Ladies and gentlemen, good day and welcome to United Spirits Limited Conference Call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ms. Hina Nagarajan, MD and CEO and Mr.
Pradeep Jain, CFO from United Spirits Limited. Thank you, and over to you.
Thank you very much. Hello, everyone. A very good afternoon from the U. S. Health team, and welcome all of you to our FY 2021, 2022 1st I'm Tina Nalguaraju, Managing Director and CEO of USM, and I'm really looking forward to this first interaction.
I'm joined by my colleague Pradeep Jain, CFO of UHF. Both you and your families are doing well during this time. As we normally do, before we open the line for Q and A, let me share our perspective on the results that we announced Friday evening. As we all know, the country experienced an unprecedented humanitarian crisis in the quarter gone by with a severe second wave of COVID-nineteen sweeping the country. Many of us have lost near and dear ones in this way while fighting gallantly on the personal front.
In this context, our most critical priority was to look after the health and well-being of our employees and their families I'm going to play our role as a good corporate citizen towards our communities and the extended ecosystem. It will be an excellent surprise That in addition to the ongoing 2 year raising the bar support program of GBP 75 crore for the restaurant and bar community that commenced Excuse me, the cumulative EBIT is INR 45 crores in this quarter to support India's long term public health care infrastructure. This additional mobilization commitment and our approach of 1 state, 1 district for the program has already started contributing towards In summary, it's been a resilient performance amidst a very challenging external environment, albeit aided by the weak competitor of the prior year. We've continued to build on our learning from the 1st wave by instilling more ability in our operations in this stop start environment. As all of you know well, localized lockdown started in April in a few markets and most of the states had restrictions on 913 in May June that led to access being severely compromised.
That said, it is reassuring that we were back to full operations as we exited the quarter. Based on our experience of the 1st wave and the continued expansion in the vaccine coverage, we are confident that the recovery will gain certain momentum. Our commitment to innovation and renovation in the portfolio continues. Some of you may have seen the new and renovated bundle of McAloo's number 1 continues to retain its momentum after the strong performance over the last few quarters. Hipsters, our profit stock innovation, now in its second gear also continues to gain momentum and is present in key markets in India.
Additionally, we have made a foray into class whiskey With the launch of Epitome Reserve, a 100% right grain whisky and in house innovation exclusively crafted by our master blender. While all of you who have seen the press release and the results, let me again call out the key salient points. Our reported revenue increased 57% with prestige and above at 58%, growth and popular at 60%, Welcome to the national lockdown of last year. Consumer demand in off trade remains resilient within the constraints of the lockdown. On trade continues to be adversely impacted, both store opening and support.
Price mix was unfavorable during the On the policy front, we have total of reps involved in the prior quarter. We continue working very closely with the government We have advocacy efforts for reducing the disease and having a favorable consideration on crisis. We are looking forward to the new excise policy embedded coming into play with effect from October 1, 2021, and our role in transforming the retail landscape of the national capital city that really Stated with Stated. Stated with commodity prices and continued management focus on productivity led to 296 basis points improvement in our gross margin to 44.6%. Our A and P in early investment rate at 5.2% is in line with last year, reflecting the not so conducive external environment for execution And some conscious collaboration in view of the impact on the top line during the quarter.
Staff cost increase in the quarter As you lap in the prior year, one time decision of the management across the DRG world to forego the variable performance linked salary component driven by the global uncertainty of the pandemic. Additionally, Ruiti's 17 crore position in the current quarter has been absorbed On account of the VRS package at 1 of our facilities, it's lined with the progression to the end stage manufacturing footprint. Our adjusted margin stands at 10.4% for the quarter, significantly higher versus the negative in the same quarter of the prior year. However, it is subdued on account of the operating deleveraged driven by the impact of the second wave on the top line. The full impact of the accelerated debt retirement in the last 4 quarters and the lower interest rate now stands reflected in our financials.
Our interest cost in the quarter is 60% lower than the prior year. Exceptional items include the one off provisions Towards an additional demand in relation to our historical customer dispute, having its roots much before Diageo's acquisition of US Health, We are in dialogue with the customer to close this long outstanding issue in its entirety. In view of the confidentiality, we will not be able to share more details All appropriate disclosures are already reflecting in our financial results. Profit after tax So that 69 crores in the quarter, a 132% increase versus prior year. Let me conclude by stating that ICOGAB as a category is and will remain resilient during difficult times, we remain focused on what is within our circle of influence, and that is to stimulate demand through our renovation, innovation and other category growth initiatives.
I also strongly believe that the embedded discipline and learning of the first two waves of the pandemic has enabled us to prepare for short term disruption, And this will hold us in good stead in the coming quarter. Last but not least, and I'm sure a lot of you have these questions in your mind, Let me add the following. The strategic review of popular brands that we announced a couple of quarters ago is on track And we'll be concluded as per the stated day time line. I'm working with my team on a business strategy refresh. And over the next few months, we will share the elevated team once we are ready with full stakeholder alignment.
