Allied Blenders and Distillers Limited analyst Q&A

Thank you. We will now begin the question and answer session. The first question comes from the line of Harsh Sheth from DAM Capital. Please go ahead.

Hi, thanks for the opportunity and congratulations on good turnaround. A couple of questions. So firstly, the volume growth is healthy on sequential basis but kind of flat on Y-o-Y basis. Now I understand the slowdown in March segment but I wanted to check if there is more dirt. So, if you could share how Telangana is shaping up for us in terms of payment related issues and are we sort of limiting our exposure to Telangana which I believe is roughly around 25%-30% of our sales just to manage our capital more efficiently?

Right, thank you very much for this question. Telangana as we all know is the largest market in India. We also have a 60 million litre capacity dis tillery there so it becomes of strategic importance both in terms of the market share that we hold across segments and also in the capacity utilization of the distillery which also makes it a very profitable state. So that's point one. Point two is that the industry had a meeting with the ministers, with the required administrators and we were given a clear guidance that starting October, which is this month, we should start expecting regular payments and they will also create a schedule of payment for the overdues. What we have seen in the last 15 days is that payments are coming now on a daily basis. So, fingers crossed. We are hopeful that the promise that was made to us when we met with the required officials will come through. So, I think right now we are waiting and watching patiently and if the current payment trend continues, I think by the time we end this quarter, the current quarter three, I think we will be in a better shape. So, for now we have a hold position in Telangana given the fact that we have our distillery there and we have significant shares across all segments and the fact that we have started to see some green shoots on the payment.

Understood. And secondly, in the presentation, you mentioned about scope for 2x volume growth in Andhra, because of decent policy actions. So, could you throw more light on this? What was the number in around FY19? I just wanted to understand what could be the actual potential here? And secondly, how does the profitability here compare to other states?

Right. So first of all, on the profitability bit, as of now, the EDP, the existing price at which you are currently billing is the same that you are billing as per the current policy. So there is no change in EDP. Therefore, there is no impact on profitability. It is a profitable state and it continues to have the same per case profitability. As you are aware, the Government of Andhra along with E&Y have set up a committee to understand the pricing model. That committee is currently understanding the pricing model across various southern states and non-southern states. The good news here is that they have engaged the industry and have invited participation in terms of suggestions and how should Andhra be doing the pricing. The dialogue in our experience so far has been open and progressive. So we only expect a positive outcome. The new pricing is likely to be announced by end of quarter 3 and only then we will get to know if there is any impact. But so far, the process, as we have experienced, is highly engaging and progressive. So we hope that they will come up with a win-win pricing formula. As regards the volume, did you say that what was the volume in FY19 and where we are today? Did I get your question right?

So I actually wanted to understand what was the actual potential here?

So last year we did roughly 1.7 million cases in the state of Andhra Pradesh. What we have seen in the last 2-3 months after the new government has taken over as the operation, we are currently running at about, I would say, an ARR of about 3 million cases, right? So which is nearly double from last year's actual of 1.7 million cases. And coming into a lot more policy clarity because the retail trade is just about coming in, our feeling is that we should be looking at doubling our volumes in Andhra Pradesh versus last year, which is FY25 over FY24, we should be looking at a 2x over the base of 1.7 million cases.

On this one, how does the long-term potential hold here? I mean, if I'm not wrong, it's 33 million case market.

You're right. So our volume would translate to about a double -digit share, right? And this double-digit share is without ICONiQ, which will get launched in the month of November. It's a significantly large segment there, as we've seen in the recent past. So on back of ICONiQ, we should see market share improvement in the state of Andhra Pradesh.

Understood and lastly, if you could share the outlook on ENA prices. I mean, you did mention in your opening remarks that prices are high on a YoY basis, but what is our outlook for the same?

Well, we had sort of anticipated the H1 ENA prices to be equal to the exit price of last financial year. And by and large, we are range-bound on that. We are expecting the H2 ENA prices to be about 2%-2.5%. I mean, this is just a broad estimate at this point of time, but we expect it to be higher between 2%-3% in H2 versus H1. So that's our current sense of what's happening. Having said that, the silver lining is that, there are positive news around FCI releasing rice for milling, and that will improve the availability of broken rice. So it's a wait-and-watch, but that's how we have projected our H2 in terms of ENA costs.

