Associated Alcohols & Breweries Limited (ASALCBR) Q3 FY23 Earnings Concall Transcript

Associated Alcohols & Breweries Limited (NSE:ASALCBR) Q3 FY23 Earnings Concall dated Feb. 14, 2023.

Corporate Participants:

Tushar Bhandari — Whole-Time Director

Ankit Agrawal — Chief Financial Officer

Analysts:

Chaiti Gujarati — AVP – Operations – Valorem Advisors

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Paras Bothra — Ashika Group — Analyst

Muthu Kumar — Fidelity Ventures — Analyst

Darshit Vora — RoboCapital — Analyst

Garlene Iyengar — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Associated Alcohols & Breweries Limited Q3 and FY 2023 Earnings Conference Call hosted by Valorem Advisors. [Operator Instructions]

I now hand the conference over to Ms. Chaiti Gujarati from Valorem Advisors. Thank you and over to you ma’am.

Chaiti Gujarati — AVP – Operations – Valorem Advisors

Good afternoon everyone and a very warm welcome to you all. My name is Chaiti Gujarati from Valorem Advisors. We represent the Investor Relations of Associated Alcohols & Breweries Limited. On behalf of the company, I would like to thank you all for participating in the Company’s earning conference call for the third quarter and nine months ended of the financial year 2023.

Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today’s con-call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today’s earning conference call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review.

Now I would like to introduce you to the management participating in today’s earning conference call and give it over to them for their opening remarks. We have with us Mr. Tushar Bhandari, Whole-Time Director, and Mr. Ankit Agarwal, Chief Financial Officer.

Without any further delay, I now hand over to Mr. Tushar Bhandari, Whole-Time Director for his opening remarks.

Tushar Bhandari — Whole-Time Director

Good afternoon, everybody. It is a pleasure to welcome you to our earnings conference call for the third quarter and nine months of the financial year ending 2023. It’s always been a pleasure to interact with all of you. I will first like to give an update on the macro scenario around the industry, and then will take you through the operational performance and then will hand over the call to Mr Ankit Agarwal, CFO of the company for discussions on financial performance, which we reported yesterday, and then we will open the floor for Q&A.

The consumption and the growth story of India continued during the quarter, supported by the festivals-mode across the country. During the third quarter, the company deployed an aggressive strategy to push sales in quest for higher market-share, resulting in lower sales realization. This move will help us to maintain our leadership position in Madhya Pradesh and consolidated our brand positioning in the market. Unfortunately, inflationary pressure continued to be severe during the quarter for critical inputs like rice, PET resin and coal. This was partially mitigated by the ongoing operational improvement measures taken by the company.

EBITDA margins were lower due to lower sales realization and inflationary pressure on the input materials. Operational headwinds are also expected to remain in the fourth quarter of the financial year. With right glass prices expected to remain at an elevated level. We are pursuing price increase and continued with our operational improvement measures to minimize the impact.

We are delighted with the announcement of the new tax plan announced by the Honorable Finance Minister of the country in the recent budget and hopeful that the increase in disposable income in the hands of taxpayers will help the business of the company in the long-run. Further, on the progress of ethanol capex project, the team is in-full swing and the upcoming plant with a capacity of 40 million liters per annum is expected to start commercial production by May 2023.

Lastly, the stock exchange has given us the NOC to SEBI on the merger with Mount Everest Breweries Limited and we are awaiting their approval.

With that, now I hand over the call to Mr. Ankit Agarwal to take us through the financial performance of the company.

Ankit Agrawal — Chief Financial Officer

Thank you, Tushar. Good afternoon, everybody. Let me take you through the financial highlights of the third quarter and nine months ended financial year ’23.

For the third quarter, the net revenue from operation was around INR185 crores, which increased by approximately 13% on year-on year basis. EBITDA was reported at INR17 crores, with an EBITDA margin of 9%. Profit-after-tax for the quarter stood at around INR11 crores with a PAT margin of 6%. Our segmental sales volumes are, IMFL volume was around 15.6 lakh cases with a growth of 62% year-on year basis. IMFL proprietary was around 3.9 lakhs cases, representing a growth of 51% year-on year basis. IMFL licensed brands around 5.46 lakhs cases, representing a growth of 31% on year-on year. Our merchant sale was down by about 47% and stood at around 45.9 lakhs cases liter. This decline was primarily due to higher internal consumption of ENA for our own IMIL and IMFL.

For nine months of the financial year ’23, our operating revenue stood at INR517 crores, which is an increase of around 41% on year-on year basis. EBITDA stood at around INR48 crores with EBITDA margin of 9%. Profit-after-tax was reported at around INR32 crores with a PAT margin of 6%.