With that, we can now open the line for Q1.
Thank you very much. We will now begin the question and answer session. Participants are requested to use handsets while asking a question. Participants are also requested to limit the questions to 2 per participant. Time permitting, you may return to the question queue for a follow-up question.
Ladies and gentlemen, we'll wait for a moment The first question is from the line of Avnish Roy from EDELWEISS. Please go ahead.
Yes. Hi, good morning. This is Avnish Roy from EDELWEISS. My first question here is a So you have been in Diageo India for the last 4 months, 3 months as CEO designate and 1 month as MD and CEO. You have also been in Diageo Africa for 2.5 years.
So my first question is essentially, next 2 years, what will be your number one priority? Will it be market share expansion against the other large players? So essentially drive volume growth ahead of the industry by pricing and Being aggressive on the marketplace or will it be investing behind the brand, work with regulator or it will be the 3rd option which is the current one Wherein status quo in terms of marketing, margin, innovation, pace, etcetera, will continue.
So hi, Abhneesh. How are you? Basically, look, I said that we are working on a strategy request to only be found with all these elevated schemes when we are ready with full stakeholder alignment. I mean, having said that, Abhneesh, macroeconomic opportunities are operating well for our industry. The market has many growth drivers, right?
Young demographics, increasing number of people entering, distributing age, low per capita consumption and demand for iconic brands. The premiumization trend is very strong. We've been scaling up in our cost journey. Of course, we want to participate much more in with an upper prestige while we strengthen our cohort with Macau as number 1, Right. So as we move towards being a low debt company, right, we would want to unlock new engines of growth.
So it's already maybe 2 more alliances partnership. And in a sense, look, market share growth Our link, right, and margin it will give us. So all these things are in our mind. And I would say that I've got a lot of confidence in our people, our strategy, the resilience of our business and in our ability to deliver long term shareholder value. We maintain our aspiration of developing of delivering sustainable and profitable growth over the medium and long term And all these growth opportunities unfold in front of us.
Thanks. One small follow-up on this. So You have worked for 2.5 years in DRDO Africa. How is Indian liquor market different from there? And you had worked in India in FMC Companies Prior to 2013, so in the last 8, 9 years, how much has the Indian consumer changed in the 1st 4 months?
Is there a big realization that consumer has changed
Yes. So I mean first addressing the question linked to Africa, So I think there are lots of similarities and some differences in the African market and Indian market. I mean, the similarities are visor's demographics, Volatility in the regulatory environment, sustainability challenges, I would say the differences are that Africa tends to be a And the premiumization trend in India is much faster, right? So there are things that I can bring from You know, when some markets have restructured, the other markets give growth opportunities, and I want to apply the same principle in the 36 8 stroke countries of India, right? How much has India changed, Agnish, in these 7, 8 years?
I would say that India has become far more vibrant, and I think the premiumization trend has really taken off, right? So and that is quite exciting. And then the exciting development for us is online stroke homes, it will be opening for our market. I mean, overall, e commerce has Absolutely, it's loaded in India. It wasn't there when I left the country, but now it's absolutely exploding.
Retail environment has improved massively, right? Our off trade is off trade is very vibrant now. Online adoption is very good, and we are super excited about home We are super excited about home delivery opening up for our industry as well. So I would say that those opportunities and potential I see Today is very exciting.
Sure. That's very helpful. That's all from my side. Thank you.
Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, Hina. Thanks for the opportunity. I was you highlighted about the business strategy refresh, which we shared. What you also should say, you're unlocking the growth. Would it be fair to say that as we look to dial up growth rates, You would kind of put preference to sales over margin expansion.
Is that the way I should Read at least from a broad concept point of view?
I think both are going to be important for us. I don't think we will You know, put one above the other. Both are important. It's an end game following not a loss, I would say.
Okay. Look, Zendesk, and I've seen the history of being in that region, awesome in terms of the expansion that they've done in the net debt reduction. We've seen very strong headway in that kind of trend. So I was just trying to kind of compare from there on, would the focus be more on investing in the market? Because it seemed to be as you logically, as you would look to Because it seemed to be as you logically as you would look to drive new engines of growth, it would need standard net investments.
That's what I And please correct me if that is not the right way to come and look at this.
So I mean we are always on the lookout So more growth opportunities and so investment in growth engines will definitely be there, but we believe that we have opportunity on margin as well. So like I said, it's an annual For me, and both will remain on our agenda.
And just a little bit, Do these new investments, when you kind of look at new opportunities, you highlighted where this alliance is, Is it fair to argue that the capital intensity is also going to be remaining under control? Is that while Ensis would be the preferred route? Is that Yes.
I think that would be fair to say. I mean, we are looking to in fact, this is something that I carry in from Africa in my learning That partnerships can be very valuable and is driving growth. And we are totally fair to say that. And I think Pradeep would like to add something. Yes.
