FY24Q2

• Agchem: lower realization, high channel inventory across the market. Prices have definitely bottomed out

• Nano Urea and Titanium Dioxide will start contributing in FY25

• TiO2: should achieve 12000 tonnes (75-80% utilization) and 225-250 cr. Margins are under pressure recently

• Nano urea has not seen good adoption from farmers. Expect 17-19% margins

• 2,4-D price: $1.9-2; Bifenthrin price: $20; Lambda: $15-16

• Capex

  • TiO2: Stabilization will finish in Q3, have spent 275 cr.

  • Captive power plant: have spent 100 cr. with 10-12 cr. more to be spent

  • Nano urea: Will commission in March 2024. Out of planned 150 cr., will invest 75 cr. by March 2024

  • Phase 2 of agchem MPP expansion has been put on hold

  • Maintenance capex is 10-15 cr.

• Receivables have increased from 90-100 to 100-110 days

Disclosure: Not invested (no transactions in last-30 days)

https://twitter.com/itsTarH/status/1728411875317301259?t=I942WV1Gw92adMSzSNTTIA&s=19

It seems like AI is a real threat. It’s not a matter of if, but when. There will be no entry barriers or moat once AI is advanced enough because all it will take is one AI tool subscription. I won’t be surprised if VFX production moves in-house after that. How can we value short-term growth if there is no terminal value?

Disclosure: Not invested

At 60% YoY growth rate for profit, it would take 4 quarter for PE to reach to 30

Concall notes FY24 Q2

Resilience Amidst Supply Disruption:

• Overcame 18-day supply halt from FCI swiftly.
• Bengal plant adapted, produced ethanol from maize.

Market Dynamics and Adjustments:

• Faced FCI ban during peak rice and maize prices.
• Despite customer price revisions, experienced margin compression.

Outlook for Margin Improvement:

• Anticipating increased margins in Q4 with favorable kharif crop.
• Considering in-season raw material storage to manage volatility.

Operational Updates and Expansion:

• Awaiting regulatory nod for additional 120 KL capacity.
• Jharkhand and Bengal expansion to reduce production costs by 5%.
• Stable fuel costs maintained with technology upgrades.

Strategic Initiatives and Brand Performance:

• Secured one-third of fuel demand through recent auctions.
• Boiler technology upgrade in Haryana underway.
• Prestige brands gaining momentum with innovative offerings.

Consumer Segment Summary:

1. Premium Segment Surge:

• Q2 volumes: 0.08M cases, up 143% YoY, 68% QoQ.
• Prestige brands contribute 6.1% to total consumer revenues.

2. Geographic Reach:

• Presence in UP, West Bengal, Delhi, Haryana, and Punjab.
• Robust routes in Delhi, West Bengal, and Haryana; plans for UP, Punjab, Rajasthan (Q3), and Jharkhand (Q4).

3. Revenue Growth:

• Total consumer revenues up 24% YoY in Q2 FY24.
• Mountain Oak Whisky expands nationwide.

4. Product Momentum:

• Terai Craft Gin broadens distribution.
• Snoski Vodka expands in Haryana, West Bengal, and Delhi.
• New launches in premium rum (Q1 ’25) and super premium malt whiskey (Q4 ’24).

5. Strategic Branding:

• India Craft Spirit Company consolidates highest price offerings.
• Utilizes four generations of promoter’s alcohol industry history.

6. Value and Value Plus Success:

• Volume growth: 12% YoY to 3.54M cases.
• Average realization grows 9% YoY to INR 558 per case.
• Global Green captures 5% market share in whiskey flavor.

7. Market Dynamics:

• Rajasthan market share: 35% in Q2 FY24, up from 34% in Q2 FY23.
• Dominates Rajasthan with a 61% market share in the value plus segment.

Financial Highlights from Q2

1. IMFL Loss and EBITDA Burn:

• IMFL loss in Q2: INR 6.5 crores.
• Projected annual EBITDA burn: 20-25 crores, with a potential decrease as volumes increase.

2. Ethanol Procurement and Pricing:

• OMCs’ ethanol procurement tender underway.
• Current ethanol prices: 64 for rice, 66 for maize.
• Prices for the new year pending, expectations of stability in rice prices and potential action on maize ethanol.

3. Impact of FCI Rice Procurement Challenges:

• 18-day disruption led to production halt in Bengal and Jharkhand.
• Shift from FCI rice to maize and broken rice impacted profitability.
• Estimated impact: INR 5 to 7 per litre for subsequent supplies.
• Expected 8% decrease in grain costs in H2, impacting from December to March.

4. Power and Fuel Costs:

• Power and fuel costs fluctuated between INR 1.8 to INR 2 per GCV.
• Absolute power and fuel spend for Q2: INR 59 crores.

5. Net Debt (as of September 30, 2023):

• Net debt, excluding cash and cash equivalents: INR 235 crores.

