United Breweries Ltd
NSE:UBL
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United Breweries Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '22 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, Vitija. On behalf of Investec Capital Services, we'd like to welcome all the participants in the call and a special welcome to the management of United Breweries for the Q4 FY '22 earnings call.
On the call with us is the senior management of United Breweries represented by Mr. Berend Odink, Chief Financial Officer; and Mr. P. A. Poonacha, Head of Financial and Investor Relations.
I'd now like to hand over the call to Berend for his opening remarks, post which we'll open the call for Q&A. So over to you, Berend.
Thank you very much, Harit, and good afternoon, everybody on the call. Thank you for joining. And as Harit said, we'll discuss today the results of quarter 4 and the full year '21/'22. I'm joined by Mr. Poonacha. And after the opening comments, we'll be happy to take any questions.
So let us start with the results highlights. The company recorded volume growth of 7% in the quarter versus prior year, driven by the continued recovery of demand prevalent across nearly all the markets. Comparing Q4 versus Q3 resulted in 14% sequential volume growth.
The quarter started in January with a muted demand situation due to Omicron variant ending with a record month of March. UBL achieved share growth both in the quarter as well as in the year-to-date performance, further solidifying its market leadership. In the quarter, EBIT reached INR 220 crores, 5% ahead of previous year. Top line growth and cost measures were partly offset by higher commodity costs.
The full year results showed strong performance with net sales up 38% and EBIT up 157%. The free operating cash flow of the company reached INR 721 crores due to continued improvement in working capital and curtailed investment levels. On the back of a strong liquidity position, the proposed dividend is significantly up to INR 10.5 per share, representing a circa 75% payout of profit after tax.
On the performance by region, we have seen different patterns within the quarter as January got impacted by the Omicron variant, predominantly seen in the more urban areas, followed in March by a record performance across virtually all the states. North posted a strong growth at 26%, particularly in Rajasthan, U.P., and Haryana. Delhi market posted a decline due to the implementation of new policy.
West posted 11% decline, and East posted a 2% growth, driven by higher volumes in the states of Arunachal Pradesh, Orissa, Assam, Meghalaya, partly offset by a fall in volume in West Bengal state due to the introduction of the new route-to-market. South posted 8% growth, driven by higher volume in Telangana, partially offset by lower volumes in Karnataka and Kerala.
Turning to the sales, these were up 11% in the quarter, driven 11 -- 7% by volume and 3% by favorable price mix. Positive price impact was partly offset by an unfavorable state mix. On a full-year basis, the volume growth was 32%, price mix of only 5%.
Turning to Page 8, with the EBIT breakdown. Gross profit improvement was there in absolute terms with a lower gross profit margin due to the commodity inflation, mainly malt, packaging and energy costs. Fixed expenses were well contained, resulting in margin expansion on these lines that partly offset the commodity price impact.
In the fixed cost, there was good leverage effect of revenue growth coming through. Personnel costs are below prior year despite the higher volumes. Depreciation was also below prior year due to the curtailed investments in the last 2 years and some assets now being fully depreciated. Resulting EBIT margin ended at 12.9%.
Moving to the cash flows. The full year saw improvement in cash flows owing to higher underlying profitability and continued working capital reduction. Similar to last year, again nearly INR 300 crores of working capital was freed up. CapEx was also curtailed as earlier explained.
Free operating cash flows came in at a record INR 721 crores. And as shared in last quarter update, all remaining term debt has been prepaid. The chart on the bottom right shows the cash flows last 5 years and the growth despite the COVID impact in the last 2 financial years.
Finally, on the outlook and a summary, although the COVID trajectory, of course, remains unknown, the company is confident in successfully navigating any potential impact with an agile response. With the demand picture normalizing, the companies are gearing up for the full peak season, which has shown a promising start in the month of March.
The commodity cost picture remains challenging and volatile. The company is in the process of securing price increases in combination with continued cost measures to mitigate the impact. And as always, we remain very optimistic about the long-term growth drivers of the industry on the basis of GDP growth, urbanization, and evolving consumer trends. UBL is very well positioned to leverage this and drive these opportunities.
