Ladies and gentlemen, good day and welcome to the Radico Khaitan Q2 FY25 Earnings Conference Call, hosted by Dolat Capital. 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 your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Himanshu Shah from Dolat Capital. Thank you, and over to you, sir.
Thank you, Rutuja. Good afternoon, everyone. At this moment, we would like to thank the Radico Khaitan management for providing Dolat Capital with the opportunity to host the Q2 FY25 Earnings Call. We have with us the senior leadership team from Radico Khaitan, Mr. Abhishek Khaitan, MD and CEO, Mr. Amar Sinha, Chief Operating Officer, Mr. Dilip Banthiya , Chief Financial Officer, and Mr. Sanjiv 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 Q2 FY 25 Results Conference Call. Q2 FY 25 marks a significant turnaround in our operational performance, highlighting the strength of a resilient business model. While the consumer sector faced challenges due to a general slowdown, inflation concerns, and volatile commodity prices, we are pleased with our robust performance.
We achieved a 12.6% growth in the prestige and above category, along with a sequential improvement in EBITDA margins. Innovation remains a cornerstone of Radico's strategy. To further expand our luxury portfolio, we introduced Rampur Indian Single Malt Barrel Blush. This new expression, initially matured in American bourbon barrels and fully finished in Australian Shiraz wine casks, is a testament to tradition and expert craftsmanship. It will be a core expression along with Rampur Deluxe Cask and Asava.
With an international launch in the U.S., U.K., and Europe this year, we have plans to bring it to India next year. Further extending the Rampur brand, we introduced Rampur Jugalbandi 5 and Jugalbandi 6, two new single malts in the Jugalbandi 3 at the Whiskey Show in London, retailing at GBP 400 per bottle. These limited editions are crafted using high quality Madeira and Tokaj casks, retaining the classic Rampur single malt whiskey profile at their core.
We launched a new campaign for Royal Ranthambore Whiskey featuring Saif Ali Khan earlier this month. His signature style and charisma perfectly align with the nobility and glamour that this Royal Ranthambore represents. This campaign marks a significant moment in our journey to redefine luxury in the Indian spirits market through what we proudly call IndiLuxe.
Taking our packaging innovation further with consumer choice and preference at the core, we have recently introduced a trendy and convenient pocket pack in 180 ml SKU for Magic Moments. We expect this to support the strong brand growth momentum. This packaging is not only 100% recyclable, but also more cost effective. Regarding the recent development in the state of Andhra Pradesh, I would like to state that it is a very progressive government, and as expected, the new policy is aimed at promoting stability and predictability in the regulatory environment.
Over the last three years, we have faced inflationary challenges that impacted our margins. However, by focusing on innovation and strengthening our premium brands, we have managed to navigate these tough times. With input cost pressure easing, we are poised to deliver steady, profitable growth moving forward.
I remain optimistic about the growth prospects in the Indian alcobev sector. We are progressing well on our strategic roadmap and are confident in delivering results in line with our goals. 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 Q2 of FY 25, we reported a total IMFL volume of 6.78 million cases, representing a decent growth of 2.5% on year-on-year basis. Prestige and above category volume grew by 12.6%. In value terms, prestige and above category registered 18% growth. IMFL realization increased by 9.7% on year-on-year basis.
Prestige and above category account for 53.2% of the IMFL volume, compared to 47.1% in Q2 of last year. The percentage of P&A is higher due to significant de-growth in regular category. Improvement in IMFL realization is due to a combination of price increases and continued premiumization. Regular category volume were impacted due to certain state-specific industry-related issues and ongoing strategic rationalization of our portfolio.
Gross margin during the quarter was 43.6%, compared to 44.1% in Q1 , two of FY 24, and 41% in Q1 of current year. Gross margin was impacted on year-on-year basis due to the significant food grain inflation, offset by premiumization and IMFL business. EBITDA margin expanded on YOY basis by 250 basis points due to economies of scale.
Gross margin improved two and fifty-eight basis points on quarter-on-quarter basis due to the ongoing premiumization in stable raw material and packaging material scenario. We cautiously monitor the trend of grain and E&A, where volatility persists, and expect the trend to improve from Q3 of current year. Increase in net debt over March 2024 is primarily due to the cyclical buildup of the inventory and higher receivable in certain states. Going forward, our focus will be on improving the profitability along with cash flow generation and a more efficient working capital management, resulting into debt reduction. With this, we now open the line for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone 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 Harit Kapoor from Investec. Please go ahead.