Understood. Assuming FCI rise comes down to, say, from 28 to 25 , while it could possibly result in, say, INR36 crores to INR40 crores going through EBITDA, ceteris paribus at 6 crores ENA capacity, would it also result in volume growth for mass segment because it may improve your contribution margin by quite a bit? Is that understanding, correct?

So as far as consumer is concerned, consumer is buying a product at a certain price, and therefore in the consumer's mind, there's a certain price-value equation. What happens in the backend in terms of ENA prices which impact profitability really does not impact the customer. So, I do not see any uptick as a result of customer preference. Having said that, there will be some selective opportunities in high-margin state for us to take up, if the costs were to indeed go down, to try and take better shares in those markets.

Understood. Thanks for that, and I'll rejoin the queue for the follow-up questions.

Thank you. The next question is from the line of Sunny from MK Ventures. Please go ahead.

Yes, thanks for taking my question, and congratulations on a fantastic set of performance for the quarter. My first question is related to your margin performance. So in this quarter, we have delivered very strong gross margin and EBITDA margin. However, in one of the media interviews, we have said that we will meet the INR350 crores EBITDA guidance for FY25 against our already achieved number of close to INR180 crores in H1. So what I wanted to understand is, is there any kind of one-off in the Q2 gross margin or EBITDA margin? Because like simple math with second half being seasonally very strong, it suggests that your FY25 numbers should be far better than what you have guided.

Sure. So I think the question in the morning from the media was, will we meet INR350 crores, to which the response was, we meet or exceed. And if you go back to that interview, I did talk about the fact that our Q2 EBITDA is 105 Crs and that will also play a role in terms of what the final EBITDA is. So, I will just keep it at there. You might want to see my response that is meet or exceed.

Sure, that's very helpful. And would it be fair to assume that you achieve double digit EBITDA margin of almost 12% in the quarter? Would it be fair to assume that with Andhra Pradesh kicking in, operating leverage kicking in, and any further benefits from your vendor renegotiations also kicking in, this kind of becomes the base going forward, unless obviously any unforeseen raw material movements. But does this become the base and we work towards improving on this? Or are there any cost elements whi ch could negatively surprise us in the coming quarters?

I think as of now, it's a fair assumption.

Got it. That's very helpful. My second question is related to the debt and the working capital. So, like you had guided during the IPO that you had to do one -time readjustments with all the vendors in terms of your stretched payable cycle, which largely seems to be behind in H1. Going forward, do you see net debt gradually coming down or with the cap ex and the incremental growth in volumes, this level of working capital and capex will keep the net debt at the current level of INR600 crores, which was reported in September 24?

We are hopeful that the Telangana situation would resolve significantly by Q4 of the current financial year. And if that was to happen, we will see an improvement in our net debt position and it should come down.

Sure. Got it. I'll come back in the queue. Thanks for the detailed responses.

Thank you. Thank you. Next question is from the line of Darshika Khemka from AV Fincorp. Please go ahead.

Thank you for the opportunity and congratulations. So I would like to delve on the Telangana topic a little deeper. In the first Q1 con call, you had given us a number of the receivables from Telangana, which was around INR384 crores, if I'm not wrong. What is the current number? And what is the kind of reduction that we are expecting by the end of Q3 and by the end of Q4?

So at the end of Q2, the overview are by and large in the same range, about INR350 odd crores. So there has been some change, but not significant. And again, if we were to go by the guidance that we received from Telangana, we do expect a significant reduction. I am not in a position to give you a number at this point of time, because all that we were advised that we will reduce your overdraft instalment over the next few months. So, I don't want to read too much into it, but we should see a significant reduction in our receivable position from Telangana.

Also, could you please help me with a breakdown of the receivables of INR1,500 crores by state, if possible, or probably by the entity? Like, basically a broad breakdown of the entire receivable.

You are looking at the breakdown of the overdue receivables, right? Did I get it right?

Yes, that's correct.

