Tilaknagar Industries Limited Q1 FY15 Earnings Conference Call Transcript August 19, 2014

Transcription

1 Tilaknagar Industries Limited Q1 FY15 Earnings Conference Call Transcript August 19, 2014 Urvashi Butani Thank you. Good Evening, everybody, and welcome to Tilaknagar Industries Ltd s Q1 FY15 earnings conference call. Today, we have with us in the call Mr. Deputy Managing Director of Tilaknagar Industries, Mr. Srijit Mullick CFO and Mr. Ajit Sirsat GM, Finance and Accounts. We will commence this call with opening remarks from the management team followed by an interactive question-and-answer session. Please note that some of the statements made on today s call may be forward-looking in nature and a note to that effect was sent out to you earlier. I would now like to invite Mr. to share his perspectives with regards to the company s performance for the quarter ended June 30, 2014 and the opportunities going forward. Over to you, sir. A very good evening and thank you for joining us today on the conference call. I shall initiate my remarks by highlighting TI s performance followed by our outlook for the year. Post that Mr. Srijit Mullick will take you through the financial details. In Q1 FY- 15 TI reported net sales at Rs.1638 million and PAT of Rs.309 million. Our total volume stood at 3 million cases.. I would like to highlight a few factors that must be kept in conjunction with this performance. The quarter continued to present a difficult operating environment especially in Tamil Nadu. As many of you must be aware we had a situation of restricted supply in spite of demand in the region on account of bottling constraints. Amid this backdrop, another issue which has influenced our volumes this quarter was the state bifurcation of Andhra Pradesh which is a key market for TI. While Q1 was subdued in this region, as we speak we are experiencing normalisation in sales in AP and Telangana and are confident of growth patterns gaining an upward trajectory as these are highly relevant regions for TI. On a broad base during the quarter we have steadfastly leveraged the strengths and equity of our premium brands, as a result there is softness in total volumes delivered this quarter. So while we have felt the impact of this strategy on sales, it has enabled us to generate higher realisations and to a certain help mitigate the pressure of higher raw material expenses. In a tough operating environment, our diversified brand basket further underscores its strategic importance and gives us the flexibility to constantly review our brand mix in terms of regular, semi-premium and premium in Page 1 of 16

2 order to derive a combination which measures up on our goal of delivering profitability with growth. Coming to our segments, as you all may be aware South India is the dominant consumption market for all liquors especially for Brandy, and for reasons I discussed above. Brandy witnessed a moderation in growth but at the same time it continues to be the cornerstone of our business. Tilaknagar Industries is largely present in the premium space in Brandy with 53% market share in the premium space and we are determined to fortify our dominance in this space in the coming quarters. During quarter for each of our business segments, our modus operandi has been aligned to consolidating our premium presence and to continue in the premiumisation drive. To put it into context, in our Whisky segment, we have focused on a premium brands like Senate Royal and Mansion House Whisky. In the Rum segment, it is noteworthy to highlight that our millionaire brand White House Rum continues to gain traction. The Vodka and the Gin segment is another exciting area where we see the opportunity to go Tilaknagar Industries own brands and our confidence further gains merit with the recent acquisition of IFB Agro s brands. For the benefit of all, during Q4, we have acquired IFB Agro s IMFL portfolio which includes Volga Vodka and Blue Lagoon Gin which are IFB Agro s most popular brands in Eastern Indian markets of West Bengal, Assam, and Odisha. In Q1, we were engaged with integrating the brands into our system and hence saw limited sales. As a result, they have had a marginal impact on overall performance, but going forward, we are confident on leveraging its brands strength to penetrate the East and also extend growth of these brands to other regions with our distribution scale. As we move into the remainder of the year, though we are coming off a difficult quarter, we anticipate our business strategies to fructify positive results in the second half of this fiscal. Our business is founded on solid fundamentals and we have come a long way over the many years in building our brands and developing our work philosophy and an important fact to highlight is that our target for growth goes well beyond quarter-overquarter results. There is no question that the industry working scenario remains challenging and the immediate quarter will also witness the percussions of the current operating scenarios. However, with meticulous revenue and segment mix management, we are confident of our future success and our overall brand performance and our strategically focused to gain momentum into areas that will have the most impact on our financial and operating results. We are also working towards our agenda to deleverage our balance sheet in FY-15 and remain committed towards it this end. Thus going forward, taking a long-term perspective, we will deepen and expand our brand strength to realize growth and enhance profitability. With Page 2 of 16

