Ladies and gentlemen, good day and welcome to the Q3 FY25 earnings conference call of Allied Blenders and Distillers Limited, hosted by Antique Stock Broking Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on the dashboard phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijeet Kundu from Antique Stock Broking Limited. Thank you, and over to you, sir.
Thanks. Hi, everyone. It's our absolute pleasure to host the management of Allied Blenders and Distillers Limited for the third quarter of the financial year FY25. Over to Mr. Mukund, Head of Investor Relations and Chief Risk Officer, for further proceedings. Thank you.
Thank you, Abhijeet. Good evening, everyone, and thank you for joining our Q3FY25 results conference call. I hope you have received a copy of our results presentation. I would like to urge you to go through this along with the disclaimer slides. Today, we have with us from the management of ABD, Mr. Shekhar Ramamurthy, Executive Deputy Chairman, Mr. Alok Gupta, Managing Director, Mr. Anil Somani, Chief Financial Officer. Now, I would like to hand over the call to our MD, Mr. Alok Gupta, who will give you the summary of the company's quarterly performance before we open up for Q&A. Over to you, Alok.
Thank you, Mukund. Good evening, everyone. First of all, wishing you all a very happy and successful 2025, and thank you for taking your time out in the evening to participate in our earnings call for quarter three of FY25. A little bit about the Indian spirits industry overview. As expected, the consumer sentiment was positive, with celebration and social gathering in the festive and the wedding season during the October to December quarter, and the industry witnessed a surge in demand. We witnessed a strong demand for our brands as well, both in the mass premium, prestige, and above categories. In the mass premium category, where our flagship brand, Officer's Choice Whisky, has a dominant market share, we witnessed a high single-digit year-on-year growth at the backdrop of a strong festive demand.
In the prestige and above category, premium spirits continue to be a key growth driver, with consumers showing continued strong preference for high-quality and innovative offerings. Our P&A portfolio witnessed a strong growth both on quarter-on-quarter and year-on-year basis. Additionally, the opening up of the state of Andhra Pradesh has benefited all established pan-India players, which has also contributed to the overall volume growth of the key industry players. We also witnessed a 2X growth in the state on year-on-year basis. Now, coming to our performance during the quarter three of FY25, this has been a quarter of overall strong operational performance coupled with key strategic initiatives undertaken. Our total income stood at INR 2,346 crore, which was higher by 15.5% versus INR 2,031 crore in Q2 FY25, and higher by 12.9% versus INR 2,077 crore in quarter three FY24.
Income from operations at INR 977 crore was higher by 12.4% versus INR 870 crore in Q2 FY25, and higher by 8.9% versus INR 897 crore in Q3 FY24. EBITDA was at INR 120 crore, which is higher by 14% versus INR 105 in Q2 FY25, and higher by 94.7% versus INR 62 crore in Q3 FY24. PAT at INR 57 crore was higher by 20.8% versus INR 48 crore in Q2 FY25. Moving to our top-line performance, from a volume performance perspective, overall, we delivered 8.9 million cases in quarter three, a growth of 7.1% over Q2 FY25, and 11.3% versus 8 million in Q3 last year FY24. As already stated, the positive consumer sentiment during the quarter, we witnessed strong demand for our products at the backdrop of the festive season.
In Q3 FY25, our revenue saw a quarter-on-quarter 12.4% increase compared to INR 870 crore in Q2 FY25, driven by robust growth across all our millennial brands in the P&A segment and the mass premium category. On a year-to-year basis, our revenue was 8.9% higher than INR 897 crore in Q3 FY24, primarily due to the growth of our latest millennial brand, which is ICONiQ White, which has helped us in increasing our market share in the P&A category on pan-India level. The growth was led by the premiumization of our portfolio, with a continued increase in P&A volume to 42% in Q3 FY25, as compared to 39.7% in Q2 FY25 and 40.9% in Q2 FY24. The P&A value salience also increased to 52.1% in Q3 FY25, as compared to 49% in Q2 FY25, and broadly in line with 52.3% in Q3 FY24.
Additionally, our overall realization per case improved by 3.8% on a quarter-to-quarter basis, led by savvy brand mix optimization and premiumization efforts. Moving to our EBITDA performance, we delivered a strong growth in EBITDA, led by a strong improvement in gross margin on a year-on-year basis. The gross margin improved to 42.8% in Q3 FY25, as compared to 35.3% in Q3 FY24, that is, last year, and broadly in line with 42.9% delivered in Q2 FY25. Our gross margin improvement journey is driven by the following initiatives. First, our continued focus on profitable state brand mix. Second, continued build-up on the efficiency in procurement process and cost-saving initiative. Positive flow-through of renegotiated terms with vendor post-listing, this is an event that happened post-IPO. Efficiency in raw material procurement, lower pricing of various packaging materials in PET bottles and others.
Continued benefits from various packaging material cost initiatives undertaken in FY24 on a higher volume base of mass premium category. Continued improvement in the market bottle utilization from 13% in FY24 to about 18% in quarter three FY25 on a higher volume base of the P&A volume category. And finally, the routine price increase in various states during the course of the last 12 months. As a result of the above, we were able to deliver a better gross profit as compared to Q3 FY24 and on a similar level as compared to Q2 FY25. At the OpEx front, the total operating expenses as a percentage to income from operations was at 30.7% in Q3 FY25, which is marginally lower than 30.9% in Q2 FY25.
Moving on to interest cost, our interest costs were marginally higher at INR 27 crore in Q3 FY25 as compared to INR 25 crore in Q2 FY25, however, significantly lower as compared to INR 46 crore Q3 FY24. The interest costs were marginally higher on quarter-on-quarter basis, mainly due to higher net debt. The increase in net debt was largely due to higher working capital deployment for higher volume in the quarter, continued impact of overdue in the southern states, Telangana, and kickstart of the CapEx cycle, which we initiated during the quarter. Our net debt as of 31st December 2024 was at INR 763 crore as compared to net debt of INR 606 crore as of 30th September 2024. Overall, we were able to deliver a net profit of INR 57 crore, a growth of 20.8% versus INR 48 crore in Q2 FY25, mainly driven by the increase in EBITDA, as stated above.
