%. Overall our growth is broad based and has a healthy underlying product and price mix. As the

are positive for the industry. The recent price increases in the IMFL business translated into a 3% positive impact on our realization. With the price increases coupled with the favorable product

6.82 million

g us on this call today. During the first quarter of FY23, we reported a total IMFL volume of 6.82 million cases representing an increase of 21.5% on Y-o-Y basis. 2 | P a g e Q1 FY2023 Earnings Call Tra

21.5%

uarter of FY23, we reported a total IMFL volume of 6.82 million cases representing an increase of 21.5% on Y-o-Y basis. 2 | P a g e Q1 FY2023 Earnings Call Transcript Thi

29.1%

ranscript This was led by Prestige and Above category volume growth of 29.1%. In value terms, the Prestige and Above category registered 37% growth. Prestige and Above cate

37%

Above category volume growth of 29.1%. In value terms, the Prestige and Above category registered 37% growth. Prestige and Above category accounts for 29.5% of IMFL volume compared to 26.1% in Q1 F

29.5%

, the Prestige and Above category registered 37% growth. Prestige and Above category accounts for 29.5% of IMFL volume compared to 26.1% in Q1 FY22. Net Revenue from Operation during Q1 FY23 was 757

26.1%

egistered 37% growth. Prestige and Above category accounts for 29.5% of IMFL volume compared to 26.1% in Q1 FY22. Net Revenue from Operation during Q1 FY23 was 757 Crores representing an increase o

757 Crore

9.5% of IMFL volume compared to 26.1% in Q1 FY22. Net Revenue from Operation during Q1 FY23 was 757 Crores representing an increase of 27% compared to Q1 FY22. During this period, IMFL Sales value incr

27%

n Q1 FY22. Net Revenue from Operation during Q1 FY23 was 757 Crores representing an increase of 27% compared to Q1 FY22. During this period, IMFL Sales value increased by 27.7%. As a percentage of

27.7%

senting an increase of 27% compared to Q1 FY22. During this period, IMFL Sales value increased by 27.7%. As a percentage of total revenue, IMFL Sales accounts for 78.9% of the Net Revenue compared to

78.9%

d, IMFL Sales value increased by 27.7%. As a percentage of total revenue, IMFL Sales accounts for 78.9% of the Net Revenue compared to 78.3% in Q1 of last year. Gross Margin during the quarter was 43

Guidance — 20 items

Abhishek Khaitan

opening

“In line with our brand strategy, we launched a travel retail exclusive expression of Rampur Indian Single Malt called TRIGUN, which will be retailed at $200 per bottle.”

Abhishek Khaitan

opening

“Overall, we expect the inflationary environment to gradually ease out to some extent in the second half of the year.”

Abhishek Khaitan

opening

“We expect Rampur Dual-Feed plant to be operational by Q3 of FY23.”

Dilip Banthiya

opening

“In the near term, we expect raw material pricing situation to remain volatile.”

Dilip Banthiya

opening

“So it is very difficult to comment on the trend going forward.”

Dilip Banthiya

opening

“In the long term, we expect to continue our margin expansion trajectory given our portfolio premiumization and backward integration.”

Dilip Banthiya

“we have already spoken about it that the next year onwards they are going to give a big boost to our operating margin and gross margin.”

Dilip Banthiya

“While we actually budget it, we also do not look at that how much price increase will be able to make it.”

Dilip Banthiya

“The product mix change like we have grown in this quarter at 29% on our Prestige and above category and the kind of brand, which have been rolled out we will be able to have the IMFL gross margin on our earlier historical level from H2 to Q4 onward and next year this will be on expansion trajectory in IMFL and on country liquor, I cannot say the exact price increase, but of course that will mitigate most of our cost push.”

Sonaal Kohli

“Firstly, your Rampur stock inventory for making more of Rampur when it would be ready either in Q3 or Q4, it is available as of now in how many states and what is the plan for it at the end of this year and end of next year in terms of distribution?”

