Globus Spirits Limited (GLOBUSSPR) Q2 FY23 Earnings Concall Transcript

Globus Spirits Limited (NSE:GLOBUSSPR) Q2 FY23 Earnings Concall dated Nov. 14, 2022

Corporate Participants:

Shekhar Swarup — Joint Managing Director

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Bhaskar Roy — Executive Director & Chief Operating Officer

Nilanjan Sarkar — Chief Financial Officer

Analysts:

Abneesh Roy — Anupama Institutional Equities — Analyst

Prithvi Raj — Unifi Capital Private Limited — Analyst

Nitin Awasthi — InCred Equity — Analyst

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Kshitij Saraf — Tusk Investments — Analyst

Darshit Shah — Nirvana Capital — Analyst

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

Hitesh Sharma — Whitesky Investments Ltd — Analyst

Imran Khan — Longbow India Capital — Analyst

Sneha Jain — SKS Capital and Research — Analyst

Prithvi Raj — Unifi Capital Pvt Ltd. — Analyst

Jatin — Invest Savvy — Analyst

S. Louis — Individual Investor — Analyst

Dhruv Kushabh — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Globus Spirits Limited Q2 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. We have with us on the call today Mr. Shekhar Swarup, Joint Managing Director; Mr. Paramjit Gill, CEO Consumer Division; Dr. Bhaskar Roy, COO; and Mr. Nilanjan Sarkar, Chief Financial Officer.

With this, I now hand the conference over to Mr. Shekhar Swarup, Joint Managing Director. Thank you and over to you, sir.

Shekhar Swarup — Joint Managing Director

Thank you. Good morning, everyone. Welcome to the Q2 and H1 earnings call. At Globus in the last few years, we have focused on creating steady growth through a well-entrenched distillation business as well as laying the foundation for our Consumer Business. In this calendar year we have commissioned new capacity of 280 KL per day with 140 KL expansion in West Bengal and 140 KL greenfield project completed in Jharkhand. In the remaining part of the current fiscal, we also expect to complete expansion at Jharkhand and West Bengal by 60 KLPD each and these capacities will be commissioned and in production in quarter one FY ’24. In the last couple of calls, we’ve spoken a lot about inflationary challenges. However, I’m pleased to say to you that the worst seems to be behind us now. In the last quarter, we have successfully procured rice from FCI for our ethanol plants, which allowed us to get an extra revenue of around INR3 per liter as well as hedge prices of the raw material.

Procurement from FCI in H1 was 41% of our total grain procurement as against 1% in the same period in the last year. The Government of India has also banned exports of broken rice recently and this will help control prices of broken rice going forward. In order to further mitigate cost push in our fuel prices, we have begun the use of rice straw as fuel in Haryana, which aids in price benefit of INR5 per bulk liter. As we’re coming into the harvest season in North India, we are seeing softening of rice husk prices as well, which are down by around 20% from their peak of INR12,000 per metric ton to about INR9,000 per metric ton today. We expect that this softening will continue well into the quarter and will help us end the year well. PET bottle integration towards PET bottle production has also helped mitigate some packaging costs and saving of about INR4 crore to INR5 crore per year. We expect to increase this capacity in the coming months.

As anticipated by us in the past, ENA prices have continued to increase. We saw increase of around 10% in the quarter gone by and going forward despite softening in costs, we are seeing that prices will continue to hold. For ethanol, we’ve secured a higher price realization by INR1.8 per bulk liter for ethanol made from FCI rice and for damaged grain by INR2.6 per bulk liter. Coming to the Consumer Business. In Haryana we took a call to change strategy in Q2 FY ’23, which resulted in a temporary slip in market share. Param will explain this in more detail later on this morning. This strategy has since started paying dividends and we are seeing that the business is creeping back on its original market share. We are witnessing positive traction in the premium segments and are looking forward to robust growth. Our team’s initiatives in the marketplace to grow the salience of our highest value brands are bearing results and we are receiving very encouraging market feedback.

I’m excited to say that we’ve also geared up our innovations team, which are skilled at packaging and product development. We expect to launch new brands in the next 12 months as well as a few new markets. Animal nutrition continues to be a focus area with our product DDGS or animal feed supplement with 13% of our revenue in H1 coming from this segment. We continue to work on ways to increase value to our customers and we are working closely with feed millers, interacting with them to increase awareness about the nutritional value of animal feed supplement made by us; which is used for poultry, cattle, as well as fish feed. Our robust model of a well-balanced split between consumer and manufacturing segments continued to generate healthy cash returns, which we deploy for growth, investment, and working capital. Even with our capacity expansion, our debt-to-equity ratio stands at 0.3x and our business continues to generate strong cash flow to fuel our near-term growth plans.

I now request Param to take us through the work being done by the Consumer team.

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Thanks, Shekar. Good morning, everyone, and hope you all are well. In the consumer segment, the aggregate sales in Q2 FY ’23 came in at about 3.2 million cases. It was down 5% year-on year and 19% quarter-on-quarter impacted due to the softer volumes in Rajasthan and Haryana with the reversal being seen in the current quarter. In the quarter gone by, the average realization of the consumer segment increased from around INR490 per case in Q1 to about INR510 per case in Q2 of this year on account of better mix and lower trade spends in Haryana as a result of sharper focus on brand profitability. Going-forward with our product mix improving towards Value Plus and Premium segments, we believe realizations will continue to remain strong.

Let me start on the Value and the Value Plus segments. In Rajasthan, the government’s sudden increased focus on value segment led to a higher salience shift towards this segment thus softening our Value Plus salience. However, our overall market share gain continues with GSL currently at 34 market share points on the back of robust value as well as Value Plus spirits. Our whiskey brand Globus Green, which was launched earlier this year, is showing green shoots and we are hopeful of accelerated growth on this brand. We also launched the kewra flavor in the Value segment, for which work is in progress to expand sales through our distribution network. With the approaching winter, there will now be an increased focus on Black Lace Rum, which we had launched last winter.

In Haryana, basis recent higher cost wars, we increased our focus on improving profitability. As all the investors are aware that in our Consumer Business, there is always a lead lag and most of the cases we wait for the next price increase to get implemented along with next year excise policy. So, it was a conscious choice by us to not wait for that long and put our focus on reducing our spends. This resulted in a temporary reduction of market share in Q2 FY ’23 with an increased contribution of INR26 per case. This strategy has been paying off well and we have already begun clawing back market share. Volume recovery is also visible in the current quarter. Our persistent efforts on Metro Liquor, which is in the Value Plus segment, are also now leading to accelerated growth.