Yeah, good evening. I just had a few questions. The first one was on the Royal Ranthambore too. So we've seen a little bit of dip on the volumes in the Royal Ranthambore. Just wanted to know whether it's because, you know, the Andhra policy is just coming in place, and there would have been some lower primaries on account of that or anything else to kind of read into that?
Yeah. So it's, it's primarily because of that, and nothing beyond that.
Got it. And given that, you know, as you mentioned, it's an extremely progressive policy. Just wanted to get your thought process on how you kind of plan to kind of take advantage of it. It's also fairly material in the popular market as well. So, like, you know, is the mode of being in this state going to be similar to what it has been over the last few years, or is there a thought process and kind of rethinking that?
So as far as AP is concerned, we have always maintained that, the new government is very progressive in its outlook to this, alcohol space. The biggest advantage that comes to us is that, you know, now, our cash flows will improve, because earlier we were getting our payments only when tertiary, which means sales from retail, used to happen. Now, it will... We will receive payments is as soon as the government depots invoice to the retail outlets.
So that's one, faster cash flow, turnaround. Second, I think because it is the private is, retail is private, there will be free choice available to consumer for premium brands. And UP is seeing a lot of traction in that area now because of surrounding states. Plus, they are rationalizing the prices also in the times ahead, because they've set up a pricing committee. So I think in overall, if you see, UP is going to be the Andhra. Sorry, Andhra is going to be the sunshine market for this space in the times ahead.
Got it. And you're mode of operating there, you know, is there a thought process there yet, or we'll just kind of wait and watch on that?
So we're basically, see, as far as AP is concerned, right now, we are operating through bottlers. It's s ee, right now in Andhra Pradesh, we've been operating on royalty and we are assessing the situation. So starting from Q4, we might get into our own, get away from royalty and get into our own brands.
The second part was on the profitability. So we've seen a very strong improvement in the gross margin sequentially. I just wanted to get your sense on the market, the cost environment currently. I mean, mix continues to improve materially. Your non-IMFL business is kind of in the base now from Q3 onwards as well. And cost inflation is manageable in my understanding. So is this likely to be an expanding kind of gross margin trajectory going forward? Do we continue to see gradual sequential improvement on the GM? Is that something we should expect?
Harit, you are absolutely right, that quarter- on- quarter, we have improved on our gross margin by 250 basis points. The reason is that, one, the premiumization is ongoing for us, and the premium brands and semi-luxury brands and all that are taking spread across pan-India. The product mix has improved. The luxury segment and semi-luxury segment is doing very well. It is more than double digits now on top line side.
This quarter and also the export has done well on the luxury segment of the market, and being the raw material and packing material scenario being benign, so we have improved because of various factors, so that is reflected in the gross margin.
Do you think?
Yeah, the margin improvement trajectory will continue.
Got it. I have a few more, but I'll come back in with you. Thank you.
Thank you.
Thank you. The next question is from the line of Vishal Gutka from HDFC Securities. Please go ahead.
Yeah. Hi, Abhishek and team. Congrats on excellent set of numbers. Before I question, I would like to extend season's greetings. Wishing you all happy Diwali in advance. Two, three questions from my side. Sir, how do you view Karnataka market post the recent changes in the excise duty slab? Because one of your competitor highlighted that, despite reduction in the excise duty, still the taxes are much higher than the neighboring state.
Second question is on the brands, specifically your launch, I think five, six brands over a period of last 18, 24 months. Just wanted to check with you, how do you ensure that you put equal focus on each brand? Do we have a setup similar to an FMCG company, where a brand manager is appointed and equal focus is given out over there?
And the third question is on luxury and semi-luxury. Already you highlighted that you are seeing a substantial uptick. Given the mall festivities are coming online now and festivities is approaching, in three Q, four Q, you should see a very, very sharp jump in the revenue segment for this sub-segments. Thank you. That's it from my side. Thank you.
Okay. So, to answer your first question first, I think in our scheme of things, we see Karnataka totally different. You see, for many years, the taxes in Karnataka have been high and the consumer price, which is the MRP, has been the highest in the country. Now, a beginning has been made with comfort being given on the premium end of the prices, and we have, as a company, started seeing results. Our volume and margins are showing an increase, overall collection. So that's one. As far as Karnataka is concerned, we are banking on it in the times ahead for premium brands. Secondly, your question was,
Five, six brands.
Now, let me tell you, it is true that Radico has been championing the launch of premium brands in this country, because our motto is very simple: to make India proud. And I think today we are in that position that we can take on any international brand, which we have shown from our track record. Now, with the vast portfolio that we have made, every brand has an exclusive committed brand resource, a marketing manager.