So, Abhi, again, whether you look at our manufacturing footprint progression, right, or whatever as United is kind of Talking about new growth engines, absolutely. I mean that is something which we'll be very, very conscious of, right, on the capital intensity.
Thank you very much. Sorry to interrupt you, sir. I request all the participants please restrict to 2 questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Aditya Soman from Goldman Sachs, please go ahead.
Hi. Good afternoon, team. So two questions. Firstly, you indicated that, I mean, you want to do more in sort of middle and upper prestige. If you look back since the audio took over, we haven't seen a very significant headway as far as market share goes in particular versus Pernod.
Where do you think the opportunities lie, Whether it's in the existing brands or new brands or where you think the weakness lies in gaining more share in Midland Upper Prestige? And then moving on, I mean, to my second question, just in terms of non whiskey spirits, Is this an area where which you feel could be a significant contributor? Or at this point, have you been focused on sort of this case in particular part of the stage? Thanks.
Yes. Okay. So I think addressing your question on headway on middle number, I think both Renovation and innovation have a role to play. So we know that we are aware that Royal Talendiprise, for instance, has had a mixed bag Performance, right? So we've renovated.
We've replaced challenges in some markets. We've corrected that, and we're beginning to see some Headway with that, but we are also in the process of hiring, moving to contemporize the brands to address the new entrants that are driving both in these segments, right? And we have potential also in our brands that exist in upper prestige. So we will be looking to press those buttons. And innovation will always play a role.
So as the user needs evolve and as we look at what those needs are, We definitely have more innovation on the agenda. Coming to your second question on the non whiskey spirit. So yes, we look at rice As a category together, right? So Augment, we have seen a lot of traction on GIM. And you might have thought that we've actually started putting a lot more mind behind both bourbons and pancreas, which are our brands in the gin category.
And we started activating them much more in the market with a lot of traction. We are also conscious that vodka on the phone is a large category, and we actually have Our brand, Smirnoff, in this category. So we are looking at an action plan on Smirnoff where we are looking to revitalize this brand And get a fair share of the category, and you will see initiatives rolling out in the 9, 12 months in this category as well. So we are going to be looking at the right Definitely.
Thank you. That's right. Just a follow-up on the first question. You mentioned But we see that Blender's side is significantly larger than anything UNSP or Diageo has. So And for the consumer to make a switch, what do you think would be the key drivers of that given how large a share that spread already has?
I think that's fine because consumer needs are evolving. We are looking at changes in So we have opportunities. And as the market evolves, we will be tapping into those new opportunities.
All right. Thank you very much and all the best.
Thank you.
Thank you very much. The next question is from the line of Arnav Mittha from Credit Suisse. Please go ahead.
Yes. Thanks for taking my question. I had the first question was on your margins this quarter. So you have highlighted relatively benign commodity cost I think the gross margin, if you could just talk to going ahead incrementally what
as we
see from June, July and going ahead, do you anticipate Inflation coming in glass prices as well as ethanol or do you anticipate that commodity costs will largely rain down and therefore gross margin So Anup, I'll take that. So Look, there are 2 items which are a big portion of our COGS portfolio, the half and the mutant spirit cost, right? You're absolutely right. There are some inflationary Trends on the glass line, right? In fact, as we speak, we have given some price increases, so that will lead into the P and L for the coming quarters.
On NewBlue Spirit, as all of you are aware, a lot of it is spread to the ethanol lending policy and the prices that the government declares. Typically, those Prices get declared in October, November. So we should be stable right now, but it's wait and watch until those quality prices are announced. As an ongoing, what do we keep doing? We have shared earlier also.
As a management, we try and Target at least 1.5% to 2% of net sales as ongoing productivity, which is value chain extraction and efficiency extraction. And we will again continue to do, as Hina mentioned, we will continue to do what is in our circle of influence, and then we will see what happens. Sure. Thanks. My second question was this negative price utilization growth that you have, price mix being negative, I think 4% this quarter.
Is it purely a one off COVID impact of prestige and statements? Or is it something which is going to continue going ahead into the year? So look, as Nirav mentioned, India is a kind of portfolio of 36 states and union territories, right? Not particularly impacted, but as cost mix is very, very high. And in the quarter that just went past, not particularly impacted because of the COVID impact.
If you look at our historical trends, right, over the last 12, 16 quarters, by and large, we've delivered a positive price mix again, right? So I would want to believe it's a one off, But it's an outcome of the update in the brand mix, right? One would want to see it reversing in the coming quarters. Just one follow-up on because last time when we saw the slowdown, we didn't see a big negative price mix. So this is more Driven by mix actually or more the its state composition, just to better sense, which has contributed more to the negative number?
The headline for that is the impact or not has been far more significant in Wave 2 compared to what happened nationally. Nationally, it was rather consistent across the country, whereas Scotch, which is a big, big failure for the NOS business, has severely got impacted in the current quarter. That's why you see the swing in price mix versus the way part. Okay. That makes sense.
