Speaker #1: Thank you, and over to you, sir.
Speaker #2: Thank you, Anam. Hello and good afternoon, everyone present on the call. On behalf of ICICI Securities, I welcome you on Radico Khaitan Limited's Q2 FY27 earnings call.
Speaker #2: I would like to thank the management for giving this opportunity of hosting the call. From the management, we have Mr. Abhishek Khaitan, MD, Mr. Dilip Banthiya, CFO, Mr. Sanjeev Banga, President International Business, Mr. Sudhir Upadhyay, Chief Sales Officer, and Mr. Sakib Somani, Deputy CFO.
Speaker #2: I will now hand the call over to Mr. Abhishek for any opening remarks. Thank you, and over to you, sir.
Speaker #3: Good afternoon, ladies and gentlemen. And thank you for joining us on Radico Khaitan's Q2 FY27 earnings conference call. The second quarter of FY27 has been the strongest in our history, with record volumes revenue and profitability.
Speaker #3: During the quarter, IMFL volumes stood at over 10 million cases, revenue at 1,746 crores, and EBITDA at 356 crores. With an EBITDA margin of 20.4%, two quarters in, the consistency of this delivery gives us great confidence in the year ahead.
Speaker #3: Minimization remains at the heart of this performance, our prestige and above portfolio grew 36% in volume during the quarter. Well ahead of the industry, and continues to enrich our mix with every passing quarter.
Speaker #3: In vodka, the structural shift we have spoken about is gathering pace. With the category share of IMFL reaching 6.3% in Q2, flavors are driving this change, and magic moment is shaping it.
Speaker #3: In August, we launched magic moments Am Panna, bringing a nostalgic flavor cherished in every Indian household into a contemporary format. Supported by a digital-first campaign, consumer response has been encouraging, and tertiary optics across the magic moments family remains healthy.
Speaker #3: In whiskey, after dark, modern new look is resonating well in the largest segment of the market, and we are extending it to more states.
Speaker #3: ATM Premium Black continues to gain momentum, and market share. While Royal Ranthambore continues to perform well across civil and CSD channels, our luxury portfolio including Rampur Indian Single Mall, Jaisalmer, Indian Craft Gin, and Virasat Indian Single Mall continue to receive an exceptional response from Connoisseurs in India and abroad.
Speaker #3: And we are steadily taking Virasat to new states. Brand advocacy remains central to this effort. During the quarter, we continue to partnership and premium shops in shop formats at retail.
Speaker #3: The policy environment across key states continues to be progressive and supportive. And we see this as a meaningful tailwind for organized premium-led players like Radico in the years ahead.
Speaker #3: Internationally, we also became the first Indian spirits company to be present across four major UK airports, a proud moment for the Indian whiskey in the home of Scotch.
Speaker #3: And we continue to progress towards our targets of 100 travel retail outlets in the times to come. At the same time, the global environment has turned increasingly volatile, we are seeing continued volatility in the raw material and packaging costs.
Speaker #3: We are managing this through sharper procurement, value engineering, our integrated manufacturing platform, and a richer product mix. These levers give us the resilience to stay the course.
Speaker #3: Looking ahead, we have upgraded our prestige and above volume growth to 30% in FY27. And we remain confident of sustaining an EBITDA margin of around 20% for the year.
Speaker #3: Before I close, an important update on our leadership. Effective today, Dilip Banthiya joins the board as Executive Director and CFO. Bringing his deep financial, capital allocations, and alphabet industry experience to the board.
Speaker #3: Sakib Somani has been elevated to Deputy CFO, with an expanded mandate across strategy, financial planning, investor relations, and digital transformation. These elevations reflect our belief in nurturing talent from within.
Speaker #3: As we enter the festive season, I would like to wish you all and your families a very happy and prosperous Diwali. With that, I would now like to hand over the call to our Executive Director and CFO, Dilip Banthiya, for a detailed review of her financial and operational performance.
Speaker #3: Thank you.
Speaker #2: Thank you, Abhishek. Thank you, everyone, for joining us on this call today. Before I begin, I would like to thank the board for its confidence in me.
Speaker #2: The momentum we built in the first quarter was sustained through Q2, with strong volume growth, higher profitability, and improved returns. Our performance reflects the resilience of our business model, driven by premiumization, operating leverage, and persistent focus on disciplined execution.
Speaker #2: Even as the input cost environment has turned more volatile, during Q2 of FY27, we delivered a strong all-round performance with total IMFL volume of over 10 million cases.
Speaker #2: Reflecting a 7% year-on-year growth, the prestige and above category continued its strong upward trajectory, recording a highest ever volume of 5.28 million cases at 36% volume growth.
Speaker #2: This performance was supported by a strong brand momentum, and premiumization led mixed improvement. Regular volume degrowth was due to a higher base in Q2 of last year, after the change in route to the market in the state of Andhra Pradesh, and the impact of policy changes in Maharashtra and Karnataka.
