Radico Khaitan Ltd (RADICO) Q2 FY23 Earnings Concall Transcript

Radico Khaitan Ltd (NSE:RADICO) Q2 FY23 Earnings Concall dated Nov. 15, 2022

Corporate Participants:

Abhishek Khaitan — Managing Director

Dilip K Banthiya — Chief Financial Officer

Sanjeev Banga — President – International Business

Analysts:

Himanshu Shah — Dolat Capital — Analyst

Harit Kapoor — Investec Capital Services India — Analyst

Abneesh Roy — Nuvama Institutional Equities — Analyst

Vivek Sharma — PGIM India — Analyst

Mehul — JM Financial — Analyst

Pritesh Chheda — Lucky Investment — Analyst

Sneha Agarwal — SageOne Investment Managers LLP — Analyst

Kaustubh Pawaskar — ShareKhan BNP Paribas Group — Analyst

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Abhishek Jain — Arihant Capital Markets — Analyst

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Apoorva — Individual Investor — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day and welcome to the Q2 FY ’23 Earnings Conference Call of Radico Khaitan Limited, hosted by Dolat Capital. [Operator Instructions]

I now hand the conference over to Mr. Himanshu Shah from Dolat Capital. Thank you. And, over to you sir.

Himanshu Shah — Dolat Capital — Analyst

Thank you Rutuja. Good afternoon, everyone. On behalf of Dolat Capital, we welcome you to Q2 FY ’23 Earnings Conference Call of Radico Khaitan. On behalf of Dolat Capital we would like to thank Radico Khaitan management to give us the opportunity to host the call.

On the call we have with us the senior management team of Radico Khaitan represented by Mr. Abhishek Khaitan, Managing Director; and Mr. Amar Sinha, Chief Operating Officer; Mr. Dilip Banthiya, Chief Financial Officer; and, Mr. Sanjeev Banga, President, International Business.

Let me now hand over the floor to Mr. Abhishek for his opening remarks. Thanks and over to you, sir.

Abhishek Khaitan — Managing Director

Yes, thank you. Good afternoon ladies and gentlemen, thank you for joining us on our Q2 FY ’23 Results Conference Call. I hope you’re all doing well and keeping safe. We have delivered another quarter of buoyant volume growth and consistent financial performance in an otherwise challenging business environment. This underscores the strength of our brand portfolio, operational excellence, dynamic financial management, and our clear defined strategic roadmaps.

Business growth continues to be strong and resilient, driven by our Prestige & Above category brands, which grew by 22% during the quarter. Our premium brand growth is very strong, particularly the luxury brands such as Jaisalmer Indian Craft Gin and Rampur Indian Single Malt. We have already expanded our Craft Gin production capacity to more than double. We continue to aggressively pursue our new product development pipeline to drive future growth opportunities and announced some exciting launches during the quarter.

In September Radico Khaitan launched another expressions of Rampur Indian Single Malt Jugalbandi. A series of eight Indian Single Malt, Cask Strength Whiskey. The first two expressions of the Jugalbandi series were unveiled at the Whiskey Live Show in Paris and will soon be rolled-out to the USA, Singapore, Australia and select travel retail destination. Building up on the market leadership of Magic Moments, we launched our low alcohol ready-to-drink Magic Moments Vodka Cocktail. It is the only what RTD available in the Indian market. We also launched 1965 Spirit of Victory Lemon Dash Rum, will help the company to tap into a new spirit category of white rum. While the inflationary trend is persistent, we have seen early signs of stability in certain commodities, which is encouraging.

Overall, the scenario still remains volatile. We have recently received price increases in the state of West Bengal and pursuing price increase in some southern states. Recently received price increases in the last two quarters, coupled with our ongoing premiumization, portfolio rationalization, and value engineering will drive profitability growth. With the recent price increases coupled with a favorable product mix, we were able to mitigate margin headwinds in the IMFL business to a large extent. The impact of the cost push has been much severe in the non-IMFL business where we expect to receive price increases soon.

Both the Rampur Dual Feed and Sitapur Green Field projects are progressing well. And the civil construction is on swing. We are happy to report that as per our committed time lines, Rampur Dual Feed plants and Sitapur bottling section will be operational by the December 2022. Luxury portfolio consisting of Rampur Indian Single Malt and Jaisalmer Indian Craft Gin are showing great momentum. As we have shared in the past, Rampur Indian Single Malt is currently on allocation, but from next year onwards, it’s volume will triple from the current level. In India, Jaisalmer is now available in 15 cities and in the canteen store departments and it will be available on pan-India basis, very soon. This brand continues to receive unprecedented response.

Looking at the demand, we have already doubled our capacity. Launched in the last quarter, Jaisalmer Gold is now being rolled-out in Europe and the U.K. Our premium brand growth continues to be very robust. New brands such as Royal Ranthambore and Dazzle are performing in line with our expectations. Royal Ranthambore is now available in 11 states and Dazzle is available in eight states. This coupled with the growth of our core brands such as Magic Moments, Morpheus, 8 PM Premium Black and 1965 Spirit of Victory Rum, etc., places us very confidently to continue delivering industry-leading growth.

