Som Distilleries & Breweries Limited (SDBL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Som Distilleries & Breweries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakaran. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. My name is Diwakaran, and I'm the Chief Operating Officer of Som Distilleries & Breweries. Thank you very much for joining us for the Q1 '26-'27 Earnings Call of Som Distilleries & Breweries Limited. Let me begin by acknowledging that Q1 was an extremely difficult quarter for the company. The operational and regulatory disruption in Madhya Pradesh had a significant impact on our volumes and consequently on our financial performance. Despite the disruption in Madhya Pradesh, there are some positives, which is very good. We saw a strong rebound in Karnataka with improving demand and market share. Odisha also delivered a strong recovery, demonstrating the resilience of our brands and distribution network. These trends are encouraging and give us confidence that the underlying business remains strong as market conditions normalize. A major milestone during the quarter was the successful commissioning and commencement of commercial production at our Uttar Pradesh unit, brewery. The facility adds approximately 10 million cases of annual beer capacity, giving us a significant new manufacturing and marketing -- market access platform. Our focus now shifts from commissioning to ramp-up, capacity utilization and market penetration. From an operating perspective, beer continues to be our core earnings engine with 45 lakh beer cases sold during the quarter. Beer represented approximately 98.9% of our total volume and 93% of our revenue. On the IMFL side, realization improved by approximately 3% year-on-year to INR 1,047 per case, reflecting the increasing focus on higher-value products. So while Q1 was undoubtedly a challenging phase, we believe there are several positive indicators beneath the reported numbers like recovery in Karnataka and Orissa, the successful commissioning of UP, disciplined leverage and continued investment in our brands and premiumization strategy. Our priorities for the balance of year '26, '27 are clear: restore normal operations at Madhya Pradesh, sustain the recovery in Karnataka and Odisha, ramp up the UP facility, improve capacity utilization, strengthen our premium portfolio and convert the early signs of recovery into sustainable volume and profitable growth. We remain confident in the underlying strength of the business with our expanded manufacturing footprint, improving market conditions and a disciplined balance sheet. We believe Som is well positioned for a meaningful revival as we move through full year '26, '27. With this, I will hand over to Nakul to take you through the financial and operational performance in greater detail. Over to Nakul.

Consolidated volumes for the quarter stood at 45.79 lakh cases with a total income of INR 268.8 crores and EBITDA stood at INR 15.2 crores. However, we believe these numbers need to be viewed in the context of the specific challenges faced during the quarter and not as a reflection of the underlying potential of the business. I would also like to highlight the strength and resilience of our balance sheet. Despite the commissioning of the UP facility and a difficult operating environment, gross debt increased by only INR 10 crores during the quarter with gross debt to equity ratio moving marginally from 0.3x in March '26 to 0.31x in June '26. We have therefore added significant manufacturing capacity without any material increase in our leverage. More importantly, cash generation remains healthy. We generated close to INR 28 crores of cash from operations during the quarter. This is an important indicator of the underlying financial strength of our business. Even in a challenging quarter, we have continued to generate operating cash while maintaining disciplined leverage and investing in our future capacity. Despite the disruption in Madhya Pradesh, our other operating businesses continue to demonstrate resilience. The Hassan facility operated at approximately 60% capacity utilization, while the Odisha facility operated at around 70% capacity utilization. As we speak, we have invested close to INR 300 crores in the UP brewery. And importantly, this investment has been made without taking any external debt. We have therefore created a substantial new manufacturing platform and expanded our capacity while maintaining a disciplined approach to leases. With this, we would like to now move on to the Q&A session.

[Operator Instructions] Your first question is from the line of Sucrit Patil from Eyesight Fintrade Private Limited.

I have 2 questions. My first question to Mr. Diwakaran. Just want to understand on the operational side, what are the key priorities you are focusing in terms of manufacturing efficiency, supply chain growth and compliance? And what risk do you see in raw material sourcing, regulatory frameworks or demand volatility? And how are you preparing to mitigate that? Just want to understand the forward-guidance on this.