So as we are giving due attention to each of these brands, separate strategies are being made, separate review forums have been created, and that is why you will see an uptick on the premium and above brand sales, both in terms of volume and value.
As far as your third question is concerned, as far as the festivities are concerned, I think starting October to March end, I think it's a great time for premium brands because there's a lot of traction, people are moving up, and that's why you see sales of premium brands going up as well. So we see that these brands are going to bring us lot more joy because we started the game and the future looks bright for us.
Got it. Got it. So last question on Telangana market. So I think the dues were pending from the state government. So how are things moving now? If you can broadly elaborate on Telangana market, what is happening out over there?
So, Telangana government, see, the point is that it's still not as good as other states. But yes, Radico has been receiving payments for the last two months, and I think the situation will improve further. Because they have also realized that they need to compete with Andhra, and that they we will be able to do so only if they get stocks and push them. So I think it's more of a state pressure, and they will fall in line.
Got it. Got it. Thank you, and wishing you all the best for coming quarters.
Thank you very much.
Thank you. The next question is from the line of Darshika Khemka, from Arihant Capital. Please go ahead.
Hi. Thank you for the opportunity, and congratulations. I have a couple of questions. Firstly, sir in the opening remarks, you mentioned that, in the regular and below category, the volumes were affected due to certain specific states. Can you give us more details on this?
Yeah. So I'll say that a couple of states, like Karnataka, increased the price of the regular category, which has led to more than 40% reduction in the volume in that, and we also suffered there. One or two more states has increased the prices, like Uttarakhand and all that. UP, there has been quotas and all that. In this quarter, the quota remained a little lower, and because of that, the volumes suffered because of that.
At the same time, Andhra Pradesh, which was in election mode and all that, now, because of the pipeline getting inventory getting cleared and all that, because of that, the sales were low. But now onwards, you will see in regular category also, we will see that continued demand, and we will have a mid-single digit kind of growth from here on out. As far as regular segment is concerned, just to add to what Dilip said, we have rationalized volumes even in Kerala. As a company, objective goal that we have, we moderate our policies of sales depending upon the contribution in the prevailing time, depending upon raw material and packaging material costs. So right now, wherever we are selling regular brands, it's only there where we make little money, otherwise we don't.
Got it. All right. That was really helpful, sir. Secondly, could you give us some details on the kind of volumes that you're currently doing in the luxury and semi-luxury category of products? And what is the average realization like for the company? So the reason why I ask this question is that as far as, correct me if I'm wrong here, we don't make significant volumes in this category right now, but as the volumes increase, our EBITDA margins could also increase.
So what I'm trying to hint is, once you're making substantial volumes, our market could, our margins could substantially increase volume. So considering this scenario, what could be our target EBITDA margin?
So on the luxury side and semi-luxury side, we are seeing a very strong traction, and in the first half itself, it is more than 25-28% in the top line side. At the same time, the premium, Yeah so, so the premiumization is happening, and we will continue to grow our P&A category volume by 15% plus in the next two quarter also and in one to two years further. So we are very confident about it, and that will reflect into the EBITDA margin factor. And, as we said, that we will continue to improve our EBITDA margin quarter- after- quarter.
Do we have any targets, could you quantify a target for us?
As we have been guiding in earlier calls also, that we will improve our margin every year by 150 basis points or so, so over the last year, we will be doing much better than that in this year, and thereafter also for next three years, we will continue to improve our margin by 100 to 125 basis points, and that how we will reach to the late teens margin in three years' time.
Got it. Thank you so much. That's, that's it for me. Thank you.
Thank you. The next question is from the line of Aman Singh from Profitgate Capital. Please go ahead.
Hi, sir. Thank you for the opportunity, and congrats on good set of numbers. So the growth in P&A segment has been good for the company, so can you break down the growth, maybe which states are experiencing good growth and which brands are experiencing better traction in this segment?
I think, out of all our brands, like in the P&A category, we are seeing good growth in our vodka segment, that is Magic Moments Vodka. Then we are seeing a lot of growth in Royal Ranthambore, which is in the semi-luxury space. We are seeing a lot of traction in After Dark premium whisky. And basically, the luxury segment is also growing. So overall, all the brands are doing well in the P&A category. And it is doing well across states, like in UP it is doing well, in West it is doing well. So all across the... Actually, the growth in P&A is broad-based across. Yes.
There is no specific geography which is doing well for the P&A segment?
It's across North, West, South, everywhere. Yeah.
And also White spirit category is growing extremely fast, since it is only 4% of the market, and globally it is 28%. Earlier, the vodka was 3%, which has come up to 4%, so there we are seeing a huge traction.