Yeah, so there are only three states. The first state is Telangana, where I've given you the number of INR350 crores. There is the state of Delhi, which has a number of about INR14 crores-INR15 crores, but that was largely on account of the port al challenge they were facing. It's been regularized, and there was a small number on account of Andhra Pradesh, which also we've been paying. So really, as far as the receivable overdue are concerned, largely it's a Telangana challenge.

All right, thank you for that. And I sort of missed out on the breakdown of the capex number. Please sort of reiterate that, it'll be great. I think acquisition of INR75 crores, we're doing a capex of INR240 crores there. The bottling unit for INR110 crores, I think there's another INR100 crores that's missing in this calculation.

So, the total capex is about INR525 crores, which is spread across three years. In year one, we need to provide for INR185 crores only. So, of the INR527 crores, year one is INR185 crores. Year two will need about INR220 crores, and year three will need about the balance INR120 crores. So that is a spread of 525, 185, 220, and about 120.

Okay, and where will this be spent? Could you please reiterate that?

So, there are five key projects, and I will briefly touch upon them. The first set of projects are in Rangapur, our distillery in the state of Telangana. First is our single malt distillery there. This should be India's first single malt distillery, which is designed keeping a product that we would launch three to five years after the distillery is ready. Plus, it will also provide us sufficient malt, which we are currently buying from third parties. So it gives us supply chain security. It also gives us margin security, because we'll be producing our own malt. And today, as far as malt is concerned, there are shortages of aged malt available. So, the first project is Telangana malt, which will need a total of INR75 crores. It will be commissioned by the end of 2027, and we'll start producing sometime in the financial year 2027-28. The second project is the PET project. It has a capacity of 615 million bottles. We are currently consuming about 590 million bottles a year. So the plant will run at near 100% capacity utilization. The Telangana project will take INR114 crores as capex. It's got a fairly short cycle. It will take about nine months for us to commission the plant. And the payback period is also very short at about three and a half years. So this is a project that will start creating, will be cash and EBITDA accretive in FY26 itself. The other investment is in the state of Maharashtra, where we have a sizable volume and also is our export hub. So our bottling here is a combination of what we sell in the state of Maharashtra, some of it that we export to Daman, and also what we export to across the world to 22 countries. This project, we are starting with a current ENA plant, which has a capacity of about 10 million litres annualized, which of course is captive to us because our current requirement is not so bad. And we will be commissioning an additional distillery of 150 KLPD, taking to a total capacity of about 63 million litres. And that is, it would mean roughly 50% of this 63 million litres will be captive and the balance will be sold to third parties who are looking at buying high quality ENA. The total investment here is about INR325 crores. This will take us all of 26, 27 to commission the project. And we'll finally see the results of the 63 million litres, 10 million litres is ready production that we will start consuming from the month of November itself. The incremental 53 million litres will take about -- will take us about 26, 27. So 63 million litres will be available to us from financial year 27, 28.

This is really helpful. Thank you so much. Thank you.

Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead.

Hi, team. I've got a few questions or clarifications rather. The first is actually on the comment about the macros impacting Officer's Choice volumes specifically. Is this something which you started noticing off late or it's been there for a while and then it kind of, let's say, exacerbated recently?

So there are two drivers as far as OC volume is concerned. One is a macro driver which is around premiumization, therefore sluggish growth on the mass premium segment. In the H1 of this financial year, we have seen low single digit degrowth. And the second thing on OC volume is we have taken a very clear position to exit from states or SKUs, which do not meet our gross margin criteria. As you know, this brand is currently at a 40% gross margin. So essentially, some bit of volume we have by design, we are not servicing because it does not meet the gross margin criteria and overall, the segment in H1 has been sluggish. To your question that whether this trend is evident only in this year, I would say this trend has been evident over the last 2 3 years where the growth in the segment is lower than the growth in the P&A segment. So fewer customers are coming in this segment versus the number of customers that are coming in the P&A segment. So that's really where the macro position is a nd macro position is that we are picking and choosing markets that meet our gross margin criteria.

Loud and clear. Thank you. And just on the - if I can use the word restructuring of the portfolio or let's say exiting businesses or segments or SKUs, which doesn't meet threshold, that's a smart thing to do. Where have we in that journey? Is it like 30%, 50%, 80% just from a time series model?

