United Breweries Ltd
NSE:UBL
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United Breweries Ltd
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Ladies and gentlemen, good day, and welcome to Q1 FY '23 Earnings Conference Call of United Breweries Limited hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Harit Kapoor from Investec Capital Services. Thank you, and over to you, Mr. Kapoor.
Yes. Thank you, Margaret. On behalf of Investec Capital Services, we would like to welcome all the participants as well as the senior management of United Breweries on the Q1 call of UBS. We have with us from the senior management, Mr. Berend Odink, CFO; and Mr. P. Poonacha of Finance and Investor Relations. I'll now hand over the call to Berend for his opening remarks, post which we can open the floor for Q&A. So over to you, Berend.
Thank you, Harit, and good afternoon, everybody, on the call. Thank you for joining. And today, we will discuss the results of the first quarter. And as Harit said, I'm here together with Mr. Poonacha. After the opening conference, we will be very happy to take any questions.
So we'll start with the results highlights for the quarter. So the company posted volume growth of 121% in the quarter versus prior year, where the prior year was impacted by the Delta variant of COVID. Driven by recovery of demand prevalent across all markets, the company posted 42% sequential quarterly volume growth. The quarter met a record sales volume, which also represents a full recovery and 8% ahead of 2019, 3 forward levels of volume. The premium segment recorded growth ahead of the total portfolio. Price increases taken in key states with further options are being pursued for further increases.
Gross margin was impacted by the commodity price inflation. The combination of cost and efficiency measures and fixed cost leverage resulted in an EBIT margin of 8.9%, up 480 basis points versus prior year quarter. And the record volumes were achieved despite a number of supply chain restrictions seen in the peak season.
Moving to the next page. There's a summary table for the quarter results with net sales up 118% to INR2,437 crores and EBIT up by 370% to INR218 crores at a margin of 8.9%.
Turning to the regional volume growth. We have seen following the record March performance, a good combination of the month with strong recovery across all markets, with volume growth of 121% versus the prior year over impacted quarter. North posted 87% growth, particularly in Rajasthan, Haryana, Delhi and UP. West posted 167% growth with higher volumes in Maharashtra, Goa, Madhya Pradesh and [ Silvassa ]. In East, the company reported 88% growth mainly in the states of Orissa, West Bengal, Assam and Arunachal. In South, there was 162% growth with the key states being Telangana, Karnataka, Tamil Nadu, Kerala and Andhra Pradesh.
Turning to the net sales. These were up 118% in the quarter, and as already said, driven by 121% in volume. Pricing was up 9%. Increases have been realized in multiple states, including Haryana, Karnataka, Maharashtra, Madhya Pradesh, Orissa, Rajasthan, Telangana and UP. And the company continues to pursue options of further price increases wherever possible. The negative mix variance resulted in a minus 12% due to state mix with different volume growth observed across states with different levels of net revenues.
Moving to the next page and the EBIT breakdown. The gross profit growth was driven by volume growth and price increases. Gross profit margin as the earlier stated was impacted by the commodity price increases in roll and packaging materials. The improved margin was driven by fixed cost leverage and various savings initiatives and the negative gross margin impact was more than offset by the other cost items that show margin improvement, resulting at a 8.9% EBIT margin.
Finally, on the outlook and summary. Following the record volumes and recovery beyond 2019 demand levels, the focus remains on building further category penetration while driving the share of premium in the portfolio. CapEx investments during the quarter were INR44 crores with the volume growth during the quarter resulting in an ongoing review of capacity plans to meet future demand. Although commodity prices remain elevated, there are some indications that spot prices are softening. The company has focused on security of supply given the peak season and the volatile commodity markets. UBL is in the process of pursuing further price increases in combination with continued cost measures to mitigate this impact. And in light of the strong demand witnessed in the peak season, both the earlier COVID impacted periods, UBL remains optimistic about the long-term growth drivers of the industry on the basis of GDP growth, urbanization and evolving consumer trends. And UBL is well positioned to leverage and drive these opportunities.