Moving on to our new brands, ARTHAUS Collection. This is a blended Scotch malt. ABD forayed into the luxury spirit market in November 2024 with the launch of ARTHAUS Collective, which is our first blended malt Scotch whiskey. ARTHAUS is crafted from a harmonious blend of single malts, sourced from Speyside and Highland in Scotland. The whiskey embodies a perfect balance of depth and sophistication. It boasts rich, distinctive flavor notes that captivate the palate. It is inspired by the Bauhaus movement in Germany and reflects the unity of art form, merging tradition with innovation to create an exceptional drinking experience for consumers who are constantly looking at newer brands. With ARTHAUS, ABD has elevated its portfolio, catering to the growing demand for the luxury spirits and reaffirming its commitment to delivering high-quality products to consumers.
Currently, they are available in key markets of Maharashtra, Haryana, Goa, and West Bengal. Zoya, post the successful launch of our first non-whiskey super premium brand in Haryana, Maharashtra, Goa, and Rajasthan, we have expanded Zoya's presence to West Bengal and Chandigarh. Also, two new flavors, India's first watermelon gin and an espresso coffee gin, have just been launched in the current month, that is, January 25, in Maharashtra. The initial consumer response has been very promising. ICONiQ White, the world's fastest-growing spirits brand of 2023, ICONiQ White, has been launched in the key markets of Karnataka and Andhra Pradesh in Q3 FY25, expanding its presence to a total of 23 states and union territories. The continued strong growth momentum has helped us in increasing the market share in the P&A category across India and across all regions.
The brand is currently at an annual run rate of 4.5-5 million cases, which is more than 2X volume than we did in the last financial year. Moving on to some key initiatives that were undertaken in Q3 FY25 and also covering some initiatives that were taken in January 2025. To strengthen our luxury portfolio, we have now secured approval from our board to invest in two distinct brands. The first brand that I want to cover is Woodburns. We are excited to announce ABD's strategic expansion into the super premium whiskey segment through the acquisition of Woodburns, a contemporary Indian whiskey brand. Woodburns is a distinguished Indian malt whiskey aged in handcrafted barrels crafted using 100% Indian ingredients. This acquisition, valued at INR 39.5 crore, includes the intellectual property for the brand Woodburns and other luxury brands from Stirling & Distilleries Pvt. Ltd.
Currently, Woodburns is available in three states and union territories, and we plan to expand into six additional states on an accelerated basis. The super premium whisky is poised for significant growth with an estimated annual growth rate of early teens. This acquisition aligns with our vision to establish a pan-India footprint and also explore overseas markets. Rock Paper Rum, we are pleased to announce ABD's strategic investment in Good Barrel Distillery, the innovative startup behind the premium rum brand Rock Paper Rum. This investment amounting to INR 9 crore secures up to 51% equity stake in Good Barrel, linked to business milestones, with an option to acquire entire paid-up capital share. Rock Paper Rum, currently available in eight states with five distinct variants, including White Rum, Dark Rum, and Flavored Rum, presents a significant growth opportunity in a large volume premium rum segment.
By leveraging ABD's extensive pan-India distribution, procurement, and manufacturing network, we aim to drive growth and achieve margin expansions through cost synergies. The premium rum market is projected to grow at mid-teens annual rate, and this acquisition aligns with our vision to establish a pan-India presence and explore overseas markets. Moving on to exports, we are continuously expanding horizon in the global market by increasing our export footprint to 22 countries from 14 countries in FY24, mainly by increasing our presence in high-growth markets of Africa. The latest millennial brand in our portfolio, ICONiQ White, has already been launched in three overseas markets, and our first luxury product, Zoya Gin, is being launched in UAE in quarter four FY25. Also, I'm happy to share that ABD has secured approval for exporting its products to the United States of America.
The label for our product has been approved, and we expect supplies to commence in quarter one FY26. Moving to CapEx updates, our P&A unit acquisition in Maharashtra, we have completed the acquisition of Meenakshi Agro Industries Limited, located in Aurangabad, Maharashtra, in December 2024, and it has now become our subsidiary. Post-acquisition, we have completed the required upgradation of certain plants and machinery and related infrastructure, and I'm happy to share that the operation is expected to commence in February 2025. Now, let me update you with the progress on the malt plant project and PET plant project, which are being set up in our manufacturing facility in Rangapur, Telangana, where we already have our P&A facility. We have initiated ordering of the equipment from the OEM, and relevant statewide approval application has been initiated.
We expect PET plant to operationalize by Q3 FY26 of the coming financial year and malt plant to start production in Q4 FY26 as per our timeline. Overall, we have built around our future-ready framework, which has broadly four pillars, with a clear roadmap of where we want to be in the next three years. Improved share of our prestige and above brands to about 50% from current levels of 42%. This will be driven by driving growth of our consolidated P&A whiskey segment through three millennial brands of Officer's Choice Blue, Sterling Reserve B7, and ICONiQ White. Create a premium-to-luxury portfolio through adoption of a three-pronged model of build, buy, and partner.
We have already initiated on the strategy and building our own brands, such as Zoya and ARTHAUS, buying stakes in brands like Rock Paper Rum and partnering with global players and bringing brands such as Russian Vodka in India. Needless to say, in the mass premium category, we will continue strong focus on retaining and improving market share of Officer's Choice Whisky, along with focus on our gross margin. The next initiative is to secure supply chain by being 100% captive for P&A, malt, and certain packaging materials such as PET. We expect our margins to improve further. We are adopting a proven capital allocation policy, which ensures that IRR of these projects ensures continuous improvement in ROC of the company.
