Q1 2027 United Breweries Ltd Earnings Call

Speaker #1: Ladies and gentlemen, good day and welcome to the United Breweries Limited Q1 FY27 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Operator: Ladies and gentlemen, good day and welcome to the United Breweries Limited Q1 FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Jorn Kersten, CFO. Thank you, over to you, sir.

Speaker #1: Should you need assistance during the call, please signal an operator by pressing star, then zero on your touch-tone phone. I now hand the conference over to Mr. Jorn Kersten, CFO. Thank you, and over to you, sir.

Speaker #2: Thank you. Thank you. Good afternoon, everyone, and thanks for joining us today. It's been a very interesting quarter. We'll take a bit of time to do an introduction. I'll make a few comments before I hand over to Vivek, and of course afterwards we'll very happily address all of your questions.

Jorn Elimar Kersten: Thank you. Good afternoon, everyone, and thanks for joining us today. It's been a very interesting quarter. We'll take a bit of time to do an introduction. I'll make a few comments before I hand over to Vivek, and of course, afterwards, we'll very happily address all of your questions. Before we dive into the questions, I think this last quarter, we can characterize by two very different realities. On the one hand, the beer category continues to accelerate with industry growth at approximately 13%, and very positively supported by both premiumization as well as increasingly supportive regulatory development, which we see across several states, which Vivek will also comment a bit more on.

Speaker #2: But before we dive into the questions, I think this last quarter we can characterize by two very different realities. On the one hand, the beer category continues to accelerate, with industry growth at approximately 13%—very positively supported by both premiumization as well as increasingly supportive regulatory developments, which we see across several states.

Speaker #2: Vivek will also comment a bit more on this, which makes us believe that this is really the start of a new era for beer in India, where we think the reforms increasingly recognize beer as a differentiating category. This will create a more favorable environment for long-term growth.

Jorn Elimar Kersten: This makes us believe that this is really the start of a new era for beer in India, where we think the reforms increasingly recognize beer as a differentiating category, which will create a more favorable environment for long-term growth. That's one side of the story. On the other hand, in the quarter, we operated through one of the most significant cost shocks that the industry has experienced over the past couple of years, referring, of course, to the Middle East conflict that created substantial pressure across the entire value chain on packaging materials, logistics, foreign exchange rates, our export business overall, on the overall supply chain. Despite the headwinds, we're very proud that we delivered solid growth, that we very intentionally improved cash generation, and that we continue to strengthen the underlying business.

Speaker #2: Now, that's one side of the story. On the other hand, in the quarter, we operated through one of the most significant cost shocks that the industry has experienced over the past couple of years—referring, of course, to the Middle East conflicts that created substantial pressure across the entire value chain: on packaging materials, logistics, foreign exchange rates, our export business—overall, on the entire supply chain.

Speaker #2: Despite the headwinds, we're very proud that we delivered solid growth, that we very intentionally improved cash generation, and that we continue to strengthen the underlying business.

Speaker #2: And I'll talk a little bit more about that, but first, on the top line, as you would have, around 9%, while our sell-out volumes increased in line with the industry at 13%.

Jorn Elimar Kersten: I'll talk a little bit more about that, but first, on the top line, as you would have seen, our sell-in volumes increased by 9%, while our sell-out volumes increased in line with the industry at 13%. The gap between the sell-in and the sell-out is driven by a very deliberate choice to reduce our in-market inventory, which went down by approximately 20% versus the same period last year. This we did to strengthen our free operating cash flow given the external headwinds, and which also grew our working capital by 38% versus the same quarter last year. That combination of strong top-line growth, while being able to really protect the margins, and I'll talk a bit more about this, as well as deliver cash flow, gives us a lot of confidence that the fundamentals of the business continue to strengthen.

Speaker #2: The gap between the selling and the sell-out is driven by a very deliberate choice to reduce our in-market inventory, which went down by approximately 20% versus the same period last year.

Speaker #2: This we did to strengthen our free operating cash flow given the external headwinds, and which also grew our working capital by 38% versus the same quarter last year.

Speaker #2: That combination of strong top-line growth, while being able to really protect the margins—and I'll talk a bit more about this—as well as deliver cash flow, gives us a lot of confidence that the fundamentals of the business continue to strengthen.

Speaker #2: Now, stepping back a little bit from the quarter, we believe that the broader industry context is becoming increasingly attractive. If we look at Karnataka and the ABV-based tax reform, that represents an important milestone for the industry and for the beer category specifically.

Jorn Elimar Kersten: Stepping back a little bit from the quarter, we believe that the broader industry context is becoming increasingly attractive. If we look at Karnataka and the ABV-based tax reform, that represents an important milestone for the industry and for the beer category specifically. While we see also other states like Maharashtra, Jharkhand, and Andhra continue to demonstrate strong category momentum as well. We think it's very important to mention that this is no longer a story of isolated growth pockets. It is something where we see sustained category expansion across regions and across segments. UBL as a market leader, we remain very committed to playing our part as a category maker with strong brands, with our innovations, but also through responsible advocacy as well as disciplined execution, a lot of which we have seen proof of during this quarter. I'll talk a little bit about margins as well.

Speaker #2: While we also see other states like Maharashtra, Jharkhand, and Andhra continue to demonstrate strong category management as well. We think it's very important to mention that this is no longer a story of isolated growth pockets.

Speaker #2: It is something where we see sustained category expansion across regions and across settlements. And at UBL, as a market leader, we remain very committed to playing our part as a category maker—with strong brands, with our innovations, but also through responsible advocacy as well as disciplined execution.

Speaker #2: A lot of which we have seen proof of during this quarter. I'll talk a little bit about margins as well. At the headline, we see that the gross margin is 41%, which is down by approximately 155 basis points versus last year.

Jorn Elimar Kersten: At the headline, we see that the growth margin of 41% was down by approximately 155 basis points versus last year. EBITDA delivered 10.9%, while EBIT margin was 8%. Clearly, these are not the margins that fully reflect the underlying performance of the business, because the Middle East conflict created an estimated impact on our GP margins of around 300 basis points during the quarter alone. We, of course, spoke about this after the previous quarter as well as on a recovery program, which includes pricing actions, a lot of procurement activities, as well as productivity measures. That helped us to recover approximately half of the impact that we've seen, mitigating the impact to roughly the 155 basis points that we see on the reported financials.

Speaker #2: We did that, delivered 10.9%, while EBIT margin was 8%. Clearly, these are not the margins that fully reflect the underlying performance of the business, because the Middle East conflict created an estimated impact on our GP margins of around 300 basis points during the quarter alone.

Speaker #2: And we, of course, spoke about this after the previous quarter, as well as on a recovery program, which includes pricing actions and a lot of procurement activities, as well as productivity measures.

Speaker #2: And that helped us to recover approximately half of the impact that we've seen, mitigating the impact to roughly 155 basis points that we see on the reported financials.

Speaker #2: During the quarter, we delivered over 50 quarts through that recovery program, both on the top line with accelerated pricing across a large set of markets, as well as revenue management initiatives, including trade spend optimization. Again, some very deliberate choices, which Vivek will also elaborate on.

Jorn Elimar Kersten: During the quarter, we delivered over 50% through that recovery program, both on the top line with accelerated pricing across a large set of markets, as well as revenue management initiatives, including trade spend optimization. Again, some very deliberate choices, which Vivek will also elaborate on. Secondly, on the cost base through productivity, both in our variable and in our fixed, a cross-functional effort where procurement as well as supply chain drove many initiatives to deliver savings as well as quite a bit of cost avoidance. On the EBITDA margin, I'm happy that we improved materially versus the previous quarter, from 6.5% to 10.9% in this quarter, despite this external cost pressure.

Speaker #2: And secondly, on the cost-based to productivity, both in our variable and in our fixed, across functional efforts—where procurement as well as supply chain drove many initiatives to deliver savings, as well as quite a bit of cost avoidance.

Speaker #2: On the EBITDA margin, I'm happy that we improved considerably since the previous quarter, from 6.5% to 10.9% in this quarter, despite this external cost pressure.

Speaker #2: And while we expect that the inflationary pressure continues to be elevated, especially in the near term, we remain extremely focused on disciplined pricing, cost management, as well as productivity improvements to protect our profitability for the short term as well as the long term.

Jorn Elimar Kersten: While we expect that the inflationary pressure continues to be elevated, especially on the near term, we remain extremely focused on the disciplined pricing, the cost management, as well as productivity improvements to protect our profitability for the short term as well as the long term. One thing that I really want to highlight, which also plays into the margin story, is the continued evolution of the premium portfolio, one of the structural growth opportunities for us as well as for the category. During Q1 of this fiscal year, we reached an important milestone, which we didn't want to leave unaddressed, because we've spoken about this many times, and following multiple years of localizing production, optimizing our network, and improving the execution, we can now proudly mention that premium margins have become accretive for the first time in the past quarter.

Speaker #2: One thing that I really want to highlight, which also plays into the margin story, is the continued evolution of the premium portfolio. This is one of the structural growth opportunities for us as well as for the category.

