Ladies and gentlemen, good day and welcome to Q1 FY 2023 Earnings Conference Call of United Breweries Limited hosted by Investec Capital Services. As a reminder, all participants' lines will be in the listening mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Harit Kapoor from Investec Capital Services. Thank you, and over to you, Mr. Kapoor.
Yeah, thank you, Margaret. On behalf of Investec Capital Services, we would like to welcome all the participants as well as the senior management of United Breweries on the Q1 call of UBL. We have with us from the senior management, Mr. Berend Odink, CFO, and Mr. P.A. Poonacha, Finance and Investor Relations. I'll now hand over the call to Berend for opening remarks, after which we can open the floor for Q&A. Over to you, Berend.
Thank you, Harit, and good afternoon, everybody on the call. Thank you for joining, and today we will discuss the results of the first quarter. As Harit said, I'm here together with Mr. Poonacha. After the opening comments, we will be very happy to take any questions. We'll start with the results highlights for the quarter. The company posted volume growth of 121% in the quarter versus prior year, where the prior year was impacted by the Delta variant of COVID. Driven by recovery of demand prevalent across all markets, the company posted 42% sequential quarterly volume growth. The quarter made a record sales volume, which also represents a full recovery and 8% ahead of 2019 pre-COVID levels of volume. The premium segment recorded growth ahead of the total portfolio.
Price increases taken in key states, with further options are being pursued for further increases. Gross margin was impacted by the commodity price inflation. A combination of cost and efficiency measures and fixed cost leverage resulted in an EBIT margin of 8.9%, up 480 basis points versus prior year quarter. The record volumes were achieved despite a number of supply chain restrictions seen in the peak season. Moving to the next page, there's a summary table for the quarter results, with net sales up 118% to INR 2,437 crore and EBIT up by 370% to INR 218 crore at a margin of 8.9%.
Turning to the regional volume growth, we have seen following the record March performance, a good combination of demand with strong recovery across all markets with volume growth of 121% versus the prior year COVID impacted quarter. North posted 87% growth, particularly in Rajasthan, Haryana, Delhi, and UP. West posted 167% growth with higher volumes in Maharashtra, Goa, Madhya Pradesh, and Silvassa. In East, the company reported 88% growth, mainly in the case of Orissa, West Bengal, Assam, and Arunachal. In South, there was 162% growth, with the key states being Telangana, Karnataka, Tamil Nadu, Kerala, and Andhra Pradesh. Turning to the net sales, these were up 118% in the quarter and as earlier said, driven by 121% in terms of volume. Pricing was up 9%.
Increases have been realized in multiple states, including Haryana, Karnataka, Maharashtra, Madhya Pradesh, Odisha, Rajasthan, Telangana, and UP. The company continues to pursue options of further price increases wherever possible. A negative mix variance resulted in a -12% due to state mix, with different volume growth observed across states with different levels of net revenues. Moving to the next page on the EBIT breakdown. The gross profit growth was driven by volume growth and price increases. Gross profit margin, as earlier stated, was impacted by the commodity price increases in raw and packaging materials. The improved margin was driven by fixed cost leverage and various savings initiatives, and the negative gross margin impact was more than offset by the other cost items that show margin improvement, resulting in an 8.9% EBIT margin. Finally, on the outlook and summary.
Following the record volumes and recovery beyond 2019 demand levels, the focus remains on building further category penetration while driving the share of premium in the portfolio. CapEx investments during the quarter were INR 44 crore, with the volume growth during the quarter resulting in an ongoing review of capacity plans to meet future demands. Although commodity prices remain elevated, there are some indications that spot prices are softening. The company has focused on security of supply given the peak season and the volatile commodity markets. UBL is in the process of pursuing further price increases in combination with continued cost measures to mitigate this impact. In light of the strong demand we experienced in the peak season, post the earlier COVID impacted periods, UBL remains optimistic about the long-term growth drivers of the industry on the basis of GDP growth, urbanization, and evolving consumer trends.
UBL is well positioned to leverage and drive these opportunities. With that, I'd like to conclude the opening remarks and let us please move to the Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah, thanks and congrats on very good volume growth. My first question is on your essentially slide number 8, where you have given the -12% mix variance. You have mentioned differential volume growth across state. Now, when I see the previous slide, the West and South India has grown much faster. Now, West and South India is normally seen as the more premium market. Is the pricing here lower? Could you explain why -12% is happening?