With that, I conclude the opening comments. Let us move to the Q&A, please.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on working capital and CapEx. So congrats on working capital reduction. So could you elaborate any particular state where you have seen more working capital reduction, any particular initiative? And you have mentioned CapEx curtailed to minimum requirements now with growth coming back and COVID seeming lesser of a risk, would your CapEx be coming back in say FY '23, '24?
On working capital, I think that's been fairly broadly spread across markets. Of course, some markets will operate with distributors, some with the government corporations. But it's really a result of efforts to reduce excise, capital being blocked in the various states. But also some trading partners are trying to release the balances there. So it's pretty, let's say, broad-based.
On the CapEx, yes, you're right. Of course, we are now entering a new period for the company turning on the corner on COVID. So with that, we have our focus now again on expansion. I would not immediately expect levels back of pre-COVID in terms of CapEx, but more maybe in the area of INR 250 crores to INR 300 crores, depending a little bit, of course, how the peak season pans out. And those levels will then include, of course, the normal maintenance CapEx, also continued investments in ESG initiatives like water optimization and also premium capabilities across the network and some expansion projects as well.
Sure. My second and last question is on the key raw material. So from a Ukraine crisis perspective, you could comment on outlook on barley. And similarly, in general, inflation, what is the impact on glass and corrugated boxes? And you mentioned that you are trying for price hikes. So any update on any state where you are seeing more visibility in terms of price hikes regarding this?
Sure. Let me go to the components of your question. So first on barley, the new crop that we have now seen coming up the fields and being traded is significantly up in price versus prior years. We've seen a lot of speculation in the market, coupled with high demand in March as the peak season, of course, was quite volume for the whole industry. Further, we've seen in the last few weeks before harvest the high temperatures impacting some of the quality.
So a few components of the crop don't meet the quality standards for barley processing for beer. So this combined has led the prices up some 70% versus prior year. We have secured enough supply out of the new crop to ride us through the coming peak season and months. So there's no, let's say, risk on the continuity of supply. However, of course, the price levels are very challenging. The buying season is too long. So we will calibrate our strategies as we move along.
On glass, you have seen that probably a lot of the underlying input costs like energy, soda ash are on the upward trend as well. So we do expect some inflationary levels as well. We have seen so far some positive impact from better collections out of the market versus prior year. Of course, there was a COVID impact so that is mitigating the impact to some extent.
And yes, we continue to look at price increases. Of course, we'll in principal pass part of this on to consumers. As we stand today, we have secured price increases in Delhi, higher realization in Rajasthan, in U.P., Maharashtra, Karnataka, Orissa, M.P., and a few smaller states, but we continue to look at the opportunities and the right balance, of course, by looking at the affordability of the category versus the input cost pressure.
I think the contract is also, the overall, the excise policies of the states in many key markets have been stated. So I think that is a positive on the demand possibilities and the bottle pricing as such. So hopefully that addresses the question.
Yes, it addresses. And that's all from my side. Thank you.
The next question is from the line of Latika Chopra from JPMorgan.
Berend, I'll just take a follow-up on your previous answer. You've talked about price increases being secured across multiple states. Could you share with us what is the quantum of this price increase that you would anticipate to flow in from Q1 onwards on a blended basis?
Yes. So I think it's important to realize that as we have taken price in the year, of course, that we reported the results, these are additional price increases, which will tend to start with in Q1 as soon as we have visibility on some of the excise policies.
At this point in time, I don't want to give the exact quantum, et cetera, because some of it is being implemented as we speak. And as I said, we continue to look at further options and opportunities in the market. But of course, it is against the context, but yes, the input cost price picture is very high given historic rates. And hence, that was, of course, top of mind when we look at the [indiscernible].
So let me check with you. You talked about barley, glass prices being higher. You talked about a 70% uptick in barley prices. What is the blended impact as you exited Q4 on your COGS in tax? And with the pricing decisions that you've taken plus the cost optimization measures, what is your comfort on your ability to mitigate the commodity push so that operating margins would still be in a decent range? Or are you looking at a significant pressure on operating margins?
