RADICONSEYear FY2023November 15, 2022

Radico Khaitan Limited

7,236words
130turns
12analyst exchanges
0executives
Key numbers — 40 extracted
22%
ntinues to be strong and resilient driven by our Prestige and above category brands which grew by 22% during the quarter. Our premium brands growth is very strong, particularly the 1 | P a g e Q2
7.18 million
us on this call today. During the second quarter of FY2023, we reported total IMFL volume of 7.18 million cases representing an increase of 10.9% on Y-o-Y basis. This was led by prestige and above catego
10.9%
uarter of FY2023, we reported total IMFL volume of 7.18 million cases representing an increase of 10.9% on Y-o-Y basis. This was led by prestige and above category volume growth of 22.0%. In value te
22.0%
an increase of 10.9% on Y-o-Y basis. This was led by prestige and above category volume growth of 22.0%. In value terms, prestige and above category registered 25.0% growth. Prestige and above catego
25.0%
and above category volume growth of 22.0%. In value terms, prestige and above category registered 25.0% growth. Prestige and above category accounts for 37.9% of IMFL volumes as compared to 30.2% in
37.9%
ms, prestige and above category registered 25.0% growth. Prestige and above category accounts for 37.9% of IMFL volumes as compared to 30.2% in Q2 FY2022. Our prestige and above category volumes repr
30.2%
red 25.0% growth. Prestige and above category accounts for 37.9% of IMFL volumes as compared to 30.2% in Q2 FY2022. Our prestige and above category volumes represent a double digit CAGR as compared t
Rs.761 Crore
rnings Call Transcript Net revenue from operations during Q2 of FY2023 was Rs.761 Crores representing an increase of 8.6% compared to Q2 FY2022. During this period, IMFL sales value a
8.6%
Net revenue from operations during Q2 of FY2023 was Rs.761 Crores representing an increase of 8.6% compared to Q2 FY2022. During this period, IMFL sales value also increased by 8.5%. Gross margi
8.5%
an increase of 8.6% compared to Q2 FY2022. During this period, IMFL sales value also increased by 8.5%. Gross margin during the quarter was 41.6% compared to 43.6% in Q1 FY2023 and 45.3% in Q2 FY202
41.6%
uring this period, IMFL sales value also increased by 8.5%. Gross margin during the quarter was 41.6% compared to 43.6% in Q1 FY2023 and 45.3% in Q2 FY2022. On Y-o-Y basis, continued commodity infl
43.6%
d, IMFL sales value also increased by 8.5%. Gross margin during the quarter was 41.6% compared to 43.6% in Q1 FY2023 and 45.3% in Q2 FY2022. On Y-o-Y basis, continued commodity inflation resulted in
Guidance — 20 items
Abhishek Khaitan
opening
“The impact of the cost push has been much severe in the non-IMFL business where we expect to receive price increases soon.”
Abhishek Khaitan
opening
“We are happy to report that as per our committed timelines, Rampur dual feed plant and Sitapur bottling section will be operational by December 2022.”
Abhishek Khaitan
opening
“In India, Jaisalmer is now available in fifteen cities and in the canteen store department and it will be available on pan India basis very soon.”
Abhishek Khaitan
opening
“Radico Khaitan is progressing firmly on the path of its exciting premium brand creation journey which will be accentuated by a strong backward integration manufacturing platform.”
Abhishek Khaitan
opening
“Going forward we continue to focus on our long-term growth plans of premium IMFL growth with new brand introduction in both white and brown spirits and leveraging the benefits of our capital investments.”
Dilip Banthiya
opening
“Our prestige and above category volumes represent a double digit CAGR as compared to the pre-COVID levels.”
Dilip Banthiya
opening
“In the near terms, we expect raw material pricing situation to remain volatile.”
Dilip Banthiya
opening
“154 Crores on the Rampur Dual Feed and Sitapur Greenfield project, therefore, the total capex of Rs.”
Dilip Banthiya
qa
“We are expecting some more prices increases in large Southern states in next fifteen days should be materialized and it will be in public domain.”
Harit Kapoor
qa
“How many markets now, how they have done, your own actual standards and what is the future going forward?”
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Risks & concerns — 14 flagged
Overall, the scenario still remains volatile.
— Abhishek Khaitan
The impact of the cost push has been much severe in the non-IMFL business where we expect to receive price increases soon.
