Alcokraft Distillery Ltd Management Discussions

Economy & Outlook

The global economy entered FY 2025-26 with cautious optimism, supported by easing inflationary pressures, gradual monetary policy normalization, and improving consumer sentiment across major economies. According to the International Monetary Fund (IMF) projections, global growth is expected to remain stable in 2025, supported by resilient economic activity despite continued geopolitical uncertainties, trade disruptions, and uneven recovery across regions.

Advanced economies are expected to witness moderate growth due to persistent challenges arising from higher interest rates, subdued productivity growth, and demographic pressures. Emerging market economies, particularly India, continue to remain key contributors to global economic expansion, supported by strong domestic demand, infrastructure development, policy reforms, and increasing digitalization.

India is expected to maintain its position as one of the fastest-growing major economies, driven by robust consumption, sustained government capital expenditure, strengthening manufacturing capabilities, and continued investments in infrastructure. The diversification of global supply chains and increasing focus on emerging markets are expected to further enhance Indias role in global economic growth.

The Government of India continued its focus on infrastructure development and productive capital expenditure during FY 2025-26. Investments in roads, railways, ports, renewable energy, logistics, manufacturing and digital infrastructure are expected to improve connectivity, generate employment, enhance productivity, and strengthen Indias competitiveness. These initiatives are also expected to support greater participation of domestic and global companies in Indias long-term growth story.

The policy focus on domestic manufacturing, energy security, renewable energy, logistics development, and supply-chain diversification is expected to create additional opportunities across industrial and consumer sectors. At the same time, challenges including geopolitical risks, commodity price fluctuations, global trade uncertainties, climate-related risks, and variations in rural demand remain important factors requiring continuous monitoring.

The Indian economy continues to demonstrate resilience, supported by strong domestic fundamentals, a growing consumer base, and continued policy support. GDP growth remains among the highest globally, driven by infrastructure expansion, services sector performance, manufacturing growth, and improving private consumption.

Indias consumption-led growth story continues to strengthen, supported by rising disposable incomes, urbanization, favorable demographics, and increasing penetration of digital financial services. The expanding middle-class population and improving rural demand are expected to provide sustained momentum to consumption across both essential and discretionary segments.

The Government of Indias continued focus on infrastructure development through higher capital expenditure is expected to create employment opportunities, improve connectivity, and support long-term economic growth. Investments in roads, railways, renewable energy, logistics, and manufacturing infrastructure are expected to strengthen Indias competitiveness and attract domestic as well as global investments.

Despite positive growth prospects, challenges such as global geopolitical risks, commodity price volatility, climate-related uncertainties, and fluctuations in rural demand remain key factors requiring continuous monitoring.

The rapid growth of Indias economy and higher disposable income has increased our fuel demand which has a direct impact on air pollution problems and high oil import bills. It has forced the Indian government to look for alternative solutions aimed at reducing its dependence on fossil fuels and Ethanol Fuel Blending Program (EBP) is one such viable solution.

Despite challenges, such as feedstock availability and technological limitations, policymakers and producers have innovatively addressed these challenges through improved policies, regulations, and technological advances. One of the solutions that the GOI used effectively was reduction in production of sugar by diverting of excess cane towards sugarcane juice to ethanol and B Heavy molasses. However, just before the starting of sugar year 23 24 the GOI capped the production of B heavy molasses and ethanol from sugarcane juice. This has caused uncertainty in the industry regarding feedstock policy and this resulted in panic buying of molasses resulting in exorbitant molasses prices. The next years target for EBP is at 20%.

The alcoholic beverage sector has a high-growth potential given the favorable demographics and increasing social acceptance. The alcoholic beverages (alcohol) industry in India has experienced remarkable growth in recent years. This growth can be attributed to several factors, such as rapid urbanization, evolving consumer preferences, a youthful demography, a burgeoning middle-class population with greater purchasing power and the growing preference for premium alcoholic beverages among consumers. Additionally, the increasing variety in the flavors of alcoholic drinks, along with expanding product portfolio by manufacturers, is poised to stimulate growth in the alcohol market.

With a large share of Indias population under the age of 30 with demographic and cultural changes have fueled rise in consumption of alcoholic beverages. Although the drinking age ranges between 18-25 in different states the increased working-age population as well as increasing middle class are some of the main drivers of the expansion of alcohol consumption.

As a prominent manufacturer in the industry, we specialize in the production of non-potable alcohol. Our diverse range of products, including Rectified Spirit, De Natured Spirit, Extra Neutral Alcohol, and Potash, caters to various sectors such as pharmaceuticals, cosmetics, fragrances, fertilizers, animal feed, and chemicals. Located in Walchandnagar, Aurangabad, our distillery operates primarily using molasses as a base.

Since our establishment in 2000, we have continuously evolved under the stewardship of our current promoters, who acquired the company in 2005. One of our significant achievements has been pioneering the adoption of cutting-edge technology for converting spent wash, a by-product of Extra Neutral Alcohol production, into valuable resources. This includes the production of fertilizers, cattle feed, and the extraction/reuse of water, effectively minimizing waste and maximizing resource utilization.

Building upon our success, we are now actively expanding our product line and venturing into ethanol production, aiming to achieve comprehensive value creation.