With that, I'd like to conclude the opening remarks, and let us please move to the Q&A.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
Congrats on very good volume growth. So my first question is on your essentially Slide #8, where you've given the minus 12% mix variance, you have mentioned differential volume growth across states. Now when I see the previous slide, the West and South India has grown much faster. Now West and South India is normally seen as the more premium market. So is the pricing here lower? Could you explain why minus 12% is happening?
Yes. Thank you for the question. So it's really about different growth rates state-by-state plus also the elements factoring into this quarter, of course, that we compare to prior year COVID impacted quarter, which was, of course, not a typical quarter. Furthermore, we also have observed, let's say, supply restrictions that meant sometimes less than optimal sourcing, meaning that where demand was high, some of the states implemented export restrictions. So that meant different supply rules than we would normally use. But to your point, indeed, there are states with higher and lower revenue per case. So for example, Telangana has a relatively lower realization per case, but outperforms in terms of growth, and that's an example of the negative mix that we referred to.
Given Y-o-Y comparison is extremely difficult to draw any conclusion. My question is on the 8% higher volume, what is pre-COVID. So here, if you could tell us which states or which regions have grown faster versus pre-COVID, 8% number which you mentioned, which one has been laggard and which has been the outperformer?
Sure. So we have seen across the board, particularly if we compare to 2019, strong growth in states like UP, Haryana, West Bengal, Orissa and as I earlier mentioned, Telangana, coupled with sometimes share increases. States that are marginally lower is, for example, Maharashtra, Kerala. And of course, Andhra Pradesh where we know that in early 2019, there was a different excise policy than today is in place.
And one follow-up here, sir. So Maharashtra and Kerala, the underperformance, is it because of the general GDP issue there or the regulations are a bit more favorable in UP, Bengal, Orissa. What is the reason for trend which you mentioned?
Yes. I think there are various reasons in Maharashtra. For example, we know that the differential excise policies versus other [indiscernible] industries are a little bit less favorable over here, we went first with the price increase in the state during the quarter. So there could be sometimes elements of pricing that affected, particularly if you compare across 3 years. But I think overall, if you look at the potentiality across all the states, we see a very consistent recovery and even demand levels during the quarter. above 2019.
Right. And last question. So obviously, hard summer would have benefited you. So this 8% growth versus 4-grade or, say, quarter-on-quarter growth of 41% et cetera. Any sense you can give us, is there a market share gain within beer? Is there a market share gain for beer industry from spirits because United Spirits had a much lower number. So any insights you can give us on that?
So I think, of course, we have now witnessed, let's say, unimpacted peak season for us. I think we are all positive about the demand recovery that we have seen, given also, of course, a limited visibility during 2 years impacted in the peak season by COVID. So it's good to note that consumers are back and above 2019 levels. I think some of the weather patterns, of course, also helped in some of the states. So I think it has been a good quarter for the year as you mentioned.
The next question is from Nillai Shah from Moon Capital.
The first question is on what you mentioned in terms of the Heineken review in Tamil Nadu and Andhra Pradesh. So some questions around that. First of all, why is Heineken kind of taking the initiative to take the review, Shouldn't it be the management? Should we read something into this?
No, I don't think that, it's fairly customary that upon obtaining majority control that Heineken and UBL started together an integration review, I would say, that be very logical step.
Okay. And does this review also cover the purview of perceived corporate governance risks of operating in certain markets? Or is this just a pure financial and portfolio review?
No, it's a pretty broad review. And again, it's very customary, as I said, after the obtaining majority control in the company. It's, of course, all kind of functions, portfolio processes, et cetera. So that's, I would say, fairly standard.
Great. And could you throw some light on what exactly Heineken is trying to achieve out here? Because United Spirits had a similar sort of shift. And when that happened, we saw that there was a major dip in volumes in the state of Tamil Nadu when they basically were changing what is, I think, effectively the same distributor that you guys also have. So should we expect a major dip in the volumes at least in the near term, as you may go alone or solo in that market without an agency partner?
No. I think as with any change in operating model, one cannot predict exactly the impact of such a change. So the operations will be monitored closely. But as we stated, there has not been an impact on the sales of the quarter June ended. So I think that's also clear.
