Radico Khaitan Limited

Transcription

1 Radico Khaitan Limited (BSE: ; NSE: RADICO) Q1 FY2019 Earnings Conference Call July 26 th, 2018 Management Participants: Mr. Abhishek Khaitan, Managing Director Mr. Dilip Banthiya, Chief Financial Officer 1 Page Q1 FY2019 Earnings Call Transcript

2 Moderator: Ladies and gentlemen good day and welcome to the Q1 FY2019 results call of Radico Khaitan, hosted by Emkay Global Financial Services. We have with us today from the management Mr. Abhishek Khaitan, Managing Director and Mr. Dilip Banthiya, Chief Financial Officer. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today s presentation. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Anubhav Gupta of Emkay Global. Thank you and over to you Sir! Anubhav Gupta: Thanks, Mamta. Good evening everyone. I would like to welcome the management and thank them for giving us this opportunity to host them for the call. I would now hand over the call to Mr. Abhishek Khaitan, Managing Director for the opening remarks. Over to you Mr. Khaitan! Abhishek Khaitan: Thank you, Anubhav. Good afternoon ladies and gentlemen. Thank you all for joining on this call today. On today s call, we will first talk about the current industry environment followed by the company overview and outlook. Then I will hand over the call to our CFO, Dilip Banthiya for a detailed discussed on the quarterly performance. We will then open up the call for Q&A. To begin with, let us talk about the industry and macro overview. As you are all aware, the liquor industry had been facing headwinds since the last two years due to macro events like highway ban, GST uncertainty and many other things, but I am happy to report that since the last few quarters, we have seen a positive trend emerge and the outlook going forward looks positive due to various factors such as price increases in a number of key liquor consuming states towards the end of the last fiscal year, softening of raw materials prices and favorable policy changes in the state of Uttar Pradesh. The state of Uttar Pradesh has registered a strong year-on-year IMFL volume growth of over 50% and we have significantly outperformed the industry growth with market share gain. Following a bumper sugarcane production last year, we expect this year to be very favorable as well with respect to raw material cost. Further, with a strong opening inventory of molasses in FY2019 and a strong expected sugarcane crop, we expect ENA prices to remain soft for the rest of the fiscal year. We understand that there have been some questions regarding the impact of MSP implementation on raw material prices. Let me clarify that molasses is a by-product of sugar mills, which is available in abundance at the moment given strong sugarcane crop and sugar production. Therefore, any impact on MSP on the sugarcane prices does not impact the molasses prices much. Overall, it is a function of demand and supply. Similarly, for our grain ENA we mostly use broken rice, which does not fall under MSP. Prices of paddy does not have much bearing on the price of broken rice, which is more like a by-product of rice. Given our premiumization strategy about 60% of our ENA consumption is grain based ENA. Overall, we are very optimistic about the recent industry development although in the short-term the spirit industry has faced significant challenges but the long-term dynamics of the industry remains intact. Growing disposable income, increasing rural consumption, greater acceptance of social drinking and a higher proportion of the young working population entering the drinking age, are all factors which will drive the growth in the spirit industry. These demographics also support the case for growth of aspirational brands and premium products. Our performance during Q1 of FY2019 was a reflection of the hard work that Radico s management has put in over the years in creating a unique brand portfolio focusing on a premiumization strategy and debt reduction. As you are aware, Radico Khaitan is one of the only few companies to have developed the entire product portfolio organically. Over the years, Radico Khaitan has been focused on strategically developing products in niche segments where other players have not been very successful. For example, Magic Moments Vodka and our Morpheus Super Premium brandy. These products are market leaders in their respective categories. While our Magic Moments Vodka leads the Vodka industry with over 50% market share in the entire Vodka category, 2 Page Q1 FY2019 Earnings Call Transcript

