Ladies and gentle men, good day, and welcome to United Spirits Limited Q2 FY21 results conference call. As a reminder, all participants' lines will be in the listen-only mode, and there will be no opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Kripalu, Chief Executive Officer, and Mr. Pradeep Jain, Chief Financial Officer from United Spirits Limited. Thank you, and over to you, sir.
Thank you very much, and hello everyone, and a warm welcome to the FY21 second quarter and half-year results call. As we normally do, before we open the lines for Q&A, I just wanted to share a perspective of the results that we announced last evening. As everyone is well aware, we entered this fiscal in an unprecedented and challenging external environment, driven because of the pandemic. It's reassuring to see progressive improvement in the environment as the economy progressively opens. While the on-trade continued to remain closed for a good part of Q2, the off-trade channel is pretty much back to pre-COVID levels. I'm particularly pleased at the agility demonstrated by our supply team to provide a fast start post-lockdown with a completely new set of protocols for the new normal, where we were able to ensure the safety of our employees while keeping the factories running.
This enabled us to continue the rollout of our renovated brands, McDowell's No.1 Whisky, and Royal Challenge Whisky. Our commercial teams, too, went the extra mile and ensured that these were executed on the ground in the market in a manner similar to what we do during normal times. As you may have seen in the published results, our reported revenue declined 6.6%. The underlying revenue, however, declined 3.4%. The route-to-market change in Andhra Pradesh completely contracted our owned and franchised business in that state. Excluding the impact of bulk scotch inventory, which we sold last year during this quarter, and adjusting for the Andhra Pradesh business base effect, our net sales grew 1%. The prestige and above segment grew 1%, driven by our renovated bundles and somewhat softer comparatives of the previous year.
Price mix was positive due to the improved relative price positioning of the BIO portfolio in key markets, particularly in North India. Excluding Andhra Pradesh from the base, our prestige and above segment grew 7.6%. The popular segment declined 12.5% in the second quarter. Increased consumer prices impacted demand in this particularly price-conscious segment of this category. Further, the contraction of the Andhra Pradesh business, driven by the route-to-market change, impacted the overall franchise business in Andhra Pradesh and more broadly in South. Commodities have been relatively benign in the second quarter. However, as mentioned earlier, contraction of our owned and franchised business in AP and some related one-off inventory provisions compressed our gross margins to 42.1% for the quarter. Our A&P expense was down in quarter one. In fact, we tried to cut as much as we could in quarter one because things were pretty much under lockdown.
However, starting in Q2, we have reverted to our normative spend level. Reported spending was also to support the national rollout of the renovated McDowell's No.1 Whisky and Royal Challenge Whisky, and also to leverage IPL. Reported EBITDA margin was 12.6%. However, eliminating the impact of one-off inventory provisions, the underlying EBITDA margin for the quarter was 14.5%. The PAT margin for the quarter stood at 6%. Apart from the P&L, I am particularly pleased with our working capital and cash performance, which has really been the best in the recent past. There has been improvement across lines of working capital, as well as the quality of our accounts receivables, and I feel particularly pleased that we've been able to do this at a time when the marketplace has been heavily constrained. In the first half of the year, we repaid INR 780 crores of debt.
We aim to continue our journey of monetizing non-core assets so that we can further deleverage our business and lower our interest costs. A positive monsoon and crop outlook should limit commodity volatility in the larger part of this current quarter, which is Q3. However, we do see some possibility of mild inflation in the second half based on the just announced ethanol blending policy, and we need to see how that plays out. We look forward to welcoming our consumers to the on-premise channel as restrictions gradually ease out, and we will leverage our Raise The Bar program to ensure that that happens as best as possible. We, of course, will remain diligent and disciplined on our investments as the environment continues to evolve. Our balance sheet remains strong, and our capacity to generate free operating cash flow is also sound.
That positions us well to stay competitive in this marketplace. So with that, I'm going to open it up for questions.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yes, sir. Congrats on debt reduction and good recovery in the P&A. My first question is on the gross margins. Even if I remove the one-offs, there is a pressure. So I wanted to understand the insight of the comment which you made that raw materials may firm up a bit because of the new policy and the fact that now the airport footfalls are also reviving, which means the Q3 sales will also pick up. Putting all this together, where do you see gross margins and how was the mix in P&A this quarter? So your P&A saw good recovery, but within P&A, how has been the mix?
Okay. Thanks, Abneesh. I'll answer it, and then Pradeep will supplement my answer. I mean, we have never given an outlook for gross margin, Abneesh. You know that. We have given an outlook in the past for additional margin, and we have said that we will play the lines of the P&L as appropriate, and I'm sure you'll appreciate that that is what we have been doing. Within P&A, it's a mixed bag now. Overall price mix is positive, right? Which means that generally the right things are happening in the right segment. And some pricing is also there in terms of headline pricing. But I still say that it is very hard to read any trend right now in terms of is there a complete premiumization trend. Now, our BIO portfolio has done particularly well.
