Ladies and gentlemen, good day, and welcome to the Radico Khaitan Q3 FY25 Earnings Conference Call hosted by Dolat Capital Markets Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be no opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing stars and zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Himanshu Shah from Dolat Capital Markets Private Limited. Thank you, and over to you, sir.
Thank you, Lizan. Good afternoon, everyone. At this moment, we would like to thank Radico Khaitan Management for providing Dolat Capital with the opportunity to host the Q3 FY25 earnings call. We have with us the senior leadership team from Radico Khaitan, represented by Mr. Abhishek Khaitan, MD and CEO, Mr. Amar Sinha, Chief Operating Officer, Mr. Dilip Banthiya, Chief Financial Officer, and Mr. Sanjeev Banga, President, International Business. I will now hand over the call to Mr. Abhishek Khaitan, MD and CEO, for his opening remarks. Over to you, sir.
Good afternoon, ladies and gentlemen. Thank you for joining us on our Q3 FY25 results conference call. Building on the strong momentum from the first half, Radico Khaitan achieved industry-leading IMFL and volume growth of 15.3% year-on-year in Q3 FY25. We anticipate this strong growth momentum to continue in the near term. The prestige and above-category volume saw a 17.7% increase. Our luxury portfolio, including Rampur Indian Single Malt Whisky, Sangam World Malt, and Jaisalmer Indian Craft Gin, continues to deliver strong growth as we focus on increasing distribution both off-trade and on-trade. After the launch of Rampur Indian Single Malt Asava, Sangam World Malt, and Jaisalmer Gold Gin earlier this year, we continue to expand the rollout in more states. Asava is now available in 10 states, Sangam in eight states, and Jaisalmer Gold in six states.
We have seen luxury and semi-luxury brands cross net sales value of INR 100 crores in Q3 FY25 and INR 250 crores in the nine-month FY25. Given the exceptional demand in the domestic as well as international market, we expect this to cross INR 500 crores net sales mark in FY26. Royal Ranthambore Whisky recorded a strong 55% growth during Q3. We recently launched a celebrity campaign with Bollywood star Saif Ali Khan, which resonated well with the brand, with hearts, and connected with the consumers. Royal Ranthambore has seen unprecedented success in civil markets, and the volume run rate is increasing month-on-month across geographies. We are very happy to report that in Q4 FY25, it will be introduced to the CSD channel, which is a very large market. We believe it will drive further growth.
All other core brands continue to report strong momentum, such as Magic Moments Vodka, After Dark Blue Whisky, and 1965 Spirit of Victory Premium Rum. Magic Moments Vodka recorded 1.8 million cases sales during the quarter. We launched a limited-edition celebration pack for Magic Moments Vodka, blending premium quality with festive vibrance. During the nine months of FY25, vodka industry has grown more than 15%, where we have a strong 60% market share. With our continued innovation, we remain confident of driving the industry growth. During Q3, After Dark Whisky became the eighth brand to join the Millionaires Club. Launched in 2011, this brand's story took an exciting turn in 2022 with the launch of After Dark Blue Whisky, designed to captivate the younger generation. In the first nine months of FY25, After Dark achieved 1.34 million cases sales volume, representing over 100% growth compared to nine months FY24.
It is positioned very strongly in the largest segment of the premium whiskey industry. Going forward, I remain optimistic about the growth prospects in the Indian alcoholic beverage sector. We are progressing well on our strategic roadmap and are confident in delivering results in line with our goals. Our new product development pipeline remains robust, and we are committed to delivering superior performance across our portfolio. Our strategic priorities remain focused on brand building, sustained profitable growth, and long-term value creation for our stakeholders. I would now like to hand over the call to our CFO for a detailed operational and financial review. Thank you, and over to you, Dilip.