In West Bengal we launched Country Club in the Value Plus segment towards April end, which has been well received. Our market share has also been inching up and we are at about 2.4% within a short period of time with the stock headroom for future growth. Our average realization currently stands at about INR500 per case. Coming to the Premium segment. We are happy to report that the Premium segment is showing very promising prospects. Our IMFL portfolio is building momentum across UP, West Bengal, and Delhi. Terai, our India dry gin, has also been extended to the states of Uttar Pradesh, West Bengal, Rajasthan, as well as Mumbai and will also get introduced in Haryana shortly. As our market penetration reaches optimum levels, you can invest to see — sorry, you can expect to see a further portfolio expansion with new launches over the next two to four quarters.

Our IMFL brands are now available at almost 75% salience contributing outlets in our key markets of Uttar Pradesh, Delhi, and West Bengal. Portfolio expansion work has been going on in full swing and you will see your company expanding its offering very quickly in the next two quarters. As a strategic target, we are working towards reaching a 20% salience of Premium liquor revenue to the total Consumer revenue portfolio of Globus in the third full year while growing all segments of the Consumer Business diligently as well. This will improve margins as well as cash generation from the Consumer Business. We continue to invest prudently towards this vision. Our average realization per case stands at around INR1,500 per case.

May I now request Dr. Roy to lead the conversation. Thank you very much.

Bhaskar Roy — Executive Director & Chief Operating Officer

Good morning, everyone, and thank you, Mr. Gill. As Mr. Shekar Swarup mentioned earlier, we are focused on enhancing our operations in the past few quarters and see tangible benefits. Even with the expanded capacity of 665 KLPD, capacity utilization was at 90% in quarter two and half year FY ’23 with the increased capacity being utilized internally for sales of ENA ethanol. Quarter two FY ’23 recorded highest ever bulk alcohol sales of 43.33 million liters, up 62% year-to-year and 6% quarter-to-quarter at an average realization of INR59 per liter, which stood higher by 14% year-to-year and 2% quarter-to-quarter. This has led to a higher scale of the manufacturing revenue at 66% of the total net revenue in quarter two FY ’23 as against 53% in quarter two of FY ’22. We continue to work on several initiatives to help reduce costs.

We shifted to FCI rice based ethanol, which helped in retaining a marginal increase of INR3 per liter over damaged grains and helped us mitigate the inflationary environment of the raw material side. We have procured 40% of our total raw material as FCI rice and we shall continue to do so if it tends to be in our favor. Our rising energy prices, like we mentioned on the last call as well, we have direct coal linkages and purchase from the CCL in addition reducing energy requirements in process. Some other initiatives include improve of AFS quality in West Bengal, increasing inventory capacity of raw material and fuel, PET bottle own production in West Bengal and Haryana. Overall this led us to mitigate the cost increase to the extent of INR12 crore in half year FY ’23.

In other updates, our agreement with Bacardi India will start from the current quarter and will add incremental revenue from here on for bottling their flagship Black Rum, Bacardi Black, and other brands in West Bengal aiding revenue and better utilization of the Panagarh facility. All the plants are running at optimum capacity. Samalkha is also adopting levels with our flood prevention upgrades to the Bihar facility. The factory continued to run smoothly throughout the monsoons with no significant impact on our Bihar business in this year.

I will now request Mr. Nilanjan Sarkar to continue with financial updates. Thank you.

Nilanjan Sarkar — Chief Financial Officer

Thank you, Dr. Roy. Good morning, everyone. During the quarter gone by, net revenue recorded a growth of 25.7% year-on-year to INR480 crores, but was marginally lower by 3% quarter-on-quarter due to the decrease in Value spirits. Bulk alcohol, which forms the key part of the Manufacturing Business, recorded a revenue growth of 84% year-on year and 8% quarter-on-quarter to INR253 crore in quarter two FY ’23 led by enhanced capacities and better realizations. The Consumer segment revenue stood at INR163 crore in Q2 FY ’23, which was lower due to a temporary dip in Sears country liquor sales in Rajasthan and Haryana for reasons laid down by Mr. Paramjit earlier.

Gross margin is at 41% was largely maintained quarter-on-quarter on the back of higher bulk alcohol and consumer realization. EBITDA margin stood at 8% lower primarily due to the temporary fall in revenue in consumer liquor sales in Haryana and Rajasthan in Q2 of FY ’23. This was further exacerbated with high cost of power and fuel, which was 22% higher quarter-on-quarter in Q2 of FY ’23. With crop season coming, there are signs of tapering of the inflationary input cost measures. The company continues to generate healthy cash profits and we continue to utilize our surplus cash for investing and expanding capacity as well as product and other market development.

This concludes my report on the financial highlights. I would now request the operator to open the forum for questions. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Abneesh Roy from Anupama Institutional Equities. Please go ahead.

Abneesh Roy — Anupama Institutional Equities — Analyst

Thanks. My first question is on the gross margins. In H2 I understand that gas prices or glass manufacturers are up sharply by around 60% so how does it impact glass prices for you and the industry? And similarly on the other raw material, how do you see H2? You have maintained 41% gross margin quarter-on-quarter stable. How do you see H2? Do you see some dip versus this?

Shekhar Swarup — Joint Managing Director

Hi Abneesh, Shekar here. So, we actually hope to see a softening in raw material prices coming into H2 for reasons mentioned by me earlier. Fuel prices have begun to soften already as the harvest season is sort of picking-up in Haryana and Punjab. In East India we see harvest coming a little bit later usually so by December, January, things should start moving there as well. With regard to glass bottle prices, glass has been moving up for the entire industry. The reasons were mentioned by you that impacted our Premium business especially. Be that as it may, the segments that we have launched our products in and also the budget that we prepared earlier, we are within our budgeted cost of production for our Premium brand so we don’t see a huge impact on our business there.

For our Value business, we have worked on increasing our — for our Value Plus business, we’ve worked on increasing our market bottle percentage so that’s the used glass bottles — our branded used glass bottles. We’ve tried to increase their share in the last quarter. Aside from that, most of our Value business is PET bottles and we are gradually moving to a larger share of in-house PET production. Currently entire West Bengal and entire Haryana are on internal — own manufacturing of PET. As of now, we have not initiated work in Rajasthan, but that’s something that we are evaluating as we speak.

Abneesh Roy — Anupama Institutional Equities — Analyst

Right. That’s helpful. But on specific glass which is used in the Premium side of the portfolio, there H2 the inflation could be there, right, versus H1 in terms of glass prices?

Shekhar Swarup — Joint Managing Director

Yes. So, I think H2 you will have further inflation in glass prices. But as I mentioned, we budgeted for a lot of this increase so we are still quite comfortable on our actual cost of production versus our budgeted.

Abneesh Roy — Anupama Institutional Equities — Analyst

Sir, my second and last question is on the Haryana market. You have focused more on profit side, but you have also mentioned that the market share softening is temporary. So, are the other players also now focusing on profitability and that’s why it’s a level playing field and that’s why your market share is now coming back? Is that the reason?

Shekhar Swarup — Joint Managing Director

That’s a good question. I’m going to ask Param to take that, please.

