Radico Khaitan : Q1 FY2025 Earnings Call Transcript

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Radico Khaitan Limited

(BSE: 532497; NSE: RADICO)

First Quarter FY2025

Earnings Conference call

August 8, 2024

Management Participants:

Mr. Abhishek Khaitan, Managing Director

Mr. Dilip Banthiya, Chief Financial Officer

Mr. Amar Sinha, Chief Operating Officer

Mr. Sanjeev Banga, President - International Business

Presentation:
Moderator:	Ladies and gentlemen, good day, and welcome to Radico Khaitan Q1
	FY '25 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 question 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.
	Before we begin our presentation, I would like to remind you that some of
	the statements made in today's conference call may be forward-looking in
	nature and may involve risks and uncertainties. Kindly refer to the last slide
	of our earnings presentation for the detailed disclaimer.
Himanshu Shah:	Thank you, Yusuf. Good afternoon, everyone. At this moment, we
	would like to thank Radico Khaitan's management team for providing
	Dolat Capital with the opportunity to host the Q1 FY '25 Earnings Call.
	We have with us the senior leadership team from Radico Khaitan. Mr.
	Abhishek Khaitan - Managing Director, 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 for his opening
	remarks. Over to you, sir.
Abhishek Khaitan:	Thank you, Himanshu. Good afternoon, ladies and gentlemen. Thank
	you for joining us on our Q1 FY '25 results conference call.
	The fiscal year started on a positive note as we continued to deliver on
	our strategic road map. During Q1 FY '25, we achieved strong premium
	volume growth despite a challenging operating environment. External
	factors such as lower consumption growth, concerns about ongoing
	food grain inflation and volatile commodity prices did not deter us
	from delivering robust operating performance.

Our commitment remains to a focused portfolio of premium brands driven by consumer aspirations. This is reflected in the strong Prestige

• Above category volume growth of 14% year-on-year. P&A value growth was 19% during the same period.

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During the quarter, we launched Rampur Asava, Sangam World Malt and Jaisalmer Gold Edition in India, enhancing the experience for connoisseurs of luxury brands. We will expand the distribution of these brands throughout the year, including the canteen store department.

Rampur Asava Single Malt is matured in American Bourbon barrels and then meticulously finished in Indian red wine casks which is the first time in the Single Malt history. Price starting at INR 10,000 a bottle, it is currently available in seven states.

Sangam World Malt Whisky was launched in the international markets last year. After its success in the global market and duty-free retail channels, we have launched it in India in Q1. Sangam is derived from the Hindi word meaning "confluence", which symbolises the seamless blend of Eastern tradition and Western whisky-making expertise. Our master blender travelled across the world to source premium malts from Europe and the new world to make this meticulous fusion. It will be priced between INR 4,000 to INR 7,500 a bottle depending on the state of launch. Currently, Sangam is available in four states.

Jaisalmer Gin currently holds a 50% market share in the luxury gin space in India. Building upon its success, we proudly launched a "Gold Edition" in India recently. This edition distinguishes itself with the inclusion of saffron, which is the world's most expensive spice. Of the total 18 botanicals used in this gin, 14 are sourced from the four corners of India. It will be priced between INR 4,000 to INR 7,000 a bottle and presently, it is available in three states.

We are very proud and honoured to be associated with the inaugural India House at the Paris 2024 Olympics, which has become a significant attraction for sports fans. We have been chosen as an exclusive alcoholic beverage partner. With this alliance, we aim to showcase the richness, culture and legacy of our nation and take India to the world.

Magic Moments Vodka continued its growth momentum and recorded

1.9 million cases sales in Q1 FY '25 and crossed sales value of INR 300 crores for the current quarter. Today, it is the sixth largest Vodka brand globally. We have recently partnered with Saregama, India's leading music label to launch an innovative new music series titled 'Magic Moments Music Studio'. Comprising a total of 10 episodes, the series will be released weekly on Saregama Music YouTube channel. This