Thank you, Abhishek. Thank you, everyone, for joining us on this call today. During Q3 of FY25, we reported a total annual volume of 8.4 million cases, representing a growth of 15.3% on year-on-year basis. The Prestige and Above category volume grew by 18%. In value terms, the Prestige and Above category registered 24.7% growth. IMFL realization increased by 5.5% on year-on-year basis. Prestige and Above category account for 51% of the IMFL volume, compared to 50% in Q3 of last year. Regular category volume, which were impacted due to certain state-specific industry-related issues and ongoing strategic rationalization of portfolio, have now returned to the sharp growth trajectory. This was due to the lower base coupled with the normalization of state-specific industry issues. Change in the route to market in Andhra Pradesh contributed 800 basis points to our overall volume growth.
As regards the P&A segment, excluding Andhra Pradesh, the growth has been higher. The recent RTM change in Andhra Pradesh has progressed well, promoting stability, predictability, and regulatory environment. As a result, we have seen strong growth traction for our brand portfolio and gained market share from 10% in the first half to over 15% in Q3. We quickly adapted to the changing environment and created capacities to capitalize on industry opportunities. Gross margin during the quarter was 43% as compared to 41.8% in Q3 of FY24 and 43.6% in sequential Q2. Gross margin improved on year-on-year basis due to the ongoing premiumization in the IMFL business, coupled with relatively stable raw material scenarios. Gross margin declined by 60 basis points on quarter-on-quarter basis due to food grain inflation.
While we are optimistic about the inflationary scenario for ENA and grain to improve going forward, we continue to cautiously monitor the trends. Employee benefit expenditures were higher sequentially due to the annual appraisal and some incentive payment during the quarter. Interest costs increased sequentially due to higher working capital utilization during the quarter, primarily led by cyclical building of the grain inventory and higher receivables in certain states. This is a temporary phenomenon, and inventory will be liquidated by the year-end. Going forward, our focus will be driving profitable growth along with cash flow generation and more efficient working capital management, resulting in debt reduction. With this, we now open the lines for Q&A. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone wishing to ask a question may please press star and one on your 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. Participants, if you wish to ask a question, you may please press star and one. The first question is from the line of Abneesh Roy from Nuvama. Please go ahead.
Yeah, thanks. My first question is on Andhra market. So you have done well, and you have gained market share. Even the national player has gained market share. So if you could tell us, are the local players now largely out of the market? And second is, in the previous cycle, when the similar regime, similar government was there, then what was your market share? And as a percentage of Pan-India, when do you see full normalization, and what will be that number in terms of Andhra contribution to your sales?
As far as the Andhra market is concerned, it's a 30 lakh cases market right now. It's a growing market. As the regulatory environment stabilizes and the policies become more stable, the market is continuing to show buoyancy. We have a 15%-17% market share as Radico in that state. We are very buoyant about the future. Most of our brands that we have introduced are showing traction. The route to market changed on 16th of October 2024. Since then, there is a balance between secondary and tertiary sales. So as far as Radico is concerned, the movement for all our brands introduced in Andhra is sound and showing good signs. As far as the local players are concerned, they still exist, and they are largely operating in the lower price segments, which I think will continue for some time till the national brands gain attraction.
This has also started to happen. Most national companies are now getting good volumes, and it will benefit organized players like us.
So my second and last question is on the demand side. You also sounded positive, and Pan-Indian national player is also positive. So my question is, in terms of the marriage demand, how much is the benefit coming from there? And next up, Andhra, what will be your expectation of growth? Because Andhra clearly is helping. And would you see Q4 Andhra contribution being a bit lower? Because first quarter, generally, the inventory pile-up is there, which helps in a larger number. So would you say that Q4, the contribution to sales from Andhra, that could be a bit lower, and then it starts going up again?
No, I think, as I told you, there is a balance between secondary and tertiary sales for all our brands. So as far as we are concerned, we see that the momentum will continue, and we will continue to perform equally well in Q4 and thereafter.
In terms of the pan-India demand, what is driving the optimism? Because almost every other form of consumption, they are clearly saying there's a slowdown in urban. I do understand some of the base is a bit favorable for the industry. It may not be for you, but marriage demand clearly is there for the next two quarters also. So would you say marriage demand is what is helping in terms of optimism versus other forms of, say, FMCG consumption or, say, any other discretionary consumption? Also, QSR, everything is weak. In terms of apparel, also, it is weak. So what is different for the liquor industry versus other forms of consumption in the urban currently?