Speaker #2: On profitability front, gross margin during the quarter is 48%, representing 440 basis point expansion on year-on-year basis, and 109 basis point compression on quarter-on-quarter basis.
Speaker #2: This improvement on year-on-year basis is due to the ongoing premiumization, product mix, premiumization added 510 basis point in and the price increases added 85 basis point.
Speaker #2: This was offset to a certain extent by the recent volatility in packaging material, which resulted into approximately 27 crores of financial impact. The gross margin was impacted sequentially due to some cyclical brand mix change and inflation in grain prices.
Speaker #2: Despite an uncertain macro environment, we are confident of our margin trajectory in financial year 27 to mitigate the impact of increasing grain prices to a large extent we had built a higher level of stocks which has supported us through Q2 of FY27.
Speaker #2: EBITDA margin for the quarter stood at 20.4%, expanding by 462 basis on year-on-year basis. The strong improvement reflects the success of premiumization strategy, better operating efficiencies, continued cost discipline, it also highlights the benefit of our consistent investment in building a strong premium and luxury brand portfolio over the years.
Speaker #2: Building on our strong financial performance, both ROE and ROCE improved during the quarter, supported by higher operating profit and better assets utilization. As the premium and luxury portfolio continue to expand, we expect our capital efficiency and return ratio to improve further.
Speaker #2: During the quarter, we made a deliberate investment in working capital to support the strong growth in our premium portfolio, new launches, and secure key raw material and packaging material amid the price volatility this is temporary, and we expect to normalize during the second half of this year.
Speaker #2: We remain disciplined in our approach to capital allocation, with CapEx directed toward maintenance, operational efficiencies, and essential capacity optimization. Looking ahead, our priorities are remain very clear.
Speaker #2: Driving profitable growth, maintaining a strong balance sheet, improving capital efficiency, and creating a long-term shareholder value. With this, we'll now open the line for question answer.
Speaker #2: Thank you.
Speaker #1: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and 1 on the touchstone telephone.
Speaker #1: If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question.
Speaker #1: Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aditya Soman from CLSA.
Speaker #1: Please go ahead.
Speaker #3: Yeah, hi. Good afternoon, and thanks for the opportunity. So two questions. Firstly, on this DRI investigation across the industry, can you explain a little bit more what the key issue here is, and how the various players potentially are impacted?
Speaker #3: And secondly, on the raw material impact now, we've seen obviously a significant increase in grain prices as well as packaging materials. So from a pricing perspective, what proportion of our portfolio would you say has pricing freedom and typically what would be the price lag or the lag between pricing and the input cost increases?
Speaker #3: Thanks.
Speaker #2: So thanks, Aditya. Actually, as far as the matter relating to the industry scrutiny on this thing, we are very, very compliant company. We have always complied with the regulatory and issues we scotches, which we were importing earlier, last 10, 20 years are in the same HSN code as 2208, and after 15 July also, we are importing the VMSs in the same code.
Speaker #2: So we have not changed any of our code neither the connotation or the narratives of the material coming here. This is an industry issue.
Speaker #2: Which DRI is studying, and I we don't know how far it goes. On others, but we are confident that what we are doing is as per the current laws.
Speaker #2: Thank you. And to your second question, regarding the packaging material and raw materials scenario, see, we have actually as we in the beginning and opening remark MD also said that we continue to maintain our EBITDA margin guidance of 20% for this full year.
Speaker #2: So we are actually this quarter also there has been a negative impact of 27 crore, which is approximately 156 to 160 basis point on gross margin basis.
Speaker #2: However, we with the kind of this thing, we have been able to mitigate and when we see that in the new crop season, which is starting, from November onward, the prices should stabilize and at the same time SPI allocation to this year's ethanol policy is also very, very elevated at 72 lakh metric ton.
Speaker #2: Which will also stabilize this thing. So from November onward, we see this to play a very benign kind of role at the same time on packaging material, there has been an impact on account of the West Asia war, and in particular, basically on the bottle prices and the pack prices like that, and some laminate prices.
Speaker #2: It is very, very unpredictable, but looking into the current uncertain and volatile scenario, we continue to work on our premiumization, improve on our product mix, and continue to have that that we can deliver a 20% guidance which we have given.
Speaker #2: So I think we are confident about our business and portfolio.
Speaker #3: Very clear. And thanks a lot for that. So just to summarize, so with this whole DRI issue, no impact on Radico. Likely. And second, on the input cost as well, I think the no change to the 20% margin guidance.
Speaker #3: For the current year.
Speaker #2: That's correct.
Speaker #3: Thank you.
Speaker #1: Thank you. The next question comes from the line of Avneesh Roy from Nuama. Please go ahead.
Speaker #2: Yeah, thanks, congrats. Very strong set of numbers. My first question is on the UK FTA. So are you seeing any increase in competition till now?