I think the question is a little long. Can you briefly tell me one after the other, please?

Yes. I just want to understand forward guidance on how are you going to -- on the operational playbook thing? And how are you going to strengthen the production, improve efficiency and ensure compliance while preparing for risk in raw material challenges, regulation and demand swings? Just want to understand your forward guidance on this.

Yes, you're talking about '26, '27?

Yes.

Okay. So as you know, we have 4 capacities in all in terms of beer. And out of the 4, MP is as of now suspended. So the remaining 3 capacities are there. And out of that, 1 has started just recently at the end of quarter 1. The 2 other facilities that we have is in Hassan and Odisha. Both these faces are quite large and it's been operational for very long years, and we have all the best practices in terms of procurement, in terms of quality management, et cetera, which is already there, and we continue to focus on that with rigor, right? And I don't see any new addition to it, except for managing the -- with the availability of packaging materials, which is dependent upon particularly the can part of it, which is dependent upon a single supplier, Ball Corporation, for the entire industry and we are also dependent on that. So if we manage that properly, I think we have sufficient scope to leverage during the coming quarters, in terms of supply. As far as raw material pricing is concerned and whatever is the market volatility and whatever is being faced by others, we also are vulnerable to that. We are not completely away from it. So we are playing in the same market and same kind of vendors from whom we purchase, whether it is imported or local. So we are vulnerable to that. But anyway, we can safeguard that through various measures that we adopt on an ongoing basis to keep our costs on check. And we are focusing on reducing our cost a lot more now considering that we have to deliver better results in the coming quarters.

My second question to Mr. Sethi is what key risk or challenges do you see in the coming quarters? And what specific measures are being taken to manage margins, cash flow and strengthen the balance sheet, especially in areas like excise duties, receivables or competitive pressures?

I think our first priority is that we should -- we are focusing on restarting of the MP plant as soon as possible because it's been 6 months, and we are mindful of that fact. Receivables, we normally operate in all or most of the markets which are -- where the wholesaler is the government. So I don't think that we have got receivable risk as such. And nowadays, the government also very pro industry or you can say in terms of the payouts of receivables. So that is fine. Normally, I think the key is, obviously, the margins. I think we have been in the past operating in the industry where I think our margins in the beer industry are amongst the -- one of the topmost. So I don't think we have an issue on that. Liquidity also, I mean, if you look at our results, which we have posted for this quarter, in spite of MP plant being, I think all the -- other 2 facilities have done very well. We have seen a 30% increase in the cases sold in Karnataka in Q1. And similarly, I think in Odisha also, we have seen about -- close to about 40% increase. So I think once we get over with the MP issue, I think we are on track again as compared to the previous year.

The next question is from the line of [ Manoj Bhal ], an individual investor.

Sir, my question is since our -- the Bhopal operations are closed, so it means that already we have lost the market share. So what's your strategy that when we will come back for the Bhopal operation, to gain that market share? Because the consumer is, like the consumer mentality is that if -- see, if the 1% is used to some one brand, if that brand is not available, he will go for another brand. So how to bring that consumer to his or her original brand? So have you thought of anything on that?

Yes. I mean it's a good question and thank you for that. What I can tell you is that Madhya Pradesh, of course, is a problem and that we are fixing and we have been working on it for quite some time, and we hope that it will be fixed very soon. A consumer is not easy to get, and once we get them, it is important that we retain them. Some noise is happening -- I'm unable to -- some noise is happening. hello? Some background noise.

Yes, sir, this would be better. You may please go ahead.