Thanks so much. All of that.
Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead. Hi,
and thanks for the opportunity. My first question pertains to the observations or the comments that you made The tailwinds that Indian Alco Business has in terms of per capita income, young demography and I knew you stressed a lot on premiumization also. But This factor has been there for last many years. And then despite that, the overall sector growth has been mid single digit at best. And that is like as good as that as hair oil sector growth, which is highly penetrated.
So what is And then you bring a very fresh pair of eyes to the problem statement here. So in your early assessment, what is dragging down the sector growth So I'm realizing the potential that you spoke about?
I mean, look, I think we are Seeing positive development on the regulatory front, right? So that is one. The second is, I think the You know, demographics are there and they are accelerating, right? So we are seeing increased cost premiumization. We are seeing increased experimentation.
I mean, just to give you an example, you would have read about our foray into craft whiskey, right? So This is something that is helping us minimize the risky portfolio, right? And we have full intent to do that. So there is a lot more role for innovation to play. There is vibrant movement.
The millennials are driving As the millennials mature, they are gaining much more purchasing power. So I would say that the potential is there, and it is something that We need to take full advantage of and take maximize the growth opportunity. So [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] It is there, and I think it is accelerating.
Sure. This is Erifin. 2nd, on RM inflation, not too much So I'm going to be here to mention that how do you see government's ethanol policy impacting E and A drivers structurally from here on?
So on this one,
I mean, our own assessment is that Over a period of time, right, fundamental economics will prevail, right, as this becomes very, very attractive for the ethanol manufacturers, Sure. That's right. Also the India Manufacturers. We also expect a lot of capacity to come up. So while in the shorter term, we could see some inflation Vince, but over a slightly extended period of time, we believe that as additional capacity comes up, etcetera, the market will find its right So over the longer term, we don't see any big worry on this front.
In the shorter term, you're right, right? We could say it's on inflation segment, Which we will always, like any forward looking company, manage through a combination of ongoing productivity and
pricing.
Sure. And by shorter term, you mean 1 or 2 years to come up capacity? Or it takes longer? I mean, typically, in the The environment of the team, the India entrepreneur spirit, etcetera, typically these things come very, very quickly, right? So Let's see how that pans out, right?
And we continue to do whatever we are doing to ensure that we are not adversely impacted by that. Thanks. That's all from my side and all the good.
Thank you. Next question is from the line of Krishnan Sampamoori from Motilal Oswal. Please Go ahead.
Thanks for taking my question. Suraj, this is
regarding the ongoing strategic review of the Popular segment. Your thoughts on your own thoughts on how critical this is from a medium to longer term perspective, what are the key gains that are expected? And also since this you've given a timeline until December, either are you looking at ramping up for the scope compared to what was envisaged earlier? And will there be more such reviews in the future?
So I would say that we proactively started the strategic review of our popular portfolio, And that is on track, right? And we are looking to conclude it as far as the stated time line. So we are working through with our advisers and Looking to drive it to a tangible decision, whichever way it goes. So as and when we reach that position, these are conservatively shared So I mean, that is we are not
increasing the scope of the review at this point in time.
Okay. And your thoughts on medium- to longer term benefits From this review?
Well, depending on the decision, right? So I mean, once we come with the decision, we will also transcend and we share with You have got that need for our
business, right? Understood. And on the possibility of more such business, I mean, this will be an ongoing thing that you would be looking at Maybe in the 2 years?
I mean, yes, as the market evolves, every business, we conduct regular portfolio reviews, and that's business as usual. So I mean, we'll continue to do that as we evolve, right?
Understood. Thanks a lot.
Thank you. The next question is from the line of Ashut Desai from MC Global Financial Service. Please go ahead.
Yes. Thanks for the opportunity. I have a follow-up question on the popular portfolio that you have retained.
This includes celebration Ram and the Director
of Special Brands. We've not been investing behind this portfolio for a long time. So going forward, could there be any growth plans for this portfolio? Or this is something you would also relook into the future?
Yes. I mean, this is something that we are looking at, and actually, it's part of the strategic A refresh that we are doing. So again, we are looking at the role in the portfolio, which market, etcetera. And we will come back with the team on that as and when we close the strategy to fresh out. But Amit, we I can say that we see a role in our portfolio for the brand, and it will play Raul, in our strategy by state.
Okay. And my second question is on your state presence. We may have exited Few states or few markets or may
have limited presence in certain markets due to various reasons,
be it compliance or other things, Whereas your competitors, larger competitors would still have a decent presence in these markets. You see any possibilities where you can reenter these markets maybe to a different route or have some sort of presence?
So the first thing I want to say is that we will stick to the right way of doing business, and in fact, it means that we are out of the market to a BH. I mean, do we see a possibility? Of course. We are continuing to advocate with the government there to come to solutions that are That are acceptable, and we'll start to do business in the right way. And we have seen that markets come back, right?