3 Morpheus Super Premium brandy leads the super-premium brandy category with over 60% market share. Magic Moments Vodka has also been ranked as the 11th largest Vodka globally in volume terms. In the whisky segment, we have developed strong brand equity. Our 8 PM Whisky continues to drive strong performance and to capitalize on the brand success, we have launched 8 PM premium Black Whisky. 8 PM Whisky has been ranked the fourth fastest growing and the 11th largest selling whisky globally. Further, in line with our premiumization strategy, we recently launched a premium version of Morpheus Brandy called Morpheus Blue. Earlier this year we launched Jaisalmer Indian Craft Gin, a product in the luxury segment, which is a testament to our innovation and product development capability. This brand is positioned in the fast-growing white spirit segment globally. Our Rampur single malt whisky has rapidly gained consumer acceptance and won many awards across the globe. Our existing diversified brand portfolio including brands such Magic Moments Vodka, Morpheus Brandy, 8 PM Whisky, Old Admiral Brandy and Contessa Rum together with recent new launches such as 8 PM Premium Black Whisky, 1965 Rum, Electra RTD etc., places us in the next orbit of growth. In the near term, we expect the industry environment to be favorable, which coupled with softening of raw material prices and our ongoing portfolio premiumization is expected to provide a strong growth momentum for the rest of the year. With this, I would now like to hand over the call to our CFO for detailed discussion on the operating and financial performance. Thank you and over to you Dilip! Dilip Banthiya: Thank you Abhishek. Thank you everyone for taking time out of your busy schedule to join us on this call today. During the quarter we reported IMFL sales volume growth of 19.1%. This volume growth was led by strong Prestige and above category volume increase of 30.2%. Prestige and above category brands now account for 30.7% of our total IMFL volume. In value terms prestige and above brands contribute over 50% of our total IMFL sales. Volume increase was broad based across key states and key IMFL brands, primarily driven by recent price increases and favorable policy changes. A significantly improved operating environment in Uttar Pradesh led to a strong volume growth and our market share increase in the state. Our recently launched brands such as 8 PM Premium Black Whisky and 1965 Spirit of Victory Rum also started to make meaningful contribution to our overall volume. Our revenue from operation during FY2019 Q1 was Rs. 516 Crores representing an increase of 26% compared to Q1 of FY2018. Our profitability improvement was driven by a combination of factors such as recent price increases, premiumization, softening of raw material and ongoing cost optimization initiatives taken by the management. Our gross margin increased from 45.6% in Q1 FY2018 to 51% in Q1 of FY2019. EBITDA during the quarter was Rs. 91 Crores representing an increase of 48%. EBITDA margin during the same period expanded by 265 basis points to 17.5%. Selling and distribution expenses have been higher during the quarter compared to Q1 of FY2018 as company has progressively increased investment into on-trade presence, marketing investment in digital, TV commercial, in shop visibility, signage, POS material and signing up new celebrities. Higher marketing spends should enable the company to sustain growth momentum in long-term. Non-IMFL business contributed about 20% of our total revenue from operations. It continues to be profitable and enables us to utilize our capacities in Rampur to optimum levels. However, as our IMFL volumes grows non- IMFL volumes will decline as ENA produced by us will be used captively for our IMFL products. We registered a strong all-round growth and solid cash flows generation resulting into a net debt reduction of Rs. 140 Crores in Q1 of FY2019. As on June 30, 2018, the total debt stands at Rs. 451 Crores and cash and cash equivalent is around Rs. 22 Crores as the net debt is Rs. 429 Crores. The total debt consists of Rs. 375 Crores of 3 Page Q1 FY2019 Earnings Call Transcript

4 working capital loan and Rs. 76 Crores as long-term loans. We have a very strong balance sheet and conservative leverage ratios. As on June 30, 2018, our net debt to EBITDA is 1.45 times and total debt equity is I would further like to highlight that ECB of US$4.1 million outstanding as on June 30, 2018 have now been repaid. We expect to become long-term debt free by fiscal year end. Due to ongoing debt reduction, our finance cost has also come down significantly. The finance cost for the first quarter declined by 42% from Rs Crores to Rs Crores. Management is focused on further enhancing and strengthening our premium brand portfolio and deleveraging of the balance sheet, which coupled with the attractive industry dynamics places us strongly for the future growth. With this, we will now put this line on an interactive Q&A session. Moderator: Thank you very much. We will now begin the question and answer session. We take the first question from the line of Chirag Lodaya from Value Quest Investment. Please go ahead. Chirag Lodaya: Congratulations on a very good set of numbers. My first question is on revenue. Over the last three quarters we have seen your topline is growing at 17% to 20% in terms of volume, so what has changed exactly and particularly when you look at regular segment that has also started growing after say like two-three years, so some qualitative comments on that would be really helpful? Dilip Banthiya: As far as the regular