— Abhishek Khaitan
This is a conscious strategic decision to mitigate input cost pressure.
— Dilip Banthiya
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 IMFL business was mitigated to a large extent.
— Dilip Banthiya
On Q-o-Q basis, margin compression is due to the full impact of glass price increase given in Q1 and ongoing inflation in ENA cost.
— Dilip Banthiya
In the near terms, we expect raw material pricing situation to remain volatile.
— Dilip Banthiya
My last question is on the gross margin, every liquor company has faced pressure this quarter.
— Abneesh Roy
As I said that the gross margin, inspite of the price increases, have been on quarter-on-quarter basis down by 200 basis points largely on account of the impact of the glass prices which has been for full quarter and the ENA up trending prices.
— Dilip Banthiya
That actually is difficult to tell you because there are other multiple levers as I said on UPML and all that.
— Dilip Banthiya
The capex that we have done is keeping in view our requirement over the next three years so, we don’t see this as a big challenge and can bring us lot of economies.
— Amar Sinha
That is why you see the double impact of that in this quarter.
— Dilip Banthiya
Sir how much of volume we would have lost in CSD and certain other markets because of the margin pressure that we willingly let go?
— Gaurav Lohia
There has been near-term margin pressure due to commodity inflation, but we are confident of maintaining our long-term margin expansion given the premiumization of our portfolio and backward integration.
— Dilip Banthiya
Q&A — 12 exchanges
Q
Hi! Good afternoon and congrats on strong volume growth. I have two questions, first is on the price increase, if you could give us sense on 4 | P a g e Q2 FY2023 Earnings Call Transcript what is the quantum in West Bengal and now what is the weighted average number that you got and just a follow up on that would be any more states, we expect to get prices increase from in near-term?
Dilip Banthiya
Harit, as we mentioned in our last call that weighted average price increase till Q2 was approximately 3% and it was in the states of Uttar Pradesh, Uttaranchal, Punjab, Rajasthan, Haryana, Delhi etc., and now there is a price increase in West Bengal which is effective from current dates and it is in the range of 12%. Our volume in West Bengal is around 3% saliency, so, it’s something around 25 basis points. We are expecting some more prices increases in large Southern states in next fifteen days should be materialized and it will be in public domain. The second question was on the status chec
Q
Thanks. My first question is on your recent launches for example the low-alcohol Magic Moment Vodka cocktail, what is the addressable market you think and do you need to expand beyond current distribution. I understand it has low alcohol content, I understand this is the only vodka based RTD, will you have to first keep the market this is more a longer-term opportunity. Similarly, the focus and the 6 | P a g e Q2 FY2023 Earnings Call Transcript addressable market for the Lemon Dash Rum because that again is a very niche but focused launch, how big can be these be from a four to five-year time
Amar Sinha
First of all, we don’t want to leave any premium segment in the alcohol category untapped, because the future belongs to brands that are in the premium category they are actually growing. Having said that, the objective of launching RTD is not bigger than the volume, we want to create an aura around Magic Moments, we want to do brand extension, we want to make sure that every millennial has the opportunity to carry something by convenience, ready to drink. So, Magic Moments Vodka Cocktail is actually the first of its kind, it breaches all price points and the first of its kind because traditio
Q
Good afternoon gentlemen. Thanks for taking my question. My first question is post your capex gets over in December, what portion of your ENA needs would come from captive and what would be mix of outsource and what would be the allocation of this ENA, will it be used for your premium brands, regular brands, or the country liquor?
Dilip Banthiya
Still not clear, your point is regarding the ENA captive consumption? Yes. From Dual Feed as we said earlier when we did the capex that the increased capacity will be used on the UPML which has been converted by the UP government on 25% [of the industry] and in future the rest of the categories are also likely to be converted and whole of the ENA whether it is from Dual Feed plant and Green Field Sitapur plant will be used in next three years. Interim, we have to exports some ENA and some to the local manufacturers but local users, rest will be used by us so, three years completely used captiv
Q
Sir, my first question was on this non-IMFL segment. Just wanted to understand in last few quarters we are making losses on that, but in the normalized scenario how much EBITDA contribution comes from the non-IMFL segment?
