MACROECONOMIC SCENARIO
Fiscal 2023 started off with a year to be full of uncertainties. There were many
headwinds for all the economies like policy tightening to contain inflation which led to a
liquidity crunch, apart from the Russian invasion of Ukraine which led to supply chain
disruptions of various commodities. Food and energy prices are showing signs of softening,
except for certain grains, but underlying price pressures are sticking, with labour
markets tightening in some countries. Although commodity prices have moderated following
Russias invasion of Ukraine, the war continues, and geopolitical tensions remain high. In
spite of Covid-19s impact, China appears to be recovering, which has eased supply-chain
disruptions. However, things have stabilized in the first half of CY2023, despite
persistently high inflation and recent financial sector turmoil, early signs that the
world economy could achieve a soft landing have receded.
However, the Indian economy was resilient and was able to withstand on its own feet and
didnt let the Western Worlds uncertainty and disruption affect the nations growth
trajectory. The consumer demand remained intact which helped the country to avoid falling
into recession. The World Bank estimates that the Indian economy will grow by 5.9% and
6.3% in 2023 and 2024 respectively. (Source: Source: Global Prospects and Policies,
International Monetary Fund : April 2023).
INDIAN SPIRITS INDUSTRY
The Indian spirits industry is destined to grow because of the countrys sizeable
middle-class population with increased purchasing power, rapid urbanization, changing
consumer preferences, and a reduction in cultural barriers to drinking. The countrys
population is around 1.3 billion and the strong demographic profile that the youngest
population make-ups in the world with ~50% of its population below the age of 25; and ~65%
of the population below the age of 35 the per capita alcohol consumption in India is set
to boom. The Indian market is more than a billion cases in size and is highly dominated by
spirits, the recorded Per capita consumption of pure alcohol has moved from 0.9 litres to
2.7 litres for the period between 2000 to 2010 with a CAGR of close to 12%. Recorded per
capita consumption of pure alcohol has been rangebound around 3 litres from 2015. The
domestic market is projected to cross 1200 Mn cases in volume by 2025. Positive
demographic factors including more than 10 Mn people added every year to the population
eligible for drinking make it one of the most attractive markets for alcoholic beverages
(Source: Technopak Advisors Pvt. Ltd.).
The Indian spirit industry has faced many disruptions in recent years, some of them are
excise duty hikes across states, changes in route-to-market in some states,
demonetization, highway ban and GST implementation. Even after facing turbulent times, the
industry is poised for strong growth as there are a number of tailwinds which will drive
the demand for the coming years.
Currently, the Indian Spirits industry consists of two distinctive markets
differentiated based on the target audience, product characteristics and distribution
network:
1. Indian Made Foreign Liquor (IMFL) or Premium Segment
2. Indian Made Indian Liquor (IMIL) or Value & Value Plus Segment
While IMIL caters to a large segment of the Indian population, it is believed that the
price point at which consumers buy alcohol will increase and the Indian Alcohol Industry
will move towards Premiumization. Companies are focusing on product development and the
efforts being aimed either at the top where margins are high or at the base where volumes
are high, backed with high growth as well. Also, showcasing new products, branding of
shelf space in retail outlets and company outreach to its customers through multiple
marketing initiatives so that it suits consumers preferences and the core focus is on
brand recognition/brand recall.
1. Premium Segment
The premium segment in India has been dominated by brown spirits mainly whisky, rum,
and brandy. However, the share of white spirits like vodka and gin is picking up. –
(source: Technopak Advisors). IMFL volume is expected to reach 353 million cases in
CY25, according to Euromonitor International.
After experiencing rapid growth during 2001 to 2011 period, growth in the premium
segment slowed down significantly and has been flat for the last few years. The mass
segment has borne the brunt with volumes declining though this has been partly offset by
growth in the premium segment. While the market at present is still dominated by strong
national brands at low price points, the 300+ million cases market is undergoing a
transformation with newer entrants, challenging the traditional labels and more so in the
higher price points. There are high potential niche opportunities that are emerging in the
space.
