Allied Blenders and Distillers Ltd
NSE:ABDL
Allied Blenders and Distillers Ltd
Allied Blenders and Distillers Ltd. (ABD) is a formidable player in the Indian liquor market, weaving its narrative through a combination of strategic acumen and brand development. The company, established over four decades ago, carved its niche in a highly competitive industry by focusing on the burgeoning whisky segment, distinctly understanding the palette of the Indian middle class. With its flagship brand, Officer’s Choice Whisky, ABD capitalized on the volume-driven value segment, rapidly becoming one of the best-selling whiskies globally. This success rests on mastering the art of balancing quality and affordability, blending superior malts and grains to craft a product that resonates with a vast demographic. Additionally, the company progressively expanded its portfolio, incorporating premium and semi-premium offerings to tap into an aspirational consumer base, showcasing its dexterity in adapting to evolving market trends.
The financial pulse of ABD beats around its robust distribution network, a vital cog in the company's growth machinery. Through a meticulously organized supply chain, the company ensures its brands penetrate both urban and rural markets, spanning the diverse geographies of India. This expansive reach is complemented by strategic marketing efforts, fostering brand loyalty and visibility. ABD's revenue streams are predominantly driven by the high margins and steady volumes in the value whisky segment, with an increasing contribution from its premium line-up as it courts more discerning consumers. By leveraging economies of scale and understanding regional consumer behaviors, ABD sustains its competitive advantage, continuously reinforcing its market position and driving its economic engine forward.
Earnings Calls
In Q3 FY25, Allied Blenders and Distillers (ABD) reported total income of INR 2,346 crores, a 15.5% increase quarter-over-quarter. Operating income rose 12.4% to INR 977 crores, with a PAT of INR 57 crores, up 20.8%. EBITDA grew 14% to INR 120 crores, boosting gross margins to 42.8%. Demand surged due to festive seasons, enabled by the successful launch of the ICONiQ White brand. ABD aims to increase its Prestige & Above segment from 42% to 50% in three years, targeting a 300 basis point improvement in EBITDA margins. New investments and acquisitions, including Woodburns Whisky and Rock Paper Rum, align with their premiumization strategy.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of Allied Blenders and Distillers Limited hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijeet Kundu from Antique Stockbroking 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 FY '25. 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 Q3 FY '25 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 a successful 2025, and thank you for taking your time out in the evening to participate in our earnings call for quarter 3 of FY '25.
A little bit about the Indian spirits industry overview, as expected, the consumer sentiments were positive with celebration of social gathering in the festive and the wedding seasons during 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 & Above category.
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 & Above category, premium sprits continued 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 rate growth of the key industry players. We also witnessed a 2x growth in the state on a year-on-year basis.
Now coming to our performance during the quarter 3 of FY '25, this has been a quarter of overall strong operational performance, coupled with key strategic initiatives undertaken. Our total income stood at INR 2,346 crores, which was higher by 15.5% versus INR 2,031 crores in Q2 FY '25 and higher by 12.9% versus INR 2,077 crores in quarter 3 FY '24. Income from operations, at INR 977 crores, was higher by 12.4% versus INR 870 crores in Q2 FY '25 and higher by 8.9% versus INR 897 crores in Q3 FY '24. EBITDA was at INR 120 crores, which is higher by 14% versus INR 105 crores in Q2 FY '25 and higher by 94.7% versus INR 62 crores in Q3 FY '24. PAT, at INR 57 crores, was higher by 20.8% versus INR 48 crores in Q2 FY '25.
Moving to our top line performance, from a volume performance perspective, overall, we delivered 8.9 million cases in quarter 3, a growth of 7.1% over Q2 FY '25 and 11.3% versus 8 million in Q3 last year, FY '24. I have 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 FY '25, our revenues saw a quarter-on-quarter 12.4% increase compared to INR 870 crores in Q2 FY '25, driven by robust growth across all our millionaire 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 crores in Q3 FY '24, primarily due to growth of our latest millionaire brand, which is ICONiQ White, which has helped us in increasing our market share in the P&A category on a Pan-India level. The growth was led by premiumization of our portfolio with continued increase in P&A volume to 42% in Q3 FY '25 as compared to 39.7% in Q2 FY '25 and 40.9% in Q2 FY '24. The P&A value salience also increased to 52.1% in Q3 FY '25 as compared to 49% in Q2 FY '25 and broadly in line with 52.3% in Q3 FY '24. Additionally, our overall realization per case improved by 3.8% on a quarter-to-quarter basis, led by state 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 FY '25 as compared to 35.3% in Q3 FY '24, that is the last year, and broadly in line with 42.9% delivered in Q2 FY '25.