segment goes, we are concentrating on the states where the regular segment is profitable, so especially in the current quarter in Uttar Pradesh we have seen the prices have become higher than the last year and that is why we concentrated on the regular segment where we have seen a considerable growth and also the Uttar Pradesh industry has grown by 50% in the current quarter, so that has also enabled us drive volumes. After facing headwinds for the last two to three years the operating environment in the industry, when we have seen the highway ban and GST and all that is a thing of the past, has improved and volumes are coming from all states especially after the price increase in the southern states there also it has become very, very lucrative to sell even the popular kind of products. So, we have seen a 10% to 12% growth in industry in the Q1 of FY2019 and the Uttar Pradesh especially has played a key role where 50% plus growth in the industry, which is one fifth of India s population and we see the industry has been now for the last two years growing and there is still a great potential. Chirag Lodaya: On a full year basis what kind of volume growth we are expecting and that breaking up into regular vis-à-vis Prestige and above that would be helpful, some sense on that? Dilip Banthiya: Overall, we have seen that in the Q1 we have grown by 19%, but during the year we are going to grow double digits and near to 14% to 15% in this year and we expect industry to grow 8% to 9%. So, we will outperform the industry and will gain market share. Chirag Lodaya: Secondly, in terms of molasses so what has been molasses procurement price for say in the last year vis-à-vis currently because when we read news articles those new articles states Rs.450 a quintal is now at Rs. 10 or Rs. 20 a quintal, so just wanted to get sense on that, how are we playing? Dilip Banthiya: Our 60% of volume are coming from grain-based ENA because these are prestige and above category and some of the regular category products also use grain based ENA. Molasses prices have been benign. Last year the sugarcane crop was very good hence we got a very high opening inventory level. This year again as estimates say sugarcane crop is going to be good, so we see that molasses prices are going to remain benign to softer. However, as our ENA consumption is 60% grain based so the impact on grain is not that much. The inflation condition in grain is not that high as compared when we have seen in the last two to three years. 4 Page Q1 FY2019 Earnings Call Transcript

5 Chirag Lodaya: Sir when you look at your gross margin so quarter-on-quarter since the last five quarters we are improving our gross margin and this year also quarter-on-quarter as well as YoY we are seeing sharp improvement in gross margins, but still you are maintaining your operating margins to go up by just 100 or 150 BPS, so what could be the reason for this thing? Dilip Banthiya: The gross margin has improved by a combination of various factors. One is that product mix is improving. Premiumization has been happening. The softer raw material scenario is there and will continue, but now the gross margin is somewhere around 50% and it will remain in a narrow range of 1% here and there. Regarding operating margin, we have started doing some marketing investment for our brands to get future growth especially in the Prestige and above category. So, if you see there has been an increase in the marketing and sales promotion spend that has also taken some part of it, but still 265 basis points operating margin is the improvement in the Q1. Chirag Lodaya: Just lastly on this UP route to market changes, so how things have changed from just a single distributor or a vendor to multiple, so how many vendors and what kind of price realization you have seen and what percentage of our overall revenue comes from UP as a market? Dilip Banthiya: UP after opening up has actually not only see volume growth, but we have also improved our realization on per case basis, so the contribution on regular and prestige and above category has improved by a good margin. Since opening of the industry there are a lot of players on wholesale have come and retail has also got opened up so their margin has also become lucrative. In all, every level at the brand producing level, at the supply chain level and the government level everywhere they are gaining because of the better pricing policy. Moderator: Thank you. The next question is from the line of Jasdeep Walia from Infina Finance. Please go ahead. Jasdeep Walia: Good evening. Thank you for taking my question. Sir your gross margin in this quarter has been particularly high at 50%? Even if I look at it on per rupee per case basis it is almost equal to the sector leader despite you having much lower realization versus essentially on an average basis, so is there any one-off kind of a thing in the RM cost in this quarter? Abhishek Khaitan: No, it is not one-off impact of any cost. Overall realization has been better on per case basis. The cost is benign and softer. At the same