So at the end of H1, we have implemented a model across all our markets. Therefore, we are at 100% of the journey.

Okay. So but that said which means there are, let's say, three more quarters in which this will be there in the base and this just need to LAP right. Three more quarters to go?

What we will see now is that what will b e good for us to see is quarter -on-quarter growth on OCW, whereas it may show some lag versus last year.

And by pricing, you mean EDPs.

The price growth which you get, essentially the increases which you will be able to take in pre- market or the ones you likely get granted. So let's take a volume, mix and price. I'm just trying to understand how are you looking at the price growth for the rolling 12 months?

So I think there are some positive trends as far as pricing is concerned. We know in the state of Telangana, again, a big market for us. We do more than 10 million cases there. We know that a price committee has already been put in place which is looking at the price increase that needs to be given to the industry. So that's the good news indeed. In the state of Maharashtra, after a gap of 2 - 2.5 years, we are seeing that the industry itself has taken price increase. So that's a good sign for the industry and for us. So for now as we see things, I think even for the coming financial year, we expect price increases to be no different than what we have seen in the current financial year. There could be an odd state that could behave differently, but overall at a mixed level, we see the trend to continue.

That's great to hear. Lastly, on the capex top process and thanks for the detailed presentation slides on that. Just one clarification would be super helpful. Essentially, in a make or buy decision, let's say you have chosen for make option versus the buy option. I completely get the supply security part, but quantitatively speaking up after all these investments, let's say three years out, do you expect the current mid -teens ROCE overall for the company would be a tad lower than 15 or higher than 15 or remaining at 15 or put it differently, what sort of economic value add in terms of spreads, which you think the capex will quantitatively generate?

So we have a distillery in Telangana which has been operating for a fairly long period of time. And if you look, what we did was do an analysis of - we consume about 40 million litr es of alcohol for our own brands and we sell the balance to the local manufacturer including likes of Radico and Pernod and many others in the state. So we have a very clear view of what is the spread between the price we realize from third-party sale and the price at which we produce. And when we run a statistical analysis, it gives us a figure of arb which is per litre arb between a INR10 to INR16 rupees. So we basically picked up INR12 is what we believe statistically is an arb that we can make a INR12 a litre is an arb that we can make from an ENA plant over a long period of time. So it can go high, it can come low, but over a period of time, from a model perspective it has 12 arb rupees a litre. If you look at a 150 KLPD plant, for example, the one that we want to se t up in Maharashtra, that's roughly 50 million litr es of alcohol. And if you multiply that by 12, you'll get a INR60 crores cash margin from an investment that we are planning to make in Maharashtra.

Just sorry, I'll probably take it offline. Just one last bit. What I'm just trying to understand is does these businesses or these investments rather, does it have the potential to generate 300, 400, to spread or put it differently, 15% threshold ROCE on its own?

Okay. Thank you so much and good luck.

Thank you.

Thank you. The next question is from the line of Swechha from Whitestone Financial Advisors. Please go ahead.

Thank you, sir, for giving this opportunity. Sir, I had a few questions. My first one was I wanted to understand some more details about the venture that we've started with Ranveer. I just wanted to understand specifically what kind of arrangement it is. Are we going to give some equity to him in this new venture and is this going to be a part of ABDL or is it going to be a separate entity? So just wanted to understand that, sir, first?

Absolutely. So it's a separate entity. It has, it will be - the name of the entity is ABD Maestro. Essentially, this entity will focus on the luxury portfolio and in terms of the infrastructure that we are building, the people skills that we are building, the focus is on our luxury portfolio. So that's about the entity. As we have made - as we provided declarations I think this is Ranveer will hold 20% equity in this venture. ABD will hold 80%, it will be a subsidiary of ABD. So that's the sort of high-level structure and the purpose of this venture. Any follow-up on this?

Yes so just wanted to understand, so there is no endorsement fees tha t will be giving to him, under this entity. It is just only equity is what we are giving him?