Radico Khaitan is progressing firmly on the path of its exciting premium brand creation journey, which will be accentuated by a strong backward integration, manufacturing platform. Going-forward, we continue to focus on our long-term growth plans of premium IMFL growth. With new brands introductions in both white and brown spirits and leveraging the benefits of our capital investment.

I would now like to hand over the call to our CFO, for a detailed operational and financial review. Thank you and over to you Dilip.

Dilip K Banthiya — Chief Financial Officer

Thank you Abhishek. Thank you everyone for joining us on this call today. During the second quarter of FY ’23 we reported total IMFL volume of 7.18 million cases, representing an increase of 10.9% on Y-o-Y basis. This was led by Prestige & Above category volume growth of 22%. In value terms the Prestige & Above category registered 25% growth. Prestige & Above account for 37.9% of IMFL volume as compared to 30.2% in Q2 of FY ’22. Our Prestige & Above category volume represent a double-digit CAGR as compared to the Pre-COVID levels.

We have rationalized volume of regular category brands in certain states. This is a conscious strategic decision to mitigate input cost pressure. Had it not been done, our volume growth would have been higher. Net revenue from operation during Q2 of FY ’23 was INR761 crores, representing an increase of 8.6% compared to Q2 of FY ’22. During this period IMFL sales value also increased by 8.5%.

Gross margin during the quarter was 41.6%, compared to 43.6% in Q1 of FY ’23 and 45.3% on Q2 of FY ’22. On Y-o-Y basis, continued commodity inflation resulted in gross margin compression, particularly in the non-IMFL business. Given a favorable product mix change impact of cost push on gross margin on IMFL business was mitigated to a large extent. On Q-on-Q basis margin compression is due to the full impact of glass price increase even in Q1 and ongoing inflation in ENA cost.

While we have experienced further inflation in ENA and glass, certain other commodities such as fat [Phonetic], resin, paper etc., have seen early sign of softening in near-terms. We expect raw-material pricing situation to remain volatile, however, from Q4 onwards, we shall see the benefit of backward integration from our Rampur Dual Feed plant. In near-term, EBITDA margin is expected to be range-bound. In the long-term, we are confident of continuing our margin expansion trajectory, given our portfolio premiumization and backward integration.

During the quarter the company has incurred INR154 crores from the Rampur Dual Feed and Sitapur Green Field projects. Therefore the total capex of INR318 crore since inception. We have a strong financial position, comfortable liquidity. During these times, we are taking all necessary steps to sustain our financial strength, maintain robust business model and grow consistently, competitively and profitably.

With this, we’ll now open the lines for Q&A, thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Harit Kapoor from Investec Capital Services India. Please go-ahead.

Harit Kapoor — Investec Capital Services India — Analyst

Yes, hi, good afternoon and congrats on strong volume growth. Just had two questions. First is on the price increase side. So you mentioned West Bengal, if you could just —

Operator

Sorry to interrupt Mr. Kapoor, may we request you to please speak a bit louder.

Harit Kapoor — Investec Capital Services India — Analyst

Is it better now? Can you hear me now?

Operator

Yes, please go-ahead.

Harit Kapoor — Investec Capital Services India — Analyst

Yes, so first question is on the price increases. Could you give a sense on, what’s the kind of quantum in West Bengal and now what’s the weighted-average number that you’ve got? And just a follow-up on that also, would be any more states we expect to get prices which is permanent [Indecipherable]?

Abhishek Khaitan — Managing Director

So Harit, as we mentioned in our last call that weighted average price increased till Q2 was approximately 3% and it was in the state of Uttar Pradesh, Uttaranchal, Punjab, Rajasthan, Haryana, and Delhi, etc. And now there is a price increase in West Bengal which is effective on current date and it is in the range of 12%. So weighted-average will be around — because our volume in West Bengal is around 3% [Indecipherable], it’s something around 25 basis points. We are expecting some more price increases in large southern states within next 15 days should materialize and will be in public domain. You want to add anything?

Harit Kapoor — Investec Capital Services India — Analyst

Very helpful. The second question was on the status check on some of the kind of new launches that we did same time last year, I mean, you did the Royal Ranthambore and Dazzle. If you just give us kind of an update, it’s been a year now since they are in market. How many market now? How they’ve done? Your own action standards and what’s the thought process going-forward?

Abhishek Khaitan — Managing Director

So Royal Ranthambore has received unprecedented response in all the 11 states that we have gone to. It’s welcomed by the trade, the best thing about Royal Ranthambore is the pricing, where we have breached all IMFL level prices and gone above certain well-known Scotch prices. So, that’s something that we have done, we have created a new price band, contributions are pretty healthy and the response that we’ve received, as I said, is unprecedented.

We are in 11 states actually and there are four more to be added in the next six months. So it’s available right now in Uttaranchal, Chandigarh, AP, West Bengal, Assam, these are states where it’s going to be launched, but we are available in rest of the 11 states which are the big ones, UP, Delhi, Rajasthan, Haryana, Maharashtra, Telangana, these are all states where it has already gone and it’s doing pretty well.