Speaker #2: And because costing is affordable for all players, is there more intensity within existing players? So how are you reading that part? Second is a question to your international head.
Speaker #2: In terms of the four airports in UK and further expansion, what kind of opportunity long-term you see in that market? Because of the FTA and now better presence on ground also.
Speaker #2: To answer your first question, this is UK FTA we are seeing about close to 8 to 10% reduction in the BIO. And if you see our portfolio, whether it's the Rampur or Virasat, it's a single mall, and it is already priced higher than the existing BIOs.
Speaker #2: So I think it's more of a consumer preference. And as far as the other portfolio, whether it is After Dark or Magic Moment, et cetera, that is way below the BIO scotch.
Speaker #2: So as such, we don't see so much of challenge in our portfolio at all. Well, regarding the GTR, as you know, we were we've just got listed in four UK airports.
Speaker #2: That's Heathrow, Gatwick, Birmingham, and Manchester. The response has been very positive. And global travel retail remains a very important channel for us, especially for our luxury portfolio.
Speaker #2: Both in terms of showcasing the products to a global audience, as well as consumption for them, whether it is for their own consumption or for gifting purposes as well.
Speaker #2: We are currently in around 70 duty-free locations, and our objective is to get to 100 in quick time. So we will continue to focus on this channel and try to expand it in quick time.
Speaker #3: Sure. My second question is on the guidance. So two quarters, two upgrades, overall macro versus three-month back, six-month back, entire country, entire world, more challenging.
Speaker #3: What is the specific reason two, three, if you can tell us? Is it because shift towards Vodka is higher than your initial expectation? Or is it states like Karnataka or any specific state you can highlight?
Speaker #3: We don't know. The beer companies said that Karnataka, they are growing 60%, for example. So is it specific state which is working much better?
Speaker #3: Or is it just plain market share gain?
Speaker #1: Sir, you're not audible.
Speaker #2: Yeah, yeah. So I want to understand. Yeah, yeah. To answer your first question, is if you see there is a structural shift which is taking towards the wide spirit, which is Vodka, and globally also if you see about 28% of the liquor market is Vodka globally.
Speaker #2: In India, it was very small. In 2025, it was 3.7. 26, it became 4.5. And this quarter, it is 6.3. So we are seeing a lot of shift, especially with the Gen Z and the younger generation and the women coming in.
Speaker #2: Their liking is towards the wider spirit. Because it is more easily mixable. And plus, it is much light and a flavored Vodka. So I think that shift is helping us, number one.
Speaker #2: Number two, to answer your question, Karnataka has led the way. And they have really seen after the reduction in the duties and free pricing, to give you an example, say Radico in the current quarter, we have grown more than 100% of our premium volume there.
Speaker #2: So Karnataka is helping us. Plus, we are getting overall growth from everywhere. That is why if you see the P&A growth of our of Radico is 36% in the current quarter.
Speaker #3: Sure. One follow-up question I had on your P&A volume growth and your Vodka growth. If I dissect the numbers, it seems your non-Vodka P&A has grown around 23%.
Speaker #3: Ballpark, it could be 1 or 2% here and there. Are you happy with this performance of non-Vodka P&A? And Karnataka, of course, has done quite well, which means non-Karnataka would have grown, say, much slower than that.
Speaker #3: Is Maharashtra dragging it down? Are you happy with this say 23% kind of growth performance in non-Vodka? P&A?
Speaker #2: I think we are more than happy because the industry itself has grown only 5.8 to 6% in P&A. We have a 20% non-Vodka growth.
Speaker #2: I think it's a commendable achievement. And Vodka, we have grown by about 49%. So I think overall, the P&A, we are very, very happy with the portfolio.
Speaker #2: As far as Maharashtra goes, Maharashtra, our P&A, we have come back into growth in the current quarter.
Speaker #3: And what is the reason for that?
Speaker #2: Maharashtra coming back. Yeah. Our P&A, so from our side, because as I said, the flavor shift is happening towards the Vodka. And now I think Vodka is about close to industry.
Speaker #3: 6.6. Thank you.
Speaker #2: Maharashtra, 11%.
Speaker #3: Maharashtra.
Speaker #2: Actually, Maharashtra, the Vodka has become 11% of the industry. So where we are market leaders. So our P&A has grown very fast in the current quarter there.
Speaker #3: And at least to your other point about Karnataka, while Karnataka has grown very, very strongly, but our saliency from Karnataka is still 6%. So while that has contributed, the other states are growing much faster.
Speaker #3: And our contributing a lot more meaningfully. So last quick question. So on Tamil Nadu, your media interview, you gave some insights. The beer company also said Tamil Nadu seems to be opening up well on the right track.
Speaker #3: So if you could discuss medium-long-term opportunity assuming some basic stuff here, and on Telangana, again, everyone says the next quarter the hike is happening.
Speaker #3: What is the current understanding on Telangana price hike?