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Yeah, exactly. So during these times in a competitive market when there is cost wars, generally we see that somebody waits for the first initiative and this time we took the initiative and we have started seeing that other players and competitors have also started reacting in a similar fashion and have started tightening their belts and that is what is giving us that confidence and some of it, as I said, is already visible in the last couple of months. And so you are in the zone when you make that statement because prudently not many want to wait till the next excise policy and want to start countering the inflationary measures as we go along.

Abneesh Roy — Anupama Institutional Equities — Analyst

Sure. Thanks. That’s all from my side. Thank you.

Operator

Thank you. The next question is from the line of Prithvi Raj from Unifi Capital. Please go ahead.

Prithvi Raj — Unifi Capital Private Limited — Analyst

Sir, can you explain what exactly is the change in the policy that was announced by the Rajasthan government and when was this implemented?

Shekhar Swarup — Joint Managing Director

Param, could you please?

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

So as we say, obviously most of these governments have a much larger say in the chain of operations in the Value and Value Plus segment. Obviously as had been anticipated by us and we were — we can say it proudly that we were among the first ones who saw the huge swing of consumers would happen from Value to Value Plus segment and you’ve seen the company benefiting tremendously for it. So, time-to-time the governments do come under pressure as they see the acceleration towards the Value Plus segment, which is accretive to them also for their revenue. The government revenue also is higher per case on Value Plus segment. But time-to-time is they feel that the revenue of Value Plus is just shooting up and the Value is sinking, they tend to sort of make efforts temporarily though to soften the decrease in the Value segment.

It is more I would say a major reaction in terms of trying to protect local industries and the initial response of the management of excise and we’ve seen that it has never worked. All it has done is it has just created a blip and then the trend continues to move on because you can’t change the flow of the river of trading, which the consumer has been demonstrating in our market for many years. So, the excise has obviously started supporting a little bit extra on the Value segment and that is where we are seeing. But the important thing is that individually we are gaining share on both, on the Value segment as well as on the RMS segment as well as collectively. It is because of the salient change that we have seen as a pressure against our expectations and we are thinking the pressure will automatically start softening and it will happen sooner than later and we’ll start moving again towards this natural course where Value Plus is unstoppable and will continue to move towards dominating this whole category.

Prithvi Raj — Unifi Capital Private Limited — Analyst

Sir, just a follow-up on this. See, when you say supporting the Value segment, what exactly government is doing? Could you specify? Is it something to do with the marketing?

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

So you see, we must understand that we are in regulated business. We are in a regulated business and the government when they try to influence the channel partners, then temporarily everybody responds to the request from the government favorably. Having said that, the consumer at the end outlet is ultimately going to ask for what he wants. So, we have seen innumerable policy changes in liquor industry across states, across all the times, not every — each one of them is explainable in very demonstrative terms. So time-to-time because of their own internal assessments and they try to determine the path and we’ve seen that has never succeeded and that is where they have sort of tried their best to support the Value segment.

As a result, what happens is the pipeline of the Value segment starts increasing. As the pressure on the Value segment starts increasing, the whole pipeline starts getting filled much better than the Value Plus segment and this starts in the short term creating an impact of skewed shares. And as the consumer will continue to make its choices because the consumer has his choices lined up and the retail counter consumer’s choice is unnegotiable neither by us nor by anybody else. And when that consumer continues to exercise his choice and the pipelines are totally skewed, then again the desired consumer franchise brands start jumping into it and that is where it gives us the confidence.

Prithvi Raj — Unifi Capital Private Limited — Analyst

Sir, can I assume that you’ll have few more quarters for volumes to get normalized, right, in Rajasthan?

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Yeah. And we’ve seen this earlier so that on a couple of occasions in the past also Value segment has seen a sudden pressure and then it started easing off and again building up momentum because it has been demonstrating much more robust growth than the Value segment over the years now and we don’t think that’s going to stop because it’s not only Rajasthan. We’re just seeing it across. Now West Bengal we have launched Value Plus segment and suddenly we are seeing an acceleration there. So, this actually is unstoppable and this sort of small hiccups will continue to be part and parcel of our short to medium-term journey.

Prithvi Raj — Unifi Capital Private Limited — Analyst

Sir, just final question from my side. This is to the CFO. Could you give the breakup of other expenses? I mean because that always seems to be extremely high so just wanted to understand at least the major line items here.

Nilanjan Sarkar — Chief Financial Officer

So the other expenses breakup, mainly 52% of the other expense is in power and fuel. So, the other expenses for Q2 if it is INR138 crores, almost INR74 crores is on power and fuel. And the other breakup of operating — other expenses include my freight expenses, my IMFL marketing above the line — topline marketing expenses, and other expenses relating to bottling of the company. So, 52% to 55% of the expense is on power and fuel.

Prithvi Raj — Unifi Capital Private Limited — Analyst

And what has been the INR74 crore number a year back? I mean the power and fuel.

Nilanjan Sarkar — Chief Financial Officer

INR74 crores, yes.

Prithvi Raj — Unifi Capital Private Limited — Analyst

No. I mean a year back say Q2 FY ’22, what was the corresponding number?

Nilanjan Sarkar — Chief Financial Officer

In quarter one of last year, the number was INR60 crores. Quarter-to-quarter number was INR60 crores last year.

Prithvi Raj — Unifi Capital Private Limited — Analyst

Thanks, sir. That’s all from my side.

Operator

Thank you. The next question is from the line of Nitin Awasthi from InCred Equity. Please go ahead.

Nitin Awasthi — InCred Equity — Analyst

Hello, sir. Firstly, thank you for including Slide Number 7 in the presentation, which is Consumer Business performance trend. This is something new that we have included. Questions about this previously kept on coming.

Operator

Sorry to interrupt. Mr. Nitin, we are unable to hear you clearly. Can you speak a little closer to the phone?

Nitin Awasthi — InCred Equity — Analyst

Hello. Am I audible now?

Operator

This is better. Thank you.

Nitin Awasthi — InCred Equity — Analyst

So I was saying firstly, thank you for including Slide Number 7 in the presentation, which is the Consumer Business performance trend, gives a clear picture of what is happening on the IMFL side, which was something which was not very clear till now. Beginning with the questions that I have. Sir, first question on the slide itself. Do we have brands in the IMFL segment in the regular and the others category?

Shekhar Swarup — Joint Managing Director

No, we don’t, Nitin. That’s why we’ve consciously put in that row, which says Prestige and above and regular and others. There is — we don’t have any brands in IMFL which does not fall into Prestige and above category.

Nitin Awasthi — InCred Equity — Analyst

Okay. Could you shed some light why this conscious decision has been taken or would it change in the future?

Shekhar Swarup — Joint Managing Director

Yeah. That’s a great question. Param, can I ask you to take that, please? Param, are you there?

Operator

Sir, let me just check his line because he was on the call. He’s just got disconnected. Let me reconnect him.