Strong focus on margin improvement to reach industry parity in gross margin of 40%-45% and EBITDA of 15% plus through a combination of above-mentioned CapEx initiatives and establishment of a premium-to-luxury portfolio at industry parity margins. Our fourth pillar is to establish a robust governance and a culture framework driven through an independent board oversight, segregation of ownership and management, digital compliance, and developing a culture of excellence, driving accountability, collaboration, and innovation. Overall, this four-point framework will help us in developing a world-class organization with process excellence, delivering shareholder value creation through a sustainable profit growth model, along with a robust corporate governance framework in place. Coming to the near-term outlook, looking ahead, we expect the growth momentum to continue as consumer sentiment remains positive. The P&A category is expecting significant growth driven by an increasing trend towards experience-driven consumption.
On the input cost front, we anticipate grain and ENA prices to remain neutral to soft, while glass and PET prices are expected to stay stable. These factors collectively position us well to capitalize on the market opportunities and sustain our growth trajectory. Finally, I would reiterate that the second consecutive quarter of overall performance validates both our adopted strategy and its execution. On this foundation, we remain optimistic and committed to enhancing our offering and meeting the evolving needs of the consumer with innovative and distinctive products in the coming quarters. I finished my briefing here, and we can open the floor for any questions.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone.
If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama Wealth. Please go ahead.
Sir, thanks, and congrats on a good set of numbers. My first question is on ARTHAUS and the two M&As you have done. So obviously, this industry is media-dark, and we have seen one small listed company do a very commendable job in terms of creating a new brand, which is a rival for you. So I wanted to understand how you would build up given that constraint of media-dark.
In terms of the addressable market for all these three, if you could tell us what is the addressable market, and in terms of product and pricing and positioning, how would you be different? Because you would need to be different so that you can get some traction. So if you could talk about that also?
Sure. Thank you for your question. Starting with what is the total addressable market, if you look at the IWSR data of last year, of the 410 million cases that were sold, about 3% of this 410 million cases, roughly 12 million cases, is what we qualify as a luxury portfolio, which also accounts for more than 20% of industry profit. So that's the size of the market. The industry is growing at a very healthy rate, and we expect this segment to become bigger in time to come.
The way we are building our portfolio, we already have now five brands in this segment. We started with Zoya, then we added ARTHAUS, then Indian partnership for Russian Standard Indian market, and now we have Rock Paper Rum, and we also have Woodburns. So these four, five brands and the newer brands that we plan to launch in this luxury segment give us a curated portfolio that will allow us to engage both the on-premise, off-premise, and the consumer in a meaningful manner. So that's our outlook, and over a period of the next few years, if we can get to a high single-digit or a double-digit share of this maybe 18-20 million case market, is the way we are looking at it.
On the aspect of whether it's Woodburns or whether it is Rock Paper or it is ARTHAUS, I think the consumer is driven by a high sense of curiosity, and it's constantly seeking newer experiences, which is a combination of any web search that a consumer might do or social media connect that might happen or recommendation, and more importantly, trying a new product at an on-premise. So all the brands that are coming as part of our luxury portfolio, we are essentially looking at how are we able to showcase our product mostly through on-premise, through participating in the right event platforms where liquid trials can happen. And like I said, consumers stayed very curious, so there are many markets where they are able to also do brilliant displays of our product that catches the customer's attention.
On the pricing front, ARTHAUS is priced in Bombay at INR 4,800 for a 750 ml bottle. It is priced almost cross-lined to the two BIO brands of Copper Dog and Monkey Shoulder, and that's really where we are positioned, a slight premium to Black Label. But as we know, that malt consumption happens both from committed malt consumers and a lot of blended whiskey consumers who also enjoy malt on occasion. So that's really where ARTHAUS is positioned. Moving on to Rock Paper Rum, Rock Paper Rum will operate at a price point of, in Bombay again, between INR 1,300 and INR 1,500. So it makes it a premium, super premium price point. It is cross-lined to Bacardi, and as we know that in this segment, Bacardi is the only player currently. The segment is roughly 3 million cases.
That offers us a wonderful opportunity to offer an interesting brand to the consumer, which is Younger, which has got multiple flavors, and hopefully, not only will gain market share, will also expand the segment. The third brand that we spoke about, Woodburns, Woodburns is cross-lined to Royal Ranthambore. So it is going to be the most it's going to operate at a price point of, let's say, about INR 2,500. So this is the price positioning. Each brand has its own distinct price positioning. It has its own competitive set, and it's able to offer, therefore, as you rightly said, a unique and distinct experience.
My last question is on Andhra market. So you said it has doubled YOY. Now, the multinational players had almost exited Andhra, and now they are coming back, and they are seeing, obviously, good numbers on an almost zero base.
So my question is, when you had normal operations in Andhra, what percentage of sales was coming from there? And given multinationals are going to come back very strongly from zero base, and now it is a three-market dynamic, how do you see eventually the market shares settle here? Because you already had some presence, but now multinationals have also entered Andhra?
Sure. So first of all, I think we compete with the multinationals across the country. Andhra is no exception. So across all markets, our brands have a certain market share. As far as Andhra is concerned, the doubling of our volume on year-on-year basis has happened from the period when multinational brands were available or are available, right? So you have to see the growth. I think everybody's got an opportunity, especially the pan-India players like ourselves and the multinationals that you've spoken about.
Everybody's volume has grown, and our volumes have also more than doubled. So that's really where we are. On share of sale, about between 5% and 6% of last year's volume would have come from the Andhra market, and I think by the time we end this year, it would be trending more like between 8% and 10%, between 8% and 9% of our volume will come from Andhra market.
That is the profit.
Sorry?
