Assoc.Alcohols

Associated Alcohols & Breweries Limited reported Q3 FY26 net revenue from operations of INR260 crores, reflecting a sequential growth of 3%. Despite softer revenue, the company delivered a strong margin-led performance, with EBITDA margins expanding to 16% from 12% in the corresponding period last year, and 700 basis points improvement from Q2 FY26. Gross margins improved to 46% from 36% in the previous quarter, driven by softening raw material prices and better byproduct realization. Profit after tax (PAT) increased by 95% quarter-on-quarter to INR27 crores, resulting in a PAT margin of 10%.

The company is strategically aligning its portfolio and go-to-market approach to deepen its presence in premium segments and strengthen brand equity. A long-term objective is to build Central Province into a 1 million case brand, encompassing whiskey, rum, and vodka. New premium product launches are planned, with RTD product Kultur on track for H2 FY26 and tequila and brandy slated for Q1 FY27, strategically timed with state excise renewal cycles. This focus aims to drive both top-line growth from popular brands and margin contribution from premium offerings.

The engagement with Inbrew transitioned from a license arrangement to a contract manufacturing model, resulting in IMFL licensed revenues no longer being reflected in reported revenues. This change primarily contributed to a INR56 crores year-on-year revenue drop in Q3 FY26, with INR52 crores specifically attributed to the Inbrew business model shift. Despite this, the company remains confident in maintaining FY26 reported revenues broadly in line with FY25, anticipating over 25% growth in Q4 FY26, which is historically their strongest quarter.

AABL is selectively expanding into new geographies, having recently entered the Jharkhand market with its premium portfolio, including Nicobar Gin and Hillfort. While core volumes are predominantly from Madhya Pradesh and Kerala (80-85%), new markets like Maharashtra and Uttar Pradesh are being approached cautiously due to high capital requirements and the need for localized strategies. In Maharashtra, realizations are significantly higher at around INR1,500 per case for premium brands, compared to an overall portfolio average of INR700-800 per case, reflecting the impact of the premiumization strategy.

The company's malt maturation process is progressing as planned, with INR6 crores invested in casks procurement during Q3 FY26 as part of an overall INR100 crores capex plan for the malt plant. The first single malt super premium product is expected to be available in 1-1.5 years, aiming for better economics and consistent quality by reducing reliance on external malt procurement. ENA volumes have seen a decline, primarily due to increased internal consumption for the company's own growing product volumes, with potential future expansion of ENA manufacturing capacity being considered.

Softening raw material prices, particularly grain, have been a key driver for margin expansion in Q3 FY26, with prices around INR20,000+ compared to INR23,000 in the previous quarter. Management expects grain prices to remain broadly stable in the near term, supporting continued margins. Regarding working capital, the company does not foresee significant requirements in the near term, planning to convert surplus funds in securities as needed. However, working capital might slightly increase if sales grow, especially in states like UP with longer payment cycles and excise duty requirements.