And over the course of the next 2, 3 quarters, should we expect some disruption?
Yes, what we said, we will closely monitor that, but we cannot predict exactly how the future will look like, of course.
So could you tell us how much of your total volumes comes from Tamil Nadu and Andhra?
So combined, those 2 states are around 10% of our volume.
10% of volumes, okay. Great. The second bit is on pricing. You mentioned 9% pricing. How is this calculated? Is this just simply the net revenues minus your volume growth or the net revenue growth less the volume growth, we should say the interest on net sales pricing? Or has the consumer price on an average across the country, gone up by 9% when they buy the UBL brands?
No, it's slightly different. So it's been calculated as the price realization for us as a manufacturer that would not necessarily correspond exactly through consumer prices because there could be differences in the value chain with excise, of course, being a key component. So hence, we separated also the volume impact and the mix variance from that. But just to give some context with 9% is really what has been, let's say, realized year-over-year for the quarter. In the quarter itself, we've increased prices in the states where we increased both states represent around 2/3 of our volume. So just to give you a perspective of the impact of pricing.
Could you just kind of give us some view on how much has been the price increase in, let's say, states like Karnataka or Maharashtra, where it's been relatively free pricing for the company?
Yes. If you look at the consumer price levels, for example, then we talk about ranges, I would say, between 3% to 7%. So it's relatively, I would say, benign given the overall context of inflation. And of course, that reflects a balanced approach, looking at the competitive situation of the beer category but also the total [indiscernible] category, also the possibilities to increase prices yes or no. So that's the elements that go into the mix when we look at the options for pricing.
Sure. And finally, on barley prices, it's been trading in a very, very tight range since the big uptick, which we saw in March. Have you guys been tracking what the global barley sourcing or the view on global pricing is, let's say, for out 6 months or something of that sort. Just to get a sense of how this commodity is likely to behave into the next season in India?
Yes. We continuously monitor not only domestic prices, but, of course, also international barley prices. So we continue to review our buying strategy, the quantity, sourcing, et cetera. The domestic buying season has been pretty much completed. Of course, they can be [indiscernible] to the market. and we trade it in the months to come. That for the majority explicitly completed. So as you said, the prices have been quite up. So last time we spoke about close to 70%. And we will have to see next year, of course, the new pricing for the new crop and that we continue to monitor also respectively, of course, what's happening in international barley prices in terms of not only the pricing level, but also the quantities.
But no sense at this stage on, say, for example, the sowing of the crop in Ukraine and how that is going along because there's really a lack of visibility on that front.
Yes, you're right. The international situation remains a [indiscernible] dynamic. There is, of course, some developments of potential exports out of Ukraine. But yes, I think we will see week-by-week that remains, I would say, relatively uncertain. Hence, yes, even further more important to follow the international contract, the international availability. So that one has always had the various options on the constant monitoring. But I should say, the overall market, particularly with the situation on the macroeconomic level remains quite uncertain.
Sure. And sorry, just one last question on volumes. While the recovery has been from pre-COVID levels now, and I think even Budweiser reported a similar number. The question really is that a 2.5% volume CAGR versus pre-COVID is not really great. Would you expect an acceleration in volume growth over the course of the next few quarters? Or do you think the macro environment restricts that particular acceleration at this point in time?
Yes. I think if you compare to 2019, we reported 8%. I think we would exclude the state of Andhra that went into a complete different excise policy in the meantime, then we talk about 14% volume growth Again, I don't think you can year-over-year expect the same trend given the resurgence that happened due to COVID. But as that, we're, I think, optimistic about the start of this year. We have a good peak season. And we, of course, calibrate our plants, our capacity plans, in particular, as to the next year peak season. And yes, hopefully, continue on a good momentum.
The next question is from the line of Latika Chopra from JPMorgan.
My questions were around the cost and margins. You've talked about barley already. I wanted to check what's the sense you are incrementally getting on blast and aluminum prices? And how should we think about gross margins? Did Q1 basically account for the peak inflation being reflected? Or do you sense there will be further higher inflation that you anticipate in Q2? And with incremental pricing that you're hoping for, where do you see gross margins will likely balance out versus what you reported in Q1?
