Good afternoon, ladies and gentlemen. You are connected to the United Breweries Limited conference call. Please stay connected. This conference will begin in the next five minutes. Ladies and gentlemen, good evening and welcome to the United Breweries Limited Q2 FY 2026 earnings conference call. Please note this conference will begin in the next five minutes. We thank you for your patience. Ladies and gentlemen, good day and Welcome to the United Breweries Limited Q2 FY 2026 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jorn Kersten, CFO.
Thank you, and over to you, sir.
Thank you very much. Good afternoon, everyone, and thank you for joining this update for the second quarter and the first half of full year 2026. Welcome to the call. As you are used to, we'll give a quick introduction. I'll hand over to Vivek for a bit more background, and then we open up for Q&A. To start with an opening comment, I think, as everybody is very much aware, this past quarter saw an unusually strong monsoon, which dampened consumption across multiple categories and definitely also in beer. Despite the weather-driven challenges, we have outperformed the broader beer market, where we also remained resilient and on track with our commercial plan and execution. In Q2, you would have seen that our volumes declined versus the previous year by approximately 3%, which is a tale of multiple parts.
I think in part of our business, we still see robust growth in states such as Maharashtra and Andhra Pradesh on the back of interventions. Tamil Nadu and Assam also there. We still see growth in the business. There is definitely a part, roughly one-third of the business, heavily impacted by the weather. Think about, for instance, Rajasthan. There is also a part where we do see an impact from affordability in beer, that's also impacting part of our business. All in all, it's a mixed bag where we definitely still see growth, but also a quarter where the overall growth of the category was muted. I do want to call out that our premium segment continued to do really well with volumes of 17% and also meaningful market share gains, led by the portfolio of Kingfisher Ultra and Ultra Max, but also Heineken Silver doing well.
We think this really highlights the success of our premiumization strategy that we continue to follow, and it's an ongoing shift in consumer preference towards more high-end offerings. We also understand that at face value, the financial results may not seem too exciting, but we want to stress that these also reflect that we continue to believe in the growth for the industry in India, the beer industry in India, and that we believe in our role as the market shaper. We will continue to invest behind our brands accordingly. Even though net sales declined by 3% in the quarter, nearly full offsetting single-digit price and mix improvements because of an adverse state mix and a source mix, we do see that our year-to-date results remain solid with net sales up by 7% thanks to favorable volume as well as the pricing that we've been able to take.
Now, gross margin for the quarter at 42.8% was slightly below last year due to mix effects, but sequentially better than Q1. Our commitment to building brands and portfolio was clearly there with brand investments rising by over 20% year on year. However, we do see that the combination of increased spending behind our brands, as well as the temporary deleverage from lower volumes, has a pronounced impact on profitability, which is reflected in the EBIT number for the quarter. On a half-year basis, also, EBIT was down 18%, which reflects the pressures that we saw in Q2.
If we reflect a bit further on the cost base, it's clear that the ongoing and elevated investments behind the brands, as well as our strategic initiatives, which we think are essential for long-term brand equity building, alongside with fixed costs that were less absorbed due to the softer top line and softer volumes, that weighed in on our operating profit and overall profitability for the quarter. We do absolutely recognize that optimizing our cost structure is critical, especially in a period where we continue to see costs increasing, where we have limited ability to price, and we see that volume is volatile, even though we still believe that long-term growth will be there. To address this, we are accelerating some of our productivity and efficiency measures, which include network rationalization, for instance, like we have announced the closure of Bangalore.
We will further streamline trade spend and other organizational costs to make sure that we stay on track for the margin trajectory and that we ensure sustainable profit growth going forward. I'd first like to highlight that on the CapEx spend, we continue as well, with this quarter seeing the first significant spends on the Greenfield Brewery in Uttar Pradesh, as well as us continuing to spend behind commercial investments such as Visi Coolers in the trade. Looking ahead a little bit before I hand over to Vivek, we do anticipate that the category will come back to growth, with an improving consumer sentiment towards beer after the rains. We do remain confident in the long-term growth prospects of the beer category in India.
