pioneer distilleries ltd Management discussions


Global Economy: After an estimated contraction of 3.3 percent in 2020, the global economy is projected to grow at 6 percent in 2021, moderating to 4.4 percent in 2022. The contraction for 2020 is 1.1 percentage points smaller than projected in the October 2020 World Economic Outlook (WEO), reflecting the higher-than-expected growth outturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working. The projections for 2021 and 2022 are 0.8 percentage point and 0.2 percentage point stronger than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year. Global growth is expected to moderate to 3.3 percent over the medium term reflecting projected damage to supply potential and forces that predate the pandemic, including aging-related slower labour force growth in advanced economies and some emerging market economies. Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses.

Indian Economy: With India emerging out of the pandemic-induced recession, its GDP improved by 0.4% in the December quarter, and these trends look set to continue in the final quarter of Indias financial year, which ends on 31 March 2021. This is evident from high-frequency indicators such as Goods and Services Tax (GST) collections, automobile and tractor sales, rail freight traffic, power demand, Purchasing Managers Index (PMI), and corporate revenues. Also, with the easing of mobility restrictions, manufacturing activity is reverting to pre-COVID levels. However, services, particularly high contact services, continue to lag.

Indias GDP growth is expected to rebound to 10.5% during 2021-22. To further stimulate growth, policies over recent months have been focused on reforms that propagate growth. For example, the manufacturing sector stands to benefit from Production-Linked Incentives (PLIs) announced for key sectors that aim to showcase India as a preferred manufacturing and export hub. Meanwhile, services growth is expected to gain traction in 2H22 (especially contact-intensive services) as vaccine availability and deployment improves. The outlook for growth in agriculture is contingent on the monsoon season, and the sector is expected to maintain growth similar to the current financial year (3%, year-on-year), if the monsoons are normal.

As the Indian economy returns to normalcy, there could be a healthy rise in tax collections as well as an uptick in public revenues arising from the disinvestment process. In this context, it is pertinent to note that the government has indicated that the sale of government stakes in selected State-Owned Enterprises (SOEs) as well as publicly owned banks and Indias premier insurance company, is likely to be completed by the next financial year. This large-scale privatization process, coupled with the 6.8% fiscal deficit targeted for 2021-22, is expected to provide headway for incremental expenditures on healthcare and capital creation, which will play a pivotal role in enhancing the focus on sustainable economic development. These initiatives are expected to restore the pandemic-induced hiatus in the generation of new employment opportunities.

The Indian government has undertaken a slew of reforms, including labor reforms, corporate tax cuts and PLIs to steer the economy to recovery in the next financial year. However, key factors that will drive this rebound include normal monsoons, success in averting a full-fledged second wave of COVID, and discretionary spending staying unaffected by cost pressures, particularly those stemming from high pump prices of petrol and diesel.


India is one of the fastest growing alcohol markets in the world. Rapid increase in urban population, sizable middle class population with rising spending power, and a sound economy are certain significant reasons behind increase in consumption of alcohol in India. The Indian alcohol market is growing at a CAGR of 8.8% and it is expected to reach

16.8 Billion liters of consumption by the year 2022.. India is the largest consumer of whiskey in the world and it constitutes about 60% of the IMFL market.

Though India is one of the largest consumers of alcohol in the world owing to its huge population, the per capita alcohol consumption of India is very low as compared to the Western countries. The per capita consumption of alcohol per week for the year 2016 was estimated at 147.3 ml and it is expected to grow at a CAGR of 7.5% to 227.1 ml.


Industry performance: The alcobev industry in India has been growing at more than 12% CAGR for the decade starting 2001 making it one of the fastest growing markets in the World. In 2019, the industry experience significant headwinds on back of slower economy growth. The impact of this slowdown has aggravated by the increasing raw material prices.

Market segmentation: The Indian alcobev industry is segmented into IMFL (Indian Made Foreign Liquor), IMIL (Indian Made Indian Liquor), Wine, Beer and imported alcohol. The heavy import duty and taxes levied raised the prices of imported alcohol to a large extent. IMFL category accounts for almost 72% of the market.

Consumption pattern: The states of Karnataka, Maharashtra, West Bengal, Odisha, Telangana, Delhi, Haryana, Punjab etc. are amongst the largest consuming states for alcobev in India. The most popular channel of alcobev sale in India is liquor stores as its consumption is primarily an outdoor activity and supermarkets and malls are present only in the tier I and tier II cities of India.

