United Breweries Limited (532478) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the United Breweries Q4 and FY '20 Earnings Conference Call hosted by IDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mehul Desai from IDFC Securities. Thank you, and over to you, sir.

Thanks, Sasan. Good evening, everyone. On behalf of IDFC Securities, I would like to invite you all for Q4 FY '20 earnings call of United Breweries. From the management side, we have Mr. Berend Odink, CFO of the company; and Mr. Poonacha from the Investor Relations team. I would like to hand over the call to Mr. Berend for his opening remarks, and then we can go ahead and open the Q&A session. Over to you, sir.

Thank you, Mehul. Good afternoon, and good evening, everybody. I hope everybody is safe and doing well. Thank you for joining the call today. So we'll cover today, together with Mr. Poonacha, the Q4 and full year results and also provide an update of the COVID situation for the company. To this extent, we prepared also some slides that were shared by e-mail and are also available on the online. Following this presentation, we'll be happy to take your questions as usual. So first, on the key results highlights. UBL's volume de-growth for the full year was minus 4%; for Q4, 21% de-growth. The impact of COVID-19 has been material, particularly on Q4. We assessed the COVID impact on volumes for second half of March, just to aid the understanding of the impact. Volume growth, excluding COVID, would have been around minus 6% for Q4 and flat for the full year. The EBITDA decline for Q4 was 27% and for full year, minus 24%. On Page 4 of the presentation, the full year results are summarized, with net sales amounting to INR 6,505 crores and EBITDA for the full year of INR 884 crores. The year '19/'20 witnessed challenging circumstances with an overall economic slowdown, impact of elections in Q1 with related dry days and supply restrictions. We've seen adverse policy changes introduced for October in Andhra Pradesh. That also continued into Q4 and, of course, COVID-19 impacting the last quarter. On Slide 5, detail the estimate impact of COVID on the results. As you're already aware, COVID-19 lockdown led to complete closure of our outlets for period 24 March to May 4. The on-trade bars progressively closed in the weeks leading up to March 24. The assessed profit impact occurring during March due to COVID is estimated around INR 103 crores, and that comprises 2 elements: One, with the lost sales volume in March of an estimated INR 87 crore; and secondly, a provision for obsolete stocks of INR 16 crores, taking into account potential product expirees and restrictions that we have on the operations. In terms of free operating cash flow and debt positions, the company reports a healthy free operating cash flow of INR 78 crores for the year and a net debt at year-end of INR 217 crore. The dividend over '19/'20 to be placed for approval to the AGM is INR 2.5 per share, which is the same per share amount as last year and fully in line with the historic payout ratios related to the net profit. Moving to the next slide on the regional performance and volumes. In North, UBL volumes were down 3% for the full year and minus 18% in Q4. We witnessed growth in Delhi, Punjab and Uttar Pradesh, but it was offset by declines in Haryana and Rajasthan. In West, we posted a decline of 9% for the full year and 29% in Q4. Mumbai and Goa declined, while rest of Maharashtra showed flattish volume development up to Q4. In East, UBL volumes were up 18% for the full year and minus 2% in Q4. We've seen West Bengal show a market recovery versus prior year. In Orissa, volumes were flat, while Jharkhand posted growth. In the South, volumes were down 7% for the full year and minus 27% in Q4, a significant volume impact came from the policy changes in Andhra per October 1 and the election curbs in Q1. In Tamil Nadu, we posted single -- high single-digit growth. The next slide is all about the brand portfolio with innovations launched during the year of Kingfisher Witbier and Ultra draught launch in Karnataka. Both Kingfisher Storm and AMSTEL continued expansion in new markets, being available now in 19 and 7 markets, respectively. AMSTEL sales volume passed 1 million cases, so a very encouraging performance with more opportunities ahead. And in total, the premium portfolio continued to grow ahead of the total company portfolio for the full year. Touching on the net sales. For the full year, the 4% volume decline was more than offset by positive price mix. This is due to premium brand growth, the positive state mix and price. Price increases realized in a number of states, including Rajasthan, Maharashtra, Karnataka and Goa. And for Q4, the volume decline was higher, obviously due to COVID as well as Andhra having a negative impact. Price/mix was in Q4 strong with positive plus 8%. The EBITDA trend on the next slide was characterized by pressure on gross margins during the year due to higher malt and glass bottle costs. The impact in Q4 was less pronounced as we started to cycle the higher input costs from prior year and actually improved gross margin by 38 basis points. COVID impacted Q4 results, and the earlier mentioned provisions for obsolete of INR 16 crores has been booked under other expenses. Moving next, the continued positive free operating cash flow of -- amounting to INR 78 crores. And we look total capital investments of INR 402 crores, enabling amongst others enhanced brewery capacities. And in the anticipation of peak period Q1 important capacity additions were realized in our existing breweries in Karnataka, Telangana and Rajasthan. We move to the last section of the presentation to talk specifically about COVID-19 status and its impact on our operations. So first of all, the company has put in place all recommended health and safety measures to protect staff, employees, stakeholders, et cetera. And the brewery teams have done a great job in making all these adaptations and working on a very challenging circumstances. At the outset, we formulated the management crisis team with 4 distinct and clear priorities: First of all, health and safety; secondly, business continuity; third, mitigating business impacts; and fourth, cash management. If we look at where we are today under the latest government guidelines of Unlock 1.0, on-trade bars remained closed, and retail outlets have progressively opened after May 4, subject to guidelines on containment zones and other restrictions. We've seen various states allowing home delivery/online ordering systems, including the states of Maharashtra, Orissa, West Bengal, Kerala and Punjab. Although it's early days, we are very supportive of these new developments and see it as a longer-term opportunity. In terms of supply side, the brewery operations today can run at circa 55% to 60% of normal capacity due to ongoing limitations on hours of operations. At the same time, there's no unfulfilled demand at this point in time. And we have 1 brewery in our network that is not yet operational due to containment zone restrictions. We will appreciate that the situation remains very fluid as restrictions continue to be implemented and lifted in 1 area to the other. Our CSR activities continued, of course, and we had specific initiatives with launching dry ration and hygiene kits to support across 7 states. And also relief support effort in West Bengal on the back of the recent cyclone that happened. Moving on to the financing side. We've put in place additional credit lines, ensuring sufficient financing headroom is available. Strong balance sheet and strong business model, obviously, supported this, and there we are quite comfortable. Due to the closure of all the outlets for the period 24 March to May 4, sales volumes in April were negligible. Sales volumes in May were down in the range of 60% -- 70%, sorry, due to last year. This is due to partial and phased reopening in the course of May. A number of states have also introduced excise duties related to COVID-19, which we have incorporated in end consumer prices. Main highlights to report here are in Andhra a 75% increase; West Bengal 30%; Orissa around 38%; in Rajasthan, a plus INR 10 in MRP; Telangana, plus INR 30. COVID tax of 70% introduced in Delhi, which recently has been canceled. On the cost side, we have suspended all discretionary spends, stepped up the cost management and quickly relooked capital expenditure levels to focus on only newly initiated projects on safety and compliance only. Moving to the last slide. So summarizing, the industry outlook is very uncertain with negative macroeconomic growth outlook and continued direct and indirect impact from COVID-19 measures. United Breweries is where we're well positioned to navigate these circumstances, with leading market position, strong brand portfolio and a robust balance sheet. And management, we continue to be optimistic about long-term growth drivers, including growing population with new entrants into the legal drinking age, favorable long-term economic outlook, urbanization and growing social acceptance of beer consumption. And we're, of course, committed to leverage new opportunities such as home delivery. So with that, we covered the slides in the introduction. And we would like to open it up for questions. So please go ahead.