Our gross margin improvement journey is driven by the following initiatives: first, our continued focus on profitable state brand mix; second, continued buildup on the efficiency and 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; low pricing of various packaging materials in PET bottles and others; continued benefits from various packaging material cost initiatives undertaken in FY '24 on a higher volume base of Mass Premium category; continued improvement in the market bottle utilization from 13% in FY '24 to about 18% in quarter 3 FY '25 on a high 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 FY '24 and on similar levels as compared to Q2 FY '25.
On the OpEx front, the total operating expenses as a percentage to income from operations was at 30.7% in Q3 FY '25, which is marginally lower than 30.9% in Q2 FY '25.
Moving on to interest costs, our interest costs are marginally higher at INR 27 crores in Q3 FY '25 as compared to INR 25 crores in Q2 FY '25, however, significantly lower as compared to INR 46 crores, Q3 FY '24. The interest cost was marginally higher on a quarter-on-quarter basis, mainly due to higher net debt. The increase in net debt was largely due to high working capital deployment for high volume in the quarter, continued impact of [ overdue ] in the Southern state of Telangana and kick-start of a capital cycle which we initiated during the quarter.
Our net debt as of December 31, 2024 was at INR 763 crores as compared to net debt of INR 606 crores as on 30th September '24. Overall, we were able to deliver a net profit of INR 57 crores, a growth of 20.8% versus INR 48 crores in Q2 FY '25, mainly driven by an increase in EBITDA, as stated above.
Moving on to our new brand, Arthaus Collection, this is a blended scotch malt. ABD forayed into the luxury spirit market in November '24 with the launch of Arthaus Collective, which is our first blended malt scotch whiskey. Arthaus was crafted from our [indiscernible] blend of Single Malts [ from ] Speyside and the Highlands in Scotland. The whiskey [ features ] a perfect balance of depth and sophistication with the most rich, distinctive flavor notes that captivate the palate. It is inspired by the Bauhaus movement in Germany and reflects the unity of artful [indiscernible] tradition with innovation to create an exceptional drinking experience to consumers who are constantly looking at newer brands. With Arthaus, ABD has elevated its portfolio, catering to the growing demand for the luxury space and reaffirming its commitment to delivering high-quality products to consumers. Currently, we are available in the 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 Espresso Coffee Gin, have just been launched in the current months, 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 FY '25, expanding its presence for 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 million to 5 million cases, which is more than 2x volume that we did in the last financial year.
Moving on to some key initiatives that were undertaken in Q3 FY '25 and also covering some initiatives that were taken in January '25, 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 Contemporary Indian Whisky brand. Woodburns is a distinguished Indian malt whiskey aged in handcrafted barrels crafted using 100% Indian ingredients. This acquisition, valued at INR 39.5 crores, includes the intellectual property for the brand Woodburns and other luxury brands from Fullarton Distilleries Private Limited.
Currently, Woodburns is available in three states and Union territories, and we plan to expand into six additional states on an accelerated basis. So Super Premium whiskey is poised for significant growth with an estimated annual growth rate of early deals. 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 start-up behind premium rum brand, Rock Paper Rum. This investment, amounting to INR 9 crores, secures up to a 51% equity stake in Good Barrel linked to business milestones with an option to acquire entire paid-up capital share. Rock Paper Rum currently is available in eight states with five distinct variants, including white rum, dark rum, flavored rum, and presents a significant growth opportunity in the 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 expansion through cost synergies. The premium rum market is projected to grow at a 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 our horizon in the global market by increasing our export footprint to 22 countries from 14 countries at FY '24, mainly by increasing our presence in high-growth markets of Africa. The latest millionaire 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 4 FY '25. Also, I'm happy to share that ABD has secured approval for exporting this product to the United States of America. The label for our product has been approved, and we expect supplies to commence in quarter 1 FY '26.
Moving to a CapEx update, our ENA unit acquisition in Maharashtra, we have completed the acquisition of Minakshi 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 plant 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 malt plant project and PET plant project, which are being set up in our manufacturing facility in Rangapur, Telangana, where we already have our ENA facility. We have initiated ordering of equipment from the OEM and relevant [ state-wide ] approval application has been initiated. We expect the PET plant to operationalize by Q3 FY '26 of the coming financial year and malt plant to start production in Q4 FY '26 as per our time line.