Constantly changing regulatory environment: Recently, Government in the State of Andhra Pradesh has changed the route to market by setting up state managed retail outlets and discontinuing private retailers. In contrast, State of Chhattisgarh has rolled back from Govt. controlled to private parties which is expected to flourish the industry.

Growth drivers: Indian alcobev industry holds huge growth potential given the low per capita consumption and the demographics and aspirations of the growing younger population. Rapid urbanisation is expected to enhance disposable income, which is favourable for the growth of the industry. The revival in GDP will give a further fillip to alcobev sales as IMFL volumes are seen to grow 1.5x GDP when GDP growth picks up. Favourable demographics with a median age of 27.9 years and growing social acceptability of alcobev consumption are likely to bode well for the industry. The organised players stand to benefit from steady growth in the conversion from country liquor to IMFL given increasing health concerns associated with consumption of country liquor. States like Tamil Nadu and Karnataka have banned the sale of country liquor primarily on account of rising death toll due to consumption of country liquor.

Growing prevalence of premium alcobev: Rapid urbanisation is also leading to spur in aspirational values of people, leading to higher consumption of premium alcobev brands. With more Indians travelling abroad, rising aspirations, favourable environment for imported liquor and higher disposable income, consumers are upgrading towards Premium segments in the country. The rise in premiumisation is clearly reflective in the increased focus of the big players on semi-premium and Premium categories with an increase in launches and increased marketing of these categories. Another trend which is gaining traction in the alcobev space is the growing popularity of grain-based liquor as against traditionally popular molasses based liquor.


Regulatory oversight of both central and state governments encompass a slew of restrictions on production, movement and sale of alcobev products. Alcobev also falls under the purview of Food Safety and Standards Authority of India (FSSAI). In addition, direct advertising of alcobev products are not permitted in India.

Prohibitively high inter-state duties compel national alcobev players to set-up owned or contract manufacturing setups in every state. Licenses are required to produce, bottle, store, distribute or retail all alcobev products. Distribution is also highly controlled, both at the wholesale and retail levels. In states with government control on pricing, price increase is based on government notifications. In states where retailing is controlled by the state government, there is a specified quota that each player can sell, capping potential to increase market share for our products. These regulations make operations restrictive for the industry players.

Goods and Services Tax (GST):

As one of companys primary product Molasses based ENA is out of the purview of GST while the primary raw material Molasses is a part of GST, input credit offset is not available resulting in increase in the cost of operations. Your company has been working together to put in place a robust mitigation program to reduce the adverse impact on its Operations.

Pricing Challenges over Materials:

Pricing continues to remain a challenge for the category since with continuous increase in excise duties, and raw material prices, end consumer prices continue to experience upsurge with no benefit to your company.


Company overview

Pioneer Distilleries Limited (PDL) is a subsidiary of United Spirits Limited (USL), the largest spirits manufacturing company in India, and is a part of Diageo Group, global leader in beverage alcohol with an outstanding portfolio of brands across spirits, beer and wine categories. PDL is a bulk spirits supplier and bottler to USL. In 2011-12, USL acquired PDL and is presently holding 75% shareholding in the Company.

Industry Structure and developments

The Companys business activity falls within a single primary business segment i.e., Potable Alcohol and related products. The Company is running a 160 Kilo Litres Per Day (KLPD) Extra Neutral Alcohol (ENA) manufacturing facility comprising of 100 KLPD of Molasses based ENA and 60 KLPD of Grain based ENA, 12 KLPD Fresh Malt Spirit and 2 Lac cases per month bottling facility at Balapur Village, Dharmabad Taluk, Nanded District, Maharashtra. The other products of the Company are Special Denatured Spirit, commercial grade Carbon-di-Oxide and Distillery Dry Grain Soluble (DDGS) as a by-product of the process. All these facilities are supported by a state of the art pollution control equipment including a multiple effect evaporator followed by a Dryer suitable for a standalone Distillery to ensure ZLD ( Zero Liquid Discharge) norms.


The product-wise performance of the Company is given hereunder:

(i) Extra Neutral Alcohol (ENA): Production of Molasses based ENA (MENA) during the financial year April 01, 2021 to March 31, 2022 has been of the order of 163.74 LBL and production of Grain based ENA (GENA) 179.28 LBL.