Speaker #2: And during quarter one of this fiscal year, we reached an important milestone which we didn't want to leave unaddressed. Because we've spoken about this many times, and following multiple years of localizing production, optimizing our network, and improving execution, we can now proudly mention that premium margins have become a creeper for the first time in the past quarter.

Speaker #2: And we believe this is structural, and the premium portfolio will continue its upward trajectory to become a meaningful contributor to profitability for UBL in the future.

Jorn Elimar Kersten: We believe this is structural, and the premium portfolio will continue their upward trajectory to become a meaningful contributor to profitability for UBL in the future. The premium volumes increased approximately 17% if we exclude the intentional interventions that we made in some markets where we reduced the investments to mitigate the pressure on cost and to also really protect profitability, where premium is led by Kingfisher Ultra, which continues the strong momentum, but also very good to see Heineken Silver growing approximately 28% in the quarter and really driving the growth on the international premium segment. To conclude, we really believe that this quarter demonstrates the resilience of the category and specifically our business. Industry continues to grow double digits. We are very happy in how we are navigating external factors while we really improve and strengthen the underlying business.

Speaker #2: The premium volumes increased approximately 17% if we exclude the intentional interventions that we made in some markets, where we reduced investments to mitigate the pressure on costs and also really protect profitability.

Speaker #2: Premium is led by Kingfisher Ultra, which continues to show momentum, but it's also very good to see Heineken Silver growing approximately 28% in the quarter, really driving growth in the international premium segment.

Speaker #2: To conclude, we really believe that this quarter demonstrates the resilience of the category and, specifically, our business. The industry continues to grow double digits. We are very happy with how we're navigating external factors while we continue to improve and strengthen the underlying business.

Speaker #2: Premium margins, I can't stress enough, became a key lever for the first time. We're very happy with the cash flow delivery, where we also think it's really strengthening the muscle of generating profitable growth.

Jorn Elimar Kersten: Premium margins, I can't stress enough, became accretive for the first time. We're very happy with the cash flow delivery, where we also think it's really strengthening the muscle of generating profitable growth. While we do think that the near-term volatility will remain, the confidence in the long-term opportunity for beer in India has never been stronger than it is today. With that, I'll happily hand over to Vivek before we address your questions.

Speaker #2: And while we do think that near-term volatility will remain, the confidence in the long-term opportunity for beer in India has never been stronger than it is today.

Speaker #2: With that, I'll happily hand over to Vivek before we address your questions.

Speaker #1: Well, thanks, John. I think you have captured most of it. I would just say that, as you started, this was a quarter with two key milestones.

Vivek Gupta: Well, thanks, Jorn. I think you have captured most of it. I would just say that as you started that this was a quarter with two key milestones and two key events. I think first big milestone for us, that we made structural improvements, the work we have been doing for last couple of years to get premium business in structurally right shape. I think we achieved it. We actually achieved ahead of our glide path. Now we can say that our premium portfolio is accretive to the business, and this gives us even more courage and conviction to drive the investment. The second big milestone is we talked about making structural improvement in business to our network design. Despite having very tough context from the war, as an organization, we stick to our long-term priorities and the structural intervention. In this quarter, we achieved a lot.

Speaker #1: And two key events. I think the first big milestone for us was that we made structural improvements in the work we have been doing for the last couple of years to get the premium business in structurally right shape.

Speaker #1: I think we achieved it. We actually achieved ahead of our bright path. And now we can say that our premium portfolio is accretive to the business, and it gives us even more courage and conviction to guide the investment.

Speaker #1: The second big milestone is, we talked about making structural improvement in the business through our network design. Despite having a very tough context from the war, as an organization, we stuck to our long-term priorities.

Speaker #1: And the structural intervention—in this quarter, we achieved a lot. We did our network optimization work in North Glyph. We closed our Punjab brewery, which was not an easy decision, but the right call from a business, profitability, and long-term health perspective for the business.

Vivek Gupta: We did our network optimization work in North India. We closed our Punjab brewery, which was not an easy decision, but the right call from a business and profitability and long-term health of the business. We transitioned to a partnership with ABD in Punjab. We had a choice to delay this transition because there was a lot happening but as an organization, we stick to the plan because it was important to take some short-term hits to get it right, and I'm proud that our transition is complete, and we are back on full course from this quarter. The second milestone related to network design is our can line in Telangana is commissioned. It is one of the record times in which UBL has commissioned a new can line facility, and I'm happy to report that last week's first can was consumed by the consumer from the line.

Speaker #1: And we transitioned to a partnership with ABB in Punjab. We had a choice to delay this transition because there's a lot happening, but as an organization, we stuck to the plan because it was important to take some short-term hits to get it right.

Speaker #1: And I'm proud that our transition is complete. We are back on full course from this quarter. The second milestone related to network design is our can line in Telangana is commissioned.

Speaker #1: It is one of the record times in which UBL has commissioned a new canning line facility. And I'm happy to report that last week, the first can was consumed by the consumer from the line.

Speaker #1: And the third important part, as part of the network milestone, is that in our other projects, where we were doing localization of premium in some of the states, we were improving better production excellence-related features.

Vivek Gupta: The third important part as part of the network milestone is that our other projects where we were doing localization of premium in some of the states, we were improving better production excellence related features, they have also been completed. On one side, good milestone. At the same time, I think it's a revolutionary moment for the category. I can actually say that I think the beer category, after all the efforts of differentiating versus rest of the alcohol, is paying off. The Karnataka move is a revolutionary move, and we have been seeing that category is now growing higher of 30% and 35% in Karnataka. In some months, the recent months, it was up more than 50%. We saw the similar intervention in Maharashtra last year, and category continues to grow upward of 30% in Maharashtra.

Speaker #1: We have also been completed. So on one side, good milestones. At the same time, I think it's a revolutionary moment for the category. I can actually say that I think the beer category, after all the efforts of differentiating versus the rest of the alco-baz, is paying off.

Speaker #1: The Karnataka move is a revolutionary move. And we have been seeing that the category is now growing higher—30, 35 percent—in Karnataka, and in some recent months, it's actually up more than 50 percent.

Speaker #1: We saw a similar intervention in Maharashtra last year, and the category continues to grow upward of 30 percent in Maharashtra. We saw the privatization of retail happen in Jharkhand, and we have seen the category size has significantly increased.

Vivek Gupta: We saw privatization of retail happen in Jharkhand, we have seen the category size has significantly increased. It gives us a lot of confidence that it is not an isolated event. The more governments are looking at beer as a separate go-to category, this is going to be revolution for us. Most important for us, during this turmoil phase, where the costs have really gone up, I think we have delivered our plan. We had two priorities as a company. Number one, we wanted to make sure that we are increasing our brand power. I am happy to report that based on the recent data, 4 weeks summer quarter of April, May, June, our brand power as a company has improved. On brands like Kingfisher, it has improved. On Ultra, it has improved. Heineken has improved. We have emerged stronger from the brand power.

Speaker #1: So it gives us a lot of confidence that it is not an isolated event. More governments are looking at beer as a separate go-to category.

Speaker #1: And this is going to be a revolution for us. Most importantly for us, during this turbulent phase, where the costs have really gone up, I think we have delivered a plan.

Speaker #1: We had three priorities as a company. Number one, we wanted to make sure that we are increasing our brand power. So I'm happy to report that, based on the recent data—fourth week, summer quarter of April, May, June—our brand power as a company has improved.

Speaker #1: On brands like Kingfisher, it has improved. On Ultra, it has improved. Heineken has improved. So, we have emerged stronger from the brand power.

Speaker #1: Second, we continue to drive focus on premiumization and Selfie. Our Selfie volume increased 13 percent. And we took the right call on inventory so that we can offer fresh beer to consumers, especially getting into monsoons.

Vivek Gupta: Second, we continue to drive focus on premiumization, self-serve. Our self-serve volumes increased 13%. It took the right call to ensure that we reduce inventory so that we can offer fresh beer to consumers, especially getting into monsoon. This was a learning from last year. Also at the same time, we create working capital because cash is king in this scenario. Third area, which is extremely critical, we made choices, and tough choices, to get the structure right in the market. We reduced trade discounts where it was needed. We made sure that we are not unnecessarily taking big losses to serve a market versus working a structural solution for the long-term health of the business. We improved productivity in the organization. We created a lot of cost initiatives.

Speaker #1: This was a learning from last year. But also, at the same time, we created working capital because cash is king in this scenario. And the third area, which is extremely critical, is that we made choices—tough choices—to get the structure right in the market.

Speaker #1: We reduced state discounts where it was needed. We made sure that we are not unnecessarily taking big losses to serve a market, versus working on a structural solution for the long-term health of the business.

Speaker #1: We improved productivity in our organization. We created a lot of cost initiatives. And, despite having a 300 bps impact on the behind-the-wall, I think the team was able to mitigate a large part of it.