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	platform will allow emerging artist to perform alongside renowned
	musicians such as Shaan, Kumar Sanu, Sophie Choudry, Nikhita
	Gandhi, etc.
	Moving forward, we will invest in strengthening our brand portfolio
	through targeted marketing and the introduction of select new brands
	in the luxury and premium space. We remain confident in the medium-
	to long-term potential of the Indian IMFL sector. With our strong luxury
	and premium brands, execution expertise and extensive distribution
	network, Radico Khaitan is well positioned to capitalize on industry
	growth opportunities.
	As the year progresses, we expect the broader raw material basket to
	remain stable. Coupled with ongoing premiumization, we anticipate
	staying on track with our margin expansion trajectory.
	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.
Dilip Banthiya:	Thank you, Abhishek. Thank you, everyone, for joining us on this call
	today.
	During the first quarter of FY '25, we reported an IMFL volume of 7.07
	million cases, representing a degrowth of 4% on year-on-year basis.
	Prestige & Above category volume grew by 14.3%. In value terms, the
	Prestige & Above category registered 19.1% growth. Prestige & Above
	category accounts for 43.4% of IMFL volume compared to 36.5% in Q1
	FY '24. The percentage of P&A is higher due to the significant degrowth
	in the regular category. Improvement in IMFL realization is due to the
	combination of price increases and continued premiumization.
	Regular category volumes were impacted due to ongoing strategic
	rationalization of portfolio and certain state specific excise policy
	related issues.
	Gross margin during the quarter was 41.5% compared to 43.6% in Q1
	of FY '24 and 41.0% in Q4 of FY '24.
	Gross margin was impacted on year-on-year basis due to the
	significant foodgrain inflation. Grain price inflation had a negative
	impact of 335 basis points on a year-on-year basis on gross margin.
	On quarter-on-quarter basis, we have been able to sustain gross
	margin due to the ongoing premiumization and price increase in the
	IMFL business. On Y-o-Y basis, there was 170 basis points impact due
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	to price increase in Q1 of FY '25 on our IMFL sales value. On quarter-
	on-quarter basis, impact of price increases was 55 basis points.
	Although prices of certain packing material have softened recently, we
	cautiously monitor the trend of Grain and ENA where volatility
	persists. We expect glass prices to see some moderation from Q2
	onwards.
	The increase in net debt over March '24 is primarily due to the cyclical
	building up of inventory at the plants and higher receivables in certain
	states.
	Going forward, our focus will be on improving our profitability along
	with the cashflow generation and more efficient working capital
	management, resulting in debt reduction. We reiterate our
	commitment to be almost debt-free by FY '26 and thereafter focus on
	returning cash to the shareholders.
	With this, we will now open the line for Q&A. Thank you.
Moderator:	Thank you very much. We will now begin the question-and-answer
	session. First question is from the line of Abhijeet Kundu from Antique
	Stock Broking.
Abhijeet Kundu:	Congratulations on a great set of numbers. Primarily our P&A has been
	growing extremely strong. My question was on the ad expenses,
	selling and distribution expenses, which has declined by about 8%
	during the quarter, which has in a way helped to aid your margins.
	What has been the thought process behind this? This would be a
	quarterly phenomenon because one of your other competitors also
	have spent less on ad spends during the quarter 1 and which has aid
	into our margins. So how should we think about it? What has it
	happened during the quarter? My first question was on that.
Amar Sinha:	First of all, the ad spend that we have always guided would be around
	7% to 8% [of our IMFL revenue] annually. The first quarter this year is
	an aberration. One, primarily because the first quarter industry growth
	has been muted. There were various delays of excise policies and
	buying and stock sales were also low because of policy delays. So,
	elections are also there. So, we try and rationalize the expenses based
	on the volumes. But this will catch up in the quarters following the first.
Abhijeet Kundu:	Understood. Sir, other thing was on the popular regular category. One
	part has been because of your own strategic intent that you have,
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	there has been a moderation in the popular segment. But other than
	that, when do you see things improving in this segment because still it
	is a sizable part of our portfolio in terms of volume?
Dilip Banthiya:	So regular, as we have guided earlier also, because we rationalized in
	certain states due to the low contribution and because of the input
	cost increase. Secondly, in this quarter, particularly, as Amar just
	mentioned, there has been delay in some state excise policies where
	there were elections. And in Telangana also, the pipeline inventory and
	the receivables were checked. However, we see that we will be on a
	muted growth. And overall, we guided that 4% to 5% growth, which we
	aspire from the regular category.
Abhijeet Kundu:	In Telengana what is the status of the receivables now? I mean, have
	they paid major part of it or good part of it is still remaining? What is
	status because that also impacts volumes, right?
Amar Sinha:	The payments in Telangana are coming on a slower pace. But
	payments are coming, that's most important. The government agrees
	that payments will be released to also build up their margins and their
	stock supply. So, I think we have been getting payments on a very