Now with this brief overview, we’d like to open the session for question and answers.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Saket Kapoor from Kapoor Company. Please go ahead. Mr. Kapoor, I have unmuted your line. Kindly proceed with your questions.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

You can hear me now?

Operator

Yes sir. Please proceed.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Sir, as you mentioned about inflationary trends in the raw-material basket, if you could give us some more color how the current prices are trending in terms of coal and rice part, what do you foresee in the coming future. I think the coal prices have corrected significantly, so when are we going to reap the benefit of the same and how are the margins — what steps are you taking to improve your margins. You spoke about penetrating the market with increased sales.

Tushar Bhandari — Whole-Time Director

Yeah. Good afternoon, Saket. There is an inflationary pressure, primarily in terms of the grain, which is a major grain and packaging material. And as you rightly said that coal has supported and is slightly on the downward trend. So in the rice and grain, we see an upward trend in the market and with the more number of ethanol plants coming up, so the demand for the grain will increase and that might lead to increase in the price. And how we are mitigating that is we are trying like, see, next year, the price approval we will have to take in the April. So we will try and take an increase in the price in whichever states we can and to a certain extent, almost 30% of our business top-line constitutes of sale of ENA. So the price increase in the grain has already been taken care in the sale of ENA and we have increased the price of the ENA. But wherever the IMFL and IMIL is concerned, we will try and take the price increase, like something in the mid of the year, we’ve done in Kerala and we have spoken to the Kerala government and they have foregone the turnover tax, which has given the additional margin to the company. So like that we are talking to various states for a price [Technical Issues].

But apart from that, on the packaging material side, though the packaging material of the corrugated boxes and others have reduced, however, the price of glass has increased substantially and PAT is also slightly on the increasing trend, which will support us and which will go down. So that is happening on that front, plus apart from that, we are also trying to get into innovative packaging and trying to see how we can help and reduce the cost by either decreasing the weight of the bottle or introducing PAT wherever we can. So that’s the mitigation strategy which we’ve taken and plus on the purchase side also off the grain, we have started buying directly from the mills to avoid the brokers so that the broker margin also comes to the company. So these are the few steps which we are taking to mitigate these pressures. But in-line with the focus of increasing sales substantially. So as you would have seen that the sale of all our products have seen a substantial increase from last year compared to this year.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Sir, if we take this, it’s not part of the story going ahead. So we have the sales realization at higher prices than there has been last time also an upward revision. So factoring that and the current grain prices, how are your margins shaped up for sales participation to the Ethanol Blending Program and what portion of your sales are directed.

Tushar Bhandari — Whole-Time Director

See, margins would be almost similar to the margins, which we have in terms of which we discussed at around 8% to 10% and the new thing in the ethanol plant would be completely on the sale of the ethanol side. Government is also considering with an increase in price of coal and the grain, the government is also considering an increase in the price of ethanol and the government is also considering an increase in the price of transportation of ethanol. The government is also taking care because these questions have been raised in our All-India Distillery Association meeting and we have discussed with the government. And now, the priority of the government is to increase the ethanol blending from 10% to 20%, so they are trying to mitigate the increase in the price by increasing in the price of ethanol.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Thanks sir. And sir, on the coal part sir, of the total, I think power and fuel mix only, the coal is affected, INR22.57 crores is the power and fuel number [Speech Overlap]. Yeah, so how will this line-item shape-up with the current coal prices, what kind of reduction are we expecting going ahead.

Tushar Bhandari — Whole-Time Director

Coal is on a downward trend slightly. So what we have seen, we’ve seen a slightly downward trend around 5% from the peak. So we might see a further slightly decline in the coal price.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. And we are sourcing domestically only.

Tushar Bhandari — Whole-Time Director

Yeah, we are.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

That is the e-auction route, how is the pricing done, I mean when 5% is what we are going to gain going ahead.

Tushar Bhandari — Whole-Time Director

5% is, a slightly correction has already happened and further we are expecting around 1% to 2% decrease in the price. And apart from that, the procurement is either through brokers or through direct government allotment. So we have both the models, we have got government quota also, direct allotment from the mines [Phonetic] and plus you buy through brokers also.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. Can you quantify the numbers in terms of the total coal requirement on a quarterly basis, by value terms.

Tushar Bhandari — Whole-Time Director

Value terms, I can get back to you on that.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

I’ll join the queue again. Thank you and all the best.

Tushar Bhandari — Whole-Time Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited. Please go ahead.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Thank you for this opportunity. Tushar, request your thoughts and perspective on how the products are fairing. You mentioned that the market share is improving and you spoke about Madhya Pradesh, but I thought that Madhya Pradesh was already a leadership position for your company, and when all the — despite the inflationary scenario, you’ve kind of gone about reducing selling prices. So what has been the benefit all of that. So maybe in quantitative terms, if you could explain as to how the positioning has changed, how the proprietary brands have changed, in which states, what has happened, so at least share some details on the sales side.