So, while let me explain this to you, I think what's happening is.
Oh, sorry to interrupt, sir. Your audio is breaking up.
Industry is weaker, right?
Oh, sorry to interrupt. Hello, sir. Are you able to hear me?
Yes.
Sir, your audio is not coming across clear.
So let me say first that, as you see, in Q3, the growth has been across segments and categories. The regular segments have also recovered, and the premium and upper segments have also shown great traction, strong double-digit growth. Radico, as far as it goes, we have seen traction across our brands, and that's why you see this number of ENA growing by 17% in volume. And as far as overall volume is concerned, it stretches across premium and upper brands, and that's how you get 15%. This phenomenon is visible clearly in the liquor industry, and it is not purely because of weddings and festivities. The industry itself is buoyant, and that's why we see that we feel that the next quarter and thereafter demand will be encouraging.
One more point that we want to stress here is that three years back, the entire market segments for brands above regular segment were only 25% of the IMFL industry. Today, it has reached a whopping 42%, which means that the brands in the premium segment are gaining traction, and Radico is driving this growth as well as part of an industry player. That's why you see good traction for all the brands that we have merged. Today, we have market leadership positions in gin, rum, brandy, and vodka, and now we are growing steadily in the whiskey segments as well. All brands that we have launched in the past two years have done exceedingly well and are selling pretty well in all the markets across geographies.
Sure. Thanks, sir. I'm done, sir. Thanks a lot. All the best.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Yeah, good evening. So I just had two questions. One was on you mentioned that you expect your luxury and semi-luxury portfolio to cross INR 500 crores. If you could just give us a sense of what will drive growth next year. Do you think it's more getting into markets where you weren't present, or it's just gain or just throughput growth that you're seeing? And within this, if you could just give even a qualitative flavor of what's growing faster and etc. I know the portfolio, but if you could just give a sense of what's going faster, what's driving this growth. So just a little bit more comments on this portfolio, which would be INR 500 crore business for you next year.
Okay. First, let me explain. As Mr. Abhishek Khaitan also mentioned in his opening remarks, that our luxury and semi-luxury sales was approximately INR 100 crores and showed a growth in that terms of 45%. As far as volume is concerned, we have shown equally strong volume by growing at 54%. As far as the ratio of sales of luxury and semi-luxury brands are concerned, we have grown to a level of 12% in Q3 as against 9% in the previous year. Now, having said that, I must tell you that all the brands that we have launched today have shown great attraction and acceptance at the consumer level, and Radico has always pioneered the price positioning of all brands in different categories and segments.
Our prices are well accepted, and people feel by virtue of a higher price position that we are not only offering stature, but we are also giving them equal quality commensurate to the price that we offer. Now, today, these brands, despite the attraction and sales growth, we feel are still at a nascent stage, and there is a long way to go in terms of creating market shares. And that's the reason we feel that the coming years will show a much better result. Not only that, it will also expand across geography. See, Radico has a national presence. We are one of the strongest distribution companies in the country today. We are the largest player in the IMFL segment from India, and we are in the process of expanding our distribution of luxury and semi-luxury products, and that will also give us expansion in volumes and profitability growth.
Got it. Very, very clear. So just on this, how large would, I mean, would this be a significant portion of this, say, INR 500 crore next year or whatever the of the INR 250 crore for the nine months be export, or maybe it could be what would that ratio look like?
Today, exports are about 5.5% in volume terms in the domestic market. In luxury and semi-luxury, growth rate is much better than exports. And it will continue to be so, at least for the next three years because the market is huge. It is growing very fast, so we need to exploit that situation. And also, if you see the single malt industry in the domestic market, that's overtaking the international malt also. So I think the investments that we have done in our vault capacity about four, five years back, in the next three years, we expect more. So right now, that demand is more than what we can supply. In the next three years, we feel even our vault availability should double. So that will fuel the growth.