So if not no situation remains permanent. I think we see markets close and come back with good solutions. And when one board closes, there are opportunities in other states, and this is an ongoing part of the environment in India. So We are very sure that those markets which are closed today will be back one day.
And just also just to add to what Hina has mentioned, I mean, these things have played out over the last 4 to 5 years, right? If you look at Uttarakhand 3 years ago, right, that's back to the bank last year. Chattopdgar was closed for about 2 to 3 years, etcetera. That's back to the bank, right, last year. So I mean, this is very, very clearly playing out, and we are confident that no market will remain closed permanently for us, right?
It will fall. It requires a little bit of effort on the advocacy and the work of the government, but hopefully, they'll all come back. Got it.
Thanks, Ananda.
Thank you. The next question is from the line of Namath Satya from Ahmed Capital. Please call him.
Yes. Hi. This is Alok here from Ahmed Capital. Good afternoon and thank you for giving this opportunity. Firstly, you mentioned that volume growth and margins both would be equally important.
In that context, I just wanted to check over the last 4, 5 years, whatever cost savings that we are seeing in terms of ad spend item or employee cost, etcetera. We do not think that would have possibly impacted United Spirits' revenue growth momentum, right?
Sorry, I'm not
clear about the question. Yes, yes. Just repeat your question. Your voice was not very clear. So then just to Yes, yes.
Just repeat your question. Your voice was not very clear, so I
didn't get the question. Can you repeat that, please?
Okay. Sorry. So You had mentioned previously that volume growth and margins both would be equally important for you in your strategy going ahead. Just wanted to check, in the past, we have already seen very healthy EBITDA margin expansion. But The sense that I get is you remain confident that with the current cost line at which the business is operating, there has not been any revenue impact, so to say, because of the So yes, I mean, so let me just try and interpret your question first, Your question, if I understand it right, is that in view of the aggressive cost savings program that we have ran over the last 4, 5 years, We've not foregone any growth opportunity, right?
Is that the question? I mean, one would yes, So one would tend to agree that I don't think we have cut anything vis a vis the consumer or the Over the last 5 to 7 years, right, I mean, ongoing efficiency extraction, absolutely, that any organization should I'll continue to do, and we have done the same. But I don't think we have compromised anything for growth of the organization. Does that answer? Yes, yes.
Thank you. And my second question was on the distribution. So why? Of course, it's a complex environment to run the meter business in India. But do you think there is Hope for you to do differently on the distributing side, at least in the states whether it's privately held, Your thoughts around with me?
So look here, Nina and Mahal's view would be that Alcobev category, the distribution is capped by the government on the outlet access, right? I mean, the entire category is like 50,000 to 60,000 outlets, right, out of which 80% to 90% of the business is probably done by the 35,000 outlet. So distribution is not really a big differentiator, Right. It is the battle in the store, right, of what we typically focus on.
What I would say is I think the opportunities are coming with
the route to markets and policy changes that we are seeing in
Delhi, for instance, right, where we Some policy changes that we are seeing in various provinces, right, where the retail environment is expected to Changed dramatically and become much more positive, right? And definitely, we see opportunity there. And then we see a lot of opportunity in So the new evolving channels like home delivery where, though it's very recent today and we know that it takes time to build, We expect that it will reach a tipping point one day and then really explode, right? So in that sense, there are definitely positive distribution opportunities that we see.
So my question was more on is there scope to work even more closer with the retailers and distributors that you are currently Operating with or you think that you're operating in the best way of the business?
That's an ongoing part of our business. I mean, we continuously look to we work very We'll be with them all the time. And as and when we see opportunities, we take those opportunities to expand presence and visibility.
Yes. And maybe from state to state, I would say, like Maharashtra is as close to a classic CPG FMCG model, and we have Very, very strong distributor relationships, and we continue to work with them in terms of what we can do in terms of joint business planning and how to expand the business. Got it. Thank you very much. Thank you.
Thank you. The next question is from the line
My first question was around the demand landscape. If you could share exit June rates both for off trade and on trade Recovery versus pre COVID levels. Just trying to gauge a sense of where we ended the quarter with. And any early thoughts on how July is shaping up for you? Yes.
I mean, so as we exited June, we were back to full operations as far as the off trade is concerned, right? Now on trade, of course, remains restricted. There are restrictions on capacity, on timing and the size of social gatherings around the country. So on page still remains subdued. And as you know, I mean, Also global travel remains muted, right?
So I would say off trade is looking promising. And on trade, we are hopeful that it will As the COVID rate sort of come down and recovery and vaccination coverage goes up, We are hopeful that Enclave will also start opening up slowly, but surely. Sure. The second bit was just Checking on your thoughts on potential for you into non alco web space, you saw this clarification being given in your memorandum of application. So that, Latifah, is just an enabling provision for us to do Brand extension work, right, to undertake brand extension.