On the barley, I think it's important to realize that at the moment, we have the existing stocks from last year. So during quarter 1, we would expect some of the new volume to flow into production process and hence in our costing as well. I think, in the past, we've always said that with these kind of commodity cycles as a company given the nature of the industry or some of the pricing restrictions, we were not able to offset it fully within 1 or 2 quarters. So that will require some duration to fully offset that.
As we saw this quarter and the results in last Q3 as well, I think there's good operating leverage on the fixed costs so that we continue to expand the top line. Some of that margin can be used to offset the commodity cycle. But I hope you appreciate that. Yes, as we're in a very dynamic situation with some of the procurement ongoing, the peak season, and having just started some of the price discussions on, it is a dynamic picture. So I don't want to start giving any margin guidance at this point in time.
The next question is from the line of Jaykumar Doshi from Kotak.
Yes. Berend, am I audible?
Yes. You are audible. Please go ahead.
Congratulations on good working capital management. Sorry for pushing a little bit further on the previous 2 questions. Is it possible for you to give us some color whether you have managed to take between 5% to 10% price increase? Or is it more than 10%? Or is it less than 5% at a portfolio level so far? Some range will hedge because right now, other than Maharashtra, we are somewhat clueless about the price increases that are being taken in some of the smaller markets.
So I think you have to factor in at some point the Rajasthan, UP. Those are not typical markets, where every year we can take prices. So that is having a quarter positive. At the same time, we also -- if you look at, say, the affordability of the category so that we also determine our pricing approach. So it's really -- I think it is a bit too early to come out with definite numbers and ranges as to what the magnitude of the price increases are because I think there are various levers as to how to go about it. Other elements that we bring into the picture is, of course, to drive on premium, but also some of the trade spends we do in terms of SKUs. So all of those will have an impact on the overall outcome. So let's give that a bit more time to come back on that vision.
Understood. Now if inflationary environment continues, do you see a possibility of another round of price increases in the states where you have taken price increases so far? Or will you have to wait until end of the year or maybe next financial year for another round of price increase?
Yes, that depends really per state. But certainly, I would not preclude that we will not go back with any other price increases later in the year. So for a number of states, that's definitely a possibility.
And did I hear it correctly? Are you seeing 70% inflation in barley prices in India? Or were you referring to global index?
Sorry to interrupt. Ladies and gentlemen, the management line got disconnected. Please stay connected while we reconnect.
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently holding the line. The management line is reconnected. Thank you, and over to you, sir.
Are you seeing 70% inflation in barley prices in India? Or was it -- you're referring to inflation in global barley prices?
So the prices that we've seen being traded in the last couple of weeks in India are 7-0% up for the prior year, and barely for us is a cost component of around 15%, 1-5%. Again, the buying season is done. So it's not to say that this is the outcome as such. But of course, yes, we closely monitor developments on the ground, of course.
And based on our last discussion, I believe that you have low-cost barley inventory that covers you until the end of this peak season, is that correct understanding?
No. Last time, we guided that it will last us to mid of the next quarter. That is still there. Of course, it's probably a little bit earlier depleted given the higher volumes that we see at the moment. So in the next quarter or rather during the period April to June, some of the new barley prices will come into our cost results.
And do you expect barley prices to come off sharply as the new crop is there in the market? Or the 70% inflation is on the new crop that is...
Yes, I'm totally fully referring to the new crop, that 70%, yes.
Can you give a similar number for glass bottles? What is the inflation that you've sort of seen in glass bottles in percentage terms?
Yes. So that is really driven contract by contract. So there's not 1 number. Sometimes we have a fixed price going into the next quarter, our contracts, where we have linked it to underlying input cost of energy or soda ash, but we are continuing to think of kind of mid-to-high single-digit type of increases on average.