Jaisalmer is available in about 15 states. North India, we are available in all the states. In South zone, we are available in Telangana, Karnataka Pondicherry, there are three states. Andhra is soon to be coming in about, say, a month’s time. East zone, we have just launched it in Orissa and we will go to Assam soon. In the West of India, we’ve gone to Maharashtra, MP, Goa and Daman.

Now Jaisalmer is one brand that we have created as — it has been the tradition in Radico, we’ve always breached the price points of the market-leader. It is the most expensive gin, but despite that, the packaging, the quality is so well-accepted that it’s received extremely good response, we are now broad-basing the width and depth of distribution of Jaisalmer and I think this is a brand that’s going to create ripples in the times to come like Royal Ranthambore.

Dilip K Banthiya — Chief Financial Officer

And further to add, as Abhishek said in his opening remarks, we have already doubled the capacity looking at the response and we’ll be adding further capacity depending on the market demands.

Harit Kapoor — Investec Capital Services India — Analyst

Got it, very clear. The other question was on the quarter’s performance. So if you look at the popular business which is down from about. 4.5 million cases to 3.8 million cases, how much would you attribute that to your own rationalization initiatives? Would that entirely — that’s all the — due to your own rationalization initiatives in your opinion?

Abhishek Khaitan — Managing Director

Yes, the majority of that would be because of our action, because we don’t want to — we are not looking at selling a brand below a threshold profitability and certain states where we are expecting price increase to happen soon, these were restricted to our suppliers so. So that is how we’ll get the price increase on these.

Harit Kapoor — Investec Capital Services India — Analyst

So fair to assume that once some of these price hikes come through, some of these volumes will also come back, right?

Abhishek Khaitan — Managing Director

Absolutely, absolutely.

Harit Kapoor — Investec Capital Services India — Analyst

Got it. Any color you can give on the states where there is a slightly lower. I mean, one must assume that there are states which have been given price hikes basically?

Abhishek Khaitan — Managing Director

Your question is not — your voice is not audible, little — actually not clear. Can you repeat?

Harit Kapoor — Investec Capital Services India — Analyst

Is it better?

Abhishek Khaitan — Managing Director

Little better, yes, little better.

Operator

It is really low and muffled Mr. Kapoor.

Harit Kapoor — Investec Capital Services India — Analyst

Sorry, I think this will be better. So I just — my question was really on, we have to assume that the — wherever you’ve rationalized are the states which have not yet given the price hikes, is that a fair way to look at it?

Abhishek Khaitan — Managing Director

Yes, absolutely.

Harit Kapoor — Investec Capital Services India — Analyst

Got it, got it. That’s it from me, I’ll come back for more, thank you.

Operator

Thank you. The next question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go-ahead.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Yes, thanks. My first question is on your recent launches for example, the low alcohol Magic Moments Vodka Cocktail. So what is the addressable market you think and would you need to expand beyond current distribution? I understand it still has a alcohol content. I understand this is only vodka we have started. So will you have to first feed the market, so this is more a longer-term opportunity. Similarly the thought process and the addressable market for the Lemon Dash Rum, because that again is a very niche, but focused launch. So how big can we be from a four to five year timeframe, if they succeed?

Abhishek Khaitan — Managing Director

So, see, it’s like this that, first of all we won’t — don’t want to leave any premium segment in the alcohol category untapped because the future belongs to brands that are in the premium category, they are actually growing. Having said that, you see the objective of launching RDD is a lot bigger than the volume. We want to create an aura around Magic Moments, we want to do brand extension.

We want to make sure that every Millennial has the opportunity to carry something, my convenience, ready-to-drink. So Magic Moments Vodka Cocktail is actually the first-of-its-kind, it breaches all price points and first-of-its-kind because, you see traditionally cocktails have been made by vodka, but there is no one who had tapped this opportunity of putting it in a can, which is the fashion today. So we see have seized that opportunity and I think the price point is much higher than any cheaper competitive brands, because what you get cheap today does not really gel with the generation Z and the millennials.

So I think it’s got a much larger objective, yes, it is in the mid to long-term, this is a product that will be reckoned with, but today it needs to be seeded. The initial response that we’ve received to build the brand in Bangalore is extremely encouraging and that gives us more confidence to expand it across the country. That is something that’s on the cards. As far as white rum is concerned, this is a category we have tapped, it’s a small segment, 1.5 million cases market. But I think we didn’t want to leave this untapped, because of our capability to produce premium brands and the quality of spirit. So yes, this is one product which we need to wait-and-watch.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Right. That’s helpful. One follow-up on that, do you need to expand distribution for these products and what is the pricing status in Bangalore on that new launch? And what is the alcohol content in that, Vodka Cocktail?

Abhishek Khaitan — Managing Director

So we have launched it at INR150 a can. We will need to wait, we have just done a test market in Bangalore in select outlets. We will — now that we know the response to the product, we will have to have to tap the width and depth of distribution. Once we do this in Karnataka, we will spend — go to the other big markets which have a traction for RTDs like Maharashtra, Telangana.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Right and alcohol content?