Yeah, please continue.
No, no, go ahead. You were saying profit. Yeah, and the profit and the working capital in Andhra, is it as challenging as Telangana? Because both were part of the same state earlier, and my sense is the policies are still fairly similar.
Working capital is not a challenge in Andhra.
The payment cycle is very well defined, and payments are made on time, so there is no challenge on the working capital side. On the pricing front, the pricing continues what was at the start of the financial year. As you know, there's a tender that is out. So if there is any price change, we'll get to know once the price negotiations are over. But as of now, it is the same price with which we started the year.
So my question was, if we assume the same prices, Andhra margins for you, once stability comes, will it be similar to the pan-India margins, rest of the business margins for you?
Yes.
Okay. That's all from my side. Thank you.
Thank you very much for your question.
Thank you. The next question is from the line of Nikhil Rungta from LIC Mutual Fund. Please go ahead.
Hi, am I audible?
Yes, you are.
Hi. Congratulations on a good set of numbers, sir. Very good performance from both gross and EBITDA margin point of view. One question to that extent, how much lever do we think we have to even expand this margin further? And will that be a function of cost optimization and internal efforts, or will that take portfolios tilting towards more of a P&A, which will drive eventually margin from 12% to 13%, 14% on the EBITDA level? So just your thoughts on going forward, how should we look at your margins?
So there are two strong levers from EBITDA margin expansion. The first is our CapEx program. Most of our listed peers have finished the CapEx cycle. We are just about starting our CapEx cycle.
We expect on the back of the CapEx program, we should see, let's say, about 300 basis points of improvement in our gross margins, and therefore, it should all flow down to EBITDA. So that should get us to what we call an industry parity of 50%. The second pillar of driving our margin is going to be the improved savings in P&A from 43% to 50%, and also strengthening of our portfolio and national rollout of our portfolio in the luxury segment. So from the way we see the numbers, from a current level of about 12% EBITDA margin, 3% should come on the back of our CapEx cycle, and we should have incremental margins coming on the back of the way we're building the portfolio. Of course, focus on cost optimization will always continue.
Understood. Just one question on the popular segment.
When we look at the industry, this segment has been in pain for the last eight, nine quarters, and of course, there's a base effect that is flowing through, but even when we look at your numbers, there has been decent 9.2% volume growth on the popular, as well as 9.5%, 9.3% growth in terms of value terms in the popular segment, so how should we think about this? Is it a demand revival, or is it the base effect playing effect, or is it just a festive thing which should probably not play in going forward? Are you seeing on-ground some demand revival in this segment per se?
Well, Q3, we did see some bit of demand coming back on the mass premium segment.
Clearly, as part of the whole premiumization story, consumers are finding some of the more high-priced brands as a point to enter the segment once they do choose. So we believe that the growth in this segment, the growth in mass premium will remain single-digit. I think the opportunity for us is really to leverage the strength of brand Officer's Choice and our distribution and to continuously beat the segment growth. But we expect segment growth to be single-digit at best.
Just last question on the acquisition that we did on Good Barrel and Woodburns. Are there any debts associated with these acquisitions?
The acquisition will be a combination of our internal accruals and some debt from the bank.
So are there any debt on their books already which will require?
In case of Good Barrel, we are acquiring the brand. We are not acquiring the company. So right?
So there is no debt even for Woodburns. There is a very small number of, I think, 30 lakhs or odd of some promoted debt setting, so nothing significant.
Got it. Got it. Thanks. Thanks a lot.
Thank you. The next question is from the line of Kinjal Desai from Nippon India Mutual Fund. Please go ahead.
Hi. Congrats on a good set of numbers. I wanted to get a bit of clarity with respect to how is our expense and reinvestments, given that we would be supporting a lot of brands and we are looking at significant growth. So maybe some clue on how we're doing your reinvestments and in line with especially your guidance of margin expansion.
Thank you for your question. I would break the brands into broadly three categories.
In the P&A segment, we are looking at further strengthening our A&P spend, and therefore, net of the increase in A&P spend, it will be EBITDA equated. On mass premium segment, which is Officer's Choice, we will maintain what we are doing because we have a very, very sharp gross margin and EBITDA focus coming through Officer's Choice. We do not plan to make any major changes in our investment outlook. We just focus on profitable market and leveraging our distribution strength. As far as the new brands and the luxury portfolio is concerned, by and large, our outlook is that we will manage the A&P on this brand more in line with the net contribution that these brands generate, what we call as CapEx neutral, and over a period of maybe two years, we should start looking at these brands to actually start contributing on the EBITDA.
The luxury portfolio should not take away from our current EBITDA, and we'll start adding to EBITDA within two years of the brand sort of reaching a critical mark.
Sure. Thanks so much.
Thank you. The next question is from the line of Kunal Shah from Jefferies. Please go ahead.
Hello. Thank you for the opportunity. So my question is on Telangana. Can you give an update on what's the receivable amount now and if there's been any progress, or what are the discussions ongoing? And what are the options that you are considering given these receivables?
Okay. So from October onwards, Telangana, we are receiving regularly our payments for the supplies that we make for the month. So to that extent, we are out of an uncertain zone on how much money will come to us so we can plan our cash flows better.
The overdue position is that we have roughly INR 400-odd crores of overdue. So that's the number as far as overdue is concerned and also reflects in our interest cost. The question on what we are doing, there is a continuous proactive engagement with the decision maker through the industry body, which is CIABC, and in this case, it's a joint exercise with ISWAI, where there's a constant engagement with the policymaker on resolving the issue of overdue payment. From what we heard from Telangana is that there is a serious effort being made to resolve this issue. Once we have an update, we'll certainly share it with you.
Understood. Understood. And have you seen any change in competitive dynamics because of these receivables? Maybe some companies are not able to bear that working capital load, and that benefits some other players or benefits you probably.