Yeah, thank you for the question. It's really about different growth rates state by state, plus also the element factoring into this quarter, of course, as we compare to prior year COVID-impacted quarter, which was of course, in that sense, not a typical quarter. Furthermore, we also have observed, let's say, supply restrictions that meant sometimes less than optimal sourcing, meaning that where demand was high, some of the states implemented export restrictions. That meant different supply routes than we would normally use. To your point, indeed, there are states with higher and lower revenue per case. For example, Telangana has a relatively lower realization per case, but outperforms in terms of growth, and that's an example of the negative mix that we referred.
Sure. Thanks, sir. Given YoY comparison is extremely difficult to draw any conclusions, my question is on the 8% higher volume versus pre-COVID. Here, if you could tell us which states or which regions have grown faster versus pre-COVID, the 8% number which you have mentioned, which one has been laggard and which has been the outperformer?
We have seen across the board, particularly, if you compare to 2019, strong growth in states like UP, Haryana, West Bengal, Odisha, and as I earlier mentioned, Telangana, coupled with sometimes share increases. States that are marginally lower is for example Maharashtra, Kerala, and of course Andhra Pradesh, where we know that in early 2019 there was a different excise policy than today is in place.
One follow-up here, sir. So Maharashtra and Kerala, the underperformance, is it because of the general GDP issue there, or the regulations are a bit more favorable in UP, Bengal, Odisha? What is the reason for the trend which you mentioned?
Yeah, I think there are various reasons. In Maharashtra, for example, we know that the differential excise policies versus other alcohol craft industries are a little bit less favorable. Also here, we went first with price increase in the state during the quarter. There could be sometimes elements of pricing that impacted, particularly if you compare across three years. I think overall, if you look at totality across all the states, we see a very consistent recovery and even demand levels during the quarter above 2019.
Right. Last question. Obviously harsh summer would have benefited you. This 8% growth versus COVID or say quarter-on-quarter growth of 41%, et cetera, any sense you can give us, is there a market share gain within beer? Is there a market share beer gain for beer industry from spirits? Because United Spirits had a much lower number. Any insights you can give us on that?
I think of course we have now witnessed let's say an unimpacted peak season for us. I think yeah we all are positive about the demand recovery that we have seen. Given also of course a limited visibility during 2 years impacted in the peak season by COVID. It's good to note that consumers are back and above 2019 levels. I think some of the weather patterns of course also helped in some of the states. I think yeah it has been a good quarter for beer as you mentioned.
Okay. Thanks. That's all from my side. Thank you.
Thank you. The next question is from the line of Nillai Shah from Moon Capital. Please go ahead.
Thank you. Hi, Berend. The first question is on what you mentioned in terms of the Heineken review in Tamil Nadu and Andhra Pradesh. Some questions around that. First of all, why is Heineken kind of taking the initiative to take the review? Shouldn't it be the management? Should we read something into this?
No, I don't think that. It's very customary that, upon, you know, obtaining majority control that Heineken and UBL started together a integration review. I would say that's a very, logical, step.
Okay. Does this review also cover the purview of perceived corporate governance risks of operating in certain markets, or is this just a pure financial, and portfolio review?
No, it's a pretty broad review, and again, it's very customary, as I said, after obtaining majority control in the company. It's across all kind of functions, portfolio, processes, et cetera. So that's, I would say, fairly standard.
Great. Could you throw some light on what exactly you know Heineken is trying to achieve out here? Because United Spirits had a similar sort of shift, and when that happened, we saw that there was a major dip in volumes in the state of Tamil Nadu when they basically were changing what is, I think, effectively the same distributor that you guys also have. So, should we expect a you know, a major dip in the volumes, at least in the near term, as you may go alone or solo in that market without an agency partner?
No, I think as with any change in operating model, one cannot predict exactly the impact of such a change. The operations will be monitored closely. As we stated, there has not been an impact on the sales of the quarter, June ended, so I think that's also clear.
Over the course of the next 2, 3 quarters, should we expect some disruption?
Yeah, what have we said? That we will closely monitor that, but we cannot predict exactly how the future will look like, of course.