Yes, Latika, let me start with the gross margin, let's say, in general. So we would expect that compared to this quarter, that we going forward see some improvements in gross margin. So we've always said it will take a bit of time given the nature of the industry where pricing is, of course, quite restricted. So that will take a couple of quarters. But on the one hand, the higher barley and some of the higher grass that is now coming into the full quarter is relevant. On the other hand, at the same time, the pricing realizations and increases during this last quarter will, of course, then count for full quarter. So net-net, we would expect some improvements versus the gross margin reported in this quarter. On grass, it remains quite inflationary driven by the underlying input cost of soda ash and energy. The collections on grass have actually been very good on a normative level for the peak season. Aluminum, I think that yes one area where spot markets have been trading down recently. Now we look at the risk management approach to hedging that aluminum for future periods. So that is something we will put up into those opportunities as well. So all in all, yes, what we said, a high commodity price environment also still quite volatile, but hopefully step-by-step, we're passing through the low quarter, so to say.
Sure. And if I look at the other costs, employee costs moved up sequentially. I wanted to understand what's the kind of run rate one should anticipate given you saw some restructuring, right? So you saw one thought that there's going to be some benefits of that flowing in. So what should be the quarterly run rate one should anticipate on employee costs? And also, if you could flag anything very substantial sitting in other expenses, which also moved up significantly on a sequential basis. And what are the sustainable levels there as well?
Yes. So expenses, you may have to factor in that during this peak season, we hire more contractual labor to cater the higher volumes when we compare to the prior quarter, I think that gives you a sense of some of those differences in growth. On the other expenses, this includes, for example, our commercial spend, which have been around 100 basis points higher versus prior year, which was, of course, COVID impacted, but there are also other expenses, which, for example, freight or search promotion expenses or the related fuel costs. So those of course have been impacted to a certain extent due to commodities and the volume growth in the quarter.
Sure. And last bit was on CapEx. You talked about you're reevaluating or reviewing of CapEx plans. So if you could share some color on what kind of capacity additions you are looking at? And what the amount you intend to spend?
Yes. For the current financial year, we continue the guidance of CapEx towards some range of around INR250 crores. But beyond that, as we indicated, then we would probably be on a higher level, given the utilization rates observed in the current quarter. And yes, we will then proceed basically on a region-by-region basis as to where expansions will take place. And how do we go about that in terms of [indiscernible] or working with partners, et cetera. so that will be part of the evaluation. But again, in the current financial year, that guidance on CapEx remains the same.
The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities.
One clarification and 2 questions. Berend, when you said consumer price increase of 3% to 6%, were you specifically referring to Maharashtra and Karnataka or are you talking about that on overall basis?
Sorry, could you repeat the question, the line...
In response to one of the previous questions, you had mentioned that there was consumer price increases of between 3% to 6% I just wanted a clarification whether you're referring specifically to Maharashtra and Karnataka, which are free pricing markets? Or you're talking about price increase at a blended level adjustment?
Yes. So the 3% to 7% range are the kind of the range for those states that we implemented, that those are the more typical impact on consumer price levels. But for the states of Karnataka, Maharashtra, you would have to think of the lower end, so some towards the 3% in terms of consumer price change.
Sure. That's useful. Perhaps not coincidentally, you mentioned UP, Haryana and West Bengal as markets where you have done better compared to 2019 levels. Given the decent markets where there is a differential excise between beer and spirits. I mean, are the volumes far better than expected? And B, are you seeing any cannibalization of spirits demand with beer growing significantly higher than spirits in these markets?
Yes, there are, I think, of course correlations to the improvement in the excise policy, particularly, of course, if you talk about taking West Bengal or the same way some of the states, we have seen good share performance from us that helps, of course, as well. I think the premium relation trend is also consistently there. So these are all elements that handing to some of these states outperforming the total. And hence, yes, it remains very important to continue the efficacy the policy engagement in the other states. I think these are clear examples of some of those results.