Abhishek Khaitan — Managing Director

4%, 4.5% in the alcohol content. This is unisex actually, both male and female can enjoy the drink.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sure, that’s helpful. My last question is on the gross margin, every liquor company has faced pressure this quarter. So, would you say the worst is behind, because you’ve got 12% price hike in Bengal. But when I see glass prices, they continue to remain under more inflation in H2 because of the gas prices being up 60%. On a balance, how do you see H2 margin versus, say, 41.6% GM in Q2, do you think it should improve from hereon?

Abhishek Khaitan — Managing Director

So as I said that the gross margin in-spite of the pricing increases have been on Q-on-Q basis, down by 200 basis-points. Largely on account of the impact of the glass prices which has been for full-quarter and the ENA uptrending prices. The prices which we are going to get in the West Bengal and couple of large southern states will mitigate more or less on the IMFL, right. So the gross margin for Q3 till that time will be range-bound and Q4 onwards we will have a backward integration facility also coming in, so you will see an uptrend from there and ’23, ’24 there will be multiple levers for increasing our margins, and couple of that is like both our Rampur Dual Feed will be up and running, with Sitapur greenfield project will be up and running, the UPML price increases will come, the volume of UPML will increase and as we said that Rampur Indian Single Malt and Jaisalmer is having big traction in the volume. So there are multiple lever for us to go back to our mid-to-high teen margin in ’23, ’24.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sir, just one follow-up on the Bengal market, so the 12% price hike is quite good, but it’s also a very sharp price hike for customer who is already taking multiple limitation concerns. So, do you think the players will take that full hike, because in the past we have seen, although the government may allow a hike, but ultimately industry players may not take the full hike, so what’s your sense?

Abhishek Khaitan — Managing Director

No, actually everyone has taking the price hike and the MRP only changes by INR10 for the nip side. So that’s not much of a increase. And all the players have taken the high.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Okay, so the INR10 MRP hike is 12% in for you?

Abhishek Khaitan — Managing Director

Yes. Yes.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Okay, thank you, that’s all from my side, thank you.

Abhishek Khaitan — Managing Director

Thank you everyone. The next question is from the line of Vivek Sharma from PGIM India. Please go-ahead.

Vivek Sharma — PGIM India — Analyst

Good afternoon gentlemen, thanks for taking my question. My first question is post your capex, which is —

Abhishek Khaitan — Managing Director

Your voice is not clear, can you make the mic little closer?

Vivek Sharma — PGIM India — Analyst

Is it better now?

Abhishek Khaitan — Managing Director

Little better.

Vivek Sharma — PGIM India — Analyst

Yes. My first question is on your capex and it gets over in December, what portion of your E&A needs would come from captive and what would be the mix of outsource? And what would be the allocation of the CNA, will it be used for your premium brands, regular brands or the Country Liquor?

Abhishek Khaitan — Managing Director

No, still not clear, your point is regarding the E&A captive consumption?

Vivek Sharma — PGIM India — Analyst

Yes. Yes.

Abhishek Khaitan — Managing Director

So from dual feed our — as we said earlier when we did the capex that the increased capacity will be used on the UPML, which has been converted by the UP government on 25% in future the rest of the categories are also likely to be converted. And all of the E&A, whether it’s from dual feed plant and greenfield Sitapur plant, when we use in next three years. So interim, we have to sell some exports from E&A etc., and some to the local manufacturers, but local users, rest will be used by us, the three years completely used captively by us.

Vivek Sharma — PGIM India — Analyst

Okay. And second question is on the UPML segment, what is the gross margin at the current juncture for this quarter?

Abhishek Khaitan — Managing Director

The gross margin at this, see, actually without the price increase there is a negative impact on the UPs, I talk about the Country Liquor as a whole, there is a negative impact and we are losing presently around 6% to 7% on account of that, which soon will be made good, there is discussions, it is a matter of time, maybe another month or it can be in the next policy, but the point is, there is greater realization that there is a cash loss in that segment and which will be made good, because government is also one of the key stakeholder having larger revenue from this segment.

Vivek Sharma — PGIM India — Analyst

What seems to me the delay? I mean we have been hearing about this UPML price hikes in some time, but where it seems to be the delay and what is the bottleneck?

Abhishek Khaitan — Managing Director

Bottleneck is actually the process sometime, you see this government, UP government have some processes to be followed and they are working completely transparent and all that. So they have the knowledge about how much cost push has been there. It has been in their record, it has been given by representations by the industry forum. So I think there is an assurance from the power that yes, it will be made good, it can be a month, it can be two, three — maybe next policy, that is anybody’s guess.

Vivek Sharma — PGIM India — Analyst

Okay, thanks for taking my question and best of luck for the future.

Operator

Thank you. The next kind of Mehul [Phonetic] from JM Financial. Please go-ahead.