So Ranveer comes in as a business and creative partner which means his involvement in terms of the entire portfolio of brands that will be sold under the ABD Maestro umbrella. So it is not an endorsement deal where he stands in for a brand over a period of time. The whole, the entire genesis is about a long -term engagement from a superstar like Ranveer and he continues to provide both his creative inputs and also the fact that he has global reach. He has 47 million Instagram subscribers and growing. So it's not like a typical endorsement deal. It is pretty much he's part of the business, actively involved in curating the portfolio and how they're positioned and how they're sold and also a social media influencer for the entire portfolio of brands.

So my second question was just wanting to understand out of the INR525 crores of capex, how much of it would be funded through debt and how much would be through internal accrual?

Just give me like 30 seconds on this. So, like I said earlier the INR525 crores of debt is spread across three years. INR185 crores in year 1, INR220 crores in year 2 and about 100 balanced debt in year 3. This will be funded out of internal accrual and on debt and we believe from our planning perspective, I think our peak debt for this project will be about INR200 crores. So balance will be funded out of internal accrual and also out from the margins that some of the projects like PET project will start running up in the next nine months.

Right, right. So just to follow up on this now, we've just refinanced our high-cost debt. And now we plan to again do further capex and obviously we'll be taking debt for it. So just wanted to understand on a steady state basis, what kind of interest cost run rate can we see? Because in this quarter, the interest cost has obviously come down significantly. But now as we subsequently again take the debt, how much the interest cost can go up from here on a quarterly basis?

So the interest cost should actually come down and I'll tell you why. If you look at the peak debt that is required for our project financing is out of INR200 crores and we roughly have INR350 crores of overdue from Telangana. As the overdue gets paid out, the amount of debt that we pay off versus the debt that we need to take in. So I see our overall debt to come down and therefore interest will also come down. So we don't see the interest going up. I mean, we see over the next two, three years the interest will only come down.

And so similarly, even our employee cost has gone down. So just wanted to understand, is this one off for this quarter and or we are expecting some more reduction in the employee cost?

So I think we are through with the restructuring that we had to do. So we do not expect any further reduction in employee cost.

And so just I have two more follow-ups if I can ask you right now.

Okay.

So on EBITDA guidance, in the presentation we have mentioned that EBITDA will increase by 300 basis points over three years. But just wanted to understand with all the new initiatives and the acquisitions and launch of new products that we are doing, obviously the cost is also going to come down. So what kind of incremental EBITDA, how do we see this EBITDA going up on a quarter on quarter basis? How do you see this panning out?

So just to sort of put a simple framework to it, if you see our Q2 EBITDA is roughly 12%. And if you look at the economic value that the capex project will add over the next two or three years, so they hopefully live about two and a half years from now. So the incremental EBITDA that this project will deliver is roughly 300 basis points. So if you look at the Q2 exit EBITDA and you look at the value that this project will bring in, we'll get us to that 15% EBITDA. That's what we have benchmarked as an industry parity EBITDA. So that's sort of a simple way of looking at it. As far as, and we're talking percentage terms, right? So overall EBITDA as an absolute amount will be higher. So that's part one. Part two on the new brand launches, as you know that the new brands will require investments ahead of the curve. And therefore, they will be what we call a cap neutral, which means contribution after A&P. But they may not necessarily contribute to EBITDA in the short run. Right. And as they start becoming cap positive, that's where they will also start contributing to EBITDA. The cycle could be between 18 months to three years. And therefore, it is better to stay conservative that from our luxury portfolio brand and our premium brand edition, this will be EBITDA neutral, right? But you know, if things turn out like it has turned out for ICONiQ, which has gone from 1 million to 2.2 million to hopefully 5 million this year, you know, we could start seeing them to be EBITDA accretive in 18 months. But it's better to stay conservative. But back off our current EBITDA Q2 and 300 basis point expansion from this project. We believe that we are in the strike range.

Right, right. Okay. So just last question, would you be able to give me the volume breakup, you know, category wise, for H1 for Officers Choice, Officers Choice Blue, Sterling Reserve, ICONiQ White, Chiron and Zoya, sir?

Most certainly, but is it okay if we provide the sheet to you after the call?

Yes, sir. Yes, sir. Yes, sir. Thank you. Thank you, sir. Thank you so much. I really appreciate this.

Thank you so much. Thank you. Thank you for your questions.