And I mean as far as a standalone business in this We have no Indians right now, but the low alcabets space is developing in the Western world, right? So we watch for it. And whether there's a future possibility or not, we don't know. We'll continue to watch that space. Sure.
All right. Thank you.
Thank you. The next question is from the line of Harit from Investec. Please go ahead.
Yes. Good afternoon. I just had one question on the gross margin side. So in spite of the product mix and sales mix we had just for the quarter, You've seen a sequential kind of improvement in the gross margin. I just wanted to get your sense on a kind of how you're thinking about this From an annual perspective, because on the one hand, your product needs to continue to improve, it makes it normalize on trend and 2.
The other hand, you have some level of inflation coming in, especially as you mentioned from graphs. So should we see an improving trend in this line item going forward? Or It should be a similar bag. It's difficult to get a sense of that. Yes.
So, Harit, look, it's a conglomeration of multiple drivers, That's right. You're right. There will be a little bit of inflation, as we've already spoken of. But we continue to press all levers of mix management, Ongoing revenue management efficiency and our pipeline of the cost productivity initiative, right? These are the three things that we continue to proactively work on in some We work on.
In some years, the inflation is kind of slightly higher, so therefore, we take a little bit of a back seat. But in case the inflation is kind of stable, the prices, etcetera, we do see a little bit of higher margin expansion, right? So that's broadly how we Think about it, right? The intent always is to continue to extract ongoing efficiencies across the entire value chain of the customer. Got it.
Thank you, Chris. One more question was on the renovation side of the portfolio. So you mentioned There is a Black Dog renovation. You took that out of the initial market. I just wanted to get your sense on In terms of the overhaul of Black Dog, is this a packaging innovation, a blend plus packaging innovation?
What's happened on that side, if you will give us more color as well as what the kind of market expansion will be in the next 3 to 6 months?
So Black Dog started rolling out, and the renovation is now available in 3 markets, Right. So it's been Sundaraniyana and Penangyana. And by the central, we'll be rolling it out nationally. It is a firm change. So on the triple gold result, there is a liquid change.
There is a packaging change across, and we also launched a new 14 year old VITI Within the portfolio, right. So Black Dog was a bit slow in the past, And this is our renovation to contemporize the brand and get consumers to re appraise it as a premium Contemporary thought. Actually, we have a lot of blacked out lovers in the country, right? And really, the positioning platform of savers of all, Our initial feedback from these three markets is very, very positive. People are really appreciating the liquid change on Super Bowl New York and the 14 year old, And we are seeing very good repeat rate of the shares from markets like Hyderabad.
So I would say I am very confident that this change is going to sort of
The next question is from the line of Kamita Sajdev from UBS Securities. Please go ahead.
Hi, Hina and Prateep. Welcome, Hina. And I just had the 2 very short questions and all the best questions here. Just wanted you to talk around your strategy around the VIO business, since that is of strategic importance So Diageo as well. How do we run with it going forward?
How does that business do? And if you can provide any more color On that business, it is really appreciated. And secondly, given your comments that you were excited about the online business, I'm a little Right. So we have executed with our investment. So these are my 2 questions.
Thank you so much.
Thanks. So BIO, I think we've been on a continuous journey of scaling up as premiumization is growing, right? And we will continue to drive that as a key part of our portfolio. And we will We will be looking at levers such as newer additions in the portfolio as we go along to continue to build this part of our business. So It is a critical element of our portfolio and will remain so in the coming year.
Your question on HIPAA, I think, Hibar, when we so I would say that, yes, we are very excited about home delivery. And Look, I will say that HIPAA, when we entered HIPAA, right, it was a very differentiated model. It was the only one that had her own delivery license in Karnataka. Since then, there have been new entrants and the models are evolving, right? So my experience, when I tell you my 3 year spend in China, I learned a lot on e commerce and this front.
Basically, look, once this takes a long time to evolve, right? So there is a maturing period where it will be a few years before we see it giving And in this period, there will be a lot of test and learn with different models to cater to the environment that exists in the country. So at this point in time, right, we feel that Hidbar model maybe is not as differentiated as As you know, the speaking is in the markets of the world. It's not differentiated enough, and it is not appropriate for us to invest in an exclusive AlcoWeb only own delivery platform, it makes sense to release the promoters in other parts of the business. But we will continue to Retailer, regulators and delivery platform to determine what are the best models that evolve in this space.
And we must continue to sort of look at this space and be very active to participate in the
So, thanks for that. Apologies for pressing on the BIO question a bit. We all know it is strategically important for Diageo and USL. We wanted a little more insight into how that pans out for USL. And what are the are we just getting a marketing fee or do we take Part 2, in any other way, in the profit pool, I wanted to know more about what you from Diageo coming from Diageo think about the India As a delivery business, I guess, retailing.