Tushar Bhandari — Whole-Time Director

Okay. So Manish, we have uploaded the presentation also on the same and I will just brief you on that also. So as you rightly said Madhya Pradesh, we’ve been on the leadership position always, okay. The main thing is that if we have to increase our sales from here on, we have to penetrate into other states which is slightly a tough position which we are trying to achieve. So as per the sales in number of cases, we have almost — we have an increase of almost 90% in the sale of IMFL number of cases. So as compared to nine months of 24 lakh cases last year we have already done 46 lakh cases this year. In terms of IMFL proprietary brands, six months if I compare, so as compared to 6 lakh cases last year, 11 lakhs cases, that is an increase of about 87% and IMFL licensed brands from around 7.5 lakh cases, we’ve done around 11.76 lakhs cases, so that has been an increase of 55%. So we have always been there, we’ve seen an increase in sale in Madhya Pradesh substantially out of all this and now we are trying to penetrate into other states.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

So all these, so the sales that you shared about, the details that you shared is all Madhya Pradesh. What about the other states.

Tushar Bhandari — Whole-Time Director

Primarily and IMFL proprietary brands consist other states. So IMFL proprietary brands major contribution is from Madhya Pradesh and from Kerala.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

So we will be happy if we would give little more color in terms of the break-ups, okay, how much is MP contributing, how much is Kerala contributing. Then in the previous calls, you have shared that you are looking at markets like UP, you are looking at markets like Delhi, then I think also joining markets to Madhya Pradesh on the eastern side. So what has been the outcome of all those efforts that have been made and how many customer touch points are you present day in like say, arguably product is retail product, so it is available in shops. So how many shops are you available at. We would like to basically get a deeper dive on this because I explained to you where we’re coming from. Company which used to do fantastic operating margins has suddenly, completely kind of hit and there is this element of concern that how a very robust business with leadership profiles across products in at least the Madhya Pradesh region is kind of not resulting in the margins that were already being achieved. So actually if you noticed, this time you increased the prices of ENA, so the commodity business is giving you better margin than your retail product, the branded product, because there you’ve actually reduced prices. So we are wanting to basically get a better understanding.

Tushar Bhandari — Whole-Time Director

Definitely. I’ll give you the segment-wise break-up also. So as I already have given the segment-wise break-up and state-wise break-up we can provide you. But apart from that just to inform you that we’ve been able to achieve good numbers in Madhya Pradesh and Kerala, but other states as we had discussed that, in terms of UP, in terms of Delhi, in terms of West Bengal, West Bengal we are in-line with starting right now. So we have not been able to get the breakthrough yet because there is a severe competition also coming in from lot of people. So we’re just trying to breakthrough in other states. So once we breakthrough in other states, then the volume growth will happen substantially. And as you said that the margins have dropped, definitely the margins have dropped, that is primarily because of the pricing increase in the commodity price and see, liquor is the much regulated industry. So in every state, the price increase is completely dependent on the excise commissioner level whether he wants to do the price increase or not. So we’ve been trying to convince the excise parties to give us the price increase because the grain price has increased exorbitantly, they have increased by 50%, coal prices have increased by more than 50%, so that’s why the margin has dropped, irrespective of sales realization, sales increase, the margin has dropped. That is the major reason. So if you would have seen that the top-line is growing substantially is in-line with our expectation, the top-line growth, but the margin pressure is definitely there, which we have to agree.

Ankit Agrawal — Chief Financial Officer

So to add-up to Tushar, if we adjust the inflationary pressure in the commodity prices, more or less will end-up the same margin profile, which we used to have. So ultimately it boils down to how much price escalation we can get from the government authorities, regulatory authorities we are operating.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

So Ankit, I think this is the first time that we are getting the opportunity of interacting with you. So that is very nice because otherwise I think Tushar was only one who was funding the organization on these calls. So see Ankit, the point is that you all will be having a distillery where your core competence is bringing production efficiencies in bringing the best ENA available, right. Now, to improve the margins, you’ve decided to get into the retail side of things, but that is not happening. So basically the whole equation or the whole this thing is kind of getting little confusing, that is one. And secondly, see, we have continuously made attempts to get into these various states, so maybe severe — obviously, there is competition, right, because the competitors also wants to sell the product. So is it so the — do you think it would be a better strategy just to be a regional players, strong regional player, where we’ve just to kind of control the state that we are in, meaning how beneficial is it to make attempts and you know like not kind of being able to make breakthroughs.