Vivek Gupta: Despite having a 300 basis point impact behind the wall, I think the team was able to mitigate a large part of it. The most important thing is we actually took pricing intervention in 22 states, that have been all implemented. When we take the pricing implementation, it takes time, it takes transition, but by end of this month, we are now live in 22 states with the pricing implementation. This again tells us that we were not changing business at any cost. We did the right thing. We are also able to create a large level of network with the stakeholders so that they can understand how the category is doing through our batteries and leveraging BI, we were able to do a lot of things. The outlook for the category is looking positive.

Speaker #1: Actually, the most important thing is we took pricing intervention in 22 states, and that has been fully implemented. When we take the pricing implementation, it takes time, it takes transition, but by the end of this month, we are now live in 22 states with those pricing implementations.

Speaker #1: This again tells us that we were not chasing business at any cost. We did the right thing, and we were also able to create a large network with stakeholders so that they can understand how the category is going through a bad phase. Leveraging BI, we were able to do a lot of things.

Speaker #1: The outlook for the category is looking positive. I expect we are hearing positive news coming out of some of the other states, where they are looking at the Karnataka model, and where they are also discussing with us on what needs to be done.

Vivek Gupta: We are hearing positive news coming out of some of the other states where they are looking at Karnataka model, where they are also discussing with us on what needs to be done. Let's hope, since nothing is firmed up, that we think this momentum can actually further build up. The other thing is a lot of people ask that this volume result is based on good summers. I think definitely based on good summers. When we go deeper into it, there are big states where the category is still down despite having very good summers. The states which are actually accelerating are having good summers but mostly good strategic reforms which are leading to multiplication effect, some of those reforms hopefully will stay for the rest of the year, this category momentum should continue.

Speaker #1: So, let's hope that, since nothing is firmed up, we think this momentum can actually further build up. The other thing is, a lot of people ask if this volume result is based on good summers.

Speaker #1: I think, definitely, it's based on good summers. But when we go deeper into it, there are big states where the category is still down, despite having very good summers.

Speaker #1: And the states which are actually accelerating are having good summers, but mostly good strategic reforms which are leading to a multiplication effect. Some of those reforms, hopefully, will stay for the rest of the year.

Speaker #1: And this category momentum should continue. So, with this, I hand it back to you for any questions.

Vivek Gupta: With this, I hand over back to you for any questions.

Speaker #2: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on the touchtone telephone.

Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from Ashutosh Jain from Barclays. Please go ahead.

Speaker #2: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions.

Speaker #2: Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from Ashutosh Jain from Barclays.

Speaker #2: Please go ahead.

Speaker #3: Hello, everyone. Thank you for taking my questions. I have two questions. First would be, we have seen contract brewing weighing on the price mix.

Ashutosh Jain: Hello, everyone. Thank you for taking my questions. I have two questions. First would be, we have seen contract brewing weighing on the price mix. Could you just highlight some more color like, was the contract brewing more than the 20% to 25% range which was highlighted previously? Also on the other side, do you also see any impact in Maharashtra from MML, that is Maharashtra Made Liquor? I'm talking about more towards the mainstream portfolio. Are you seeing any substitution from beer category into the lower-end spirits category? My second question would be, could you just please remind us, what is your fiscal year '27 ambition? Is it still double-digit top line growth led by high single-digit volumes? Thank you.

Speaker #3: So could you just highlight in more detail, like what's the contract brewing beyond the 20 to 25 percent range which was highlighted previously?

Speaker #3: And is there and also on the other side, do you also see any impact in Maharashtra from MML, that is Maharashtra made liquor? Because and I'm talking about more towards the mainstream portfolio.

Speaker #3: And do you and are you seeing any substitution from beer category into the lower end spirits category? And my second question would be, could you just please remind us what is your fiscal year 27 ambition?

Speaker #3: Is it still double-digit top-line growth led by high single-digit volumes? Thank you.

Speaker #2: Yep. I think let

Vivek Gupta: Yeah. I think let me answer the Maharashtra and the other question. I think it's very difficult to see the data on how much is the MML impacting beer. Based on the recent data, we haven't seen much of the impact, but one thing we're definitely seeing in Maharashtra, there is strong growth happening at economy segment. There is definitely affordability is becoming extremely critical for the consumers, and we continuously see at the economy end, there is significant growth happening in Maharashtra, which is more linked to affordability. Whether there is a direct impact of beer to MML, I think is yet to be seen. On our '27 ambition, I think we absolutely believe that it is critical that the category continues to grow at high single digits, and our goal is to, of course, grow ahead of the category in the profitable balanced manner.

Speaker #4: Let me answer the Maharashtra and the other question. I think it's very difficult to see the data on how much the MML is impacting beer.

Speaker #4: Based on the recent data, we haven't seen much of the impact. But one thing we are definitely seeing in Maharashtra is that there is strong growth happening at the economy segment.

Speaker #4: So, definitely, affordability is becoming extremely critical for consumers. And we continuously see, at the economy end, there is significant growth happening in Maharashtra.

Speaker #4: Which is more linked to affordability. Whether there is a direct impact of beer to MML, I think it's yet to be seen. On our 2027 ambition, I think we absolutely believe that it is critical that the category continues to grow at high single digits, and our goal is to of course grow ahead of the category.

Speaker #4: In the profitable balance manner. And we do expect—our ambition is still to have double-digit revenue growth, with share growth and with strong momentum on premium.

Vivek Gupta: We do expect our ambition is still to have double-digit revenue growth with the share growth and with strong momentum on premium which we have done in the last few years. At the same time, we are also ensuring that we continue to improve our brand power and strengthen the portfolio so that we can continue to build this category.

Speaker #4: Which we have done in the last few years. But at the same time, we are also ensuring that we continue to improve our brand power and strengthen the portfolio, so that we can continue to build this category.

Speaker #3: And on contract—sorry, yeah, to address the first question on contract brewers. So yes, the volume through our contract partnerships is growing ahead of the overall volume, which is in line with the plan, because we also expanded our footprint with two of our partnerships in locations. So I think, also coming out of the summer, we were happy to be able to deliver those volumes for which these partnerships were contracted.

Ashutosh Jain: On contract-

Jorn Elimar Kersten: Sorry, yeah. To address the first question on contract brewers. Yes, the volume through our contract partnerships is growing ahead of the overall volume, which is in line with the plan because we also expanded our footprint through our partnerships in locations where we saw growth. I think also coming out of the summer, we were happy to

Jorn Elimar Kersten: Be able to deliver those volumes for which the partnerships were contracted. On the accounting side, it has a dampening effect on the revenue growth because actually we report this as one line in our accounting, hence also inflationary pressure there dampens the revenue growth. That combination of those two factors is what you see in the reported revenue number versus last year. Underlying, we're very happy with the 9% volume and the approximate 4% price mix there.

Speaker #3: On the accounting side, it has a dampening effect on the revenue growth because actually, we report this as one line in our accounting.

Speaker #3: So, hence, also inflationary pressure there dampens the revenue growth. So, that combination of those two factors is what you see in the reported revenue number versus last year.

Speaker #3: Overall, we're very happy with the 9% volume and the approximately 4% price mix there. Thank you so much.

Ashutosh Jain: Thank you so much.

Speaker #2: Thank you. The next question is from Harith Kapoor from Investec. Please go ahead.

Operator: Thank you. The next question is from Harit Kapoor from Investec. Please go ahead.

Speaker #3: Yeah, hi. Good evening. Just a follow-up from the earlier question—how much will the impact be this quarter? I’d like to understand how to look at this going forward.

Harit Kapoor: Yeah. Hi, good evening. Follow up on the earlier question. How much will the impact on the mix for this quarter? Just wanted to understand how to look at this going forward. Secondly, given that these states are delivering exceptionally high growth where we are contracted, is there a plan to kind of look at own manufacturing in the state, are those states conducive for that? That's my first question.

Speaker #3: And secondly, given that these states are delivering exceptionally high growth where we are contracted, is there a plan to kind of look at own manufacturing in these states?

Speaker #3: Are those states conducive for that? That's my first question.

Vivek Gupta: I think, let me answer the second question. I think your first question was on the source mix again, right?

Speaker #4: I think, let me answer the second question. I think your first question was on the source mix again, right? Sorry, the voice was breaking.

Harit Kapoor: Yes.

Vivek Gupta: Sorry, your voice was breaking. You were asking what is the source mix? Sorry, Harit, your voice was not clear.

Speaker #4: You were asking, “What is the source mix?” Sorry, Harith, your voice was not clear at first.

Speaker #3: Yeah, can you hear me? Can you hear me now? Is it better?

Harit Kapoor: Yeah. Can you hear me? Can you hear me now? Is this better?

Speaker #4: Yes. Yes.

Vivek Gupta: Yeah.

Harit Kapoor: Yeah. My question was on, how much will the source mix for the quarter, so we can realize the real revenue, get a sense of the real revenue growth. The question was, given that these states where we have contracted breweries, those states are showing very strong growth. Just wanted to get your sense of whether there is a thought process here of having own breweries, et cetera, in them as well.