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss Financial Services.

Sir, my first question is, last 2 years, beer has been growing faster than liquor in most time periods. In FY '21, do you see this reversing? Why I'm asking this is 3 reasons. One is beer is more social drinking versus liquor. Second, of course, is with tax hikes being there in many states and Indian consumers being very value focused, we feel that let me buy higher liquor content. Both have become expensive, but we have seen this behavior earlier. And third is, beer is a bit more bulkier per se. So what would be your comment on this?

Yes. Thank you for the question. So definitely, I think you referred to last 2 years. I would say we're in kind of unprecedented times. So I would say, historic trends or behaviors are not necessarily translating into the current environment. But as you pointed out, I think we've seen in the kind of market recovery beer being impact a bit more than liquor. Indeed, it might have to do with a sense of beer being a bit more bulky product but also the need for cooling before consumption. In the sense of excise, I think the excise increases I mentioned have been applied to both beer and liquor. So from that sense, I would say, they're not big differences. Maybe to point out in Karnataka, for example, actually, for beer, there was no increase in excise, but there was one for liquor. So there are couple of elements, I guess, going into this equation. But I think in the end, it's all about recovering more to normal levels of consumption and consumer behavior, whether there are consistent trends that are there to stay arising today, I think that's way too early to conclude. So as I think the market recovers, I would expect things to move closer to historic trends. But obviously, if new consumer preferences emerge, yes, we'll be very fairly ready to support that and tap into that.

Right. That's helpful. My second question is on home delivery. So you mentioned optimism on that. So my question is, what has been your initial response? And we are getting -- there's a lot of resistance in some states from the trade channels. And of course, it's more expensive because there's a delivery charge also. In fact, in Jharkhand, we have already seen a reversal of this last week. So one is do you see this going to more states? Second, you'll see this as long-term or only during the corona impact, so for the next few months? What would be your sense on this?

Yes. I think definitely, I would say, I would not put a lot of expectations on the short term of this new distribution element in the market. I think it's more a long-term opportunity. I mean as of now, volumes are low. The exact models of operating differ by state, and I would imagine evolve from time to time. So we see different approaches by different states. We continue to work with the industry participants to develop this. To your point, on retail, I think all the models today include the retail as part of that change. So it's not so much, I would say, competing with retail, but it's the kind of extension of retail where in some states we have seen fixed delivery charges. Other states, it's been more open. So I think those models will continue to emerge. Again, not short term there going to be a huge change. But given, I think, from a longer-term perspective, how the industry has been regulated, I would say this is an important change, where I would imagine it's -- yes, I can have longer term good prospects.