It's possible that there will be some tempering of those explosive volumes if duty-free sales significantly come back. But our understanding is that right now, duty-free is at best 10% or 15% of what it used to be. So I don't think it's coming back overnight, right? There could be some gradual comeback, and obviously, we have got some benefit of that happening. But part of the benefit of our BIO performance is also because the relative price positioning of BIO versus BII and upper prestige has become a bit more favorable, particularly in some states of North India. And we are seeing that momentum each month, and it's continuing on BIO. So I think it is some time before it tempers fully, and whether it will temper fully or still stay fairly strong is to be seen.
Our belief is that the intrinsic relative price positioning will stay as a benefit to this business. Some shift of duty-paid to duty-free could happen, right, as flights become normal, though I think it is some distance away. So that's the answer that I want to have. Is there anything to add, Pradeep, on gross margin specifically?
Yeah, Anand. Thanks. Maybe just two points I'll want to add on gross margin. The first is driven by the Andhra Pradesh RTM change, and obviously, that has impacted our franchise business as well, right? So that is one. And the second thing is that our volumes, if you've seen the current quarter, are still shrinking by about 3%-4%, right? Whereas typically, we would want to grow our volumes at whatever, the usual 4%-5%, which provides a bit of an operating leverage. So we are still not getting that, right? So those two reasons are the add-on things that have impacted our gross margin. That's all.
That's very useful. Thanks, Anand. My second question is on very good recovery in the P&A quarter- on- quarter. So what's driven this? Is this market share gain, or is it that on-premises consumption is shifting to home consumption, or is it the beer consumption shifting towards liquor? And finally, any update on your support bar program which you are running? How much has been rolled out? How much has been already consumed versus the budget?
I'm not sure I've had answers. Everything you're asking of me, but I'll tell you what our best understanding is right now. First of all, I'm very pleased with our P&A recovery. Okay? No question about that. It has been significantly enabled by our renovation, which I'm pleased about, as well as our BIO performance, which we spoke about. You can decide what our competitive performance is. You have all the numbers in the data, and you can decide, right? But I'm pleased about how the whole thing has happened. As far as on-trade is concerned, see, on-trade, which includes weddings, banquets, and so on, is, let's say, about a quarter of our business, give or take a bit. It is beginning to open, but footfalls are still low.
I would say at best, footfalls, if you walk into a restaurant, at best, it will be maybe 50-odd% of what it used to be, right? So it is still some time to go for it to recover fully. Now, our Raise The Bar program, I think we had 900 registrations in our first week itself. We've handed over starter kits. We've started training programs for many people already. So it is getting now very, very good response, and the response will only increase as people start opening because they want to also demonstrate that they are safe for people. So I think it's coming in very handy to support our customers. And our customers, I must say, have been very, very pleased with the initiative that we have taken. Finally, is there an increase in in-home consumption? Absolutely, yes.
I don't want to answer a guess on what percentage that shift is, but I can tell you that we have been running so many virtual programs on DIY, right, which is do-it-yourself cocktails, right? So our brand ambassadors and bartenders have been running online programs. There's been a lot of interest, and in-home penetration absolutely has gone up. I think what people have also realized is, you're drinking at home, you can afford to drink even better stuff because it's much cheaper to buy the bottle and take it home versus drinking at a bar. And I think it's also that bit of price discovery that's happening, and then if you buy the right ingredients and make your own cocktails, you can create a bit of magic in your home.
So maybe some of these will still include, I believe, the breakdown barriers of drinking at home amongst many conservative Indian families. I think that barrier has also come down where people are saying, rather than drink on the street or drink in a place that's not safe, you may as well drink at home, all right? So I think there are some collateral benefits that could stay on, right, and benefit our industry over the medium term.
Anand, that's quite useful. Just one last follow-up. So in terms of consumer behavior, because you said in-home consumption has picked up, so is it buying much higher ticket price versus earlier? Anything you are picking up from the store? So that's something which will ease off because now people are definitely going out.
So if you look at our numbers, right, clearly the off-trade is delivering almost an above-par performance because the on-trade contribution is small. And if on-trade was a quarter of our business and we delivered more than 7% P&A growth without AP, right, it tells you that the off-trade has delivered an above-par performance. The mathematics of it tells you that, right? Now, that means there must be more ticket size, right? That's the only way it really happens unless we have a whole generation of new consumers who have come in post-pandemic, which I think is less likely. So yes, I think there is definitely an enhancement of ticket size by deduction. I've not looked at the data closely enough at a store level by deduction. Yeah.
Okay, sir. That's quite helpful. Thanks and all the best. Thanks.