Could you tell us how much of your total volumes comes from Tamil Nadu and Andhra?
Combined, those two states are around 10% of our volume.
10% of volume. Okay, great. The second bit is on pricing. You mentioned 9% pricing. How is this calculated? Is this just simply the net revenues minus your volume growth, you know, the net revenue growth less the volume growth? Which is to say that, is this on net sales pricing, or has the consumer price on an average across the country gone up by 9%, when they buy the UBL brands?
No, it's slightly different. It's been calculated as the price realization for us as a manufacturer, that would not necessarily correspond exactly to, consumer prices because there could be differences in, the value chain, with excise, of course, being a key component. Hence we separated also the volume impact and the mix variance from that. Just to give some context, this 9% is really what has been, let's say, realized year-over-year for the quarter. In the quarter itself, we've increased prices in, the states that, well, we increased. Those states represent around two-thirds of our volume. Just to give you a perspective of, the impact of pricing.
Could you just, you know, kind of give us some view on how much has been the price increase in, let's say, states like Karnataka or Maharashtra, where it's been relatively free pricing for the company?
Yeah.
The consumer.
If you look at the consumer price levels, for example, then we talk about ranges, I would say between 3%-7%. It's relatively, I would say, benign given the overall context of inflation. Of course, that reflects a balanced approach looking at the competitive situation of the beer category, but also the total alcohol category, also the possibilities to increase prices, yes or no. That's the elements that go into the mix when we look at the options for pricing.
Sure. Finally, on, you know, barley prices, it's been trading in a very, very tight range, since the big uptick which we saw in March. Have you guys been tracking, what the global barley sourcing or the view on global pricing is, let's say, for, you know, out six months or something of that sort, just to get a sense of how this commodity is likely to behave into the next season in India?
Yeah. We continuously monitor not only domestic prices, but of course also international barley prices. We continue to review our buying strategy, the quantity, the sourcing, et cetera. The domestic buying season has been pretty much completed. Of course, there can be quantity brought to the market and be traded in the months to come, but for the majority, it's typically completed.
Yeah, as you said, the prices have been quite up. Last time we spoke about close to 70% and we will have to see next year, of course, the new pricing for the new crop, and that we continue to monitor, also respectively, of course, what's happening in international barley prices in terms of not only the pricing level but also the quantities.
No sense at this stage on, say, for example, the sourcing of the crop in Ukraine and how that is going along, because there's really a lack of visibility on that front.
Yes, you're right. The international situation remains, of course, very dynamic. There is of course, some developments of potential exports out of Ukraine. Yeah, I think we all see week by week, that remains, I would say, relatively uncertain. Yeah, even further, more important to follow the international contracts, the international availability, so that one has always the various options under constant monitoring. As you say, yeah, the overall market, particularly with the situation on the macroeconomic level, remains quite uncertain.
Sure. Sorry, just one last question on volumes. While the recovery has been from pre-COVID levels now, and I think even Anheuser-Busch reported a similar number, the question really is that, you know, a 2.5% volume CAGR versus pre-COVID is not really great. Would you expect an acceleration in volume growth over the course of the next few quarters? Or do you think the macro environment restricts that particular acceleration at this point in time?
Yeah, I think if you compare to 2019, where we reported 8%, I think if we would exclude the state of Andhra that went into a complete different excise policy in the meantime, then we talk about a 14% volume growth. Again, I don't think you can year-over-year expect the same trend given the disturbance that happened due to COVID. As I said, we're, I think, optimistic about the start of this year. We have a good peak season. We, of course, calibrate our plans, our capacity plans, in particular as to the next year peak season. Yeah, hopefully, we can continue on a good momentum.
Super. Thank you very much for your answers, Berend. All the best.
Thank you.
Thank you. The next question is from the line of Latika Chopra from J.P. Morgan. Please go ahead.
Yeah. Hi, Berend. My questions are around the cost and margins. You talked about barley already. I wanted to check, you know, what's the sense you're incrementally getting on glass and aluminum prices? And how should we think about gross margins? Did Q1 basically account for the peak inflation being reflected? Or do you sense there's gonna be further higher inflation that you anticipate in Q2? And with incremental pricing that you are hoping for, you know, where do you see, you know, gross margins will likely balance out versus what you reported in Q1?