The next question is from the line of Aditya Soman from Goldman Sachs.

So couple of questions from my end, sir. Firstly, how is the situation now in Andhra Pradesh? And any sort of -- have you seen any sort of pickup in orders from the government? And secondly, in terms of gross margins, any outlook over the next few quarters? Have barley and glass prices now normalized?

Thank you, Aditya, for the question. So your first question on situation in Andhra. So yes, since the new policy change is October 1, I would say, also in Q4, we've seen that continue as very challenging, obviously, not helped very much at all by the COVID situation. So demand, I think, for the total industry is very, very low at the moment. So for us, the situation remains a difficult one. So we continue to make representations as we think that, yes, the industry is, let's say, severely impacted, not to mention, for example, steep duty increases introduced in May. So that trading environment, I would say, is particularly challenging. On your second question on input costs, yes, we are in a quite different situation than a year ago. So in terms of glass bottles, you can imagine the demand/supply situation is quite different. So today, we look at kind of low inflation levels of increases for glass bottles. And on the barley side, I think we have seen a bit of softening of prices. So roughly, I would say, 10% lower prices in the marketplace than a year ago.

The next question is from the line of [ Nitin Shetty ]. He is an individual investor.

Can you give us an update on Heineken 0.0 and Radler? Because I tried Heineken and it's amazing. And I was wondering what you are seeing in growth in both of them.

[ Mr. Shetty ], please increase the volume of your phone?

Can you hear me now?

Now it's audible. Yes.

Yes. Can you give us an update on how Radler and Heineken 0.0 are doing?

Sure. So as a category, nonalcoholic for us [ of course during the quarter healthy growth ]. Obviously, we're coming out of a first startup phase, so that's surely expected. I think we see particularly encouraging performance of Heineken 0.0, where we have expanded distribution. On the Radler side, we've reached a good distribution level of some 30,000 outlets. We launched a new pack size, 200 milliliters, with a more attractive price points. So that's also on a promising development. But in the grand scheme of our business, obviously, it's relatively small. But internationally, yes, we always see very good growth figures for the nonalcoholic segment. So this drive into the segment is definitely something that we're interested in and continue to support and develop in the years.

Is there a chance that we find Heineken 0.0 in one of the airlines by the end of year?

I think in terms of airlines deals, yes, we have been and will continue to be in contact. I guess the airline industry itself is going through a lot of turmoil, well, it, I guess, questions us to what can be catered on board and what is the value of, let's say, kind of a marketing transaction with an airline. So I think that's more on a case-by-case basis where we think it's the right platform to promote the brands and where we get the highest ROI on those spends. So I will not be ruling it out. But yes, it's more of a case-by-case where, particularly with the airline industry being impacted as it is today, I think, we'll have to first see developments how that recovers.

Last question. I noticed that you said AMSTEL has become a millionaire brand. So any idea how many millionaire beer brands we have in India today? Would there be more than 10?

Most of our UB brands are millionaire brands. Barring the super premium segment, most of our brands are millionaire brands. So in competition also, you'll have Carlsberg, Budweiser, all are millionaire brands.

Sorry. In the new ones, it's probably one of the first guys to hit a million?

Yes. Among the new ones -- new launches, yes, we are.

[Operator Instructions] The next question is from the line of Ashit [ Anil ]Desai from Emkay Global.

Berend, my question is on returnable bottles. What proportion of returnable bottles do we use? And is there a challenge to procure those in this kind of environment?

Yes. So I think on the bottle side, again, we've seen markets restarting in different speeds. So where markets are trading a bit better, I would say, the returnables on used bottles is also pretty good. But where markets are particularly slow, obviously, that recollection is impacted. So I think those 2 go very much hand-in-hand. We normally have around 1/3 of our sales in new and 2/3 in second-hand and -- or roughly at those rates today. But again, early days as to what is the stabilized market situation going to look like.

Okay. And secondly, which brewery is nonoperational? And any further one-off inventory losses that one should expect in Q1?

So the brewery that is not operational or has not allowed to operate, let's say, a brewing operation is our UBL brewery in -- out of Mumbai. So obviously, you know that area is very much impacted. So we continue to work and engage with local authorities as to what is possible. But that element has been fully included in the provision that we talked about. Whether that provision obviously will develop, so it might improve to the better, it might be updated in Q1, but that's all depending on the outlook. I mean, this is a very recent position, taking into account all current circumstances, but you will appreciate that things might get relief from current restrictions or the other way around new restrictions could be implemented. So I think that's the best estimate we make, and hopefully, we end up at a lower amount later on.

Okay. And you indicated sales were down 70% in May. Any indications for June as to what you're seeing in the first 20, 25 days?

Yes. So I think in June, we've seen a steady improvement from where we were in May. I mean, obviously, May was truly about restarting and getting the whole supply chains and deliveries going. So a bit of a better picture in June, but still very long way from anything of pre-COVID levels. So many restrictions on trade is still close. So it's -- I mean, we're -- on the one hand, we're happy that we can supply and be active in any or all the states. But we're, I would say, far away from anything we've seen before the crisis.