Business Strategy and Expansion Highlights:

1. Product and State Metrics:

• Key products include Governor’s Reserve, Oakton, Mountain Oak, Terai Gin, Snoski, with new launches in premium malt whiskey and rum.
• Strong presence in West Bengal, Delhi, and Haryana; upcoming launches in UP, Punjab, Rajasthan, and Jharkhand.

2. IMFL Business Growth:

• Vision to invest in and strengthen the IMFL business.
• Aim to achieve 20% of consumer business share from IMFL.
• Focus on diverse portfolio and innovation alongside established products.

3. Innovation and Brand Strategy:

• Ongoing innovation, e.g., launching a new flavor for Snoski.
• Emphasis on transformative products for brand success.
• Core products like Mountain Oak, Oakton, and Governor’s Reserve for market presence.

4. Market Dynamics:

• Stronger market presence in West Bengal, Delhi, and Haryana.
• Expansion plans for UP, Punjab, Rajasthan, and Jharkhand in the next six months.
• Consideration for launch in one additional new state.

5. IMIL Business Expansion:

• New launches planned in Haryana, Delhi, Rajasthan, and West Bengal.
• Limited expansion in other IMIL states like UP and Punjab.
• Strategic decisions aligned with business priorities.

Highlights:

1. Utilization:

• Q3: Expected 80-85%, pending consent for expanded capacity.
• Q4: Full capacity utilization target at 95%.

2. Financial Impact:

• FCI disruption, higher grain prices: INR 42 crores impact.
• Anticipated profitability improvement post-Kharif season.

3. Revenue Composition:

• Ethanol: 30-35% of overall revenue.
• Stable ENA pricing; Q3, Q4 seasonal uptick expected.

4. Raw Material Strategy:

• Maize as key input; ongoing farmer education.
• Short-term: Rice primary for Bengal plant.

5. Capacity Expansion:

• Capital work: INR 155 crores; INR 115 crores expected to be capitalized in H2.
• Upgradation ongoing; Bengal, Jharkhand expansions.

6. Packaging Costs:

• Marginal impact; glass cost up, offset by reductions in CC box rate, reduction in paper prices and pet resin prices
• Costs in material consumed, not in other expenses.

7. Revenue Diversification:

• Active management of ethanol, ENA sales.
• Utilization of leftover ENA capacity through ethanol sales.

8. Capex and Depreciation:

• Expected INR 100 crores capitalization; total capex INR 115 crores.
• Constant depreciation in H1.

Ethanol Pricing Outlook:

• Anticipates slow reaction from oil companies to market changes.
• No significant price increase expected in the next few weeks.
• Government’s E20 blending mandate likely to influence price revisions.

Potential Downward Revision:

• In case of sustained low prices, possibility of downward revision.
• Long-term sustained reduction could lead to a downward adjustment.

Timing of Price Revisions:

• Price announced at the end of October for the next year.
• Revisions happen as needed, not limited to specific timings.

Business Margin Impact:

• Majority of margin reduction in manufacturing business.
• Consumer business also impacted, but not the primary contributor.

Price Increases and Consumer Business:

• Consumer business experienced margin reduction due to raw material price increase.
• No price increases in the consumer business contributed to margin challenges.

Sustainable Margins for Blended Business:

• Depends on the growth rate of the consumer business.
• Growth rates in Value, Value Plus, and IMFL show promise.
• Further guidance contingent on raw material price correction in December and Q4.

Future Guidance and Considerations:

• Waiting for new crop and raw material market stabilization.
• Plans to store inventories during the seasonal downturn.
• Longer-term guidance and sustainable margins assessment expected after the raw material price correction.
• Anticipates some price increases in the consumer business around February, March, and April.

FTA Agreement Impact:

• Immediate benefit: Reduction in scotch prices used in blending.
• Increased competitiveness of scotch in the country.

International Market Exploration:

• Immediate focus on TERAI for exports.
• Global interest in Indian spirits industry gaining momentum.
• Aim to establish Indian spirit brands with sustained global presence.

Bored Beverages and Market Expansion:

• Initial focus on Delhi and Haryana.
• Future expansion to align with Globus Spirits’ operations and premiumization strategy.

Possibility of Globus Brands in Mumbai and Pune:

• Bored Beverages currently not operating in Mumbai and Pune.
• IMFL business initiated with Terai Gin; other brands to follow.
• Maharashtra entry prioritized based on strategic value and profitability.
• No specific timeline provided; not a current priority market.

Consumer Business Revenue in Q2: Seasonal Softening

• Q2 typically softer than Q1 due to excise year dynamics.
• Q1 sees inventory replenishment, new players entering the market.
• Q3 tends to be higher with festive seasons in October-December.
• Q4 may show softening as business partners prepare for excise policy renewal.

Franchise Bottling Impact and Outlook:

• Franchise bottling is a small part of revenue.
• Impact observed in Q1; management expected normalcy in Q2.
• Current status indicates persistence of impact.
• Difficulty in predicting future growth as it depends on fortunes of brand partners.