Overall, we have built around our future-ready framework, which has broadly four pillars, with a clear road map of where we want to be in the next three years, improved salience of our Prestige & Above brand to about 50% from current levels of 42%. This will be driven by driving growth of our consolidated P&A whiskey segment through three millionaire brands, Officer's Choice Blue, Sterling Reserve B7 and ICONiQ White.
[indiscernible] premium-to-luxury portfolio through adoption of three-pronged model of build, buy and partner, we have already initiated on the strategy in 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 a 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 ENA, malt and certain packaging materials such as PET. We expect our margins to improve further. We are adopting a prudent capital allocation policy, which ensures that IRR of these projects ensure continuous improvement in ROCE of the company, strong focus on margin improvement to reach industry parity in gross margin of 42% to 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 cultural 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.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Wealth.
Congrats on a good set of numbers. My first question is on Arthaus and the two M&A 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 new brands, which is a rival for you. So I wanted to understand how you would build up, given that constraint of media-dark.
And 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 will you be different? Because you would need to be different so that you can get here a traction, so if you could talk about that also.
Sure. Thank you for your question. Starting with the -- 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 these 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 the time to come.
The way we are building our portfolio, we already have now five brands in this segment. We started with Zoya, and we added Arthaus, then India 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 the 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 million to 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 is 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, the consumer stays very curious. So there are many markets where we are able to do also brilliant displays of our product that captures the customer attention.
On the pricing front, Arthaus is priced in Bombay at INR 4,800 for a 750 mL bottle. It is priced almost cross-line 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. As we know, that malt consumption happens both from a committed malt consumer and a lot of blended whiskey consumer 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 in Bombay, again, between INR 1,300 and INR 1,500. So it makes it a premium -- Super Premium price point. It is cross-line to Bacardi. And as we know, in this segment, Bacardi is the only player currently. The segment is roughly 3 million cases. So 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 we'll gain market share, we'll also expand the segment.
The third brand that we spoke about, Woodburns, Woodburns is cross-line 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 is 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 Y-o-Y. Now the multinational players have almost exited Andhra and now they are coming back, and they are seeing obviously good numbers on an almost 0 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 0 base and now it is 3 market dynamics, how do you see eventually the market shares settle here? Because you already had some presence, but now more multinationals have also entered Andhra?
So first of all, I think, to compete with the multinationals across the country, Andhra is no exception. So across all markets, our brand has a certain market share.
As far as Andhra is concerned, the doubling of our volume on a 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 has got an opportunity, especially the Pan-India players like ourselves and the multinationals that we'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 5% -- between 5% and 6% of last year's volume would have come from the other market. And I think, by the time we end this year, we'll be trending more like between 8% and 10%. Between 8% and 9% of our volume come from Andhra market.
What is the profit --
Sorry?
Yes, please continue.
No, no, go ahead. You were saying profit?
Yes. And the profit and the working capital in Andhra, is it as challenging as Telangana because both were part of 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, very 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 pricing, 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.
No, 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.
The next question is from the line of [ Mikhail Koppel ] from LIC Mutual Fund.
Am I audible?
Yes, you are.
Congratulations on a good set of numbers, sir. Very good performance from both a 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 would that be -- will that take portfolios tilting towards more of on P&A, which will drive eventually margin from 12% to 13%, 14% at the EBITDA level? So just your thoughts on your -- 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 are -- have finished the CapEx cycle. We are just about starting our CapEx cycle. We expect, on back of the CapEx program, we should see, let's say, about a 300 basis point-odd 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 margins is going to be the improved salience in P&A from 43% to 50%, and also strengthening of our portfolio and national rollout of our portfolio in the luxury segment. From where we see the numbers from a current level of about 12-odd percent 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, the 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 a recent 9.2% volume growth on the popular, as well as 9.5%, 9.3% growth in terms of value terms in popular segment. So how should we think about this? Is it a demand revival? Or is it the basic [indiscernible]? Or is it just a festive thing, which should probably not play 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 is -- 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 [ tenders ].
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 [indiscernible].
Are there any book -- are there any debt on their books already, which will [indiscernible]
In case of Woodburns, we are acquiring the brand. We are not acquiring the company, right? So there is no debt [ as well as Good Barrel ]. There is a very small number of, I think, INR 30 lakhs or odd of some promoted debt sitting, so nothing significant.
The next question is from the line of Kinjal Desai from Nippon India Mutual Fund.