Thank you, Abneesh. Thank you.
Thank you. The next question is from the line of Arnab Mitra from Credit Suisse. Please go ahead.
Yeah. Hi. Thanks for taking my call, so Anand, the P&A growth is quite remarkable.
Hi, Mr. Mitra. Your voice is breaking up.
Yeah. Is it audible, my voice?
Sir, can you use the handset mode while speaking? Because there's a lot of static from your line.
Okay. I'm actually on the handset. Maybe I'll come back in the queue then after logging on from another device.
No, why don't you—I think I can make out, Arnab. So why don't you just tell—I'll try and capture it and answer.
Sure, Anand. So the P&A growth of 7% is quite remarkable given the headwinds, and there would have been progressive improvement through the quarter. So would you have exited the quarter at a double-digit kind of growth in P&A, excluding AP? And your commentary in the note seems still a little cautious in the press note that you put out. Any reason for that caution given the kind of growth that you have seen in this quarter?
Sure, so first of all, I'm not going to hazard a response to whether we were increasing the double-digit and whether there's successive improvement, right? Because I think it would be unwise of me to share this at that level of granularity. I think what we have to just see is that, look, this itself is a strong performance we have seen. I think our renovation impact is not fully there across India because there have been successive rollouts post the opening hours, and in some states, like big states like Maharashtra, it's only gone in the last four weeks, so the impact of our renovations has not yet been fully felt, and I feel that that is going to, the impact is going to continue and extend, right, across the nation, so I feel good about that. I feel good about the fact that on-trade has started opening.
I'm still uncertain, and hence the cautious optimism. I'm still uncertain, by the way, of how the festive season will turn out. Will people start frequenting the bars again? Or people are going to be cautious because yesterday again—and this is a big problem right now. It's two steps forward, one step back. After going down to 20,000 cases a day, we are again above 50,000 cases a day. What will the government do? What will people do? Are people going to exercise more caution and say, "No, I'm not going to step out of my home now and drink at some bars?" And certainly not going to go to bars. So I think, you see, this October-December season is a significant step up normally of July-September, and that's basically winter and festive. Okay?
Now, I do not know if that kind of step up is going to happen because of the environment we're in. And I think in this situation, we're not a home hygiene product, right? Our product is consumed as a center of socializing. And I just do not know if socializing is going to come back the way it was last year in Q3. So I think that's where it is. So I would say I feel good. I feel good about our renovations. I feel good about the continued rollout of our renovations and the impact they'll have. The environment remains uncertain, okay? And it would be unwise for me to try and predict what that environment is going to be like over the next three months, you know? And that's the reason for it.
Okay. Thanks so much. And my last question was on the balance sheet improvement. So this very high cash flow generation seems to have come from an increase in other liabilities, current liabilities. If you could just explain what has driven this, is this sustainable? Because normally this is excise duties to be paid, it's my sense. So any color on that, please?
Yeah, so I'll pass that over to Pradeep.
Let me take that. Yeah. Let me take that. So my guidance will be let's not look at current liabilities in isolation. I think the point that Anand made in his opening part is that overall, as net working capital, we've done well, which has enabled us to release debt to the extent of INR 780 crores starting April 1st to September 30th. However, I do want to say that roughly about one-third of this was on account of the inflated position that we were sitting as on March 31 because of the sudden lockdown that got announced, right? And the balance two-thirds is on account of hardcore operating cash flow that we've generated during the six months.
Okay. Thank you. Yeah. Thanks. That's it.
Okay, Arnab. Thank you.
Thank you. The next question is from the line of Aditya Soman from Goldman Sachs. Please go ahead.
Hi. Good afternoon. My first question is on BIO. So we've seen, obviously, you indicated there has been a significant acceleration in BIO sales. Now, on the other hand, if you look at gross margins, those haven't expanded as one would expect with the acceleration in BIO. Is this because there is a—I mean, the gross margins or the margins for you for BIO would be similar to that of the other prestige brands, particularly because maybe the margins are balanced out depending on your agreement with BIO?
So Pradeep, you want to take that?
Yeah.
So you think it could basically do with gross margins despite the performance, right? Why are we not seeing improvement? And is it because we don't get increases gross margin from BIO?
Absolutely. So let me take that, Aditya. So like I responded to Abneesh, right, the gross margin impact is largely driven by the Andhra Pradesh RTM change impact, and its impact on our own only the revenue also. It doesn't impact margins but the franchise business, right? So that's a large franchise business that our franchisee was running. And obviously, our South franchise is a portfolio franchisee, so that has its own associated impact on its overall portfolio. So that's the reason that we are not seeing. T he other reason which I mentioned was on account of our volumes are still kind of shrinking versus prior years.