Royal Ranthambore, as I said, has entered into the armed forces, the CSD, which is one of the largest markets. So I think overall, the entire state is quite buoyant.
Got it. Got it. So very clear. The second part was on the cost side. So you've seen on one side, you have the possibility of some increase likely in ethanol at some point in terms of government pricing. But on the other side, you also have the grain prices, which seem to now be coming into a more favorable trajectory over the next one or two quarters and going forward. So if you could just help us understand how do you see this kind of confluence of factors playing out in ENA pricing over the next, say, three, six, nine months, if one had to hazard a guess? Yeah, that's my question. Thanks.
Actually, you see, our industry, like the kind of increase we have seen in the grain prices from INR 17,000 touched about INR 28,000, the primary reason was the ethanol supply and the stoppage of the FCI, so it happened about one and a half years back, and only now the government, for the first time, which we were expecting long back because this huge pile of about 65 tons of grain is lying in the FCI godown, so they have just announced that ethanol can be produced from FCI, so that is at INR 2,250, so I think it all depends on the government policy, but if it continues, surely there will be easing of the grain prices.
Got it. So that's all from me. Thanks and all the best.
Thank you. The next question is from the line of Viraj Mistry from Antique Stock Broking. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity and congratulations for the good set of numbers. So my question is first on demand, where one of the companies said that there is a slowdown in the premium and luxury end of the segment, whereas you have been saying that your growth has been very much far superior. What gives you confidence that this kind of mid-teens kind of volume growth can be continued in the P&S segment? And also, the regular segment, after, let's say, 12 quarters -13 quarters afterward, we are seeing positive volume growth in the regular segment. And what can we expect in terms of volume growth in the regular segment going ahead?
So let me answer the regular segment first. See, it's true that it is quite some time later that the market has started responding as far as the regular segment is concerned. There are a couple of reasons for it. But we have, in our earlier conferences, also stated that we have normally rationalized our regular volumes because of escalation in costs, raw material pressures, and contribution loss. So wherever we thought it was economical and profitable, we used to sell regular, and where it was not, we used to rationalize our volumes. Having said that, as far as the current growth rate in the regular segment that we have seen of 13.4% and a value growth of 15%, that's primarily because of two reasons. One, ENA has offered an opportunity to sell brands below the P&A segment at a lucrative price, and the contributions are heavy.
That's what we are doing. And going forward, we also feel this trend could continue because Kerala, which is a huge market of more than 20 lakh cases a month, has given a 6%-7% price increase, and therefore, we see that this will also benefit the industry, including Radico, on one side. So we are optimistic about the regular segment recovery in the month ahead.
Yeah. So just on regular segment.
It will also be contained in the mid-single-digit rate.
Okay. But if I want to strip out Andhra Pradesh from the regular segment, what would have been growth, excluding Andhra Pradesh, then in this quarter?
Okay. As I said in my opening remarks, in Andhra, our overall growth is 7%-7.5% as of 2020, and in the P&A category, it is almost higher or better than the national average. So the point is that, excluding Andhra, as I must add, that there are certain improvements in the state regulatory environment. We have defined that given the price increases last year, which has dragged the volume of the export also. There is some improvement in the volumes of the regular segment, and Andhra is one of that also. So I think that, as you said, that mid-single-digit rationalization of that, from next year, we can very well achieve that.
Got it. And, sir, your comments on P&A segment volume growth?
As far as P&A segment is concerned, I mentioned a little while back, but see, brands above the regular segment today are 129 million cases approximately out of the 304 million cases which has been in the market in Q3, which is roughly 42%. Now, this is a huge market and growing at double digit rates across categories and segments. So as far as we don't want to comment on what others feel about the slowdown or the big market space, but as far as Radico is concerned, all our brands are buoyant. They are responding very well. We have great plans, marketing plans ahead, and our growth momentum of giving a P&A growth of 15% + in the times ahead will continue.
Got it. Got it. And, sir, the second question is related to our debt, where after our CapEx, we have not seen any decline or, let's say, reduction in debt. Part of this is also attributed to Telangana government not paying the dues. Where are we standing in terms of dues from Telangana government, and when we can expect, or let's say, by what year we can become a debt-free company?