My final question is on volumes. When I look at your region wise volumes and compare it with March '19, your western region volumes are 22% below March 2019 quarter. Whereas in North, you're up 15%. In East, you are up 20% plus. South is also down, but I think that is largely due to route-to-market change in Andhra Pradesh. So why is this spend very divergent and why is Maharashtra underperforming significantly versus rest of the country?
Yes. There are, of course, always differences in state policies, in share performance, brand portfolio, et cetera. So overall, we've seen compared to that period the expansion of market share. So particularly to the West, on your question, the market share is also stable for us. I think as the total industry, probably the pricing of beer is somewhat more unfavorable versus the pricing of liquor and spirits really driven by the state policies on excise.
The next question is from the line of Nillai Shah from Moon Capital.
A couple of questions from my end. When I look at the gross revenues for the business for this quarter and take an estimate for volumes, and hence, the gross realizations, I see a decline on a Y-o-Y basis. Should I put that down to state mix and the on-trade, off-trade channel mix?
When you have said the gross revenue, I assume you're talking about gross revenue, inclusive of excise duty?
No, before excise?
Yes, it is before excises, right -- gross of excises, right?
Yes. Yes. Yes.
The prime reason is because route-to-market schemes in Delhi and in West Bengal. In the past, the duties was paid by United Breweries Limited or any other brewer or spirit manufacturers. But now since the amount of duties, which were paid by the distributor, so that is not captured in UBS or any other alcohol industries grossly.
Okay. Got it. Got it. And that's why your revenues are to that extent lower. Coming to the cost structure for this quarter, I see a big decline in the employee cost. Now while I understand that other expenses -- there's lots of discretionary expenses sitting out there, in terms of employee costs, is this just a true-up of the full year sort of year-end bonuses, et cetera? Or should we expect employee costs to be trending down lower even in fiscal '23, similar to what we've seen in 4Q of this financial year or the last financial year?
Yes. I think you can take this as the kind of new type of run rate. Of course, we have implemented a restructuring in December last year. So in that sense, that is now fully reflected in these number. At the same time, of course, some of it will move with the volumes, where we have, of course, kind of contract labor on the various units to -- particularly in the peak season. We have, of course, the annual increment, et cetera. But the number itself, I think, is reflective of the new run rate as what you ask about.
And just thinking about input costs, you highlighted barley. Obviously, aluminum is up, I think has more than doubled. But in terms of glass, you spoke about mid-to-high single-digit price increase. Is that incremental? Or is it Y-o-Y? Because there's a big impact on input costs for this quarter also. So is it fair to say that on a Y-o-Y basis, glass is up more than 20%, 25% as will be the case in 1Q?
No, I don't recognize that number. So I think if you look at the quarter or year-to-date actuals, I think the input cost on glass are kind of well-managed and relatively low coupled with the effect that we had a better collections of secondhand glass, which then on the average, of course, mitigates any price increases. I think going forward, we do see, let's say, further pressure on some of these commodity costs for glass, and hence, we do see inflationary pressure on glasses, I would say.
So what explains the 300 basis points plus Y-o-Y gross margin compression for 4Q? If it is not barley, if it is not glass, then what really caused that compression?
Sure. It's what we talked about in the last quarter as well. So there are some elements of conversion costs, but it's also other packaging materials like cartons; foils; aluminium, as you mentioned, for cans; some of the energy costs. So those kind of components are included there.
And final question for me. In terms of pricing, you said it's too early. But just to confirm to the earlier question, the pricing which you're talking about and alluding to is pricing, which you've already got, and incremental pricing will be a function of the state excise policy decisions that come through starting 1Q. Am I correctly understanding that?
Yes. So the excise policies are now largely known. So the states that I've mentioned where we have secured price increases and we're in process of implementing them, those are, let's say, additional on top of what we secured last year on a year-to-date.
And can you just touch what is the price increase in Maharashtra incremental, which you have taken right now in -- because of the barley and other cost increases?
Yes. So that's one of the components that we're implementing right now. So let us first finalize that and then we'll come back on the magnitude.
[Operator Instructions] The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities.