So therefore, there is some element of fixed cost deleverage that we are seeing. On your larger point of the mixed impact on gross margins, Aditya, the way I'll say it is that there is a top end, right, which is not hugely accretive in terms of percentage margin, but it is highly accretive on rupees per case. So that is one. And yes, our performance in this quarter has also been driven by a huge growth in the lower prestige segment, which is our anchor trademark of McDowell's No.1 , right? So the two of them are by and large squaring each other, I would say. Hope that kind of provides some color to the gross margin performance.
Yes. Thank you very much. I mean, that was very clear. So basically, the point being that the lower prestige has grown faster, and then BIO, you're saying that gross margin is necessarily hugely accretive. T he second question that I had was on the new launches, McDowell's No.1 RC . Have we seen any pricing changes due to the launches?
Have we seen any pricing changes? See, we—I mean, you know how pricing is done in this industry, right? So there have been really no pricing changes as a result of this. There have been price increases in terms of headline prices that we have received from states, which have happened, and that is not related to the renovation directly. Now, let me say this: our strategic intent with these improved mixes is to charge a premium to competitive brands in that same instance. Okay? Now, in some states, we have that premium already. In some states, we don't have that premium already, right? And our intent with both McDowell's and Royal Challenge is to take a premium to other brands in that segment. And we will keep moving towards trying to do that dependent on regulatory approval, right?
Because we believe that these mixes have the potential to take that premium, so just like in Maharashtra, number one is that a premium to other brands in the segment, right? And it's going faster than other brands in that segment, right? It can take it even before the renovation happens, so post-renovation, I think there is higher propensity to do this across states, and we will do everything we can to get to our strategic price positioning for these brands.
[audio distortion] . So could you share any number on how many states you would be or what proportion of your sales you would be already at a premium to your competitive brands?
Oh, no. I don't have that data handy. What percentage of our business is at a premium? But let me put it this way. It is one part of our business, I would say, not a dominant part of our business for sure, right? We are going to move in that direction, and you will see this playing out, right? Based on regulatory constraints, like I said, which is always a barrier in our business.
Thank you. Very clear.
Okay. Thank you.
Thank you. The next question is from the line of Mayur Gathani from Ohm Portfolio Equi Research Private Limited. Please go ahead.
Hi. Thank you for the opportunity and the great set of numbers, sir. So I would like just to tap in a little bit more on the working capital. Can you throw some more light on that? I mean, is it sustainable? How did we manage this?
Sure. I'm going to request a reply to that question, but I just want to say this: that working capital has been a key management performance metric for several years now. And therefore, there has been huge focus on working capital as a management team. To the extent that I chair a monthly cash committee meeting where every month we look at every constituent of cash and try and tease out efficiencies. And what you're seeing now is a culmination, I would say, of years of focus, right? And each year we improve working capital, by the way, consistently and very frequently we improve working capital. But I've always said this: that there is further opportunity to squeeze the lemon, right?
What I felt good about this time is not just that the improvement was just a continuation of the past, that it was better than the past, and it was done in a significantly more challenging environment, as you would imagine, where cash flows were not that easy for many of our customers and vendors, right? That's what I feel pleased about. But to add more light, I'm going to hand it over to Pradeep.
Yeah, so Mayur, again, you know I've responded to that earlier. Roughly about a third of the improvement is simply driven by the fact that we were sitting on a higher debt on March 31 because of the sudden lockdown announcement. The balance two-thirds, we believe, is purely on account of the working capital efficiencies that we have generated. We are particularly pleased with our accounts receivable performance driven by the momentum that we are beginning to generate on our P&A side, right, and especially the Scotch side, etc., which is a lot more prevalent in North. We are doing well there. North obviously is very, very credit intensive, right, so the cash rotation is happening at a faster pace in that part of the country, which is providing us a lift, right?
And also, I may want to add that by and large, in this year, the corporations have been behaving, right? And they have been paying us on time. So that also adds to it. Whether it will sustain or not, as Anand mentioned, this category has its own set of volatilities associated with it. So we will take that into account.
Okay. But if you, when you talk about one-third being the, is it that inventory that you were talking about was high in the month of March? Because I don't see much change. In fact, inventory increased if you look at March to September. Receivables are more or less similar to March to September comparison. So what you're saying, I completely take that, but in the numbers, I'm unable to figure it out.
So maybe I'm talking about working capital, right? That's the position that we run within our mind. But you could always reach out to Richa subsequently after the call, and she'll be able to provide some commentary on that.
Okay. Great. And one more question from my end. What is the outlook on the AP issue? Because it's impacting our gross margins and the franchisee income.
So listen, AP is a rocky market or a regulatory deadlock, right, as far as our business is concerned at this point in time. I want to say it's so, right? When it will unlock, I think your guess is as good as mine right now because there's no input/output in terms of effort and outcome that's going to happen, right? Our effort remains continuous, and our advocacy program, right, is comprehensive. But I want to say this: in this industry, and this is something that I want to share with the larger group, based on my seven years of experience in the industry, every couple of years, some door will shut, but some other door will open. Okay? That's how this industry plays out.