Yes. So let me take that, Sinta, since this does come up repeatedly. Look, we are a national distributor,
right? U. S. Steel is
the national distributor for the Diageo global brands, right? Extremely high pricing, therefore, extremely gross margin accretive, Right. So therefore, clearly, as we have called out, remains a very, very high focus, right? It allows us to tap into the premium migration space. The brands have a fundamental global equity associated with them, so therefore, very, very strategically important, right?
Now on the margin perspective, What I want to share is that ultimately, we use a portfolio of brands to play our marching game also. What this allows us to do is this is extremely high on the return on invested capital, if you see, right? We do not invest anything in our manufacturing capacity, Right. All we are doing is getting the product from abroad, distributing it and the margins are In line with any independent third party distributor margin, right? So therefore, very, very high return on invested capital, And it has a very, very solid base in our portfolio that we would want to build and grow.
All right. Thanks for that, Pradeep. One request, if it's possible to add disclosures in your press release every Quarter on the VIO business, that will be very helpful.
Thank you. We'll have to explore that. I don't want to make we don't want to make any commitments right now. But yes, We'll happy to consider that and come back to you.
Thank you. The next Question is from the line of Sanchal Khandelwal from Aryataparla Capital. Please go ahead.
Hi, thanks team and welcome now both. Just a few questions on the balance sheet. Today, you have the best balance sheet in last 5 years from accumulated space perspective. What are the kind of CapEx plan for next 2 to 3 years? And given that you want to agree to volatility of EMA, What kind of reliance or investment we'll do to reduce this volatility?
Yes. So let me take that. So in terms of the CapEx intensity, If you look at our run rate through the last 3, 4 years, right, post acquisition, they have, by and large, been in a particular range, right? And We pretty much expect that range to continue, right? So there is nothing right now that we are seeing this will dramatically kind of change it, right?
So that's one. And second thing is, yes, in the Indian environment, we believe that alliances is the way to go. That's exactly what we have done on our manufacturing footprint also, which includes a lot of Core located in our destination facilities, right? And we will continue to progress on that Now, Pravai, as we reach our end state manufacturing footprint. Can you tell me, elaborate co location of this So basically, it provides the supply security, right, with our 3rd party manufacturing partners.
They have a co located destination facility, and therefore, the new 2 Spirit supplies are secured, and it does come may not come to the set of cost at one digit also. Sure. Thanks. One more question, if I may. So if I look at competing spirit, you have I mean, if I can name on note at one end where if I look at the sales twelve cases, far superior, you have radical in the other end who has gained market I mean, if I look at the statements of brand music you want to play, if you can and if
you want to answer On how
do you play it out, which are the states which is the focus now for you to improve your premium? You started saying that premiumization is not India has a big opportunity on anything you want to call out from such other states which are particularly rare you want to attack so that you become far superior than competition in Indian market?
I mean, difficult to outline which states are important. I think all states are important for different parts of our portfolio. That will be my answer, right? So I think being very clear, we are very clear about clearly defining which part Our portfolio are important. I mean, a market which is a popular I mean, a lower perceived dominated market and the driver number 1 will have a big role to play And both attracting people from the lower segments, as you know, we are catering to the aspiration of the consumer.
And we have the best of portfolio to be able to play that in MB stage 2 and advantage. So I would say that I think As an ongoing part of strategy, we clarified which portfolio plays in which state, and we're going to continue to Make that sharper and sharper and then bring our renovations and innovations to take advantage of that.
Sure. Thanks. Thank you. The next question is from the line of Sherish from CENTCOM Capital. Please go ahead.
Yes. Good afternoon and Pradeep. Thanks for the opportunity and welcome back to India. I have two questions. The first question is that in quarter 1, what is the weighted inflation We have experienced and how much price increases we have tried to mitigate this cost of mitigation?
And my second question is in relation to the previous participant's question. I think our channel check suggests that midstream segment is picking up Very quickly, and there is original players also trying to throw in their hat. While it may be true, but the important fact I wanted to have your candid view is that when the off grid is becoming little more important during this lockdown period, Do you see any abrupt or I mean a different delay from the contribution? And Is that so what is our thought and how we are trying to explain our position to the retailer? Okay.
So maybe I'll take the inflation and the pricing question first, and then I have to request you to summarize your and repeat your second part question so that Hina can take that, right? So Q1 versus Q1 of prior year, I think inflation There was hardly any inflation, right, at least in the core raw and packaging materials. But like we said in the earlier part of the call, we have Given glass price increases, as we kind of exited the quarter, and therefore, you will see the impact of that in the subsequent quarter. Pricing, again, we've got pricing from a few states, right, as the excise pricing cycle finished. And again, you'll start A little bit on the count of that in the coming quarters, right?