Has anything played out on those lines?
I think there was a phase when the payments were uncertain, where a lot of players were hesitant whether we should continue supplies or not. But since from October onwards, our payments are coming on a regular basis, I would say the national players have continued to support the market of Telangana while they're also engaging with the government to release the overdue payment. There can be cases of a regional player or smaller player who has vacated or not supplying. But again, the key players are continuing to support on back of a dialogue that is currently going with the Telangana government.
Understood. Thank you. The second question is, so how should we think about pricing going into the next year as excise cycles will start kicking in in the next few months?
Do you have any sense of what sort of price growth can you get from the different states that you operate in?
I think it's a bit early for us to talk about it. The new excise cycle has just about started. Again, the industry body, CIABC, is actively pitching to the various excise offices about our outlook on what needs to be done. So I would say it's a little early for us to have a view on it. Historically, what we have seen is that the price increase or the NSC increase could be up to about 3% on a sort of a weighted average basis, but providing specific guidance at state level is a little early.
Understood. Understood. Thank you. That's all from my side. Thank you.
Thank you. The next question is from the line of Avi from Macquarie. Please go ahead.
Yeah. Hi, team.
I just wanted to double-check on the input cost. There has been a hike announced by the government in Ethanol. I wanted to just ensure that that is factored in when you said so.
Interrupt you, Mr. Avi, but your line is breaking, sir. We cannot hear you clearly.
I'm sorry. Is this better?
Yes.
My bad. Thank you.
Yeah. Hi. I just wanted to check when you're on the input cost bit, given that there has been a hike that has been announced by the government in ethanol production, is this something that you've factored in these estimates? And secondly, in glass, if you could give us a sense on the period of capacity addition now that it is behind us, is that something that worries you? Thank you.
Sorry. The question on glass is not clear. If you don't mind repeating, please.
In glass, we've seen a period of benign costs for a long time now, and just wanted to understand. There is talk about consolidation. There's talk about capacity addition now more or less behind us. So we'd love to hear your thoughts on how do you see this? Thank you.
Okay. So as far as ethanol is concerned, you're also aware that the government has reduced the price of FCI rice. And in ethanol production, for example, in potable alcohol, only broken rice can be used, but for ethanol production, whole rice can be used. And there's a significant price reduction of INR 5.55 per kg that has been announced. And the idea is to sort of make sure that there is raw material security to the ethanol industry.
And therefore, we are hopeful that once this price gets settled, the new FCI r ice price gets settled, we're hopeful that it will take away some pressure on broken rice. So that's our outlook when we say that our outlook is at least in the near term is soft to neutral on the ENA prices. On our grain procurement, which we are now doing both for our Maharashtra distillery and for Telangana distillery, we are seeing some softness in the grain prices. However, we need to see that it sustains itself over the quarter, but we are seeing soft to neutral outlook on the grain procurement. On the glass industry, I think our outlook is that at least in the near term, we do not expect anything that will impact us materially. That is our outlook at least.
Sorry, sir, when is the typical negotiation cycle in glass?
See, the glass industry, at least we have moved to a procurement model, which means it's a formula-driven pricing. And until there is no significant change in an input cost, positive or negative, prices remain stable. So what we've done is we have moved away from dynamic month-on-month prices to an agreed formula, which is normally running for several quarters. And that is giving us a better view on the price and avoiding our need to sort of get into constant negotiation.
Perfect. So my second question is on the marketing side. Now, you have the campaign towards the luxury portfolio. And that segment is relatively consolidated, or they're two large players.
Do you believe that while at the EBITDA, you don't expect a hit, the ad spend intensity needs to be your share of voice has to be much higher? Or how should I look at that segment? If you could give your share how you see this growth. Thank you.
See, our bet is on the consumer. Consumer is sort of looking for newer experiences, and therefore, as long as your proposition is renewing and presented in an interesting manner, I think consumers will certainly give our value brand a chance, and our brands, therefore, will tend to we believe that we tend to gain from this sort of experience-driven consumption.
On the investment side, I think, like I was responding earlier to the query of Nippon, the outlook we have built is that we will the sort of contribution that we generate on this brand, we will deploy back on the brand. So they may not contribute anything to EBITDA in the short term, but two years down the line, they should start contributing to EBITDA. That's the outlook that we currently have. I think it's about sort of interesting innovative marketing. Of course, it will require A&P, but we believe the brand should be able to generate enough contribution because they have high gross margin. One of the focuses is that how do we accelerate the rollout of this brand so we gain from multiple markets and therefore the total volume that we do also generate free cash to be able to invest in the brand.
Very clear.
Thank you very much, sir. That's all from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Sunny from MK Ventures. Please go ahead.
Yeah. Thanks for taking my question and congratulations on a very strong set of performance for the second consecutive quarter. My first question is related to the brand portfolio. We have done a couple of launches in the last two, three quarters, including Russian Standard Vodka, ARTHAUS. If you can give some color on how has been the initial response and if any takeaways or some perspective that you can share about the new launches, that would be quite helpful.
ARTHAUS was launched in November, early December. Again, a little early to talk about numbers. We are happy with the feedback that we have from the trade.
We have from the consumer the on-premise promotion that we do. The packaging is really appreciated. The liquid is very light. So that's the early stage feedback that we have on the brand. So we are expanding the footprint of ARTHAUS. On Zoya, which has been there, which has been there, we have seen in quarter three over quarter two about a 53% quarter-on-quarter growth on this brand. And as we are rolling out to new markets and expanding our distribution, hopefully this growth momentum will continue.
Yeah. And anything on Russian Standard Vodka?
Russian Standard, we are expecting since it's a BIO brand we are expecting stock availability in the month of February. So it's yet to hit the market.
Got it. Got it.