Our commitments to investing behind our brands, our people, as well as capabilities will put us in the right position to capture the future opportunities of the market. We will have to maintain a disciplined approach to cost and profitability to make sure that we build a sustainable business. I'll hand over to Vivek for his comments before we move to the Q&A.
Yeah, thanks, Jorn. I'm assuming, moderator, you can hear me?
Yes, we can hear you loud and clear, sir.
Okay. Thanks, and good afternoon, everyone. I know you'll have a lot of questions on this, but I think Jorn has captured it pretty well. I'll just add a few things. First of all, as we look at the overall quarter results, and we are already one month into when the results were closed, we are already into the end of October right now. The few things I would say. First of all, we are absolutely clear and consistent that our strategy is working. The premiumization, despite having a big monsoon issue, we are growing at 17%. Our brand power, which is a true measure of how the consumer is perceiving the brand, has gone up. We actually have hit the highest ever brand power on Ultra and Kingfisher, which gives us confidence that our brands have become stronger. Our coolers' penetration is now around 37,000 stores.
We have added 37,000 coolers, which used to be around 15,000. We continued the execution because we believe in what is called is going to be get sold. Our focus on execution and focus on strategic changes is working. Maharashtra is a prime example where our business actually grew more than double digit. As Jorn mentioned, one-third of our business actually grew more than 14% growth rate. In the states where we have done strategic interventions, we got impacted by rains because the places which got flooded, we had our own breweries. While we didn't want to create a lot of noise about it, three of our breweries got flooded during this time, which we had to spend money on repair and maintenance to bring them back, safety of our people. In those states, the category also went down by 40%.
UBL got disproportionately impacted, because our own breweries got flooded and we had to rely a lot on contract brewers to still serve the market. The way we look at this, we had two choices when all of this happened during the quarter. One is to say, "Okay, let's pull back all the investments because, you know, there is a big crisis," or to say, "Look, let's stay consistent on what we really truly believe in." It's a quarter where we will get impacted because of the deleverage, but we have to do the right thing. Looking at the overall plan, we are a bit disappointed on the overall financial result, but it's just a quarter because the way we look at it is we are still on track for our overall plan.
We have accelerated our productivity and some of the other initiatives which we are doing to make sure that we overcome some of the big headwinds we are seeing in terms of commodity pricing and other areas. I think, and we have also looked at how we are going to further convert some of our fixed costs into a variable cost. We have probably more agility next time when something like this happens because the momentum on the category was there. The rains this time in many states were very unusual when you see the data. I think overall, I would say it's a mixed result, but nothing which makes us really worried that the work we are doing, the investments we are doing, we should not continue to make. That's how we are seeing.
I think the category did come back in September with almost 4% - 5% growth after a double-digit sort of decline in July, August. We are still in October, so we feel confident that there will be a bounce back. Having said that, as I mentioned in my two previous calls, the number one concern I continue to have is affordability. We have made a lot of progress in states like Maharashtra where beer taxes did not go up, even in Meghalaya where beer actually taxes went down. We hope it happens in some other states. We are in deep engagement with the governments of Odisha, Karnataka, Telangana, and even West Bengal through Brewers Association of India and our own corporate affairs effort, because this whole cycle of beer taxation increase leading to double-digit category decline is not sustainable.
We are in active conversation through the Brewers Association of India and corporate affairs. We really hope some of the good success stories of Maharashtra and other states, and the revenue hurt which government is getting on beer, will lead to some kind of a change over the due course of time. With this, I'll hand over back to the moderator.
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 their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Latika Chopra from JPMorgan. Please go ahead. Latika Chopra, your line is unmuted.
Sorry, I got a question. Can you hear me?
No, not yet.
No, I haven't heard it.
Latika, your line is unmuted. You may proceed with your question. Ladies and gentlemen, we do not seem to be getting a response from the current participant. We will proceed to the next questioner. The next question comes from the line of Harit Kapoor from Investec. Please go ahead.
Hello.
Yes, you are audible, sir.