Yes, Latika, let me start with the gross margin, let's say in general. We would expect that, compared to this quarter, that we going forward see some improvement in gross margin. We've always said it will take a bit of time given the nature of the industry where pricing is, of course, quite restricted. That will take a couple of quarters. But on the one hand, the higher barley and some of the higher glass that is now coming in to the full quarter is relevant. On the other hand, at the same time, the pricing realizations and increases during this last quarter will of course then count for full quarter.
Net-net, we would expect some improvement versus for the gross margin reported in this quarter. On glass, it remains quite inflationary driven by the underlying input cost of soda ash and energy. The collections on glass have actually been very good on a normal good level for the peak season. Aluminum, I think that's yeah one area where spot markets have been trading down recently. Now we look at the risk management approach to hedging that aluminum for future periods. That is something we need to tap into those opportunities as well. All in all, yeah, what we said, a high commodity price environment, also still quite volatile.
Hopefully step by step, you know, we're passing through the low point, so to say.
Sure. If I look at the other costs, you know, employee costs moved up sequentially. Want to understand what's the kind of run rate one should anticipate given, you know, you saw some restructuring, right? You thought that there's gonna be some benefits of that flowing in. What should be the quarterly run rate one should anticipate on employee costs? Also, if you could flag anything very substantial sitting in other expenses which also, you know, moved up significantly, you know, on a sequential basis. What are the sustainable levels there as well? Thank you.
Yeah. For employee expenses, you really have to factor in that during this peak season, we hire more contractual labor to cater to the higher volumes. When we compare to the prior quarter, I think that gives you a sense of some of the differences in growth. On the other expenses, this includes, for example, our commercial spends, which have been around 100 basis points higher versus prior year, which was, of course, COVID impacted. There are also other expenses, which is, for example, freight, or sales promotion expenses or the related fuel costs. Those, of course, have been impacted to a certain extent due to commodities and the volume growth seen in the quarter.
Sure. Last, it was on CapEx. You know, you talked about you're evaluating or reviewing your CapEx plans. If you could share some color on what kind of capacity additions, you know, you are looking at, and what's the amount you intend to spend. Thank you.
For the current financial year, we continue the guidance of CapEx towards some range of around INR 250 crore. Beyond that, as we indicated, then we would probably be on a higher level given the utilization rates observed in the current quarter. We will then proceed basically on a region-by-region basis as to where expansions will take place and how do we go about that in terms of own breweries or working with partners, et cetera. That will be part of the evaluation. Again, in the current financial year, the guidance on CapEx remains the same.
Sure. Thank you so much, Berend.
Thank you.
Thank you. The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities. Please go ahead.
Yes, thank you. One clarification and two questions. Berend, when you said consumer price increase of 3%-6%, were you specifically referring to Maharashtra and Karnataka, or were you talking about an overall basis?
Sorry, could you repeat the question ?
In response to one of the previous questions, you had mentioned that there was consumer price increases of between 3%-6%. I just wanted a clarification whether you are referring specifically to Maharashtra and Karnataka, which are free pricing markets, or you are talking about price increases at a blended level across the country.
Yeah. The 3%-7% range is kind of the range for those states where we implemented, that those are the more typical impact on consumer price levels. But for the states of Karnataka, Maharashtra, you would have to think of the lower end, so some towards the 3%, in terms of consumer price change.
Sure. That's useful. Perhaps not coincidentally, you mentioned UP, Haryana and West Bengal as markets where you have done better compared to 2019 levels. Given that these are markets where there is a differential access between beer and spirits, I mean, are the volumes far better than expected? And B, are you seeing any cannibalization of spirits demand, so beer growing significantly higher than spirits in these markets?
Yeah. There are, I think, of course, correlations to the improvements in the excise policy, particularly of course, if you talk about states like West Bengal or the same way, some of these states we have seen good share performance from us. That helps, of course, as well. I think the premiumization trend is also consistently there. These are all elements that lead to some of these states outperforming the total. Hence, yeah, it remains very important to continue the advocacy and the policy engagement in the other states. I think these are yeah, clear examples of some of those results.