Speaker #2: See, to answer your first question about Tamil Nadu, so Tamil Nadu is the largest market in the country. And as far as Radico goes, our mockus is the largest selling premium brandy there.
Speaker #2: And it's the second largest market for Vodka. So what has happened in September, which is a very, very positive and a pleasant thing for the industry, is orders have started coming on tertiary basis.
Speaker #2: So even for us, our volumes are up 20%. And also, they are introducing a new thing that anything above 1,000 rupees would be paid digitally.
Speaker #2: So I think that is going to and new brands they are allowing them to come. So I think Tamil Nadu can be a very interesting and a good opportunity for the industry.
Speaker #2: And especially for Radico. And as far as Telangana goes, we have represented to the government, but it all depends on the government about the price issue.
Speaker #3: So thanks. That's all from my side. Thank you.
Speaker #1: Thank you. The next question comes from the line of Harith Kapoor from Investec. Please go ahead.
Speaker #3: Yeah, hi, good evening. So just, you know, one question on exports. I know P&A has done exceptionally well in the first half. Just wanted to get your sense on, you know, what's been the kind of exports growth for the first half of the year, given the issues geopolitically.
Speaker #3: And how do you see this panning out over the next, say, two, three, four quarters? Do you see a easier situation, a slightly harder situation?
Speaker #3: Just trying to understand that, you know, whether this piece has not grown at the pace you would have liked and hence there are likely opportunities going forward over the next few quarters for growth to revive.
Speaker #3: That's my first question.
Speaker #2: In terms of exports, yes, the geopolitical situation in Asia did have an impact initially when the whole thing started in March. And for the first couple of months, there was a problem.
Speaker #2: But then it's bounced back now. And our shipments are going regularly into the West Asia markets as well. The only issue is logistics. The freight rates have gone up tremendously, but otherwise, we're seeing a growth in all our export markets.
Speaker #2: So there's no letdown on our export business.
Speaker #3: So as of now, the issue is more margin issue because of freight rates rather than a growth issue, which has rebounded already.
Speaker #2: Yeah, that's correct. The freight issue so part of the freight, we are absorbing part of the freight is being absorbed by the customer over there.
Speaker #2: And in some cases, there has been a little bit of increase in the consumer prices.
Speaker #3: Got it. Got it. And second question, you know, so Abhishek Ji, just do you want to get a sense from, you know, this is a this doesn't look like a one-year or 18-month phenomenon on Vodka.
Speaker #3: These are typically, you know, trends, as you mentioned, globally, the shares are high and of this category. And, you know, obviously, you may not see 40, 50 percent growth rates, but do you expect this to become like a, you know, multi-year driver for you over the next maybe three, four, five years where you may not see 40, 50 percent growth, but the growth rates will be significantly elevated compared to other spirit subcategories?
Speaker #3: Is that the way that you are seeing the market? I just wanted to get your read on how you're thinking about this.
Speaker #2: Right now, so if you see total, Vodka market share is 6.3 percent in the current quarter. And I thought globally it is 28. Even a 1 percent shift adds close to about 4 to 4 and a half million cases of a Vodka.
Speaker #2: So what we see, plus the normal industry growth, so we see that in the next three to five years, the Vodka should outpace any of the categories.
Speaker #2: And especially the flavored Vodka.
Speaker #3: Got it. And last question was, you know, if you could just give an update on yeah, go ahead. So sorry. Yeah.
Speaker #2: Even in the last five, last five years, if you see, the Vodka has grown by 20 percent year on year. So I think it's a trend which is there to stay now.
Speaker #3: Understood. Understood. And this last bit was, you know, the if you could maybe just, you know, you made several kind of launches in the last, say, 12 months or so.
Speaker #3: If you could highlight, you know, which of those you think has seen a greater response? I know After Dark and Black have done well.
Speaker #3: Those are slightly earlier than 12 months back. But the recent ones in the super premium and, you know, in the super premium space, if you could just call out maybe one or two that you are most satisfied with in terms of traction, that would be helpful.
Speaker #3: That's my last question.
Speaker #2: So I think among the new launches, which we are very we are most excited about, I think the Virasa Indian Single Malt, because we didn't have a malt in the affordable luxury.
Speaker #2: That is about three and a half to four thousand rupees a bottle. So I think that is seeing a tremendous response from every state.
Speaker #2: So that's we are very happy about. Second, we had launched Jamun. Jamun has become a craze. Now, even Aam Panna, what we have launched last month, the kind of tertiary and the kind of interest we are seeing is quite high on that.
Speaker #2: And After Dark is still not ruled out in its new Aftar. In many of the states. So it is just started rolling out. So I think that also should see a good traction.
Speaker #2: And 8pm Black is back in growth after we changed the packaging and the entire look of it and the communication.
Speaker #3: Great. Thanks. Wish you all the best. And just a point of congratulations to Sakeet and Dilipji as well for the elevation.