All right. Right. Understood. Also, is there any competitive intensity increase in the industry, maybe in P&A segment, from the local players also and from the international players also, which are being brought in by the domestic players with partnerships or distribution network? So is there any increase in competition, competitive intensity?
I think, I think the competition intensity all year and last five, seven years has been quite high, so I think it's the same.
All right. Thank you so much. Thank you so much for the answers.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one now. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Yeah, just a couple of follow-ups. One was, you know, there's a significant pipeline you've already launched, as one of the other participants
Harit, your voice is not clear. I think you have to speak, in the phone, like your voice is, not
Sure, sure, sure. Just give me a minute. Yeah, is this better?
Yeah, much better.
Okay. So, you know, the last six months, again, you know, a lot of super premium launches, a lot of variant launches with Magic also have been done in the last twelve months. Obviously, you're investing again behind Royal Ranthambore as well, and rightfully so.
Just wanted to know, you know, in the, you know, run-up to the festive, which is there now, is that broadly, you know, what the launch pipeline should look like for the balance part of the year? I mean, have we seen most of it, given that we are almost into the festive? Or, you know, second half should also have, you know, something in store as well?
See, there is one brand which is in store, but we are working on it. So which is in the premium segment, so hopefully very soon we should see it, maybe this fiscal year, we should see it, or maybe beginning of next fiscal year for sure.
Got it. And just clarification, I think, you know, Dilipji mentioned that, you know, so the popular business, I think, should start to see some level of growth from now. Is that largely on account of the fact that some of the state-led disruptions as even, you know, one of your, one of the larger players is talking about, is now largely done with? And maybe apart from maybe one state here and there, you're, you know, state level, you know, disruptions are not there?
Absolutely, you're right.
Got it. Okay. That, that's it from me. Thank you.
Thank you. Participants who wish to ask a question may press star and one now. The next question is from the line of Vishal Gutka from HDFC Securities. Please go ahead.
Yeah. I think just to check on E&A, so one of the investors highlighted that, they expect inflation to be around 11, 12%, given that the government's mandate of blending ethanol has been increasing. Although we understand you have a backward integrated facility, and commodity cost, the rice cost is expected to come down with excess production. So how are you doing? Because the competitor has highlighted that they expect the inflation sustained.
What. Just wanted your views on E&A, and followed by glass, because we are seeing some deflationary trend. So that should hold on to the current level or should further accelerate from here onwards?
So as far as the commodity is concerned, I think, we don't actually see this 10-11% kind of inflation from here onwards. One, there is a good monsoon and good crop yields are very good and all that. However, there has been an aggressive bidding on the ethanol side. So the prices have already moved up, and in the non-season period. As the season is starting from November onward, we should see some softening of the prices of grain, maize, rice, et cetera.
At the same time, government has built up a lot of buffer stock. Even the buffer stock, they don't have space to keep, store and all that. And the new rice miller processing is starting. So if there is, we can't say, but if there is any support to the ethanol producer from some allocation on the FCI side and all that, that will further improve on that. So this is our take, that we see a benign kind of environment on the E&A as well as the grain side.
As far as the glass is concerned, we have seen the worst. One correction has taken place, which is 4%-5%, and I think, looking into the current scenario of the commodity and the fuel prices, et cetera, and all that, we don't see that there is a room for further increase in glass prices even.
Yeah, it looks like it will remain stable.
Yeah.
Got it. Got it. One more question on the Magic Moments Vodka front. I think one through 25, we had seen 25% plus volume growth in Magic Moments Vodka, if I recall the numbers right. How is the performance for the current quarter? Is it similar to those lines, or, if you can broadly highlight for the specific brand?
So Magic has been growing very well. As a Magic family, we are growing in every segment, like the Magic, the flavors, the Verve, the Verve flavors, et cetera. And Magic, we see, as Abhishek has said in his opening remarks, that's still next, and it's still below 4% as a volume of the total industry. And the consuming class is the youngest and the women. So I think we are a leader with 60% market share across all price category. So I think we see a great growth, and we continue to see strong double-digit growth in years to come.
Got it. Got it. Got it. Great, great, sir. Thank you.
Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you for joining us on this call. We will continue to deliver a strong prestige and above volume growth, driven by our diverse brand portfolio. Secondly, we will further develop our luxury brand portfolio, which will be a major contributor to our profitability. Furthermore, we are focused on ensuring that our investment operates on an efficient basis. This will enable us to generate cash, repay debt, and return cash to the shareholder. We look forward to interacting with you on our next earnings call. In the meanwhile, if you have any queries, please feel free to write to us. Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your line.