Thank you. The next question comes from the line of Kunal Shah from Jefferies India. Please go ahead.

Thank you for the opportunity. My first question is on this mention in the PPT of better outlook for demand in second half led by Festives. So I mean, one month has passed in the October. Do you see any change in sentiment versus what was the case last quarter?

Industry data typically comes out by 15 in the next month. So at an industry level, I'm unable to provide you with what's it looking like for others. For us, we are seeing a positive outcome as far as October is concerned.

Understood. Understood. And the second question was on the two newer brands. So how is the Sterling Reserve brand doing in general? I mean, in the last one year or so, is that also delivering good growth?

So Sterling Reserve, we have launched the all new Sterling Reserve about two months back. It is currently getting rolled out nationally. It is backed by a very unique go-to-market in terms of recapturing the customer imagination. So the brand is north of 4 million cases, has been sluggish on growth. But we are hopeful on back of the all new SRB7 relaunch. We are expecting to trigger growth back in the brand.

Understood. And the last bit was on ICONiQ White. So can you give us some sense of the distribution opportunity in this brand? I know you are present in 22 states and entering two more. But in terms of, let's say, outlet reach, is there a material headroom for you to get into more outlets?

I think from a distribution perspective, the growth will come from two levers. One is addition of new markets. So, we are in quarter three, launching Karnataka and Andhra, which are, again, large volume markets for us. So that really is one lever of growth. The second lever of growth is going to be what I call distribution width and not distribution depth. Because in markets where brand is already there for the last 12 months, it has reached the optimal width. But what we are seeing now is distribution depth, which means it's able to get newer customers to come back and experience. And then some of those customers keep coming back as permanent. They like the brand and they keep coming back. One point that I think I covered in the last call also is that ICONiQ White is positioned between an Imperial Blue and a Royal Stag. And our thesis was that both the Imperial Blue and McDowell's number one customer, should provide a source of upgrade to ICONiQ. And also, consumers of Royal Challenge and Royal Stag could see ICONiQ as a new contemporary option to try. So one of the things that we track when there is a retail market is where the customer, where ICONiQ White is getting customers from each of our brands. It's very heartening for us to know that it is getting customers both from the deluxe segment and the semi -premium segment. Of course, it gets more consumers from the deluxe. So I think it is positioned very intelligently to be able to get share of growth from two segments. And also, of course, on the back of new geography and newer customers, we see this brand continue to grow.

Understood. Thank you so much. That's all for my side.

Thank you. The next question comes from the line of Amansingh Sahajsinghani, please go ahead.

Hi, sir. Congrats on good set of numbers and thank you for the opportunity. I wanted to understand further about the venture with Ranveer Singh that we are doing. So we have given away 20% of the equity to Ranveer Singh. So, I wanted to understand further on what value add does Ranveer Singh bring in and how is it different from appointing Ranveer Singh as the brand ambassador for the company? Because the business w e will do in this venture would be the luxury segment, which could have been th e value add or the growth driver for the standalone ABDL entity. So, this is the first question I want to understand.

Right. So I think the key difference between a brand ambassador versus a shareholder is quite evident that in the first, it's transient. It could last a year, two years, three years. It's a transient relationship. But when you're a shareholder, the tenure of the relationship is in theory, in perpetuity. And I think that really is the big power idea here that with a superstar like Ranveer, who as you know does even Gucci as a brand. So he brings in consumers from very diverse ethnicities, from very diverse demographics, both in India and overseas. So, the social, the reach is able to influence consumers across ethnicities, across geography. It's something that will be extremely powerful. In addition, I think he has a very keen, creative mind. And therefore, not only are existing brands, they're also working on a brand that we will create, especially within this new venture. I think the creative inputs will be extremely valuable. So, these are the three or four things that we believe is a unique way of engaging a celebrity versus a sort of I mean, there's no harm in a commercial model where there is an endorsement fee, but this is more a partnership arrangement, which should deliver value for both Ranveer and us.

Okay, got it. So, one clarification here. So will we do the luxury segment in the company with Ranveer Singh only, or it can coexist in ABDL and the joint entity in both the companies?

We would like to consolidate our luxury portfolio in the new entity so that the infra that we're building, whether it is people infra, distribution infra, which is premium horeca, there is a very focused and a concentrated approach on the luxury portfolio.