Speaker #2: Thank you. Thank you.
Speaker #1: Thank you. The next question comes from the line of Dhiraj Mistry from Jefferies. Please go ahead.
Speaker #4: Yeah, hi. Good afternoon, sir. Congrats on a good set of numbers. So my first question historically, what we have seen that second half is much better than the first half.
Speaker #4: And where in first half year than 36 percent volume growth and looking at your guidance, definitely it has been upgraded. But ask rate becomes 24, 25.
Speaker #4: And if I look at the base also, it's not that high also. So what's the reason for this conservative guidance? Are you expecting any moderation in demand momentum or how do we think about it?
Speaker #2: Yeah, I think guidance is something where you are sure of. And as far as the momentum goes, I think we are seeing great momentum especially with the festive season on.
Speaker #2: So I think the momentum is as strong as it was in the first half.
Speaker #4: Thank you. Thank you. And sir, all going forward, beyond FY 27, would you like to guide something in terms of volume for FY 28, 29, or medium term basis for PNF bank?
Speaker #2: So as far as FY 27, 28, and 29 is concerned, we have already revised our guidance twice this year. So we want to consolidate that growth.
Speaker #2: And there is no reason to believe that the momentum should come down. But we just don't want to ascribe a number to it at the moment.
Speaker #2: But the growth, strong growth will continue.
Speaker #4: We got it. Got it. Sir, all luxury portfolio how's the growth in this quarter? And are we on track to meet our guidance for FY 27?
Speaker #2: See, we had done a turnover of 475 crores last year. And we are well enforced of meeting our guidance of 25 percent. Those 25 percent in terms of value growth.
Speaker #4: Okay. Okay. There's no change in that guidance.
Speaker #2: No.
Speaker #4: Okay. And sir, lastly on margin strength, what would be the margin of IMFL business and non-IMFL business during the quarter?
Speaker #2: So the IMFL business is margins are because of the luxury and the Vodka being major share and all that is approximately 24 percent plus.
Speaker #2: And non-IMFL business is around 9 and a half to 10 percent. For this quarter.
Speaker #4: For the quarter. Okay. Thank you. That's it from my side.
Speaker #1: Thank you. The next question comes from the line of Rahul Agarwal from Ithikai Asset. Please go ahead.
Speaker #3: Yeah, hi sir. Good evening. You commented on the non-Vodka PNA growth. Just wanted some more color on how do you look at the whiskey and, you know, brandy portfolio growth to a bit more, you know, medium term, let's say two years.
Speaker #3: If you have to, you know, break this, let's say, 30 percent volume growth which you have said for fiscal 27, what would be Vodka versus whiskey versus brandy?
Speaker #3: And more medium term what are the outlook here? I'm not asking for guidance, but just broad ranges will help.
Speaker #2: See, as we have upgraded our guidance to 30 percent as a overall portfolio of PNA, so we believe that Vodka, as we already said, will grow much faster than other category as the industry is also growing.
Speaker #2: But on the whiskey and brandy also, it is upward of 20 percent, which we expect as a portfolio. There, 8pm Premium Black, After Dark on the whiskey side will take it.
Speaker #2: And Royal Ranthambhore. And the other side is like on brandy, the major is Morphis.
Speaker #3: Got it, sir. Got it. And, you know, secondly on the margin side, like clearly this year is obviously a given that you are looking at maintaining this 20 percent range.
Speaker #3: But incrementally, if you have to look at additional levers, one is obviously the growth looks high, which is why you will have operating leverage benefits.
Speaker #3: And plus the entire UK FPA benefit has to play out. Would you highlight just couple of top two, three points where margins could actually expand further in 28, 29?
Speaker #3: Like what could be the lever?
Speaker #2: See, like we said earlier, the faster growing categories for us are Vodka and luxury spirit. Which have higher margins. So while this year we have talked about 20 percent margin guidance, but the margin doesn't plateau at that level.
Speaker #2: It's just that given the current volatility in the global macro led raw material and packaging material, we are not putting a number to it.
Speaker #2: But we have always said that the margin expansion will continue. And maybe down the line, one quarter or towards the end of the year, we will look about look at what the guidance for the next year is.
Speaker #2: But margin shall continue to expand.
Speaker #3: Got it, Sakib. And lastly, Abhishek Ji, just one question. We are getting into UP elections next year. Typically when this happens, you know, how does the business behave?
Speaker #3: Should we, you know, be careful about should we be more concerned about or the business grows normally, you know, as, you know, normal routine?
Speaker #3: Can you just comment on that, please? Thank you.
Speaker #2: The liquor revenue in Uttar ar Pradesh is very high. Most of our 60,000, 60, 65,000 crores. It's a very big business. So I think and the system is very well set.
Speaker #2: So I think the elections also I think it's not a case of worry at all.
Speaker #3: Okay. But typically the business grows, you know, during election, doesn't it slow down?
Speaker #2: It does not slow down during elections.