Shekhar Swarup — Joint Managing Director

So, let me start that. So, our hypothesis has been that the Value Plus segment will continue to gain market share from the Value segment as well as from the regular segment and we’ve seen that play out in Rajasthan, we are seeing it play out in West Bengal as well as in Haryana. We look at — we’ve looked at a lot of data for the leading regular segment brands and across the board we are seeing reduction in volume or reduction in category size of regular as the Value Plus segment gains momentum as well as a premiumization that takes place from regular to premium and above. So, that’s one reason. The second reason is it does cost a lot of money to build distribution for the first few years.

We will be investing far more money then in terms of marketing, in terms of sales and distribution than the business is able to realize and it’s far more rewarding to do so in the Premium and above category. The minimum volume required for economies of scale to breakeven point at the regular and below categories takes a very long time to realize and consumer behavior and how the business is structured in terms of cost cuts is the other main reasons for this decision. Be that as it may, it is not a decision to stay out of regular and others forever. It is a decision to start our business with Premium and above so that we can build our distribution there and then support our distribution and our business with new brand launches possibly in some of the high price points of the regular and others category as well as even more Premium price points of the Premium and above category.

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Shekar, I’m back in the system. So Nitin, anything else on that?

Nitin Awasthi — InCred Equity — Analyst

Sir, nothing else on that. That answers that question completely well. Sir, the next question I had was your thoughts on and your position on the new ethanol pricing policy that was announced and why was it that this time there was no negotiation between the OMCs and the Grain Distillers’ Association to come to the conclusion of a price because normally we have seen that the first price that they give doesn’t go through because it doesn’t fit and there’s a negotiation that happens and the price is decided. This time that doesn’t seem to be happening.

Shekhar Swarup — Joint Managing Director

Nitin, I don’t know where you got that impression from. I mean there is no negotiation that has ever taken place. There is an extended period of discussions that does happen in terms of submitting price information, cost information. So the All India Distillers Association, which represents the interests of grain-based distillery, did do that. Be that as it may, the OMCs have increased prices year-on-year by about INR1.8 for FCI and INR2.6 for damaged. I can’t say I am very thrilled with that, but it is in the zone that I was expecting for the industry. So going forward, our ENA business becomes even more important. We are seeing a good amount of price control that we’ve been able to demonstrate in the ENA business this year and especially in Q3, Q4 of the coming financial year — of the next financial year, sorry, not the current or other Q2, Q3 where it’s the off-season or lean season for fuel and grain supply. We have to consider how much allocation we would like to make to ethanol vis-a-vis ENA and the good news is our factories, our business model, and our planning enables this kind of flexibility. So, it’s just a matter of switching between one material and another depending on where there is a greater profitability.

Nitin Awasthi — InCred Equity — Analyst

Sir, follow-up on that question. So, does your plant in Bihar allow you to switch from ethanol to ENA for a different state?

Shekhar Swarup — Joint Managing Director

Yes, it does.

Nitin Awasthi — InCred Equity — Analyst

Okay. Fair enough. So, I understand that the focus is going to be on ENA going ahead. But that still doesn’t answer the question and the problem of

The Grain Distillers Association where majority of the capacities which are coming up are ethanol based and I know that you hold an important chair in the committee so that’s why I ask. If your margins are shrinking and if you can shift to ENA, that’s the choice that you as a company have. But the rest of the association, the rest of the industry doesn’t have that choice so there is a lot of pain for the rest of the industry at this prices. How will they go ahead with the investments to grow this segment for the ethanol business?

Shekhar Swarup — Joint Managing Director

Nitin, these are good questions and this is a situation that we anticipated in our strategy meetings at Globus and we provided for that in the way we

Take approvals from the Ministry of Environment, the way we take approval for setting up of our plants so that all our plants remain flexible between ENA and ethanol. You’re absolutely right to say that for Globus that has this flexibility, if — for Globus that has flexibility, it’s okay; but for others that don’t, it’s a problem. I agree it’s going to be a problem for standalone dedicated ethanol plants. We have to wait and watch what is the impact of that on the fuel ethanol program as well as on the rush of distilleries that have been coming up in the country. I do see a little bit of a, how do I say it, cooling down of those investments.

Nitin Awasthi — InCred Equity — Analyst

Understood, sir. Sir, finally last question from my side. A peer of yours has filed the DRSP and some interesting points of study which has come out from that is that they dominate their business share in the IMFL segment within two states and that itself gives them such a huge revenue or recognition while you have a pan India strategy. Now I’m not doubting your strategy or I’m not saying your strategy is wrong or their strategy is right. I just want to understand if you could shed some light little bit on what exactly is your strategy? Do you have a pan India brand and you have a state focus or do you have a state focus and then you increase that — you take that brands to different states once you’ve captured a certain market interest for the state?

Shekhar Swarup — Joint Managing Director

So Nitin, we don’t have a pan India strategy. But we have a strategy that focuses on six markets, of which five of them have been launched. It is possible that we grow this six strategic markets to seven, but that’s the sort of vision in the short to medium term right now. For us to build distribution — build a new business focusing on just one or two states is an exceedingly high risk proposition. It’s important for us to have some width of distribution, a few states in play, and then you’re going to have a situation — I’m aware I’m stepping on Param’s toes a little bit. I think you should hear from him. But just one last point on this, which is that you’re going to have a situation where a few states outperform the others so in five, seven years after this business has matured a little bit, you’re going to have a situation where few states are responsible for the lion’s share of our market size. But Param, anything you’d like to add on this, please.

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Yeah. Thanks, Shekar. So, the brands that we have introduced and have started playing in these strategic markets have an all India presence in terms of their segments and they are very popular segments and very fast growing segments. Having said that, like any good strategy, we chose the markets where we want to initially operate through a filter which I think four, five quarters back I had alluded to, which gives us a reasonable right to win because each organization has its strengths and we have chosen these markets in a way that we have a right to win, we have the strength to win, we can achieve a breakeven in time and line with our business plan, and from there we will expand. At this point of time, we have not created a 10 to 15-year vision yet except for a very broad paper. So, our immediate strategic objective is to ultimately reach a certain stage, which we have called out 20% of the contribution of the Consumer Business to Premium and this will be achieved out of the six, seven states itself is our confidence and we are driving relentlessly towards achieving this objective. Does that sort of answer your point?

Nitin Awasthi — InCred Equity — Analyst

Yes, sir. That does it. Thank you so much. That was all the questions from my side.

Operator

Thank you. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Hi, good morning. I’m sorry I joined the call late. Just wanted to check I think Mr. Sarkar alluded to power and fuel being INR74 crores in Q2 and about INR60 crores in Q1 of FY ’23. Did I hear it correctly?

Nilanjan Sarkar — Chief Financial Officer

Yes. On a quarter-on-quarter, INR74 crores for this current quarter and for the same period last quarter last year it was INR60 crores.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Same period last year it was INR60 crores. So out of INR86 crores of manufacturing expenses, INR60 crores was power and fuel.