Got it. The second question would be on the gross margin side. So we have increased gross margins by around 400 basis points. So it could be very helpful if you can break down the improvement in gross margins into the benefit that we have derived from lower packaging cost, better P&A mix, and there would be obviously some drag from the higher E NA cost, which would be on gross margin. So if you can break that down.

So, what I'll do is I'll give you a very high -level response and then maybe we can share the numbers offline if that's okay with you. On the ENA, the Q2 cost of ENA is higher than the Q2 cost last year. So, ENA cost does not have a role to play in our gross margin expansion. Gross margin expansion has happened on back of better state mix. It has happened on back of product mix. And also I think a point that I covered earlier is that post IPO, we have repaid all the overdues to our vendor. And as part of that entire exercise, we've also done a rate reset that , what we call as timely payment. We will do timely payment and we've been able to get, you know, a reduction in our buying rate. So these are the three levers. If it's okay, we can publish a waterfall on this later.

So, sir, we can take this offline. Just two small clarifications from what you said earlier. Can you state the A&P spend as a percentage of sales or absolute number for this quarter?

For this quarter?

Advertising, yes.

About, it's about between 4% and 5%. But you keep on in mind that Office's Choice is a brand that does not dazzle a lot of A &P and our entire A&P goes into the P&A segment and all our luxury brands. So my request would be to read the numbers with respect.

Sir, can you please repeat the number?

I'm sorry?

Sir, can you please repeat the number?

A small question. After the capex that we have planned, so after 3 years, so we will have the 100% capacity of P&A that we will be utilizing or I guess in your opening remarks you said we will have two-thirds of the capacity.

With the facility that we are putting in Maharashtra, we will get to about two -thirds. We will need to at some point of time also need to invest in another 150 KLPD plant to get to 100%.

Got it. Thank you so much.

Thank you. The next question comes from the line of Abhijeet Kundu from Antique Stock Broking. Please go ahead.

Yeah, hi. Congrats on a great set of numbers. The margin expansion has been quite substantial and we believe that this margin expansion will sustain and, in fact, improve going ahead. My question was on the brand part. You said that Sterling Reserve B7 would be relaunched and that has been a successful brand earlier as well. But what happens to, what are plans with Srishti, X&O Barrel? Where are we in terms of marketing them and driving their volumes? Where are we in that journey? Because these are the brands which will improve your overall standing in P&A.

So, as you know, all brands do not necessarily succeed. So, what we did was we launched three whisky brands, which is ICONiQ White, Srishti and X&O at the same point of time. Of course, ICONiQ White has gone on to take a pole position in terms of growth. On Srishti, we are currently selling in three markets. We sell it in the state of UP, we sell it in the state of West Bengal and we sell it in the state of Haryana. We are quite happy with the playbook that we are building on Srishti and we believe that in the quarter or two, we will be ready to take Srishti on in a few more markets. In our industry, it can take anything between 12 to 18 months for us to get national rollout, like was the case with ICONiQ as well. So, with Srishti, I think now that we are happy with the playbook, we will take it forward. On X&O, still more work is required before we have a playbook that will allow us and give us the confidence to invest more money and expand the distribution.

And in case of Zoya, the initial response has been good, what I believe, from our chances as well. So, what are the plans with ramping up across states? Where and how much time will it take?

So, by quarter three, we should be in about eight top -Gin markets. By end of quarter four, we will be in the 12 top-Gin markets. And in addition, the focus is also on exporting Zoya to relevant markets. We have already done that for Dubai. We believe that the Zoya footprint across India, could be between five to ten more markets in the next two quarters. In addition, we are also trying to lift this brand in duty-free. So, the focus on Zoya and our entire luxury portfolio would be across four channels. One is domestic, second is duty-free, third is export, and also get into the defense sector with approvals both for paramilitary and CSD. So, a lot of work is currently happening to make sure that we get all our approvals and go to market in place.

This could be a potentially strong million cases market over a period of time, 3 years. I know the segment is, I mean, the category is smaller when compared to a whisky. But this could be also a millionaire brand over 3, 4 year periods.