Okay. My last question is on Haryana and at 4% has introduced a lower tax slab for beer with 4% alcohol. Since I think West Bengal has also done the same. Have you also addressed the portfolio so that you are introducing products at this particular alcohol slab?
No, not specifically for Haryana. In general, we continue a lot of consumer research and insights to look at the trends. From a perspective of excise policy, I would say that's one angle. More importantly, I would say from a consumer perspective, that is continuously under review. If we feel that there are sufficient indications that this alcohol slab has a good potential out there, then of course we will pursue it. In that sense, those things are continuously under consideration, but so far we have not felt it particularly for the example of Haryana, in this instance that you mentioned, that we would launch a product there.
Thanks, sir.
Thank you. The next question is from the line of Alok Shah from Ambit Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. My first question was more to do with the point 8 in the notes to accounts where you mentioned on, you know, the intimation being received and sort of review of the justification and appropriateness of commercial terms. Can you elaborate more on this thing, as to, you know, the requirement to do this? What could be the possible outcomes that we will be evaluating, et cetera, and the timelines for the same? That's my first question.
Well, from the timelines, what we stated, the review was expected to be completed shortly. It's also important to say that we continue to monitor the operations that the sales in the two states where we have implemented the change have not been impacted. I think those are key elements as to how we look at it.
Okay. Basically, just to get it right, this is largely to do with your commercial terms in the state of Tamil Nadu and Andhra Pradesh only.
Yeah. Those are the two states where we have said that, yeah, we want to implement also a tighter and more direct grip on our route to market.
Mm.
As you know, every state is unique, but at this stage, yeah, no further statements to make on any potential changes, let's say, in other states.
Got it. Fairly clear. My second question is on the other expense line item. Now, if I were to look at some of the key cost line items, you know, be it outward freight, distribution expense and sales promotion expense. Now, these three are usually the large pockets. Now, you know, we have seen some bit of a savings in FY 2021 and 2022. Now, it could be temporary in nature because of low volumes, et cetera. But, you know, on a sustainable basis, say a distribution expense going down from about 3.5% to sub-3% and sales promotion from about 5.5% to around 4.6%. So...
You know, in light of the cost savings that you typically allude to, can we see, you know, this ratio settling somewhere between the pre-COVID level and the current level? Or you think, you know, there's not much leeway in this, items will go back to the pre-COVID levels?
Yeah. I think your approach is right to look at it as a percentage of top line. I would point out that, of course, in this quarter we also had a negative state mix which impacted this ratio also to a certain extent. As to one of the earlier questions, the cost itself, sales promotion is also driven by the mix in the quarter. Freight, of course, there's an important fuel component, commodity-related in that, as well. Looking at the commodities and how they will trend, we also have a bearish view on the fixed cost line item of other expense.
Basically the SG&A expense and sales promotion expense will sort of inch up from here. Is that understanding correct as a % of sales, or unable to comment at the current time, sir?
Yeah. I would not directly say it's on a continuous trend or moving back because it's very much dependent on topics what I mentioned, like state mix, but also power and fuel type of rates, freight rates. So, yeah, let's see how that trends in terms of the overall market in the year.
Okay. Perfect. Just one clarificatory question. The excise duty rate this quarter was around 53%. You know, just from my understanding, is it largely to do with, you know, those state mix that you talk about? As the share of premium portfolio goes up, the percentage of excise, would it typically go down a bit? That's the clarification that I want. Thank you.
The excise indeed would be, to a large extent also driven by state mix because the rates, of course, are different. Directly, I would say that the more premium the product, the higher the excise component as well.
Got it. Okay. Thank you.
Thank you. The next question is from the line of Karan Taurani from Elara Capital. Please go ahead.
Hi. Thanks for taking my question. Firstly I just want to get your understanding in terms of price hikes for more states. How confident are you of getting price hikes in more states in the next 2-3 quarters? What will be the quantum of that? Similar to about 3%-6% or higher than that?
Yeah, the price increases what we tend to realize in the first quarter are, of course, the majority in the sense that once excise policies are known, then it's a logical moment to apply for any changes or any adjustments also coming from an excise change perspective. It's another, let's say, a full Q1 activity only. We continue to realize in other states throughout the year. We do think there are further opportunities, maybe not to the same extent as quarter one, because as I said earlier, in two-thirds of our volume base, we have realized the price increase, which I think is a pretty good outcome.