Mehul — JM Financial — Analyst

Yes, hi sir. So my first question was on this non-IMFL segment. Just wanted to understand, obviously in last few quarters we are making losses on that, but in a normalized scenario, how much EBITDA contribution comes from the non-IMFL segment?

Abhishek Khaitan — Managing Director

Traditionally we were making around 9% to 10% on this segment. EBITDA contribution.

Mehul — JM Financial — Analyst

EBITDA contribution, okay and right now you are saying that we are making loss in this segment?

Abhishek Khaitan — Managing Director

Yes.

Mehul — JM Financial — Analyst

At the EBITDA level, okay, okay. And second thing is, I know there is this lot of talk about, now from Diageo and Pernod about removal of mono cartons as an ESG initiative and definitely that helps in terms of reducing the packaging costs also. And. I think mono cartons will be more beneficial in the lower and popular segment, as well as some of these entry-level P&A segments. What is your take on that and do you see the benefit actually playing out in next two-three quarters? Is it a material benefit for you guys too?

Abhishek Khaitan — Managing Director

So first of all. Removal of mono carton becomes important in the regular segment downwards, but as far as premium brands are concerned, we feel that it gives you the premium imagery and it gives you a competitive edge. We are anyway is doing a lot of value engineering around our premium brands, which will give us the desired savings. So as far as removal of mono cartons is concerned, we will go by the market trends and the market requirement. So, as of now, yes, in one of two states we would have removed it, but this will depend purely on-market trend and demand in the future. So we’re not too sure about it.

Mehul — JM Financial — Analyst

Okay, okay. And lastly, just wanted to understand the volume contribution from these new launches. If we remove our traditionally strong brands like 8 PM family, Magic Moments and all, and after that whatever launches that we have done in last two-three years that are in terms — what is the kind of volume mix that is coming from some of these new launches?

Abhishek Khaitan — Managing Director

So I’ll tell you what. We will restrict it to 8 PM Premium Black, this is a segment that we have tapped, we were not present in this, it’s a huge, huge segment and 38% — sorry 37 million cases is the size of the segment. We launched our product in the first year itself, first one and a half years we hit the first million, in the next year, following year, we hit the second million and this year we are likely to hit the 3rd million also, so we are growing at a rate of about 56%, 50% to 55% and the brand is very — has been received very well, it is actually available in more than 20 states and it’s making a dent in that category and segment.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment. Please go-ahead.

Pritesh Chheda — Lucky Investment — Analyst

Yes, sir. Sir on the UP Country Liquor side, what is the gross margin at the company-level that should come in on that price hike?

Abhishek Khaitan — Managing Director

So you are talking about, after the price hikes?

Pritesh Chheda — Lucky Investment — Analyst

Yes, so after the price hike, what is the delta in the gross margin? So what you are at 41.5%, let’s say this quarter, where do you head to if just that comes in?

Abhishek Khaitan — Managing Director

So actually as we said, I said that there is already the cost push and all that data has been already provided to comment. Traditionally we were making 8% to 10% EBITDA margin on that business. And I think that margin is ideally the one where the brand owner, as well as the prices given in the markets are perfect and optimum. So we think after that we should be somewhere between that EBITDA margins. But till the time it happens, let’s hope for the — this thing, let it come out.

Pritesh Chheda — Lucky Investment — Analyst

And the Rampur Dual Feed, when we start utilizing it fully, what is the gross margin benefit on that backward integration? So how much gross margin improvement do we see on this particular asset?

Abhishek Khaitan — Managing Director

Rampur Dual Feed is a 150 KLPD plant which will get converted and based because of that, some 200 basis-points roughly.

Pritesh Chheda — Lucky Investment — Analyst

And this plant is supposed to start in December, when do you see the optimum utilization of this plant? So the optimum utilization comes in 10 days only.

Dilip K Banthiya — Chief Financial Officer

10 days.

Abhishek Khaitan — Managing Director

From the start of the plant, it will be on that.

Pritesh Chheda — Lucky Investment — Analyst

Okay immediate.

Abhishek Khaitan — Managing Director

Yes, yes.

Pritesh Chheda — Lucky Investment — Analyst

So you will be 200 bps pure gross margin expansion on Rampur and you haven’t quantified on Country Liquor what is the gross margin.

Abhishek Khaitan — Managing Director

The alcohol being used out of that will be also going-in the UPML, so I’m talking about as a pure-play of the alcohol being bought from outside to the alcohol being manufactured and that is something around 150 basis points to 200 basis points.

Pritesh Chheda — Lucky Investment — Analyst

Okay and lastly sir. On the Premium & Above, basically the Jaisalmer and Rampur brand volumes. So let’s say, if it is X this year, what is the ramp-up that we’ll see from now till next year? Is it 2 times, is it higher than 2 times?

Abhishek Khaitan — Managing Director

See, as far as Rampur goes, Rampur is strictly on allocation, because the demand is so much, so basically wherever it goes, it gets pre-sold. So, but as we said that we had invested a lot of money into the maturation facility about couple of years back and now next year the volume what we’ll be getting would be three times of the current volumes and which we expect to be told easily. And as far as Jaisalmer goes, we have doubled our capacity and the kind of response we’re are getting, I think Jaisalmer also from current year should be at least two times next year.