Yeah, hi. I just had a couple of questions. One was, there have been certain challenges apart from the season also, from a state-level perspective. If you could just give us a sense of the second half of the year in terms of some of the deep declines in certain states, how do you expect that to play out over the next two, three quarters? How much of it comes in the base? How much of it can be taken care of by a normal season? That would be very helpful.
Yeah, thanks, Harit. I think you are probably asking about the states where category is declining big time, right?
That's right. That's right. That's right.
Let me focus on four states. It's primarily where we are seeing a significant decline. The number one is Karnataka. We are seeing a double-digit decline in Karnataka in the category. I think what we are seeing is because, in July this year, the pricing came back on economy brands because there was a taxation where the economy brands cannot be sold below a certain price. That was revised in July. We think that we will start cycling that very soon. There was another tax revision which happened in October or September last year, which will be cycling on. We also believe that the whole dispute which was there with the retailers because duties are completely going up will also stabilize. We start seeing Karnataka actually in a positive territory sometime from March next year.
Also, there is the impact of rains in Karnataka, which has been significant this year, continuous going, but we are discounting that at this stage. The second place where the category is declining is Odisha, and there has been a weather impact there and also a taxation impact versus Spirit. We know that Brewers Association of India and myself, we have been clearly communicating to the government the loss of revenue and impact on the beer industry. We are hoping that the government will look at it positively. When will they do the policy? Anyone's guess. We have to wait for at least, you know, for them to make a call. At the same time, we have made a very strategic intervention towards the end of this quarter.
We actually have launched an economy brand, London Pilsner, in Odisha, and we have already started getting very good distribution and initial uptake. It happened towards the end of the quarter. We should also start seeing that mobilizing the category growth. In West Bengal, the category is declining double digit. I don't expect much to change there. Other than there, also, we have launched a very prominent local beer, Kalyani Black Label, which is actually the number one beer in Singapore of Indian beer, but it used to be a big beer brand in West Bengal pre-COVID. During COVID simplification, it was removed. Now we have actually launched it, and we are also getting very good response. What will that do to the category? We have to still see, but we feel positive about that. Structurally, I'm not very hopeful in West Bengal because the policy was already declared recently.
The fourth one is Telangana, where we are seeing a double-digit decline, but some of it is exaggerated because of the licensing of the retailers, because the government has auctioned the retail for three years now. Yesterday or day before, that process is completed, and that new transition to retail will happen in December. We will expect some disruption in Telangana in November, but then we will have a pipeline over December, January. I would say that a lot of work is being done there, but we are not only relying, at least as UBL , we are not relying only on the government. We are making our portfolio interventions to really drive the affordability in the market and give consumers what they are looking for. That's the update there.
Great. That's very helpful. I just had one more question, which was on the stepping up of the productivity initiatives. If you could just give a little bit of a sense of what are the areas in which you are actually stepping this up before time, and what do you expect as the likely outcome in terms of output on account of this, either qualitatively or quantitatively, that will help. Thank you.
You're talking about productivity initiatives?
That's right. That's right. That's right.
Yeah. Jorn, you want to answer that first?
Yeah. I'll go first. Look, I think it's very evident in the industry that we are in, and the context that we are in with limited ability to price, this is always top of our mind. As you know, we have been investing behind the organization, behind capabilities, behind the brands over the past quarters, 18 months. Now we also need to streamline some of these things, which means that we also look at our, for instance, our network footprint. How can we streamline that? The example of the closure of our Bangalore Brewery is one example. In the future organization, we're also looking into it, which doesn't mean that we take overnight action, but as we further expand the business and as the business continues to grow, we really look at how do we do that in the right way?
I think it's also across items like, for instance, the bottle returns, where we have been making considerate progress, and we see that there's still headroom there. We're also setting up a separate project to make sure that we accelerate the speed of returns. I think in the end, across the P&L, we continue to look for upsides to make sure that we increase the productivity, whether it's based on output, better returns on investment, or better ratios on volumes or financials. It doesn't really matter. It's across the board.
Good. Thanks for this. I'll get back in with you. Thank you very much. We sure will. Thank you.
Thank you.
Our next question comes from the line of Abnees Roy from Nuvama. Please go ahead.
