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Ladies and gentlemen, good day, and welcome to Globus Spirits Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shekhar Swarup, Executive Director, Globus Spirits Limited. Thank you, and over to you, sir.
[indiscernible]
Sir, suddenly, we are losing your audio.
[indiscernible]
Sir, your voice is still breaking. Just a moment, I'll just call you back. Participants, please stay connected while we reconnect sir back to the call.[Technical Difficulty]Ladies and gentlemen, thank you for your patience. We have line from Mr. Swarup reconnected back to the call. Sir, you may go ahead. Shekhar Swarup sir, we are unable to hear you. Can you hear us?
Yes. I can hear you.
Yes, sir. You go ahead.
Okay. I'm sorry, again, I don't know what's wrong. Thank you for joining us on this call. Mr. Paramjit Gill, CEO of Before we dive into the call, we hope that you and your families are safe.[Technical Difficulty]
Ladies and gentlemen, thank you for your patience. We have line from Mr. Swarup reconnected back to the call. Sir, you may go ahead.
I apologize for the trouble in the line today, and welcome, everyone, to this call. Before we dive in, I hope that you and your families are safe. As you're aware, the COVID-19 pandemic has rendered the last fiscal as a challenging and unprecedented year for most industries. For the alcohol beverage industry, it has meant that key consumption events such as celebrations have gone down. Restaurants, pubs and bars have been closed and demand for alcohol from these centers has seen a downward trend. However, there has been an uptick in compensatory demand that has been flowing from in-home consumption, leading to increased sales throughout shops. With the second wave emerging since March in this year, we are seeing similar trends play out in the industry again. we've been able to face this challenge head on and have been able to deliver a robust performance on the back of our 2-pronged business model, that is the Distillery segment and the Consumer segment. A testament to the resilience of this approach has been validated with over 90% capacity utilization even in this challenging year. Further, this year, we have increased our focus on improving distribution penetration of our brands as well as made talent acquisitions at key positions to help drive focus to areas of importance. This, coupled with our strategic focus on product development, continuity of operations at lowest possible costs and financial approvals has not only helped us in maintaining leadership position in many of our key segments, but has also put us in a strong position for growth in the forthcoming years. Keeping the prevailing difficult environment in mind, we have been actively engaging our staff and assisting them in overcoming any challenges that they have faced during this period. We have neither reduced salaries nor have downsized our staff in any way as a commitment to belief that we value our employees. I would now like to take you through our segment-wise journey in this year gone by. Starting with our Consumer business segment, whose share to the total revenue has increased by 50% in this year. That is from 35% in FY '20 to 43% in FY '21. The hourglass shaped markets that we have been alluding to in our previous calls continue to guide our strategy of operating in key markets. Globus Spirits is in a unique position with this product portfolio in 2 significant segments. That is the higher-end premium segment and the value segment. With this, we are able to achieve a high profitability consumer business as a scale. I now request Param to update you about these segments.
Thanks, Shekhar. Overall, we are very happy to share that despite the COVID challenges, our consumers have continued to support us with the brand helping us to grow the overall consumer segment volume by 11%, with the consumer business have any leading volume growth. This reinforces our lean the resilience of the value segment and our continued investment in growing this. All our key and potential states of Rajasthan, Haryana as well as West Bengal performed well. This is the journey plan for them. We are all aware that the consumer flirting between price points amplified in as well as in challenging times. Towards this end, we are happy to update that we have been gearing ourselves to service this. We have successfully started energizing our current portfolio across the By improving its overall delivery to the consumer as well as improving the range of our offerings to taper through the evolving pace. 2/3 of our existing brands were introduced in Q4 and further improved as well as new offerings are expected in the first 3 quarters of this year. We also mapped our journey to strengthen our rate to market capabilities. This will allow us to strive to improve our engagement at every step of the chain of the brand movement, right from reaching the trade warehouses to bearing the retailers hand. We are confident that over time, this initiative has a strong possibility of becoming our sustainable competitive advantage in the value segment, thereby, along with capability building, allowing us to significantly improve our performance on current times. Premium spirits remain a strategic importance to the alcohol industry due to the share of industry profits at the country rate. We are aware that this category has come under more pressure during these unforeseen times, and we are no exception. Globus Spirits will continue to participate in these segments directly after the merger of Unibev Limited, which is expected to be completed in this quarter. As you may be aware, we have been working on building a strong portfolio of premium liquor brands under the Unibev umbrella, keeping in line with our objective and the recent environment. We are working towards a plan that takes into account some of the recent shifts in the business environment and focuses on making sharper choices based on the following 5 key parameters: profitability of the relevant segments, of the segments in which we operate, convenience and affordability to service the market as a small player, side of the investments required as well as the time required to make a particular state business comfortable. Basic interest, we will be focusing most of our energies and resources on a few key states and improve our investments in these as we go forward. This will also mean converting resources in some other states. Our business plan also Participation in a couple of additional profitable segments in key markets in the coming years. While overall, our volumes improvements which we grew by around 13% in primary. The secondary performance came in much better at a degrowth of 11%. Oakton premium whiskey almost managed to hold on to its previous year's volumes. Overall, it has been a very gratifying quarter as well as the year. I may request Shekhar to continue with the update on the company's performance please.