We have certain, as you said, that a couple of months' issue, which we get sorted out soon. The interaction with the state is on. Secondly, we build a certain grain inventory in the season. That will also be partly liquidated by the year end. From Q4 onward, we will see a declining trend in our debt scenario. As we guided by 26, 27 middle or so, our debt will be very stable. Those kind of facts will be coming from internal accruals. We are very confident of achieving this kind of situation by 26, 27. I want to add one very important point that, unlike other players, Radico's holdings in Telangana are not as high. Subsequently, now, Radico is being paid with other companies in 45 days per the policy.
So that's not so much of a deterrent, but yes, the dues, whatever our overdue will get cleared in Q4.
Got it. Got it. And, sir, lastly, on the margin front, you clearly highlighted that the luxury segment has been growing very fast. So, sir, can you comment a bit on, in terms of profitability of the luxury segment versus other P&A segment versus regular segment for us?
We talk about our margin, and actually, in the last two weeks, we've been writing about that we'll improve on our margin by 150 basis points year on year this year. Over the last year, we have improved it by 140 basis points in nine months, and we continue to do that. With this kind of product profiling and portfolio and delivery growing much faster, we expect our margin to grow 100 basis points to 125 basis points every year for the next three years, thereby going on 13% kind of margin in next three years. We expect with this business model that we achieve this.
Okay. That's helpful. Thank you very much.
Thank you. The next question is from the line of Rohit Kumar from Niveshaay. Please go ahead.
Hello. Am I audible?
Yes, please.
So my question is for the.
Speak loudly, please.
Yeah. Hello.
Hello?
Hello.
Sir, can you speak a bit louder?
Yeah. Is my voice audible?
Sir, can you speak a bit louder?
Hello. Is my voice audible now?
Yes, sir. Please proceed.
Yes, okay. So, sir, how much margin do you make per ML pack? So, for example, from 90 ML pack to 750 ML pack, how much margin do you make in EBITDA-wise, in terms of EBITDA-wise?
Again, that is a major question.
How much margins do you make from 90 ML pack to 750 ML pack, the margins in terms of EBITDA-wise?
The question is the margins are grown of the price point. And basically, whether it is 90 mL or 180 mL or 750 mL, depending on the price point of that segment, the margin EBITDA growth efficiency is needed.
Yeah. So each segment has different margins. Right? So can you give us the margins on the blended-wise? How much blended margin do you make in 90 ML pack or 180 ML pack or 750 ML pack?
As I said, Rohit, it is actually not 90 ML , 180 ML. We say these are SKUs. When we launch any product or we market any product, we price segment. Here we are offering this only segment 180 ML , 750 ML , 75 ML . There is a composite basket of margin we see on the constituents level. So we can't distinguish between 90 ML margin versus 750 ML margin.
Oh, okay, sir. Okay, sir. Okay, sir. Thank you, sir. That's all my question.
Thank you. The next question is from the line of Pankaj Kumar from Kotak Securities. Please go ahead.
Thanks for taking my question. Most of the questions are answered. I just wanted to have one clarification that UP in the P&A category, what was the growth in this quarter?
In P&A category, CapEx?
RTM Andhra Pradesh.
See, our P&A category has grown by 17.7% in this quarter, and the 80 volume contributed about 700 basis points. And as far as P&A category grows, excluding ANRA also, our growth has been higher than 17.7%.
Okay.
Because our growth is all broad-based across geographies.
Sir, that backlog of INR 500 crore is from semi-luxury and luxury segment. So what kind of margins that this category can generate? Any reference we can get?
We do not quantify what margin is in the segment, but definitely in the luxury and semi-luxury segment that is rolled out above, the margin is much, much higher than the P&A category.
So, another way to just know, like you're saying, up to 125, that's the margin improvement that you are looking at every year. So, what portion would be driven by your mix changes versus your raw material advantage?