Yeah, thanks. My first question is on the competition, etc. The craft player is facing a lot of crisis currently, almost like an existential crisis. If you could tell us, the last two quarters anyway, the results of that craft beer player have been quite weak. My specific question is, in which markets do you see more opportunity to get share from this specific player? Anyway, you are taking market share. I understand that. From this specific player, are you able to get a specific market share in this space? That was the first question.
Yeah. Yeah.
It's like Andhra Pradesh, you know, where the specific player you are referring to, you know, we have been able to gain good shares. We are also able to gain the shares across. Actually, if you actually think about it, we never look at our business versus one specific player, but our premium business is actually growing 17%, and we are growing shares on that premium business. In some of these states, our premium business is up 40%, 50%. I would also say our Heineken brand, Heineken Silver expansion, which we did, is now up 34% at the country level. I would say that we are growing shares of premium from all the brands. You know, we are taking from this particular brand. We are taking from the previous brands or the other market-leading brands on the premium business.
I'm also happy to share that, you know, Abneesh, that we have been talking about improving our margins on premium business through the return bottle. By the end of September, we have actually significantly improved localization of premium production on a large part of our premium portfolio, especially Ultra, Ultra Max. One of the acceleration projects we have done is to further accelerate that by the end of this quarter so that from at least New Year, we will see a good increase in our gross margins on our premium portfolio as well. I think it's a combination of both. I don't want to comment specifically on the states where we don't have data on this particular brand, but yes, we are gaining shares from all the other brands as well on premium.
Sure. My second question was on your more promising states currently, Maharashtra and Meghalaya. There was some audio issue, and I could not fully capture what you said on Maharashtra. What we have picked up is in Maharashtra, Spirit Industries is seeing a mid-single-digit, kind of a mid-teens, kind of a volume decline, so around, say, 13% or 14%. Is your growth in Maharashtra also similar, mid-teens kind of growth, if you could clarify? Do you see that sustaining if everything remains the same in terms of, say, the winter, etc.? Anyway, Maharashtra winter is not much of a challenge. Similarly, for Meghalaya, where you spoke of some cut, what has been the growth there?
Yeah, Abneesh, on Maharashtra, we actually had a, I would say, 15% - 16% growth in the quarter itself. We believe that growth will accelerate, not only sustain. We have invested as UBL significant, on distributor redesign, on in-store fundamentals, on coverage, on resources, and we kept the full feet on the accelerator. We, in fact, also have improved the capacity of our brewing and our tanning lines in Maharashtra, by actually investing in repair and maintenance so that we can actually get more output from those breweries as well. We actually are pretty confident that, if there's no change in taxation, we will continue this momentum, and we are in the best position to not only continue the momentum, but also grow shares in the Maharashtra-Mumbai belt. On Meghalaya, the change happened recently, very early on October.
I think it's too early to give data, but I think we have taken a price reduction on our Kingfisher brand based on the duty reduction to offer best value to the consumers. We know the last time when we did it in Assam, our business has doubled there. We will see what happens once the implementation happens over the next few months.
Sure. A quick, last question. You did discuss on Karnataka and Telangana. Specific question here is in Karnataka, when I combine the beer tax hike and the beer double-digit decline, the government tax collection from beer industry, is it a good increase? If it is a good increase, then the policy advocacy may not be that relevant for government. I wanted to understand that part. Second is on Telangana, you got a very good price hike. You also discussed on some of the changes which are happening in terms of distribution, licensing, etc. Purely from a price hike perspective, in hindsight, yes, margins improved. In terms of volume, was it a challenge? Clearly, ultimately, customer in India is very, very price-focused, which we saw in Maharashtra. If you could discuss that one. Thank you.
Yeah, Abneesh, I'll start with the second one. Absolutely, I think the consumer price went much more than the price we got in our EBP increase. That's why our consistent message in Telangana is they need to reduce taxes because the net realization we get as a manufacturer and the price increase consumers had to pay has been significantly high. There has been a negative category trend because of the volume increase, which got exaggerated in the last quarter because of the monsoon. Many of Telangana had higher rain and also because of now retail licensing. Our business, the category actually went down, I think, almost 20% in Telangana during July, August, September. Despite that decline, we grew shares in Telangana because our brand power is very strong and we continue to invest in brands.