(ii) Absolute Alcohol (Ethanol): Production of Absolute Alcohol during the financial year April 01, 20 21 to March 31, 2022has been of the order of Nil.

(iii) Malt Spirit: Production of Absolute Alcohol during the financial year April 01, 2021to March 31, 2022 has been of the order of 6.06 LBL. The Company has set-up a maturation plant and the malt spirit under maturation as of March 31, 2022 is 24.51 LBL.

(iv) IMFL Bottling: 13.28 Lakhs Cases.

(v) CO2: Carbon-di-Oxide Dry Ice: Production of Carbon-di-Oxide Dry Ice during the financial year April 01, 2021 to March 31, 2022 has been of the order of 1636.34 MT.

(vi) Special Denatured Spirit (SDS): Production of SDS during the financial year April 01, 2021 to March 31, 2022 has been of the order of 717.15 LBL

(vii) Distillers Dry Grain Soluble (DDGS): Production of DDGS during the financial year April 01, 2021 to March 31, 2022 has been of the order of 3104.06 MT and DWGS is 6378.42 MT Production of Cattle Feed during the financial year April 01, 2021 to March 31, 2022 has been of the order of 1176.44 MT.


Your company is part of USL-Diageo Group, leader in Indias alcobev industry. Diageo has initiated steps to turnaround the Company with changes at management level, revamp of business process, enhanced supply chain efficiency, engaging with the government and improving work culture. Your Companys focus is to bring in efficiency in production and reduce downtime. This will help the company achieve volumes which will be key to profitability. Your company does not foresee any challenge in terms of demand for its products and has been engaging with third party bottlers to reduce reliance on USL. Disgorging and selling of matured malt stocks was commenced during the year. This ensures stability of margins, reduce working capital requirements. Regulatory overhangs will continue to pose challenges for the alcobev industry. As seen in the past, your Company is well equipped to overcome any such challenges.

Your Company plans to carry out detailed technical study of operations/ machinery. Necessary improvements will be carried out to achieve cost reduction, enhance quality, improve safety and reduce carbon footprint.

B. Strengths

Product portfolio and diversity: The Companys product portfolio extends across GENA, MENA, Fresh Malt Spirit, Matured Malt Spirit and IMFL Bottling.

People Power: The Companys success is led by an empowered and committed team, who are partnering it in the realization of its vision.

C. Risks & Concerns

The industry is highly regulated by the government with regulations pertaining to: licensing, setting up of new or expansion of distilling and bottling capacities; manufacturing processes and sale of products. Heavy taxes and duties levied on spirit manufacturers add to the industry concerns. Apart from Central Government regulations, every state of India has its own set of regulations, tax rates and duties for inter-state movement of liquor. Inclusion of alcohol within the purview of FSSAI to ensure quality standards will lead to further multiplicity and sometimes duplicity in regulations and regulators and sometimes inconsistencies in regulations.

D. Opportunities

Entry barriers for new players: The alcohol industry in India, being highly regulated, has high entry barriers for new players, thereby creating a favorable environment for the existing players.

Demand for spirits: Indians have higher preference for spirits containing up to 42.8% alcohol content. IMFL category accounts for almost 70% of the Indian Alco-Bev market. Increase in the demand for IMFL year on year has created opportunities for distilleries to produce more and more to meet the demand.

E. Threats

Non-availability of grains due to less production of crop will push the grain prices up, which in turn will affect the margins for GENA and Malt spirit. Similarly, non-availability of Molasses due to government encouraging production ethanol for blending into fuels will push molasses price which in turn will affect the margins for MENA. These events put pressure on the profitability of the Company.

Any drastic change in the policies of the Government and pollution laws can be considered as possible threats to the industry.

The Company believes that in order to be competitive and sustainable it has to focus on efficiency of the plant by upgrading to modern technology. Accordingly, your Company is gearing up itself to exploit the opportunities by constantly modernizing the machinery and developing innovative product applications. Constant efforts are being made to meet the stringent quality requirements. With the dedication of the management towards exploring new opportunities coupled with the Companys competitiveness and product quality, your Company will continue to explore and pursue new opportunities.


The financial statements of the Company are prepared in compliance with the provisions of the Companies Act, 2013 and the Generally Accepted Accounting Principles in India. In terms of the SEBI Listing Regulations, the management accepts the responsibility for the integrity and objectivity of the financial statements and the basis for various estimates used in preparing such financial statements.