	frequent basis. And accordingly, we are supplying based on payments.
	This trend is likely to continue for some time.
Dilip Banthiya:	Industry also is represented to the government on these aspects and
	there is a regular interaction between the industry and the
	government and I think there will be improvement in future.
Moderator:	Next question is from the line of Harit Kapoor from Investec.
Harit Kapoor:	Congrats on good results. I just had two or three questions. One was
	already external issue with elections, certain state issues, delay in
	excise policy. In your best estimate, what would be the extent of
	volume that industry lost on account of this -- on account of these
	fluctuations in the quarter. Just trying to understand what could have
	been steady state growth I know had some of these things not
	happened?
Abhishek Khaitan:	Yes. I think it would be, it is just an estimate, but I think it should be
	close to about 3% to 4%.
Harit Kapoor:	The second thing was on pricing. You mentioned 175 basis points on
	pricing on a Y-o-Y basis. Given that the policy this time a bit later in the
	year, later during the quarter also because of the elections, do you
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	expect the 175 bps to be higher as the quarter progress or to be in the
	same 1.5% to 2% kind of range for the year in your opinion?
Dilip Banthiya:	So, on quarter-on-quarter basis, I said sequentially it was 55% but the
	impact of the price increase on annual basis. Y-o-Y basis on 170 basis
	points. And we expect the price increase for the whole year to remain
	between 150 basis points to 170 basis points.
Harit Kapoor:	Any more states left for pricing in this year? Or do you think that's
	largely done with most of the policies through now?
Dilip Banthiya:	Some are considering it and you will come to know soon. There are
	some certain big states which are going to get. Yes, we are hoping it
	will happen sooner than later.
Harit Kapoor:	And lastly, on the capex side, obviously, the large capex is now done
	with. But if you could just give us a sense of now what the steady state
	from this year onwards? How are you looking at capex?
Dilip Banthiya:	So, after the major capex or maintenance capex and some capex from
	brand etc. will be ranging between INR 70 to INR 80 crores annually.
Harit Kapoor:	Which will be reflected in this year as well, right? That '25 should be...
Dilip Banthiya:	This year, there will be left out capex of the major project, which will
	be INR 80 crores to INR 90 crores and then maintenance capex of INR
	60 crores to INR 70 crores.
Harit Kapoor:	So, INR 150 crores this year and then it goes to INR 70 crores, INR 80
	crores something.
Moderator:	Next question is from the line of Vishal Gutka from HDFC Securities.
Vishal Gutka:	Congrats on a good set of numbers. Three questions from my side.
	First is on there was a news article stating that in the restricting
	surrogate advertising for liquor brand. So, in case you heard from
	industry, if you can elaborate more on this because since we are
	creating a lot of new brands, how it should impact us?
Amar Sinha:	First of all, we must state that the government has not said that you
	cannot advertise. Actually they are talking about advertisement of
	surrogate brands, which the objective is to prevent misleading ads.
	However, the government is talking about brand extensions, which
	can be advertised with the same brand name and you must have a
	revenue model for it, which is quite justified and logical. So as far as
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	Radico is concerned, we feel that we will respect the law of the land.
	We are geared up to follow the guidelines that we are being sensitized
	with and we'll follow that.
	Secondly, this will also result in companies that are bigger and
	organized to adopt more innovative and creative marketing on the
	ground. So, where the consumer interfaces and results in impulsive
	buying, we will be able to showcase some of our brands more
	creatively and I think it's fine with us. It will not impact us negatively.
	We will be able to handle it proactively.
Vishal Gutka:	Got it. Question on non-IMFL. So, in the last call, you highlighted that
	annual sale will be around INR15 million to INR15.5 million in FY '25.
	Going forward in the coming years because we'll be captive using this
	the product coming out from here. So how we see sales in the coming
	years '26, '27 for non-IMFL segment?
Dilip Banthiya:	So, the non-IMFL segment is basically, we are utilizing our Sitapur
	Greenfield Facility now for 90%. So, the non-IMFL segment growth,
	which has been there because of the growth effect and from Q3
	onwards, growth will be in line with the industry. And where we see
	because of the base effect going out in the country liquor UPML 6% to
	7% growth and otherwise in the alcohol. So, it will be in the range of
	10%, 15%. Right now, it is 50%-50% because of the base impact.
Vishal Gutka:	10%, 15% growth will be there in the '26, '27 you're highlighting?
Dilip Banthiya:	'26, '27.
Vishal Gutka:	Yes, on non-IMFL segment.
Amar Sinha:	See, I'll tell you what the state policy actually states that there should
	be a 7% to 8% growth in the lower segment. And I think we will grow
	in line with the excise policy structure, which is about 7% to 8%.
Vishal Gutka:	Sir, last question is on , I think a lot of states have come out with budget
	-- states budget during this -- during the quarter maybe 2Q. So, any of
	the state you see drastic increase in taxation in any specific state and
	what is the action plan you are taking, where you're allowed to take
	price increase and certain things dependent upon the government. I
	just wanted your thoughts on this?
Dilip Banthiya:	States are proactively looking at increasing the revenue.