Speaker #3: Yes, yeah. My question was on how much will be the source mix for the quarter, so we can realize the real revenue and get a sense of the real revenue growth.

Speaker #3: And the question was: Given that in these states where we have contracted breweries, those states are showing very strong growth. I just wanted to get your sense of whether there is a thought process here of having our own breweries, etc., in them as well.

Speaker #4: Yeah, I think let me answer the second question as it's coming with the data on this one. I think, look, what we are seeing is our own brewery is also getting full.

Vivek Gupta: Yeah. I think let me answer the second question as it's coming with the data on this one. Look, I think what we are seeing is our own breweries are also getting full. Like Karnataka is a good example where we have two breweries, and Karnataka policy started happening only in the second half of the quarter. Maharashtra, we have our own brewery, but we already have a plan to have a greenfield in UP, where today we are in contract brewery. We also done the brownfield expansion with two can lines. One in Maharashtra, where some of that requirement was served through the contract brewery, and also now in Telangana as well.

Speaker #4: Karnataka is a good example where we have two breweries, and Karnataka policy started happening only in the second half of the quarter. In Maharashtra, we have our own breweries.

Speaker #4: But we already have a plan to have a greenfield in UP, where today we are in contract brewery. We have also expanded the greenfield expansion with two can lines.

Speaker #4: One in Maharashtra, where some of that requirement was served through the contract breweries, and also now in Telangana as well. So yes, we have been investing in our own breweries, either in expansion, but I think the main thing is we look at the potential of a state—how much is the growth potential today, the stability of the policy, our portfolio gap, and then we make the call. And we believe that it's a good mix of having our own breweries and contract breweries, because it's a highly capital-intensive business.

Vivek Gupta: Yes, we have been investing in our own breweries, either in expansion, I think the main thing is we look at the potential of a state, how much is the growth potential today, the stability of the policy, our portfolio gaps, then we make the call. We believe that it's a good mix of having our own breweries and contract breweries because it's a highly capital-intensive business, we need to also make sure the return on capital invested is also into account. It is going to be a good mix. We consistently invest in our breweries. The 2 can lines are in our own breweries. The greenfield is our own brewery. At the same time, we also invest in the contract breweries wherever is needed. We consistently are looking at our network.

Speaker #4: So we need to also make sure the return on capital invested is taken into account. So it is going to be a good mix as we consistently invest in our breweries.

Speaker #4: The two can lines are in our own breweries. The greenfield is our own brewery. But at the same time, we also invest in the contract breweries wherever needed.

Speaker #4: So, we consistently are looking at our networks.

Speaker #3: Yeah. I think that, like Vivek mentioned, the capital intensity also means that, with the CBUs, it gives us flexibility. So, if we see sustained growth of the category across states, that for us triggers the thinking around where we think the fees go, and that's what happened, for instance, in UP.

Harit Kapoor: Yeah.

Jorn Elimar Kersten: Go on.

Jorn Elimar Kersten: I think that, like Vivek mentioned, the capital intensity also means that when the CEU give us flexibility, if we see sustained growth of a category across states, that for us triggers the thinking around where do we think it's feasible, that's what happened, for instance, in UP, where we see that the opportunity is long-term, will stay, then we'll move also to investments. To your earlier question, on the CEU, it's approximately 4% impact in the quarter. Got it. The second question was, if you look at premium now, as you said, is accretive to the margins. Just wanted to understand that, the earlier thought process was that you would require a higher share than it is currently to make that accretive. Is it that your accelerated localization efforts have driven a sooner than expected milestone here?

Speaker #3: We see that the opportunity is long-term and will stay. Then we'll also move to investments. To your earlier question, on the CBU, it's approximately a 4% impact in the quarter.

Speaker #3: Got it. The second question was, if you look at premium now, as you said, it is attractive to the margins. I just wanted to understand—the earlier thought process was that you would require a higher share than it is currently to make that accretive.

Speaker #3: So is it that your accelerated localization efforts have driven a sooner-than-expected milestone here? And would premium be in the low double digits, or 11–12 percent, type of your total mix right now?

Harit Kapoor: Would premium be in the low double digits or 11%, 12% type of your total mix right now? That was my second question.

Speaker #3: So that was my second question.

Speaker #4: Yeah. So I think there are two things. On the premium and being accretive, yes, you are absolutely right. It's about tipping the scale on the size of the business, where the localization helps. Being closer to the market also helps the collection of bottles, which is the underlying factor.

Vivek Gupta: Yeah. I think there's two things, on the premium and the being accretive. Yes, you are absolutely right. It's about tipping the scale on the side of the business, where the localization helps being closer to the market also helps the collection of bottles, which is the underlying factor which really helps drive the profitability. The other thing is what I think we did well and where we accelerated is the interventions that we did through the revenue margin team and really looking at trade discounts also for the premium portfolio. That has helped and has also accelerated a bit of delivery on margins, where we structurally looked into the business and how can we optimize, where we have been more deliberate in choices, and that helps to drive the profitability.

Speaker #4: It really helps to drive the profitability. The other thing is, what I think we did well, and where we accelerated, is the interventions that we did through the revenue margin team and really looking at trade discounts.

Speaker #4: Also for the premium portfolio, that has helped and has also accelerated a bit the delivery on margins, where we structurally looked into the business and how we can optimize.

Speaker #4: Where we have been more deliberate in our choices, and that helps to drive the profitability.

Speaker #3: Fantastic. And the third question was, you mentioned about price increases. So, what is the extent, on a weighted average basis, of these price increases that you would have got in these 22 states?

Harit Kapoor: Fantastic. Third question was in, you mentioned about price increases. What is the extent on a weighted average basis of these price increases which you would have got in these 22 states? Just wanted to understand how to model price increase component over this year.

Speaker #3: I just wanted to understand how to model the price increase component over this year.

Speaker #4: I think it's always a very mixed bag, and also looking at how do we serve the consumer best, and how does it work across the value chain.

Jorn Elimar Kersten: I think it's always a very mixed bag, also looking at how do we serve the consumer best and how does it work across the value chain. We would say that it's between 2.5% and 3%, but accelerated through other initiatives around price laddering and trade spends.

Speaker #4: We would say that it's between 2.5% and 3%. But accelerated through other initiatives around price laddering and trade expense.

Speaker #3: Great. I'll come back in a few for more. Wish you all the best. Thank you.

Abneesh Roy: Great. I'll come back in the Q4. Wish you all the best. Thank you.

Speaker #4: Thank you.

Jorn Elimar Kersten: Thank you.

Speaker #1: Thank you. The next question is from Avnish Roy from Noama. Please go ahead.

Operator: Thank you. The next question is from Abneesh Roy of Nomura. Please go ahead.

Speaker #4: Yeah, thank you. My first question is on the trade expense. You said that, wherever needed for the long-term health of the company, you have reduced the trade expense, and you also mentioned that you don't want to do business at any cost.

Abneesh Roy: Yeah, thank you. My first question is on the trade spend. You said that wherever needed from the long-term health of the company, you have reduced the trade spend, and you also did mention that you don't want to do business at any cost. I wanted to understand, there is an IPO for a large multinational company, and generally the valuation is linked to the exit quarter sales, et cetera. We are picking up that there is some level of increase in aggression by that player. Are you responding to that? Because extremely you are not responding, and is that impacting you in any way, either in terms of share or in terms of, say, placement, et cetera?

Speaker #4: I wanted to understand—there is an IPO for a large multinational company, and generally the valuation is linked to the exit quarter sales, et cetera.

Speaker #4: So, we are picking up that there is some level of increase in aggression by that player. So, are you responding to that? Because it seems you are not responding, and is that impacting you in any way, either in terms of share or in terms of, say, placement, et cetera?

Vivek Gupta: I think the first Thanks, Abneesh, for asking the question. I think one of the key focus areas for us is to really build very strong brand power and pull for our brands. As you said, in holistic package, which includes investment in sponsorship, trade spend, distribution, all of this put together, I'm very proud that we are able to grow brand power, which is consumer-centric data on this, and we continue to increase the brand power. We have seen the increased investment in the category, which on one side is good for the category because there's more interest in the category. At the same time, I think it is extremely important that we do the business responsibly.

Speaker #3: First, thanks Avnish for asking the question. I think one of the key focus areas for us is to really build very strong brand power and pull for our brand.

Speaker #3: And as you said, in the holistic package which includes investment in sponsorship, trade spend, distribution – all of this put together – I think I'm very proud that we are able to grow brand power, which is consumer-centric data on this, and we continue to increase the brand power.

Speaker #3: We have seen the increased investment in the category, which on one side is good for the category because there's more interest in the category.

Speaker #3: But at the same time, I think it is extremely important that we do the business responsibly. And I think in the state where we don't make enough money, and pricing and margins are very thin, spending more money to push the product with trade discounts doesn't make sense.