We're talking about Zoya,

right?

Zoya unlikely will be a millionaire case brand. It will be smaller. But as we've always maintained that the good thing about Zoya, we are operating at a gross margin of more than 70%. Therefore, we believe it can short, it can, at a very quick pace, from being cap -neutral, start becoming an EBITDA accretive brand.

Okay. And also your Russian, tie-up with Russian leader, Roust, that will also start kicking in, right? I mean, that plan will also be there to scale it up?

So, I think yes. The answer is yes. But more importantly, when we are talking about premium Vodka, given the rage that any bar today carries, I think our ability to offer multiple choices to the premium Vodka, starting with Zoya to Russian Standard. As we speak today on 5th of November, we are also launching our Blended Scotch malt. Therefore, the portfolio is getting better. And our ability to therefore offer to both premium customers and offline and to premium Vodka will be significantly enhanced. And also, as you understand, the cost of sales will also come down. So, this portfolio will expand every quarter. We're looking at adding at least one new luxury brand. So, we've done Zoya, we've added Russian Standard, and we have now added, in the month of November, we are adding Art Haus, which is our Blended Scotch malt. And hopefully, in quarter four of this financial year, we'll add one more brand to our portfolio.

Great to hear that. Actually, the 2200 average pricing of Vodka is quite enticing because that segment is seeing good amount of traction. So, all the best to you.

Thank you. The next question is from the line of Sunny from MK Ventures. Please go ahead.

Thanks for the follow-up question. My question is related to the tie-up that we have done with Russian Standard Vodka. It will be helpful to get a perspective on what's the category size, who are the relevant peers at that price point, and what is our aspirational market share in the next 2 to 3 years from this brand?

So, the portfolio spreads across from Absolut to Grey Goose. It allows us to operate across various price points and therefore take shares from all the three price points, which are operating in the market. The aspiration of the market share, we're hopeful that we should get quickly to double digit and we'll grow from there.

Well, you're absolutely right. This price point will be less than 10%.

So, like 1.5 million cases, you mean, is the underlying market potential?

Yeah, just give me 10 seconds, I'll give you actual numbers, but yeah, it's not more than a million cases at this point of time.

Okay. So, basically, do we have aspirations to then maybe move one price point lower, which is say the magic moments verve Vodka or similar price category, which will have a larger addressable market? And then basically in that perspective, capture the whole P&A category of Vodka, which is, as one of your peers mentioned, also growing at high double digit growth rate. So, is there any thought process around that?

I think these are two independent initiatives. I want to share one data point with you that of the 412 million cases that were sold last year, right at the top, there is about 12, 15 million cases that account for more than 30% of the industry profits. And the Russian standard portfolio plays in that category, right? So, we'll have to keep in back of our mind that there will be two kinds of opportunity. One is scale opportunities, like you mentioned, in terms of magic moment, which does about 7 , 8 million cases. And second opportunity is going to be in high gross margin, high per case profit, where for every case you make maybe five or six times what you make on a normal product, but the volumes are small. So, I think this will require the two independent approaches, not one common approach.

Got it. One related question to this, in case of brands where we do licensing agreements with global brand owners, how should we look at the margin profile? Is it better than the company average currently? Maybe at a stable state, I understand initially there will be significant investments which will go into A&P. And till you attain a reasonable size, these may not contribute to that extent in the EBITDA, but at a stable state with reasonable scale, will these be low double digit, mid double? So, how should we look at margin of these licensed brands or the BIO bran ds that you will look to introduce over a period of time?

I think we've already stated that over the next couple of years, we want to get to industry parity EBITDA. Any business initiative or any partnership or any new brand that we introduce has to fit into that framework. So, for now, I would say that partner brands like Russian Standard will actually help us get there faster.

Got it. That's very helpful. Thank you.

Thank you. As there are no further questions, I would now like to hand the conference over to the management of Allied Blenders & Distillers for closing comments.

Thank you once again for your time and for your questions, much appreciated. We look forward to this quarterly interaction even though it is virtual. Thank you for your time and let me take this opportunity to wish you and your family a Happy Diwali and the very best for the festive season. Thanks once again.

Thank you, sir. Thank you, everyone. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.