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Abhishek Khaitan:	In fact, there are few other states, which are planning to rationalize the
	duty. So, if that happens, it is very good for the industry. So, I think if
	the governments are now quite proactive and they feel that if it's highly
	taxed, then it leads to less of sales, etc. So, in fact, they are talking of
	duty rationalization in states, which is a very good sign for the industry.
Vishal Gutka:	Sir, just last question on the margin trends. I think last call, you
	highlighted you're targeting mid-teen margins by end of FY '26. So that
	holds right 15%, 16% margins by FY '26 margins?
Dilip Banthiya:	Yes.
Vishal Gutka:	Got it. Great sir. Wishing all the best for future quarters.
Moderator:	Next question is from the line of Mr. Himanshu Shah from Dolat
Capital.
Himanshu Shah:	Just a couple of questions. One in past few quarters back, we had
	indicated that you will be looking for launching one more whisky in the
	upper prestige segments. Are those plans still on? And by when do we
	expect to launch that particular whisky?
Amar Sinha:	So, first of all, Himanshu, as you are aware, we have launched four
	luxury products just in the last 30 days. And these products are what
	we are going to focus on in the near future. However, the new products
	that we have spoken about in the past are also on the growing trend.
	And sooner than later and when the time is appropriate, you will get
	to hear from us on them.
Himanshu Shah:	Okay, sure. And that should largely fill the gap in the portfolio or we
	would have any further gaps in the portfolio from a positioning
	perspective, especially in the whisky segment?
Amar Sinha:	Yes. First of all, that will fill the current gap that there is. But if you look
	at the trend of Radico, now we have started creating segments by
	launching products in the luxury segment. So, we are the ones who are
	creating gaps for others. And there's a small one, which we will fill up
	in the times ahead.
Himanshu Shah:	Secondly, sir, are we seeing any increased competitive intensity from
	regional or national players in the P&A segment and then even in the
	luxury segment because we are seeing a lot of new brands coming up
	in this space. So that creating any kind of headwinds or that should be
	careful of?
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Amar Sinha:	See, I'll tell you there are two situations. One, regional players are
	introducing new brands in P&A and below, actually, not in P&A. P&A
	upwards only organized companies are creating brands and we are
	ahead of others. As far as the regional players creating brands in the
	luxury segment is concerned. today, it's a nonissue right now and we
	are not too worried about it.
Himanshu Shah:	Okay, sure. And last question, just on raw material basket. You had
	already provided color but some more granular color, if you can
	provide maybe on broken rice because that has seen significant
	inflation. And now the elections are over, I think the FCI is also sitting
	with significant rice. So, are we envisaging any kind of softening taking
	place? And why hasn't taken place till now in the broken rice prices?
Dilip Banthiya:	So actually, Himanshu, these prices, which had risen up to INR28,000
	or so the broken rice and have seen some softening in the April and
	middle of May. But after that government has taken one decision of
	increasing the MSP, again, the sentiment went toward the little price
	increase. And since it is a non-season, government is also having
	stocks with FCI, which is much more than what they require even for
	distribution in PDS etc. But still, the decision on FCI rice is awaiting. If
	there is some allocation for the ethanol in the FCI rice, I think
	sentiment will come down. What we see with next crop being strong
	and the monsoon in the country is good. We still feel that these prices
	are the peak and what should be over, but let's hope we can't predict
	it.
Himanshu Shah:	Okay. What would be the inflation in glass bottle prices or deflation,
	both on a Y-o-Y and Q-o-Q basis?
Dilip Banthiya:	Last year, we had seen a steep inflation and it was to the tune of
	something around INR 9,000 to INR 10,000 per tonne. But after that,
	the gas price and the other input cost price have come down. So, some
	softening from Q2 onwards, we can see in this.
Himanshu Shah:	Okay. And what kind of softening, sir, we are looking at?
Dilip Banthiya:	Some corrections. There's some corrections that will take place in Q2
	itself.
Moderator:	The next question is from the line of Prolin Nandu from Edelweiss
	Public Alternate.

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Q1 FY2025 Earnings Call Transcript