And on ICONiQ White, based on some checks, what we understand is it was launched in the last few months between Karnataka and Andhra Pradesh. So have we started seeing benefits of that in Q3 volumes, or the pickup will happen now going forward?
No. The pickup will happen going forward. Q3, in fact, Andhra distribution has just about started this month. It's the first month of proper distribution. And same is the case with Karnataka. So we'll see real benefit of the growth coming in this quarter.
Got it. Got it. That's helpful. My second question is related to the Delhi market. So how large was Delhi as a proportion of our volumes before the entire market disruption happened? And we hear about stability in terms of the policy in the last few months. So has there been any benefit of that stability in terms of the volume pickup?
How do we expect the Delhi market to perform in the coming quarters?
We have moved in Delhi, as you're rightly saying, from an uncertain environment to a certain environment. Our brand volumes have moved from an average of 15,000 cases a month to this month, hopefully, about 100,000 cases. There is a 5-6X growth in Delhi on back of a stable policy. If there is no major change in the policy irrespective of the election outcome, we believe that we should be able to maintain this momentum.
Right. Just a related question to this. Before the entire disruption happened in Delhi, how large a market, either from our perspective or from an overall market potential perspective, how large the market was?
For us, the market was, I think we did about a million or about 1.5 million cases prior to the policy disruption. That would be the size of the market. So roughly about 5% of our volume, 4-5% volume coming from Delhi. I think you have to keep one thing in mind that Delhi is also a very large premium and a luxury market. As the policy is getting stable and we are getting access to the market, we also see upside on our luxury portfolio. We are at the last leg of getting approvals, both for Zoya and ARTHAUS. No sooner do we get those approvals, then we'll also launch those brands there. We are happy with the fact that the policy is stable. Our mainstream brands are already selling.
They have a 5 or 6X growth versus what we were doing earlier. And now we're sending our premium luxury portfolio in Delhi. And on back of label approvals, we'll start rolling out the brands.
Got it. Got it. That's helpful. And one last question relating to gross margin and our backward integration initiative. So we've seen a very sharp improvement in gross margin post the IPO, especially in Q2 and Q3. So we mentioned that we renegotiated terms with our vendors and got better sourcing contracts. So is the benefit completely reflected in our Q3 performance, or do we see some further scope based on the supplier renegotiations?
It completely reflects in our Q3 numbers.
Got it. And one related question to this. So the Maharashtra distillery that we have acquired, so that has, I believe, currently a capacity of approximately 1 crore liters.
So does that benefit of backward integration start reflecting immediately in the coming quarter, or the production will reflect once the entire expanded capacity is ready? And what would be the timeline for the full-scale production from an expanded capacity?
So we are starting our production in the month of February. So we'll start seeing the benefits of this acquisition within quarter four of FY25 itself. As regards the full expansion, we've already applied for necessary approval, which we expect may take between three to five months. Thereafter, it will take us about 12- 15 months to complete the project. So currently, we're anticipating benefits of this to start flowing in quarter four, FY27, of the additional capacity that we've put in Maharashtra.
Got it. Got it. That's very helpful. Thanks for all the detailed replies and all the best for the coming quarters.
Thank you very much.
Thank you. The next question is from the line of Sanjaya Satapathy from Ampersand. Please go ahead.
Yeah. Hi, sir. Thanks a lot. So my question is that your guidance for this 300 basis point margin expansion, and it is contingent on your completion of CapEx. So does it mean that bulk of the CapEx, bulk of the margin expansion will come towards the end of this three-year guidance that you have given?
Thanks, Sanjay, for your question. So as far as our Meenakshi project is concerned, like I said, it goes revenue and EBITDA accretive for next month, which is February of 2025. As far as PET project is concerned, which is coming up in Telangana, we'll go revenue and EBITDA accretive by quarter two. So let's say August 2025.
The malt plant that is coming in Telangana should go revenue and EBITDA accretive in Q4 of FY25. So we will start seeing benefits of the Meenakshi acquisition in February, PET from August onwards, and our malt unit from Q4 of, sorry, FY26. And not FY26, last quarter of FY26. Only the 150 KL facility that will put in the Maharashtra for Maharashtra, which I explained, will happen in Q4 FY27.
And of this 300, how much of it will be because of this CapEx, and how much will be because of your premiumization and operating leverage things, which you are trying in your business?
So just to keep it simple, we are currently at about 12% EBITDA margin. We expect 300 basis point improvement in our gross margin on back of this CapEx. That will take us to about 15%.
Any improvement that will surely happen on the back of premiumization will reflect over and above that number.
Understood. The last question that I wanted to ask you is that it looks like you are getting into quite a few categories and quite a few new brands, which are most of them appearing to be very niche in the sense that is that something which will keep your costs, etc., a little bit elevated, and how the brand salience will be achieved?
Right. So going back to one big number, about 12 million cases are in the luxury segment, of which about 4.5 million cases is, let's say, non-Scotch. So the segment is meaningful. Gross margins are extremely attractive. Growth is extremely attractive. Per case contribution is very high.
So from a volume perspective, it may not move the needle significantly, but from impact on NSV and two years down the line, once the brands are getting built out, then the impact on EBITDA should be positive. So I think we have to think about our luxury portfolio from a maybe a two to three-year horizon and not an immediate horizon. And like I've clarified, the way we want to manage this portfolio is to make sure that it does not take away from the current operating EBITDA. So that's a bit of a tightrope walking that we want to do.
Thank you so much.
Thank you.
Thank you. The next question is from the line of Rohan Patel from Turtle Capital. Please go ahead.
Thank you for the opportunity. I have questions. I'll divide the question into two parts.
One is your premium segment, and one is—sorry, one is for prestige and above, and one is for premium to luxury. So we have seen that ICONiQ White Whisky is one of the world's fastest-growing whisky, which comes from Allied Blenders. So what has really worked well that we have been growing this whisky at the fastest pace? If you can explain us.