Dilip Banthiya
Traditionally we were making around 9-10% on this segment EBITDA contribution. Right now, you are saying that we are making loss in the segment. Yes. Okay, and second thing there is a lot of talk about from Diageo and Pernod about the removal of mono cartons as an ESG initiative and definitely that helps in term of reducing packaging cost also and mono- carton removal will be more benefit in the lower and popular segment as well as some of these entry level P&A segment. What is your take on that and do you see that benefit actually playing out in next two- three quarters, is it a material bene
Q
Sir, on the UP country liquor side, what is the gross margin at the company level that should come in on that price hike?
Dilip Banthiya
You are talking about after the price hike? Yes, after the price hike what is the delta in the gross margin. So, what you are at 41.5% let us say this quarter where do you head to if just that comes in? Actually, as I said that there is already the cost push and all that data has been already provided to the government. Traditionally, we were making 8 to 10% EBITDA margin on that business and that margin is ideally the one where the brand owner as well as the prices given in the markets are perfect and optimum. We think after that we should somewhere between that EBITDA margins. But till the t
Q
Thank you for taking my questions. Just a small question on the backward integration capex that is right now ongoing on Rampur and Sitapur facilities. Generally, in the industry we are seeing several other players also consolidating their plants and in fact going towards the trend own plant reducing and rather increase outsourcing. But on the other hand, you are announcing a capex and going backward integration we understand from a gross margin perspective there could be a straight improvement of 200 bps that you said. But from an ROC perspective how accretive could it be overall and do you th
Dilip Banthiya
As you know that for the last seven to ten years, we have not done any capex on our distillation capacity. We have been continuing on our volumes in premium category in last six – seven years like now it is around 38% and value wise at 60% and most of our premium product uses our own alcohol. First of all, as this capex has been done after a gap of seven to eight years and we are gearing up ourselves for the future growth which is going to be there on the premium portfolio of Radico. The UPML opportunity which we explained that for years together the country liquor in UP was manufactured out o
Q
The rationalization in the regular category is mix of that where the margins are less, we have cut on our volumes. Secondly, in certain states we have given the brand on royalty there was 40-45% P&A category brand in that. So, that has also come down in the royalty 14 | P a g e Q2 FY2023 Earnings Call Transcript volumes than in the regular category there. That is why you see the double impact of that in this quarter. Kaustubh Pawaskar: Okay, from Q3, I think it should come back and the growth you are not expecting much.
Dilip Banthiya
Actually, from 2023-2024, we have been growing on the regular category in a single digit and in the premium P&A category above 15% like this first six months has been in the range of around 22%. We will continue to grow on P&A category more than 15% and regular in normal state of affairs should grow by 5% or so. Kaustubh Pawaskar: Okay. Thank you.
Q
Thank you for the opportunity, sir. My question is pertaining royalty volumes, out of this, 1.03 million cases, how would be P&A volume and how much would be regular volume?
Dilip Banthiya
It is 60% regular and 40% P&A. Okay 60% regular and 40% and it’s my sense for that still the P&A volume growth would be north of 30-35% is that number correct? Yes if it is added, it will be much more. Sir how much of volume we would have lost in CSD and certain other markets because of the margin pressure that we willingly let go? We have done this rationalization in CSD, Kerala and some of the southern states where the margins are strained and as the price increase will come, we will again re-look at these market and can ramp up if we make money. I understand, I am just asking how much of vo
Q
I just want to know one thing, have we taken any price hike in UP and what is the output of the price hike?
Abhishek Khaitan
UP, we got a price increase in the IMFL segment of about close to 10% overall on our total UP revenue. That we got it in the 1st April and as far as the non-IMFL business goes which we expect the price increase to come. Is there any approval from the state government for the non-IMFL? Yes, it is due for some time. It will come. They appreciate the cost push, so they are inclined to giving it us but it is a matter of time. Okay, should we expect end of this quarter? It could happen in the third quarter or in the new policy, it could go any which way. Okay, thank you very much.