Pritesh Chheda — Lucky Investment — Analyst

Okay, so three times in Rampur and two times in Jaisalmer.

Abhishek Khaitan — Managing Director

Yes.

Pritesh Chheda — Lucky Investment — Analyst

And these businesses will be at that level, what percentage of the revenue?

Abhishek Khaitan — Managing Director

Yes that actually is — it’s difficult to tell you, because there are other multiple lever as I said on UMPL and normal, so top line is mixed of so many things. But as we said, absolutely these two brands, three times and two times of the current volume.

Dilip K Banthiya — Chief Financial Officer

Just to give you an example, like Rampur, we are detailing depending on the expansion from INR8,500 to INR18,000 a bottle. And Jaisalmer, we are retailing at about INR3,700 a bottle. Okay, okay. Thank you very much and all the best to you, sir.

Operator

The next question is from the line of Sneha Agarwal from SageOne. Please go-ahead.

Sneha Agarwal — SageOne Investment Managers LLP — Analyst

Thank you for taking my question. Just a small question on the backward integration capex that you have done, that is actually ongoing at Rampur and Sitapur facilities. Sir, generally in the industry, we are seeing several other players also consolidating their plants and in fact going towards a trend of owned plants reducing and rather increase outsourcing, but on the other hand, we are seeing you announcing a capex and going backward integration. We understand from a gross margin perspective, there could be a straight improvement of 200 bps that you said. But from an ROCE perspective, how accretive could it be overall and do you think this is a way forward, I mean from a strategy perspective, is this the right strategy to use capital or this is the best way you could — the capital could be utilized?

Abhishek Khaitan — Managing Director

So as you know that for last seven to 10 years we have not done any capex on our distillation capacity. We have been continuing on our volume in premium category in last six, seven years from around like now it is around 38% and value-wise at 60%. And most of our premium product uses our own alcohol. So first of all, as this capex has been done after a gap of seven to eight years and we are gearing up our self for the future growth, which is going to be there on the premium portfolio of Radico. The UPML opportunity which we explained that for years together the Country Liquor in UP was manufactured out of molasses ENA which is coming out like in pouch.

There will be a grain-based alcohol which will be used for that, it is a 19 million cases industry, which has the large volume, so it a economy IMFL kind of things which is going to be there. So our strategy is, for these capex has been to keep in mind our future growth, the requirement of our alcohol and as lot of alcohol from molasses side, the ethanol blending program, this molasses is going through for ethanol blending, so our security of raw-material, all this put together and we have a single facility catering to around 22% of UPCL market and 30% of IMFL market in UP, so we have to diversify also. So there were a lot of point debated before we entered on capex, though company’s philosophy is not to go on a capex run model, but this has been done after a long-time and for seven to 10 years, we don’t expect to do big capex on any, other than the brand capex.

Sneha Agarwal — SageOne Investment Managers LLP — Analyst

But you also mentioned in the same time that the next three years all of this or most of the capex capacity that was being created will get utilized. So after that —

Abhishek Khaitan — Managing Director

Your voice is very cracking noise [Indecipherable].

Dilip K Banthiya — Chief Financial Officer

You are not clear, could you please clarify the signal.

Sneha Agarwal — SageOne Investment Managers LLP — Analyst

Yes, is it better now?

Abhishek Khaitan — Managing Director

Yes, it’s a bit better.

Sneha Agarwal — SageOne Investment Managers LLP — Analyst

Okay. You also mentioned that over the next three years this capacity will more or less get fully utilized, so subsequently do you think there’ll be more capex pertaining to increasing capacity or will it then again move to outsourcing model?

Abhishek Khaitan — Managing Director

We are presently also outsourcing around 8 crore liters, 7 crore to 8 crore liter of alcohol. The point is, we will continue to do that, but for the first three years, as I said, because of our own consumption in UPML as well as in IMFL, we will be captively utilizing this. But we foresee that after that we are not to do the capex for next seven to 10 years on distillation.

Dilip K Banthiya — Chief Financial Officer

See, let me tell you, UP is a market which is the most progressive state in the entire country, today it’s growing at about 15% to 18%. The capex that we have done is keeping in view our requirement over the next three years, so we don’t see this as a big challenge and that will come and bring us lot of economies.

Sneha Agarwal — SageOne Investment Managers LLP — Analyst

Sure understood. Thanks.

Operator

Thank you. The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go-ahead.

Kaustubh Pawaskar — ShareKhan BNP Paribas Group — Analyst

Yes, good afternoon sir. Thanks for giving me the opportunity. Sir, my question is, or earlier on the rationalization of the regular brand volumes, so you said that it was done basically to safeguard some of your margins. So, what kind of benefit you got in this quarter because of this rationalization and whether this will continue in the quarters ahead or with price increase you expect the regular volumes to come back and the volume growth in this space will be around 3% to 4%. Is it a right understanding?