The Company has achieved a turnover of Rs. 21,170 Lakhs for the financial year ended March 31, 2022 against the turnover of Rs. 16,740 Lakhs over the prsevious year. This growth was led by commissioning of several capital expansion projects. The Loss before tax of your Company during the financial year amounted to Rs. 7,196 Lakhs.

The working capital requirement of the Company is financed by the Deutsche Bank, Bangalore.


Key financial ratios arising from the financials are given below for the financial year ended March 31, 2022 and March 31, 2021

Particulars F22 F21
Debt-Equity Ratio -1.7 -2.0
Current Ratio 0.2 0.2
Interest Cover on operational EBIDTA -0.2 -0.7
EPS -53.75 -64.66
P/E Ratio -1.67x -0.86x
Return on Networth NA NA
Return on Capital Employed -3% -12%
Inventory Turnover Ratio 0.5 0.6
Receivable Turnover Ratio 0.0 0.0
Payable Turnover Ratio 7.3 7.4
Net profit Margin (PAT/NSV) -34% -52%
Operating Margin (EBIT/NSV) -19% -22%

Due to operational challenges on account of intermittent breakdowns, closure of operations, delay in stabilisation of operations resulting in underutilisation of capacity and change in terms of government grant, the Company continued to report operational loss. These losses have resulted in net-worth becoming negative and hence Return on Networth is not computed. This has affected debt-equity ratio, EPS, P/E Ratio, Return on Capital Employed.

Due to maturation of malt stocks (above 18 months), inventory turnover ratio has come down.

Receivable (debtors) turnover ratio has improved as your company has started operating on advance payment or immediate payment basis.


Your Company has clearly laid down policies, guidelines and procedures keeping in mind the nature, size and complexity of business operations. Your Company maintains a proper and adequate system of internal controls with well-defined policies, systems, process guidelines, and operating procedures. Your Company ensures strict adherence to various procedures, laws, rules and statutes. Internal Audit is periodically conducted on these areas. The Board closely oversees the business operations on a regular basis. MIS systems are effectively used to keep all expenses within budgetary allocations and corrective measures are promptly undertaken in case of any variance.

COVID-19 crisis and related uncertainty posed unique set of challenges in performance of certain controls and evaluation of their effectiveness which required physical presence of employees for performance of the controls and auditors to observe the operations of the controls. In this context, management has performed alternate and additional procedures in evaluating the effectiveness of internal control over financial reporting.


The company has a family of 148 permanent employees. The Company believes that people are the important assets and hence it is committed to create an open environment and upskilling which encourages the ideas and enriches the organizations collective knowledge pool. The company aspires to evolve into a future-ready organization centered on promoting a collaborative and cohesive culture.

Your Company is now trying to focus on multiskilling to improve the productivity of the employees by giving trainings and changing roles. Company is also training the employees on Lean Six Sigma and 5s. Performance appraisals take place every six months, giving every employee sufficient time to meet his/ her role requirements in the next six months. There has been no loss of production at the Companys manufacturing unit this due to the relationship that the company has maintained with the employees.


This Report contains forward-looking statements that involve risks and uncertainties. Your Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results, performances or achievements could differ materially from these expressed or implied in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their dates. This Report should be read in conjunction with the financial statements included herein and the notes thereto.


In view of the nationwide lockdown due to the outbreak of COVID-19 pandemic, your companys operations at all of its manufacturing, warehousing and office locations were temporarily stopped from March 23, 2020. Operations have since resumed from May 4, 2020 with adequate precautions being taken in accordance with Government guidelines, and a majority of the Groups manufacturing locations are operational as at the date of approval of financial results. Management is taking appropriate action, as necessary, to scale up manufacturing operations in due compliance with the applicable laws. As at the date of approval of financial results, sales have also resumed in a staggered manner across the country. Your company has a prudent liquidity risk management policy for maintenance of required cash and/or has access to funds through adequate unutilized sanctioned borrowing limits from banks and is confident of servicing its debt obligations as they fall due. The Company has assessed its existing controls and internal financial reporting processes and made appropriate changes, as required, in view of the situation arising due to COVID-19 pandemic. Company has also reviewed its contracts/ arrangements and does not expect any material impact on account of non-fulfilment of the obligations by any party.