We are consistently representing again to the government that beer is a big part of Telangana, and, you know, the math won't work if the category declines high double digits despite the increase. There is still some revenue growth, but I think we have to consistently work on consumer value and getting the taxation. In case of Karnataka, our data suggests that there is a revenue, sorry, go ahead, Abneesh.
Yeah, Vivek, before you go to Karnataka or Telangana, if I can just add one thing, we got a price hike earlier this year. I just want to remind everyone that that price hike was roughly half of the price hike that was needed because this was the first price increase in close to five years in Telangana, which makes the business more feasible, but definitely not where we want to be. The combination of facts is still that business is tough in Telangana. We also think that both the consumer is not getting to where we want them to be in terms of affordability. The category is under pressure, but also from a feasibility of the business, still things need to happen in Telangana. We will continue to have that conversation as well on pricing, on further pricing in Telangana. Sorry to interrupt, Vivek.
I just wanted to make sure that was.
No, I think it's a great point. Absolutely. I think on Karnataka, our data suggests that government is actually losing revenue on beer, and they are not able to make up that full loss through Spirit also. We are, again, through Brewers Association of India, consistently representing that Karnataka has been beer capital of India. That consistent increase in taxation since late 2023 has impacted the beer category significantly. It was growing 8% CAGR. Now it is down, maybe estimated to be down around 14, 15%. This needs a significant review. We are in a consistent conversation on this, but on your point, government is seeing a revenue loss now.
Understood. That's all from my side. Thanks a lot.
Thank you. We have our next question from the line of Latika Chopra from JPMorgan. Please go ahead.
Hi, I hope you can hear me now.
Yes, we can.
Yes, Latika.
All right. A couple of questions. The first one was on your comment that in the September month, you saw volume growth reviving to 4% - 5%. Just wanted to get a sense check from you. Do you expect this to be a level of more normalized volume growth for you, or do you think, depending on what you've seen in October, that the second half could fare better than this range? What's your confidence level? I know there are different state mixes, but what's your best guess?
Yeah, I think we structurally, you know, we think that the beer category should grow, you know, again, there's no reason why it should not grow 5% - 6%. If you look at last two years, two years CAGR is 5%. I think we had a better anomaly this time and affordability in certain markets. As I said, in certain markets, the category is picking pace. Like Maharashtra is a good example. We have to wait and see in Meghalaya. Recently, there is an announcement that Manipur is opening up. Hopefully, that will also add to new consumers, new category to do that. There is actually a lot happening where, you know, there is a category decline that is significant. We are working on plans assuming the category will grow, but as I said, we have to work a lot harder to get that category growth.
In no way we are saying, oh, it is a dead game and it's going to be 1% or 2%. Weather this time, you know, has been a problem. I think there has been words about the winter is going to be severe. We don't know the impact of that, but we think that it is cyclical, not structural. Getting into next year, for example, you know, if I fast forward a quarter, we expect the category growth to be in the range of 5.5% - 6%.
Sure. Thank you. The second question was around competitive dynamics. Your two key peers have also reported September quarter performance. It seems they've probably fared a little better than you. One registered 1% decline in volume, and the other mentioned double-digit growth in the quarter. Any possible reasons for the growth divergence? Is it largely attributed to the different state mix, or do you see any structural risks on competitive aspects? I'm talking about the mainstream portfolio included here.
Yeah. Let me pick up this one.
Why don't you answer that?
Yeah.
Yeah, I think there will always be some differences in states and which states are reported and which not. I think here we also need to make sure that we look at it like for like because if we look at our Heineken reporting, we also reported mid-single-digit revenue growth. We would have to look at that on a like-for-like basis. What we do know, however, is that we did gain share in the quarter based on sell-outs, so on secondary sales, where we have been broadly flat. We did have in our case a difference between sell-in and sell-out. Here we're looking at sell-in data because of stock building post the election last year, which impacted UBL disproportionately. Our Q2 last year was high on sell-in to pick up after elections. We're cycling that disproportionately versus comparable numbers.