Thanks, Param. Since our inception in the early '90s, the core of our business has been to set up manufacturing housing in deficit states. A deficit state is one that depends on bringing its alcohol from other surplus states in India for the use of liquor and ethanol. This strategy allows us to maximize capacity utilization at higher prices than distilleries located in surplus states from the very first day that the factory operation starts, whilst investing in our consumer business in that stage. This strategy continues to be proven as the right way forward to maximize return on equity from our industry, even as the country is looking to ramp up ethanol manufacturing capacities to service the target of 20% ethanol blending the spectrum . Due to the demand of ethanol blending, our deficit states of West Bengal and Rajasthan have not only increased the debt -- have only decreased their deficits to other creating excellent opportunities for us to invest in capacity expansion. Our 140 KL per day expansion in West Bengal is nearly complete, and we expect the plan to start production from Q3 of this financial year. with the total installed capacity at that location increasing to 250 KL per day. This will be the single largest distillery in India after the expansion is complete. Our expansion in Rajasthan is complete, and we are now producing 160 KL per day, up from 140 KL per day in Q4. Whereas the prospects in deficit states continue to remain exciting. The impact on surplus states is truly remarkable. The share quantity of ethanol required in India, even at the current level of 10% has pushed our surplus states of Haryana and Bihar into a deficit, thereby allowing us to increase margins and even consider capacity expansions in these states. We are happy to announce that we will be undertaking an expansion of the Bihar facility by 140 KL per day, and work will commence later this year. In addition, the company has already begun construction of a new facility in This facility will start production in quarter 2 of next financial year and will add to our distillery and consumer business. As we have mentioned previously, the commitment of our Managing Director, Mr. Ajay to engineering and technology has helped us drive down cost, setting up new projects to the lowest in the industry. Happy to announce that the Expansion that is now nearly fully expensed will be coming in at less than 80 lakhs per KL of capacity, and this is a record even for us. Byproducts are important for Globus Spirits, they not only help us maximize revenue from our capacity and maintain high profitability, but also help us run zero-waste factories. We currently produce -- we currently process a bevy of byproducts into value-added materials that include processed CO2 that is used for industrial as well as beverage, catering and transport applications. and also a valuable animal feed supplement that contains over 45% plant-based protein that is derived from our raw material. Byproducts contributed about 11% to our total net revenue and is included in the distillery segment. I now request Dr. Bhaskar Roy to take you through our financial performance.
Thank you, Mr. Shekhar. Good morning, everyone. Let me now run you through the operational and financial performance of the company. We are happy to report that our higher-margin consumer business has seen an increasing share of the total revenue. The contribution of the consumer users has increased from 35% in FY '20 to 43% in FY '21. The manufacturing business, on the other hand, while growing has seen its contribution both from 65% in FY '20 to 57% in FY '21. In the manufacturing segment, our revenue came in at INR 7,106 million for the full year FY '21 as against INR 7,483 million for FY '20. In Q4 FY '21 manufacturing revenues scaling at INR 1,984, as against INR 1,762 million in quarter 4 of FY '20, a strong growth of 13% year-on-year. In the consumer segment, we have seen a strong growth, not only in revenues, but also the contribution of the consumer segment to the overall business. For full year FY '21, revenues from consumer business came in at INR 5.37 million as against INR 4.47 million in FY '20, translating into a growth of approximately 24%. In terms of volume, the consumer segment saw sales of 12.34 million cases, a growth of 12% year-to-year. For quarter 4 FY '21, the revenues came in at INR 1.65 million, which was a growth of 68% from INR 932 million in quarter 4 of FY '20. Volume growth in quarter 4 FY '21 was strong, 50% at 3.74 million cases versus 2.5 million cases in quarter 4 of FY '20. Quarter 4 of FY '20 at about 7, 8 days of lockdown, which has impacted sales of consumer products. At the end of December 2021, we had updated you that all our facilities and markets have resumed normal levels of operations. As we neared the end of the financial year, we began witnessing a resurgence of cases across the country. We have also by disruptions cost due to flood will be hard. All things considered, we are happy to report that our overall capacity utilization for the full year FY '21 remain close to the 90% plus range with the for FY '21 coming in at 99%. This was driven by strong demand across our business segments. In FY '21, we had another strong year of cash flow generated INR 148 crores of net cash flow from operations. In the past 3 years, we have delivered a total of INR 314 crores from operations. This has helped us with the following: clearing of debt from INR 230 crores in FY '19 to INR 176 crores in FY '21; investment in expanding activities, capacities and product and market development; the finance cost has reduced by 20% year-on-year from INR 23.5 crore in FY '20 to INR 18.8 crore in FY '21 on the back of reduced gold debt, as mentioned above. Reduced average cost of rate from 5% in FY '20 to 8.8% in FY '21. As a result of the improvement in the financial risk profile of the company in the operation margins, and comfortable capital structure and debt coverage indicators, the credit rating for our long-term and short-term bank facilities stands we reaffirm that with enhanced credit use as of January 2021. We saw our EBITDA margins expand by around 114 year-on-year to 24.9% in FY '21 from 13.5% in FY '20. When the corporate tax rate applicable to the company, 34% higher or the net credit available to the company. As a benefit for setting up urgent plans and older section of the income tax that reduces the effective cash payout for tax to around 18% in FY '21. In first time this credit is fully utilized, the company's cash outflow on income tax will be and continue around 18%. We anticipate that this credit will continue for 2, 3 years. The benefit can no longer be available for new projects. Now coming to our working capital circle. Overall working capital cycle has seen an improvement. However, there has been an increase in accounts receivable on account of strong growth in higher price of consumer value segment for this, Payable is by the company. The account receivables saw a further increase due to higher sales of ethanol where credit is about 30 days to unlike in which is call purchase on advancement. Despite this increase in working capital, our return ratios have seen a significant expansion. ROE and ROCE has gone up from single digit in FY '19 to 24% and 29%, respectively in FY '21. The Board has recommended a dividend of 20% of face value at INR 2 per share for FY '21. While we stand in solidarity with country during these strong times, we are proud that our teams continue to strike for the betterment of the company. This concludes my remarks on the operational and financial highlights. I will now request the moderator to open the phone line for questions. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss Financial Service.