Tushar Bhandari — Whole-Time Director

See, what is happening is that we’ve been able to do — we are definitely a strong regional player on that, plus apart from that, see, whenever you enter a particular state, you have to see a lot of things, you to take a lot of things into consideration. So we’ve been able to have a significant breakthrough in Kerala market. So Kerala market within three years of operation, we have achieved 7%, we are almost the fifth largest suppliers after the big like say, USL and Radico and all. So we’ve been able to do a substantial breakthrough there, plus apart from that, the other states like which I have said, Delhi UP and all. So what happens is that when the cost price increases substantially, and you don’t get that increase in the price by the government. So then it becomes difficult for a player who is coming from outside to enter into that state, okay. Though we are trying and pushing our product and trying to see what we can do best. So what we have also done is now we are also getting into within next two to three months, we will launch our super-premium brand also, so that the margins are good and for us it’s become viable to enter any of the market. So these are the major factors why the breakthrough is not happening, otherwise it would have happened.

Ankit Agrawal — Chief Financial Officer

So like we are also now moving towards the premiumization, so that increase our margin profile and go back to the, what we used to have and we should be able to see the results in the next one or two quarters going forward.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

So can you also — we are not aware about this super — this premiumization there. Would you like to share some details with us?

Tushar Bhandari — Whole-Time Director

Yeah. So we are launching a premium — a super-premium gin in the price range of it should be depending on the markets we enter. So it will be on the premium side. And then we are launching — we are going to launch a whisky, which is in the range of slightly lesser than INR100 buy per range, which will be a blend of malt and the spirit. So these are the two premium products which we are targeting to be launched in the month of — in first quarter of next year.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Okay, okay. Fantastic. And so now on the element — on the matter of this merger. Now that you’ve got the stock exchange NOC, so what kind of timeline can we expect for this merger to conclude?

Tushar Bhandari — Whole-Time Director

So on the merger part, stock exchanges have given their NOC to the SEBI. Now the final approval from the SEBI is pending, which we are expecting by first week of March. So once we get that, we are hopeful that we will be able to through with the NCLT and all other operational regulatory clearance in the next four to five months, post the approval from the SEBI, which we are expecting by first week of March.

Ankit Agrawal — Chief Financial Officer

And as you brought the merger also, so that is also one of the major reason because the beer company, which is doing substantially well, is one of the fastest growing company in the country. So they have been able to create the brand. So that will — post the merger, that will help Associated Brands also to just ride on those brands.

Tushar Bhandari — Whole-Time Director

And make breakthroughs in other states. We’ll be able to ride the wave of Tier 1 and make break-through to other states which we are planning.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Okay, okay. Can you share the details about how the other company has performed in the last quarter?

Tushar Bhandari — Whole-Time Director

The performance we’ll share this separately, but it’s as per expectation and water projection has been done for the purpose of valuation of the merger. So it’s in line of that.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Okay, okay. Because see — because the exchange ratio and everything has been already finalized, so then I don’t see as to why the financial performance of the company should not be shared. As we today as shareholders are already getting the — see, the price has come down from some very good levels to capturing the merger ratio. So that we are anyways clearing. So we should — so how is the other company is sharing is something that we would like to understand.

Ankit Agrawal — Chief Financial Officer

First quarter financial performance has already been uploaded and shared. And further…

Tushar Bhandari — Whole-Time Director

So we were — we are waiting for the approval of the SEBI. So once we get the nod from the SEBI, we’ll be happy to share all the performance of the company. So that’s the regulatory requirement. So once we go through the SEBI approval process and then we will start with sharing the performance of the [Technical Issue] But if we can give you the heads-up, it is in line with the protection which we have done [Technical Issue]

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Hello. Hello.

Operator

Mr. Dhariwal?

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Yes.

Operator

Mr. Dhariwal, may we request you to kindly rejoin the queue please.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Yeah, I got disconnected or what? Okay. Okay, sure.

Operator

No, sir, you are not disconnected. You are there connected with us. Thank you, sir. We have the next question from the line of Paras Bothra from Ashika Group. Please go ahead.

Paras Bothra — Ashika Group — Analyst

Thanks for the opportunity. So now I also wanted to understand about Mount Everest only, probably, you won’t be able to disclose much. But at the same time, directionally, if I wanted to understand like for in quarter one, you have projected that INR190 crores was the revenue and the margins were way higher than what Associated Alcohols was, at 18.45%. So how is it fairing? As far as margin is concerned, it’s going to be margin-accretive for Associated Alcohols when the combined entity comes in. And is the run rate maintained what it was for the first quarter? If you can directionally share something about Mount Everest will be great?

Tushar Bhandari — Whole-Time Director

Sirji, as per the first quarter, Mount Everest details which we have given and as per the projection of the years which we expected, so it’s absolutely in line with the projections and the performance is absolutely in line. But obviously, the first quarter and the second quarter cannot be the same because we are being a seasonable — seasonal business. So first quarter is the summer season. So that is the best performing quarter and the maximum sale happens in the first quarter. And the second quarter what happens is that the rainy — post the rainy season, the sale starts to decline slightly in the beer industry per se, but the numbers, the sales and everything is in line.