Having said that, it also means there are other states without price increase, so that is something we continue to pursue. Even there's a possibility, of course, that other states you might revisit within one year, potentially, for increases as well. That's all under review by the company.
Right. Basically, one should not ideally pencil in both price hike from the buying states for this year at least. Next year, whatever comes can come. Is that correct?
Yeah. The realizations for the Q1, of course, are now known. Further steps can be taken later in the year. I think you're right. The majority normally takes place in Q1. That's what we published in the results.
Got it. The second question was around barley. Apparently the procurement for barley generally happens in the month of April to somewhere June. You know, there's those three months. In terms of you know, you procuring barley, have you procured that for the entire year, or you'll be doing it in phases because the price was so high, you'd probably wait for the prices to come down and do that? I mean, what's the barley procurement thing right now?
Yes. Well, you're right. We're looking at that, not from a 12-month perspective. Of course, the first priority is to make sure there's continuity of supply. That has been the focus during the peak season also for the coming months that is secured. As the year progresses, we continue to look at availability and pricing and looking at domestic market, even international markets, so as to hopefully optimally procure at the right price levels throughout the year.
Right. There could be a positive impact of lower prices on barley in the coming quarters.
No, the current quarter is already secured. If you extend the horizon up to next year peak season, yeah, then there are still open positions. Indeed, if prices go down or hopefully not.
Right.
That could still be an impact.
Right. Just one last question in this session, specifically, you know, in terms of distribution, we've been hearing that, you know, many states are going easy on beer, as a product. Like, you know, a lot of distribution is now taking place through a lot of premium retail outlets. Can you kind of highlight which are the key states here, you know, who are doing these kind of moves, and what is the possible impact on volume growth because of this?
Yeah. We have seen, I think a couple of states in their policies also kind of prescribing the type of outlets and in general, yeah, a minimum square footage, a minimum set of display of stock, walk-in, sometimes even other elements of convenience for consumers. I think in general this is very positive for the consumer experience, where you know there are clearly opportunities to improve that. To your question, it helps the premium portfolio, of course, as well. I think it's a good step, and that is something also we support with our trade programs and in terms of yeah in-shop displays and activation.
Yeah, Delhi is one example where we've seen, of course, a lot of change in the last 12 months. Yeah, we support that.
Right. Thanks. That's it from my side.
Thank you. The next question is from the line of Trilok from Dymon Asia. Please go ahead.
Yeah. Hi, good afternoon. You know, when I was looking at the cost, particularly other OpEx, you know, prior COVID versus pre-COVID, you know, just I think we are a little on a higher side. Beyond, you know, freight and fuel costs, which you just alluded to in one of the previous participant's Q&A response, is there anything, you know, which you think has, you know, taken the costs very high or that's pretty normalized, you know, way of looking at the business?
It's really the elements we laid out earlier. It's about freights, fuel, sales promotion. Those are really the bigger categories in the other expenses. What I said, that's partly mix driven. It's partly commodity driven. It's of course the volume component of the quarter. There is around a 100 basis point impact also compared to prior year of higher advertising spend. That's it.
The sales promotion expenditure, what's the, you know, percentage do you know, or would you like to continue given the fact that, you know, the momentum may continue?
Yeah, we have been relatively active in support. Of course, with a good volume outturn. Now that we move into a couple of months of lower demand, we would also expect it to taper down a bit.
Understood. Okay, thank you very much.
Thank you. The next question is from the line of Chinmay Gandre , from Reliance Nippon Life Insurance. Please go ahead.
Yeah. Thank you for taking my question. I just wanted to understand, like, during the peak season, what were our capacity utilization across the states? And coming to the next peak season, which will be next year, if we were at near peak capacity utilization in the current season and we have not yet embarked on any major capacity addition or you are kind of evaluating state by state. How should we look at the next season from a capacity point of view?
It was difficult to fully understand the question due to the quality of the line, but I think I got the gist of it, about capacity utilization. That was close to 90% for the last peak quarter that we just reported on. Number of breweries running at maximum capacity. This is part of the review that we spoke about in the release for next peak season to augment capacity or make sure there's optimal cost sourcing where applicable. Hence, yeah, we will continue to look at the right investments behind the infrastructure. If I didn't answer part of your question, please.