Three, four years ago, for those who have been on our call since then, we had a situation in Uttarakhand about four years ago where our business went to zero. Our leading market shares went to zero. Nine months, it was almost zero. Today, we're growing market share, and the business is booming. Chhattisgarh, we were doing well. Our business went close to—I mean, not zero, but a quarter almost, right? A fraction of what it used to be. Today, Chhattisgarh is back, and our business is doing really well. They're growing market share there. Bihar, from whatever I'm hearing, right, and you read the same papers that I do, prohibition doesn't seem to be as central to the current election manifesto as it's been in the past, right?
Now, I'm not saying that it's going to get lifted or something, so don't quote me because I'm nobody to say that. But whatever I'm reading makes it clear that it's not as central to the manifesto and to the election as it has been in the past, right? Now, who wins, I do not know, but what's going to happen post-fact on our category in Bihar, right? I just remain, for to use the same word, cautiously optimistic that something could happen and a door may open. This is the nature of the beast we're dealing with, right? We've been through the Supreme Court highway ban when we had to shut down a lot of stores. Everything found a playback, and it reopened. So this is what I call funnies in our industry. These funnies happen, right? I think we have to remain optimistic.
Yes, none of these decisions are permanent, by the way. What I cannot predict is the timing. I'm just saying, just step back and look at it from a broader point of view because it is the nature of the environment we're in.
Right, sir. Thanks to them and all the very best going forward.
Thank you so much.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, Anand and team. Good afternoon. M y first question is on your margins going ahead. You mentioned that there could be some pressure on ENA prices going ahead, which can affect margins. Already, your gross margins are under pressure. And if ENA prices go up, that could put even more pressure on the margins. So just wanted to understand what tools do you have in your arsenal to offset this margin pressure? And as a sub-question to that, in terms of price increases in any of the states, are you hopeful in the next week? What are any of the states sort of due because there have been several years in terms of price increases? And are you optimistic that any of these will actually go through?
So first of all, yes, you could say margins are under pressure. What we have always said is, and I'd like to believe that we have broadly delivered part of this pandemic period, is consistent improvement in EBITDA margins year on year towards what was at that time our guidance on our medium-term goal. And we have played different lines with the P&L, not only gross margin, but different lines with the P&L to deliver that margin guidance, right? Whether it was A&P increasing it or tempering it, whether it was overhead and controlling it, right? Apart from everything else. So first, I think when we think margin, please recognize that our management focus is to make sure that we deliver continuous improvement in operating margin, which is EBITDA margin for this business, notwithstanding this interim period of a pandemic or of a crisis, right?
But when we come out of this, we'll get back. Now, on your point of what levers do we have, apart from levers with the P&L, we have received about 0.5% of realized headline pricing, right? Realized means net of any trade spend, etc., etc., in our P&L in this quarter, right? Give or take a bit. And that's the result of pricing across six, seven states. Now, our efforts on price increases will continue. And I'm hoping that as we get to the next exercise cycle, the broader economy and industry seems to be revising. GST collections seem to be revising. And I'm hoping that the acute pressure that states have faced on GST collections on Centre, right? That will wane a bit, and states will get a bit more control of their finances, right?
Because we still have a few months before the actual decisions are going to be taken for the next exercise cycle. So I just want to say that pricing remains an important lever, and we are going to put a lot of effort behind trying to get more realized headline pricing. As far as commodities are concerned, right, we delivered P&L when our commodity prices were even higher than what they are today, particularly on ENA. Okay? So I just want to say this: we have flanked the caution because the government announced an ethanol blending program and a procurement price. Okay? Currently, the rates of ENA are well below that. Okay? That's how it's currently playing out.
So, and I think, like I had said in the opening statement, this quarter, which is October to December, right, barring some funnies, I think it will be okay and under control commodity pricing, right? Because already we are in the early November, right? And we've obviously covered enough for most of this quarter, so it's not going to be a huge negative. So we have to wait and see what happens with commodities. And we've seen what's happened: the global oil prices have gone down again to $39 a barrel, right? So I'm saying this is just a cyclical and unpredictable environment we're in. I think what you should take out from what I'm saying is that the management team is absolutely committed to delivering the right level of operating margin, right? And in peak times, this is wartime, but in peak times, to deliver continuous improvement operating margin.
And despite high commodities, despite poor pricing, despite anything, if you look at our last few years, we have delivered that every year. And I think we need to take confidence from that rather than hold us to account for every line of the game.
Sure, sure. Understand that. Sir, and on my other question, in terms of which states do you think are the most likely where you can get price increases in the next 12 months?