Yes. So of course, I mean, once the consumer moves away to a different brand, particularly for reasons of nonavailability for a considerable period of time, it's not a very easy task to get them back. But what we are seeing in the markets where we are available, where we have been available for the first quarter of this year, except for Madhya Pradesh where we weren't available and Delhi to some extent. In those markets, our market share has been either retained or we are growing. So that actually speaks about the strength of our brands and our distribution network. And therefore, we are confident that once we are able to sort out issues in terms of the license in Madhya Pradesh, it's a matter of time when consumers would -- our consumers would return when they see the brand is available in the shelves. It is a long haul. It is not easy. You're right. But we have our plans, and we have been in the business for quite some time to understand how this works and how the consumers move from one brand to another and when they come back, how to get them back. It's something that we have learned and we have tried in many markets. So when -- particularly when there are supply gaps and we kind of resume after 1 or 2 months, we kind of recover quickly. But in a long period of time, it will take some time to come back, but we are confident that we can get back because our brands have that inherent strength because they have liked the brand, not just for being a brand-brand, but it is also for the taste and the quality that we provide to the consumer and also the advantage of various pricing, et cetera, et cetera. So I think we are confident that the consumers will come back, but it will take a little time in the markets where we are closed for a long time.

Okay sir. I also wish for -- best wish that all our consumers should turn back to Som whenever our operations get started. Sir, in last con call, it was my question only you answered that within the 15 days, we are going to start the operation of Bhopal. So I want to know what went wrong, you know after 3 months that the license is not yet restored?

So see, this is not completely in our hands because it is in the hands of the courts and in the hands of the authorities. And therefore -- and most of the matter is in the court, and therefore, it is sub judice for us to discuss on the phone and give our views. But it just happened that it is taking longer than what we had anticipated. And hopefully -- we are all working on it. I mean our Chairman, our entire team -- leadership team is working on it, and we hope to fix it very soon.

The next question is from the line of [ Nagaraj Tripali ], an individual Investor.

My question is how much of CapEx is already done on UP Phase 1 project? And what is the pending CapEx for this Phase 1 project? And when did we start commercial production? And what is the capacity utilization at present? And what are the plans for Phase 2 and its CapEx?

So we have spent close to about INR 300 crores for the Phase 1 of the project.

And any pending CapEx is there on that?

No, there is no pending CapEx, I mean, on the Phase 1 as such. And commercial production started in, I think, about June 9. So currently, I think it is not meaningful to talk about the capacity utilization of the UP plant as of now. Maybe I think after 1 or 2 months, we'll be able to give you a clearer picture on that.

What about Phase 2?

Phase 2, we'll -- I think we'll -- we have applied for the permissions because Phase 2 is about the distillery. I think we'll have more firmer idea about the execution maybe 3 to 4 months down the line, sir.

Sir, my question is like it was very great for management to convert UP plant as 100% subsidiary. What is stopping management to convert the Hassan plant also to 100% subsidiary from the present 78% so that we can improve the corporate governance as was done in UP subsidiary?

Sir, we have -- so this is -- like you, a lot of people have also commented on this. Let us evaluate and we'll get back to you on that pretty soon, sir.

Okay. And one more question is, how much of unsold stock is still inside Bhopal plant? And what is its shelf life?

So, we have got about INR 25 crores of finished goods.

What about the shelf life?

Shelf life, that stock is undergoing verification as of now. And I think we'll have about a month of shelf life remaining.

Okay. And a bookkeeping question from my side. Can you please clarify the increase in excise duty paid in Q1 this year? I guess, much reduced sales.

This excise duty is because we have sold more in Karnataka and Odisha, where the excise duty has to be paid by the manufacturer before the dispatch of the finished goods, which is unlike in Madhya Pradesh.

Okay. That is good. And one small suggestion I've got from my side to management. Once this Bhopal issue is resolved, I request management to go for a rights issue to fund UP plant 2 CapEx and keep the balance sheet strong and use the cash flow from operations for funding working capital and improve credit ratings against existing loans. This is my suggestion, please.

Okay, sir. That's a very valid suggestion sir.