Okay. My last question is on Haryana and at 4%, has introduced a lower tax slab for beer with 4% alcohol. I think West Bengal has also done the same. Have we also addressed the portfolio so that you are introducing products at this particular alcohol slab?
No, not specifically for Haryana. But in general, we continue a lot of consumer research and insights to look at the trends. So from a perspective of excise policy, I would say that's one angle. But more importantly, I would say, from a consumer perspective, that is continuously under review. And if we feel that there are sufficient indications that this alcohol slab has a good potential out there, then of course, we will pursue it. So in that sense, those things are continuously under consideration. But so far, we have not felt that particularly for example of Haryana, but since that you mentioned, that we will launch a product there.
The next question is from the line of Alok Shah from Ambit Capital.
My first question was more to do with the 0.8 in the notes to accounts where you mentioned on the intimation being received and sort of review of the justification and appropriateness of commercial terms. So can you elaborate more on this thing as to the requirement to do this? What could be the possible outcomes that we will be evaluating, etcetera, and the timelines for the same? That's my first question.
Well, on the timelines that we stated the review is expected to be completed shortly. It's also important to say that -- we continue to monitor the operations that the sales in the 2 states where we have implemented the change have not been impacted. So I think those are key elements as to how we look at it.
Okay. So basically, just to get it right, this is largely to do with your commercial terms in the state of Tamil Nadu and Andhra Pradesh only?
Yes. Those are the 2 states where we have said that we want to implement also a tighter and more direct grip on our route to market. As you know, every state is unique. But at this stage, yes, there are no further statements to make on any potential changes, let's say, in other states.
My second question is on the other expense line item. Now if I were to look at some of the key cost line items, be it outwards freight, distribution expense and sales promotion expense. Now these 3 are usually the large pockets. Now we have seen some bit of a savings in FY '21 and '22. Now it could be temporary in nature because of low volumes, etcetera, but on a sustainable basis, say a distribution expense going down from about 3.5% to sub 3% and sales promotion from about 5.5% to around 4.6%. So -- and in light of the cost savings that you typically allude to, can we see this ratio settling somewhere between the pre-COVID level and the current level or you think there's not much leeway in these items will go back to the pre-COVID?
Yes. I think we -- your approach is right to look at it as a percentage of topline. I would point out that, of course, in this quarter, we also had a negative statement, which impacted this ratio as to a certain extent. But as to one of the earlier questions, the cost itself, sales promotion is also driven by the mix in the quarter and freight. Of course, there's an important fuel component, commodity related in that as well. So looking at commodities and how they will trend, yes, also has a better view on the fixed cost line item of other expense.
Okay. So basically distribution expense and sales promotion expense will sort of inch up from here. Is that understanding correct as a percent of sales or are you able to comment at the current juncture?
Yes, I will not directly say it's on a continuous trend or moving back because it's very much dependent on topics what I mentioned like state mix, but also power, fuel type of rate, freight rates. So yes, let's see how that trends in terms of the overall market in there.
Okay, perfect. And just one clarificatory question. So the excise duty rate this quarter was around 53%. Just from my understanding, is it largely to do with the state mix that you talk about? And as the share of premium portfolio goes up, the percentage of excise, would it typically go down a bit? That's the clarification that I want.
The excise indeed would be, to a large extent, also driven by state mix because the rates, of course, are different. And directly, I would say that the more premium the product, the higher the excise component as well.
The next question is from the line of Karan Taurani from Elara Capital.
Firstly I just want to get your standing in terms of price hikes for most states, how confident are you of carrying price hikes in more states in the next 2 to 3 quarters and what would be the quantum of that, similar to about 2% to 6% or higher than that?
Yes. So the price increases what we tend to realize in the first quarter, of course, the majority depends that once excise policies are known and it's a logical moment to apply for any changes or any adjustments also coming from an excise change perspective. But it's another, let's say, a full Q1 activity only. We continue to represent in other states throughout the year. So we do think there are further opportunities, maybe not to the same extent as quarter one because, as I said earlier, in [indiscernible] of our volume base, we have realized the price increase, which I think is a pretty good outcome. Having said that, it also means there are other states without a price increase. So that is something we continue to pursue. And even there is a possibility, of course, that other states, you might revisit within one year potentially for increases as well. So that's all on the review by the company.