I think those are the main items that impact the quarter in terms of the comparables.
Thank you.
I think just to add to that, Jorn, on your point, I think, you know, I understand some of our competitors have reported this, but we are also seeing some of the activities in the market today, which doesn't make sense to us from an economic point of view. We are seeing some pricing or promotions or economy launches, which if you look at from a bottom line, we just cannot see how the math can work. I also think that some of it could be a reaction to the decline the category saw in the month where they put the pipeline on the quarters or whatever is there, but it doesn't make sense to me, why is it happening? Our data clearly suggests, and we have a quite robust system, that we grew almost 100 basis points of share nationally on our total portfolio in this quarter.
We are quite okay with that.
Is this YOY gain in market share?
Sorry,
is this YOY?
Is this versus?
Yeah, year on year gain on market.
Year on year, okay.
We grew these shares quarter on quarter. Even during seasons, our shares usually drop because of capacity, but quarter on quarter, we grew these shares.
Understood. The last piece was on margins. I heard you mentioning about some headwinds on commodity prices. I didn't really understand it very clearly. I wanted to check with you, what is the sense on your key raw material prices? What is the inflation that you're witnessing on clay? Also on glass, if you could give us a little more color on the new bottle salients as premium continues to grow faster. Any comfort or any guidance you want to share on how are you thinking about building the margin bridge back? Is there a path towards moving to double-digit EBITDA margins? Assuming we work with normalized weather conditions. Thank you.
Yeah, no, we can also.
Yeah, yeah.
Yeah, yeah. To start with the new bottle infusion, we're still making progress there, even though, like you said, it's muted by the growth on premium. Like Vivek mentioned earlier in the call, we do see somewhere, if we see through towards next year, we do see that there's options in pockets where we get that scale to also see creative margins on the premium portfolio, which we've mentioned on previous quarters that is depending on reaching a certain scale of returnable bottles. We see that now picking up. While we still see there's headroom in the overall bottle collection, obviously, the continuous progress that we make, and we do make considerable progress versus the same quarter last year, we do see that that's still continuing. If I look at the commodity pricing or other input materials, there's a few items I would like to call out.
First and foremost, I don't think there's a lot of surprises on the short term. We see that cans are in shortage, I think, across India both for beer, but also for adjacent categories and industries, with also an exposure to aluminum pricing. We do see a hike in cans as a pricing, but also as a salience, which is something that we need to counter and which we also take into account into our future pricing strategies. On the hops, we already have seen communicated pricing for next year from a government point of view, which will lead to a high single-digit price increase on hops. Oh, sorry, malt, is that barley mostly? On barley, we see that there will be a price hike, but that was anticipated. No surprises there. On bottles, it's still looking quite okay in like-for-likes as it has been over the past quarters.
Again, that's a bit of a mixed bag, but what I would like to call out here is that there's no surprises that we haven't foreseen. In the margin mix and building it back, bringing it back, I think this is still very much the story of premiumization, which we will continue. Like I said, we see some green shoots there coming our way in the next couple of quarters. Also, the localization of premium from a production footprint will start to add some value there as well. That being said, since we also see the economy segment in multiple markets now picking up, we need to make sure that we balance moving forward between really shaping the market across different segments. Both on the premium side as well as on the mainstream and the economy side versus building long-term margins.
We keep a very close eye on how our gross margins will develop and take whatever action is needed to make sure that we remain on track.
All right. Thank you and all the best.
Thank you.
Thank you. Our next question comes from the line of Krishnan Sambamoorthy from Nirmal Bang Institutional Equities. Please go ahead.
Hi, Vivek and Jorn. Would you be able to quantify how significant the value segment is, which is represented by Hunter, London Pilsner, and Kalyani Black Label, either in terms of annualized number of cases or in terms of category, the subsegment salience to the overall category?