Ankit Agrawal — Chief Financial Officer

And plus, as far as margin is concerned, definitely, this will be a margin-accretive for a consolidated entity. And we are very hopeful that this will be beneficial for the entire shareholders.

Paras Bothra — Ashika Group — Analyst

Okay, fine. And the second question and the last one is with regard to Associated Alcohols itself. When you say that you are willing to do price revision, at the same time, if you can highlight how much time it takes for the price revision to happen? What is the general procedure like?

Tushar Bhandari — Whole-Time Director

Bothraji, every financial year you have to — you can give your price to the excise authority and then they give the approval of that price. So coming April, we will try for price increase in almost all the segments in almost all the states we are operating into. But we cannot exactly say what is the price increase which we are going to get. But definitely, we are expecting a price increase because everybody has given, not only us, all the industry players have given [Technical Issue] that the price of raw material has increased substantially. So the cost considering that, we think that we might get a price increase in most of the states, but to what tune we’ll get, it’s not clear yet. So from April onwards, we have to give the — we have to submit price in each and every state. So post April only we will come to know.

Paras Bothra — Ashika Group — Analyst

Okay, fine. Sir, that’s all from my side. Thank you so much, and all the best to the team.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Muthu Kumar from Fidelity Ventures. Please go ahead.

Muthu Kumar — Fidelity Ventures — Analyst

Thanks for the opportunity, sir. Am I audible, sir?

Tushar Bhandari — Whole-Time Director

Yes, please go ahead.

Muthu Kumar — Fidelity Ventures — Analyst

Yes. The board gave integrated capex…

Operator

I’m sorry to interrupt, sir. I would request you to kindly use your handset to ask a question, sir. Your audio is not clear.

Muthu Kumar — Fidelity Ventures — Analyst

Okay. What is the integrated capex planned for financial year ’24?

Ankit Agrawal — Chief Financial Officer

So basically, the capex plan for the company has already been in place. As for the ’24, like see, major capex plan which was there is setting up off our ethanol plant and setting up off bottlery unit. So around — total around INR150 crores is the outflow for both these two. So certain part of it, which might — the capex which is already pending to be paid, which might overflow in the next financial year. So these are the two major projects which is coming, for which the total outflow is around about INR150 crores.

Muthu Kumar — Fidelity Ventures — Analyst

Okay. Okay, fine. And any idea to have a footprint in untapped markets or new states?

Tushar Bhandari — Whole-Time Director

So basically, we are — as said earlier also that we are trying to enter other states also. So which we were hoping that we would be able to get a breakthrough like we have got in one or two states in terms of sales, but we have not been able to breakthrough those regions because of certain reasons which already said earlier. But definitely, we are trying to encash on the untapped market aggressively.

Muthu Kumar — Fidelity Ventures — Analyst

Okay, sir. And where do you see larger margins, whether in nice earnings to the brand or in contract manufacturing or in proprietary products?

Tushar Bhandari — Whole-Time Director

So basically the margins are much better in the proprietary brands obviously because in licensed brands, we have to pay a certain amount of royalty to the person who owns the brand. So the margins get diluted there. And in terms of job work, it’s just a simple job work which we are doing. So we just get a per case basis. So margins are better in our own brand. And as said earlier, during our earlier con calls also in terms of increase in the sale of our own proprietary brands. So company has been able to fulfill and is on track with the achievement of increase the sale of their own proprietary brands. And our objective which was there earlier to consume as much ENA as we produce in house, so out of which we have been able to majorly achieve that. So that we can also see from the decline of the sale of ENA because the ENA has gone more into manufacturing our own brands. So we don’t have left ENA to sales. Whatever ENA is balance, we sale that. So company is always since last three, four years have been trying to increase the sale of its own brands.

Muthu Kumar — Fidelity Ventures — Analyst

Okay, sir. Thank you. That’s it, sir.

Tushar Bhandari — Whole-Time Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor Company. Please go ahead.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Yes, sir. Sir, regarding this Mount Everest merger issue, how — what could be the impact on the shareholding of promoter? And then how the shareholding is going to change? And what is the status you have confirmed, sir? I missed your point there.

Tushar Bhandari — Whole-Time Director

So see, we have got the approval. So the stock exchanges have given their NOC to the SEBI. Now the proposal is pending with the SEBI. And once we get the approval from the SEBI, we can go ahead with the NCLT process and all. So we are expecting the SEBI NOC somewhere in first week of March. As far as promoter shareholding is concerned, post-merger, the shareholding of the promoter and the promoter group will be somewhere around 82%.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

It will be 82%?