Congratulations on a good performance in a difficult environment. Sorry for harping again on the raw material cost. Just correct me if I'm wrong. Typically, you have got inventory, raw material inventory for a large part of the year. And your comment -- in your opening comments, you said that you acquired it for the peak season and a little bit with beer. Were you hoping for a reduction in raw material costs in April and May? And therefore, with the spikes that you spoke about in April in barley costs, is that [indiscernible].
The typical buying pattern is that with the secure it's the hardest when the trading takes place, let's say, from March to kind of May, June that we cover ourselves until the next peak period, so roughly 12 months. Sometimes, we would prolong that. Sometimes, we shorten that. And then of course, during the year, some further purchases may take place depending on the need and the business volume growth, of course. So at this point in time, I think the only thing that really changed was that March volumes picked up ahead of plans and hence the depletion of the stock has been also a bit quicker. So, therefore, from the new barley crop, we have made sure we have enough stocks at hand to see us through the next few months.
One more question. You had also mentioned in response to one of the earlier questions that in the new crop, there has been some impact of the higher temperature in terms of the quality. How significant is this? And what sort of impact do you see this having going forward?
So it's -- again, it's an ongoing development in the sense that the quality checks are always made, some areas are more impacted than others. But one could think that a certain smaller share of the total crop might not meet the quality standards, and hence, the total quantity available for the brewing industry is, from that perspective, probably a little bit less than under, let's say, 100% quality crop in totality. So it reduces a bit the quantity that is available.
Okay. Just 1 final question. You spoke about speculation in the markets. Could you elaborate on what you were referring to, barley cost?
Yes. So I think from my perspective as there is in principle enough quantity to supply the total industry for the next, let's say, 12 months, I would intrinsically not see reasons why these...
Ladies and gentlemen, please stay connected. The line of the management got disconnected.
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently holding your line. The line of the management is reconnected. Thank you, and over to you, sir.
Yes. For the question I was trying to answer was the one on speculation in the market. So I think there are parties that, yes, stock up certain quantities potentially later in the year trying to sell them at potentially higher prices. That's the kind of my reading of the situation. So I have to see how that pans out, of course, for the remainder of the trading and the buying period for barley.
The next question is from the line of Himanshu Shah from Dolat Capital.
Sir, the other OpEx line items have seen a sequential decline. Historically, Q4 generally has been -- seen higher cost than Q3. Any specific reason? Or is it on account of we shutting down our nonalcoholic beverages production?
Yes, in general, we have, during the COVID period, taken a number of cost initiatives. So that's, I think, reflected in some of the cost lines. More recently, we have now decided to close the energy production that we do in-house in our sites in Bihar. So in itself like we are not, of course, moved the needle to a significant extent on cost. That is just 1 further example how we continue to review all elements of cost, and hence, we decided it's more efficient to have this produced at a third party instead of in-house.
Sir, can you do this as a -- for future quarters on a run rate basis is subject to volumes, can you do this by just as a run rate cost?
Yes, there are no kind of significant one-offs, positive or negative, in the numbers for the quarter, so from that perspective, yes.
The next question is from the line of [ Madhu Babu ] from [indiscernible].
Sir, just on the freight cost, how do you see that trading because that's, I think, around 6% of revenues over the next couple of quarters? And secondly, on the cost of goods, I think almost 50% is the cost of goods sold. So can you give us, as of now, what is the current mix of barley, glass, and packaging cost?
Sure. So freight costs, one of the prime rates, of course, is the fuel and the diesel. So we have seen post some of the state elections diesel prices go up. So when we talk about the overall commodity cost challenge, that's definitely one of the factors that we're having in mind there. Barley costs are around 15% of our total input costs. Glass is around 35%. And then the remainder are things like cans or other input costs for beer, secondary packaging, et cetera.
The next question is from the line of Vishal Punmiya from Nirmal Bang Equities.
Yes. Sir, seeing the current demand trends, do you believe on a full-year basis, the industry can revert back to the FY '19 absolute volumes? And maybe if you can get some sense on current demand trends.