The next question is from the line of Harit Kapoor from Investec.

So my first question was on the cost side. So if you could just help us understand what is the level of cost rationalization that we can assume or you can kind of work with? And in what line items can these big benefits come in or big cuts come in going into F '21, specifically given the fact that promotional intensity will be next to nothing in terms of trade spend, your advertising spend as well as [ various ethical concern ] will obviously be low as well as your other fixed costs can also see rationalization. So if you could just help us understand a little bit more on how can we see this?

Sure. So obviously, since the crisis started, we have revisited and curbed many of the cost categories. Some are quite obvious in strong [ sober x ] trends and in discretionary areas like travel, consultancy, et cetera. At the same time, input costs, yes, we look to leverage opportunities, work with our suppliers to look at cost opportunities, at the same time releasing them to the new reality of the demand outlook. Particularly on the commercial spend, we have brought it also down. Obviously, the product is not for sale. Advertising is less required typically also for the on-trade being closed. They will be lower to much lower spends there. Even on the employee side, so of course, we look at hiring plans and how they can -- we put in the best position going forward. So that's all, I would say, a balanced approach. All in all, I'm not going to put a finger on it, but -- put a figure on it. But I would say we take a very agile and dynamic approach. So as the market situation and the demand side is going to be very fluid, our approach to costs and fixed commitments will make step. And it's all about scenarios and flexibility instead of kind of growing with annual fixed plans or annual commitments. So that's -- I would say, a big change happening. And as such, that's an active program taking place.

Sure. That's helpful. In that context, could you also help us understand how much would it be downsizing kind of CapEx plans for the current year typically, your CapEx plan between -- anywhere between INR 250 crores to INR 400 crores. But does this year also imply that, that number will be much lower?

Yes. So on the CapEx side, obviously, new projects, I would say, hardly anything about expansion. It's more about statutory replacements and also some COVID-related measures in terms of thermal scanning and distancing, et cetera. So that total outlook for cash-out basis probably in the area of INR 250 crore. So quite a bit below last 2 years. But out of that INR 250 crore, I would say, a fair share of that is coming out of projects that already were started and are due to complete with payments, et cetera, in basically as soon as circumstances allow that.

The next question is from the line of Jatin Chawla from First Voyager Advisors.

One is on the on-trade side, on a stable basis, what is the contribution of the on-trade side? And by when do you see kind of on-trade starting to open up?

Yes. So typically, our on-trade sales volume will be up around 20% of our volume base as to when and how that opens up, but I think that's very difficult. I mean, where we are today, obviously, there's quite some concerns about increasing number of cases in many areas. I think if we look outside of India, we see various countries adopting new practices of on-trade. So I think there's definitely light at the end of the tunnel, the different business approaches, different models of ensuring on-trade can come back opening up even under a COVID scenario is possible. So we've seen outdoor activities in a lot of on trading in various markets, rearranging the premises, taking measures within the premises. So yes, I think there are definitely possibilities. But on putting a date to that and what and how that will look, I think that's too early where we are today.

On the glass side, you said there is kind of low single-digit inflation now. Does that kind of reflect the full fall in crude prices? Or do you think there is a possibility for that to come down further going forward?

Yes, I think that's where we stand today with that guidance. If there's further softness on commodity prices, that will over time would find its way into input prices for glass as well as the glass industry is quite energy intensive. But that also depends obviously on policy decisions, et cetera, that are not in our hands. But generally, yes, there is a link, albeit delayed to glass bottle prices.

Okay. And on the cost side, you said you didn't talk about any kind of cost numbers on the cost reduction side. But overall, on a fixed cost side, what would be your fixed cost on a, let's say, per month or a per annum basis before COVID?

Yes. I think if you look at our obvious financials, you can see the various components. So on that, I don't have much more to add in terms of the nature of the cost and what is -- to what extent things are fixed and variables. I think that is pretty self-explanatory. But again, on the current scenarios, I would say, in the distinction of variable and fixed at the end of the day, I guess, all fixed costs are to a certain extent variable. So yes, depending on the recovery in the market, et cetera, we will continue to look at those cost buckets. And yes, I think at the end of the day, I guess, the outlook is that we would reach at a certain stage a vaccine or something where society is back in the kind of a more normal place. So I guess that's the kind of not on the horizon where in the meantime, we will manage the cost in that way, but definitely also look to the situation where things hopefully are back to a more normalized status.

The next question is from the line of Kunal Bhatia from Dalal & Broacha.

So you did mention that your on-trade contributes about 20% of sales. Sir, any idea in terms of occasional related what would be your sale contribution? And have you bifurcated between individual consumption and social consumption?

Yes. I mean, this is something which is great because, I mean, if you even look at -- when you say on-trade is 20%, off-trade is 80%. In a lot of places in the off-trade retail, people stand and consume. So you really can't make a differentiation that where people are drinking alone and where people are drinking in a group. So it's very difficult to make this distinction.

But would you be having anything in terms of volumes driven by occasion-related sales?