Tushar Bhandari — Whole-Time Director

Yes, 82%.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

And then currently — just a second, sir. Currently the shareholding is 58.45%?

Tushar Bhandari — Whole-Time Director

Yeah.

Ankit Agrawal — Chief Financial Officer

Yes, yes.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

So there would be a significant increase in the promoters’ holding?

Ankit Agrawal — Chief Financial Officer

Yes. So it’s a majorly a reverse merger because the other entity is 100% owned by the promoter groups. We have suppose a swap ratio based on the valuation of independent valuer. And based on that, we are doing the merger. So this devised shareholding is based on the swap ratio which we have confirmed earlier to the stakeholders.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Just for the sake of repetition, what’s the swap ratio? And what could be resulted capital?

Ankit Agrawal — Chief Financial Officer

0.77.

Tushar Bhandari — Whole-Time Director

Sorry, come again.

Ankit Agrawal — Chief Financial Officer

0.77.

Tushar Bhandari — Whole-Time Director

0.77 share of the new company.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

0.77 shares of new company versus?

Tushar Bhandari — Whole-Time Director

Of the combined buying.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

No, I didn’t get you, sir.

Tushar Bhandari — Whole-Time Director

100 shares of current Associated Alcohols. For that, the merged entity would be around 77 shares.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. Sir, then going ahead in order to comply with the SEBI listing norms, we need to dilute our holding from 82% to 75%, correct?

Tushar Bhandari — Whole-Time Director

Definitely. So we have a — so as per SEBI norms, we will have a one year time to comply with that. And then based on the business requirement on all those things, we’ll look into it how that needs to be done.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

But 7% equity dilution is there on cart once this reverse merger is done. So that will create…

Ankit Agrawal — Chief Financial Officer

We are down the line from the — or I would say 1.5 years, because five years — five months will take for the merger process to go…

Tushar Bhandari — Whole-Time Director

From the date of approval, one year.

Ankit Agrawal — Chief Financial Officer

One year only, yes.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

And sir, for the revenue part and the profitability part of the merged entity, did you mention any figure? Sir, I missed that comment also.

Tushar Bhandari — Whole-Time Director

We have already uploaded the presentation. And for the consolidated entity for the Q1, for the Q1, the figures was around — revenue was around INR376 crores and EBITDA was around INR57 crores for the Q1.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

For Q1 or H1?

Tushar Bhandari — Whole-Time Director

Q1. Q1.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

No, sir. For the nine months, we need the entity number, Mount Everest — at least, how have the performance being. Can you — do you have the numbers in hand with you? Nine months revenue and EBITDA for Mount Everest.

Tushar Bhandari — Whole-Time Director

Yeah. So as mentioned in the call earlier, once we get the approval from the SEBI, we’ll be able to disclose all the required number of Mount. So we are just awaiting the approval from the SEBI. Because of some regulatory issues, we cannot do that. So once we get the approval from the SEBI, which is somewhere in the first week of March we are expecting, once we get that, we’ll give all the numbers of Mount.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

And sir, as you mentioned very well that it’s going to be EPS-accretive for investors. But as the deal is structured, the majority of the benefit is skewed towards the promoter. Because of that, entity being 100% owned by the promoters. So over the longer term, minority shareholders may benefit out of it, but in the near-term, immediate term, it is the promoter entities who are going to gain out of it. This understanding is correct, sir?

Tushar Bhandari — Whole-Time Director

No, no, it’s not. So see, the entire — so I’ll tell you, so the ABL or Associated historically it’s a more a B2B company. If you see the 70% of our revenue comes from the B2B operation and 30% comes from B2C operation. Whereas the other entity, Mount, which is — its 70% of revenue comes from B2C and 30% comes from B2B. Now it’s a prudent or established fact that any B2C company will always have a upper hand because you have control over your revenue. You have a control over your profit.

So we historically we have tried ABL through increase in our proprietary products, but for whatever reason, we have not been able to do that, the scale which we want. So this merger will help the ABL products also to move from more B2B to B2C. So this merger will help in change the DNA of the entire Group, entire consolidated entity from a B2B prospect to B2C. So ultimately, this will benefit all the stakeholders who are involved in the process. And as a company, management is always concerned about all the public shareholders and all the decisions are being taken based on that. And this has been done with the proper valuation and independent valuer.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. And lastly, sir, then what is the current market share for Mount Everest since it is a B2C? What is their current market share? And the brand’s name, if you could mentioned which are under house in the Mount Everest Breweries?

Tushar Bhandari — Whole-Time Director

The market share of Mount Everest Breweries right now is almost 60% and it is one of the…

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

How much, sir?