2. Value and Value Plus Segment
The country liquor segment is somewhere around one-third of the alcoholic beverage
market in volume terms. This segment mainly caters to the price-sensitive, lower-income
group in India and high acceptance in rural areas. (source: Technopak Advisors)
The Value segment is evolving from a restricted quota-based, commoditized market to a
consumer driven brand based industry. The main attractiveness of this market lies in its
sizable base, comprising SEC-D and below which could translate into ~40% of total
population (excluding Below Poverty Line).
The growth in this segment is expected to be driven by growing consumer base, rising
rural incomes and consumption, conversion from illicit/ toddy to Value segment with
increasing awareness about health and quality, conducive regulatory policies and aided by
growth in population. In the short run, the Value segment could benefit from lower
discretionary incomes, which would push up the demand for lower priced liquor.
In 2019-20, FICCI estimates the illicit alcoholic beverage market to be worth Rs.
23,466 crores in value terms. Though this number may have reduced since then, it would
still be sizable representing a large opportunity for the industry. The State Governments
play an important role in this conversion. The Value and Value Plus markets are being
organized to prevent tragedies, as the excise revenue potential is significant.
| Parameter |
IMIL |
IMFL |
| Likely Consumer Segment differs in size and status |
Socio-economic D, comprising ~40% of population excluding below poverty line
population |
More affluent, socioeconomic sections C and upwards |
| Taste Preference |
Local fruit flavour dominated market, varies with states |
North India - Whisky East India - Rum South India - Brandy & Rum |
| Point of Purchase |
Mostly State Government Regulated vends (except for West Bengal and Haryana where
distributor model also exists); Banned in Southern India, apart from dry states |
Standalone retail outlets, department stores and Government owned shops in some states
like Delhi |
| Excise Control |
Highly regulated: Distillery must for selling in the state of sale Excise of Rs 15 per
Proof Litre |
Less restricted than IMIL, but higher excise duties of minimum of Rs 40 per Proof
Litre |
| Alcohol Content |
~30% on average Earlier made from Rectified Spirits, now increasingly trending towards
ENA |
42.8% IMFL is made from ENA (higher purity 96%) |
| Min Retail Price |
~ Rs 100-200 for 750 ml |
Starts from ~ Rs 600 for 650 ml |
| Brand Loyalty |
Low with high distributor power and price sensitive consumer; now changing in line
with increasing brand consciousness |
High with multiplicity of purchase options and more affluent consumer |
Outlook
Considering Indias large number of young people, the industry has numerous
opportunities. Young adults are likely to drive much of the expected and projected future
demand as they approach the legal drinking age and become more affluent. To capture as
much of the younger generation as possible, brand owners are focusing on online marketing
and storefronts. The spirits industry is all set for its growth phase, in order to sustain
growth, it needs an enabling ecosystem.
ETHANOL INUDSTRY
In India due to the coordinated efforts of the Public Sector Oil Marketing Companies
(OMCs), the 10% ethanol blend target under the Ethanol Blended Petrol (EBP) Program has
been achieved much sooner than the November 2022 target.
A 12% blending goal has been set for 2022/23, with 4.8 billion litres projected for
production, with a possibility of an upside.
By 2025, 20% blending of petrol in the country should be achievable thanks to recent
interest subvention incentives for grain-based distilleries. Indias current ethanol
production capacity is 426 crore litres derived from molasses distilleries and 258 cr.
Litres from grain-based distilleries. There is a proposal to increase these amounts to 760
crore litres and 740 crore litres, respectively. A total of 1,016 crore litres of ethanol
would be produced for EBP and 334 crore litres for other uses. (Source: NITI Aayog)
BUSINESS OVERVIEW
We have focused on creating steady growth through a well-entrenched Distillation
business, as well as laying a foundation for growth in our consumer business.
A robust model of well balanced between consumer and manufacturing segments continue to
generate healthy cash returns which we deploy through growth investments in our premium
segment.
In the premium segment, we are focused on niche segments and we are building blocks for
a high-margin brand business. With our overall volume crossing 2 lakh cases in FY23, it
was an important milestone for us.
