Som Distilleries & Breweries: Q1FY25 Earnings Call Highlights

Focus on brand building, capacity expansion, & entry into new markets positions it well for continued growth. Challenges remain in managing input costs, seasonality & adapting to consumer preferences

Money Muscle

Sep 23, 2024

somindia.com | NSE: SDBL

Key Takeaways for Investors

Strong Q1 Performance:

SDBL reported strong Q1 FY25 results, with total income growth of 33% YoY, reaching Rs. 5,137 million.
Beer volume grew by 32% YoY, reaching 86.8 lakh cases, driven by strong performance of flagship brands Hunter and Power Cool.
IMFL volume increased by 14% YoY, reaching 2.5 lakh cases.
EBITDA grew by 30% YoY to Rs. 648 million, with a margin of 12.6%.
Net profit increased to Rs. 376 million, representing a margin of 7.3%.
Debt reduction is significant, with gross debt at Rs. 1,560 million and net debt at Rs. 1,400 million.

Guidance for FY25

Revenue Target: The company anticipates net sales between Rs. 1,500 crore and Rs. 1,600 crore.
EBITDA Margin Target: EBITDA margin is projected to be in the range of 12% to 13%.

Key Growth Strategies

Market Expansion: Focus on increasing market share in key markets and expanding presence in high-growth markets like Rajasthan, UP, Jharkhand, and Delhi.
Capacity Expansion: A Rs. 35-40 crore capex is planned for the Odisha plant, expected to be completed by April 2025.
Premiumization: The company plans to launch a premium product this financial year, positioned at a price point similar to Kingfisher Ultra.
Cost Optimization: The company is targeting a 12% to 13% EBITDA margin, despite stable glass bottle prices.

Key Themes and Insights

Strong Growth Momentum:
- SDBL achieved impressive volume growth in both beer and IMFL segments, outperforming the industry growth rate of 8% - 9%. This is attributed to:
- Strong brand performance, particularly Hunter in Delhi and Power Cool in Karnataka.
- Successful market share consolidation in key markets and expansion into new high-growth markets like Rajasthan, Delhi, and Jharkhand.
- Increased capacity utilisation, reaching 100% in MP and Odisha plants.
Capacity Expansion and Future Growth:
- SDBL plans to invest Rs. 35 - 40 crores for capacity expansion in Odisha, aiming for completion by Q1 FY26.
- The company is actively exploring acquisition opportunities and potential greenfield projects for further expansion.
- Management is targeting a sustainable growth rate of 22% - 25% over the next three years.
Premiumisation Strategy:
- SDBL will launch a premium beer brand priced similarly to Kingfisher Ultra within FY25.
- This strategic move aims to enhance brand perception and recognition, though significant volume contribution is not initially expected.
Financial Health and Capital Allocation:
- SDBL demonstrates strong cash flow generation, reflected in its reduced debt levels.
- Currently, there are no plans for stock buybacks or dividends, as the focus remains on growth and expansion.
Challenges and Considerations:
- While raw material prices have stabilized, glass bottle costs remain a key concern.
- SDBL faces the challenge of replicating strong Q1 performance in the seasonally weaker upcoming quarters.
- The company's reliance on glass bottles over cans, driven by consumer preference, could present challenges in cost management and adapting to evolving trends.

Future Outlook

Sustainable Growth: The company anticipates a 22% to 25% YoY growth rate for the next three years.
Industry Growth: The industry growth rate is estimated to be 8% to 9%.

Conclusion

SDBL delivered a strong Q1 FY25 performance, exceeding market expectations. The company's focus on brand building, capacity expansion, and strategic entry into new markets positions it well for continued growth. However, challenges remain in managing input costs, navigating seasonality, and adapting to evolving consumer preferences.

Som Distilleries & Breweries Limited FAQ: Q1 FY25 Performance

1. How did Som Distilleries & Breweries Limited perform in Q1 FY25?

Som Distilleries & Breweries Limited reported a strong first quarter of fiscal year 2025, with total income reaching Rs. 5,137 million. This represents a 33% growth compared to Q1 FY24. The company achieved beer volumes of 86.8 lakh cases and IMFL volumes of 2.5 lakh cases. Key highlights include:

Revenue Growth: 33% YoY increase in total income.
Beer Volume: 86.8 lakh cases, a nearly 32% increase YoY.
IMFL Volume: 2.5 lakh cases, a 14% increase YoY.
EBITDA: Rs. 648 million, a 30% YoY increase, with a 12.6% margin.
Profit Before Tax: Rs. 560 million, a 31% YoY increase.
Net Profit: Rs. 376 million, with a 7.3% margin.

2. What were the key drivers of this strong performance?

Several factors contributed to the company's impressive Q1 FY25 results:

Market Share Gains: Increased market share in key markets.
New Market Expansion: Substantial progress in markets like Rajasthan, Delhi, and Jharkhand.
Strong Brand Performance: Flagship brand Hunter performed well, along with Black Fort and Power Cool.
High Capacity Utilization: Operating at near full capacity in key facilities.

3. What is the company’s outlook for the rest of FY25?

Som Distilleries & Breweries Limited is targeting net sales of Rs. 1,500 crores to Rs. 1,600 crores for the full fiscal year. The company also aims to achieve an EBITDA margin in the 12% to 13% range.

4. What is the company's plan for capital expenditure (capex)?

Som Distilleries & Breweries Limited has allocated approximately Rs. 30–40 crores for a capacity expansion project at its Odisha plant. The company expects to begin this expansion in December 2024, with completion anticipated by April 2025. Additionally, the company is actively exploring potential acquisition opportunities to enter new markets and might consider greenfield projects in the future.

5. What is Som Distilleries & Breweries Limited's approach to premiumisation?

The company plans to launch a premium beer product during FY25. While this premium offering is not expected to be a significant volume driver, it will be strategically important for enhancing brand perception and the company's overall image. Management believes that focusing on the mass market segment will remain key to the company’s success.

6. What are the company’s growth projections beyond FY25?

Som Distilleries & Breweries Limited is targeting an annual growth rate of 25% to 30% over the next two to three years. The company is confident in sustaining this growth trajectory based on its strong brand portfolio, market position, and expansion plans.

7. What is the current debt position of the company?

The company has shown a significant improvement in its debt position. As of June 30, 2024:

Gross debt decreased to Rs. 1,560 million.
Net debt improved to Rs. 1,400 million.

This strong cash flow generation underscores the company’s commitment to a healthy balance sheet.

8. Does Som Distilleries & Breweries Limited have plans for stock buybacks or dividends?

The company is currently in a growth phase and does not have immediate plans for stock buybacks or dividend distributions. The focus remains on investing in capacity expansion and pursuing strategic growth opportunities.

Source: Link to Earning Call Transcripts

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