Congratulations. And my first question is on the regulatory aspect. Could you comment how things are moving in Delhi, for example, the policy has been delayed? And in Rajasthan, beer has seen a more favorable tax policy. So any comment what's happening in your segments and your market?
Param, could you please take that?
Yes. Thanks for the question, Abneesh. So we have seen with a lot of interest regarding the Delhi policy, which will now be finalized. At this point of time, we can say the policy allows us an opportunity to enter the market in an appropriate time to complement our position in the lending segment in that market to enter the premium segment. As far as Rajasthan is concerned, I really don't think that changes in the real policy are likely to have an impact on the strong player that is there in the value segment because there has always been some interplay between segments in the consumer preferences. And this will be 1 of those nuances, which is not likely to play out in any significant manner.
Yes. Second question is market leader, United States essentially is taking a call on part of its portfolio on evaluating what to do. As a key player but small in the branded part, what would be your thought process on inorganic -- or inorganic group?
So we continue to evaluate all opportunities to grow our distillery segment as well as our consumer segment. We believe in this hourglass shape market that has emerged and I've spoken about a lot. We find that most of U.S. sells are Diageo's brand occupy the center of that hourglass space that is reducing dramatically volume. So whereas it's something that we are thinking about, but we are concerned that it occupies a space that is shrinking volume dramatically.
Okay. Last question. You mentioned in opening remarks on in-home consumption reading . So my question is, in your markets and your segments, if you could give more color what exactly the case versus pre COVID? And second is duty free again, has reduced for the industry. So for the branded Indian IMFL industry, what are the benefits, if you could discuss that? And any comments on the home delivery in your markets? Any development there?
Param, could you please take this?
Yes. Yes. So as of now we have seen with this continued pressure on many progressive states have started unlocking the challenge and have progressively been opening up opportunities for home deliveries. In quite a few states, this is still evolving. And there are still some hurdles that are being unlocked to make it a seamless operation between the consumer and the service provider. As of now, this whole operation is really restricted to premium segments. It hasn't trickled down to the value segment at this point of time. But we are confident this is a macro time as the digitization and the digital economy keeps on evolving. Like the whole cellphones today, everybody has a smart cellphone even if the consumer plays at the absolute bottom of the pyramid. So this also will continue to expand and find its place over time. As of now, it's an interesting space, a growing space, but contributes very, very small to the overall portfolio of alcohol. Coming to the duty free. There is a lot of discussions around -- and I think you are referring to duty structure, which is happening, is that correct? Abneesh, is that my understanding? Is that correct?
Yes, yes. You're correct.
Yes. So yes, we are obviously expecting softening of 150% slab, which exists as of now. So overall, interesting development and it will allow to 2 behaviors to merge. One is obviously the competitive -- the BIL will become much more competitively priced as we move forward into the future, opening up growth opportunities in that line. And that will also allow IMFL players to take advantage of it because most of them use a key claimed ingredient. So it continues into the framework of India emulation journey. And overall, I think it will be beneficial for the alcohol industry and so also for us.
[Operator Instructions] The next question is from the line of Yash Agarwal from JM Financial Service.
Congratulation on a very good set of numbers. My first question is what is the sort of raw material cost benefit and especially on the grains we've gone this fiscal? As in how much of the grains cost down and how sustainable is that benefit from a raw mat perspective? That's my first question.
So yes, you're right. This year, grain has been soft for us. But I think the more significant point here is the market expansion due to the change in demand for ENA and ethanol. We believe that the current levels of margins are sustainable going forward. There may be a little bit of a -- how do I say -- a lag in terms of timing that raw material prices may go up and prices of finished products might take a little bit of time to catch up, but I don't I don't foresee that as a significant company. The main issue is that ENA and ethanol, the demand for these 2 products put together have created a deficit in India, which will take a very long time to meet fully. And as a result, for this period, we believe that the current levels of margins will continue.