time, Uttar Pradesh has taken a big leap in its volume where the realization per case and the contribution per case is good, so overall which I say and already we have guided that 100 to 150 basis points improvement would be there in our EBITDA margins continuously for coming two to three years, so we say that we will continue to improve in our product mix we will continue to work on cost optimization and keep improving on margin so this not one off. Jasdeep Walia: Better than your average gross margin, which you have reported or they are worse? Abhishek Khaitan: Gross margins are going to be now in a narrow band. We have come up from 46% to 50% or 51%, so it is going to be a narrow band, but however keeping in the volume growth, product mix and all we will improve on our operating margin by a combination of factors and also after spending and investing on our brands. Jasdeep Walia: Sir, my question is different. My question is whether your gross margins in UP are higher than the average gross that you have reported? 5 Page Q1 FY2019 Earnings Call Transcript

6 Abhishek Khaitan: No, I would not comment on state-to-state basis because the state mix changes quarter by quarter and product mix also changes, so it is not one off for any one state. Jasdeep Walia: Sir, at what levels your price of 8 PM Black? Abhishek Khaitan: 8 PM Black is priced in the price point of Royal Stag and Royal Challenge. Jasdeep Walia: It is the same price or little bit discount to Royal Stag and Royal Challenge? Abhishek Khaitan: No, same price. Jasdeep Walia: Can you mention the price point also for a 750 ml bottle? Abhishek Khaitan: It depends on state-to-state; say in Uttar Pradesh it is about Rs. 550 a bottle. Moderator: Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead. Pritesh Chheda: Sir, I just wanted to know the country liquor contribution to revenue and EBITDA in FY2018? Abhishek Khaitan: We are only doing Country Liquor in the state of Uttar Pradesh. However, the margin in this community trade is very low and this is just to do the business as we have been carrying this business as a traditional business and margins are in single digit. Pritesh Chheda: But absolute EBITDA contribution is higher than 20% to 30%? Abhishek Khaitan: I cannot give you exact numbers. Pritesh Chheda: Thank you. Moderator: Thank you. The next question is from the line of Sangeeta Purushottam from Cogito Advisors. Please go ahead. Andrey Purushottam: This is Andrey Purushottam from Cogito Advisors. I wanted to congratulate you for a great set of numbers. When I talk to people in the liquor industry the general impression I get is that the regulatory environment is becoming much more pragmatic and therefore favorable for the industry as a whole. If you would agree with this, could you give us some flavor of examples of the kind of discussions and chats you are having with various state governments, which would help the case that I am making? Abhishek Khaitan: You are absolutely right. State government has now started lending the ear to our industry as a result of which even if you see last year after a long gap we got price increases in the large southern states like say in the state of Karnataka, Andhra, Telangana, Kerala. In the north like say Uttar Pradesh, they also understood that if they open up their model and let it be a free selling state that means anyone can own a retail and anyone can own a wholesale, by that way the revenues can increase so that also they implemented it this year as the result the revenue has increased by more than 50% for the quarter. Andrey Purushottam: Where else in terms of any ongoing discussions can you give us a flavor if there is any progress in other state governments or any other areas whether it is on pricing or whether it is on some other issues? 6 Page Q1 FY2019 Earnings Call Transcript

7 Abhishek Khaitan: I would not be able to comment specifically, but discussions keep going on and we keep on engaging in a dialogue our association so as and when it materializes we can tell you, but it is an ongoing process and rightly they are lending a very favorable ear to our association. Andrey Purushottam: Right, in terms of the coming elections, which are there in six months and sometimes the temptation on behalf of political leaders to do popular steps like prohibition, etc., what is the risk of that in your assessment? Abhishek Khaitan: Traditionally if you see prohibition across the globe has not worked successfully so a few states might use it as the election gimmick, but in the long run prohibition does not work anywhere. Sangeeta Purushottam: This is Sangeeta Purushottam. I had one question on your margins. Now, in the past you have guided that because of the premiumization and other initiatives that you are taking, you are looking at EBITDA margin I think expanding by 100 basis points each year for the next couple of years, now this year and partly last year you had the benefit of raw material prices being softer now that may not continue into the next fiscal or thereafter, so does that guidance of 100 basis