Thanks for asking questions. The segment is still very small, but in certain states, it's big. For example, in Karnataka, the segment is actually one-third of the category. It used to be, you know, 40% of the category at one stage. It is now one-third of the category, significant in Karnataka. In West Bengal, it is small, but it is growing there. As I said, affordability is an issue. In many, many states, you can't even have an economy brand because of the taxation structure. I think it is only going to grow if the excise duties and taxation and affordability issues we are seeing continue and persist. What we are trying to do is we are trying to cost engineer, reverse engineer here, look at because we have a unique strength of breweries. We have local production in many of these states.
We at least are in the best position to actually offer consumers a choice wherever possible. In Maharashtra, we offer with the London Pilsner, which is growing, which has actually accelerated after the recent duty changes. We're just trying in Odisha, off to a good start. We are doing in West Bengal with Kalyani Black Label. We have Bullet and London Pilsner again in Karnataka. Then we have UB Exports, which is an affordable economy there. We are doing where the equation is and the financials make sense and where we can actually design the premium. It's a small segment, but it is a growing segment because of the affordability issue.
Thanks, Vivek. Just a follow-up to that. It's been over a year since you've launched LP in Karnataka. I know the category overall broadly has been declining by double digits, but any traction that you've been able to make through LP in Karnataka in the value segment?
Initially, when we launched, we got very good traction. After the category price points increased, we tried to simplify the choices for the consumer because the price band between the brands narrowed down quite a lot. I think we are, and this gave us the confidence to expand LP in some of the other states because we have a formula, we have a model which works there. The Karnataka issue meant that the price in the category increased so much. We had to limit our offerings. We got all those consumers in the brands because in Karnataka, we are growing shares. We are not happy about it because we want category to grow in Karnataka. In the declining category, UBL is growing shares in Karnataka.
Okay. I just want clarification on your Visi Cooler statement. You said 37,000 Visi Coolers now compared to 15,000 earlier, or you mentioned 37,000 incremental Visi Coolers?
No, 37 now versus 15,000 earlier.
Okay. Lastly, going through your state commentary, I was slightly surprised that Uttar Pradesh was not a part of the states with healthy volume growth. Given the positive developments that have happened over the last 9, 10 months, anything that you want to highlight here?
No, I think we were in the positive growth last quarter. This quarter is not because we had a challenge in our supplies on can. As I mentioned, can supplies was an issue. We have a national footprint, so we had to manage that. I think that did impact our growth rate in Uttar Pradesh. As I said, that's something we are working on to drive that. Overall, our fundamentals are very strong in Uttar Pradesh. Our premium shares are increasing, our premium volume is increasing, and we wish we could have supplied more in the season mode. That's something we will take the learning and as an opportunity for coming quarters.
Understood. Thanks a lot.
Thank you. Our next question comes from the line of Dhiraj Mistry from ICICI Securities. Please go ahead.
Yeah, hi. Good afternoon, sir. My first question is regarding CapEx. We have done significant CapEx. Can you quantify what would be the amount of CapEx in FY 2026 and 2027? Also, related to that, if you see that the CapEx amount is so high, there should be an increase in cost line item also. Does that mid-single-digit volume growth, what we have been envisaging, is sufficient to mitigate that cost increase, at least in the near-term perspective?
Yeah, thanks for the question. I think in line with the plan that we meticulously follow, we expect that as a percentage of our sales, CapEx will go up to a high single digit, which is coming from mid-single digit or even a little bit below in previous years. We're accelerating CapEx both for the footprint as well as behind commercial investments. We do think that's needed to support the growth in India. We also think that the impact, which will take a while to materialize, especially on the bigger projects, but we do expect that the combination of volume growth together with price and mixed impact on the top line will be able to sustain the increased asset base. We also, of course, in India have the combination of assets and contracted capacity.
Overall, while beer is a very asset-heavy industry, in India, we do have the flexibility of mixed operating models with our contract partners. That also gives us room to be flexible in how we move forward in terms of building capacity.
Okay. Second question is, again, related to margin only. Regarding the erstwhile question that we have been increasing our product offering in economy brand to increase the affordability, also to, in a way, protect volume. What would be the margin differential between our existing product versus economy? Is it materially different, and does it come in line where we want to achieve double-digit EBITDA margin going ahead?
I think.
