Associated Alcohols & Breweries Q1 FY27 earnings call

Associated Alcohols & Breweries Ltd. demonstrated strong performance in its IMFL proprietary segment during Q1 FY27, reporting a 58% year-on-year revenue growth to INR729 million and a 40% year-on-year volume growth to 0.79 million cases. This segment's contribution to overall revenue increased significantly to 23% from 17% in FY26, highlighting a successful strategic shift towards higher-margin products. The CP series, a key growth driver, achieved an impressive 260% year-on-year volume growth, expanding from 20,300 cases to 73,000 cases.

The ethanol business experienced significant margin pressure in Q1 FY27, contributing to a consolidated EBITDA margin decline from 14% to 11%. Realizations were impacted by oversupply and lower quota allocation, with sales to private OMCs at INR52-54 per liter, below the breakeven cost of INR57-60. Management anticipates better realizations from October onwards with new tenders and expects full-year revenue to remain at maximum capacity, though an upward trend in grain prices remains a concern.

The company is actively expanding its premium product portfolio with new launches in RTD, Tequila, and Malt. The newly launched RTD in Madhya Pradesh has garnered a favorable response, leading to applications for registration in 8 additional states, with meaningful contribution expected from next quarter. Tequila is slated for launch before Diwali across 7-8 states, targeting a 10-15% market share in the INR5,000-7,000 MRP segment. The malt maturation initiative is also progressing, with revenue from single malt expected from Q3 next year.

The acquisition of SDF Industries in Kerala is progressing as planned, with upgradation and automation underway. Management expects one unit to be operational by December '26 and full-fledged operations from April onwards. This strategic move aims to strengthen bottling capabilities, enhance operational efficiency, and enable the introduction of smaller SKUs, ultimately targeting a capacity buildup of 3.5-4 lakh cases per month in Kerala.

Associated Alcohols entered Odisha in Q1 FY27, with initial responses being encouraging, though new markets typically require 2-3 years for stabilization. The company plans to enter Karnataka this quarter and is working towards Andhra Pradesh. For existing brands like Hillfort Whiskey, which sells approximately 1,500 cases/month in a highly competitive market, management is revamping its blend and brand strategy, expecting to see good results in 1-1.5 years through a 360-degree approach including branding, advertising, and visibility initiatives.

The IMFL licensed business experienced a decline in revenue due to changes in business arrangements and the exit of Inbrew last year. The remaining Celebration Rum brand is seasonal and quota-specific, limiting its annual sales to approximately 1 million cases. Overall IMFL margins were impacted by a more than 10% increase in raw material prices from the previous quarter, a factor management is closely monitoring, especially for grain prices, which have shown an upward trend.