point improvement in margin stands from where we are right now? Abhishek Khaitan: 100 basis point guidance stands, as it is where we are now. Basically, one factor is the raw material tailwinds, but other factor is the premiumization and the potential of growth of our premium brands and here we have also launched some new brands, which will take a sizable portion in future, so we expect that 100 basis points, which we guided for couple of years stands today. Sangeeta Purushottam: So if I may just rephrase it to just confirm my understanding that even if the raw material prices were to normalize you would still see that margin improvement? Abhishek Khaitan: Yes, by product-mix improvement and other factors we will continue to see that 100 basis point improvement in margin for couple of years. Sangeeta Purushottam: Alright, thank you. Moderator: Thank you. The next question is from the line of Harit Kapoor from IDFC Securities. Please go ahead. Harit Kapoor: Good afternoon. Just two things, firstly on UP, so this 50% growth that you are saying, is this all led by the fact that the distribution has opened up or there is any other factor to it in terms of either a favorable rate to IMFL versus country liquor or is it totally led by that distribution is opened up and if that is the case would you expect this to continue for the year given that this is the first quarter that the change has happened? Abhishek Khaitan: Hi Harit, Uttar Pradesh if you see in the current year, they have budgeted for a volume increase in the range of about 25% to 30% in the IMFL segment. The first quarter was definitely higher because there was lot of pipeline filling which was taking place, but by the trend what the industry is looking like I think UP should achieve by 25% to 30% growth in the IMFL and definitely yes, the opening up of the policy had led to this growth because now people can have the brands of their choice plus there is enough margin for the retailer who is motivated to sell even the wholesalers, so the entire chain has got lubricated. Harit Kapoor: For you the salience of UP as a percentage of IMFL very roughly would be how much? Abhishek Khaitan: The saliency is around 20% plus of our total. 7 Page Q1 FY2019 Earnings Call Transcript

8 Harit Kapoor: My next question is really on the new launches, if you could take us through what you have done in the last 12 months as well as what is the new stuff you are doing as far as the 8 PM Premium Black as well as couple of these what stages they are in and in what kind of expansion you are looking at all India and what is the plan there, what kind of growth you are looking at, that is it from me? Abhishek Khaitan: Basically, we have done kind of four launches and one product upgradation. Starting from our favorite brand, Rampur Single Malt. We launched it globally and the brand has got a tremendous response. In fact, the demand is more than the supply and the brand is doing very well in the United States, London, France, all over the globe so that has been our first luxury initiative. Secondly, we have also launched Indian Craft Gin Jaisalmer, which is priced at about 50 Euros a bottle and that also initially the response is very good from the international markets and third we have launched is, 8 PM is also gaining a lot of traction so we have launched a premium version of 8 PM, which is called as 8 PM Premium Black Whisky and that we have started with Uttar Pradesh and Uttaranchal and initially the response we are getting from both these states are very positive and slowly and gradually over next one year we will be taking it across all India. Morpheous Brandy, which is also the market leader in the super premium brandy space with the market share of 60%. This month we have introduced our Morpheous Blue, which is in the luxury segment and about Rs.500 more expensive than the Morpheous so that we are rolling it down in the southern states. Lastly our Verve Vodka which is cross line with Smirnoff, we have repositioned it and repackaged it starting from Uttar Pradesh and we will be taking it across all India very soon. Harit Kapoor: Great. All the best. Thanks. Moderator: Thank you. The next question is from the line of Manish Poddar from Renaissance Investments. Please go ahead. Manish Poddar: First thing is could you probably say how would be the selling expenses this year given the elevated expenses done in the first quarter? Abhishek Khaitan: The sales promotion and advertisement expenses will continue to remain as guided in the past as well within a range of 7% to 7.5% of net sales. Manish Poddar: If I get right, what is the sustainable margin, which you achieve let us say given after you squeeze in all of these benefits, what is the sustainable margin, which you can achieve let us say three to five years up EBITDA margin? Abhishek Khaitan: We are coming 15% flat and as a couple of years 100 basis points we are looking at our product mix and brand portfolio so these are sustainable margin levels. Manish Poddar: Would you be able to qualify let us say among the brands qualitatively first of all what are you doing in the selling expenses ATL/BTL, how is that happening and any qualitative growth on particular brand as such? Abhishek Khaitan: Our Magic Moment Vodka, which is our flagship brand, so we are doing lot of digital marketing there. Now promotion is also happening and we have also found some new celebrities so that will be a direct ATL and there are number of BTL in shop promotions, signages, inside the shops branding and all that so put together both something 50%, 50% will be both. Manish Poddar: Fine, thank you so much. 8 Page Q1 FY2019 Earnings Call Transcript