That is the million-dollar question in our industry, right? If I knew that, I'd be a rich man. So that is the toughest one to answer because it is, like I said.
or if I might just change the question, Anand, which are the states in which it's been like a fairly long period since you have not got a price increase?
Number one is Karnataka. Absolutely Karnataka, right? We have to find a way to unlock Karnataka, right? It's a big opportunity in business for us and a reasonably sized P&A market for us. And Karnataka has not given us now for several years. That gives you the condition of Telangana before. Telangana now is given price increase every two or three years. And we've had the biggest unlock of bottom gap in Telangana, which is the most difficult state on getting collections earlier, right? So that's what I'm saying. In this industry, we see these moves again and again played out, right, in different states, right? The worst state, the best state, right? It all depends on who's sitting on the chair taking the decision at what point in time.
See, the biggest issue in the industry is there's no simple logical argument to be made for sometimes a decision that may not be based on that logic. The decision is based on some other logic of that person.
Right.
And that's why it's very hard to put this input and put together. But I can tell you, so Karnataka is the biggest one over there, okay? And there are a few more states that we will keep pushing for. We got Rajasthan after a long time, Telangana recently. So it's not as if we have not received price increase. Like I said, seven, eight states, we have improved pricing. Haryana, we've improved, and we will retain it, but currently, we've put a bit of it back into building our business back. And our business is doing really well in Haryana right now, and I'm pleased about that. So it's a mixed bag, but I can answer this better when we maybe do our next quarter's call in January or early February, just ahead of the excise cycle.
Right, sir. My second question is on the cost improvements that you have done in your overhead. As you said, you have continuously delivered margin expansion, and that's your goal going ahead. And in the past, you have crunched a lot on overhead costs, staff costs, etc. So I just wanted to understand if there is indeed more sort of leeway there, given the past performance where significant cost savings have happened. Do you think there is even more to sort of squeeze out of the lemon going ahead?
I'll hand it over to Pradeep to give you more granularity, but I'll just say this, right? After reducing 1,000 basis points of average working capital in the business, we have delivered this cash improvement for the last six months. Every year, we have delivered improvement in overhead. Every year, we have delivered productivity in the COGS and other line items. So what does that mean? See, when costs become zero, there's nothing more to be saved. But till it is zero, you have to look at the business differently. So I just want to say this: that we are already looking at what we need to do to drive cost savings through our overhead program, right? And we have clear ideas, by the way, of what we can do.
So I just want to make it clear that the law of diminishing returns works when you look at the same thing again and again in the same way, then you get diminishing return. So look at the same problem but from different lenses every time. You find different answers and different solutions, right? And we have been trying to do that, but to get more specific rather than remain philanthropic, I request Pradeep to just give you a bit more light with specifics.
Yeah, yeah. Thanks, Anand. So my response will also be a little elevated only. Look, like any forward-looking organization, right, we firmly believe in creating a proactive productivity pipeline, right? And as Anand has mentioned, right, whether it is on the cost line, which impacts the gross margin, or it is on the line below the gross margin up to the operating margin line, or it is below the operating margin line, which is, let's say, interest and tax, etc., we have a slew of initiatives, right, which will hopefully continue to deliver performance for us and provide us the necessary fuel to put back into the market for a sustained growth, right? That's what I'll say, Percy's point. And yeah, it is continuous improvement, and therefore, we very, very proactively manage it through a well-defined program inside the organization.
Perfect. Got it. That's very helpful. Thanks, and all the best.
Thank you.
Thank you. We'll move on to the next question. That is from the line of Jaimin Shah from RWC Partners. Please go ahead.
Yeah. Thanks for your time. Very basic question. Just wanted to understand, is there any channel filling benefit we have seen on the off-trade business? When I say channel filling, I just wanted to get a sense on, is your sell-through also kind of at the same level as what you have reported?
The missing question is, did we sell in more in this quarter than we pulled out? Is that right?
Yes.
Okay. So let me say this. So this quarter, yes, there has been a sell-through. Okay? So selling was more than sell-out. Every year in this quarter, selling is more than sell-out because we start with lower inventory in the first of July because we're coming on the back of monsoon and summer. And you end with higher pipelines on September 30th, and you get into Dussehra and Diwali and winter. Stock buildup this quarter in this fiscal has been exactly the same as the stock buildup last quarter. So when you're comparing the date, it is not as if we have built up more stock this year in this quarter compared to the same quarter of last year. So it's a life-for-life comparison.
Having said that, last year, there was a bit of softness in our quarter because of certain one-off operational challenges that we had, which I had spoken about when we did the results call for that quarter. Now, this year was relatively smooth, so that's why I put in my opening also that somewhat softer comparison, right, to a small extent. It was a softer comparison, and I just want everyone to be well aware of that. This year, actually, our intent was to stock the pipeline a lot more because of the uncertainty of, you don't know when, what will happen, lockdown will happen, some states will get shut, some factories will get shut because we'll have COVID cases. We wanted to actually push more stock in, even more than we had done. We ended up doing what we normally do in this quarter.