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're looking at significant growth? So maybe some clue on how reinvestments are in line with especially your guidance of margin expansion?
Thank you for your question. I will 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 accretive. 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'll just focus on profitable markets and leveraging our distribution strength.
As far as the new brands in the luxury portfolio are 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 cap neutral. And over a period of maybe two years, we should start looking at these brands to actually start contributing on the EBITDA. So the luxury portfolio should not take away from our current EBITDA and will start adding to EBITDA within two years of the brand sort of reaching a critical mark.
The next question is from the line of Kunal Shah from Jefferies.
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? So 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 made 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 it 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 CIBC. And in this case, it's a joint exercise with SY 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.
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 where -- there was a phase when the payments were uncertain, where a lot of players were hesitating whether they 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 a smaller player who has vacated are not supplying. But again, those key players are continuing to support on the back of a dialogue that is currently going with the Telangana government.
The second question is on -- so how should we think about pricing going into the next year as the excise cycle 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, CIBC, is actively switching [ through ] 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 NSV increase could be up to about 3% on a sort of weighted average basis. But providing specific guidance at state level [indiscernible].
The next question is from the line of [ Avi ] from Macquarie.
I just wanted to double-check on the input cost. There has been a hike announced by the government in ethanol. I wanted to ensure that that is factored in [indiscernible].
I'm sorry to interrupt you, Mr. [ Avi ], but your line -- your voice is breaking, sir. We cannot hear you clearly.
I'm sorry. Is this better?
Yes.
Yes. Thank you.
I just wanted to check, when you were -- [ 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 period of capacity addition now that it is behind us? Is that something that worries you?
Sorry, the question on glass was not clear. If you don't mind, repeat it, 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 is talk about capacity addition now more or less behind us. So I would love to hear your thoughts on how do you see this.
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. For ethanol production, full rice can be used, and there's a significant price reduction of INR 5.50 [indiscernible] 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 if -- once this price gets settled -- the new FCI rice price gets settled, we are hopeful that it will take away some pressure on broken rice. So that's our outlook where we look -- when we said 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.
And sorry, sir, when do you typically -- when is the typical negotiation cycle in glass?
For 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 input costs, positive or negative prices remain stable. So I guess -- what we've done is we have moved away from a dynamic of month-on-month prices to an agreed formula, which has now been running for several quarters. And that is giving us a better view on the prices and avoiding a need to sort of get into constant negotiation.
Perfect. Sir, my second question is on the marketing side. Now you have big movement towards the luxury portfolio. And that segment is relatively consolidated, or there are two large players. Do you believe that while at the EBITDA you don't expect to 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 thought -- share how you see this growth?
See, our bet is on the consumer. Consumer is sort of -- is looking for newer experiences and therefore, as long as your proposition is unique and presented in an interesting manner, I think consumer will certainly give any 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 a 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 are high gross margin. Another focus is that -- how do we accelerate the rollout of this brand? So we gain from multiple markets, and therefore the total volumes that we do also generate free cash to be able to invest in the brand.
The next question is from the line of [ Sami ] from MK Ventures.
Congratulations on a very strong set of performance for the second consecutive quarter. My first question is related to the brand portfolio. So we have done a couple of launches in the last two, three quarters, including Russian Standard Vodka, Arthaus. So 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 will be quite helpful.
So Arthaus was launched end of November, early December, so 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, we have seen, in quarter 3 over quarter 2, about a 50% quarter-on-quarter growth on this brand. And as we are rolling out in new markets and expanding our distribution, hopefully, this growth momentum will continue.
Yes. And anything on Russian Standard Vodka?
Russian Standard, we are expecting -- it is the BIO brand. We're expecting a stock availability in the month of February. So it's yet to hit the market.
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 benefit of that in Q3 volumes, or the pickup will happen now going forward?
Yes, 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 this growth coming in this quarter.
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? And how do we expect the Delhi market to perform in the coming quarters?
So 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. So there's a 5 to 6x growth in Delhi on the back of a stable policy. And 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. And just a related question to this, before the entire disruption happened in Delhi, how large markets -- 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 1 million-odd -- about 1.5 million cases prior to the policy disruption. That would be the size of the market share we had. I would say, about volume, 4% to 5% volume coming from Delhi.
I think you should keep one thing in mind, that Delhi is also a very large premium and a luxury market. And 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. And as sooner we get those approvals, then we'll also launch those brands there. So we are happy with the fact that the policy is stable. Our mainstream brands are already selling there at 5 or 6x growth versus what we were doing earlier. And now we're selling our premium luxury portfolio in Delhi. And on back of label approvals, we'll start rolling out the brands.