My question is basically with respect to the next peak season next year because we are still in planning stage with respect to the capacity. How long will the new capacities like take time to come on stream and for the next peak season would we have to live with the current capacity itself and thereby not much of a major uptick from the current volumes?
Yeah, I think the actions are both, let's say, near term for the next peak season, but also of course, if you talk about, for example, putting new bottling lines or potentially complete brew house in place, that will take more than 9-12 months. That is why we look at both avenues in terms of short to long term. As I said earlier, we also have contract manufacturers in the network, so we also cooperate and work with them in terms of the investment plan. That's the broad approach.
Okay, thank you.
Thank you. The next question is from the line of Vishal Punmiya from Nirmal Bang Institutional Equities. Please go ahead.
Yeah, thank you for the opportunity, and congrats on a strong volume growth. Firstly, just a clarification. When we talk about next peak season, are we talking about 4Q or are we referring to 1Q of next fiscal year?
It will be next year, let's say, March to June.
Okay. Secondly, if you could highlight the growth trends between on-trade and off-trade for the current quarter, that would give a good insight in terms of how things are panning out across the channels, and also the mix between those channels for the quarter.
Yeah. If you are looking at, on-trade and off-trade, growth vis-à-vis, that is..
YOY growth in on-trade and YOY growth in off-trade. Yeah.
April-June quarter, last year vis-à-vis this year, right?
Yes. Yes. Yes.
Yeah. Here you'll see that the on-trade growth is higher because last year first quarter in many states or almost all states there was a clampdown on locations where beer is consumed at the point of sale, so which is on-trade. There you see phenomenal growth. While the growth in your retail or what you call off-trade would be less when compared to the growth in on-trade.
Okay. What would be the mix now for this quarter?
Sorry?
Mix between off-trade and on-trade for us.
It would be in line with pre-COVID levels because, if you, go back to pre-COVID vis-à-vis to 2019, it will be in line with that.
Which would be 25-30 on-trade?
70/30. 70 would be off-trade and 30 would be on-trade.
Oh, understood. Just lastly, premium segment has done, or grown ahead of the overall portfolio for this quarter. What would be the mix of premium, for us now?
It will be in the high single digits. That is also about as we said last year quarter, but also 2019.
Okay, wonderful. Thank you. Thank you for the responses.
Thank you.
Thank you. The next question is from the line of Ashish Kacholia from Lucky Investment Managers. Please go ahead.
Yes, sir. Just seeking clarity. You know, there are a lot of changes in the beer as a category from a taxation perspective in lot of states. You know, and the distribution touchpoints also seem to be rising specifically for wine plus beer combi outlets. So I'm just wondering why is then the volume CAGR just about 2% on a three-year volume CAGR as of now. What were the misses? And considering these two, three big changes that are happening, how do you see the volume CAGRs for beer as a product for us or for the industry, whichever way you want to comment. And my second question was on the pricing side.
Did I hear that most states tend to take pricing on an annual basis, which is quarter one, and hence there is no large price increases which are supposed to happen over the next couple of quarters until quarter one of next year. Is that the case that you mentioned?
Yeah. The first on the volume outlook and back to your question, so generally I would say that the outlook in terms of volume would be probably around 6%-8% per year. Of course, that can be skewed higher or lower by policy changes, et cetera. I think underlying there are strong fundamentals that support that. To your question as to the backlog. Yeah, earlier to a question explained that the one with the state of Andhra taken out in 2019, then this quarter has shown 14% growth versus 2019.
One has to factor in that, of course, a lot of the disruption and trends were impacted three years subsequently from COVID. On the pricing side, I think it's a bit more nuanced in the sense that in Q1 it's typically the quarter that most price actions are taken, and that's what we want to indicate. At the same time, it doesn't mean that nothing else is on the cards for other states, et cetera, in the remainder of the year. That's why we indicated that company continues to pursue these options where possible.
this outlook of 6%-8% volume growth, this is despite all these changes which we see in the distribution or in the reduced taxation or reduced pricing of this product in a lot of states, this is despite that, we are calling out 6%-8%?
No, it's more on a constant basis of, let's say, regulation and policy. As I said, if there is more supportive policies in various states, then that number should probably be higher and vice versa.