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Risks & concerns — 15 flagged

The impact of the cost push has been more severe in the non-IMFL business where we are expecting a price increase shortly.

— Abhishek Khaitan

On Y-o-Y basis, continued commodity inflation resulted in gross margin compression, particularly in the non- IMFL business.

— Dilip Banthiya

Given a favorable product mix change, impact of cost push on the gross margin of the IMFL business was mitigated to a large extent.

— Dilip Banthiya

In the near term, we expect raw material pricing situation to remain volatile.

— Dilip Banthiya

So it is very difficult to comment on the trend going forward.

— Dilip Banthiya

The Company is taking all efforts to optimize cost and to mitigate any margin headwinds, which along with the recently received price increases shall help in offsetting the inflationary pressure.

— Dilip Banthiya

We have seen about 3% improvement in realizations in this quarter even over the longer term we see 2% to 3% sort of a growth, so question here is, I am trying to understand if you can help me break down this realization into some of the price hikes that we have received and second is the impact of the premiumization during that year on, so just some thoughts would be helpful?

— Aditya Bagul

The overall impact of these price increases is 300 basis points plus.

— Dilip Banthiya

If I heard you correctly, there was the realization positive impact of 600 basis points in P&A and the higher number in popular, but when we look at the overall realizations that is up by only 3%, so is it fair to understand that bulk alcohol prices have actually come off on a Y-o-Y basis, how I will read into that?

— Aditya Bagul

Right now in the Royalty we have given it to certain [inaudible] for management that is not our focused area and right now the situation is so volatile and the reason why we have given it on royalty because first of all we do not want pressure on a working capital and the margin and this is not that great, so our concentration is more on the Prestige and above side.

— Abhishek Khaitan

You highlighted that there has been an inflationary pressure in ENA and grain prices sequentially, can you just call out what this inflationary pressure would be in quantitative terms for ENA and grain prices?

— Himanshu Shah

Full impact of this we should see some more in Q2 FY23?

— Himanshu Shah

You must have also seen that in our businesses many companies have shown the write off and all that, but in Radico because of our business model, we have not gone on loose credit policy, so I will say we are a very conscious company on credit and we continue to monitor our working capital and the credit risk in the market consciously and continuously

— Dilip Banthiya

Further we have risk free as we are ensured against any kind of receivable risk because we do not sell enough in states where we find there is a potential risk to receivables.

— Amar Sinha

I understand in India we have a regulatory challenge that we cannot advertise our spirits outright, what about in international markets, are we doing advertisement spends there and are there any regulatory challenges do we face there or we can do our advertisements as we would like to do?

— Swapneel Rajani

Q&A — 9 exchanges

Good afternoon and congratulations on a really good set of numbers. My first question is on realizations. We have seen about 3% improvement in realizations in this quarter even over the longer term we see 2% to 3% sort of a growth, so question here is, I am trying to understand if you can help me break down this realization into some of the price hikes that we have received and second is the impact of the premiumization during that year on, so just some thoughts would be helpful?

Dilip Banthiya

The realization in this quarter has been inline with our momentum in premium growth, so realization per case on y-o-y basis has improved by 6.1% on the Prestige and Above category and realization on regular category improved by 800 basis points, so as far as the premiumization is concerned, the journey of premiumization is continuously going and strengthening. We have improved because of the price increase in certain states where has been an overall improvement of 300 plus basis points on our gross margin. In certain states where we have got the price increase are UP, Uttarakhand, Rajasthan, M

After this 3% price hike in IMFL, by what percentage are you trading in terms of the gross margin, the price increase is required towards margin that is my question and in country liquor what kind of price increases you need for the company level gross margins to get restored?

Dilip Banthiya

While we actually budget it, we also do not look at that how much price increase will be able to make it. The product mix change like we have grown in this quarter at 29% on our Prestige and above category and the kind of brand, which have been rolled out we will be able to have the IMFL gross margin on our earlier historical level from H2 to Q4 onward and next year this will be on expansion trajectory in IMFL and on country liquor, I cannot say the exact price increase, but of course that will mitigate most of our cost push. In country liquor, we are not making any money on the EBITDA conside

Thank you for this opportunity. I had two questions. Firstly, your Rampur stock inventory for making more of Rampur when it would be ready either in Q3 or Q4, it is available as of now in how many states and what is the plan for it at the end of this year and end of next year in terms of distribution?