Nilanjan Sarkar — Chief Financial Officer

No. Last quarter it was — last quarter one of last year — sorry. Quarter two of last year was INR36 crores and quarter two of current year is INR74 crores, quarter one of last year was INR60 crores.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Quarter one of this year was INR60 crores you mean?

Nilanjan Sarkar — Chief Financial Officer

Yeah. Quarter one of this year is INR60 crores, quarter two of last year was INR37 crores, and quarter two of this year is INR74 crores.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

And quarter one of last year was?

Nilanjan Sarkar — Chief Financial Officer

INR60 crores — I mean sorry. The quarter one of last year we don’t have that number now.

Shekhar Swarup — Joint Managing Director

But it would be similar to the INR36 crores number.

Nilanjan Sarkar — Chief Financial Officer

INR30 crores.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

So, almost a INR100 crore portion power and fuel. Would that be the right way to look at it for H1 FY ’23 over ’22, right?

Nilanjan Sarkar — Chief Financial Officer

Yes.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Okay. And the second — actually the observation was I think with the new distilleries coming in and the manner in which the volumes have picked up, it seems like the offtake has been almost quite seamless and with — so I guess that strategy of working in deficient states, it’s coming out to good use. The only challenge that I felt was on the power and fuel. So, I mean how do you see it? I mean do you see it more being transient or is there something that you’re doing to probably hedge yourself against it going forward?

Shekhar Swarup — Joint Managing Director

Yeah. I mean so there is a — I don’t see power and fuel come down to the levels that they were — of what they were last year frankly, but the current levels of power and fuel are completely unsustainable as well. As I mentioned, in North India we are seeing over 20% correction in power and fuel prices because of the harvest season that we pretty much just about kick started. So, this will continue to reduce — prices in the North will continue to reduce for the rest of this quarter and into the next and possibly stabilize somewhere in the next quarter. In the East in quarter four, we will see a reduction in prices and they’ll stabilize in Q1. I think the most important thing to watch out for in power and fuel is how much coal is being released by Coal India for industrial applications.

In the last couple of months we’ve seen an increase in the frequency of auctions being conducted, we’ve seen some efficiency coming to how quickly orders are being fulfilled by Coal India and its subsidiaries. So if that’s to continue, we will end up seeing the later part of the next financial year remain soft or softer than this year as far as fuel is concerned. But for the next couple of quarters I have a pretty good, how do I say it, visibility that prices will be soft. We have to be a little watchful for the quarters after that in terms of how much coal is being released by Coal India into the industry. Even though we needn’t consume that coal directly, but it does impact the price of fuel whether it’s coal or rice husk for all industry.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

So is the rice husk price, is it in some way benchmarked to the extent coal prices?

Shekhar Swarup — Joint Managing Director

There is no formal benchmarking. But what ends up happening is that wherever fuel is cheap, industries switch. I’m not talking about power plants, I’m talking about captive power users. Most of them have the ability to switch between rice husk and coal. So, we see power plants or rather Industries shifting between these two and as a result, a sort of an equilibrium gets maintained.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Got it. That’s helpful. Thank you. That’s it for me.

Operator

Thank you. The next question is from the line of Kshitij Saraf from Tusk Investments. Please go ahead.

Kshitij Saraf — Tusk Investments — Analyst

Hi. How are you? There was a long-term guidance that was given in terms of the margins being 18% to 20%. With all the improvements that we talked about, which was lowering of raw material prices on the energy side as well as rice husk and the Value addition in the Consumer Business. Do we see that over the next — what is your guidance in terms of operating margins over the next two quarters and then FY ’24 given the current situation?

Shekhar Swarup — Joint Managing Director

So, I do see margins being north of 15% for sure in the coming quarters. With what I’ve just said about fuel prices going into the later part of next financial year, I don’t see them coming down to the same levels as they were last year, right? So, I wouldn’t go up to 20% anymore. I would stay at around the 18% level. That would be my expectation. So, anywhere between 16% to 18% I think is achievable. We will be increasing margins, as I mentioned, into Q3 and into Q4 and then hopefully maintaining that for the rest of the year. Of course a huge caveat to this is how much coal is released by Coal India into industries. We’ve seen an increase in that and we hope that that will continue.

Kshitij Saraf — Tusk Investments — Analyst

That’s it for me.

Operator

Thank you. The next question is from the line of Darshit Shah from Nirvana Capital. Please go ahead.

Darshit Shah — Nirvana Capital — Analyst

Hello. Thanks for the opportunity. Sir, can you please explain what is the kind of change as far as Rajasthan government policy is concerned? Have they kind decreased the prices for Value Plus segment? What basically has changed in terms of their strategy? I’m still not able to understand.

Shekhar Swarup — Joint Managing Director

So, this was explained in quite detail by Param earlier. If required, we can set up a separate call for this. Essentially there has been an increased focus on Value spirits because of the sharp increase in Value Plus that happened in the previous year. The trade as well as some of the stakeholders along with excise have created a focus on Value spirits. Happy to set up a call if you’d like to discuss this in more detail in interest of some of the other questions that might be waiting.

Darshit Shah — Nirvana Capital — Analyst

No. Just a clarification in terms of influencing the distributors by the various departments in focusing more on Value segment. So, are they kind of incentivizing distributors to sell more Value segment compared to Value Plus by whatever means possible?

Shekhar Swarup — Joint Managing Director

Yeah. It’s a little more complex because as you’re aware the distributor in Rajasthan is the government or is a government-owned entity. So, it’s a little more complex than that. But yes, that is a part of the whole equation. So, let’s set up a call and discuss this in more detail if that’s all right.

Darshit Shah — Nirvana Capital — Analyst

No worries. Thanks.

Shekhar Swarup — Joint Managing Director

Could we go to the next question, please?

Operator

The next question is from the line of Rushabh Doshi from Nirmiti Investment Advisors. Please go ahead.

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

My question is to Param. In an earlier call — in an earlier participant question, you answered.

Shekhar Swarup — Joint Managing Director

Your line is not clear. Could you maybe get off speaker phone or change your setting?

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

Is this clear now?

Shekhar Swarup — Joint Managing Director

Yes, better. Please carry on.

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

My question is Param. Like I know in the earlier participant question, you shared the rational. But with respect to quality things in Rajasthan, like could you share like what does the fine print say? Like how are they implementing the policy? Like is it through — are they restricting volumes in the

Value Plus category or have they increased the excise? And my second question is like earlier you used to share the daily GS sales or volumes data. So, if you could just share like what is going on in the animal field segment.