You know, they say magician never reveals his secret, but I will do that for you. See, the segment is 120 million cases. The brands that are operating in this segment are very, very successful, very well respected, but they've been around for more than 25 years, and like in any other category, a segment that is as big as 120 million cases, with millions and millions of consumers consuming it over a period of time, there is what we call a customer segmentation.
The larger part of our success is in terms of understanding the customer segment within the 120 million cases and to identify a set of consumers who are looking for a newer, younger offering. If you look at ICONiQ White, typically the whiskey codes are dark color, gold, foil stamping. If you look at ICONiQ White, it does not follow any of those codes. It's actually quite a code breaker. If you look at the label, it's white in color. It's bronze. There's no coat of arms. The reason of the success of the brand ICONiQ is sort of deep-rooted in a key customer insight that the younger consumers were looking for something that sort of they can connect with, and in ICONiQ, they find a brand that is sort of talking their language.
Okay. That was fairly understandable.
Now we have seen that you have added a lot of your brands in premium to luxury segment. What we have seen is that a lot of incumbent players are also adding a lot of expressions and brands in this segment. A lot of new companies are also coming into this segment backed by celebrities, and a lot of players are showing up into this segment. How does a player like Allied Blenders have an advantage over, say, some new company which has just started and wants to tap into this market, considering that you are having two to three millionaire brands with you? How does this help us? What advantages do we have over others that creates a certain competitive advantage for us?
I think let's start with some very basic facts.
We've built a distribution manufacturing and sales infrastructure over the last 35 years. So we do not need to build anything new from a manufacturing point of view, distribution point of view. And from a sales and revenue point of view, what we need to build is capability, which is around on-premise, which is around liquid on lips, understanding the whole mixology and the cocktail culture. And that's what we have built over the last few quarters. So we have a natural springboard if I may speak to be able to tide over the complexity of distribution. Second is, I think at the heart of any alcoholic beverage, other than the fact that packaging must be unique, a great consumer story, is really the liquid. I think that's one thing that we understand extremely well. We have a CQCL center, which is our innovation center out in Aurangabad.
That's something that gives us the comfort that we create the right blend. That is really what we call as right-to-play thing, that we have the distribution behind us. We have manufacturing behind us. We understand blends. We understand packaging. We have built the infrastructure that is required for key accounts and for on-premise. As you would recall, we have created a new entity, which is ABD Maestro, along with Ranveer, which will focus on the luxury brand portfolio. The attention that some of these luxury brands need in terms of our route to market, how do we take it, the social media, the whole idea is that this new entity will focus on the entire luxury portfolio, along with sort of the phenomenal reach a celebrity like Ranveer brings to the table.
So apart from the fact that we have distribution, manufacturing, and sales infrastructure, and we have built the on-premise infrastructure, it also will be taken to the market through ABD Maestro with sort of reach of a superstar like Ranveer.
Got it. So if we have to boil it down into graphs, so it means that the existing distribution channel that you have and experience over this three and a half decades, plus the brands you have built up, the addition for premium and luxury was that you have to get the right liquid, right packaging, a story, and has to distribute it to the right places to make it a success for you in this segment.
Excellent. And if I may add one point, is that in this segment, it's about constantly providing newer experiences.
As we would see with Zoya, we launched in January of 2024, and we've already launched the first watermelon gin and espresso coffee gin. In this segment, it's also about consistently offering newer, exciting offerings. It's not about just liquid at a point of time, but it's consistently doing the new stuff. That's another capability that we believe we have to be able to consistently offer newer, exciting variants to the consumer.
Okay. Okay. I got it. Thanks for answering all of this question in depth and explaining it. Thanks. And best of luck for the future.
Thank you much. Appreciate it.
Thank you. The next question is from the line of Rajitha Karthik from I-Wealth. Please go ahead.
Hello, sir. Very good evening. So my first question was on the CapEx side.
So what is the kind of CapEx we are envisaging for this year and remainder of this year and the next year?
So the total CapEx that we've already announced is INR 527 crores. Of this, roughly 25% will need to be invested in FY25, about 60% in FY26, and the balance figure will be in FY27. So this INR 527 crores would need to be invested over a period of three financial years.
Okay. And sir, if I may ask you one other question. On the working capital cycle, I understand right now you're facing some issues in Telangana, but where do you think your working capital days will settle at going ahead?
Where in Telangana? Payment was to be resolved. The payment cycle would be between 45 days, give or take.
Okay. Okay. And sir, one more thing was on the PET and the malt.
So a participant did ask you about this. So I had a follow-up on that. So when you say it will also be revenue accretive, so you will also be selling it outside?
No. A PET bottle will produce roughly 600 million bottles on an annualized basis. And the entire 600 million bottles will be consumed, will be used by us. But it will be EBITDA accretive.
Okay.
Okay. The EBITDA will start coming in from quarter to next financial year on PET.
And just one last question on the depreciation. So we've seen the depreciation going down during the quarter. So what was the reason for this change?
Well, it's a one-time change on back of restating asset life for some of the leased assets in this quarter. Okay. Okay. Okay. So we should see a similar trend, or it's just one-off? This is a one-off.
So we see no major changes in our depreciation other than the depreciation that may come on back of the new CapEx data.
Got it. Got it. So that's it from my side. Thank you so much.
Thank you.
Thank you. The next question is from the line of Pranav Shrimal from PINC Wealth Advisory. Please go ahead.
Hello. Hello. Yeah. Congratulations on the membership. Most of my questions have been answered. I just had one question. If I could understand the EBITDA profitability of each of the segments?
Sorry. EBITDA?
EBITDA margin of each of our segments. That is mass premium, P&A, and luxury. If you could just spell out the numbers.
We do not track EBITDA margins on the segments. We track gross margins.