Abhishek Khaitan

Rampur right now is purely on allocation basis. As far as the Indian market goes, we are present in only six states, but there also we cannot supply because the demand is much more even the export demand we are not able to service of Rampur. But now with the new maturation facility, which we are being in Sitapur in a couple of years that we will get and the thing what we invested about five, six years back that production will start coming from FY2024, that is next year, the production will come and from this year current production it will be significantly higher, it should be at least about

Thanks for taking question and congrats on very good volume growth. My question pertains to this royalty brands, which you have given, I just want know like it was included in which category earlier and what it is all about?

Amar Sinha

Royalty brands is not a part of our business strategy, actually we give brands on royalty when we see that the margins are compressed and it is still calling for a huge working capital block. So these are some brands that we have put in some states where brands have been given on royalty and it is not a significant part of our strategy and these are more or less regular brands. On 8 PM Premium Black, we have seen very strong volume growth, so it is a Prestige and above category, have we seen any compression in the volumes on the 8 PM Brand because 8 PM of course is a premium category, but the

Thank you again for this opportunity. My question was pertaining to 8 PM Black, what kind of growth would we expect? Is it still very higher or is it in teens?

Amar Sinha

8 PM Black is growing at a very high double-digit growth rate and we hope the brand to maintain the similar momentum in the times ahead. It grew very quickly from 1 million to 2 million and the brand is extremely buoyant. The growth is attributed to its quality of the blend, the packaging and the brand positioning backed by Tiger Shroff who is the brand ambassador, so all put together this brand is very buoyant, it has a great feel. When you say high, it could be anything. It could mean 50, it could mean 20. It could mean - all these are high numbers, so let me ask you the question in a differ

Thank you for taking my questions. My question is once both our capex are fully commissioned and say FY25 would be a full year of operation. Once that happens even in FY25 or FY26, by that time what are we expecting on the P&A volume, regular volume and finally the ENA sales from volume point of view; obviously not known how it would pan out, I presume that with so much thrust on P&A that would obviously be a bigger contributor to both top line and profits, but broadly from where we stood in FY22 for example, we did 18 million cases of regular and about slightly short of 8 million cases in P&A

Abhishek Khaitan

If I look at the FY25 or FY26 year, one is P&A and one is the luxury segment. The kind of growth we are experiencing in the luxury segment is very-very encouraging for us and especially in 2025-2026, Rampur we should have in a decent quantity still I think the demand would be much more and Jaisalmer the way it is growing, whether it is exports, whether it is domestic, everywhere I think that it is going to contribute largely to our volume mix. But to answer I think in terms of value we should be at least 60% plus by the premium portfolio itself. I will further add to it as you have seen that f

Thank you. Thanks for the opportunity. Just a couple of questions. You highlighted that there has been an inflationary pressure in ENA and grain prices sequentially, can you just call out what this inflationary pressure would be in quantitative terms for ENA and grain prices?

Dilip Banthiya

In ENA on Q-o-Q basis, this is approximately 4% and Y-o-Y basis, it is 12%. On grain prices, Q-o-Q basis it is around 7% to 8% and on Y-o-Y basis it is around 35%. There has been an increase in fuel cost also, does that impact our power cost also? Basically, we have our boiler and steam-generated, co-generation power plants, however, because of the fuel cost increasing the cost of conversion is also increasing and fuel prices in this has also gone up by 25% in the Q-o-Q basis. 13 | P a g e Q1 FY2023 Earnings Call Transcript Can you just provide more color on bottle prices both on Q-o-Q and Y-