Shekhar Swarup — Joint Managing Director

So, I mentioned in my opening remarks that the animal nutrition business or the animal feed business is about 13% of revenue. It doesn’t really help to look at this as a share or in terms of volume because we need to sell everything we produce. The product does not have too much of a shelf life. There is a high — sort of it’s a fast moving product because it’s going into the animal feed business. So, there are small plants of large feed companies spread all over the country, which supply to a local — supply egg or meats to the local market. So, it’s a relatively fast moving product so therefore it

Doesn’t really make sense to share volume data. We are looking at working on ways to increase the value of this product to our customers and hopefully increasing realizations in this product, which will go straight to bottom line. All of — the way our costing works, all of the animal nutrition business goes straight to bottom line. As far as Rajasthan is concerned, there has been no price change for Value and Value Plus in terms of excise duties. There is an incentivization or a focus that is created with — for selling Value spirits over Value Plus spirits. At this stage, that’s all I can get into. Happy to set up another call to discuss this in further detail.

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

Yeah. Also if there is any documentation of the policy, if you could share that, that would be helpful. And my last question…

Shekhar Swarup — Joint Managing Director

Policies are available on the Rajasthan excise website so that’s public domain.

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

Yeah. And in the near like next one or two quarters like what do you expect would happen with the consumer volumes? Would they still be subdued or are you expecting some quarter-on-quarter growth at least?

Shekhar Swarup — Joint Managing Director

Yeah. So Param, could you take that last bit on, please?

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Yeah. So, as we had mentioned that in Haryana we are in recovery so we see our volumes inching up as we keep going forward. Similarly in Rajasthan, as Shekhar has already alluded to, that it’s a government body who is also the exclusive distributor. Like in many other states in the country where the government has the excise under one head and has the distribution under another head. So, we think even Rajasthan is going to be a temporary blip. Now very month specific one or two months here and there, it is very difficult to pinpoint. But yes, these things do temporarily clog the pipeline with less desired segments and it takes time for it to gain its level. But I am still very, very confident that in the next couple of quarters, we will see it all inching up significantly.

Rushabh Doshi — Nirmiti Investment Advisors — Analyst

Sir, like one particular reason why I asked because Q3, Q4 are seasonally strong for the Consumer Business so yeah. That’s all from my side.

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Thank you.

Operator

Thank you. The next question is from the line of Hitesh Sharma from Whitesky Investments. Please go ahead.

Hitesh Sharma — Whitesky Investments Ltd — Analyst

Good morning. This being office time for us like working people who are investors, may we request a copy of the voice call instead of only the text call, which comes. That’s one thing. And second is any plans for — because your bill for fuels is extremely high so any plans to have that natural gas as a fuel?

Shekhar Swarup — Joint Managing Director

Natural gas is a far more costly fuel as compared to coal and rice husk. In addition, the capex required to become biogas enabled is very high. There are — there is only one factory for us where it could make sense in the future which is our factory in Haryana because of biogas connectivity in the region. But suffice it to say we are already at the cheapest possible fuel cost and any reduction in fuel cost from here will need to be on account of reduction in cost of fuel as well as reduction in consumption of fuel and the company is focused on both. With regard to your request for an audio link, I believe we do publish this on our website. Nilanjan, if you can confirm that one way or another, please.

Nilanjan Sarkar — Chief Financial Officer

Yes, we do publish it. We can see it after this conference.

Hitesh Sharma — Whitesky Investments Ltd — Analyst

Okay. Thank you.

Operator

The next question is from the line of Imran Khan from Longbow India. Please go ahead.

Imran Khan — Longbow India Capital — Analyst

Hi. Thanks for the opportunity. Just wanted to confirm you said 15% margins from next quarter onward, right?

Shekhar Swarup — Joint Managing Director

Yeah. That’s what we’ve got sight of as of now in terms of — or rather that’s what my expectation is based on the softening of raw material prices — fuel prices likely that have started happening.

Imran Khan — Longbow India Capital — Analyst

So, you were expecting this 10% — 5% benefit or 500 basis point benefit largely from raw material or is it from…

Shekhar Swarup — Joint Managing Director

I mean it’s a pickup in the Consumer Business. As mentioned, we saw a temporary softening in the last quarter. The Consumer Business is picking up again especially in Haryana where there was this problem, the softening of raw material. We see realizations remain strong so we are working towards that and that is my expectation.

Imran Khan — Longbow India Capital — Analyst

Right. Just one more thing on ethanol prices. So, this new price or the price increase of about 2 point some paisa, is that a base of March 2022 or this is on our current base?

Shekhar Swarup — Joint Managing Director

Can you repeat that question?

Imran Khan — Longbow India Capital — Analyst

So, I was asking this INR2.5 increase on ethanol prices, is it on a…?

Shekhar Swarup — Joint Managing Director

It’s over last year. So, ethanol prices are fixed year-on-year and this is over the last price — the price that was declared on 1st December 2021.

Imran Khan — Longbow India Capital — Analyst

Because you have also shared some release I think early this year where you have got an interim price increase so that’s not the base, right?

Shekhar Swarup — Joint Managing Director

That’s not the base number.

Imran Khan — Longbow India Capital — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Sneha Jain from SKS Capital. Please go ahead.

Sneha Jain — SKS Capital and Research — Analyst

Hello sir. Thank you for the opportunity. I just wanted to know what kind of growth are we seeing given like we have — we’re looking at some recovery and softening of cost pressure and RM pressure as well. So, what kind of growth can we see going ahead for the next few quarters and for the long term as well?

Shekhar Swarup — Joint Managing Director

I think that was addressed in an earlier question. Gradually we hope to come back to 16% to 18% kind of margin levels. As mentioned in my — as mentioned in earlier calls, the nature of the industry that we’re in, cost increases — price increases take time, whether it’s cost increases or immediate. We’ve seen ENA prices react the quickest as was expected and we’ve been able to grow ENA prices considerably every quarter. We remain hopeful that despite softening of raw material prices, we should be able to hold on to our ENA prices considering that we operate in deficit states and — mostly in deficit states. And in the areas that we have operations in surplus states such as Haryana and Jharkhand to some extent now, we hope to be marginally more profitable than other players due to our proximity to all marketing company depots where we will be supplying ethanol.

In case of our Consumer Business, we’ve seen — we are hopeful of price increases in West Bengal and in Rajasthan, but that obviously is again an annual policy decision. West Bengal will possibly come in in the 30 to 60 days whereas Rajasthan will come in in the next financial year. And ethanol we’ve seen around 5% increase in prices starting 1st of December, which too will help our realization. So as mentioned earlier, gradually we are seeing increases in realization. We’ve also begun to see softening in costs and for those reasons, I feel margins should now start moving up and go back to the levels that that we all want.

Sneha Jain — SKS Capital and Research — Analyst

Thank you so much, sir. That’s it from my side.

Operator

Thank you. The next question is from the line of Prithvi Raj from Unified Capital. Please go ahead.

Prithvi Raj — Unifi Capital Pvt Ltd. — Analyst

Sir, I just have one follow-up question. On the income tax rate, earlier you were mentioning that you will come to the new tax regime. So, when can we expect that?