Speaker #3: Gotcha. Okay. Got it, sir. Got it. Thank you and all the best for answering my questions.
Speaker #1: Thank you. The next question comes from the line of Nitin from HDFC Securities. Please go ahead.
Speaker #3: Hi. Thank you for taking my question. My first question pertains to Vodka where, like, we believe the growth has been healthy and there will be increase in the competitive intensity.
Speaker #3: Just wanted to check on, like, what is the salience of flavored Vodka for us? And if you can highlight any future strategy around Vodka.
Speaker #2: See, our flavor our flavored Vodka would be about close to 75 percent. And as we said, we have been innovators in making this category grow.
Speaker #2: And we launched our flavors of India where we started with mango, jamun, now ampana. So there'll be one to more exciting flavors which will be added on.
Speaker #2: And I think the more the people come in, there's more noise for the Vodka category which will make the Vodka category itself expand. So I think that is very good for the Vodka category because when you talk about the white spirits, that is how the category grows.
Speaker #3: Sure. Thank you. And just wanted to check on, is there any example from the international market, like any further premiumization can happen in Vodka?
Speaker #3: Anything beyond flavor we can do in Vodka?
Speaker #2: See, in terms of the international markets, we already have our flavored Vodkas over there as well. But internationally, the flavored Vodka is only about 25 percent.
Speaker #2: 75 percent is plain. So it's very different than the Indian scenario. However, we're seeing a lot of traction for these flavors of India in the international markets also.
Speaker #2: It's early days, but wherever there is an opportunity, we'll push that.
Speaker #3: Yeah. Thank you. But my question was pertaining to any leads from the international market, like international 28 percent of the volume coming sitting in Vodka.
Speaker #3: So sort of any innovation or any idea we can get from the international market which can work in India or just the flavored Vodka is a strategy for near term?
Speaker #2: See, there is a reason for why internationally it's 28 percent. India is also moving towards that, which is basically changing of the consumption occasions.
Speaker #2: Now Indians are also consuming spirits in different shapes and form, whether cocktails, casual drinking, daytime drinking. So India is also moving towards that. And when that sort of trend happens, it moves towards lighter form of spirits, more versatile form of spirits.
Speaker #2: It's just that Indian palate is more suited towards flavors. And internationally it hasn't been the case. So I think we are reading the market.
Speaker #2: Currently it looks like looks like flavor is the way forward.
Speaker #3: Sure. This is really helpful next time. So the question. My last question pertains to after dark with the new packaging and now authenticity with the master blender.
Speaker #3: I want to know the how is the brand doing and like in how many states we have the relaunched after dark active in at present.
Speaker #3: Thank you.
Speaker #2: So see, after dark, last year has grown by around 60 percent. Last year number has been close on that. And after that also it has been very, very progressive wherever it has been launched.
Speaker #2: Now after the new pack change, we had entered in the 10 state as of now. And we are getting the positive correction of the brand.
Speaker #2: The fact of the matter is that this is a huge segment altogether and there's a huge headroom which is lying there. So we are hopeful that it will further grow.
Speaker #2: So we have we have a positive side from the side of consumers in the customer.
Speaker #3: Sure. This is helpful. Thanks a lot and all the very best.
Speaker #1: Thank you. The next question comes from the line of Karan Kamdar from Choice Institutional Equities. Please go ahead.
Speaker #3: Yeah. Thank you for the opportunity and congrats on another great set of numbers for the quarter. What I wanted to understand is that we've been growing from 10 to 10.
Speaker #3: What challenges do we see in the current environment, specifically on regards to competition? And apart from innovation, how do we sort of see our strategy evolving going forward?
Speaker #3: If one specifically on marketing spends and advertising spends.
Speaker #2: So see, as far as we are considered, we are well placed in almost all of these segments. So when we talk about malls, we are talking about rampos, we are talking about grass attendant single malls and then all run numbers in Jaisalmer.
Speaker #2: So effectively in all these segments we are present there. So we have you know, we'll keep on growing on that part because you know, each of the segment is delivering result to us.
Speaker #2: And there is a huge headroom which is lying on. Vodka as it has been mentioned by the you know, in the earlier statements also, will be continuing with the growth.
Speaker #2: Because of the innovation of these flavors, in which we are doing.
Speaker #3: Sir, what is the salience across Vodka gin and whiskey? If you can throw some color, if not the exact numbers. For especially for Vodka.
Speaker #2: Vodka is 30 percent of our volume. Whiskey is about 40, 45. And rest is brandy and rum and gin is still very small because it's only at the extreme top end.
Speaker #3: Got it, sir. Sir, last question. What states do we see as tailwinds and what states do we see as headwinds for the next six months to one year?
Speaker #2: See, headwinds or let's first talk about the tailwinds. It's basically the progressive policies of different states. Any opening up in states like Tamil Nadu, et cetera.