Abhishek Khaitan — Managing Director

So the rationalization in the regular category is a mix of that where the margins are wafer thin, we have cut down on our volumes. Secondly, in certain listing state, when we have given the brand on royalty, there was [Technical Issues] category brand in that, so that has also come down in the royalty volumes and in the regular category base, that’s why you see the double impact of that in this quarter.

Kaustubh Pawaskar — ShareKhan BNP Paribas Group — Analyst

Okay, so from Q3, I think it should come back on track and the growth we are not expecting —

Abhishek Khaitan — Managing Director

I say that from actually ’23-’24, basically we have been growing on the regular category in a single-digit, and in the Premium P&A category, about 15% like this first six months there has been in the range of around 22%. So we will continue to grow our P&A category more than 15% and regular in normal state of affairs should grow by 5% or so.

Kaustubh Pawaskar — ShareKhan BNP Paribas Group — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Gaurav Lohia from Bowhead India. Please go-ahead.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Yes, hi, am I audible?

Abhishek Khaitan — Managing Director

Yes, audible.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Yes, thank you for the opportunity sir. Sir, my question is pertaining to royalty volumes. So out of this 1.03 million cases, how much would be P&A volume and how much would be regular volume, just an estimate would help.

Abhishek Khaitan — Managing Director

Yes, so it is 60% regular and 40% premium, P&A.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Okay, 60% regular and 40%. And if I adjust for that, so still the P&A volume growth would be north of 30%, 35%, so is that number correct?

Abhishek Khaitan — Managing Director

Yes, it is added, it will be much more, it’s a math, actually 40% is added then that premium growth will be plus 35%.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Understood. And sir, how much of volume we would have lost in CSD and certain other markets because of the margin pressure, that we willingly let go?

Abhishek Khaitan — Managing Director

How much volumes would have left? Yes, so we have done this rationalization in CSD and some markets, I think Sanjeev.

Sanjeev Banga — President – International Business

Kerala, it’s in Kerala.

Abhishek Khaitan — Managing Director

Yes, yes, but some of the states, southern states, where the margins have changed. And as the pricing will come, we’ll again relook at these markets and can ramp-up if we make money.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Yes, so I understand. So, I am just asking, how much of volumes we would have — would have been there because of this structure? If we had not let go of these volumes, what the actual volume would be?

Abhishek Khaitan — Managing Director

About 4% to 5% of the total volumes.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

4% to 5% of total volumes?

Abhishek Khaitan — Managing Director

Yes.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

And is it largely regular or P&A?

Abhishek Khaitan — Managing Director

Regular.

Gaurav Lohia — Bowhead Investment Advisors — Analyst

And sir, when we say that our Rampur volumes will triple next year onwards, do we mean FY ’24 or FY ’25, because onwards would mean FY ’25 right?

Abhishek Khaitan — Managing Director

So, triple, what we are saying, in FY ’23-’24. That is next year. Hello?

Operator

Mr. Gaurav, does that answers your question?

Gaurav Lohia — Bowhead Investment Advisors — Analyst

Yes, clear.

Operator

We’ll move to the next question, which is from the line of Apoorva [Phonetic], an Individual Investor. Please go-ahead.

Apoorva, please go-ahead with your question, your line is unmuted. As there’s no response, we’ll move to the next question which is from the line of Vaibhav Gupta from Bowhead Investment Advisors. Please go-ahead. The participant has left the queue, we’ll move to the next question, which is from the line of Miraj from Arihant Capital, please go-ahead.

Abhishek Jain — Arihant Capital Markets — Analyst

Hello sir, this is Abhishek Jain from Arihant Capital. I just want to know one thing, have you taken any price hike in UP? [Speech Overlap]

Abhishek Khaitan — Managing Director

Yes, UP we got a price increase in the IMFL segment of about close to 10% overall. If we take-off on our total volume, so that we got it in the 1st April. And as far as the non-IMFL business goes, which we expect the price increase to come.

Abhishek Jain — Arihant Capital Markets — Analyst

So is there any approval from the state government for the non-IMFL to phase it?

Abhishek Khaitan — Managing Director

Yes, in due course of time it will come.

Dilip K Banthiya — Chief Financial Officer

So they are inclined to — they appreciate the cost push, so they’re inclined to giving it to us, but it’s a matter of time.

Abhishek Jain — Arihant Capital Markets — Analyst

Okay. Should we expect in by end of this quarter sir?

Abhishek Khaitan — Managing Director

It could happen at the end of — in the third quarter or in the new policy, it could go any which ways.

Abhishek Jain — Arihant Capital Markets — Analyst

Okay, thank you, sir. Thank you very much.

Operator

The next question is from the line of Sonaal Kohli from Bowhead. Please go-ahead.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, thank you for this opportunity. I had two queries. Firstly, after this ramp-up of Rampur, is my understanding correct that in 2000 — you have another round of increase in volumes with availability [Indecipherable], and in which years would that happen and how much would be the increase?