Tushar Bhandari — Whole-Time Director

60%, 6-0. 60% in Madhya Pradesh. And they are expanding into other states like Delhi, Chhattisgarh, UP, Assam and other states also like West Bengal. And apart from that, to name the few brands, they’ve got beers in the category of Lemount, Mount’s 6,000, Dabang. And recently, they’ve launched a premium brand by the name of Stope, which is on the premium and craft beer sector. In that, we provide lagers, strong and weak beer. And we are also into premium business, which is a keg business, which is a draught business, so in that, we provide fresh beers to all the pubs and all. So we have direct connection to the customers in that.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. So this will be mainly a beer-oriented company?

Tushar Bhandari — Whole-Time Director

So it’s one of the fastest growing beer company in the country.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. So they have the entire revenue skewed towards the beer segment itself?

Tushar Bhandari — Whole-Time Director

Yeah, yeah, only beer. Only beer.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Only beer. And out of our total portfolio, what is the beer contribution currently in Associated Alcohols as of now without the merger?

Tushar Bhandari — Whole-Time Director

In alcohol, we don’t beer.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

We don’t have beer. So this would be a new segment added altogether. And on a blended basis, going ahead, sir, how the proportion will look like — revenue proportion going ahead?

Tushar Bhandari — Whole-Time Director

So almost it will be 50%-50%.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

50%-50%?

Tushar Bhandari — Whole-Time Director

Apart from that, we are a complete conglomerate. So it will have both — it will be the only company in the industry, a liquor entity which had both beer and IMFL in its portfolio. So it becomes easier for the customers also. For customers, it becomes the one point shop for the purchase of any liquor product.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Correct. And now, sir, online sales for beer are also permitted. So the beer cans and all could be sold through the online platform also?

Tushar Bhandari — Whole-Time Director

So that is only a state subject. In one or two states it has been permitted. But that’s completely dependent on the state excise policies of that particular state.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Yes, sir. Lastly, coming to the state excise part, sir. In the IML business, what constitutes the taxes part, say, for total revenue? Indian-made liquor, sir. The country liquor.

Tushar Bhandari — Whole-Time Director

For country liquor, total revenue is around — out of that excise duty portion is almost around four to five times of our price, but revenue, it’s not there. Excise duty is post — our revenue is post the exercise part. Generally, we are purchasing in the areas where wherever you are functioning, the excise duty is not applicable — excise to the manufacturer, it’s applicable to the retailer.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Sir, so suppose the price of the product is INR100, how much — what contribute the taxes part on a blended basis geography-wise?

Tushar Bhandari — Whole-Time Director

It completely depends on state-to-state.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

States-to-states, okay.

Tushar Bhandari — Whole-Time Director

If we consider Goa, the excise is less. If we consider, for example, if I give Madhya Pradesh an example, so if one product I give to the government at INR100, till the customer, it reaches at INR500.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay, okay. And you are — you have your presence in the State of West Bengal also?

Tushar Bhandari — Whole-Time Director

We are just starting it.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

So we are setting up our plant there or we will be only doing job work. I mean, how are we — what is our preparation here?

Tushar Bhandari — Whole-Time Director

So as per our earlier conversation also and in con calls also, we take every state as a step-by-step process. So we believe in being a debt — we are a zero debt company. And we believe in taking conservative steps. So instead of taking over a factory or buying over and doing our capex, what we do is, initial stages, we are planning to supply from our existing plant, which is Madhya Pradesh. And after we see a traction and after we see sales improvement in that particular state, we do a bottling tie-up with some bottling license holder.

So they do job work for us. And if we achieve a certain scale and we see that post that instead of getting a job work done, it’s viable to acquire or get a license for manufacturing, then so we take — we look into that aspect. So it’s a step-by-step process. So for example, if we are starting in West Bengal right now, so right now we’ll be supplying it from Madhya Pradesh itself. And after we achieve a certain level of volumes, we will tie-up. And after we achieve a certain level of volumes, we might look at acquisition or taking a license there.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Correct, correct. And here the taxes in part is higher than the state averages, as you mentioned, or…

Tushar Bhandari — Whole-Time Director

Pardon me.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

For the State of West Bengal, for the country liquor aspect, are the taxes significantly higher than the other states put together? So we were seeing that 25% of the state revenue in the form of taxation is from the alcohol business. So just wanted to make the differentiation of per taxes, per case or per pouch if you could give?

Tushar Bhandari — Whole-Time Director

See, in liquor industry, every state had got its own taxes and duties and its own policy. So for example, in West Bengal, the taxes and duties are, I can say that, are lesser than Madhya Pradesh. [Technical Issue] it’s highest; in Goa, it’s quite less, negligible almost. So it depends on state-to-state. But as you rightly said that excise constitutes of a major revenue contributor to each state’s economy.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Correct, sir. And lastly is on the bottling part, sir. I think so we mentioned in our presentation that contract manufacturing constitute 2% for the B2B business.