3 that, I would request Srijit to give you a detailed view of our financials. Thank you. Srijit Mullick Thank you. I shall quickly highlight our financial performance for the first quarter ended June TI s total revenues stood at Rs 2,140 million as compared to Rs 1,801 million in Q1FY14. This includes other Operating income which accounts for VAT refunds of Rs million in Q1 FY15 and Rs million in Q1 FY14. TI s net sales in Q1FY15 stood at Rs 1,638 million. As mentioned earlier, couple of factors that are accountable towards the sales performance are - the constrained volume performance led by meagre sales in Tamil Nadu due to bottler issues in combination with the AP-Telangana bifurcation. However the Company s semi premium and premium brands portfolio has enabled us to register higher realization, offsetting to a certain extent the increases in costs. EBITDA for the quarter and year stood at Rs 676 million while our PAT stood at Rs 309 million. During the quarter higher ENA costs posed a challenge.. A couple of other factors that have swayed our overall profitability include increased financial costs and also higher depreciation costs in Q1 which is a result of the statutory change in the Companies Act along with the deprecation cost aligned to the acquisition of IFB Agro s brands. We believe our model has the inherent strength to surpass the current testing environment. We remain cognizant of the market dynamics and are able to constantly review and adapt our short term goals keep intact our long term success targets. As we execute our current strategy to focus on brands with high growth potential in light of the challenges and monetize our premium portfolio, we are confident of generating positive results as we move ahead. With this I would request the moderator to open the forum for a question and answer session. Moderator Thank you very much, sir. Ladies and Gentlemen, we will now begin the question-and-answer session. Participants are requested to only use handsets while asking a question. Sir, my first question is on the Tamil Nadu market. The issue of bottling which you highlighted, how it is for the other players and our growth has been extremely challenging this quarter, so where the markets are shifted and will it come back and your bottling issue gets resolved? Abneesh, Tamil Nadu continues to be very islanded market. The market shares have gone to some local players who do not have much brand equity outside Tamil Nadu and any of the players whether it is United Spirits or Page 3 of 16

4 others, there are supply side issues and the bottlers tend to try to push their brands through a supply-side push. My question is, is it impacting all the organized players? It would impact us more than organized players because we are in the Brandy segment and Tamil Nadu is very heavily routed in Brandy. But what I am driving at is our dependence on Tamil Nadu is largely reduced; about 10% of our overall EBITDA depends on Tamil Nadu unlike 3-4 years back when about 25% to 30% was dependent on Tamil Nadu. But Tamil Nadu is a place where once the supply side issues are taken off there is a heavy demand for our products, and there is heavy business opportunity for our products but we would give a very cautious outlook for this eventuality. Sir, this bottling thing again happened because of government regulations? No, in fact let me split into two segments; if you recall some concalls back, the premium segment in Tamil Nadu was getting curtailed and it was being pegged to the sale of non-premium brands or regular brands. But there was a judgment around March-April where the premium brands sold in Tamil Nadu could be freely sold. Our company is 100% premium and the premium market in Tamil Nadu is 25% of the total market. But this time around, it has got nothing to do with TASMAC. The bottler with which we were bottling; he also bottles for other major national companies, his operations went down due to his internal financial situation. So, that has been a debacle that has happened for him in Tamil Nadu. With that the branded players could not operate through that bottling unit. And this is not getting resolved quickly, some other supplier or financially this existing one, he remains in problem? In Tamil Nadu, like this bottler, there are other bottlers who are also struggling and it is very wide ranging in scope if I try to explain what is exactly happening in Tamil Nadu, we can do it offline. But no branded player is really gaining and no bottler is also really gaining in Tamil Nadu. So, some of the non-national players are pushing their premium brands by also pushing their local brands. But, I think it is becoming some kind of a zero sum game out there, but suffice it to say if there is any company which has the largest demand, it is ours and that is the reason our interest levels in Tamil Nadu continue to be very high and we are always looking at ways of entering Tamil Nadu through tie-up arrangements which is our foremost priority because otherwise buying out something in Tamil Nadu will be a very costly exercise. Page 4 of 16