No, we don't. Because occasion related means, it would be like a gathering, right? So that's what I try to imply that. It's very difficult to -- because even when we segregate between off-trade and on-trade, there also we are talking only about licensing. But what really happens on the ground is different.

The next question is from the line of Srinath V. from Bellwether Capital.

I just wanted to find out if AMSTEL is available across markets in India. And what would be AMSTEL's market share versus the premium strong beer products like Carlsberg Elephant and Budweiser Magnum? And what would be the size of this category? Is it a kind of growing category? If you could help me understand this space.

Sure. So yes, for AMSTEL, it's relatively new addition to our portfolio. We've mainly launched it in the southern states. So we see what's an opportunity of other states. We covered good growth as a segment in total, I would say. So growing on the exact shares, we don't put that out. But yes, we see very strong performance, very strong brand appeal out of this strong beer. So we definitely continue to push that.

If you could at least kind of give me a view on whether we've gained leadership in the south markets where AMSTEL is present versus the competitors? And overall, what would be the size of the premium strong beer market? Would it be like 5 million cases market? If you could give some kind of feel on the overall market.

Yes.

Yes. I mean, the overall market, we want to take the premium segment is about 8%. And super premium segment is largely lager or mild. And a small portion of this is strong beer also. And wherever AMSTEL has been launched, it is among the top 3 in the super premium stock.

Okay. Just wanted to ask this kind of same granular understanding of the Witbier market. Again, where all have we launched the Witbier? And what has been the response? And again, what is the size of this opportunity in million cases currently in India? If you could kind of give us a broad overall market view of the Witbier market?

Witbier, we have not segregated. We have not segregated Witbier. All this would come in the super premium category of 8%. And considering this all come in the mild segment, it's quite small. It's truly occasional drinking. It's not very big volumes. It's just that we are present in that segment because there is a future for the segment.

And do we have a Pan-India presence for this product?

Yes. Witbier, we have currently launched in Goa and Karnataka. And wherever we have launched, it is having very good response. And as when the pandemic started spreading, we had to stop operations. Now since we have started, we will have to relook where it can be launched. In a situation like this, launching different new brands in different markets is difficult.

Okay. And one last housekeeping question. What would be the size of draught beer sales for us?

Draught beer sales is limited to few cities only. So it's very miniscule. City-wise, if you go, Mumbai, Delhi, Bangalore, Pune and Calcutta, I mean, the metros and I think 4, 5 other cities other than metros, we don't get draught beers in many places. So that's small.

Okay. So even that 30% on-trade sales would not have a meaningful draught beer presence?

You're right.

The next question is from the line of Nitin Gosar from Invesco.

Just wanted your views on how do you read the state increase in direct duties across states and one of the states pulling down or canceling down those duty hikes? What kind of representation industry is putting across to the states on this?

Yes. So there, obviously, there is a very active dialogue. We are happy to see that the Delhi COVID cess has been rolled back. I think there was kind of a realization that for the total industry, it was more beneficial to roll that back. So the same representation we [ did ] as a company, but also as an industry to the various authorities. I would say, from the excise increases, I think particularly, yes, West Bengal, Orissa stand out maybe as a bit more pronounced. And I think we've seen also difficult trading conditions in May and June. So there, I think there's a strong case to take another look at that. Obviously, Andhra also has a very steep increase. But I guess that the background of context is somewhat different than other states. A few of the other increases are maybe closer to what annually would have been more of a normal increase or close to that in any case. So yes, that continues to be an active dialogue.

Okay. Okay. And second question is pertaining to -- on the nonalcoholic segment, as an outsider, how should we evaluate the progress? And how much resources management is willing to put behind this category?

Yes. So there we've -- we launched it with a couple of parameters for ourselves, but we -- going into new categories, not something of 6 to 12 months, it's, I would say, multiple year effort to build up the business, build distribution, brand recognition, et cetera. So with that, I think we're on that journey. We continue to calibrate our investments, our costs in a very dynamic way. We are seeing positive signs that this is a good opportunity. I would say, Heineken 0 was probably a bit better on these 2 to get better recognized as a product than Radler, which is totally new. But having that in mind, yes, we launched a new pack. We continue to adjust and I see what consumer demand and feedback is all about. So as such, yes, as a segment, we continue for now to invest, but we have to see what is the pickup, again, under current circumstances with COVID, what is -- if any changes in consumer demand or opportunity and see to tap into that.

And on the same thing, like how should we see the drain on the P&L grow for this? Should it be more measured than where the number stands today? Or the number has potential to go up going forward as we scale up the business?

No. I think it definitely under our plans to move that [ obviously ] to a lower loss. I think in those figures, you have to recognize there's also some, let's say, [ trend ] on Heineken 0.0, which, of course, has a positive influence on the overall mother brand. So there's some, I would say, subsidy element into that. But this is, yes, the plan to build the top line to build scale and from thereon gradually reduce losses and to get positive returns there.

The next question is from the line of Manish Poddar from Nippon Life India AIF.

I just wanted to understand this INR 16 crores provision you have recorded in the other expenses. Is that right?

Yes. Correct.