Yes. It's quite early, of course. We just started the new year. I think we're fairly optimistic that with the month of March, which was a record month for us, that, of course, shows a lot of confidence from consumers and good demand. So if that picture obviously continues, then it's a definite yes to your question. But as we have seen in the past, yes, let's take 1 step at a time.
I think there's still all kind of risks out there. One of it is, of course, the general, let's say, purchasing power of consumers with pretty high inflation prevalent in many industries. So I think there are a lot of variables in the mix, but our focus is really on the current peak season, where, as I said earlier, we are off to a good start. A lot of the breweries are close to maximum production at the moment. So that's a good scenario, and let us take it from there.
Secondly, if you can give some sense on the competitive intensity in the industry in the current environment? And also if you can give the current volume market share absolute terms?
Yes. On the volume market share, we are at levels around 54%, 55%. I would always, yes, repeat that the competitive intensity remains quite high. So the large international brewers are very active in the market, and yes, there are smaller regional brewers active as well. Some of it keep on kind of investing in products, in innovation, in funding that are running the business at a loss.
So I think there are various short-term and long-term approaches from the various brewers, which makes it all, yes, a competitive set overall. I think that's -- the good part is, of course, it drives innovation in the market, it drives the penetration in the market where beer today is still kind of very low penetrated in India. So that is the positive angle to it. But of course, the various states across the various parts of the portfolio, yes, there is -- we see continuous high competitive intensity.
The 54%, 55% market share you mentioned was the exit rate or was it on a YTD basis?
That's for the last quarter.
[Operator Instructions] The next question is from the line of Alok from AMBIT Capital.
My first question is on the barley cost inflation, which you said is about 70%. Now what largely explains that, is it more to do with export? Or is it more a function of speculation? And what sort of MSP increase has been there in barley, if you can just explain that?
Yes. So the pricing, of course, let's say, my view on that, I think a couple of reasons, which I mentioned earlier: One, is parts of the quantity of barley have not met the spec required for the brewery process. So that means some of the metric tons will not be bought by barley industry -- sorry, by the brewery industry.
Secondly, I think there is quite some pickup in demand quite quickly from March, being a very good month for the brewing industry. So people quickly went -- did go into the market to buy fresh barley. And thirdly, I think there's also an element of kind of speculation given the global environment. And, of course, with Ukraine, Russia being large exporters of wheat and barley, so there is some kind of sentiment to that. So I think that has fueled really a large part of this price increase.
Okay. So just a follow-up on that. Correct me if I'm wrong, but the export of barley market is very, very nascent in India? Or has it changed because of this Russia-Ukraine war?
No, it has not really changed. So it is, as you said, quite low.
Okay. My second question is on the growth in the key urban states. Now, when you say West has declined because of largely Maharashtra. And in South, there's been lower volume in Karnataka. So is it to do with -- anything to do with your share loss in those markets? Or what would you attribute that to?
Well, I think if I look at the data then in January, we saw, let's say, the impact from Omicron, more in the on-trade, which is more prevalent in the urban areas. So I think if anything that has cut in a bit of a larger impact. But again, looking at March, we see that kind of good trading environment very broadly across all the states and urban areas, so...
Okay. But there's no share loss that you would attribute to in this market slightly?
No, is that really the share gains or, I would say, pretty consistent, pretty robust, and yes, fairly consistent across the states.
Okay. And my third and last question is on your premium portfolio. Now, I just wanted to check whether your operating margins in the premium portfolio would be similar to the company level margins? Or would it be quite lower, considering the fact that you could be investing in that?
Yes. So I think if you look intrinsically just at the margins, they would be at or about the total portfolio. But factoring the -- some of the investments, which we do on brand building, on trials, on building the distribution, then there's a bit more investment. So yes, that is the first periods of brand launches and building. But of course, the immediate impact is on the consumer side, but we see good traction, good demand. So for the mid to long term, that is, of course...
Got it. But would it be positive operating margin, right? Or at least be positive?
Yes. Yes. Yes.
The next question is from the line of Suryanarayanan Manian from DSP Investment Managers.