5 Sir, two follow-up questions on this; one is you mentioned the judgment instead of having a favorable impact does not seem to be having any impact if at all adverse. So, that judgment, what is happening there, is it a washout? The judgment was about telling the distilleries that there will be no curb on the premium brands. That would have helped us because about the same time last year, we were selling 60,000 to 70,000 cases per month whereas our demand used to be 1,10,000 and 1,20,000 cases. This year even though those curbs have been lifted but the bottler who was supposed to make those 1,10,000 and 1,20,000 cases himself has folded up. Just to clarify, if the bottler would not have had an impact, would our growth have been much better? Our growth would have been much better. So, you are saying the regulation is actually working? I think some of the curbs on the premium brands have been lifted. Second follow up is United Spirits has appointed a third-party in Tamil Nadu. How is it that impacting the other players? United Spirits range of brands is between Prestige and Regular in Tamil Nadu. Our range of brands is premium in Tamil Nadu. So, United Spirits might have given it to someone on some basis where things would have had to be done at a very low cost. So, they would have outsourced the whole place and maybe just nominally booking the sale or something. In our case, it is a business for us. We are not competing head-to-head. United Spirits brand and our brands are in different segments. We are in a higher segment. But, no plans ever to give to third-party in Tamil Nadu, does it help in anyways? It might be helping in some other way, but not necessarily in a business way. If it is one-way split itself is very bad, I do not know how two-way split is going to help anybody. Sir, liquor is a state-level subject. Now AP-Telangana gets divided into two states. So how is our manufacturing capability in both the states, because if you have in only one state and then you have to send to the other state, there will be taxation? You are absolutely right. This is what exactly happened in the Q1, it happened for many companies. If they are doing a concall, you can ask the Page 5 of 16

6 same question, you will get the same answer, with one half of the state having more supply and the other half of the state having more demand. But, we have solved it. As I said in my opening remarks, this was something like a 50 to 60-days phenomenon that happened in the Q1 where both the states did not even have legislation to send from one side to the other side, and as we speak, that has stabilized, even July got stabilized. For your information, we posted a highest ever number for a flagship brand in July. What is the regulation now? The regulation is simple, if you send from one state to another state, there is some levy that is coming in, and we have manufacturing facilities both sides, so, we are balancing the capacities out. If we are having 50 on one side, 150 another side, now we are making it So, you are tied up with some bottlers? We have our own facilities in AP, we also have tied up with our bottlers and we also have facilities outside APs to bring it into AP. Sir, my last question is these two problem states in Q1 have been there, but in other states, when do you see growth reviving because if you see sentiments are likely to recover. So, for the industry and for you, when do you see growth reviving in say double-digit volume, do you see that happening in FY- 16? No, Abneesh, one has to take a very cautious view on the volumes and the industry itself. I would not hazard a growth for any of the industry players but if they want to keep selling brands at completely unprofitable prices, the government is only too happy to take those volumes and take the taxes on those volumes. But that is going to stop for the simple reason that Diageo is not going to let that thing happen in the industry for too long. But not done till now, what is stopping them? No, they have, in fact, wherever they have started doing that we can see those effects happening, we see the industry growth is actually coming down; the industry growth is very flat. If you take this year, it is not even done 2%. Last year itself the whole industry was only 2% growth. The answer to the whole liquor space is going to come from margins, it is not going to come from volume. I repeat, the fortunes of the liquor industry will come from margins, because the working capital requirements are very high to move volumes. So, if the margins cannot be made, it will be very difficult to sustain the volumes, and that is the better off shedding some volumes if they cannot pay for themselves even from a working capital cost point. I know my answer is a bit dizzy, but that is the crux of the issue. That was to Page 6 of 16

