Release Date: January 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Associated Alcohols & Breweries Ltd (BOM:507526, Financial) reported a 23% year-on-year growth in EBITDA for Q3 FY24, with an EBITDA margin expansion of 200 basis points.
- The company has successfully commercialized a 130-KLPD grain-based ethanol plant, which is expected to operate at full capacity from February 2024.
- Introduction of new premium products such as Central Province Rum and handcrafted Gin Nicobar, aligning with the company's premiumization strategy.
- Strong revenue growth in the IMFL proprietary category, with expectations of 15% to 18% year-on-year growth.
- Plans to expand into new markets including Karnataka, Maharashtra, Goa, and Pondicherry, with a subsidiary formation in Uttar Pradesh to leverage favorable manufacturing incentives.
Negative Points
- Subdued rum sales due to warmer than usual winter, impacting overall sales performance.
- Slight margin pressure attributed to increased grain prices and elevated costs of other critical materials.
- IMIL segment faced a decrease in volume and revenue due to changes in the policy of the Madhya Pradesh government.
- Substantial increase in excise duty expenses due to entering new states and changes in state policies.
- Challenges in stabilizing the new ethanol plant, with initial operational adjustments expected to impact short-term performance.
Q & A Highlights
Q: What would be the sustainable margin after ethanol production has started on the overall firm basis?
A: Post-ethanol combined, we are targeting around lower double digits for FY25, and for FY26, it should be a little higher than FY24. - Ankit Agrawal, CFO
Q: What strategic consideration led to the decision to enter into ethanol production?
A: The decision was driven by government incentives and the opportunity to leverage economies of scale within the same premises, making us more competitive. The government aims to blend 20% ethanol by 2025, up from the current 10.5%. - Tushar Bhandari, Whole Time Director
Q: Could you provide more details on the reason behind the decrease in IMIL volume, revenue, and margin?
A: The MP government changed its policy, reducing the number of warehouses, which limited growth. Margins remain similar to last year. - Ankit Agrawal, CFO
Q: What is the capacity utilization overall?
A: The ENA plant is operating at almost 100% capacity. The ethanol plant is in stabilization mode but has orders for 100% capacity. - Tushar Bhandari, Whole Time Director
Q: How do you manage the volatility in input prices for ethanol production?
A: The government has been supportive, increasing ethanol prices in line with commodity price hikes. This ensures the industry remains viable. - Tushar Bhandari, Whole Time Director
Q: What are the new geographies you plan to enter, and what is the strategy there?
A: We plan to enter Maharashtra, Goa, Karnataka, Assam, and Pondicherry in the next financial year. We are also working towards entering the CSB business. - Tushar Bhandari, Whole Time Director
Q: Could you provide more details on the subsidiary in Uttar Pradesh?
A: The subsidiary aims to enter the UP market and northern states, leveraging state subsidies. We plan to set up a 100KL plant with a bottling unit, with an expected capex of INR150 to INR200 crores, mostly from internal accruals. - Tushar Bhandari, Whole Time Director
Q: What is the expected revenue from the new 130KLPD ethanol plant in FY25?
A: We expect the plant to generate around INR250 crores to INR300 crores in turnover, operating at 100% capacity from February onwards. - Ankit Agrawal, CFO
Q: How do you plan to address the elevated raw material prices?
A: We have a multi-feedstock plan and are strategically located to procure raw materials competitively. We also stock up when prices are favorable. - Ankit Agrawal, CFO
Q: What are your plans for premiumization in the IMFL segment?
A: We are focusing on premium products like Nicobar Gin and Central Province Rum. Each quarter, we plan to launch new premium products to increase margins. - Tushar Bhandari, Whole Time Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