In Fiscal 2023, the consolidated Net Revenue (net of excise duty) of 2,109 crore was
higher by 34% year-on-year from 1,579 crore in Fiscal 2022. EBITDA was at 253
crore and Net Profit after Tax was at 122 crore. This significant jump can be attributed
to a higher share of manufacturing business as the capex at Jharkhand was completed,
better realisations, lower finance costs on account of the paring of debt and lower cost
of debt. This performance was achieved despite the changes in excise policy and
inflationary input cost scenario.
Net Revenue Breakup (Rs crore)
BUSINESS SEGMENTS
1. Manufacturing Segment
The manufacturing business revenue, comprising (a) Bulk alcohol manufacturing (b)
Franchisee IMFL (third party bottling) and c) By-Products, was 1,363 crore during Fiscal
2023 which was up by 51% YoY, despite the Haryana plant not operating at optimum levels.
However, there were changes done in the Haryana plants and is now operating at normal
capacity. The newly added Jharkhand capacity in Q2-Fiscal 2023 has fuelled the growth of
the manufacturing business.
The bulk alcohol division is the backbone of your companys integrated model, the two
core products in this division are:
Extra Neutral Alcohol: We provide high quality Extra Neutral Alcohol to the other
divisions, ensuring a sustainable competitive advantage. ENA provided a natural hedge for
the consumer business which helped us protect our margins in this challenging year where
there was immense cost pressure. Also, the ENA which is not consumed internally can be
sold outside at the spot prices which helped to achieve top line growth as the prices had
increased in FY23.
Ethanol: Several structural changes that were set in motion over the past few years
are beginning to play out and this is further strengthening our play. Ethanol blending in
India has reached the target of 10% blending that was set by the Government, further it
has advanced by five years its target for achieving 20% ethanol blending in petrol. Such
initiatives by the government gave us the opportunity to ramp up our capacities in
Jharkhand and West Bengal and we will continue to capitalize on it in the coming years.
For the Fiscal 2023, bulk alcohol sales for your Company were 182.3 million bulk litres
as compared to 116.4 million bulk litres in Fiscal 2022. Despite the impact of maintenance
shutdown in Haryana, the capacity utilisation was at 90%. The bulk realisations at 59.1
per litre in Fiscal 2023 as against 55.9 per litre in Fiscal 2022, underscores the
structural shift that has played out. The volumes have increased mainly because of the
Jharkhand facility coming into play and the incremental West Bengal facility being
utilised throughout the year.
Franchisee Bottling: Our bottling operations saw some recovery with 3.03 million
cases as opposed to 2.9 million cases bottled in FY22. Your Company has bottling contracts
with United Spirits in the states of Haryana and West Bengal to manufacture their flagship
brands and with Bacardi in West Bengal. Apart from this a new tie-up with Bacardi in West
Bengal for leasing and contract arrangement will add revenue potential and better utilize
the Panagarh facility. Your companys strong management, deepened relations backed by
captive high-quality Extra Neutral Alcohol (ENA) gives unmatched value to top IMFL
companies.
By-products: Our other products, that is, Animal Feed Supplements (AFS), CO2 and
Hand Sanitisers has been a strong focus area for the Company. The By-product segment
contributed about 13% to the Total Income in Fiscal 2023. The market prospects for AFS
remain promising and while offtake is not a concern, prices are volatile due to linkage to
soya which is an agricultural commodity.
2. Consumer Business
The consumer business revenue, comprising largely of Value and Value Plus segment
(IMIL) and Premium Segment (IMFL), has shown strong performance in Fiscal 2023 and grew by
~10% year-on-year to reach Rs 746 crore from Rs 679 crore in Fiscal 2022, on the back of
higher volumes and better product mix. We have invested in human capital which we believe
is critical in the consumer business to understand the consumers taste preference and
allows to enter the market in the new segments we want to enter and flourish. So, to drive
this we have a completely dedicated innovation team to gain traction in the Premium
Segment:
Premium Segment
Your Company has been working on building a strong portfolio of brands under its
Premium Liquor segment, with an established presence in Pondicherry, Karnataka, Telangana,
Andhra in the South and West Bengal, Chhattisgarh, Odisha in the Middle and the East, and
Maharashtra, Goa in the West. Also, the company has recently entered the Haryana, Uttar
Pradesh and Delhi markets. Your company is looking for organic and inorganic growth
opportunities which means we will be adding more brands and strengthen the existing ones.