9 Moderator: Thank you. The next question is from the line of Raian Sorabjee from Rare Enterprises. Please go ahead. Raian Sorabjee: Congratulations on the quarter. I just have one question, if I see the presentation, the net debt was reduced by Rs. 140 Crores, but the EBITDA for the quarter was Rs. 92 Crores, so what other working capital change has occurred in this quarter? Abhishek Khaitan: You are absolutely right. We have seen along with the internal accrual, the better management of working capital and in the state of Uttar Pradesh we have gone on majority of the cases on cash and carry basis so that also feeds some cash flow and both put together has improved our debt reduction by Rs. 140 Crores. Raian Sorabjee: So, would this be a sustainable working capital change going forward in Uttar Pradesh and how is that effect our working capital days? Abhishek Khaitan: As we have guided already that in two to two-and-a-half years will be a zero debt company, so I cannot give you quarter by quarter, but our aim is in two to two-and-a-half years whatever Rs. 430 Crores of debt remaining as on June 30, 2018, we have to bring it down to zero level. Raian Sorabjee: Thank you, Sir. Moderator: Thank you. The last question is from the line of Chanchal Khandelwal from Birla Mutual Fund. Please go ahead. Chanchal Khandelwal: Congrats on good set of numbers. Just wanted to understand the industry, how is it changing with franchising allotted by United Spirits, so is it that the bottom of the industry gaining market share and suddenly the industry is seeing better volume growth in the popular segment? Abhishek Khaitan: I would not be able to comment that by giving on franchisees like what is happening, but as I told earlier Chanchal that the price increase is being obtained in the southern states and certain other markets. Earlier the regular segment was not interesting to sell, but now with these price increases the regular segment also becomes profitable so that is aiding the growth and people are working on the growth segment, which is helping the regular range also to go up. Chanchal Khandelwal: So, can you just explain me by giving an example which state and which regular segment has become profitable, just to understand more from the industry perspective and also the Prestige and above if I look at your realization per case is lower than the leader in the market, but still your EBITDA per case is as much as leader in the market so if you can just answer both the questions separately? Abhishek Khaitan: As far as Chanchal your question regarding the regular segment I say after the price increases like in Andhra, Telangana and all these areas where we have got price in 9% to 10% this has become lucrative and for us to sell more quantity so the regular category growth is coming across the states where it is the southern states including Karnataka, Andhra, Telangana, UP, MP, Rajasthan, Maharashtra, Delhi, Uttaranchal, all that. Chanchal Khandelwal: This growth of regular category is coming because country liquor people are migrating for county liquor to the spirits, where is this growth coming from? Abhishek Khaitan: Yes, might be some country liquor because as the people are getting more income and becoming more aspirational and getting more higher quality products would be fine, but there is no certainty, but must be because the growth is coming 10% to 12% there also now; second question regarding my margin 9 Page Q1 FY2019 Earnings Call Transcript

10 on P&A lower than the leader. I think we can discuss it out. I do not think because our prime brands are prestige and above like Magic flavours, Morpheus, which is super premium category, so we can discuss it out, but I think it must be equal or better than the leader. Chanchal Khandelwal: Understood, so in the market where you are operating you are seeing that you as a well place as a leader? Abhishek Khaitan: That is right. Chanchal Khandelwal: Thank you, Sir. Wish you all the best. Moderator: Thank you. Sir, we have a few more questions. The next question is from the line of Anita Madhukela from Emkay Global Financial Services. Please go ahead. Madhusudhan Pillai: I am Madhusudhan Pillai here. Abhishek Ji, congratulations to you and the entire team for a splendid growth. I do not know whether if I missed it, can you elaborate that while you explained how the company is going to become debt free over the next two years, does it include any kind of capex and , which is included in the