Shekhar Swarup — Joint Managing Director

So, we were expecting the new tax regime to come in from this financial year onwards. However, with the reduction in profit before tax that we’ve seen this year, it makes more sense to utilize our balance MAT credit as well as take advantage of accelerated depreciation, which is available for this year for us, and this will be complete in this financial year. So, next year onward we will have no MAT credit and we will have no benefit of accelerated depreciation to take. So for the next financial year onwards, we will certainly be in the new tax regime therefore taking our effective tax rate, which is around about 34% currently, to about 17% — sorry, 25% next year onwards. But today our cash payout after utilizing MAT credit is about 17%.

Prithvi Raj — Unifi Capital Pvt Ltd. — Analyst

Got it. That’s all from my side.

Operator

Thank you. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Hi. Just a follow-up. Now that the Jharkhand distillery has been commissioned, how’s the offtake visibility for you for this quarter and going forward? That’s number one. Number two, I’m not sure if this has been addressed. But some trend on how the broken rise prices faring from what they were say at the start of the year? And the third is what has been the capex outflow for H1 FY ’23?

Shekhar Swarup — Joint Managing Director

Okay. Jharkhand capacity is running at full production. We don’t anticipate any other way of running this capacity. We have been able to utilize this capacity 100% with ENA, which is currently more profitable than ethanol. We will evaluate whether to run on ENA or ethanol in a quarter-by-quarter fashion. With regard to price of damaged grain, I don’t unfortunately have the figure for earlier this year, but I do know the figure for the peak prices of damaged grain which was possibly around July, August, maybe coming into September as well. We are down about 10% to 12% on damaged grain prices since then and now. Of course this is a comparison from peak low. This is not an average to average comparison and if that is something that you’re looking for, we can provide that to you after the call.

Prithvi Raj — Unifi Capital Pvt Ltd. — Analyst

Okay. And capex for H1?

Shekhar Swarup — Joint Managing Director

Right. Nilanjan, could you answer that, please?

Nilanjan Sarkar — Chief Financial Officer

Yeah. The capex outflow for H1 has been INR82 crores out of which, primarily major one is for Jharkhand which is for INR50 crores. We’ve capitalized Jharkhand in the month of September. There’s still some work in Jharkhand left, but the outflow for this H1 has been INR82 crores.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

And interest cost must have been — interest cash flow must have been about INR5 crores, INR6 crores.

Nilanjan Sarkar — Chief Financial Officer

No. Interest has been INR2.51 crores for the current quarter and for H1 it is INR4.7 crore. Yes, INR5 crores — almost INR5 crores.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Jatin from Invest Savvy. Please go ahead.

Jatin — Invest Savvy — Analyst

Hi. I wanted to check on two things. Given that you are moving to a tax regime in the next year on the back of advantages which you will derive of offset this year. As against the 30%, 33% that I see as tax payout for Q1 and Q2, what percentage of tax payout would you be seeing in Q3 and Q4?

Shekhar Swarup — Joint Managing Director

Q3, Q4 effective tax rate will remain at this level. Be that as it may, as I mentioned earlier, our cash payout on tax is only 17%. So the difference between 33% and 17% is the MAT credit that we utilize.

Jatin — Invest Savvy — Analyst

Okay. So from a P&L perspective, you would still end up paying about 33% tax or 30% tax, whatever?

Shekhar Swarup — Joint Managing Director

Correct. And from next year this will be 25% and our cash payout will also be 25%. There will be no MAT credit left and therefore we will move to the new tax regime.

Jatin — Invest Savvy — Analyst

Okay. The other question is that in terms of I think partly I kind of could make out, the question was asked earlier also, that the new capacity that has come, will it be — what percentage of it will be rolled out in terms of actually converting into revenue in Q3 and Q4?

Shekhar Swarup — Joint Managing Director

100%, sir. The Jharkhand capacity is operating at 100% and we expect to — we expect it to remain at that level. Of course when I say 100%, this is based on 100% available capacity. So from an install capacity to available capacity, it’s about a 5% difference so around 95% capacity utilization, which is effectively 100% if you know what I mean.

Jatin — Invest Savvy — Analyst

Okay. And this is — so Jharkhand actually as per the presentation seems to have kicked in only around 30th of September, right?

Shekhar Swarup — Joint Managing Director

Right.

Jatin — Invest Savvy — Analyst

So, this quarter we see the full impact of that. Okay, great. And additional capacities of 60 KLPD extra on two plants, which are to come up in Q4 I think.

Shekhar Swarup — Joint Managing Director

So Q1 — you don’t start seeing that impact revenues in Q1.

Jatin — Invest Savvy — Analyst

Okay, great. Thanks a lot.

Operator

Thank you. The next question is from the line of S Louis, an individual investor. Please go ahead.

S. Louis — Individual Investor — Analyst

Hi. Thank you for taking my question. I keenly watch all the developments at Globus Spirits. Having said that, I was expecting that the Jharkhand facility would have got on stream in August as per the last call announcements. But only these days I realized that it is pushed out to end of September, that means it’s completely out of the quarter. So, I would have expected you to intimate the exchanges when such developments happen in the company that has got the major or significant contribution to the numbers of the company. So, that’s one observation or my concern here. That’s it.

Shekhar Swarup — Joint Managing Director

Thank you that. Thank you for that feedback.

Operator

Louis, you’re done with your questions?

S. Louis — Individual Investor — Analyst

One more — sorry yeah, one more. So, please take care of that. In the case of West Bengal you did that, you had announced in the exchanges which did not happen. Now coming to the GST, there was some dispute amounting around INR34 crore. Now when this is addressed or the address will happen, will it — if you win that in your favor, will it add to your bottom line or how is it going to work out?

Shekhar Swarup — Joint Managing Director

So, this matter first needs to be adjudicated by the GST Department. We do not expect a favorable adjudication based on how — based on tracking how GST has been adjudicating other matters of late. So it will then go into appeal, which I believe will go to a tribunal if I’m not mistaken, thereafter High Court and possibly Supreme Court as well depends on where we get redressal and where GST Department would like to stop challenging. Eventually if this goes to Supreme Court and it is in our favor, then this asset will come back into our P&L, you’re right. It will probably come in as an exceptional item, but that’s something we’ll have to take an opinion for from our auditors and accountants. We don’t have that clarity as yet.

S. Louis — Individual Investor — Analyst

Okay. All right. That’s it for me. Thank you.

Operator

Thank you. The next question is from the line of Dhruv Kushabh [Phonetic], an individual investor. Please go ahead.

Dhruv Kushabh — Individual Investor — Analyst

Hi. Good morning. Shekar, given that you spent so long in the liquor industry, I just wanted to get a perspective or some color from you on geographical white spaces not just restricted to the states in India, but overseas as well. What’s happening very interestingly in the last few months and years is that a lot of the entry level liquor segment is being vacated, right. So when USL got acquired by Diageo and you know how it is. The MNCs focus more on the premium and the more expensive brands. So, there is a significant vacancy that’s also getting created in terms of the entry level spirits section not just in India, but abroad as well. My observations in East Africa was that they’re all waiting for their cases of Bagpiper and all, which are not really coming. So, what’s your view on the six, seven priority states in India as well as do you have any concerted strategy for the Indian drinkers of the cheaper brands in the sort of let’s call it the less — let’s call it the more developing and emerging markets of the world?