What kind of distribution outlet increase are happening by whatever policies have come through? If I go back to our past calls and all, the distribution touchpoints were some 50-60,000 for the liquor industry as a whole. Is that changing?
80,000.
80. Is that number changing now with the policy changes?
No traffic change as of now.
3 years back also it is 80, even today it is 80. That's how it is.
Approximately, yeah.
Okay. Thank you very much, sir. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities. If you please. Please go ahead.
Yeah, thanks. While you have indicated faster growth in the premium segment, this is one area where your market share has been lower than your overall market share. Has there been any evidence, particularly post opening up of gains on market share gains on this front?
Yeah. The overall trends, I think, would not comment specifically on one quarter, but across the COVID aside, I think we have been increasing the share in the premium segment. It's also one of the key strategic pillars of the company. We do see a lot of consumers, of course, having an appetite for different products, for even higher priced products. Those are all very positive and in sync with the development of the Indian beer market. Hence a lot of our attention, a lot of our investments are behind the premium portfolio. With that we have seen progressive increase in share in the premium segment.
That's what we continue to pursue. Yeah.
Just a clarification. When you said progressive increase in share, you mean progressive increase in share of your space or progressive increase in share compared to the rest of the market on this premium segment?
It's our share within the premium segment is increasing.
Sure. Just one final question on barley inventory. How many months of barley inventory do we have currently?
I don't wanna call that out exactly, but for the earlier question, we have not covered the full position to the next peak season. With that, we continue to look at the domestic availability and pricing internationally. Under that continuous review, we will take our procurement approach as to how to cover the open months till next year domestic buffer becomes available. Got it. Thanks. Yeah.
Thank you. The next question is from the line of Harit Kapoor from Investec Capital. Please go ahead.
Yeah. Hi, good afternoon. Just had two questions. You did mention that, you know, you've seen market share improvement in certain states, but at an overall level, you know, on a year-by-year basis, have you seen market share improvement at a national level, or it's been consistent? If you would share some trends with us.
Yeah. Our market share for the total portfolio in the quarter has been, let's say, on marketed levels that we normally see in quarter one. That is a little bit below prior quarters where we're at kind of 53%, now we're closer to the 50%. That also has to do, not so much, I would say, with consumer demand for brands, but more with sourcing and supply and some of the restrictions that we mentioned earlier in the call that that would be where capacity limitations or sourcing bans from various states due to the high demand seen in a couple of the months.
This share reduction would've been more a function of or the share gain that you would have seen that competitors would have seen in this quarter would basically be regional players in that state who would have been able to supply either gained at your cost. Would that be the way to think about it?
Yeah. I think, of course there are, you know, let's say differences state by state, but on an overall level, I would say the majority of this share movement is indeed driven by sourcing and supply, and hence, a market participant that had ample capacity or a more direct route to market were, of course, favored versus some of the restrictions that we saw.
My last question is on the state mix now. Berend, how do you kind of look at it? Is quarter one seeming a little more exceptional in terms of the extent of the negative state mix? Is it a base effect, or is it just structurally some of these states seem to be doing, you know, a bit better than what some of the high-margin states are doing? I mean, how do you think about it? Is it, you know, short-term fluctuation or is it slightly more medium-term that some of the low-margin states seem to be kind of driving volumes?
I think it's a bit of a combination. One is base effects, of course, where last year was quite impacted. Secondly, a number of quality improvements, et cetera, are observed in a number of these states as well. Thirdly, the peak season, for example, high temperatures that we saw in Rajasthan, in UP, et cetera, also play a role. A number of these are of course more short-term, and one would not necessarily expect them to continue in quarters to come. In the end it's a combination of more incidental during the quarter impact, but also a few elements where it's more policy driven and of course, that element will continue.
Great. That's it from me. I'll hand it over to Margaret, to close the call.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Harit Kapoor for closing comments.
Thanks, Margaret. We'd just like to thank the management of United Breweries for taking out time for this call, as well as all the participants on the call for taking out their time, and hand over the call for any closing comments to Berend.
Thank you very much, Harit. Thank you for hosting us, and would like to thank everybody for their interest, their questions and I wish you all a very good day. Thank you.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.