number when you say the company will become debt free? Abhishek Khaitan: Thank you Madhu Ji. Capex is already accounted for when we say that the company will become debt free in the next two to two-and-a-half years. We have already done the major capex as far as plant goes and now it is the kind of maintenance capex or the capex for the brand. Our capex should be in the range for the next two years in the range of about Rs.40 Crores to Rs.50 Crores and I think with the EBITDA, which the company is generating so through the internal accruals minus the capex that money would be used to repay all the debts and become debt free. Madhusudhan Pillai: Great. Abhishek, I have one more follow-up question, you have done such a wonderful job in your vodka segment, what are the plans to capture the whisky segment, are there new brands which you are going to launch? Abhishek Khaitan: We have already launched our 8 PM Premium Black whisky and that also in the market of Uttar Pradesh we are getting a very good feeler about it. In fact, we have also roped in Tiger Shroff as our brand ambassador and the way we have got a response I think the brand in the coming future should do very well and also in the next two years we will be launching Super Premium whiskies also. In fact, we will have a bouquet of two to three brands in the next two to three years to capture the whisky space. Madhusudhan Pillai: Fantastic. All the best to you and the entire team. Thank you so much. Moderator: Thank you. Last question from the line of Anubhav Gupta from Emkay Global. Please go ahead. Anubhav Gupta: Good evening everyone. Actually, there are some questions, which are from our FII clients who could not join because of the time zone difference so if you allow me I could ask those questions? Abhishek Khaitan: Sure. Anubhav Gupta: So, the first question is what could be the premium portfolio contribution in next three years, which was 30% to the volume in first quarter? Abhishek Khaitan: Anubhav, as you have seen for last five years we have grown on Prestige and above brand portfolio from 16% to 17% in to something around 26% in In Q1 it has been 30% plus, 10 Page Q1 FY2019 Earnings Call Transcript

11 however, we see that our premium Prestige and above brand portfolio should account for somewhere 38% to 40% in four to five years which in value terms will be around 65% to 70% of our branded sales. Anubhav Gupta: Right, second question is how much contribution you think could come from super high-end brands like Rampur Single Malt and Jaisalmer Gin in the next three to four years? Abhishek Khaitan: Actually, as you see that Rampur Single Malt has taken big accolades and awards globally and we have been supplying this brand to all the developed markets, but the liquid is the constraint and we are now ramping up the pipeline of liquid so it will take four to five years further where we can give a volume to the international market as well as to the domestic market and select few. However, the other brand Jaisalmer, which we have launched it is Indian Craft Gin, there the success of the brand actually at the beginning and whatever feedbacks and positive coming out where the liquids will not be an issue so there the growth can come, but I can speak about that a year and a year-and-a-half later about the brand so on luxury segment this is our situation as of now. Anubhav Gupta: Sure, and third question is that Radico s volume growth has been outperforming industry and the company has been getting market share from the competitors, so do you think that the competition could try to reduce pricing to regain the market share or you are already seeing some strategies, which you are trying to adopt to get back the market share? Abhishek Khaitan: Even if you see our brands have been organically conceived and, even after reducing prices it is not necessary that you will sell. In fact, we believe that if the prices are higher and the quality is good, the consumer will buy our product, so I do not think it should affect our growth. Moreover Anubhav, there has been in past also prices have been brought down by competition, but we stick to our strategy and we continue to grow. Anubhav Gupta: And the last question is that if you could give some sense on the new product launches in the next 12 to 24 months, so you have already talked about the new launches in whisky, which you are going to do, any new product segment also where you are trying to get into? Abhishek Khaitan: In the next two to three years we will come out with two premium or super premium products and they will be in the brown spirits. Anubhav Gupta: That is it from my side. Moderator: Thank you. On behalf of Emkay Global Financial Services that concludes this conference. Thank you for joining us. You may now disconnect your lines. Note: This transcript has been edited to improve readability. For more information, please contact: *** Mukesh Agrawal Head Investor Relations agrawalm@radico.co.in Saket Somani / Bijay Sharma Churchgate Partners radico@churchgatepartners.com Page Q1 FY2019 Earnings Call Transcript