Berend, I hope I'm audible.
Yes. Go ahead.
Yes. So I just wanted to delve deeper into the point that you made about what happened in the western states and why we had a different volume trend there versus the rest of the country. And you mentioned that it's also because of the excise policy in these states, which makes beer relatively more expensive versus spirits. Now, as we think about the price increases that are to happen for you, how do you think this equation is going to change? Is it going to get worse? And how do you think about then the volume growth of these markets going into the next year?
Yes. For the -- I think there are probably 2 tasks then, one is on the policy front that we continue to advocate for, let's say, more actual, I would say, part of excise tariffs developing over time, right? So if you look back then, what I said earlier, that's been more favorable for spirits versus beer. And hence, of course, that has an impact on relative growth and size of the 2 categories.
So our job at hand is to continue to explain and look at the broader picture, of course, as to what are some of the impacts of such a trend internally or more on the short term, maybe. Of course, we'll also continue to look at our pricing actions to make sure we strike the right balance between, let's say, short term, mid and long term, not only, let's say, in the competitive field of beer, but also having holistic view of other alcoholic segments in the market there.
Sure. But as you see the trends in March, is that trend improving for these states as well, the western states?
Yes. So in March, we really saw a pickup, I would say, very broadly, including in Mumbai, Maharashtra as well. So that's...
Got it. So it's largely a function of on-trade coming back, which will benefit you in these states as well?
Yes. Of course, it has a role to play as well.
And just lastly on this, just the price increases in your view, you probably have a sense of what kind of price increases you have to take for your product portfolio? Do you have a sense of what it is that spirits players will have to do? I mean is that gap likely to widen because of the raw material inflation that you're facing versus spirits?
I don't know. I think the inflationary pressure is not limited to beer or spirits, but I think it's very prevalent across many of the industries. From what I can kind of see, it's also relevant for spirits. But of course, every company will determine for themselves to what extent they will absorb some of that, what they want to pass on to consumers. And yes, within the Indian context that can even be done on various outcomes within the brand portfolio and of course also different outcomes across states. So, yes, we'll have to see, of course, how manufacturers in alcohol bev, yes, decide on that and implement it.
The next question is from the line of Nitin Gosar from Invesco.
One clarification. You did mention that...
Sorry to interrupt you, Mr. Nitin. We cannot hear you clearly, sir.
Is it better?
Yes. Please go ahead.
One clarification. On the call, it was mentioned that certain price hikes -- certain states have already started implementing price hikes. And these are post the closure of excise duty policy. So the question I'm trying to understand is the price hikes that we have taken right now would only factoring in the excise-related change or we have also tried to price in the barley-related impact?
So the price increases in all the states that I mentioned are examples where our realization would go up. So if we just price and kind of translate a change in excise, then our realization would not necessarily improve or change. So these are really improvements in realization for us as manufacturing.
But incrementally, the new cost-related production will come into picture from April onwards or probably June onwards into the system. That's where we will be needing additional price push to...
Yes. So, of course, we have seen last 2 quarters, particularly already a number of commodity pressures. We've explained in the call that some further pressure will come from particularly barley and to a certain extent glass bottles. So hence, it is typically our more important quarter for price increases, which is quarter 1. Hence, of course, number of states are important to offset some of this impact. And at the same time, we continue to review other states where possibilities are there to increase price combined with some of the cost measures that we can take to protect some of the margin, of course.
So effectively, first quarter is very critical in terms of price hikes that we can take, that's how the timing of the base period is like the price hikes can be only around first quarter.
Yes. So it's not so much, let's say, a choice that it can be only in the first quarter. So in some states, there are possibilities also of different points during the year. But traditionally, quarter 1 is important because then there is visibility on some of the excise policies, and hence, it's more of a logical moment to implement price changes.
And in a couple of other sectors last year we had seen that those couple of other sectors also witnessed price increase where they needed permission from government, and government did intervene and gave them price increase during mid-part of the year, which was not the case which was seen earlier in those sectors. This being an odd year where this kind of cost push has been witnessed, do we also have a window to seek additional price hikes during the year?