Amidst Indias robust liquor industry growth, the Company has thrived and capitalized on the favorable conditions. With the industry witnessing unprecedented expansion and being one of the fastest-growing beverage markets globally, the Company experienced remarkable success.

Furthermore, the companys financial performance with its Profit After Tax (PAT) reaching to Rs. 896.89 Lakhs for FY 2026, decreased compared to FY 2025, where it stood at Rs. 897.08 Lakhs.

This remarkable growth in profit is a clear indication of the Companys strategic acumen and ability to seize the opportunities presented by the thriving liquor industry in India, the Companys position appears promising and well-positioned to continue benefiting from the positive attributes of the alcohol sector.

• Strength – The distillery industry has experienced a rise in demand for alcoholic beverages, including non-potable alcohol, both domestically and internationally. Distilleries have the flexibility to produce a wide range of alcoholic products with different flavors, strengths, and applications, catering to diverse consumer preferences.
• Challenges – Compliance with complex and evolving regulations, including licensing, production standards, and marketing restrictions, poses challenges for distilleries. Also the deficient monsoon last year may have caused lower acreage plantation of sugarcane which is main raw material for sugar factories. This may influence the molasses availability and pricing.
• Opportunities – Distilleries can explore international markets to expand their customer base and take advantage of increasing global demand for alcoholic beverages.
• Threats – highly competitive environment where several manufacturers vie for market dominance. However, our company has managed to establish itself as a formidable player and remain at the forefront of the industry.

Ratio

The distillery industry operates under stringent government monitoring and regulations, encompassing both central and state laws. The governments active involvement in overseeing the industry presents a unique set of challenges and risks for companies, including our own.

One significant challenge is the ban on liquor consumption in certain states. These prohibitions can significantly impact the market potential and revenue streams for distilleries operating in those regions. The restrictions limit the target market and create obstacles in expanding business operations, potentially hindering growth opportunities.

Moreover, the strict monitoring and regulation by government bodies require distilleries to adhere to numerous compliance standards, licensing requirements, and product quality controls. Failure to meet these regulatory obligations can result in penalties, legal consequences, and damage to the companys reputation.

Additionally, the evolving nature of laws and regulations in the distillery industry introduces uncertainty and the need for continuous adaptation. Changes in taxation policies, labeling requirements, production standards, or advertising restrictions can have a direct impact on business operations and profitability. Staying up to date with these legal developments is crucial to ensure compliance and avoid potential setbacks.

Given these circumstances, the risk profile for distilleries in this industry is amplified. Companies must navigate the complex regulatory landscape, monitor changes in government policies, and proactively manage compliance to mitigate risks effectively. Developing a thorough understanding of the legal framework and building strong relationships with regulatory authorities are essential steps to minimize business risks and maintain operational continuity.

The Company has enlisted the services of an Independent Chartered Accountant to conduct internal audits, ensuring the accuracy and adequacy of recording and reporting practices. This includes verifying the existence of internal controls within the system and implementing necessary measures to update and improve the internal control system. The objective is to ensure that all transactions are properly authorized, recorded, and reported.

Periodic exercises are undertaken to safeguard assets and protect against unauthorized use. The Companys policies, guidelines, and procedures are tailored to the specific nature, size, and complexity of its business operations. These measures contribute to a robust system of internal controls that incorporate automatic checks and balances.

The Company places significant emphasis on maintaining strong internal control systems for financial reporting. This resilience and focus are further reinforced by a comprehensive set of Management Information Systems. Internal audits, conducted either internally or by professional firms, closely monitor business operations to ensure strict adherence to policies, safeguarding of assets, and the timely preparation of reliable financial documents and reports.

Any deviations from established policies and procedures are promptly communicated to the management. In response, the Company takes timely and appropriate measures to address these deviations and maintain uninterrupted business operations.

Overall, the Companys commitment to internal control systems, supported by independent audits and professional oversight, ensures the integrity of its financial reporting, safeguarding of assets, and smooth functioning of the business.

Our Company places significant emphasis on recognizing the importance of its human resources as vital contributors to the Companys growth and success. We consider our employees to be valuable assets, and their achievements and goals are closely intertwined with the overall objectives of the Company.

To uphold this belief, our Company consistently invests in the development of our human capital and strives to retain top talent. We have established well-defined HR policies that ensure the alignment of personal goals with professional growth opportunities. By providing a conducive work environment and offering avenues for career advancement, we encourage our employees to thrive and reach their full potential.

Our human capital encompasses a diverse workforce, including permanent factory workers. Throughout the reviewed period, employee relations have remained healthy, cordial, and harmonious across all levels within the organization. We are committed to nurturing positive relationships with our employees and maintaining an open and respectful work culture.

By prioritizing our human resources, we acknowledge their essential role in driving the Companys success. We will continue to foster an environment that promotes employee engagement, satisfaction, and career progression, as we recognize that a motivated and skilled workforce is instrumental in achieving our goals and maintaining our competitive edge.

The details of return on net worth at standalone levels are as follows:

Return on net worth is computed as net profit by average net worth. Net profit decreased from 897.08 to 896.89.

The Accounting treatment of your Company in the preparation of financial statements is in consonance with the Accounting Standards 2015 (AS) as amended and there is no deviation in the accounting treatment, different from the said Ind AS.