[Operator Instructions] The next question is from the line of Jitaksh Gupta from Tikri Investments.

I have a couple of questions. So sir, first question, how much revenue we lost due to closure of MP plant in Q1, if you can give any number?

I think we lost about INR 250 crores of revenue. INR 250 crores to INR 260 crores.

INR 250 crores, oaky. And sir, our plan was to go live in Andhra Pradesh after the end of Q4, you had mentioned. So did we go live in Andhra Pradesh? If yes, then how many cases we sold or how much revenue we made from Andhra Pradesh?

No. We were not setting up any plant in Andhra Pradesh. I think.

No, not about plant sir. Like we were entering Andhra Pradesh just the direct sales.

Yes. Yes, I'm answering that. So yes, we had said that Q1, we were supposed to start. But unfortunately, the permissions from the state authorities, both excise and the corporation have got delayed, and we received that by end of July. And after that, we need to kind of take permissions from the exporting state, which is Karnataka to start our -- to export from here. All the export permissions needs to be taken. That process is on. And I think it should get over in about 2 weeks' time.

So by Q3, we...

By first week of August, I think we should be able to see our brands in Andhra Pradesh. I mean September, sorry, first week of September.

First week of September.

We should be able to see our brands in there.

[Operator Instructions] The next question is from the line of Hiten Boricha from Sequent Investments.

Sir, as you mentioned that the matter of Bhopal is currently in the court, so we cannot comment. But is it possible like you just mentioned by one of my colleagues that we are taking the permission from export from Karnataka to AP. So is it possible like we can do similar kind of practices to export from our Karnataka plant to Bhopal because our household capacity is running at 45%, 50%, so as to increase the capacity and increase our capacity utilization?

Yes. This thing was evaluated. The cost of importing from any other state, whether from Odisha or UP plant, right, is exorbitant and it will erode our margins. It's not even erode, it will be at a loss, particularly because of the import fee, very huge import fees that Madhya Pradesh has.

Okay. Understood. Understood. And sir, if you can mention like currently our Bhopal plant is closed, it's not running. So what kind of fixed cost we are bearing for quarterly as of now because of that plant?

I think about including everything, interest cost, salaries and electricity, we are incurring about close to INR 6 crores to INR 7 crores per quarter.

Per quarter? And what is the plan like are we doing anything to reduce that cost because our employee cost and everything remain stable? Are we taking any measures to reduce that cost sir?

No, no. We have obviously minimized this cost because we have been trying to work on reducing the overheads as such. But we had done away with any salary cuts or employees as such. But what we have done is that -- we have tried to absorb the excess manpower in our other units. Because, for example, we have shifted some people from Bhopal to our UP plant because we needed to do some hiring there. So obviously, we shifted some people there. Some people have also been shifted to Hassan or to Odisha.

Understood. Understood. So just a follow-up on this sir. So if you can give -- is it possible to give a breakup on the employee cost from that particular plant? So, we have INR 13 crores employee cost per quarter. Is it possible to give that?

I can give it to you. I think it should be there in the standalone. You want of SDBL standalone?

Yes, sir.

So I have that. It's INR 5 crores, right?

Okay. This INR 5 crores is attributed to this Bhopal employee cost?

Yes.

Understood. No problem, sir. Sir, any time line when this plant is going to start? Any comment on that sir?

I think we are very hopeful that resolution to this problem should be done in this month itself.

The next question is from the line of Jaya Raman, an individual investor.

My question is that the UP plant, the Phase 1, we have put up and then it started running at 3 million cases, right? So total capacity is supposed to be 10 million cases, right? That was the plant capacity there.

I think it will take us another 3 to 4 years to achieve that -- the peak capacity utilization of the UP plant.

Okay. But as per -- from the overall beer sales in UP, it's astronomical, it is growing at a faster rate, right? So I think currently, our plant should be running more than 60%, 70%, right?

Sir, we only commissioned the plant in June.

Yes, correct.