Okay. If you could just tell us the gross numbers that also would work.
So I think we've already covered that.
If you look at our portfolio, that was a big important point of catch-up. Last year, our gross margins were about 37% at a portfolio level. Peer parity is between 42% and 44%, and we are at 43%. So the sort of gross margin on our portfolio is now at about 43%. And we have again spent time saying that these margins should expand once the CapEx cycle is fully done.
So where I was coming from, sir, I'm trying to understand is that our luxury portfolio will only increase from now on, correct?
Sorry. Luxury portfolio?
Luxury portfolio contribution will only increase from now on. We are adding new brands, expanding to new regions, correct?
Contribution in terms of volume?
Volume, yeah. In terms of value and volume both.
Yes. Sure. Yeah.
So I want to try to understand.
I see you said that luxury portfolio will take around two, three years to come to have an impact on the EBITDA level.
Yeah. That would be correct, that the EBITDA impact we should see over the next two or three years.
Over the next two or three years. I just need to understand the reason why is there a gap? Is it because of CapEx, or is it some other reason?
No. It has nothing to do with CapEx. First is that the brand volume will grow over a period of time. And even though they are high-gross margin brands, but as volumes grow, we will start getting contribution from this brand, which we intend to invest back in the brand.
We believe that for the first two years at least, the money that we make from the brand, we will need to invest that money back in the brand. And therefore, they will say these brands may not contribute to the EBITDA in the next two years. So there is no CapEx related to our luxury portfolio or impact of CapEx on our profitability.
Okay. So it's the amount that we are reinvesting back into the brand. That is why we're taking some time to come to the level. Otherwise, they would be profitable at the level, correct, sir?
These brands will be extremely profitable at a gross margin level, and that money is getting redeployed back. So as we build the brand and scale them up, they will also start contributing towards their EBITDA.
Got it, sir. Great. Great.
Thank you so much, sir. That's it from my side.
Thank you.
Thank you. The next question is from the line of Dhiraj Mistry from Antique Stock Broking. Please go ahead.
Yeah. Hi, sir. And congratulations on a very good set of numbers. So just a couple of questions. One is basic, like if I look at this quarter, ENA realization per case, which we have seen drop on a YOY basis. Can you explain the reason for that?
Yes. Thank you for asking that question. We were able to get ENA export permissions in Telangana. So last year, we were producing ENA, consuming, and selling it to third parties. This year, we were able to get ENA export permission. So we have used this ENA sorry. Maybe I think my team is telling me I got the question wrong. Is it about P&A NSV? No.
Yes.
Net realization per case.
Sorry. Sorry. I got the question completely wrong. I think the way I will encourage you to look at the data is it's quarter on quarter. So if you look at the P&A NSV improvement over last quarter is 4.2%, and the P&A improvement of mass premium is at about 5%, and total weighted average is about 3.8%. So we've constantly said that we are now focused on making sure that our market share is growing in more profitable markets, and essentially, there's a state-brand mix change versus last year, but quarter on quarter, if you see the number that's part of the deck, our NSV improvement is 3.8%, in which P&A is 4.2%, and mass premium is 5%.
Got it. Got it.
Sir, second question is regarding gross margin improvement, the measures which we have taken for vendor rationalization in terms of payment terms, also monocarton discontinuation and other things which we have already done. Is it like a large part of that benefit has already come through? Because if I look at it on a sequential basis, your gross margin is more or less stable. But is there some part of that benefit still due in coming quarters?
There are three parts to this benefit. The first part of this benefit is cost rationalization, like monocarton you spoke about. Second part of this benefit is in terms of resetting the procurement rate on the back of timely payment. And third part is in terms of a better state-brand mix. As far as the first one is concerned, we have finished the entire packaging substitution cycle.
So all the numbers are now baked in. So we do not, no further margin contribution coming by rationalizing packaging. As far as the procurement price reset has happened, that benefit will continue because now we are procuring at new rates. So we'll see this benefit come in. But again, it will not have an impact on the gross margin because it reflects in our Q3 number. How will the third part, which is the state-brand mix, as the P&A portfolio improves from current level of 42 to 50, and if we continue to focus on more profitable market, that will have an impact on the gross margin.
Got it. Got it. And sir, one last strategic question. We have a very strong history of successfully and very fast ramping up of new product launches, be it Sterling, be it the B7, and also ICONiQ White.
What is the rationale behind purchasing a brand which we have done in this quarter versus developing in-house brand?
So I think the entire approach is, if I can put it under the banner of how to make it asset-light, we have seen that there is a clear demonstrated success of startup brand, especially in gin as a category. And therefore, we believe that some of these newer startups are working with a very different consumer insight. They're working with a very different go-to-market social media approach. And therefore, we want to benefit from it. And that really led to Rock Paper Rum. Very, very interesting. Rum already has five variants competing against a large multinational brand. So it makes absolute sense for us to invest in these brands because they require a very different marketing, not just the product. Woodburns, of course, we are very excited about its acquisition.
It is regarded as one of the finest craft whisky in India. We believe that, again, from a speed-to-market, a product like this, which has already proved its mettle over the last two years in the market, will just give us speed in terms of rolling out this product across market. As you know, the segment is already at 150,000 cases, growing at a very, very fast pace in India. Plus, it's also opening up doors in the international market. So it's just about a fast catch-up.
Got it. Thank you very much.
It takes 18 months to two years to develop and launch a brand. Therefore, we just sort of fast-forward the cycle, exactly what we're doing in Meenakshi that we already have a plant there, and it's only top-up permission. So just help us do an accelerated rollout of such strategic initiatives.
Great. Great. That explains a lot. Thank you very much, sir.
Thank you very much.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Well, once again, thank you so much for taking the time out this evening, and thank you for all the questions and being patient listeners and wishing you the very best for the year ahead.
Thank you. On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.