Vivek Gupta: I think the states where we don't make enough money and pricing and margins are very thin, spending more money to push the product with a paid discount doesn't make sense. At the same time, we work with the retailers to create value creation initiatives. We are working with retailers to actually create initiatives which actually help them to create categories. We have placed 50,000 coolers now. We did not put a break on our cooler program, which is also seen in the depreciation numbers, because that is the right thing to do when the category is growing. In states like Karnataka, Maharashtra, we did the go-to-market executions where we are now able to clear the retailer's claims within 20 days, which used to take six months. We are using technology to better predict the out of stock and giving them the service.

Speaker #3: At the same time, we work with the retailers to create value-creation initiatives. We are working with retailers to actually create initiatives which help them to create categories.

Speaker #3: We have placed 50,000 coolers now. We did not put a brake on the cooler program, which is also seen in the depreciation numbers, because that is the right thing to do when the category is growing.

Speaker #3: In states like Karnataka and Maharashtra, we go to market executions where we are now able to hear the retailers' claims within 20 days, which used to take six months.

Speaker #3: We are using technology to better predict out-of-stock situations and provide the necessary service. We have reduced inventory by 20 percent, bringing better ROI for the retailers.

Vivek Gupta: We have reduced 20% less inventory and bringing better ROI for the retailer. We are actually moving our capabilities from being just push driven to actually building category and building business for the retailers. In most of the cases, we have got very strong conversations and very good alignment with the retailers. At the same time, we have been brutally honest and transparent the impact on the margins and the cost because of the war impact. The data is absolutely clear that the states where EBPs are very low, we actually don't make money, and it's very difficult for us to invest the money in pushing the product. It is always a balance. We are not playing in isolation, but having said that, we are making the choices.

Speaker #3: So, we have actually moved our capability from being just push-driven to actually building categories and building business for the retailers. So, in most cases, we have had very strong conversations and very good alignment with the retailers.

Speaker #3: At the same time, we have been brutally honest and transparent about the impact on the margins and the cost because of the war impact. And the data is absolutely clear that in the states where EBPs are very low, we actually don't make money, and it's very difficult for us to invest the money in pushing the product.

Speaker #3: So it is always a balance. We are not playing in isolation, but having said that, we are making the choices. We are also challenging our own cost structure to really see where we can actually reduce the inefficiencies, so that we can invest behind customers, consumers, and our products.

Vivek Gupta: We are also challenging our own cost structure to really see that where we can actually reduce the inefficiencies so that we can invest behind customers, consumers, and our products. Short answer is, yes, we are seeing impact. For example, Haryana is one state where we saw a significant drop because we significantly reduced the trade spend. It is also one state where the product is not sold on MRP. Consumers are actually paying much more than the beer should be. I think there's no point in ceding those margins when it's not going to the consumer. I think we have made those choices.

Speaker #3: So, short answer is yes, we have seen impact. For example, Haryana is one state where we saw a significant drop because they significantly reduced the trade spend.

Speaker #3: But it is also one state where the product is not sold at MRP. Consumers are actually paying much more than the product—the beer—should be.

Speaker #3: So I think there's no point in feeding those margins when it's not going to be consumers. So I think we have made those choices.

Abneesh Roy: Understood. Second question is on the price hike and the cost inflation. You had given out very upfront that number of the cost inflation due to war. Now, we have a bit more understanding of war. Plus, you have got now price hike in most of the states, which is also reasonable price hike. Now, how do you see Q2, Q3 cost impact of the war?

Speaker #3: Understood. The second question is on the price hike and cost inflation. You had given a very upfront number regarding the cost inflation due to the war.

Speaker #3: Now, we have a bit more understanding of war. Plus, you have got a price hike in most of the states, which is also a reasonable price hike.

Speaker #3: Now, how do you see Q2 and Q3 impacted by the war?

Jorn Elimar Kersten: Yeah. Look, I think no one has a good understanding of the war, and it will remain volatile. We remain a bit cautious. That being said, and also seeing that our recovery program really kicks in, we do revise our full-year impact downward, where we said INR 400 to 500 crore. We now think it's more on the lower side of that range, between INR 350 and 400 crore impact. In that sense, we're slightly more positive. Overall, we see the volatility is high. We've seen the price of oil today and how it moves. Every day is a new dawn, but we keep being very vigilant on how we treat it from a recovery point of view.

Speaker #4: Yeah. Look, I think no one has a good understanding of the war, and it will remain volatile. So we remain a bit cautious. That being said, and also seeing that our recovery program really kicks in, we do revise our full-year impact downward, where we said ₹400 to ₹500 crore.

Speaker #4: We now think it's more on the lower side of that range, between 350 and 400 crores impact. So in that sense, we're slightly more positive.

Speaker #4: Overall, we see the volatility is high. We've seen the crude oil today and how it moves, so every day is a new dawn. But we keep being very vigilant on how we treat it from a recovery point of view.

Abneesh Roy: Sure. Last quick question on the demand side. Some of the large states are doing very well for you. Maharashtra, 20% volume growth, Karnataka, 20% to 30% or maybe even higher. What are the laggard states, if you could discuss how is your performance in those laggard states, say, versus competition, and what will be the outlook in such states now? Peak season is behind, anyway, we'll see the YOY numbers. If you could discuss the laggard states pulling down the number.

Speaker #3: Sir, last quick question on the demand side. Some of the large states are doing very well for you. For example, Maharashtra has seen 20% volume growth, and Karnataka has seen 20% to 40%, or maybe even higher.

Speaker #3: But what are the states? If you could discuss how your performance is in those legacy states, say versus competition, and what will be the outlook in such states now that peak season is behind? But anyway, do you see the YoY numbers?

Speaker #3: If you could discuss the laggard states pulling down the numbers.

Vivek Gupta: We do have a national business. Of course, there are states where we have made choices. I gave an example of Haryana, where we had to reduce the trade discount because the business was not viable, and that had an impact on us. We also had an impact in states like West Bengal, because we used to import a lot of products from other states, and it did not make sense at an inflated cost to pay higher taxes and other things to do that. We do have structural plan in next few months, where we will see more capacity in that state. This will mean that instead of relying on these short-term volumes, we will actually have volumes to serve the market to really do that.

Speaker #4: See, we do have a national business. Of course, there are states where we have made choices. I gave an example of Haryana.

Speaker #4: We had to reduce the trade discount because the business was not viable, and that has had an impact on us. We also had an impact in states like West Bengal because we used to import a lot of products from other states.

Speaker #4: And it did not make sense, at an inflated cost, to pay higher taxes and other things to do that. But we do have a structural plan in the next few months where we will see more capacity in that state, which will mean that instead of relying on these short-term volumes, we will actually have volumes to serve the market when we do that.

Vivek Gupta: We're also working a very good plan in Haryana with the retailers to actually work a joint business plan to show them the value of what we can bring in the market. It is state by state. As I said, we are seeing more positive where there are reforms, we also have states where we still are in negotiation with the government on pricing and the viability of the business, and it is difficult for us to invest more commercially till our margin structure with the business sustainable. I think it's a matter of doing the right thing for the business that is also the right thing for the category. In a whole, as Jorn said, we feel the outlook is positive.

Speaker #4: We are also working on a very good plan in Haryana with the retailers to actually work on a joint business plan to show them the value of what we can bring in the market.

Speaker #4: So it is state by state. As I said, we are seeing more positives where there are reforms. But we also have states where we are still in negotiation with the government on pricing and the viability of the business.

Speaker #4: And it is difficult for us to invest more commercially in our margin structure with the business sustainable. So I think it's a matter of doing the right thing for the business, but also the right thing for the category.

Speaker #4: But on the whole, as Jorn said, we feel the outlook is positive. We have received more positive responses from state governments and corporations. Twenty-two states is a huge number, and we are seeing that we are implementing a revenue and pricing plan, which is now in the market from this month.

Vivek Gupta: We have got more positive response from the state governments and corporations that 22 states is a huge number when we are saying that we are implementing a revenue and pricing plan, which is now in market from this month of July. We feel that we'll be able to grow shares in the coming quarters.

Speaker #4: Month of July. So we feel that we'll be able to grow share in the coming quarter.

Abneesh Roy: Sir, 22 states is a large number. One question on Haryana I had, I'll end there. If it is unviable for you in Haryana in the short term, is it also unviable for other players or their scenario can be a bit different?

Speaker #3: Sir, 22 states is a large number. I had one question on Haryana; I'll end there. If it is unviable for you in Haryana in the short term, is it also unviable for other players, or could their scenario be a bit different?

Vivek Gupta: I think everyone's scenario is very different because the portfolio is different, ability to have local manufacturing of different formats is very different. I think it's all about making choices, right? It's also about the network part of it.

Speaker #4: I think everyone's scenario is very different because the portfolio is different. The ability to have local manufacturing of different formats is also very different. So, I think it's all about making choices, right?

Speaker #4: And it's also about the network part of it.

Abneesh Roy: Sure. Thank you. That's all from me. Thank you.

Speaker #3: Sir, thank you. That's all from me. Thank you.

Operator: Thank you. The next question is from Latika Chopra from JP Morgan. Please go ahead.

Speaker #1: Thank you. The next question is from Lathika Chopra from JP Morgan. Please go ahead.