Shekhar Swarup — Joint Managing Director

Thanks for that, Dhruv. The correct person to take you through this is Param given his exposure in the Indian markets and overseas in the alcohol business. So Param, can I request you to take that?

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

Thanks, Shekar. So while what you’ve said exactly is as the events are unfolding, we are still of the firm belief that the attractiveness of Prestige and above is far more lucrative than spreading ourself thin further into that. With respect to exports, yes, we have exports in our line of sight. But as we talk currently, these possibilities are in our line of sight with respect to the segments of Prestige and above that we are already operating. We are not ruling out a possible entry into regular. But in the short medium term what all plans we have, they do not as of now include regular segment.

Shekhar Swarup — Joint Managing Director

So just to add to that, Dhruv. What we’ve seen in the regular category is that these spaces become very very price sensitive so for INR10 a case cheaper, we find the retailer or the distributor shift loyalties. As a result, what we’re trying to build is a business that can be in control of its own growth, that is not dependent on other buyers for growth in terms of volume as well as profit — corporate buyers I mean, not dependent on corporate buyers. And in terms of the regular segment, that’s exactly the problem that there is and frankly we’ve got enough of a play in that space when it comes to our ENA business, our ethanol business. And with regard to the wide spaces that are being created especially in the Indian regular and others category, we do in fact have a play over there through our Value Plus segments which is far more profitable than the regular segment. So, we’re trying to address this in two different ways. Trying to build a premium offering at the lower end of the price point and attracting consumers to save some money and be able to get a product that they expect as well as then offering products at the premium price points, which allow the consumers to upgrade or to premiumize.

Dhruv Kushabh — Individual Investor — Analyst

Extremely useful, Param and Shekar. Just a quick follow-up on this. If you could also give some color on the sort of states of India where you are gradually ramping up, which are the white spaces which you’re still entering etc. and what’s your play going to look like? I heard seven states so if you could just sort of elaborate a bit more in terms of naming them and where we are in each one of them etc. very quickly. You needn’t go into very much detail.

Shekhar Swarup — Joint Managing Director

Okay. Param, can you take that?

Paramjit Singh Gill — Chief Executive Officer, Consumer Division

So, we have already made a play from this April onwards in West Bengal, Uttar Pradesh, and Delhi. As we talk to you, we have entered in the states of Haryana as well as Telangana. And we have a couple of states in line of sight which obviously for obvious reasons we are withholding the names because it does affect our capability of launching and expanding if the opposition gears itself up before adequate time. So, the five names are already in front of you and whatever little is left of it we will disclose as we go further on the journey.

Dhruv Kushabh — Individual Investor — Analyst

Most useful, sir. Thanks once again. And my second and even briefer question is that Shekar, correct me if I’m wrong. We were somewhere in the 20- odd crore liter nark and our destination end game in ’25 is to go to 49 crore liters?

Shekhar Swarup — Joint Managing Director

Per annum you mean?

Dhruv Kushabh — Individual Investor — Analyst

Yeah. I mean I’m saying when I convert the KLPD per day into an annual sort of a number, it comes to somewhere between 48 crore and 50 crore liters when all your brownfield, Greenfield, everything is over.

Shekhar Swarup — Joint Managing Director

Yeah. Just give me one moment. So we are currently at about 760 KL, which translates into about 25 crore liters. We’ve got two more projects that are left — sorry, three more projects that are left in our pipeline. There’s one 20 KL expansion in the East, which will add about 4 crore liters. And then there is Orissa and UP, which we have not finalized the capacities of, but that has the potential of adding another 10 crore liters. So, that — so this number will go to about 27 crore and 10 crore, 37 crore liters. That’s the rough picture. Of course like I said, Orissa and UP we have not finalized capacity so the number I give you is pro forma or tentative.

Dhruv Kushabh — Individual Investor — Analyst

Yes. Assuming that all of this does come through in some shape and form at some time in the future, this would be somewhere between sort of 40 crore and 45 crore liters a year?

Shekhar Swarup — Joint Managing Director

40-ish crore.

Dhruv Kushabh — Individual Investor — Analyst

40-ish crore from roughly about 20-odd crore that you were at the beginning of this calendar year, right. So, that’s almost doubling over two, three years.

Shekhar Swarup — Joint Managing Director

Yeah. I think it would be less than — little less than 20 crore, I think 17 crore, 18 crore is probably where we started this calendar year.

Dhruv Kushabh — Individual Investor — Analyst

So, almost 2.5 times its destination state. My last question, sir, and a very quick one is that the way we are seeing — see the way our business is structured is that the price is not controlled in our hands because we get price increases from the powers that be at the frequency that we get them. The raw materials are going through the roof both in terms of input cost, fuel, power, or the actual product that you use to sort of

Convert into finished product. Now my thing is that we were at about a 23%, 24%, or maybe a 21% EBIT at the peak. We were at roughly about 11% to 14% last quarter and we’re at about 8% this quarter. Now I understand you saying that the destination will look like more 18%-ish and not 21%-ish eventually when everything is going for us. But how are you seeing the ramp up from 8% to 18% in the next few quarters? I mean could you give some color or breakdown on that?

Shekhar Swarup — Joint Managing Director

8% is not entirely due to raw material and fuel prices. 8% is due to a 4% reduction caused by the — how do I say it, the problems in Haryana which were explained earlier on the call. So if we adjust for that, it’s about 11% 12%. We need to go — we need to increase our margins from 11%, 12% to say 17%, 18% and we are seeing as mentioned earlier a softening in prices of raw material. We expect to remain firm on our ENA prices through the rest of this quarter and the next. So, in stages between now and — and then of course there is the price increases in Rajasthan and West Bengal that are expected in early next year and over the next 30 to 60 days respectively for Rajasthan and West Bengal. So with these initiatives, we hope to get to that point at some point in the next financial year.

Dhruv Kushabh — Individual Investor — Analyst

Thank you so much. And in conclusion, as the good old people say that good companies and good teams can’t be kept down for too long. So the going might be tough, but I guess the way you guys are running it, I mean great times are not very far away. Thank you so much.

Shekhar Swarup — Joint Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Shekar Swarup for his closing comments. Over to you, sir.

Shekhar Swarup — Joint Managing Director

So thank you, everyone, for taking the time to join this call. If we have left out any questions or any further clarifications are required, please contact us or our IR team at Stellar. And look forward to speaking to you all soon. Bye.

Operator

Thank you. Ladies and gentlemen, on behalf of Globus Spirits Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.