So, I think what you should decode is it is absolutely normal, right, and no different from what happens every year and happened last year also in the denominator. So, that comparison in terms of stock buildup is a like-for-like comparison.
So by all means, Q3, I'm not kind of holding the guidance, but come Q3, if it's all normal, we won't see kind of a softer sell-through, sell-in, just because we are holding a higher inventory right now in the channel.
One thing, some level of pipeline variation happens in the normal course of business, right? And that is more intent-related. And intent meaning not to just show more sales in one quarter or something, but based on activity and season. Okay? So typically, October-December pipelines are much higher. Retail pipelines are higher between October and December, not just company pipelines, right? Even retail pipelines because consumption is higher because of festive season and winter, right? And then as you get into the summer months, there'll be some tempering of that pipeline, and then it comes up again during the festive season the following year. Okay? But I'm just saying if there is an aberration on comparison, then we will flag that case. There is nothing out of the normal you need to think about.
Okay. But if.
What happens in the normal quarter?
Okay.
Yeah?
I mean, would you be able to quantify what usually happens in Q2, what's the difference in sell-in and sell-out, and what was the difference this time?
No. I don't think we want to get to that because see, if there was a one-off, I'll call that out to you so that you can read your numbers right. But what happens every year is the normal cycle of business, right? I don't think we will call out separately. So if there's an exception, I'll call it out. But to start every quarter telling us the difference between sell-in and sell-out, I don't know if it's going to be helpful, but I think it's too much of the micro-detail, honestly. Yeah?
Okay. Got it. Right. And just to understand the cost positive price mix here, in terms your premiumization has played well, but when I look at ASP per case, it's increased, but it's not increased in a bigger proportion if indeed the premiumization is happening. So I just wanted to get a sense on P&A, how the Scotch did compared to McDowell's or Mid-Average. Any qualitative indicators to understand?
No, sure, sure. So BII Scotch did the best. BIO Scotch not so well because there were a lot of upgrade also from BII Scotch into BIO Scotch, okay, because the difference is certainly in certain parts of North India have become attractive for consumers to drink BIO Scotch. So for example, Johnnie Walker Red Label is exploding, right, in parts of North India and certain states. Okay? So that is really what is happening. As far as A&P is concerned, 8.5% of our total business really reflects double-digit A&P on our P&A portfolio. So I just want to say this, that all our strategic choices that we have made are fully funded, right? We have been very present on IPL, right? You would have seen McDowell's No.1 . You would have seen Royal Challenge in conjunction with RCB.
If you go into stores, you will see the activation that is happening on Scotch. I just want to say that the A&P is competitive and our innovation, so it's not about wallpaper advertising, right? We just advertise. When you advertise behind new news, right, like we have on some of our brands, that is all fully funded. So listen, 8.6% is almost normative levels of A&P, even though top lines are below what our ideal ambition would be in peak time, right? Our A&P, we have pulled back, right, on good tech this quarter. We were at 5-odd% in the previous quarter. We pulled it back, right? And we will fully fund the next quarter also, just to be careful, because it's the peak selling season. It's festive season. We have innovations to support.
We have gift packs and everything else over there that we're going in for the festive season. So it will be fully funded.
Okay. And maybe just one last question before I go off. Just wanted to understand in your third quarter, which is heavy usually on-trade, weddings, parties, etc., could you qualitatively kind of ascribe a usual Q3, what's the mix on-trade, off-trade, parties, wholesale, which is probably not going to happen this time around?
I mean, I think that's getting into too much detail again. I mean, all I say is this, that I said it during my comments earlier, right? But there's a normal 10%-15% uplift that happens to the total business, right? And a lot of it is led by weddings and banquets and stuff like that. Now, I don't think big fat Indian weddings are going to happen in 1,000 people. But you know something? All weddings are happening. Some getting married, and they are consuming, right, but multiple occasions in smaller groups. So that's why I said cautiously optimistic. It's tough to predict exactly that we will have the full buoyancy of a normal quarter in October-November-December, but there'll be some improvement for sure. Yeah? And I'm seeing a bit of a little bit at least, even now, in terms of a bit of that happening.
But it's not the big stuff yet. So the on-trade and wedding banquets are unlikely to fully contribute what they normally contribute. It's our current reading, but a good part of it is getting compensated through the off-trade, as has happened even in the previous quarter.
Okay. Okay. Great. Thank you so much. Very helpful.
Okay. Okay. Not at all.
Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, Anand. Anand, I wanted to understand, in this post-COVID world, do you see a change in the consumer wallet between spirits and beer? In the consumer wallet between share investments, in the consumer moves away from one segment to the other, or any thoughts on that?
As a permanent change, that's really hard for me to be able to say. Okay? Now, what happened, obviously, was on-trade. So I think, listen, there were two reasons why there was a shift. One is the on-trade, which has much higher beer sales in the closure of the on-trade, right? And then when you're taking stuff home, beer is very bulky to take home. So there's a convenience factor to taking spirits home. The second is this perception that [Thanda piyunga], so COVID is over. Okay? So people didn't want to have, and you can't drink beer warm. So there was this feeling about that.
And the last thing is, for a lot of middle-class homes, the fridges are not so large to go and chill many bottles of beer. Okay? So earlier, people used to buy it at eight o'clock and consume it, right? Now, some places' stores are also opening early. Okay? So there were certain, I would say, structural reasons why that shift happened. Now, is it a deep-rooted habit change to when on-trade is fully open? Right? Will beer remain permanently negatively impacted versus spirits? I am not going to hazard that guess.
But Anand, when the feedback trend is playing out, would that be a fair expectation?
Yes. Yes. Yes. Until on-trade is fully open, certainly it's going to play. We are seeing a bit of that happening, obviously, with no doubt.
Okay.
Something about this perception because COVID ain't gone yet, and some of this perception by the way, I have some of those people who say, ["Thanda nahi piyunga."] All right, so there is this perception out there that you're better off not drinking cold stuff, right? That will stay until COVID stays until the vaccine comes. I'm assuming right now. I don't have hard data. Okay, so I mean, some of these things are really, but I think some of the positives are likely to stay. I think the positive of once drinking gets allowed at home, that taboo is broken. Our sons drinking in home with their parents there, that taboo is broken. Take, [bar kar diya], the taboo is broken. I think those taboos, some of them have been broken, so that leads to permanent changes behavior, right? That taboo won't suddenly come again.
Once you've broken the taboo, you've broken the taboo. Okay? So I think, and then the realization that if I drink at home, it's cheaper, and I can drink better stuff, that realization, I think, is definitely there. But if beer versus whisky, short term, absolutely we are seeing that, right? Sustainability over the long term, I mean, I really, if I could answer it with clarity, I would.
No, no. Fair enough.
It's a hard one to answer. It's a hard one to answer with any credibility, honestly.
But the point I was coming from is, I understand the caution given the uncertain macro, but with most states steadily unlocking playing out, would it be fair to say that incrementally, things are only turning positive? Is that, I mean, at least from the two key measures.
Directly, yeah. Directly, it is two steps forward, one step back. But I think directly it's positive. Yeah? So the on-trade has largely shuttered in the previous quarter. Now, most of them are open across more states, but footfalls are still low. So, that barrier we have to break. That hurdle we have to break now. We have to get more people in and raise the bar and everything else. So directionally, I think yes. But the fact that you will not have small steps backwards in different places due to the pandemic is still out there, I think, yeah, is an issue. I mean, for instance, West Bengal, they've taken up prices very significantly recently. That's a negative. Okay? And they've actually lowered the price of beer and increased the price of spirits recently in West Bengal. Okay? Because beer had collapsed completely.
Now, you don't know how these bogeys will happen where regulators will take a call, right? They saw a massive decline, I think. I don't know what it was. 60%-70% decline in beer revenues and beer sales, right? So they've said, "We increase the price of spirits." Now, that will hurt us in the short term, but spirits still tend to be resilient and come back three months, six months later, even if there's a sharp price increase. So I just. I don't have enough visibility to be fully optimistic versus positively optimistic.
Okay. Okay.
Yeah? And I don't want to also just say things, and you can see the funnies out there as well, right, like me. All the funnies are not gone.
No, that's fair enough.
But I'm positive about what is within management control. So let me put it this way then. I'm very positive about what is within management control, what we've done on renovations and what we've done on Scotch, particularly. Okay?
Okay.
I'm positive about that, right? I have enough data points to be positive about that. So I can say that.
Okay. Perfect. Just the bookkeeping on input cost, finally. I have an unclear. Is the cost now flattish? Is it going up? And if you could kind of just give us a sense about glass, just that's the only bit.
It's flattish.
And glass also is flattish, or is it moving down?
Glass is flattish for now. Okay? Right? It is flattish for now.
Yeah. Okay. Perfect. Thanks a lot. That's all for me. Thank you.
Not at all. All right. I think we'll have to close the call. It's 11, sorry, one minute really to go only for our deadline. So if I may, then we could close the call. I just, on behalf of Pradeep Jain, myself and the management team, with that, thank you all for your time and for your continued confidence in our company.
Thank you.
Thank you. Ladies and gentlemen, on behalf of United Spirits, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.