So if I adjust this and look at the margins which you've clocked in this quarter versus the base your margins, now despite a 20%-odd -- 20%, 21%-odd volume decline, our margins are largely flattish. So is that how one should look at it, let's say, for a full year, if you have a mid-teens kind of a volume decline, would we be able to hold on to margins given that the levers which you have for, let's say, the gross -- the raw materials and the other line items, which you can -- on the discretionary spend side?

Yes. I think you have to probably distinguish 2 elements. One is, let's say, Q4. So if we look at results, excluding COVID, I would say, indeed, margins are pretty positive and a good trend. Having said that, I think you can easily apply those margins into the next financial year. On the element of input costs, I already shared some of that outlook, which is definitely a lot better than a year ago. So that is a positive. I think the main challenge on the current financial year is much more around the demand in the volume side, less as to input costs and [ better volume ].

And would you be able to help us -- the working capital days have improved on a Y-o-Y basis, despite the situation which is there in Andhra. So where is -- what is the missing link up here?

Sorry. I didn't get the last part of your question. Could you repeat it?

I'm just trying to understand. So if you look at the working capital number of days, they've improved on a Y-o-Y basis. But the situation, let's say, you would have had some goods, which would have made and which would be there in your inventory or there's elongated data days, which is there in Andhra Pradesh. So what is leading to this improvement in working capital days?

Yes. So obviously, many things go into working capital, I think, by year-end, March, obviously, you've seen a little bit of higher inventory as the pan -- peak months of April, May, et cetera, turned out very differently. In terms of receivables, et cetera, we have seen, I would say, very mixed picture. Andhra, not like what we mentioned earlier that there's overdue, although it has slightly improved, is still there. But we've seen some other states also seen some good progress. So I would say that goes all into the mix, where we're happy with the control on the cash side of things. But obviously, yes, again, COVID coming there, that's an area where you continue to monitor. Poonacha, you want to add anything?

Yes. In addition, the receivables, the entire reduction is account of lower receivables because we didn't have good sales in March. So normally, what you sell in the second half of March remains as receivables as of 31st of March. So since we hardly sold in the second half of March, the receivables as of 31st of March is at least INR 200 crores lower than what it was in the last financial year.

Okay. And one last one from my side. So what is the blended duty hike which has happened and the blended price hike which you have taken? And I think this is a onetime COVID tax being applied by -- it's not changing the tax structure, but it's just an addition of the COVID tax applied in all the regions. So let's say, when the COVID tax goes away, would the price hike stay intact? Or would we reduce [ pricing level ]?

So I don't think we can have a kind of a blended excise increase number. I think we've tried to clarify the impacts or the choice that several states make. To a certain extent, I guess, the character of the increases is more permanent. Others more related to COVID measures and as we have seen in Delhi temporary in nature. So we continue to work with the authorities to where possible reduce some of the more pronounced hikes. In terms of price increases, yes, that's something I think next quarter we'll come back to. But obviously, we seek to retain a healthy balance by having affordable pricing in the category versus protecting the bottom line and the cost issues we have from time to time. So I think that's all in that mix. But generally, I would say the excise increases, for example, in Delhi when it was rolled back, that did not impact our net prices. That's primarily an excise component put into the consumer price.

The next question is from the line of Tristan Van Strien from Redburn.

Just a few for me. Just the first one, I may have missed it, but what has the market done that you gained share in the market? Or is the market worse than the minus 21% and the minus 4% for the quarter? And also, what's your sense of the value share both for your full year as well as the quarter or some movement around there?

Sure. I think on the volume side, our estimates for, let's say, the year ended up to December is that we were stable in share. Q4, we have not seen the published figures yet. We also don't really show the volume part of it. But I think our assessment is that we have been really successful in updating positive -- yes, price/mixes improvements in the various states. But on the volume side, again, I think all in all, on the kind of industry trend as the total.

And just a second one. On these excise increases, whether temporary or not, just help me understand how they're working to do representations. Are you able to work as an industry body together with AB InBev and Carlsberg to do those representations? Or is this very much on the individual brewery level that it needs to be done?

I would say probably both, depending a bit on the states, but there's an All India Brewers Association. So there, obviously, taking into account all facts and circumstances on a very industry total consolidated level, if you will. Obviously, you can look at past trends of excise for beer, how that relates to industry implementations for spirits, the relative growth of those categories. The total excise generated from -- for the state. So on those lines, we'll have discussion as to what we see as potential opportunities and potential hurdles as to future value creation. And next to that, yes, we also obviously talk about our own portfolio, our own brands on [ we talk pretty well with ] authorities.

There's nothing legally to prevent you guys from talking together to the authorities when needed?

No, but obviously, that is all on the total -- let's say, on normalized industry basis so that we don't talk about any individual brands or individual companies, but it's all about generic framework of excise and how, for example, that relates to trends in -- on spirit side like that, yes.

Okay. And maybe just lastly, just a broader question beyond the pandemic. You have a new Managing Director coming in, and you've just appointed a strong Marketing Director with quite a powerful background around it. Is there anything -- when we look beyond the cycle now, is there anything different we should expect, particularly around looking just is there going to be more investment on the marketing side or any more portfolio transformations we should expect on the back of this?