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's completely reflected in our Q3 numbers.
And one related question to this, 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 time line 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 4 of FY '25 itself.
As regards to full expansion, we've already applied for the necessary approval, which we expect will take between three to five months. Thereafter, it will take us about 12 to 15 months to complete the project. So currently, we are anticipating benefits of this to start flowing in quarter 4 FY '27 of the additional capacity that we'll put in [ Maharashtra ].
The next question is from the line of Sanjaya Satapathy from Ampersand.
So my question is that you've guided for this 300 basis point margin expansion, and it is contingent on your completion of CapEx. So does it mean that a bulk of the CapEx -- the bulk of the margin expansion will come towards the end of this three-year guidance that you have given?
So as far as our [indiscernible] Minakshi project is concerned, like I said, it goes revenue and EBITDA accretive to next month, which is February of '25.
As far as PET project is concerned, which is coming up in Telangana, we'll go revenue and EBITDA accretive by quarter 2, so let's say, August '25. The malt plant that is coming in Telangana should go revenue and EBITDA accretive in Q4 of FY '25. So we will start seeing benefits of the Minakshi acquisition in February, PET from August onwards and our malt unit from Q4 of -- sorry, FY '26 quarter -- last quarter FY '26. Only the 150 KL facility that we'll put in the Maharashtra -- for Maharashtra, which I explained, will happen in Q4 FY '26.
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 can really -- which you're trying in the business?
So just to keep it simple, we are currently at about 12% EBITDA margin. We expect a 300 basis point improvement in our gross margins on the back of this CapEx. That will take us to about 15%. And any improvement that will surely happen on the back of premiumization will reflect over and above that number.
And 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 more -- and most of them are 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 saliency will be achieved?
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, slightly. You have to think about our luxury portfolio from 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 the tightrope-walking that we want to do.
The next question is from the line of Rohan Patel from Turtle Capital.
I have questions. I'll divide the question into two parts. One is your Premium segment and one is -- sorry, one is for our Prestige & Above and one is for Premium-to-Luxury. So we have seen that ICONiQ White Whisky is one of the world's fastest-growing whiskies, which comes from Allied Blenders. So what has really worked well that we have been growing this whiskey at the fastest pace, if you can explain us?
They say a magician never reveals his secrets, but I will do that for you. See, this segment is 120 million cases. The brands that are operating in this segment are very, very successful, are 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. So 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.
So 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. So if you look at the label, it's white in color. It's brown. There is no coat of arms. So the reason of the success of the brand ICONiQ is sort of deep-rooted in a key customer insight that the younger consumers are looking for something that sort of they can connect with. And in ICONiQ, they find a brand that is sort of talking their language.
And how do you think that you have added a lot of your brands in Premium-to-Luxury segment? And what we have seen, that a lot of incumbent players are also adding a lot of expressions and brands in this segment, and 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. So 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? So how does this help us? And what advantages do we have over others that creates a certain competitive advantage for us?
I think it starts with 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 spring growth -- springboard, so to speak, to be able to tide over the complexity in 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 [ distribution ] center, which is our innovation center out in Aurangabad. And that's something that is -- it's something that gives us the comfort that we created the right [ blend ]. So that is really what we call a right to play, saying that we have the distribution behind us, we have manufacturing behind us, we understand blends, we understand our packaging. And we have built the infrastructure that is required for key accounts and for on-premise.
And as you will recall, we have created a new entity, which is ABD Maestro, along with Ranveer, which will focus on the luxury brand portfolio. So the attention that some of these luxury brands need in terms of our route to market, how do we take it to social media, the whole idea is that this new entity will focus on the entire luxury portfolio along with sort of the phenomenal reach of a celebrity like Ranveer brings on 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 is being -- it also will be taken to the market through ABD Maestro with sort of reach of a superstar like Ranveer.
So if we have to boil it down into [indiscernible] the existing distribution channels that you have and experience over this 3.5 decade, plus the brands you have built up, the addition for premium and luxury was that you have to get the right liquid, right packaging story, and it has to be distributed in the right places to make it a success for you in this segment.