Speaker #2: Then the entire overall consumer shift towards more and more premium. Considering alcohol as a lifestyle category. Then Vodka, of course, is a big growth trajectory going forward.
Speaker #2: And in terms of headwinds, I think these macro environment is what is making the cost scenario a little volatile. But see, as when you grow your premium product at 30, 35 percent, then it becomes relatively less meaningful on the margin side.
Speaker #2: But yes, that is certainly at the moment one thing to watch out for.
Speaker #3: Got it, sir. Thank you and all the best. And congrats to the new appointments. Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you. The next question is from the line of Harsh Sheth from ICICI Securities. Please go ahead.
Speaker #2: Yeah. Hi. Thanks for the opportunity and congratulations on good set. A couple of questions. So firstly on pricing, on the P&A realization was up about 2 percent this quarter.
Speaker #2: And you had mentioned 75 basis points of price benefit in Q1. So for this quarter, how much of this realization growth is actual price increase versus mix?
Speaker #2: And you know, going ahead, are there any state price revisions already approved for H2 that we should factor in? So as we said in our opening remarks that the pricing has improved by 85 basis points on overall basis in this quarter.
Speaker #2: Whatever price increase we have got in 7, 8 states right. And on quarter on quarter basis, the realization improved by 2.2 percent. On a year on year basis, the improvement is much higher.
Speaker #2: Around 12 percent. And it is mainly because we have grown 36 percent on our P&A category. And there is a degree of around 15 percent on our regular category.
Speaker #2: Otherwise, in a normal state of affair, this difference of the product mix and all that going to remain between 5 and 5 to 6 percent, which we expect in a normal circumstances.
Speaker #2: And a price increase of 100 basis point to 125 basis point annually. The net impact.
Speaker #3: Sure. Understood, sir. And secondly on cost management. You know, you had called out roughly 30 crores of packing material impact in Q1. So what is the number in Q2?
Speaker #3: And you know, can you talk about the value engineering you have done since things like shift to hipster packs, lightweighting of glass, PET, et cetera?
Speaker #3: Sir, just wanted to understand how much of gross margin resilience this quarter is from those interventions versus the mix? And also what is the hipster share of volumes today versus say a year ago?
Speaker #2: See, gross margin as I said first quarter was 30 crores, which was on account of the various packaging material. In quarter two, it is including the raw material and packaging material around 27 crores, which is roughly 1.6 percent on an actual basis.
Speaker #2: And as far as the value engineering is concerned, it is an ongoing exercise. In the company. And wherever we find the opportunity to improve on our packaging or other things, then with a better parameters and all that, we look for it.
Speaker #2: So I can't say at this point of time, but yes, as the R&D keeps on happening on that, so whatever is being done and it is being tested, then we try to implement it.
Speaker #3: Sure. Sir, just one last question. So on regular segment, you know, H1 is down one and a half percent. And Q3 last year also had Andhra-based effect.
Speaker #3: So is the decline mainly a base issue that fades from Q4? Or is it a deliberate pullback from low margin states that continues into next year?
Speaker #3: And what should we assume for regular segment volumes? You know, going ahead.
Speaker #2: At this point of time, the base impact from Maharashtra and all that will be almost nullified from H2. However, keeping in view of the raw material prices and all that, we also keep taking the views on the various this thing.
Speaker #2: But you can take it as a plateau or the benign kind of growth from here onward. Or 1 percent or 2 percent kind of growth on regular basis.
Speaker #2: Regular category.
Speaker #3: Understood, sir. Thanks for that. And all the best.
Speaker #2: Thank you.
Speaker #1: Thank you. The next question comes from the line of Aditya from Invesco. Please go ahead.
Speaker #3: Hi. Thanks a lot, sir, for taking my question. Congratulations on Aditya's results. My question is actually along the lines of the previous participant. So I just wanted to understand that if we keep the product mix aside and the inflation that we have seen in the input prices across the board in the recent six months, I would say.
Speaker #3: So the regulators and the individual states will take some time before they analyze and approve price hikes on the portfolio, right? Or is that and that should come in the coming months or coming quarters?
Speaker #3: Just want to understand how this works.
Speaker #2: So actually, as an industry body, this becomes an ongoing exercise. And this big momentum before the new exercise policy comes into effect, most of the policies come in the month of February and all that.
Speaker #2: There we, as a industry body, we consider all raw material and packaging material inflation and put up to the government exercise department. And let's then we see that how much is the price increase comes.
Speaker #2: But it is a normal practice. And at this point of time, it will start from November onward in various exercise by the industry. Representatives.
Speaker #3: Thank you. So if it's fair to say that as of now, this inflation has been absorbed by the industry. And maybe some relief is expected whenever this the next revision happens by most states.
Speaker #2: That's right.
Speaker #3: Okay. Thank you. Rest of my questions have been answered. Thank you very much and all the.
Speaker #1: Thank you. The next question comes from the line of Pankaj Kumar from Kotak Neo. Please go ahead.