See, raw material advantage is the grain prices have gone up in the October-December quarter. I think it was the highest. So raw material advantage to this all margin is contributed because of the product mix and the optimization.
Sir, for CapEx, what kind of CapEx that we are looking at this year and the next year?
With CapEx, we have done with all our major CapExes, and our CapEx runs between INR 100-125 crores every year for the next two to three years. This is after our last projects are over. Some payment of the last projects are made in this year, but the new CapEx is running to this year.
Okay. Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is from the line of Rohan Patel from Total Capital. Please go ahead.
Hello. Am I audible?
Yeah, yeah.
Yeah, yeah. Yes. Thanks for this opportunity. I have a question regarding our country liquor business and non-IMFL business. Seeing your financials for FY24, we did somewhere around INR 1,300 crores in non-IMFL segment, and roughly 50% of that comes from country liquor. But when we look at our margins in non-IMFL segment, they are near to mid-term single digit, mid-single digit. And when we see some of our peers in country liquor in UP market, they are fairly doing a healthy double-digit margin of 14%-17%. So can you explain the difference in this? Why are margins so low? And in 2023, we were negative EBITDA.
The question is that our country liquor business is only in one state. It is in Uttar Pradesh. Rest of the players might be doing in two or three more states. We are talking about only UP, where the margin in the country liquor are in the mid-single digit. And as you said, the rest of the non-IMFL business is the alcohol sales, where also the margin has been squeezed because of the high inflation in grain prices. Where also the margin has squeezed to mid-single digit kind of numbers. Seeing what we see that FCI has opened up and all, and it's all a question of how the market behaves and declining trend, basically, then we can see some improvement in that segment also.
Okay. All right. Seeing your close competitor who operates country liquor in one state and that too in, say, UP, who is having a market share of, say, 25%-27% and does 200 million liters in country liquor in UP, so they have fairly healthy EBITDA compared to us, mostly twice than us. So is it due to geographies that you cater to within a state, district-wise?
I think we're talking about Uttar Pradesh and somebody doing it for Uttar Pradesh. We have a mix of the grain-based country liquor as well as the molasses-based country liquor. I'm going to give you the mid-single digit margin mix of both country liquor being sold.
So if you can.
So let me explain this to you. There are two large players in UP, including us. The margins for country liquor remain more or less the same. There is no difference because the SKUs that both the companies sell are the same. The strength that the other players sell is also the same. So the margins cannot be different. EBITDA margins cannot be different unless you include some other businesses in it.
Okay. Okay. And what we have seen is that this is towards the IMFL business and P&A segment. What we have observed is that a lot of competition is coming in, a lot of brands are coming in. But we have seen that millionaire portfolio of companies that are doing over one million cases have been coming from well-established legacy brands like Radico, USL, or Allied. So what advantage does a company like Radico have over a new entrant or a new brand that are coming up, celebrity brands which are coming up lately?
Actually, the industry is there. There is a blackout of the brand being positioned or being shown and this and that. So definitely, an incumbent brand has a better listing chances.
No, Amar will speak about it.
Let me explain this. National players like Radico have the benefit of distribution and marketing strength, and with this scale of operation, there is a definite advantage for new brands produced by national companies as against smaller players. It's very difficult for new entrants to sustain today because the cost of entry and the cost of sustenance is very, very high.
Okay. Okay. That fairly answers my question. Thank you for this opportunity.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. Participants, if you wish to ask a question, you may please press star and one. Are there no further questions right now on the conference, or what is the management for the closing comments?
Yeah. So moving forward, we will continue to deliver a strong session about volume growth driven by our diverse bank portfolio. Secondly, we will further develop our country brand portfolio. We will see a major contributor to our profitability. Furthermore, we have focused on ensuring that our investment operates as efficiently as possible. This will enable us to generate cash to pay debt and return cash to the shareholders. We look forward to interacting with you in all our next earning calls. In the meanwhile, if you have any queries or follow-up, please feel free to write to us. Thanks a lot.
Thank you, members, for the management team. Ladies and gentlemen, on behalf of Dolat Capital Markets Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.