Sure, sir. And one more question, how much of our capacity we can ethanol. Also, is there a fungible capacity and want to -- I mean, out of INR 15 crore, INR 16 crore it, to what extent can we go up to make it a from the current capacity? And also in the new capacity that we're adding in as West Bengal government, I think you spoke about , et cetera. Is that going to be a fungible capacity in
So all new capacities will be fungible. But on the existing capacities, Bihar is fully fungible. So that's 80 KL per day. And Haryana is 50% fungible. That's another 80 KL per day, which is fungible. So total of 160 out of our capacity of about 500 is fungible as of today. Going forward, all capacity will be fungible.
And one last question from my side. What has driven the further increase in IMI realization, I believe it's up almost 10-odd percent. What is it just state price increase? And how sustainable do you think this number could be, the IMI realizations moving up?
What -- I'll let Param shed more light on it. But in our consumer segment, the reason we've been able to drive up revenue is largely due to introduction of more premium price points within the value segment. So Param, could you please shed a little more light on this?
Yes. So absolutely, as I said, in the whole value segment space, there are new price points emerging. And we are confident that these are here to stay. And we have been well poised to take advantage of that and these incremental price points, where we are offering -- our offerings are much more akin to the requirement of the higher price points. They have a better brand product as well as liquor delivery are finding very strong acceptance. As of now, the indicators are that this trend is not only likely to continue, but there is a strong possibility that this trend is going to expand further.
The next question is from the line of Nitin Awasthi from East India Securities.
Firstly, sir, on the ENA prices, the way it has been moving, I have 2 quick developments could happen on this front, which I want to clarify with you. One is that IMFL players who outsource their ENA requirement, there are a few. They are seeing a hit on their P&L because of the increasing ENA prices. So do you think each will oblige and increase the IML prices once again and by a good margin? That's one. And 2 is on the flip side. Do you see your end user customers who are IMFL player setting up their own distilleries at some point of time because it makes more sense for them to have an internal source given that the prices are so high?
So there's a third trend that's happening to put out there all 3 together, would you that increasing ENA prices, IMFL players having to move up in price points and vacate value price points for players like us. So yes, IMIL or the lower end of the value segment is certainly going to get price increases. We see price increases for these segments at least once in 2 years, if not once every year. We've seen an increase in Haryana in Rajasthan fairly regularly. We saw 1 in West Bengal as well. But in the next financial year, not in the current, there will probably be further increases. Most of these increases are enough to deal with the inflationary environment of costs and they don't usually lead to significant margin enhancements for stand-alone bottling plants. Some -- you're right. I mean, in some states, firstly, at Globus Spirits, we believe that if you want a strong value segment presence, the only way to do that is to have -- is to be fully updated in terms of capacity. You may have some seasons or period of a few years where you may be able to create a business and have some sense of profitability and cash flow if you are a bottling -- a stand-alone bottling plant, but the only way to have a long-term solid business in the value segment is to be integrated. So if some bottlers have that aspiration, then sorry, they should be looking at setting up capacities. So I hope I was able to answer your question there.
Yes, sir. Sir, secondly, coming on the expansion, you mentioned Jharkhand, So when would Jharkhand come on stream?
So we've just about started construction there. So we expect around Q2 of next financial year.
And what will be the capacity there?
140 Kl per day.
140 KL per day. Okay. Okay. So just last question would be what would be the grain prices roughly that you would be getting your grain sizes at? And how does it stand against the FTI offered rate of 23 43 ? And are we using any of that?
Probably. State-to-state our grain prices very -- they are dependent on the type of -- the different types of grades of broken rice available. We do not buy food -- we don't buy a rice, which is used for food. We buy broken rice, which is a base product of the rice milling process, about 5% to 7% of the rice mills capacity is based from broken rice. There are different grades of broken rice, there is sort-ex, non sort-ex , power boiled, raw and we -- and each of these give us different yields. It's difficult for me to tell you what is our -- give you one number for all over the country. But suffice it to say that this is something that is very important to us, and we have a team that , in fact, is something I look at personally by regularly as well. SCI is INR 2,000. And currently, it is more for broken rice of different grades. We do have a small amount of procurement from SCI, very, very small, just to understand how that system works. And even putting some ethanol from that route, but it's very, very small, right now.
Got it, sir. Sir, on the price point, there was a mention that different price points and margin. And there are products we introduced within these price points. So 1 of them, if I am not wrong is the Rajasthan median liquor. Are there any such other -- can you share the examples of any such other value products which are arising in a mid-segment pipeline?
Param, could you please?
Yes. So these are -- what we alluded to was that there appears to be a trend that is farming, where the states after continued delay have realized that within the broad zone of only segment, there is also a higher opportunity of driving activations. And you have rightly mentioned as RML of Rajasthan. There are other states which are seriously working towards it and to Haryana has interest that say early days yet. We are confident that there are a couple of other states which are in very early stages of it. So I won't be surprised if this trend slowly expands. And it is up to us to now create offerings, which are significantly superior in delivery and full consumers, not only from the bottom of the pyramid, but from the next run, which is of IMFL, which is the declining segment. So it's a very interesting opportunity. And as of now, it is showing very strong signs of accelerated rate.
Thank you. The next question is from the line of from Kotak Securities.