Right. So basically, one cannot ideally consider more price hike in the managed states for this year, at least next year, whatever comes can come. Is that correct?
Yes. So the realizations for the Q1, of course, are now an unknown. Further steps can be taken later in the year. But I think you're right, the majority will take place in Q1, that's what we published in the results.
Got it. And the second question was around barley. So apparently the procurement for barley generally happens in the month of April to somewhere -- those 3 months. So in terms of you preferring barley, have you procured that for the entire year or you'll be doing it in phases because the price was so high, you'd probably wait for the prices to come down into that? I mean what's the barley procurement right now?
Yes, you're right. We're looking at that not from a 12-month perspective. So of course, the first priority is to make sure there is continuity of supply. So that has been the focus during the peak season also for the coming months that is secured. But as we are progressive, we continue to look at availability and pricing and looking at domestic markets, even international markets, so as to hopefully optimally procure at the right price levels throughout the year.
Right. So there could be a positive impact of lower prices on barley in coming quarters?
No, the coming quarters is already secured. But if you extend the horizon up to next year peak season, yes, then there are still open positions. So if the prices move down or hopefully not adversely drop, then that would still be an impact.
Got it. Just one last -- season. Specifically, in terms of distribution, we've been hearing that many states are going easy for beer as a product. And a lot of resolution is now taking place so a lot of premium retail outlets. Can you kind of highlight which are the key states here who are doing these kind of moves and what is the possible impact on volume growth because of this?
Yes. So we have seen I think a couple of states in the [ positive ] is also kind of describing the type of outlets. And in general, yes, a minimum square footage, a minimum set of display of stock, walk in, sometimes even other elements for convenience for consumers. So I think in general, this is very positive for the consumer experience where there are clearly opportunities to improve that. And to your question, it helps the premium portfolio, of course, as well. So I think it's a good step and is something also we supported our trade programs and in terms of in-shop displays and activation. And yes, there is one example where we have seen, of course, a lot of change in the last 12 months. And yes, we support that.
The next question is from the line of [ Trilok ] from Dymon Asia.
When I was looking at cost, particularly other OpEx, prior versus pre-COVID. That seems to be a little on the higher side. Could you -- beyond freight and fuel costs, which was [ discussed ] in one of the previous participant quite response, is there anything which you think has taken the cost very high or that's very normal way of looking at the business?
So it's really the elements we lined out earlier. So it's about freight, fuel, sales promotion. Those are the bigger categories in the other expenses and what I said, that's partly mix driven. It's partly commodity driven. It's of course, the volume component of the quarter and there's around 100 basis point impact also compared to prior year of higher advertising spend. So that's it.
So the sales promotion expenditure so what's the percentage do you -- or would you like to continue given the fact that the momentum may continue?
Yes. We have been relatively active in support. And of course, yes, I would say, good volume outcomes now that we move into a couple of months of lower demand. We would also expect this to taper down a bit.
The next question is from the line of [ Chinmay Gandre ] from Reliance Nippon Life Insurance.
So I just wanted to understand like during the peak in what was our capacity utilizing across states? And coming to the next peak season, which will be next year so it means there are peak capacity utilization in the current season, and we have not yet embarked on any major capacity addition or you're kind of evaluating state-by-state. So how should we look at in the next season from a capacity point of view?
It was difficult to fully understand the question due to the quality of the line, but I think I got to gist of it about capacity utilization. So that was close to 90% for the last peak quarter that we just reported on a number of brewers running at a maximum capacity. So this is part of the review that we spoke about in the release for next season to augment capacity or make sure there's optimal cost sourcing where applicable. And hence, yes, we will continue to look at the right investments behind the infrastructure. If I didn't answer part of your question, please.
