Stocks In Focus With Som Distilleries
Transcript
00:00 watching Stocks to Watch and the key stock that is in focus today as the second part
00:06 is Soam Distilleries. We are already in the midst of the festive season, we have a lot
00:10 of events that are lined up as well, out of which Soam Distilleries could be one of the
00:14 key beneficiaries as well in terms of the second half of FY24. Clearly, you know, the
00:20 beer industry also has remained slightly flattish between FY16 to FY22, but the growth that
00:27 we have seen in FY23 has been really healthy for the industry as well. Let's understand
00:34 from the management as well as to what's in store. Mr. JK Arora joins in. Good morning
00:40 and welcome to the show, Mr. Arora. Good morning to you. Mr. Arora, my first question coming
00:46 to you is overall, from an industry perspective, clearly, you know, we had a lot of reasons
00:52 during COVID etc due to which the overall growth in terms of FY16 to FY22 actually remained
00:58 flattish and a good recovery that has come in in terms of FY23 as a whole. What's the
01:04 sense that you pick up if you have to divide it between the beer industry as well as Indian
01:10 made foreign liquor? You see, the growth is in both sectors, in the beer and the ampoule,
01:19 there is no, especially, you know, after COVID, we all have been in a very bad shape, as you
01:27 all know, but after COVID, there is a lot of benefit to the industries which has affected
01:36 most in the COVID like aviation, tourism, hospitality, liquor, all these sectors have
01:44 affected most and after COVID, these are the sectors which got the most benefit as well.
01:49 Now, you see aviation, hotel, tourism, all is doing very, very well. Similarly, liquor
01:56 has also started doing well. Actually, the whole thing behind this is the attitude of
02:03 people now. Now, people have started spending more, enjoying more, as if there is no tomorrow.
02:10 Now, the earlier thought of more savings and less spending probably has a little bit changed
02:17 that people are more into this thing. That has benefited the liquor sector more. IMFL
02:27 got less advantage because state governments are very, you know, I would say greedy about
02:38 their revenue. And so they put more taxation on IMFL liquor. And beer is comparatively
02:51 having more benefit because for society as well, it is a, if you have a lighter drink,
02:59 and especially youngsters, this is an advantage. And they have realized, state governments
03:06 have realized, if you have a reasonable taxation on beer, the revenue is more for them, their
03:13 income goes proportionately more up in comparison to IMFL, than in the beer. So that is the
03:23 one reason that beer industry got the most benefit of.
03:27 Right. So overall, you know, taking FY23 into consideration, we've all we've seen, at least
03:34 for the beer industry, double digit growth coming in for the industry. How is FY24, according
03:40 to you looking like, and in terms of the gains that SOM industry, you know, SOM will actually
03:49 see out of it?
03:50 You see, we are quite optimistic. You know, we at present, we are present at a very limited
03:59 space in the all India business, and 35-40% is the total all India where we are present.
04:08 But wherever we are, we are doing pretty well. If you look at there is a four large companies
04:17 in the sector, in the beer sector, UB is of course leader with the major market share,
04:24 UB with Henneken, and another company in bay with Budweiser, this thing and third is Carlsberg
04:33 company from Sweden. So if you think of a fourth company, you have the name of the SOM
04:40 in mind only. SOM is a fastest growing beer company in the last two, three years, and
04:48 primarily because of the reason that our brands have been accepted very well, wherever in
04:54 which. So out of these four companies, whichever the markets we are present, we are practically
05:00 in a number two position everywhere. So we are quite optimistic and we have got a major
05:08 plans for the markets which are still uncovered. I would say there are still seven, eight markets
05:17 which are having a very large potentials, markets like Maharashtra, Rajasthan, UP, Telangana,
05:25 Andhra, Tamil Nadu, these are the markets which are having a very large potential and
05:33 these are all 20 million cases plus market. So 20 not 20, I would say 30 million cases
05:47 market. So these are the markets which are uncovered and we have a plans to enter in
05:52 these markets. So we are quite optimistic about it.
05:56 Right. So Mr. Arora, what is going to be the strategy to enter these markets? By when do
06:00 we see that happening? And two, will we look at capacity expansion as well to enter these
06:07 markets or the current capacity will suffice?
06:10 No, no, current capacity is absolutely not. We are already using 100% capacity in Madhya
06:19 Pradesh. We are using more than 100%, 105, 210% in Karnataka. Odisha, we have just expanded.
06:30 We have only completed the expansion in July, which is also doing more than 50% market.
06:36 And we had the tie-up arrangement with the Carlsberg there. So with their consumption
06:42 and our, I think we are going to use this year, the 100% capacity in the Odisha as well.
06:49 So we do not have anything surplus in hand. So we have to have, there are two, three ways
06:55 to enter into the new market. One is that you get it locally made from the manufacturers
07:05 there. That is one. Another is you lease some capacity or supply from your existing units.