Your company is confident about its product range and will be focused towards the journey
of premiumization by targeting new geographies. Currently, there are plans to enter the
Punjab market. The size of the semi-premium whisky segment is almost 50 million cases,
whereas premium whisky is almost 15 million cases and super premium whisky is almost 2
million cases annually. The segments present a significant opportunity for growth.
Focus is being undertaken to ensure our commitment to excellence and customer
satisfaction as we strive to provide premium quality products and services. Our goal is to
create a positive and memorable customer experience for our customers, thus driving our
premiumization journey.
Brands from Premium Portfolio:
Value and Value Plus Segment
This segment has seen itself morph on the back of changing demand due to increase in
income in the rural and semi urban markets. As a strong player in this segment and a
market leader in some, we have been able to post strong growth even during these
challenging times. In Rajasthan the Companys market share is maintained almost 33% on the
back of strong performance of the Value Plus segment. However, in Q2FY23 the value plus
segment in Rajasthan segment saw a blip in volumes because of the changes in the excise
policy, things are yet to normalize and your company is optimistic towards this segment.
Haryana volumes saw a drop as the company decided to cut down on trade spends, eventually
the peers did the same as there was no price hike given in the state and it was not
feasible to operate at such levels, however, the company is winning back its lost market
share and is currently around 5%. Our recent expansion at West Bengal facility is about to
give us an added impetus to not only expand our portfolio of offerings, but this will also
allow us to capture certain market surges in that geography. We have witnessed that
consumers are ready to upgrade for a better product at a higher price point and move
towards a superior or you can say a premium product. The consolidated Value and Value Plus
segment sales stood at 14.2 million cases in Fiscal 2023 as against 14.6 million cases in
Fiscal 2022.
Brands from Value Plus Portfolio:
Expansion Plan
Your Company plans to expand in those areas that continue to remain deficit in ENA for
beverage and Ethanol for petrol blending. The goal is to establish itself in the
manufacturing business and then eventually target the consumer segment in that state.
•In Q2FY23 the new capacity of 140 KLPD with bottling plants came online at
Jharkhand.
• In Q1FY24 enhancing the capacity by 19 KLPD in Bihar.
• In Q1FY24 enhancing the capacity by 60 KLPD at West Bengal & Jharkhand.
• Greenfield project in Odisha - new capacity of 200 KLPD for Ethanol and ENA
with bottling plants, construction to start from Q2 of FY24.
• Greenfield project in Uttar Pradesh - Bottling plant construction is in
progress and will be live end of Q3 of FY24. The Board of Directors have approved a
capacity of 200 KLPD for Ethanol and ENA with bottling capacity and land acquisition is
underway.
Financial Highlights
• Net Revenues at Rs 2,109 Crores, up by 34% y-o-y.
• EBITDA at Rs 253 Crores down by 24%, with EBITDA margin of 12%.
• PAT at Rs 122 Crores, down by 35% with margin of 6%.
Environmental Compliance
Your Company is a zero-wastewater discharge company. We care for the environment as we
believe in the philosophy of sustainable development. Air pollution is controlled through
the installation of relevant control devices like ESPs which help in bringing air
discharge to within permissible limit. Following are the steps we have undertaken in the
new expanded capacity:
Air Pollution
a) Step forward to achieving zero discharge (explained below)
b) Air Pollution control through installation of the relevant Control devices with ESPs
c) Air pollution control through collection, purification, and sale of CO2. All Carbon
dioxide generated in fermentation shall be collected purified and sold to buyers including
soft drink manufacturers and others thus abating air pollution.
d) Proper disposal of all effluent related products such as spent grain and fly ash.