So my question is basically with respect to the next peak season next year. So because we are still in farming stage with respect to the capacities so how long will the new capacities take time to come on stream? And for the next peak season would we have to live the current capacity itself and thereby, not much of a major uptick on the current volumes.
Yes, the actions are both, let's say near term for the next peak season, but of course, if you talk about, for example, putting new bottling lines or potentially complete brewhouse in place, yes, that will take more than 9 to 12 months. So that is why we look at both revenues in terms of short to long term. And as I said earlier, we also have contract manufacturers in the network. So we also cooperate and work with them in terms of the investment plan. So that's the growth approach.
The next question is from the line of Vishal Punmiya from Nirmal Bang Institutional Equities.
Congrats on a strong volume growth. Firstly, just a clarification. So when we talk about next peak season, are we talking about 4Q or are we referring to 1Q of next fiscal year?
That will be next year, let's say, March to June.
Okay. Okay. Okay. And secondly, if you could highlight the growth trends between on-trade and off-trade for the current quarter, that would give a good insight in terms of how things are panning out across the channels and also the mix between those channels for the quarter?
Yes. If you're looking at on-trade and off-trade growth vis-a-vis that is.
Y-o-Y growth in on-trade and Y-o-Y growth in off-trade.
April, June quarter last year vis-a-vis this year, right?
Yes. Yes, yes.
Yes. Here, you see that the on-trade growth is higher because last year first quarter in many states or almost all states, the clamp down on locations where beer is consumed at the point of sale, so which is on-trade. So there we see phenomenal growth while the growth in your retail or what you call off-trade, would be less when compared to the growth in on-trade.
Okay. And what would be the mix now for this quarter? Mix between off-trade and on-trade for us?
It would be in line with pre-COVID levels because if you go back to pre-COVID 2019, it would be in line with that.
Which would be 25-30 on-trade?
70-30, 70 would be off-trade and 30 would be on-trade.
Understood. Understood. Just lastly, so premium segment has done or grown ahead of the overall portfolio for this quarter. What would be the mix of premium for us now?
That will be in the high single digits. So that is also above, as we said last year quarter, but also 2019.
The next question is from the line of Pritesh Chheda from Lucky Investment Managers.
Sir, just seeking clarity. There are a lot of changes in the beer as a category from a taxation perspective in a lot of states and the distribution touch points also seem to be rising specifically for wine plus beer combi outlets. So I'm just wondering why -- there is the volume CAGR just about 2% on a 3-year volume CAGR. As of now, what were the misses?
And considering these 2, 3 big changes that are happening, how do you see the volume CAGRs for beer as a product for us or for the industry, whichever way you want to comment? And my second question was on the pricing side. Did I hear that more states tend to take pricing on an annual basis, which is quarter one. And hence, there is no large price increases, which are supposed to happen over the next couple of quarters until quarter one of next year. Is that the case that you mentioned?
Yes. First on the volume outlook and backlog to your question. So generally I would say that the outlook in terms of volume would be probably around 6% to 8% per year. Of course, that can be skewed higher or lower by policy changes, etcetera, but I think on the line, there are strong fundamentals that support that. To your question as to the backlog yes, earlier to a question explained that one would take out the state of Andhra in 2019, then this quarter has shown 14% growth versus 2019.
And then, yes, one has to factor in that, of course, a lot of the disruption and trends were impacted 2 years subsequently from COVID. On the pricing side, I think it's a bit more than one in the sense that in Q1, it's typically the quarter where most price actions are taken, and that's what we wanted to indicate. At the same time, it doesn't mean that nothing else is on the cards for other states, etcetera, in the remainder of the year. And that's why we indicated that the company continues to pursue these options where possible.
Sir, this outlook of 6% to 8% volume growth. This is despite all these changes, which we see in the distribution or in the reduced taxation or reduced pricing of this product in a lot of states. This is despite that, we are calling out 6% to 8%?
No, it's more on a constant basis of, let's say, regulation and policy. And as I said, there is more supportive policies in various states then the number probably be higher and vice versa.