Sanjeev Banga — President – International Business

See, in terms of Rampur, there is — we tripled our malt capacity or malt distillation capacity a couple of years ago. We increased our malt maturation capacity also and we are further increasing the malt maturation capacity in Sitapur. So a lot of malt is under maturation and aging. As we grow along, the volume and the quantity there will be available will keep increasing. So we do expect in the next few years it has become a substantially volume.

Abhishek Khaitan — Managing Director

Mr. Sonaal, further like —

Sonaal Kohli — Bowhead Investment Advisors — Analyst

[Speech Overlap] in five years?

Sanjeev Banga — President – International Business

Yes, it’s an ongoing process, malt maturation takes a long-time and we’ve been maturing malt for last so many years, so it will keep on adding year-on year.

Abhishek Khaitan — Managing Director

Just to give you a sense of little numbers, like say, next year the volume of Rampur should become three times, and say in the matter of four to five years, it should become about close to six times of current volumes, six to seven times of the current volumes.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

And sir would your profitability also increase as you start distilling more in India, because the distribution margins would be lesser?

Abhishek Khaitan — Managing Director

Absolutely, Absolutely, Absolutely. Right now there is no stock in India because we don’t have the Rampur so much, so.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

You just have double cask Rampur in India, right? You don’t have a premium version?

Abhishek Khaitan — Managing Director

Yes.

Sanjeev Banga — President – International Business

Yes, that’s the only expression that’s currently available in India. Internationally we have 8 expressions.

Abhishek Khaitan — Managing Director

And also very selectively.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

Sir, my second query was, let’s say we wake up in 2028, 5 years after this year, obviously over a long period all these inflation issues get sorted-out, price hikes happen with a lag on the sector. Is it possible to conceive in that you, let’s say, five years after this financial year, your top line being two times of what it is in financial year ’23 and your EBITDA margin being 20%, or am I asking for too much?

Abhishek Khaitan — Managing Director

With 15% CAGR max worked out to be that what you said.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

And in terms of EBITDA margin, with this backward integration and all this premiumization story and inflation being pass-through over a period of time because your margins used to be 17%, 18% even before this — 16%, 17% even before all this premiumization and the backward integration, so is 20% too much to ask or that’s a fair — more than reasonable assumption?

Abhishek Khaitan — Managing Director

That is what exactly we are aspiring for, but like what we’ve seen with this inflation, right now to predict itself is like a Herculean task, but definitely we are aspiring for that kind of margins in five years easily.

Sonaal Kohli — Bowhead Investment Advisors — Analyst

20% easily. Understood. Thank you so much.

Operator

Thank you. The next question is from the line of Apoorva, an Individual Investor. Please go-ahead.

Apoorva — Individual Investor — Analyst

Yes, hi, can you hear me now?

Abhishek Khaitan — Managing Director

Yes, yes, audible.

Apoorva — Individual Investor — Analyst

Just, despite premiums brands, why are Radico brands not available in most of the clubs and bars in Mumbai despite those brands available at the retail wine shops. I don’t know whether it’s the same with the other cities and states. But what’s the strategy there actually?

Abhishek Khaitan — Managing Director

So let me tell you, see we were constantly — we started from the regular segment and we are upscaling to the premium segments. In the last few years we have been able to now have more premium brands like 8 PM Black, Morpheus, Magic Moments, Rampur Single Malt, Jaisalmer. So now we have a whole lot of premium brands and our strategy is to now penetrate into the on-premise, which is clubs, bars, lounges in the years to come. So that is what, earlier we didn’t have the complete portfolio, but today we do have, so that’s one area that’s going to give us phenomenal returns in the year ahead.

Apoorva — Individual Investor — Analyst

Okay, thank you. And the other question is, recently there has been a few states decreasing exercise on imported spirits, so does that affect you?

Sanjeev Banga — President – International Business

Can you repeat the question please?

Apoorva — Individual Investor — Analyst

Recently there have few states who been decreasing exercise on imported spirits, so does that affect you?

Abhishek Khaitan — Managing Director

See, truly speaking, let me tell you — I have already told you that Radico has been launching products breaching the market leaders position. For example, Royal Ranthambore has been launched above the price point by one of the popular scotch whiskey, so really if you ask me the kind of premium brands we have and what are in the pipeline, we really are not concerned about it so much.

Apoorva — Individual Investor — Analyst

Right. Okay thank you that’s it from my side.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Abhishek Khaitan — Managing Director

So thanks everybody to be on-call and we have continued to deliver on our premiumization strategy, which is reflected in our strong P&A volume growth during the quarter. All our core premium brands are seeing strong growth. The traction of our luxury brands Rampur Indian Single Malt is strictly which is upon allocation. And Jaisalmer Indian Craft Gin is above expectation, next year onward Rampur allocation will increase and we will have already expanded our gin distillation capacity to cater to the growing demand.

There is near-term margin pressure due to the commodity inflation, but we are confident of maintaining our long-term margin expansion trajectory with premiumization of our portfolio and backward integration. We look-forward to interacting with you in our next earning call. If you have any queries, please follow up with us and please do feel free to write to us. Thank you, stay safe and healthy.

Operator

[Operator Closing Remarks]