Yes. Sir, can you give a consolidated view of the expansion that is going to play out in FY '22, FY '23 and FY '24 in terms of the capacities that will come up, consolidated basis at the various paces? And what is the CapEx for each year '22 -- FY '22, '23 and '24?
So currently, there are -- besides the project in West Bengal, which, as I mentioned, is nearly fully expensed. This year, there will be 140 KL of additional capacity coming up there along with 200 KL in Rajasthan, which had already come on. So total of 160 extra this year. For these 2 projects in this financial year, there is hardly any CapEx that is spending. The next round of expansion, which has been approved by our Board, is a greenfield site at Jharkhand and an expansion at Bihar. Both these projects will come on -- will start production in the next financial year. So that's '22, '23. And we'll add 280 KL of capacity. And put together, these projects should cost us about INR 225 crores or so. As of now, this is the expansion that has been approved, there are 1 or 2 other projects that are currently under preparation that we are conducting our internal exercise on. These have not been approved by the Board and will be taken to the Board later this year and perhaps come into construction and CapEx, if approved, later in the next financial year.
That helps. My second question is related if you kind of give us the breakup of FY '22 revenue In terms of the that have come from ethanol and maybe sanitizer business?
So we don't break up revenues like that because the distillery segment comprises of ENA ethanol, which is our alcohol sales. It comprises of byproduct sales. So it's difficult to do that breakup. But our capacity to produce ethanol is about 160 KL per day across the country -- across the entire company out of our installed capacity of 500 KL as of now. Pretty much all of our ethanol capacity is being used for ethanol as of now. And the balance capacity is being used for a combination of obviously, consumers or allocation to within the company for our consumer business and franchise bottling for other brand owners as well as some amount of bulk sales. Suffice it to say the distillery segment revenue was about 55% this year, which is down from 67% or 65% last year.
That's nice. Sir, last question from my side is if you can just help us understand whether the margin on EBITDA level are higher in case of ENA or ethanol for your company?
Again, it's very state and it's difficult for us to take a single view across the company. investing all, for example, ENA is more profitable. So we maximize ENA sales over there. Similarly, in Rajasthan, ENA is more profitable. In Bihar, it's kind of the same, whether you make ENA or ethanol. So we focus on ethanol so that -- because ENA from Bihar has to go into vesting all since Bihar is a dry state. In Bihar, we focus on ethanol so that we don't end up competing with our own facility in West Bengal. In Rajasthan -- sorry, in Haryana, we actually have a very small amount of ENA production that is sold within India. It's 50% of our capacity is ethanol. Of the balance, about 60% is used by consumer and the amount of ENA we actually export overseas, which has been the case, in fact, in Haryana for many years.
The next question is from the line of Hiten Bharucha from Jona Capital Service .
Congrats on a very good set of numbers. Sir, I have a couple of questions. So the first question is, sir, like our Q4 was partially impacted by the second wave and even after that we managed such good numbers in both the segment in manufacturing segment and consumer as well. So should we see the particular kind of trend is our base earning now and it can only go up with increasing capacity and entering new markets?
In our states, Q4 did not have any significant impact of -- after the second wave, there were no lockdowns in Q4. And that has started happening in Q1. So Q4 has actually been pretty good performance in terms of getting a full quarter of operations.
Okay. Okay. So can you quantify like by any percentage or something like how much is Q1 is impacted as of now?
Unfortunately, not able to do that once Q1 and we publish our results, I'll be able to get into Q1.
Just to correction, sir. If you assume like we can exclude the Q1 because of the lockdown. So is that assumption correct? We can do INR 50 crores kind of PAT for the next second half of this year? excluding the lockdowns in Q1 and all that?
Again, I'm not in a position to comment about H1 stats for this year. But as is our business performance is strong. It's come from sticky businesses. We've commented on the environment generally. Now thereafter, it's -- we continue to operate on the -- for basis to maximize operations every day.
Okay. Okay. And my second question is on the clarification of CapEx you mentioned we are spending INR 225 crores for the expansion in Jharkhand and Bihar, right? So are you finding INR 200 crores this year itself? Or is it spread in FY '22 and '23?
So large part of it happened this year, especially for Jharkhand, most of it will happen this year. Bihar, it really depends on when it starts. As of now, we start construction this year, but there are some amount of land acquisition and a few other activities that need to be completed before we can start. So it's -- Jharkhand 90%, 80% of it this year, Bihar depends on when we start.
Okay. Sir, can you quantify how much we are spending on Jharkhand out of the INR 225 crores?
So INR 125 crores give or take, yes, that's the plan.
The next question is from the line of Chirag Lodaya from Valuequest Investment Advisors.
Sir, my first question was what is the maximum revenue we can do with this expanded capacity, which is available in FY '22 time?
You want to know how much revenue it will add?
Yes, potential revenue possible with the existing capacities, which -- including which will come onstream in FY '22?
Well, that really depends on how much consumer business is able to grow. But the new capacities just on 100% bulk could add around INR 52 or so from the business at about INR 8, INR 9 from the byproducts business. So that's, say, about INR 60 per liter. And in terms of how -- what is the potential from existing capacities, as mentioned by capacity utilization in Q4. So we're really running at full tilt in Q4. But consumer business is growing extremely well, and we hope that the current -- we will only be able to grow the current project.