Yes, I think with the new Managing Director, that's bit early days to say how things change or if things change [indiscernible]. I think in due course, you can read that. I would say, as a company, we are very much brand driven. So having a strong approach to the portfolio with a sustainable support model, I think is very important, and it's all about brand preferences and the strength of the brand portfolio. So I think that hopefully is reflected in the team structure and the appointments, et cetera. And yes, that's what we continue to drive. Whether the current COVID impacts lead to changes in consumer behavior, consumer demand, probably it's too early to say. But definitely, if you take a step back, I think the market of beer in India continues to evolve quite quickly. So it's very important to lead that transition and, yes, be very proactive in that.

The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Securities.

Most of my questions have been answered. Just one question on the number of outlets. I gathered that out of the 80,000-odd outlets in the country, about 25,000 to 30,000 are bars, pubs and restaurants. Out of the remaining, Berend, you mentioned that they are opening up gradually, how many are actually opened now?

Yes. I think if you look at the kind of 50,000 of trade outlets, I would say, the far majority is probably open. So there might be smaller outlets that remain closed or they don't want to invest in a license in these kind of circumstances. But probably again, the market dynamic is slowed, but probably about 90% of that off-trade landscape would have opened by now.

Okay. And what's been the traction that you've seen? We read news reports in the first couple of weeks that in a few states, there was very strong demand for the first week or so. Has the traction slowed down? Or can you just give an indication as how the traction build in these 50,000 outlets over the last month or so?

Yes. I think that kind of images and footages of that first week in a couple of states, I would say, is not representative of all the trends in the subsequent weeks. I would think it's probably to a long lockdown or only very limited number of outlets opening up that spurred a lot of those queues and peaks in demand. I think after that, things stabilized quite quickly as people realized things continue to be open. There's enough supply, et cetera. So I think that was more related to maybe first 1 or 2 weeks only.

[Operator Instructions] The next question is from the line of Jatin Chawla from First Voyager Advisors.

Just a quick question on your comment in the notes to accounts on -- from the competition commission side. I just wanted to get an update on that. You mentioned that there is an update that has been shared and there's a demand release. There's a comment that you think there might not be much fine to be paid. So just wanted a clarification on that.

Sure. I think in the served notice, the comment is very similar as last quarter. So due to COVID, a lot of these processes have been actually delayed. But yes, the status is that we have received by the end of December, a copy of the Director General of CCI office investigation. That one, of course, as to make representation and responses to that, we'll be submitting that back to CCI for their consideration. So that's really the stage where, yes, we were at basically back in March, April, but with COVID, as I said, that all got, I guess, pulled back but most likely things will resume.

Okay. Because there is an -- you've said there's an updated report that has come in, in like March 2020. So there's no big update with market. It's just the status is the same as at the end of December?

No. I think that was more a kind of procedural update. I mean, content wise, I would say that it was not really significant one way one direction or the other.

The next question is from the line of Palak Shah from Reliance. There is no response from the current participant, I have muted the line. The next question is from the line of Nikhil Upadhyay from Securities Investment Management.

Sir, I have 2 questions. And so one is like on this excise duty negotiation with states, for last 3, 4 years in different events and analyst meets or calls, the industry, not only UBL even USL and whole of the industry has been explaining that you've been meeting with the states and trying to explain the impact of excise duty on state revenue as well as the industry as a whole. And probably, COVID was the best time when states could have understood how it -- how alcoholic revenue is important. But even then we've seen that the amount of excise hike which has happened has been significant, and even some of the states have complained that the revenues are much lower than last year. So in your assessment in last 4, 5 years, is the industry making any progress with the states in able to explain them and make them understand the impact, which is it is the high excise is having on the industry and the state revenue both?

Yes, that's a very good question. I think the outcome or the results are probably, I would say, mixed. So in some areas, we've seen better engagement and better outcomes and other areas not so. I think we realize that the last few months, the state budgets have been under huge pressure with, I think we've all seen various news articles about, yes, challenging on salary payments and basically running basic operations. So from that perspective, there's a lot of challenges where, I guess, one of the few levers directly for state budgets is excise on alcohol. But of course, there, we take our role to explain the bigger context, the longer-term impact, the historic trends. But obviously, the final decision is in the hands of the state.

So how should one understand this over a longer period, like would we see -- so I think if we divide this over the last decade, there was a period from 2011 to '14, '15 when the excise duty was rising every year, and that impacted the whole industry, not only beer, but the whole alcoholic beverage industry. Then for 3, 4 years, it was -- the excise duties were subsidized. We were getting some price increase. But now again, the strains are there. So do you think it could be a repeat of what we've seen in the past? Or would you say that we have made progress to some extent, say, 30%, 40% level? Just to get some understanding of, could we see a repeat of '11 to '15 what we had seen the worst?

Yes. Poonacha, you want to comment on the historic?