Yes, absolutely. So we have been on that for a bit of time. So we make a lot of representations to the various states to allow price increases. And of course, some petty argument is the unprecedented commodity cost environment we see in the moment -- at the moment. So that will continue. So it's not to say that if an approval is not granted, let's say, today, that we stop those efforts. No, that can, of course, also be approved and implemented at any other point in time during the...
The next question is from the line of [indiscernible] from Envision Capital.
I just wanted some more clarity that we recently closed this facility at Bihar. So I mean what was the exact product we are producing here? And what is the cost saving you are expecting from this closure?
So the product we -- just as maybe as a recap, so our Bihar brewery, when Bihar went into prohibition, of course, it stopped producing any beer. We then a few years back shifted production to Radler, our 0.0 product on the Kingfisher brand. As we have reviewed, let's say, the capacity utilization, the fixed cost versus the volume, et cetera, benchmark to alternatives, we've concluded that it's more efficient to bring that to a third party where there is existing volumes of other products and you reach a better utilization and scale efficiency. And with that, we have stemmed the operations in the production site in Bihar.
And if you can give us some guidance on the revenue side or some margin side for next year, so that would be helpful for us.
Yes. So typically, we don't put out guidance as to margins or top line growth. But yes, as we commented, I think the peak season for us is a key season after 2 over COVID years. Yes, there's a lot of positive signals from the month of March that there is optimism about the progress of the season. So hopefully, that will be a good peak season for us. At the same time, yes, there is a challenging cost environment where at length we discussed some of the pricing actions, some of the underlying developments on the key input costs, so that it's really the key dynamic, I think, that's for the year '22-'23.
The next question is from the line of Jaykumar Doshi from Kotak.
On working capital cycle improvement, do you expect it to stabilize at these levels? Or is there further headroom to improve?
I think we are, of course, happy with the progress so far. I think we will have to recognize that as the markets return to normal so you are making new growth levels. There will be some pressure on expansion of that working capital block. Of course, we take learnings, we take the achievements to sustain them. So I don't expect year-over-year further reductions as we have seen in the last 2 years. I mean, of course, we would put our efforts to get good results.
But I think there is -- yes, also at a certain level, so much what one can do particularly considering a large majority share of our customers are state governments that will have set trade terms. So those are not too easy to further optimize. So that's in summary I would say with the expansion of the business and the market, the working capital block might move back a bit. But hopefully, we keep it well below levels of pre-COVID.
And has route-to-market change in West Bengal and Delhi held working capital cycle?
In Delhi, yes. West Bengal, not really a big difference. But most importantly, yes, where we saw some of that impact in the quarter. I think both markets have now by and large kind of settled down, transition is over. So we've seen at the close of the quarter, yes, a good recovery and trading in both these states. So that is -- yes, hopefully that transition impact is behind us now.
And my final one, you have called out that March month was a record month for -- in terms of volumes. Could you quantify it? And what do you mean by record? Is it like the highest month across all months in the history of the company? Or was it higher than the March 2019 month? Or maybe some percentage terms -- what growth you would have seen in March '22?
Highest all month sale in the history of the beer.
Any idea you can give Y-o-Y basis versus last March, what could -- what will be the ballpark growth really?
Vis-a-vis March '21...
Yes, March '21 month -- March '22 month over March '21 month.
Right. I would compare it to 3 core levels of March '20, so it is even above that.
So March '20 was impacted by COVID, right? So are you referring to March 2019?
Yes, '19. Yes.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Harit Kapoor for closing comments.
Yes. Thanks, Vitija. On behalf of IDFC, we would like to thank the management of United Breweries for giving us the opportunity to host the call and taking out time to interact with the participants. And we would also like to thank all the participants who joined on to the call. I just want to hand over now to Berend for closing comments. So over to you, Berend.
Thank you, Harit, for having us and hosting us. And thank you all participants for your interest in the company and your questions. Look forward to engaging in the next events. Thank you.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your line.