Pricing would be in the range of about 0.5% to about 0.6%. That's roughly the national weighted average that we get pretty much, which we have got over the last 9, 12 months, right? So that's typically your first question. If you can just repeat your second question, which was largely around mid prestige, you made the point about new competitors coming into the category, But we didn't exactly catch up to what was your question. Just to rephrase the During this lockdown period, off trade is becoming a little more important in terms of consumer traction and the exposure.
So I would suspect that the competition would have been little aggressive on that front. Of course, Once the entree opens up, we will have your merit to say that, but my view is how would you manage if this All of them get little extended. And how have you managed blood tissue?
I mean, we pivoted very much to the off trade as well, Right. So as off trade became more important as in home consumption picked up, right, we have also pivoted Very quickly, and I would say I'm very proud of the team and the agility they've shown in visiting to off trade and to Using digital for in home consumption and really moving our content to that. So I would say that's part of Doing business and managing competition, and I think we've done it really well, I would say. So I'm quite pleased With how fast we have moved there, we have also deployed resources additionally into off trade And invested as the market has evolved. So and we continue to watch this mix of channels.
And I'm very confident that with the learning that we've had over the last two days and what we've seen as changes, if we see changes further, we will
be able to adapt very quickly Good day. Yes. All right. Thank you and all the best to you.
Thank you. Thank you.
Thank you. The next question is from the line of Sezant Gupta from OHA Capital. Please go ahead.
Good afternoon to the entire team and welcome and back to India. And let me just say I'm very excited for the future of this company, Both as a stakeholder and also the fact that I recently turned 26, I'm meeting a lot of trends also as a consumer. But my question let me get to the question quickly. So from a very basic outlook, if I could see, roughly about 50% of your Sales has come to what you're planning in your strategic to offload in your strategic business. So what What effect do you think would it come on our OPM, which is roughly covered between 12% to 16% over the past 2 years, right?
And secondly, when it comes to what I noticed is that the firm hasn't really been I know that advertising is banned in India for I have seen competitive brands using quasi marketing on social media a lot more than our brands. So is that something that's on the table Because as you said, millennials are ready to tap in and spend more money on premium products, but I haven't We didn't see a lot of activity from United Spirits on this end. So could you answer those questions? So just again, answering your question, Suraj, your question is that what could be the implication on our business Depending on the outcome of the strategic review, is that the right understanding of your question? Right, sir.
So because from my understanding, the total volumes of the The mass brand which you are seeking to offload is roughly 49% of your sales volume. And because our OPM has been hovering between Anywhere between 11% to 16% over the past 4, 5 years, how would this fall in revenue be compensated in the OPM? How much P. Vijay Kumar:] Okay. And we probably expect an increase in.
Yes. So, Suraj, I don't think the numbers that you have are right, Right. But let me just respond at a slightly elevated level. Exactly what Mia mentioned earlier in the call, We are midway through our strategic review. We haven't reached any concrete outcomes, right?
And a plethora of options is possible, Right. And depending on whatever option emerges as the final recommendation, we are live to the implications of what it will have on our business model our overall margins, etcetera. And we are working proactively to figure out a way of ensuring that we are absolutely covered on that Right. That's what we would want to say at this point of time. Right.
So what is the OPM that we're targeting over the next If I can detail my question in that sense. Because that has largely, if I exclude the years where we were making losses, We've actually been stuck in this OPM margin for a very long time now. So is there a strategic target of moving past to a certain level of profitability? Or are we not having that number on the table and just targeting pure numbers as profits? Yes.
And we have maintained what we have said earlier, which is mid to high teens, and we remain Absolutely, right. If you look at our progression over the last, whatever, 5 years, right, let's say, post the acquisition, we gradually in step our operating margins From, let's say, high single digit, we are broadly there in mid teens, right? And therefore, we would want to remain committed to the mid to high teens that we have always Okay. Great. And if you could answer my other question with regard to The marketing endeavors, because that's also another thing that we've noticed over the past few years that our sales hasn't grown at an So I'm going to incrementally.
This has been great. We have done amazing work on the debt reduction plan, which I commend the team management for. But what is it in that terms of Innovative advertising or the outreach method that the company plans on adapting.
Yes. So I think we do what is It's possible within the regulatory framework, right? So whether it is brand extensions or whether it is being able to Doing good with me at the store level and digital, we I would say that I'm very pleased about the progress we've done to digital advertising. And our growth is actually quite breakthrough, and it is addressing the target audience quite sharply. And actually, we have Bigger commitments to become even more targeted, yes, and focused on our and You think we have some very good tools that we use internally to make our marketing programs much more focused And we will continue to drive that.
And we have seen very good ROIs So our return on investment growth in medicines are very good, and we will keep dialing for us.
Thank you very much.
Yes. Maybe we can close the call now, right? It's past 1 o'clock.
Yes, sir. I now hand the conference over to Ms. Luna Nagarajan for closing comments.
Yes. I would just like to say thank you very much for your time and the engagement on this call, and I wish you a good day.
Thank you very much. On behalf of United Spirits Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.