Tushar Bhandari — Whole-Time Director

I’m sorry. Your voice is breaking.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Sir, in your presentation, it is mentioned that your contract manufacturing constitute 2%. So this 2% is what the bottling work we are doing for the brands of companies like United Spirits?

Tushar Bhandari — Whole-Time Director

This is basically only contract manufacturing. These are the brands which we are doing for Diageo. So we are doing the Black & White, VAT 69, then Smirnoff Vodka, then Black Dog, all the brands, McDowell’s No.1, Antiquity. So we are bottling manufacturers for that. So that constitute only 2% of our top-line because that straight away comes through our top-line because we are just getting a per case basis, per case basis revenue in that.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. That means that they have the formulation and we are doing the bottling, packaging and sending the finished product to them, that’s the process?

Tushar Bhandari — Whole-Time Director

Sending over the finished product to them.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Yeah. Okay, thanks. And what are our prospects, sir, in this segment going ahead? How are we going — it should be a very profitable segment with better visibility of revenue?

Tushar Bhandari — Whole-Time Director

It is definitely profitable, but it does not contribute much to the top-line and definitely it contributes to the bottom line. But we are seeing an increase in the contract manufacturing business as we are seeing an increase in a stronger partnership with Diageo.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Okay. Sir, as we see your utilization levels staying at optimum level, so whatever now benefit we’d percolate to the bottom line will be only on the efficiency front. So going…

Tushar Bhandari — Whole-Time Director

See, it’s sale of premium brands.

Saket Kapoor — Kapoor Stock Brokings Private Limited — Analyst

Sale of premium brands. So sir, going ahead, what should be a realistic understanding in terms of the improvement in the margins, and hence, the bottom line? Because top-line part I think so we are done even when now the new capacity when it comes about the — I think so the ethanol one will also will take more — some more time to be commissioned?

Tushar Bhandari — Whole-Time Director

So again, the ethanol portion is just a commodity. It would be just commodity business. So it will not definitely give that attractive bottom line than as per the sale of our own brand. So that is the whole strategy. The whole strategy is to increase the sale of our own brands, increase — introduced more premium brands, enter different states with the premium brands and take a higher margin of realization there. And once the merger happens, ride on the brands of beer and get — and take the increase in the sales. So once the sale increases of the premium brands and our own brands, which gives us the maximum margin, the margin will increase substantially and plus taking a price increase. So for example, if the price increase of commodity would not happen substantially as which has happened in last one year, then we would have had a decent margin as compared to the earlier margins. We would be in line with the earlier margins.

Ankit Agrawal — Chief Financial Officer

So adding to Tusharji, we want our merchant ENA to move towards our own proprietary products. So that will add up to our revenue.

Tushar Bhandari — Whole-Time Director

So that’s how you would have seen that the sale of merchant ENA has reduced. That has reduced because that amount of merchant ENA which has reduced has been consumed in our own value-added products.

Operator

Thank you, sir. The next question is from the line of Darshit Vora [Phonetic] from RoboCapital. Please go ahead.

Darshit Vora — RoboCapital — Analyst

Hello.

Tushar Bhandari — Whole-Time Director

Yeah, please.

Darshit Vora — RoboCapital — Analyst

Am I audible? Yeah, I just actually missed it when you said the capex of INR150 crores that will be for ethanol and something you said.

Tushar Bhandari — Whole-Time Director

So we are setting up a bottling — state-of-the art bottling plant, which we are — as per the increase in the manufacturing — contract manufacturing business we are seeing in future, the sale and the contract manufacturing business increase. So we are setting up a state-of-the-art bottling plant also. For that, there is an additional capex.

Darshit Vora — RoboCapital — Analyst

Okay. Thanks so much.

Operator

Thank you. [Operator Instructions] We have the next question from the Garlene [Phonetic] Iyengar, Individual Investor. Please go ahead.

Garlene Iyengar — Individual Investor — Analyst

Yeah, hi. Post the merger of the two companies, are we looking at a stock split of any kind, because the liquidity normally for your stock is quite low? So is that — is there any plans for that?

Tushar Bhandari — Whole-Time Director

So that decision we will take post the merger happens. And then we have to — as per the SEBI regulation, we have to dilute certain stake. Post that, at that time, then we’ll decide. As of now there is no such plan.

Garlene Iyengar — Individual Investor — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] As that was the last question for today, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Tushar Bhandari — Whole-Time Director

Thank you all for participating in this earnings con call. I hope we were able to answer your questions satisfactorily. and at the same time, offer insight into our business. If you have any further questions or would like to know more about the company, please reach out to our Investor Relation Managers at Valorem Advisors. Thank you. Stay safe and stay healthy.

Ankit Agrawal — Chief Financial Officer

Thank you. Thank you very much.

Operator

[Operator Closing Remarks]