7 answer your point that the fortunes lie in the volume? I am afraid not. The taxes lie in the volumes. The fortunes lie in the rate. Moderator Manish Pushkar Srijit Mullick Moderator Just one clarity if you can give, you mentioned Diageo is taking action in some places, in which states and so obviously they would be exiting the lower end, so is the competition then not capitalizing on it or because it is not profitable, no one is entering that bracketed space? That will be part of our strategy, so, I will not be able to comment on what is happening, where we are keeping watch, so, I am afraid I am constrained not to reveal anything more than what I have already said. But you have seen that start, right? Absolutely. Thank you. Next question from the line of Manish Pushkar from PhillipCapital. Please go ahead. My question is what is the VAT refund mechanism? And second is how much subsidy or VAT refund you get per case? Is it for all the products like Vodka, Whisky, Rum, or is it for some specific product? How much VAT refund you are expecting FY16 and FY15? To explain the mechanism of VAT refund, it is linked to the investments that have been made in a project in Maharashtra and whatever sales tax is collected and paid to the government on the sales in Maharashtra, that is the amount that is refunded to the company subject to the maximum investment that has been made and eligibility was Rs.250 crores and the time period is seven years and it is irrespective of any product, it does not depend on the category, it has to be sold in Maharashtra. So far as TI is concerned, we have about Rs.49 crores VAT refund for sales in the year which we will be getting in After the end of the year normally we make an application and once that is sanctioned it is disbursed to the company. This is basically the VAT refund mechanism that is currently working. Thank you. The next question is from the line of from IIFL. Please go ahead. I just wanted to understand two things. As you said that the TN situation has kind of come under pressure because of the bottler issue while there has been some improvement in the legislative part. Sir, just wanted to understand, how have the margins been specifically in that geography and has that been the reason why ex of the VAT refund, our margins have come under stress on an EBITDA per case basis. Page 7 of 16

8 Srijit Mullick You are right, our margins have largely been impacted because of Tamil Nadu for us. Tamil Nadu by and large is not a very profitable market, if you take the average volume of the regular products. But we are in a range of products where our profits are reasonably high. As I said before, I say it again, we are in the Super Premium and Premium Brandy space in Tamil Nadu. So, the loss of Tamil Nadu is pretty much accounting for 80% to 90% of our EBITDA loss this quarter. The issue has been the fact that the bottler kind of who we were depending on could not come through for us. That has been the key issue, right? Sir, it is something that was not in our hands. How do you see it going forward sir, if you could just help us as in how long this impact can hurt us? Tamil Nadu salience to our total EBITDA as I said at present is not more than 12% to 15%. We are confident of overhauling the Tamil Nadu loss in the other states. But even with that, I would say that since the opportunity is very high in Tamil Nadu, there are two ways of doing it, either you go and acquire something in Tamil Nadu or you continue trying your tie-ups in Tamil Nadu. We continue to explore both the options. All the risks have to be commensurate with our resources. So, we have to be a bit circumspect about what we would like to spend to subscribe to the opportunities. So, we would continue to try and tie up. But this time it was a negative surprise because the bottler having his own financial issues, not only stopped for us, for himself also in many other companies and it is not so easy for in Tamil Nadu to go from one distillery to another because there are only 9 distilleries and volumes are rationed out to those 9 distilleries, so, those issues are there. So it might take some time to actually get someone who might offset for some. Sir, can you give us any timeline or it will be difficult to do that sir? It would be speculative in nature. It is something could just happen at any point in time The second thing I wanted to understand is in VAT refund that is claimed, is it on the back of our own volumes or has there been something coming in from Pernod? It is a combination of both. Our sale of our own products and contract bottling that we do for Pernod, both qualify for the VAT refund. Sir, would it be possible to share the volumes that have happened in the last year which have kind of been from Maharashtra or for to Pernod in particular? Page 8 of 16

9 Ajit Sirsat Ajit Sirsat Ajit Sirsat Srijit Mullick Ajit Sirsat Moderator Amit Sharma Amit Sharma Avi, for Pernod last year we did on an average around 25,000 cases per month. And our sales as far as Maharashtra is concerned is 2% of our total volumes. Thanks Ajit. So, how should I see the ramp up going forward? That is what I was trying to get to on this one. Pernod at present also the trend remains more or less same. So, even if we double the volumes of Pernod, our VAT refund which is around Rs.49 crores which pertains to the year FY14 sales would actually double. So the trend as of now is cases per month. Uptick kind of will remain in the course of how it will go for the next year in terms of other operating, right sir? Yes. What is the current debt levels and CAPEX outlook for the current year and? The current debt levels are the same as it was at the end of FY14; it is around Rs.835 crores. CAPEX, actually as we have mentioned earlier also we are done most of our CAPEX for our capacity in Shirampur. What we are currently incurring on capital expense is the routine CAPEX And that would be sir, in the range of? Around Rs.15 crores to Rs.20 crores a year. Thank you. The next question is from the line of Amit Sharma from Walfort Financials. Please go ahead. You have mentioned that there was only 2% kind of growth in industry last year. So, any internal estimates as to how the growth would be this year and how are we going to perform within the industry? My own estimate is growth will be at best flat for the industry. And we would try to give if ending flattish would be good news in itself. But having said that, I think de-growing the top line to strengthen your EBITDA is possibly an objective we take and we might follow that. I understand that sir, but is that kind of strategy that we have been following for the past one year and one-and-a-half years? Most liquor companies have started what they will say percentage of Prestige plus brands and percentage of Premium plus brands, the salience of Page 9 of 16