Right. Right. And in terms of margins, you mentioned that margins are quite sustainable. I just wanted to know, so Q4, you did around 25% margins. Is that run rate sustainable, but full year, we did around 21%, that is sustainable.
It really depends what your outlook is on our consumer business growth. Consumer just continues to increase as a share of our overall business, the margins there will -- our overall margins will obviously continue to increase.
Right. Great. And in terms of CapEx, FY '22, there will be hardly any CapEx. Is that understanding correct?
No. There is going to be CapEx from the new capacity in Jharkhand and the new capacity in Bihar.
Okay. Okay. So this INR 225 crores will be spread out 2 years, FY '22 and '23?
Yes.
And how will be the funding for the same, sir?
Internal accruals?
No debt will be required?
No, down tax, sir.
[Operator Instructions] The next question is from the line of Chetan Ramani from Ramani Holidays .
My question is due to knockdown in the month of April and May, is it going to impact the sales?
Yes.
Okay.
When there is no sale. So yes. But I'm not able to quantify that impact immediately, the impact is going to be far less than last year. Lockdowns were far less changes. Absolutely. But again, we are still in Q1, not able to comment too much on that.
The next question is from the line of Vibha Batra from FairConnect Business Advisors.
Yes. My first question is again on the operating margin. So you said you'll be able to maintain those -- so we take Q4 as the benchmark, right?
So the margins, there are 2 types of margins that we make, margins from our consumer business and margins from our distillery business. As our value segment as well as our premium segments continue to grow, blended margin will increase. The margin that you make per unit or as a percentage in our distillery business is still, and as our capacity grows with the total margin earned in that business will grow. Now the question is what is your outlook on our shares between the 2 businesses. Certainly, as our manufacturing business, as our capacity is increased, there will be significant increases to revenues manufacturing. And gradually, our consumer business will -- we believe that we should get better growth than we've already demonstrated, but that will start catching up and increasing margins further.
Okay. So in absolute level, the margins may decline if the proportion of consumer business goes down, only because your manufacturing capacity will come on stream. Would that be correct?
Yes, I think that is fair because consumer margins are greater than manufacturing margins and manufacturing is going to grow at a larger CAGR as opposed to .
Okay. And overall, what is your expectation on growth in revenue for the year? Broad range will also do.
We'll get 6 months of new capacity in Bengal, which is adding to about 30% of total capacity. And due to -- and [Technical Difficulty]
Sorry to interrupt you. We are losing the audio.
Right, right. Is this better?
Yes, sir.
Okay. It really depends on lockdowns as well, right? I mean if you're going to have multiple lockdowns, of course, it's a very difficult year for the country and the world, but it gets even more direct to put it back again.
than the second wave and if you were to kind of predict on that basis. Then what would it look like?
I'm unable to predict bids, unfortunately. So even in our budget, we have kept some margin for that. But like I said, consumer business should grow faster than last year in this year. And of course, there is new capacity coming up in Bengal and new capacity in Rajasthan that's already started.
Okay, sure. And your subsidiary where you are doing the bottling that was loss-making. Is it still loss-making that you're going to...
Yes. It is still loss making, which we are merging with Globus Spirits.
Okay. And how much is the loss expected this year?
About INR 3 crores was the loss last year. And it remain around same number in this year.
Okay. And why do you continue with this loss-making business? Is it to...
Because we are investing in premium brands and growing our distribution in that space. So at this scale, there is bound to be a loss until such time as volumes increase to offset the loss. And this loss is also a part of our plan.
Okay. So by when this segment, this Unibev segment become profitable how many years benefit?
I think it's important to look at the consumer business as a group. There are going to be brands that perform better than the others, but we are restructuring our entire consumer business into 1 umbrella, which is the consumer division at Globus Spirits. The performance of this division has been exemplary in the last 1 year. And going forward, it should continue to do well, both at premium as well as value segments based on our key assets of distribution that we have in the states that we are present in and a few others that we are .
[Operator Instructions] The next question is from the line of Tal Naran , an individual investor.
Yes. Congratulations on the good set of numbers. So am I audible?
Yes.
Yes, sir.
Okay. Yes. So congratulations Shekhar and team on a good set of numbers. So I got a question on the expansion plan. So we believe that the Board has decided to expand into Jack and some of . So what is your reason behind it? Is it that Is it an alcohol basis state, the strategy, whatever you mentioned, that's the reason we are venturing into. So that is my first question. And second thing is shorter of mentioning that the funding that is going to be a capital expansion for -- to the tune of INR 225 crores, right? So I just want now so even for West Bengal, actually, right now, we have invested close to INR 110 crores. And for Jharkhand other expansions, another INR 225 crores, you are going to expand, right? So closely, it comes to some more than INR 320 crores or INR 330 crores, it comes. So what is going to be the funding? So are we going -- are we going to dilute the APT? Or are we going to fund through internal approvals or how much of this is going to be a bank debt. So these are the 2 questions I have got for you.
Yes. So first answer is yes. We are expanding into deficit states. Jharkhand will be a play for ENA and ethanol, which is part of our distillery segment, and it will also offer prospects for our consumer segment at the value as well as premium end. Your second question was about source of funding. All our projects are being financed through internal accruals, whilst we start -- whilst we continue to pay down debt as well as pay dividend to shareholders.