Latika Chopra: Yeah, hi. Thank you for the opportunity. A couple of clarifications. The first one was on your differential in sell-in and sell-out volume growth. Was this specific to the quarter, or do you anticipate that the inventory rationalization piece is kind of behind us, and both these growth rates will now be more aligned in the quarters ahead?

Speaker #5: Yeah, hi. Thank you for the opportunity. A couple of clarifications. The first one was on your differential in selling and sell-out volume growth. Was this specific to the quarter, or do you anticipate that the inventory rationalization piece is kind of behind us and both these growth rates will now be more aligned?

Speaker #5: In a quarter ahead?

Vivek Gupta: Yes, I think, this was primarily for the quarter, because usually we build the stock and we say that when you come out of the season, you need to maintain a certain level of inventory. Based on our last 2 years learning and getting more smarter analytically, we were able to do more deliberate attempt to really do that. We still are working on stock norms in many of the depots, both for ours as well as for our partners. I would say that mostly you will see our sell-through and sell-in in line, but we will not hesitate to take correction, because the fresher the beer, the better it is.

Speaker #4: Yes, I think this was primarily for the quarter, because usually we build these stocks, and we say that when you come out of the season, you need to maintain a certain level of inventory.

Speaker #4: Based on our last two years learning and getting more smarter analytically, we were able to make more deliberate attempts to really do that. We still are working on stock norms in many of the depots.

Speaker #4: Both for ours as well as for the partners. So, I would say that mostly you will see us sell-through and sell-in in line.

Speaker #4: But we will not hesitate to make corrections, because the pressure—the beer—the better it is. So, because many of the inventory points are actually government depots.

Vivek Gupta: Because many of the inventory points are actually government depots, and we still are working with the new tools to really understand what is the right replenishment model so we get the freshest beer and a high rotation, and given that we are also focusing on premiumization and in many cases economy that is a large number of SKUs are added now. We are working through it, but we expect this to be more in line, but as I mentioned to you, if we find opportunities, we will continue to correct it.

Speaker #4: And we still are working with the new tools to really understand what is the right replenishment model, so we get the freshest beer and the high rotation, and given that we are also focusing on premiumization and, in many cases, economy, that is, a large number of SKUs are added now.

Speaker #4: So we are working through it, but we expect this to be more in line. As I mentioned to you, if you find opportunities, we will continue to correct it.

Jorn Elimar Kersten: Yeah, if I can add one thing is, in this quarter, I think we were specifically bold also to make sure that we protect the cash flow from any shocks that we couldn't anticipate up front. I think that where maybe we were a bit bolder than we otherwise would have been. Another element that we cannot underestimate is the reliability of our supply chain. Given the high seasonality of the business and the fact that it's capital intensive, as was mentioned before, there's a lot of reliability around stocking up to be able to source the season. I think the increased reliability of our supply chain on delivery also led us to lower stock levels throughout the season because we knew that production would be able to cover the demand.

Speaker #5: Yeah, if I can add one thing, it is that in this quarter, I think we were specifically bold also to make sure that we protect the cash flow from any shocks that we couldn't anticipate upfront.

Speaker #5: So I think that's where maybe we were a bit bolder than we otherwise would have been. Another element that we cannot underestimate is the reliability of our supply chain.

Speaker #5: Given the high seasonality of the business, and the fact that it's capital intensive, as was mentioned before, there's a lot of reliability placed on stocking up to be able to source for the season.

Speaker #5: I think our increased reliability in the supply chain for deliveries also led us to lower stock levels throughout the season, because we knew that production would be able to cover the demand.

Jorn Elimar Kersten: Now for the full year, we don't expect that inventory levels will be lower exiting December 2026 versus the previous year because we still build stock for the peak season ahead of peak season really happening, and that starts at the end of the year. As an exit for the calendar year, I don't expect material changes in inventories because that's required in order to deliver the peak season.

Speaker #5: Now, for the full year, we don't expect that inventory levels will be lower exiting December 2026 versus the previous year, because we still build stock for the peak season ahead of the peak season really happening, and that starts at the end of the year.

Speaker #5: So, as an exit for the calendar year, I don't expect material changes in inventories because that's the quiet in order to deliver the peak season.

Latika Chopra: Sure. No, this is very useful color. The second bit, I've heard your optimism on volume growth and the traction that you're seeing on account of policy reforms. When you look at Q2 and Q3 and maybe even Q4, the volume numbers, that is a low base, right? From a volume perspective for you. Is it fair to assume that we are getting into a double-digit volume growth trajectory for the rest of the year, or at least close to it?

Speaker #5: Sure. No, this is very useful color. The second bit—I heard your optimism on volume growth and the traction that you're seeing on account of policy reforms.

Speaker #5: When you look at Q2 and Q3, and maybe even Q4, the volume there is a low base, right, from a volume perspective for you.

Speaker #5: So, is it fair to assume that we are getting into a double-digit volume growth trajectory for the rest of the year, or at least close to it?

Vivek Gupta: See, we are hoping that that is how we are building the plan. I think you are right. There is a base there because of the seasonality. We are in a better position on our inventory, sell-in versus sell-through, and we continue to see the momentum on the category. Definitely, in the coming months, coming couple of quarters, we should be seeing a double-digit growth. Unless there are big roadblocks in the policy or something else comes which we are not predicting. Definitely, the data is pointing to that.

Speaker #4: See, we are hoping for that. That is how we are building the plan. I think you are right—there is a base there, and because of the seasonality, we are in a better position on our inventories.

Speaker #4: Selling versus sell-through. We continue to see momentum in the category. So, definitely, in the coming months and the next couple of quarters, we should be seeing double-digit growth.

Speaker #4: Unless there are big roadblocks in the policy or something else comes up which we are not predicting. But definitely, that is what the data is pointing to.

Latika Chopra: Understood. The last one on margins. Do you think 41% gross margins that you delivered in Q1 is kind of the bottom because you have taken pricing interventions in 22 states, which will get fully reflected in coming quarters? There has to be an operating leverage benefit, plus the fact that your cost impact is now at the lower end of the earlier guided range. Is it right to assume that gross margins kind of bottomed out in Q1 and they can progressively stay here or possibly improve depending on how raw material inflation plays out?

Speaker #5: Understood. And the last one on margins: do you think the 41% gross margins that you delivered in Q1 is kind of the bottom, because you have taken pricing interventions in 22 states, which will get fully reflected in coming quarters?

Speaker #5: There has to be an operating leverage benefit, plus the fact that your cost impact is now at the lower end of the earlier guided range.

Speaker #5: So, should we—is it right to assume that gross margins kind of bottomed out in Q1, and they can progressively stay here or possibly improve, depending on how raw material inflation plays out?

Jorn Elimar Kersten: Yes. As you mentioned, a lot of dependencies here. I think important to note here that we don't necessarily take this as a quarter-by-quarter guidance or deliverable. Over time, we look to extend our margins whilst making the right choices. Whether that has to do with the supply chain network, investing behind the brands, whether it's the right choices on portfolio or inventory, that will be our guidance. Over the longer term, we're still looking to extend margins. Absolutely. Is it the absolute bottom? I'm not going to commit to it. Of course, we do look to expand margins quarter over quarter.

Speaker #4: Yes, so as you mentioned, there are a lot of dependencies here. I think it's important to note that we don't necessarily take this as a quarter-by-quarter guidance or deliverable.

Speaker #4: Over time, we look to expand our margins, whilst making the right choices. And whether that has to do with the supply chain network, investing behind the brands, or whether it's the right choices on portfolio or inventory, that will be our guidance.

Speaker #4: So, over the longer term, we're still looking to expand margins—absolutely. Is this the absolute bottom? I'm not going to commit to it. But, of course, yes, we do look to expand margins quarter over quarter.

Latika Chopra: All right. Just for a better understanding, you called out the source mix impact of 4%. Your reported price mix growth was -2. I just wanted to understand directionally, how these two numbers will change or behave in the coming quarters given your growth agenda and capacity plans.

Speaker #5: All right. And just for better understanding, you called out the source mix impact of 4%. Your reported price/mix growth was negative 2%.

Speaker #5: I just wanted to understand, originally, how these two numbers will change or behave in the coming quarters, given your growth agenda and capacity plans.

Jorn Elimar Kersten: That will continue to be there. We have a hybrid network between contract brewers and our own assets. That will continue to be there and will continue to also be part of the reported financials.

Speaker #4: Deborah continues to be there. We have a hybrid network between contract brewers and our own assets, so that will continue to be there and will continue to also be part of the reported financials.

Vivek Gupta: Our underlying price mix is +4, right? Yeah.

Latika Chopra: Sorry, could you repeat, Vivek? Sorry.

Speaker #5: Sorry, could you repeat? Sorry.

Vivek Gupta: I'm saying our underlying price mix is actually +4%.

Speaker #4: I'm thinking the underlying price mix is actually plus 4%. So, and I think the role of contract manufacturers will remain and will continue to accelerate business in our own breweries, but we expect the business to grow in their breweries as well.