Hi, Abhishek and thank you for giving me this opportunity. Congrats on the numbers. I want to ask a question, so when I was just checking the receivables for the last five years towards the sale, I can see that our receivables is around 25% to 30% Y-o-Y, and as per the last 2020- 2021 annual report, it was mentioned in the audit side that this is basically a risk that we see, so I wanted to understand that what is the segment wise breakup of this receivables, is it IMFL, non-IMFL and also basically the realization of this receivable depends on the selling price to the state government, so if y

Dilip Banthiya

First of all, I must tell you that we have worked continuously for last five, six years on our working capital. The working capital number of days have come down from 61 days to 30 days [of gross sales], which is because of our credit control system and at the same time on the 15 | P a g e Q1 FY2023 Earnings Call Transcript state government or in the open market our credit system and credit limits are very-very stringent. You must have also seen that in our businesses many companies have shown the write off and all that, but in Radico because of our business model, we have not gone on loose cr

Thanks everybody for joining us today. We continue to deliver upon our premiumization strategy, which is reflected in the strong P&A volume growth during the quarter and all our core premium brands are registering strong growth. The traction of our luxury brands, Rampur Indian Single Malt which is strictly on allocation at this point of time and Jaisalmer Indian Craft Gin is above expectation. Next year onwards, Rampur allocation will increase and we are also expanding the Gin distillation capacity to cater the growing demand. There has been near-term margin pressure due to the commodity infla

Management

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Speaking time

Dilip Banthiya

Amar Sinha

Sonaal Kohli

Moderator

Himanshu Shah

Abhishek Khaitan

Pritesh Chheda

Aditya Bagul

Pankaj Kumar

Sanjay Dham

Opening remarks

Himanshu Shah

Thank you Michelle. Good afternoon everyone. On behalf of Dolat Capital, we would like to thank everyone for joining on this call. I would like to thank the management team of Radico Khaitan for giving us the opportunity to host Q1 FY2023 post-result call. We have with us today Mr. Abhishek Khaitan – Managing Director, Mr. Dilip Banthiya - Chief Financial Officer, Mr. Amar Sinha – Chief Operating Officer, and Mr. Sanjeev Banga - President, International Business. I shall now hand over the call to Mr. Abhishek Khaitan for his opening remarks. Over to you!

Abhishek Khaitan

Good afternoon ladies and gentlemen. Thank you for joining us on our Q1 FY23 results conference call. I hope you are all doing well and keeping safe. Strong growth momentum, which was seen in Q4 of last year continued during Q1 FY23. Our endeavor during the quarter was to drive premium growth and focus on the execution of our projects to make Radico Khaitan a future-ready organization. In an environment which remains challenging, marked by unprecedented inflation, this performance gives us the confidence of our future growth trajectory. We have delivered another quarter of a strong IMFL volume growth led by Prestige and above category, which increased by 29%. Overall our growth is broad based and has a healthy underlying product and price mix. As the consumption in the ‘out-of-home’ space normalizes, we are seeing solid traction across the premium portfolio, particularly in the white spirit space. While Magic Moments Vodka volumes are growing 1 | P a g e Q1 FY2023 Earnings Call Transcr

Dilip Banthiya

Thank you, Abhishek. Thank you everyone for joining us on this call today. During the first quarter of FY23, we reported a total IMFL volume of 6.82 million cases representing an increase of 21.5% on Y-o-Y basis. 2 | P a g e Q1 FY2023 Earnings Call Transcript This was led by Prestige and Above category volume growth of 29.1%. In value terms, the Prestige and Above category registered 37% growth. Prestige and Above category accounts for 29.5% of IMFL volume compared to 26.1% in Q1 FY22. Net Revenue from Operation during Q1 FY23 was 757 Crores representing an increase of 27% compared to Q1 FY22. During this period, IMFL Sales value increased by 27.7%. As a percentage of total revenue, IMFL Sales accounts for 78.9% of the Net Revenue compared to 78.3% in Q1 of last year. Gross Margin during the quarter was 43.6% compared to 42.7% in Q4 of FY22 and 47.1% in Q1 FY22. On Y-o-Y basis, continued commodity inflation resulted in gross margin compression, particularly in the non- IMFL business. G

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