The next question is from the line of Pat Rathi from City Ventures .
My first question is on the debt part, gross debt is right now around INR 175 crores for the company. And FY '22 and '23, it seems that most of our cash generation will go towards CapEx. So do we see -- is there any room for debt reduction in the next 2 years? Or do we see it at current level?
No. I believe that debt in the current financial will be lower than what we started with. So we will continue to pay down debt.
Is there any rough targets which you ?
I think we have about 3 years left in our repayment cycle. So maybe bring it down to about 70 -- 50 to 70 kind of number and then maintain that.
Okay. Got it. My second question...
It's not really a target. It's a loose sort of direction.
Yes. Okay. And my second question is about how you see the mix of the consumer business and the manufacturing business evolving over the next 2 years within we are investing in both the businesses. So can it be 50-50 roughly in the next 2, 3 years?
So that's a good question, and I think we should probably get back to you with exact numbers on that. But in the next 2 years, we will add 280 KL PD, well, in fact, another 140 sorry, 140, 280. So about 420 KL will add to our existing 500 sort of growth by 90% over 2 years. And consumer business should continue to grow at the current clip, in fact, we are hoping it will increase the growth. So the current level At the end of 2 years, should be to be able to sustain.
So at like existing values percentage after
Yes, that would be a good start for us to have, but we haven't done that exercise. So I cannot tell you what our internal targets are, but If I was to guess at a number then around 45% at the end of 2 years then consumer would be a very good benchmark.
Next question is from the line of Ashok Agarwal, an individual investor.
My question is actually you're observing that our -- one of the major shareholders that is the . Can you throw some color on it actually who are the new investors coming in place?
I don't know that.
Okay.
We are not facilitating any block deals, so I do not know who the buyers are.
Okay. Second question is about the capacities which are coming up in West Bengal, Bihar, Jharkhand, over and above our 520 capacity which is there. So is it meaning that we are having -- heading for a capacity of 940 KL PD or by next financial year?
Give or take, yes.
Yes. Okay. So can we assume that our plants are basically making ENA, which is almost equivalent to ethanol, let us say, in terms of pricing and all. So can we believe that our -- this entire operation is 940 KL PD -- would be 940 KL PD almost for ethanol and then add on to it is our consumer business.
No, that's not correct. ENA in Rajasthan and West Bengal will continue to remain more profitable. In other states, we will play between ENA and ethanol and therefore, we can assume that the margins are similar.
Okay. No, I'm asking that maybe when we add on to ethanol and make it as -- , let us say, in the curve? So we are adding up on that INR 10, INR 12 or INR 15 per liter but add on to the ENA similar , this 940 KL PD can be assumed as ethanol capacity and add on that is our business. So just to make an guesstimate of what would be your operation size after maybe 2 years like that. I'm thinking it that way.
Okay. So let me try to answer it differently. I'm not entirely sure what you're trying to get at. But today, the capacity is 500 KL per day, of which we are able to -- our revenue share is 45% consumer and 55% bulk. Going forward, we will add 420 KL per day of capacity. Most of this 420, at least 75% of this 420 KL will go for ethanol. And 25% of this 420 will go to ENA. ENA is usually at higher margin than ethanol. But it is okay to assume for a minute that they are same margin. In addition to this 420 KL of capacity that we are adding on, our consumer business will also continue to grow.
Okay.
So that is how our business is stacking up in the future.
I got it now. The 940 is not entirely for consumer business. So we have to see 940 as a ENA or, let us say, ethanol. And over and above, and whatever we are able to use as consumer business. So that is the consumer business. So the size of consumer business in terms of liters or kiloliters is less compared to the of the whole target .
It's within 940 -- or 920.
Next question is from the line of Pawan, an individual investor.
Hello, welcome, and thanks for providing me the opportunity. And very well. I've done so congratulations, actually have -- I just tracked all the all of the -- these kind of stocks. And from last March onwards, from the pandemic onwards, I see there is a constant increase and the thing. And a little bit recently, and you have a good cash flow as well, and it's very well sir, I'm from South India, actually. And normally, I consume -- actually, I'm a consumer as well. And normally, we have here brands with Radical, UBR or United Spirits, but not aware of the Globus Spirits on the backside of the label. So do you have any plans in South India like Karnataka, Tamil Nadu?
No, sir, you'll have to take a flight to come to our states and to be a consumer of our products.
Okay. So you don't have any plans to bring on South India?
As of now. So we have some distribution in Andhra Pradesh. We have some distribution in Telangana. But not in the other South Indian states.
Okay. Yes. That's my first question. Second question, actually, I think previous investor has asked that. I got panic with regards to selling off 1 of the funds -- from being a consistent performer. And actually, I'm new so a little bit , do you want to say any words on that?
What's the question? I'm sorry.
With regards to recent selling from a Templeton fund, before normally...
They have a fund life, from what I know, they have a fund life and that has come to an end. They invested in 2030. They have been with us for 8 long years. And they have come to an end of their fund life and like any other fund, this fund must also come to an end. This is a private equity fund, not a mutual fund.