10 that brands in their portfolio. Already we enjoy an incumbent high Premium plus salience. Our salience went from 50% to 55% year on year, that is 50% of our volumes are coming from our Premium segment, the first quarter it has become 55%, my guess is if anything this salience is going to increase and on the overall volume, I will hazard a growth between (-10) and 0, but on the Premium segments, there would be a growth. Amit Sharma Amit Sharma : Amit Sharma: : This de-growth kind of a situation that you are expecting or maybe strategizing, is it taking into account Tamil Nadu situation or excluding Tamil Nadu? No, if you take every state, no state is really throwing up some 20%, 30% or no state is throwing up (-20%), (-30%), it is the uniform single digit that is going across every state. Today, like I again say, a lot of liquor companies whenever they posted 10%, 20% growth have been selling a dollar for 99 cents. The brands have been selling on a price that it is almost like distributing them for free of cost. But those things will change. The reason for those things is changing is the largest player today who has the mandate, the power and also has the intent to change it. But we are talking about the Premium kind of a brand and we are talking about that segment wherein the margins are not likely to fall significantly or maybe sustained, or maybe they are likely to increase from here on? Those volumes I am sure we will be able to post a growth, in fact, we will be able to give you one or two good news once the three quarters are over. As we said the we withdrew Madiraa Rum which was extremely low priced, which used to be a 2 million case brand for us, we knocked off a million cases and we substituted that by White House Rum which is the second most Premium brand in Kerala which is the largest rum drinking state in India with 30% of the entire rum of India is drunk in Kerala. So, we are neckto-neck with Celebration Rum having posted a millionaire brand but these are some of the snippets I am talking about, we will be able to show you much stronger performances in the Premium and Premium Plus categories, but if you take the overall volumes we will be cutting some of our tail and shedding some of our tail. Just a bit more about the industry. We have talked about Diageo quite openly. Can you in a way not exactly but to a certain extent quantify what kind of margins would they be looking at as per the industry in India and how much would that impact the industry as far as the margins is concerned? I am sorry, I will not be able to speculate on somebody else s strategy. I cannot testify to what he might want or what he might not, but we can always have a chat offline. Page 10 of 16

11 Moderator: Jasdeep Walia: : Jasdeep Walia: : Jasdeep Walia: Ajit Sirsat: Moderator: Arpit Kapoor: Ajit Sirsat: Arpit Kapoor: Thank you. The next question is from the line of Jasdeep Walia from Kotak Institutional Equities. Please go ahead. Sir, how do you see the pricing environment for liquor this year? I am guessing last year because of the elections price increase would have been difficult to come by. So are you seeing the change in that respect in the sense that would it be easier for you to take price increases this year? A good question, I am very happy to inform you that we have got a couple of price increases to an extent of 6-10% one in the state of Odisha and another in the Canteen Stores Depot(CSD). To answer your question, I think price increases not coming in an election charged year did not actually come as a negative surprise. Last one-and-a-half-years there was a bit of limbo even in the state governments, and price decontrol is a decision that many establishments kept putting off, but I think they will start applying themselves to that. We already see something happening, and it has already happened in Odisha, which happened about a week back, and it is happening in CSD, and it will go forward it should happen in other southern states also. So which states are in negotiation for a price increase? It should come in Kerala, Tamil Nadu and Andhra Pradesh, rest of it should happen sooner than later. How do you see the demand/supply situation in ENA this year and what is your view on the prices of ENA this year particularly on account of the fact that government has increased blending targets and there is a stand-off between sugar mills and the government in the state of UP? ENA prices for us in this quarter has been around Rs ENA prices are expected to go up. So you may find around 7-8% year-on-year increase. Thank you. The next question is from the line of Arpit Kapoor from UTI Mutual Fund. Please go ahead. Just wanted to know how much VAT refund have we actually got from the state so far? We have received the VAT refund which we had booked in the first quarter of FY13 which is at Rs.11 crores. VAT refund which we booked last year which was Rs crores, we have received a sanction for that, but actual money is yet to come in. Around what time did it come last year, just to get a sense? Page 11 of 16