Q
Thank you for this opportunity. I had two queries, firstly after this ramp up of Rampur, is my understanding correct that you have another round of increase in volumes with availability of alcohol and in which year would that happen and how much would be the increase? 16 | P a g e Q2 FY2023 Earnings Call Transcript
Sanjeev Banga
In terms of Rampur, we tripled our malt capacity or malt distillation capacity couple of years ago. We increased our malt maturation capacity also and we are further increasing the malt maturation capacity in Sitapur. So, a lot of malt is under maturation and aging. As we go along the volumes and the quantity that will be available will keep increasing. So, we do expect in the next few years, it will become a substantial volume. Entirely 100% capacity in five years? It is an ongoing process. Malt maturation takes a long time and we being maturing malt for last so many years, it will keep on ad
Q
Despite premium brands, why Radico brands not available in most of the clubs and bars in Mumbai, despite those brands available at the retail wine shop. I don’t know whether it is same with the other cities and states. What is the strategy there actually?
Amar Sinha
Let me tell you, first we started from the regular segment and we are up scaling to the premium segments. In the last few years, we have been able to now have more premium brands like 8PM Black, Morpheus, Magic Moments, Rampur Single Malt, Jaisalmer, so now we have a whole lot of premium brands and our strategy is to now penetrate into the on premise which is clubs, bars, lounges in the years to come. So, that is what, earlier, we didn’t have the complete portfolio but today we do have. So, that is one area that is going to give us phenomenal returns in the year ahead. Okay, thank you and othe
Q
So, thanks everybody to be on call. We have continued to deliver upon our premiumization strategy which is reflected in the strong P&A volume growth during the quarter. All our core premium brands are registering strong growth. The traction of our luxury brands, Rampur Indian Single Malt which is strictly on allocation basis and Jaisalmer Indian Craft Gin is above expectations. Next year onwards, Rampur allocation will increase and we have already expanded gin distillation capacity to cater to the growing demand. There has been near-term margin pressure due to commodity inflation, but we are c
Management
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Speaking time
Dilip Banthiya
26
Abhishek Khaitan
16
Moderator
14
Amar Sinha
12
Pritesh Chheda
10
Abneesh Roy
7
Sonaal Kohli
7
Harit Kapoor
6
Gaurav Lohia
6
Vivek Sharma
5
Opening remarks
Himanshu Shah
Thank you, Rutuja. Good afternoon, everyone. On behalf of Dolat Capital, we welcome you to Q2 FY2023 earnings conference call of Radico Khaitan Limited. On behalf of Dolat Capital, we would like to thank Radico Khaitan Management to give us the opportunity to host the call. On the call we have with us the senior management team of Radico Khaitan represented by Mr. Abhishek Khaitan – Managing Director, Mr. Amar Sinha – Chief Operating Officer, Mr. Dilip Banthiya – Chief Financial Officer and Mr. Sanjeev Banga – President, International Business. Let me now hand over the floor to Mr. Abhishek, for his opening remarks. Thanks, and over to you, sir!
Abhishek Khaitan
Thank you. Good afternoon, ladies, and gentlemen. Thank you for joining us on our Q2 FY2023 results conference call. I hope you all are doing well and keeping safe. We have delivered another quarter of a buoyant volume growth and consistent financial performance in an otherwise challenging business environment. This underscores the strength of our brand portfolio, operational excellence, dynamic financial management and our clearly defined strategic roadmap. Business growth continues to be strong and resilient driven by our Prestige and above category brands which grew by 22% during the quarter. Our premium brands growth is very strong, particularly the 1 | P a g e Q2 FY2023 Earnings Call Transcript luxury brands such as Jaisalmer Indian Craft Gin and Rampur Indian Single Malt. We have already expanded our craft gin production capacity to more than double. We continue to aggressively pursue our new product development pipeline to drive future growth opportunities and announced some exc
Dilip Banthiya
Thank you Abhishek. Thank you everyone for joining us on this call today. During the second quarter of FY2023, we reported total IMFL volume of 7.18 million cases representing an increase of 10.9% on Y-o-Y basis. This was led by prestige and above category volume growth of 22.0%. In value terms, prestige and above category registered 25.0% growth. Prestige and above category accounts for 37.9% of IMFL volumes as compared to 30.2% in Q2 FY2022. Our prestige and above category volumes represent a double digit CAGR as compared to the pre-COVID levels. We have rationalized volumes of regular category brands in certain states. This is a conscious strategic decision to mitigate input cost pressure. Had it not been done, our volume growth would have been higher. 3 | P a g e Q2 FY2023 Earnings Call Transcript Net revenue from operations during Q2 of FY2023 was Rs.761 Crores representing an increase of 8.6% compared to Q2 FY2022. During this period, IMFL sales value also increased by 8.5%. Gros
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