Latika Chopra: Yes.

Vivek Gupta: I think the role of contract manufacturers will remain, and we'll continue to accelerate business in our own breweries, but we expect the business to grow in their breweries as well. The ratios will still remain.

Speaker #4: So the ratios will still remain.

Latika Chopra: Okay. It's clear now. All right. Thank you, gentlemen. Thank you so much, Prina, for answering these questions.

Speaker #5: Okay, thank you for that comment. All right, thank you, gentlemen. Thank you so much for answering these questions.

Vivek Gupta: Thank you.

Jorn Elimar Kersten: Thank you.

Speaker #4: Thank you. Thank you.

Operator: Thank you. The next question is from Krishnan Sambamurthy from Ashika Institutional Equities. Please go ahead.

Speaker #1: Thank you. The next question is from Krishnan Sambamurthy from Ashika Institutional Equities. Please go ahead.

Krishnan Sambamurthy: Yeah. Hi, Vivek. Three questions on a structural basis. One, while you had a very good summer season, it is also true that the seven-year CAGR in terms of the summer season has been about 6% top-line growth, right? I understand there are many factors which are outside the control of the industry and the management spends, whether it is war, whether it is season patterns. Do you see this changing and therefore, if not, then are you still dependent on the vagaries of the weather?

Speaker #3: Yeah. Hi, Vivek. Three questions on the structural basis. One, while you had a very good summer season, it is also true that, in fact, the seven-year CAGR in terms of the summer season has been about 6% top-line growth, right?

Speaker #3: I understand there are many factors which are outside the control of the industry and the departing spends, whether it is war or seasonal patterns.

Speaker #3: But do you see this changing, and therefore, if not, are you still dependent on the degrees of the weather?

Vivek Gupta: See, I think you said that seven-year CAGR is 6%. I think this quarter has been 13%. It's almost double the category growth. Therefore, I'm mentioning it's not only the summer season, because summer has been there in many states, and I think it is summer season plus significant reforms which are now translating into category growth. I talked about this, the beer revolution happened in few states like Karnataka or Maharashtra last year, or the change of these reforms, which is showing that if it is in the right direction, the category growth and the potential is much higher.

Speaker #4: Yeah, I think you said that seven-year CAGR is 6%. I think this quarter has been 13%. It's almost double the category growth, and that's what I'm mentioning.

Speaker #4: It's not only the summer season, because summer has been there in many states. I think it is the summer season plus significant reforms, which are now translating into category growth.

Speaker #4: And I talked about how the beer revolution happened in a few states like Karnataka or Maharashtra last year, or the change of these reforms, which shows that if it is in the right direction, the category growth and the potential is much higher.

Krishnan Sambamurthy: Okay. Sorry to harp on this, still the seasonality does remain a factor, right, for the industry? Do you see that changing?

Speaker #3: Okay. Sorry to hop on this, but still, the seasonality does remain a factor, right, for the industry?

Vivek Gupta: It has to be. You drink beer when it is hot. Last year also, in the season, our volume growth was more than 8%. There is a seasonality factor, but there is also seasonality plus reforms, which is accelerating it even higher.

Speaker #4: It has to be. You drink beer when it is hot. But last year also, in the season, the volume growth was more than 8%.

Speaker #4: So there is a seasonality factor, but there is also seasonality plus reforms, which is accelerating it even higher.

Krishnan Sambamurthy: Okay. The other two questions hark back to the announcement that you had a couple of years ago. Vivek, you had pointed out that 75% of Indian customers start out with beer, and then subsequently the share of growth, so to speak, is only about 20%, right? One of the longer-term targets that you had was to ensure that you retain a decent chunk of these customers. I know it's still early days, still early from a strategy perspective, but could you highlight the efforts and the success that you've seen on this front?

Speaker #3: Okay. The other two questions are back to the analysts that you had a couple of years ago. Vivek had pointed out that 75% of Indian customers start out with beer and then subsequently they change their throat as, so to speak.

Speaker #3: It's only about 20%, right? So none of the longer-term targets that you had was to assure, ensure that you retain a decent chunk of these customers.

Speaker #3: I know it's still early days, so we are still early from a strategy perspective. But could you highlight the efforts and the progress that you've seen on this front?

Vivek Gupta: No, I think it's a great question. Absolutely. I think we are consistently working our innovation pipeline and our brand plans to address that. Few things which is already working. We launched our Kingfisher Strong Smooth innovation, which is actually growing share every month. The share is better than the previous month, and we are getting very strong repeats because consumer trend is towards smoother beers. Our Heineken Silver business is up 28%. Heineken Silver beer is, again, which is about one of the beer which is only off from barley hops and water. It's actually, we are also having the right premiumization there. We are actually expanding the portfolio mix on Heineken Silver in many states. We are launching Heineken Silver in states like Kerala. We launched Heineken Silver in Haryana. Our innovation program is working.

Speaker #4: No, I think that's a great question. Absolutely, I think we are consistently working on our innovation pipeline and our brand plans to address that. A few things are already working.

Speaker #4: We launched Kingfisher Song Smooth Innovation, which is actually growing share every month. The share is better than the previous month, and we are getting very, very, very strong receipts because consumer trend is towards smoother beers.

Speaker #4: We are also — our Honeycomb Silver business is up 28%. Honeycomb Silver beer is, again, which is about one of the beers which is only made from barley, hops, and water.

Speaker #4: Actually, we are also having the right premiumization there. So, we are expanding the portfolio mix on Honeycomb Silver in many states. We are launching Honeycomb Silver in states like Kerala, and we have launched Honeycomb Silver in Haryana.

Speaker #4: So, our innovation program is working. Third is we are also looking at draft beer in many states, because that also improves consumption and provides more consumption occasions.

Vivek Gupta: Third is we are also looking at draft beer in many states because that also improves the consumption and more consumption occasions. We also have a strong innovation pipeline, which I don't want to talk much, which addresses some of the share of occasions things which you are talking about. This is absolutely on top of the mind, and that's why I started off saying the good part is our brand power is improving, which means some of these actions what we are taking is actually being recognized by the consumers and we are seeing that is only going to accelerate.

Speaker #4: And we also have a strong innovation pipeline, which I don't want to talk about too much, that addresses some of the 'share of occasions' things you are talking about.

Speaker #4: But this is absolutely top of mind. That's why I started off by saying the good part is the brand power is improving, which means some of these actions we are taking are actually being recognized by consumers, and we are seeing that this is only going to accelerate.

Krishnan Sambamurthy: That's very encouraging to hear. Another thing, Vivek, that you highlighted in the analyst meet a couple of years ago was that beer penetration consumption drops off significantly out of the large cities. Right? Your visi-cooler expansion plan was to ensure that this doesn't happen. While you have highlighted the extent of the visi-cooler expansion, can we just also highlight as to whether outside of the larger cities, the demand is picking up?

Speaker #3: That's very encouraging to hear. Another thing, Vivek, that you highlighted to the analysts a couple of years ago was that beer penetration and consumption drop off significantly outside of the large cities, right?

Speaker #3: And your vehicular expansion plan was to ensure that this doesn't happen. While you have highlighted the extent of the vehicular expansion, can we also highlight whether, outside of the larger cities, that demand is picking up?

Vivek Gupta: Absolutely. In fact, we are actually ensuring there are disproportionate allocation in the smaller cities. In fact, our activation in the smaller cities has significantly improved. It is also showing in our share data. In some of the states, we got the data by city, and it is showing that we have much higher share than category growth in some of the tier 2, tier 3 towns behind these efforts. It is a start because the number of stores are still a limiting factor. As you know, there are only 100,000 stores which are selling beer, and we are using some of this data with the stakeholders also, that why is it required to have some more stores in tier 2, tier 3 towns, and how the whole infrastructure is critical to drive beer category growth.

Speaker #4: Absolutely. In fact, we are actually ensuring there is disproportionate allocation in the smaller cities. And in fact, our activation in the smaller cities has significantly improved.

Speaker #4: It is also showing in our share data. In some of these states, we got the data by city, and it's showing that we have much higher shares and category growth in some of the tier two, tier three towns behind these efforts.

Speaker #4: But it is a start because the number of stores is still a limiting factor. As you know, there are only 100,000 stores which are selling beer.

Speaker #4: And we are using some of this data with the stakeholders also. But why is it required to have more stores in tier two and tier three towns?

Speaker #4: And how the gold infrastructure is typical to drive beer category growth. We also actually partnering we also partnered with with BCCI to actually activate fan parts in some of these tier two, tier three cities where we actually brought the IPL experience to these consumers and wherever we piloted it, we saw a massive response.

Vivek Gupta: We also partnered with BCCI to actually activate fan parks in some of these tier 2, tier 3 cities, where we actually brought the IPL experience to the consumers. In wherever we piloted it, we saw a massive response. Yes, there is a lot of work happening in tier 2, tier 3 cities.

Speaker #4: So yes, there's a lot of work happening in tier two and tier three cities.

Krishnan Sambamurthy: Very useful. Thanks, Vivek.