12 Ajit Sirsat: Arpit Kapoor: : Moderator: Amnish Agarwal: Srijit Mullick: Amnish Agarwal: Srijit Mullick: Amnish Agarwal: Srijit Mullick: Amnish Agarwal: Srijit Mullick: Amnish Agarwal: Last year it came in two installments one it came in the month of December and second was received in the month of March. On the price increase in Andhra Pradesh we are expecting, once the governments are formed, we would have made the necessary presentation, we might expect a favorable decision going forward? Yes, we have represented to all the states and like you rightly said, at least there is some authority for us to talk to, earlier there was none. Thank you. The next question is from the line of Amnish Agarwal from Prabhudas Lilladher. Please go ahead. I have a couple of questions; first is regarding the VAT refund where we have booked quite a large amount in the first quarter this year. What is the annual VAT refund likely say in FY15 and for how many years this VAT refund will continue for Tilaknagar Industries? Like we have mentioned, we had booked Rs.49 crores, this pertains to the VAT on the sales of the previous year which is FY14, and if we go by the same rate we will book at least another Rs.60 crores in the current year depending on the sales of Pernod it can also double, depending on the utilization of our capacity, and the total recovery would be around Rs.250 crores. So maybe in next two-three year s time we will be able to recover that money. So it means that Rs.250 crores is the ceiling and then? Rs.250 crores is the minimum to qualify for the VAT refund which we have spent; we have spent a little more than Rs.250 crores, we will be getting that, it is subject to the actual investment. So it means that if we have spent say Rs.275 crores, so Then we will get back Rs.275 crores. Over a period of time? Yes. My second question is regarding you made a statement that the market leader which is the United Spirits and Diageo now, they want to become more profitable and increase the margins. But given the backdrop that states where the pricing is controlled by the state corporations, for example, Kerala, Tamil Nadu, Andhra or maybe many other states, how effective can Page 12 of 16

13 be the market leader if he decides to increase the margins in increasing the prices of finding a way out of it? : Amnish Agarwal: : Amnish Agarwal: : Amnish Agarwal: : We all understand that if one could increase the prices all of us would have done it, but then you have to take hard decisions to say that okay, beyond a finite time one cannot keep on selling some brand if it is not making your objective of profitability. So every company will start taking the decision rather than living beyond that timeframe of that decision. Sir, given a situation for example, today, some of the lower end brands might not be making money and many of the players will actually agree that they will not supply those brands, and then the next hierarchy of brand in terms of profitability will be the ones which the companies would be intending to supply, you focus more on that. But over a period of time, if we do not get price increase in that due to the nature inflation, which happens in ENA, in bottling cost, in transportation cost, etc., if we do not get price increase for say two to three years in those brands your margins are going to go down. So that was my precise point that will the pricing power or the intent of the market leader will it make so big a difference to the industry structure in such a situation? If the industry says this is good enough, nothing will change. If the industry says, no, this is not good enough from a shareholder point of view or investors point of view, then things will change, because one has to have a dialogue in that manner, for example, all the liquor companies in India is having ROCEs from 11% to 13%. It is all a question of discourse, and once it starts and those expectations are communicated, it will come about, every company was only talking about volumes and million cases and world s largest whisky s and brandies and that is a different story altogether. Regarding the ENA prices you are indicating around 7-8% increase YoY. What is your long term outlook on prices given that eventually government might be looking at increasing your ethanol blending in petrol? This increase of 7-8% which we said partially factors in the blending also by the government. But in the longer-term if we were to move to say 10% blending, in that sort of a scenario what is industry doing or people going to then exit from molasses-based ENA completely to a grain-based one and how you as a company and the industry is trying to cope up with this emerging challenge? I think this is bit of an over-rated, I will tell you why. ENA prices are such that once it gets converted into IMFL what the government gets tax per case is around Rs.2,500 per case. And if it uses for petrol it gets Rs.50 per litre. My own sense is the converted product which gives the state exchequer Page 13 of 16