Spent Grain shall be sold as cattle feed (see below) and fly ash/ash disposed off for land
fill or for brick making.
Details of Zero Discharge – Liquid Discharges
Achieved through the following steps:
1. Separation of spent grain from spent wash: The spent wash emerging from distillation
(waste) would be passed through suitable equipment for the separation of spent grain.
2. Evaporation of Spent Wash: The lean spent wash would then be evaporated and
concentrated to syrup in an evaporator specially put for the purpose which is integrated
with the Distillation plant. This would be required to enable its drying later.
3. Mixing the concentrated spent wash with spent grain: The syrup spent wash and the
spent grain obtained would be mixed to form Wet Grain which can be disposed as cattle
feed.
4. Drying the same to powder: To improve on the quality of the Wet grain produced above
the same would be dried and sold as dried cattle feed.
Water Management
1. All water re-circulated to process with or without treatment thus no discharge of
any water stream.
2. Surplus water used in make ups or in the boiler and cooling towers after treatment.
3. Condensate from process reused in the boiler as boiler feed water.
4. Condensate from evaporator reused in the process after treatment.
5. All cooling water is through recirculation.
6. All bottle washing water reused after treatment in the process or used for
horticulture.
Thus, achievement of zero discharge on all streams as per requirement of the Pollution
Boards
R&D Activities in Globus (Technology)
a) Higher efficiencies of conversion: The expansion was done with the state-of-the-art
latest technologies to get the best conversions to alcohol at the highest efficiencies.
This would be in line with the best practices being followed. We are also working on
improving conversions not only of starch but also to alcohol with new strain enzymes and
yeasts.
b) Improving Distillation techniques and translating that to the plant in the expansion
– Multi-pressure: To improve both on quality and energy consumption the distillation
plant shall be of the multi-pressure design which would give us the benefit of both. The
quality would be matched with the best alcohol available in the country.
c) Looking at alternate disposals of spent grain: To keep in line with the requirements
of government regulations we would look at the waste as cost centre and are looking at
alternative markets in the cattle feed segment for its best disposal at the best price.
Branding of the product is also being examined.
d) Looking at better blends as final product diversification: With better quality
alcohol available we are moving to higher segments in the potable alcohol sector with
better blends and brands and would be launching further brands in the future to build our
market.
Risk Management
The nature of our business is such that it is subject to certain risks at different
points of time. Some of these include escalation in the cost of raw materials and other
inputs, increasing competitive intensity from other players, changes in regulation from
central and state governments, changes in supplier-distributor relationship, labour
shortage. Your company has always had a proactive approach when it comes to risk
management where it periodically reviews the risks and strives to develop appropriate risk
mitigation measures for the same. To enhance this focus, your company has formed a Risk
Management Committee to frame, implement and monitor risk management plan.
Internal Control Systems
Your Company has ensured that stringent and comprehensive controls are put in place to
ensure the optimal and efficient utilization of resources and to ensure safety and
protection of all assets from unauthorized use. An extensive program of internal, external
audits along with periodic reviews by the management is carried out to ensure compliance
with the best practices.
Human Capital Overview
Your Company considers human capital a core area for sustainable growth and has been
making conscious efforts to engage and develop human capital at all levels. The Human
Resource Department of your Company is highly focused on enhancing stakeholder value by
ensuring a fit between the management of an organizations employees, and the overall
strategic direction of the company. Over the years your company has been able to build a
team of qualified, dedicated & motivated professionals. The working atmosphere
provided to the employees is aimed at creating a sense of ownership which helps them to
shoulder greater responsibilities. As on 31st March 2023, the employee (excluding casual)
count for the company stood at 892 compared to 746 on 31st March 2022.
Disclaimer
Certain statements in this MDA may be forward looking within the meaning of applicable
laws and regulations. Actual results may differ from those expressed or implied. Important
developments that could affect the Companys operations include a downtrend in domestic
industry, significant changes in the political environment, changes in tax laws &
excise duties, litigation, and labour relations.
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