07:14 But the problem is that any state you enter in, and if you bring these stocks from another
07:22 state, they put some import tax. And the state from where you supply to another state, they
07:31 also put some export tax. So these import and import tax put together, that dilutes
07:37 the margin. About 4, 5, 6% every data goes into this. So the best thing is to have the
07:45 local production. This local production, either you get it made by investing your money into
07:53 the units over there. So of course that is also a major investment. So because you have
08:02 to pay the upfront taxes to the government, payment in advance, and raw material, packaging
08:09 material, all you have to, but the manufacturer only charges you the bottling charges and
08:16 then you can make it.
08:17 So what is going to be your strategy to enter these markets?
08:24 We have a definite plan to have an acquisition or a greenfield. Like UP, we are planning
08:31 to be a greenfield unit there. This thing, UP alone, if you look at the market, which
08:38 is the sixth largest country in the world. We are still not able to tape it properly
08:45 because of the stocks availability. So UP we are planning to be a greenfield. We have
08:52 a few units on our radar for acquisition. So we have a definite plan to acquire units
09:04 in the uncovered markets. So to have additional capacity. So that's how we are going to proceed.
09:14 And these acquisitions that you're looking at in strategic markets, will that be done
09:19 through internal accruals or will we look at raising debt?
09:24 You see, we have got a lot of surplus accruals. This year, in fact, we have reduced our debt
09:35 also. Last year we had about 250 crores debt. This year we have reduced about 100 crores
09:41 debt from this thing. We have brought down it to about 150 crores. So because of the
09:48 internal accruals, despite the fact that we have done expansions in all three units this
09:55 year, all that expansion has been took place by the internal accruals only. We have got
10:02 quite a good surplus accruals and we are also having a QIP due in this month only. We are
10:15 having about 350 crores QIP due by the end of this month. So we hope to get a good response
10:24 from the market as we are feeling as of now. So I think organizing money capital should
10:33 not be a problem.
10:36 And overall, if you see in terms of the raw material price trend, how is that looking
10:42 like? Because clearly the prices have increased. To my understanding, companies have taken
10:48 a price hike in the month of May last. Any updates on that as to what's the trend looking
10:53 like?
10:54 You see, there are two aspects, two dimensions of it. Last year, if you look at because of
11:02 the Ukraine war, the situation was really bad. There were two major reasons. We have
11:09 got two major raw material, packing material involved in our business. One is malt, which
11:16 was to come in a very, very large quantity from Ukraine. So because of the Ukraine war,
11:23 that got affected. And this was for a raw material. For packaging material, our major
11:30 packing material is bottles. So bottles, last year, there is a company called Hindustan
11:40 National Glass, which is producing about 70% glass bottles of the beer industry in the
11:47 country. They went into NCLT. So that was a lot of problem last year. But this year,
11:54 Ukraine is also settled and the glass industry has also increased their capacity. So prices
12:00 have actually, in fact, a little bit come down. It is not increasing this year. One
12:07 thing and price increase what we have taken last year because of this situation, that
12:13 this will come down. So profitability will go up this year. It is not that. Another dimension
12:22 which I was talking to you is the utilization of the capacity. You see, despite so much
12:29 of difficulty in the prices, our profit has gone up this year, precisely for the reason
12:37 of the utilization of the capacity. That 100% utilization of the capacity has brought down
12:43 the cost substantially. That is how our data from COVID period from the 9 crore loss to
12:54 we have gone to the 60 crores profit. This year is going to be much more than the 60
12:59 crores because of this. So the situation has become better, I would say, it's nothing to
13:10 worry. And overall, SOM has sold around nearly 15 million cases in FY23. How much do you
13:21 think will the company do in FY24 and what's the next milestone taking the additional capacities,
13:27 acquisitions into consideration? How much do you think you will be able to do?
13:32 Very good question. So let me tell you this thing. Presently, the market is of about 37
13:45 crore cases, about 370 million cases of the All India. And this year is going to be, maybe
13:55 this financial year is going to touch about 400 million cases. Whichever market we are
14:04 present at, our market share is of about 12%. If we look at the large perspective, say 5-7
14:13 years down the line from now, this 400 million cases market is going to be at least 700-800
14:25 million cases in next 5-6 years. And assuming our 20% market share in All India, we can
14:36 easily reach to be about a 10,000 crore company. So from 1000 crores this year, we can hope
14:48 to be in the next 5-6 years about a 10,000 crore company. And as far as quantity is concerned,
14:55 this year it's about 15 million cases and you can imagine out of 20% share in the 700
15:05 million cases, about 10 times more from here, it's 1.5 to about 15 million cases.
15:16 Right. So I think that's going to be looking very strong from here on. Thank you, Mr. Arora
15:21 so much for joining us on the show and sharing the views and taking into consideration that
15:26 it is the festive season as well as you have the World Cup as well. It is going to be great
15:30 with regards to consumption companies like yours as well. So that was the management
15:35 of Soam Distilleries, clearly giving us a trend of what the industry is looking like,
15:40 not only for Soam Distilleries, but as a whole and how Soam Distilleries could be benefiting
15:47 out of the same as well. That's all that we have on this session. Thanks for watching
15:51 and lots more lined up on the other side. Please stay tuned to BQ Prime.
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