I'm not sure if we can share the specific margins. Sorry, go ahead, Jorn.
No, but I do think it's a very valid question. Look, it's still very small. It depends state by state. I think economy has less impact from bottles because we can use similar bottles. That impact we won't see. That has a positive impact on the margin that we start with in terms of growing economy brands. Overall, I think when we decide state by state to also go into the economy segment, obviously, this is part of the equation. Like I said, it remains to be the balance between the growth in India and in taking our position and shaping the market and being the market leader versus building a sustained business. We won't take decisions that incrementally impact our margins from the economy segment point of view.
Okay, thank you very much, and best of luck.
Thank you.
Thank you. The next question comes from the line of Mehul Desai from JM. Please go ahead.
Yeah, hi. Good evening. My first question is, I know you said one-third of your business where interventions were made grew by 14%. Similarly, can you quantify what is the salience of business from the four states which saw double-digit decline? I think the Karnataka, Odisha, West Bengal, and Telangana.
It is similar. It's around 33%, 34% business. One-third of our business where affordability is a challenge, one-third of the business is really doing well, and one-third where we see the temporary because of the rains.
Can you quantify what was the impact of this adverse source mix in the quarter on the margins?
Yeah, Jorn, on the source mix, you can explain?
Yeah, we have some impact on source mix. I think here it's also a question of looking like for like if you want to be comparables. We do think that is, and like I mentioned earlier on the call, it is also a conscious choice where we move to contract partners in markets where we see the growth. Overall, it's a few basis points up and down, but it doesn't have much impact on margins. It does have an impact on price mix and from some interstate sales as well as we see the movements between Andhra Pradesh and Assam. It's a bit of a mixed bag, but overall, it's not something that impacts the margins too much in the quarter.
Okay. Sequentially, should we assume that, you know, while this quarter would be the worst in terms of state and source mix, sequentially, should this improve?
It improves with the impact of our premium capabilities and the optimization of our footprint. It is something that we focus on. Again, coming back to the continuous focus that we have on improving the margin and making sure that we're in line with the margin track that we've laid out. Yes, we do improve. We do expect that we will be able to improve. Although, here we will also take the case-by-case decisions depending on whether we need to accelerate on volume and share versus going after margin.
Sure. Got it. Thank you so much. That's all from my side.
Thank you. Ladies and gentlemen, if you wish to ask questions, you may please press star and one. We have no further questions at this time. Ladies and gentlemen, I would now like to hand the conference over to Mr. Vivek Gupta for closing comments. Over to you, sir.
No, thank you. Thank you for joining us. Thank you for your questions. I would just say that, look, I think, as I said, we are extremely confident about the strategy. We are making sharper decisions. We are learning from this quarter. We do not want to come across as if this is life as usual. I think we have already taken some actions to further accelerate some of our localization plans, some of the productivity initiatives, being more choiceful, being very agile in turning around some of the products we talked about within a matter of weeks versus the innovation which takes time. We are doubling down on work with consumers as our brand power is going up on big brands like Ultra and Kingfisher. We are already thinking about how do we sustain that momentum, what can we really do.
We are very focused on, we are also quite buoyant on the success we are seeing where we are trying to do things which are in our control and make the intervention. We are trying to expand those projects in other states. The learnings from Maharashtra, learnings from Uttar Pradesh, learnings from other states as well. The biggest bottleneck, you can call it, will continue to be affordability and taxation. We have a long way to go there. We will continue to put effort through the Brewers Association of India and our resources and the data. Some of you also gave us some thought provokers on that to continue to engage with the government. Overall, we feel positive about the outlook.
We feel that the beer category, if anyone can create in India, it is going to be UBL and we will continue to be consistent in our effort and continue to tweak the plan and try to also variabilize our fixed cost so that we are in a better position to take some of the decisions when next time we are hit by some kind of a tragedy or an obligation. Thanks, everyone. Jorn, anything from you? Then we can close.
No, I think that's it. I think, yeah, as always, it remains a dynamic industry, but we're absolutely in the right position to maintain the market maker. We continue as we've done over the past quarters. Absolutely.
Thank you. On behalf of United Breweries Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.