Exactly. And if I may add one point, it's that, in this segment, it's about constantly providing your experiences. And as we will see in Zoya, we launched in January of '24, and we already launched the first Watermelon Gin and Espresso Coffee Gin. So in this segment, it's also about consistently offering newer, exciting offerings. So it's not about this liquid at a point of time, but it's consistently doing the new stuff. So that's another capability that we believe we have to be able to consistently offer newer, exciting variants to the consumer.
Best of luck for the future.
The next question is from the line of [indiscernible] from [ Arve ].
So my first question was on the CapEx side. So what is the kind of CapEx we are envisaging for this year and the 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 FY '25, about 60% in FY '26 and the balance figure will be in FY '27. So this INR 527 crores would need to be invested over a period of three financial years.
And sir, if I may ask you another 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?
Were Telangana payment was to be resolved, the payment cycle would be between [ four to five ] days, give or take.
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 would also be selling it [ outside ]?
No. PET bottle -- we 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. The EBITDA will start coming in from quarter 2 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 onetime change on the back of restating asset life for some of the [ lease ] assets in this quarter.
So we should see a similar trend, or it's just a one-off?
This is a one-off. So we see no major changes in our depreciation other than the depreciation that may come on the back of the new CapEx [indiscernible].
The next question is from the line of Pranav Shrimal from PINC Wealth Advisory.
Congrats on a great set of numbers, sir. Most of my questions have been answered. I just had one question. Sir, I just want to 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 provide the numbers.
We do not track EBITDA margins on the segments. We track gross margins.
If you could just help me with 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 40% to 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 volumes?
Volumes, yes, in terms of value and volume both?
Yes, sure.
Yes. So I was just trying to understand. You said that luxury portfolio will take around two, three years to come -- to have an impact on the EBITDA level.
Yes, 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 was just trying to understand the reason why is there a gap? Is it because of the CapEx, or is it some other reason?
No, it has nothing to do with CapEx. First is that the brand volumes will grow over a period of time. And even though they are a high gross margin brand, but as volumes grow, we will start getting contribution from this brand, which we intend to invest back in the brand. So we believe that, for the first two years at least, the money that we made from the brand, we will need to invest that money back in the brand. And therefore, they will -- 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 profitability.
So the amount, that you're reinvesting back into the brand. That is why it is taking --
Absolutely.
[indiscernible] 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 brands and scale them up, they will also start contributing towards EBITDA.
The next question is from the line of Dhiraj Mistry from Antique Stockbroking.
Congratulations on a very good set of numbers. So just a couple of questions. One is basic. If I look at this quarter, P&A realization per case, which we have seen drop on a Y-o-Y 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 in -- 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 quarter-on-quarter. So if you look at the P&A NSV improvement over last quarter, it 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, you will 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%.
And sir, second question is regarding gross margin improvement. The measures which we have taken of vendor rationalization in terms of payment terms, also mono-carton discontinuation and other things, which we have already done, is it like a large part of that benefit has already been come through? Because if I look at it on a sequential basis, your gross margin is more or less stable. Or is there some part of benefit that's still due in coming quarters?
So there are three parts to this benefit. The first part of this benefit is cost rationalization, like mono-carton you spoke about. The second part of this benefit is in terms of resetting the procurement rate on the back of timely payment. And the third part is in terms of a better state brand mix. So as far as the first one is concerned, we have finished the entire packaging subscription cycle. So all the numbers are now baked in. So we do not -- so no further margin contribution coming by rationalizing packaging.
As far as the procurement price reset has happened, that benefit will continue because now we're 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. However, the third part, which is the state brand mix, as the P&A portfolio improves from the current level of 42% to 50% and we continue to focus on more profitable markets, that will have an impact on the gross margins.
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 Reserve B7 and also ICONiQ White. What is the rationale behind purchasing of brands, which we have done in this quarter, versus developing in-house brands?
So I think the entire approach is, if I can put on a banner of how to make it asset-light, we have seen that there's a clear, demonstrated success of our brand, especially in Gin as a category. And therefore, we believe that some of these newer start-ups are working with a very different consumer insight. They are 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, a very, very interesting rum. It 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're very excited about the acquisition. It is regarded as the finest craft whiskey in India. And 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 -- will 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. And plus, it's also opening up doors in the international market. So it's just about a fast catch-up.
It takes 18 months to 2 years to develop and launch a brand. And therefore, we just sort of fast-forward that cycle, exactly what we're doing in Minakshi, that already have a plant there, and it's only [ top of permission ]. So it just helps us do an accelerated rollout of such strategic initiatives.
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 the very best for the year ahead.
Thank you. On behalf of Antique Stockbroking Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.