And what kind of distribution outlet increase is happening by whatever policies have come through? So if I go back to our past call, then all the distribution touch points were some INR 50,000, INR 60,000 for the liquor industry as a whole. So is that changing? INR 80,000 so is that number changing now with the policy changes?
No drastic change as a of now.
So 3 years back also, it was INR 80,000, even today it is INR 80,000, that's how it is?
Approximately, yes.
The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities.
While you have indicated faster growth in the premium segment, is there -- this is one area where your market share has been lower than your overall market share. Has there been any evidence particularly post opening up of gains -- of market share gains on this front?
Yes, the overall trend, I think I will not comment specifically on one quarter, but across the takeover side, I think we have been increasing the share in the premium segment, and it's also one of the key strategic pillars of the company. We do see a lot of consumers, of course, having an appetite for different products, for even higher priced products. So they're very positive and in sync with the development of the Indian beer market. So hence, a lot of our attention, a lot of our investments are behind the premium portfolio. And with that, we have seen a progressive increase in share in the premium segment, and that's what we continue to pursue.
Just a clarification, when you said progressive increase in share, you mean progressive increase in share of your sales or progressive increase in share compared to the rest of the market on the super premium segment?
So it's our share within the premium segment is increasing.
Sure. And just one final question on barley inventory, how many months of inventory -- barley inventory do we have currently?
I don't want to call that out exactly. But to the earlier question, we have not covered the full position to the next peak season. So with that, we continue to look at the domestic availability and pricing also internationally. And then, yes, under that continuous review, we will take our procurement approach as to how to cover the open months till next domestic crop becomes available.
The next question is from the line of Harit Kapoor from Investec Capital.
So just had 2 questions. You did mention that you see market share in premium in certain states, but I think overall level -- on a Y-o-Y basis, have you seen market share improvement at a national level or has been consistent, you will share some trends with us?
Yes. So our market share for the total portfolio in the quarter has been, let's say, on normative levels that we normally see in quarter one -- so that is a little bit below prior quarters where we're at kind of 53%. Now we're closer to the 50%. That also has to do not so much, I would say, with consumer demand for brands, but more with sourcing and supply and some of the restrictions that we mentioned earlier in the call that there could be capacity limitations or sourcing, let's say, ban on various states due to the high demands in a couple of the months.
So this share reduction would have been more a function of -- or the share gain that you have seen that competitor would have seen in this quarter would basically be regional players in that state would have been able to supply gained at your cost? Would that be the way to think about?
Yes. I think, of course, there are, let's say, differences state by state. But on an overall level, I would say the majority of this share movement is indeed driven by sourcing and supply and hence, and market participants that have ample capacity or a more direct route to market were of course, stable versus some of the restrictions that we saw.
And my last question is on the state mix. How do you kind of look at it in quarter one seeming a little more exceptional in terms of the extent of the negative state mix? Is it a base effect? Or is it just structurally some of these states seem to be doing a bit better than what some of the high-margin states are doing? I mean how do you think about it? Is it a short-term fluctuation or is it slightly in the medium term that some of the low margin states seem to be on driving volumes?
I think it's a bit of a combination. So one is base effect of course last year was quite impacted. Secondly, a number of quality improvements, etcetera, are observed the number of these states as well. Thirdly, the big season, for example, high temperatures at Rajasthan, in UP, etcetera, also play a role. So a number of these are, of course, more short term and one would not necessarily expect them to continue in quarters to come. So again, it's a combination of more incidental during the quarter impact, but also a few elements where it's more policy driven. And of course, that element will continue.
Great. That's it from me. I'll hand it over to Margaret to close the call.
Thank you. As there are further questions from the participants, I now hand the conference over to Mr. Harit Kapoor for closing comments.
Thanks, Margaret. We just like to thank the management of United Breweries for taking out time for this call as well as all the participants on the call for taking out their time and hand over the call for the closing comments to Berend.
Thank you very much, Harit, thank you for hosting us, and I would like to thank everybody for their interest and their questions. And I wish you all a very good day. Thank you.
Thank you. On behalf of Investec Capital Services, that's concludes this conference. Thank you for joining us and you may now disconnect your lines.