Speaker #3: Very useful. Thanks, Vivek.

Vivek Gupta: Of course.

Operator: Thank you. Before we take the next question, a reminder to participants that you may press star one to join the question queue. The next question is from Ajay Thakur from Anand Rathi Securities. Please go ahead.

Speaker #1: Thank you. Before we take the next question, a reminder to participants that you may press star and one to join the question queue. The next question is from Ajay Thakur from Anand Rathi Securities.

Speaker #1: Please go ahead.

Ajay Thakur: Hi, thanks for taking my question. Sir, I wanted to understand bit more on the premium beer side of it. What kind of a level of the premium beer can help us to offset this input cost inflation? I believe that input cost inflation will be a pertinent kind of a, or it will be persistent kind of a feature going forward as well. If we grow the premium beer to certain extent, then obviously that could be offset. What level of that premium beer can offset this kind of an input cost inflation on an ongoing basis is the question.

Speaker #5: Hi. Thanks for taking my question. Sir, I wanted to understand a bit more on the premium beer side of it. What kind or level of premium beer can help us to offset this input cost inflation?

Speaker #5: Because I believe that input cost inflation will be a pertinent, or it will be a persistent, kind of a feature going forward as well.

Speaker #5: But if we grow the premium beer to a certain extent, then obviously that could be offset. But what level of that premium beer can offset this kind of input cost inflation on an ongoing basis?

Speaker #5: Is the question.

Vivek Gupta: Unfortunately, I think it's a very less leverage on the scale there because the beer is a very low margin business. I think we need to just have the right pricing and right revenue structure by SKU and by brand to make it happen. If you make it too expensive, you just said we can price it premium because premium, the consumer is only willing to pay a certain price on premium as well, right? Affordability across the tiers is important for consumer to do that. I think localization has helped, but we need to just get our revenue structure and the cost structure right. Most important thing is if with the inflation, we need to price it right. We have to have the ability to recover the price.

Speaker #4: Unfortunately, I think there's very little leverage on the scale there, because beer is a very low-margin business. I think we need to just have the right pricing and the right revenue structure by SKU and by brand to make it happen.

Speaker #4: And if you make it too expensive, you can't just say we can price it premium, because the consumer is only willing to pay a certain price for premium as well, right?

Speaker #4: So, affordability across the tiers is important for consumers to do that. I think localization has helped, but we need to just get our revenue structure and the cost structure right.

Speaker #4: And the most important thing is, with inflation, we need to price it right. We have to have the ability to recover the price.

Vivek Gupta: We have to balance our trade spend to make sure it's there. We need to make sure the design of the product is right, so that we are not adding inefficiencies on the product or in the network.

Speaker #4: We are sure it is there, and we need to make sure the design of the product is right so that we are not adding inefficiencies to the product or in the network.

Ajay Thakur: Understood. Any sense on the volume and value share of the revenue pie that the premium beer is sitting right now?

Speaker #5: Understood. But do you have any sense of the volume and value share of the revenue pie that premium beer is occupying right now?

Vivek Gupta: The premium is almost 10% to 11% of our revenue, we only expect this to increase, the sales of premium to increase. As I mentioned in previous calls, we have aspiration that premium will become almost 20% of the revenue, we are on track on that.

Speaker #4: The premium is almost 10 to 11 percent of our revenue, and we only expect this to increase. The failure is of premium to increase. As I mentioned in previous calls, we have aspiration that premium will become almost 20 percent of the revenue.

Speaker #4: And we are on track for that.

Ajay Thakur: Understood. Also, if you can share some bit of insights into the cost efficiency measures and the cost efficiency programs that we had. What is the status and the timelines on the same?

Speaker #5: Understood. Also, if you can share some insights into the cost efficiency measures and the cost efficiency programs that we had—what is the status and the timelines on the same?

Jorn Elimar Kersten: Yeah. To start with the last part, the timeline is continuous. We are delivering, we're also very aware that this is a continuous effort to Vivek's previous answer in a market where it will, at least for the short and medium term, always be difficult to translate cost hikes into pricing. We very much rely on cost efficiencies throughout any period. If I can elaborate a little bit more on ongoing initiatives that help to deliver on the productivity. We can talk, for instance, with the procurement teams to really look into what are the longer-term partnerships, what can we do in forward buying to make sure that we lock in price.

Speaker #4: Yeah. So, to start with the last part, the timeline is continuous. So we are delivering, and we're also very aware that this is a continuous effort, to the previous answer, in a market where it will, at least for the short and medium term, always be difficult to translate cost hikes into pricing.

Speaker #4: We very much rely on cost efficiencies. Throughout any period, if I can elaborate a little bit more on ongoing initiatives that help to deliver on the productivity, we can talk, for instance, with the procurement team to really look into what are the longer-term partnerships, what can we do in forward buying to make sure that we lock in price.

Jorn Elimar Kersten: We talk about recipe flexibility, where we see how can we optimize both the utilization of our supply chain as well as be flexible in terms of the recipe, where we look how can that contribute to a better cost base. We look very closely at investing in the organization. To really make sure, and we've done a lot of investments in the organization in the past, but now we really look where can we add value and where can we accelerate the growth through investments. Just remain very strict on overall budgets, to make sure that, let's call it, the cost consciousness and the cost-saving muscle within the organization, is a constant development, so we can leverage it not just to navigate current headwinds, but for us is really the foundation of building a strong business for the future.

Speaker #4: We talk about recipe flexibility, where we see how we can optimize both the utilization of our supply chain as well as the flexibility in terms of the recipe, where we look at how that can contribute to a better cost base.

Speaker #4: We look very closely at investing in the organization. To really make sure—and we've done a lot of investments in the organization in the past—but now, we really look at where we can add value and where we can accelerate the growth through investments.

Speaker #4: And just remain very strict on overall budgets to make sure that, let's call it, the cost consciousness and the cost-saving muscle within the organization are in constant development.

Speaker #4: So we can leverage it not just to navigate current headwinds, but for us, it's really the foundation of building a strong business for the future.

Ajay Thakur: Understood. Quite helpful. Thanks.

Speaker #5: Understood. Quite helpful. Thanks.

Operator: Thank you. Participants who wish to ask questions may press star one. Ladies and gentlemen, if you'd like to ask questions, you may press star one. Well, that was the last question. I would now like to hand the conference over to the management team for closing comments.

Speaker #1: Thank you. Participants who wish to ask questions may press star and one. Ladies and gentlemen, if you’d like to ask questions, you may press star and one.

Speaker #1: That was the last question. I would now like to hand the conference over to the management team for closing comments.

Vivek Gupta: Thank you everyone for asking the question. As I said, this quarter has been a tipping point for the category with some of the policy changes which has happened, some of the discipline, what we have brought in the organization. We still are not out of the woods because of the war. Having said that, as a company, we are much better prepared. We were the first one to declare the impact so that we could plan. We took strong action. We believe the category growth momentum will continue and our choices are working. We look forward to seeing you next time. Do you want I hand over to you?

Speaker #4: Yeah, no, thank you everyone for asking the question. As I said, this quarter has been a tipping point for the category with some of the policy changes which have happened.

Speaker #4: Some of the disciplines that we have brought into the organization—we still are not out of the woods because of the war. But having said that, as a company, we are much better prepared. We were the first one to declare the impact.

Speaker #4: So that we could plan, we took strong action. We believe the category growth momentum will continue, and our choices are working. We look forward to seeing you next time.

Speaker #4: If you want, I'll hand over to you.

Jorn Elimar Kersten: Yeah, I can quickly do the announcement before we end it here. It's a quick intro to what's coming to your way, is that we're planning a capital market day early September to basically give a bit more glance about the industry in total. Like we mentioned before, we feel like we're at an inflection point. We're at a revolutional time in the beer industry at the moment. We feel we can give a bit more total glance of what's currently happening and our position in the total market for that. More information to come, but just make sure to keep an eye on the email, and we'll share it shortly with all of you.

Speaker #2: Yeah, I think Judy announced before we ended here, but it's a quick intro to what's coming your way: we're planning a Capital Markets Day.

Speaker #2: Early September, to basically give a bit more glimpse about the industry in total. So, like we mentioned before, we feel like we're at an inflection point—really at a revolutionary time in the beer industry at the moment.

Speaker #2: And we feel we can give a bit more of a complete glimpse of what's currently happening and our position in the total market. So, more information to come, but just make sure to keep an eye on the email and we'll share it shortly with all of you.

Vivek Gupta: Thanks, Jorn, we really look forward to hosting you for this day because I think it will be good for you to see what plans we have in store, but also to get your thoughts as well. Jorn and Vivek. Thanks, everyone. Thank you.

Speaker #4: Thank you. We really look forward to hosting you for this day because I think it will be good for you to see what plans we have in store, but also to get your thoughts as well.

Speaker #4: Thanks everyone. Thank you.

Operator: Thank you very much. On behalf of United Breweries Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.

Speaker #1: Thank you very much. On behalf of United Breweries Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You've been now disconnect your lines.

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