14 something like Rs and the same quantity gives you Rs.50 you are not going to choke the Rs.2,000 line for you to save on Rs.50 and I will take it with you offline, I can explain to you, this ethanol blending has been for almost five years, 1) what is the price that the oil companies are giving and what the liquor companies are giving, and what is the government making at the end of the day, what is the oil subsidy bill per litre and what is the amount of tax we collect per litre converted into IMFL. If liquor company stops the largest loser is the government, because he loses Rs.2,000 a case, just because I cannot afford Rs.50 a case. Moderator: Thank you. The next question is from the line of from IIFL. Please go ahead. : Sir, I just wanted to understand that point about ENA, you said 7-8% inflation, and given that we have started seeing some price hikes and some price hikes would come through, we are obviously looking at something like a flattish kind of margin. Sir, in that case there is no CAPEX. So how do you see debt level kind of behaving going forward because it seems that debt levels are likely to come off, is there anything wrong in my assumption sir? Srijit Mullick: : Srijit Mullick: : Srijit Mullick: Moderator: Sunny Agarwal: : Reduction in debt will happen through internal accruals and also from raising of equity which we are exploring the possibilities of getting some equity infusion and which will be used to reduce the debt, and going forward, internal accruals also will be used for reduction of debt. On the equity infusion, have we kind of gotten into a process, anything like that that you can share or.? We have shared it earlier that we are exploring it actively, but at this moment there is nothing definitive that we can comment on. So this is both strategic and non-strategic? Yes. Thank you. The next question is from the line of Sunny Agarwal from Aditya Birla Money. Please go ahead. Right now, Brandy contributes approximately 50% of the volume. In medium to long term how do we see the mix changing going forward? Brandy contributes 50% to our mix and it contributes 25% in the entire industry IMFL. So Brandy has been bit of a wild card surprise which was about 4-5 years back it was 19% and this climbed to 24-25%, and except that things have really not changed Whisky continues to be 50-55%, Rum continues to be 17-20% but what has come as a surprise of course to a lot Page 14 of 16

15 of people is that Whites Vodka, Wines have really not grown, even five years back I thought these were the new emerging categories but I do not think nothing has happened in these categories. Sunny Agarwal: : Moderator: Arjun Khanna: : Arjun Khanna: : Arjun Khanna: : For us Brandy will continue to remain a larger share in the next 3 to 5 years? It depends on opportunities. We think the next 2-3 years are immense opportunities. Suddenly, Rum has come to 25% of our portfolio, about 3-4 years back it was 0% of our portfolio. We found suddenly opportunities coming up and we will try and fill it up at the right price if it comes above. Thank you. The next question is from the line of Arjun Khanna from Principal Mutual Fund. Please go ahead. My only question is in terms of volumes if we have declined year-on-year would not have working capital also declined year-on-year considerably? They say that only two things are permanent in life death and taxes I would add the third one that is excise duty which keeps going up yearafter-year for every state. What happens? Everybody thinks it is ad valorem, it is a percentage of the thing, no, it is a flattish thing, and per litre it keeps on going up. Karnataka excise duty to hit up by 30%. To sell Rs.100, you have to put out Rs.300, next year around to sell Rs.100 you have to put out Rs.350. So it becomes all the more imperative for companies to work this out and understand that they cannot hang on at low margins any more. Because finally it is the ROCEs that matter and EBITDA is after all a tool towards ROCE. So, with 10% and 12% EBITDA margins one can hardly even cover the cost. We actually look for increasing margins on the cases we sell, but that is not yet affected or if I put in another way, if we had the same number of cases, our working capital would have been much-much higher? Correct. Secondly, you did allude to the Kerala example where we have shifted our product to a slightly higher segment. Has anyone else come and filled up the lower end? There has been a multiple effects there. Another person asked me Have you seen this effect happening somewhere? We saw the effect in Kerala where United Spirits completely vacated a very cheap and a loss making segment. We did not follow suit into that segment, we went upon a higher segment where some percentage of consumers move. Somebody else for market share reasons or volume reasons could have filled up that lossmaking segment. But I think it would be split, 30% would have Page 15 of 16

16 gone out of market, 30% would have filled it in and 30% consumers were moved up. Moderator: : Moderator: Thank you. Ladies and Gentlemen, that was the last question. I now hand the conference over to the management for the closing comments. Thank you very much for joining us today. Should you have any more queries, please do get in touch with us and we will be happy to address them. Thank you very much, members of the management. Ladies and Gentlemen, on behalf of Tilaknagar Industries Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines Page 16 of 16