Okay, sir, yes. Because normally, there will be a share price increase when there are -- when we announce the date. From there, people like might increase the price. And obviously, I know that Q4 will be good and a little bit surprised why the results or some.
The next question is from the line of Nitin Awasthi from East India Securities.
Hello. Hello. Am I audible?
Yes, sir, you're audible. Go ahead.
Okay. Okay. Great. Just on the Orissa expansion, got all the permissions had plans for Orissa as well. So what is happening to that, sir? It shifted on the back burner? Or are we still going to go ahead maybe in a quarter or 2, you will give us a plan also?
Sorry, there was a problem with my line again. Could you repeat your question, please?
Yes. Earlier, we had also plans for Orissa.Already got the approval for Orissa. And make plans for that state as well. So going ahead, are we also wanted to see Orissa come up in a quarter or 2...
I think you're referring to the press -- some press coverage that our project or application to had to . With Globus Spirits, the Board of the company has not approved the project in Orissa. It is 1 of the projects that is something that we are working on without allocating capital to right now. And perhaps in the next financial year, along with 1 or 2 other opportunities, we will announce further expansion, which may or may not be noticed. But right now, we are not in a position to confirm.
The next question is from the line of Sal Naran , an individual investor.
Yes. So if I remember during the -- 2, 3 calls back, conference calls back and Paramjit Gill. So we have -- I saw from one of the conference calls, that we are planning to have a strategic assessment, vision plan on how we are going to take the consumer business going forward for the next 3 years in place. So I just want to know the vision plan trading. And can you throw some light on what are the key features of this document if it is steady. So that's the first question. And second thing is, what is the role of with the organization. So there are only 2 questions.
May I request Param to please take that.
I'll take the first one. So we -- as I said, we prepared our plan. And obviously, the plan is also incorporating the a lot of learnings that various industries, including ours and us have had during this COVID pandemic. And that is why in my opening remarks, you will note there were 2 distinct call-outs. One call-out was that we are significantly doing the following. The first one in the value segment, we are reenergizing as well as adding to our existing offerings, preparing towards higher consumer acceptance for us. and catering to the growth possibilities that are likely to emerge as per our projections. And our going forward vision takes that into account. Towards servicing this, we are, in addition, also building capabilities as well as route-to-market inherent structure addressing mechanisms, which I had called out that right from the time the stocks or brands reach the trade to the time it leaves the consumer's hand and reaches the hands of the consumer. Coming to the premium spirits portfolio, I had called out that our -- we have embarked on making much sharper choices in the portfolio as well as in geographies. In the portfolio, we are likely to add 2 more brands, servicing 2 distinct consumer needs. And in terms of geographies, the key underlying filters for investment will be profitability of the relevant segment in the geography, the size and salience of the segments in which we operate in that geography, the convenience and affordability to service the market in that particular state geography, the size of investments required because each market is not of the same competitive order and the time required to make the state go onto a sustainable and a profitable . So our business plan, obviously, is while various engagements are continuing to go, these are the directional changes that have gone into the business plan. And we believe that these changes are going to hold us in very good stead as we go into more and more uncertain times. And in these uncertain times, bring certainty to our aspirations and projections. Does that address your query?
Yes. So when can we expect this plan to to take operational, to see some results because as Shekhar was telling that this year, you are expecting a loss of INR 3 crores, right? So can we expect in the next 2 years or 3 -- do you have a time frame to see the efficacy of this strategic reassessment?
Yes. So the way to look at is that do we want a very small and profitable premium spirits business? Or we want a sizable premium spirits business which starts contributing to the consumer business, which contributes to a mother ship. I think that is the filter we should use because that is what becomes the guiding beacon. Because eventually, what does every organization, including us want? We would want a sizable tangible business and then only the profits will make sense. So we are using that framework where we want the premium spirits business to start becoming sizable. And that is the framework, which is the driving framework not only very narrowly thinking about how to make that INR 3 crores return into a profit. It is about big opportunity how do we go about getting the size of the big opportunity, the big part rather than staying into the thin and narrow, how do you convert the INR 3 crore into a profit number.
So basically...
Just to add to what Param said, it's also to do with accounting standards. When you brands from scratch, we are sort of booking all our expenses as revenue expenses as the way it should be. And most of these expenses are in the nature that they will lead to benefit in the future. So in the technical sense of the expense, it's not a revenue expense, but it is being treated as such.
Got it. Okay. So the parameters that you can look at in terms of scalability, you can expect a sizable increase in the sales actually going forward due to the restructuring in the plant?
I think absolutely metrics to -- the metrics to watch for our consumer business share of total volume and -- of total revenue and the volume of the consumer business.
Yes. Okay. So are the
Yes, Mr. is more than anything, a mentor guide and a friend. He has been a mentor and guide to not just me personally, but also to countless others in the industry. We have great regard for him. From operations, Mr. Ricky stepped away from 31st December 2020.
Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Shekhar Swarup for closing comments.
Thank you, everyone, for your spending your morning with us. As always, please feel free to get in touch if you have any follow-up questions. Thank you again. Bye.
Thank you very much. On behalf of Globus Spirits Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.