Speaker #3: Yes, sir. Thanks for taking my question and conversations on a very good set of numbers. Most of the questions are answered. Sir, one question on the luxury side.
Speaker #3: We are targeting 25 percent head of growth in the current financial year. Where and if you look at overall P&A category, we are reaching more than 30 percent growth.
Speaker #3: And we are expecting to continue in the second half as well. So I mean, what is your take on the long-term growth in the luxury category?
Speaker #3: Will it outpace the P&A or and what are our strategy to grow it? And particularly on this your brand split of sashmi, how it is doing in the luxury category?
Speaker #2: Yes, sir. As luxury is concerned, the base for the industry is very, very small at the moment. And we believe the kind of consumption discretionary consumption that's happening in India the higher end lifestyle products experiential products are doing extremely well.
Speaker #2: And we have seen how Indian single malls, gin, and other categories have performed over the last few years. So we believe that the strong momentum at the top end will continue.
Speaker #2: And as far as spirit of cashmere is concerned, I would request Mr. Matia to just say.
Speaker #3: Yeah. So I think the matter is subdued in the court. And I don't want to comment on that at this point of time. We will approve disclose it at appropriate time.
Speaker #3: Okay, sir. Okay. Thank you.
Speaker #1: Thank you. The next question comes from the line of Anurag Jain. An individual investor. Please go ahead.
Speaker #3: Good afternoon, sir. My question is on the benefit from savings on cotton cord. Due to the duty reduction from 150 percent to 75 percent.
Speaker #3: Is there some new nuance now which was listed earlier? I am asking this because the news report led it to statutory investigation into imply that duty reduction is not applicable to bulk cotton cord.
Speaker #3: And is applicable only for the bottled in origin segment?
Speaker #2: I think the point is this is being studied by there is a Ministry of Commerce which has done the FTA. And there is this is being studied by the government department.
Speaker #2: And the RI is taking input from all. Stakeholders, all the companies who are importing bulk scotches and all that. And their inputs are also coming from the Scotland.
Speaker #2: I think appropriate time they will clarify it. At this point of time, we can't speculate what will happen, what will not happen.
Speaker #3: All right, sir. Thank you. And my next question is recently on social media, there was an interesting data point. May I go ahead?
Speaker #2: Yes. Yeah, please.
Speaker #3: Recently on social media, there was a data point on the India Indian liquor industry. That the five southern states consume liquor in value terms much more than the rest of the countries.
Speaker #3: So is this something which applies to target market of Radico also? And how is Radico placed in these five southern states?
Speaker #2: No, that is not correct. In the IMFL industry, South India accounts for about 60 percent of the industry. Because country liquor as a category or the local spirits are not there.
Speaker #2: While in North India and rest of the country, country liquor IML, whatever you call it, that's a big segment. But it's not so hugely skewed towards South India as a whole.
Speaker #3: All right. So what would be the correct picture for the if we look at the spirits industry altogether?
Speaker #2: So spirit industry altogether would be equally split between 400 million cases of IMFL, around 400 million 350 to 400 million country liquor or local regional spirit.
Speaker #2: And around a similar size in the beer space.
Speaker #3: All right. So the market would not really be skewed so much in terms towards South India then. If we look at in totality, it would be not correct
Speaker #2: to look at it from a absolute number perspective. You have to look at each segment perspective. Our play is on the premium end. And that's what we look at mostly, especially in South India.
Speaker #2: There are a lot of categories at the lower end below the regular category that we talk about. Where we are not even present. So if we strip that out, the distribution would be fairly fairly even across India.
Speaker #3: Fairly even across India. Sir, if you can give at a high level for our target segment, North, South, East, and West, how what would be the split like for the target market of Radico?
Speaker #3: How would be the four regions be split like?
Speaker #2: See, again, we would have to probably take that offline because it splits between whiskey, vodka, brandy, and different categories. Like for vodka, other than South, the rest of the India is very strong.
Speaker #2: In case of whiskey, again, it's fairly diversified. But in certain South Indian states, not that strong. So it's fairly complex that way.
Speaker #3: Yes, sir. All right. Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you. Ladies and gentlemen, we will take this as the last question for today. I now hand over to the management for closing comments.
Speaker #1: Over to you, sir.
Speaker #2: Thank you.
Speaker #3: To conclude, our performance this quarter reflects the continued success of our premiumization strategy backed by disciplined financial management and consistent execution. Looking ahead, expanding margin, improving return ratios, and healthy operating cash generation reinforce the resilience of our business and give us confidence in sustaining the profitable growth.
Speaker #3: With a robust balance sheet and a growing premium portfolio, we are well positioned to capitalize on the industry opportunities and create long-term value for all our stakeholders.
Speaker #3: Thank you for joining us today. And for your continued support, we wish you all a very happy festive season ahead.
Speaker #1: Thank you so much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.
