A number of concurrent realities make India one of the most attractive liquor marketsof the world. people to its population each year
India adds an estimated 15 mnlarger than any country.
This consistently growing market is now marked by relatively new and welcomedevelopments: the population of social drinkers is increasing the availability andaccessibility of liquor is reaching wider and deeper across the consumption landmass; theincidence of women drinkers is rising; the choice of liquor products is widening; there isa graduation towards premium brands even as there is a consistent movement towardsenhancing product affordability and widening the market.
India a turnaround market
Over the last decade India has emerged as possibly the fastest-growing major liquorconsuming market and still only consuming 5.1 litres of liquor per capita one of thelowest in the world (Asian average 20.9 litres). This indicates that not only has asleeping giant finally awakened but that India addresses a multi-year growth opportunity.
The one factor making a difference to country's consumer landscape is the emergence ofthe millennial generation.
This generation defined as one born after 2000 is economically productivefrequent consumer brand conscious and willing to pay more for premium products. Theresult is that even as India's overall liquor market grew by an estimated 7% in 2017-18the country's premium segment outperformed sectoral growth at 12%. This divergence hasresulted in a strategic shift: Diageo-USL the country's largest liquor company as a partof its strategy to vacate the large mid-end of the country's liquor consumption pyramidand focus on premium labels instead. Besides the Company entered into multi-yearproduction outsourcing relationships - market manufacture distil and bottle marqueeproducts - with credible liquor manufacturers.
These twin developments represent the most exciting opportunities in India's liquorsector.
Bigger and better
These sectoral realities have opened a number of opportunities for Associated Alcohols& Breweries Limited.
AABL recognised that if the overall Indian market continued to outperform the globalaverage it would require more than just the marketing of proprietary and outsourcedbrands: it would require a larger pool of extra neutral alcohol the building block ofIndia's liquor industry. In view of this your Company embarked on a decisive extraneutral alcohol capacity expansion programme: from 31 million litres in 2017 to 45 millionlitres in 2018 in the first phase and to 90 million litres per annum in the second phaseby 2021. At a time when India's extra neutral alcohol consumption of 2.7 billion litres(2017) is growing at a compounded 6.1% (2010-2017) an estimated demand of 3.8 billionlitres of ENA by 2023 provides the Company with an attractive marketing opportunity.
For years the Company was the outsourcing manufacturing partner for Diageo-UnitedSpirits the latter inspired by our commitment to ethical cum quality practicescompetitive manufacture and proactive capacity investment. During the year under reviewAABL took this prestigious engagement ahead. The company entered into a franchiseeagreement with the market leader to manufacture its popular premium brands in MadhyaPradesh in lieu of a
The result was that Company emerged as a market leader of IMFL products in the state.Besides a deeper engagement with Diageo-USL strengthened AABL's respect enhancingprospects of similar engagements with other premium liquor players in India.
The Company is enhancing the presence of its proprietary brands in Karnataka Keralaand New Delhi. The Company strengthened its qualification credentials by venturing andexploring into India's large and
An estimated demand of 3.8 billion litres of ENA by 2023 provides the Company with anattractive marketing opportunity
profitable canteen store department vertical.
I am pleased to state that AABL reported a record 2017-18 whichroyalty payment.represents a robust growth foundation. The company reported 12% growth in revenues 29%growth in EBIDTA and
45% growth in net profit indicating profitable growth during the year under review. Anumber of factors contributed to an increase in the Company's EBIDTA margin by 237 bpsduring the year under review. The Company standardised yields consistently through theyear. It moderated power and fuel costs through utilisation. There was an increased focuson automation enhancing people productivity. The increased share of premium products inthe sales portfolio enhanced margins over steady merchant ENA sales.
Despite growing capex investments the Company moderated its long-term debt-equityration 0.09 (0.16 in FY 17).
AABL's record performance during the year under review could have been better but for adecline in revenues and profitability during Q4. During this quarter a large number ofAABL distributors (due for license renewal on 1 April 2018) opted to destock in March2018
Besides the Company's bottomline could have been better but for the adoption of Ind-ASregulations and as prudent practice the Company made a provision for the contingentliabilities in its annual accounts.
During the year GST implementation enhanced overall costs 2-3%. This was effectivelycountered through AABL's robust fundamentals economies of boiler scale and backwardintegration. The imposition of a ban on liquor sales adjacent to State and nationalhighways temporarily affected revenues before a clarification restored status quo inmunicipally-governed areas.
Even as India is already the third-largest liquor market in the world with ~30% of itspopulation alcohol consumers the sector is still considered sunrise.
Rural India is emerging as a larger market the millennial population is growingincreased promotional spending by liquor majors is helping widen the market there is agrowing preference for eating and drinking out and the country is marked by largerdisposable incomes. Besides emerging trends with an impact on the demand-supply dynamicscomprise the use of natural flavours and sweeteners addressing health concerns and thegrowing appetite for exotic drinks. I must assure shareholders that AABL is attractivelyplaced to capitalise on these realities through a prudent combination of diversestrategies manufacture of a building block (B2B) combined with franchised sale(B2C) and the marketing of proprietary brands (B2C) that is helping moderate riskon the one hand and grow the business on the other. At AABL we expect to enhance valuethrough the timely commissioning of our ENA capacity increase in capacity at a cost lowerthan the industry average push deeper into the markets of our presence with our brandedproducts move the organisational revenue needle towards value-addition and negotiate alower cost funds from banks with the objective to enhanced our long-term sustainability.revenues.
I must assure our shareholders that the future is bright at our Company.
Whole Time Director