Yes. I think, we can go back to history and see -- I mean, if you see it, one time, Maharashtra was the most progressive state. They gave beer-only licenses. They differentiated between -- they were the first to differentiate between strong beer and lager beer and taxed differently. But finally, if you see in the last 5 years, they have been taxing beer so hard that literally killed the industry. So I mean, one, they are state governments. Two, I mean, a lot of times, the state government goes by the advice of bureaucrats. And if we have bureaucrats who think differently, however we present, it gets very difficult. So it's difficult to fix a trend going forward. We can only give you what has happened in the past. But how are we to guess which bureaucrat comes and what is the advice he gives, though governments and bureaucrats do hire, what do you call, consulting firms to give them various inputs. But finally, it's their decision on what finally happens.

Okay. Secondly, sir, if we look at the industry, and there have been a lot of news that many microbreweries have been impacted badly in Bangalore and even in other parts of the country. Now to which -- to this extent then would you say that things in terms of the competitiveness or in terms of the ability or proliferation of new brands becomes a bit easier for us to probably our ability to drive our brands and get higher market shares even from the smaller? So one is that there -- the coming of new brands or smaller brands would be impacted because of the capital issues or some of the brand itself finding strain. So do you think that this is our time in over the next 2 years or 3 years, we could see UBL being more aggressive in creating or improving upon our position in the market?

So we are always aggressive. I mean if there's an opportunity, we are aggressive. But if you see the microbreweries or the whatever you call brew pubs, these are restaurant businesses. Basically, food and beer locally brewed is sold there. So with this pandemic, that segment is really badly hit. So whether those consumers necessarily shift to branded bottled beers? Yes, some segment of them would come, but that's very, very small. So I mean as an opportunity, it's very small, but it's not that we're going to let it off without trying to capture it.

Okay. Just one small question, if you would permit me. You said on the glass bottle prices, as the commodity prices go down, it does come back into the end pricing. Just want to understand how is the renegotiation period for us with the glass suppliers? Is it like on a quarterly basis? Or is it on a time to time? If you can just help me understand what is the time period of these renegotiations.

Yes. I mean, negotiation is basically started when we find a strain with respect to getting bottles. As long as bottles are coming and [indiscernible] basically. So when we realize that bottles are not coming, then we get into it. Is it an issue with respect to consumption the way it is -- the bottle is -- is it bottle being hoarded, or is it that they're not being collected properly, or the new glass supplier paying higher for collects. So there are various scenarios [ we had ] based on which we try and revisit the prices. So it's not just one factor.

[Operator Instructions] The next question is from the line of Nikhil Upadhyay from Securities Investment Management.

Just one question, sir. In third quarter call, you had mentioned that because of the AP receivable, the receivable days could get extended by almost 7 to 10 days. As of now, has the overdue as compared to third quarter gone down for us? Or would it be similar? Just want to understand that.

The overdues have come down.

What would be the quantum now?

You're talking about the overall overdues or the overdues from AP Corporation?

Only AP Corporation.

That has gone up because the subsequent supplies have not gone. The supplies are minimal after the third quarter. And the payments with respect to old supplies are coming in trickles.

Okay. Okay, sir. It's worsened only with respect to AP?

Yes, sir.

The next question is from the line of Vishal Punmiya from Nirmal Bang Institutional Equities.

Two questions. Any price increases that you received during the quarter and from which state? And secondly, any information that you want to give on the UB export cans during the quarter or even going forward, how things are trending on that, sir?

Okay. On the pricing side, I mean, that's probably a bit too earlier. So maybe more for next call. But for example, we've taken a smaller price increase in Karnataka. And then, yes, we will continue to see the picture evolve in other states also in light of the excise increases we spoke about. I'll let Poonacha take the question on the UB export cans.

Yes. UB export cans, the response we expected initially was good. But as it was picking up, this lockdown happened, and it needs to be assessed again now, whether it needs to be relaunched or they need to reassess once things open up in full.

The next question is from the line of Srinath V. from Bellwether Capital.

The success we've had with both the Witbier and AMSTEL, both being new launches over the last 3 years, could you help us understand how the new product pipeline or new spaces pipeline is looking, even the successful launch of Heineken 0.0? So if you could help us understand the new product pipeline and refreshes in old product for the next 12 to 18 months?

Yes. So obviously, we continue to look at opportunities in the market or white spaces. I think it would be a bit premature to mention those segments or the exact plans we have. I think you have to see it again, the background, with COVID happening, I think full focus is first on establishing back the operations and existing portfolio. Secondly, I think even with the existing brand portfolio that we have, we see much more opportunities where we stand today. And so being one example where we're only currently selling in a select number of states or just by expanding that into additional states. I think there's more opportunity to capture, same for Witbier and other examples. So we would take a balanced approach to making sure the spends and the supports the [ home ] brands is not diluted too much. And yes, we really do our homework also in existing portfolio. Having said that, yes, as we earlier said, the beer market continues to evolve quite quickly, a lot of trends and consumer preferences continue to emerge. So definitely, the brand portfolio as a total, I would say, if anything, would be expanded in the coming years.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

All right. Thank you, everybody, for your attention, your interest, and hope you'll all stay safe. And if there are any other questions that we could not get through during this call, feel free to reach out via e-mail or [ other ways ] to us. We are happy to respond that way. For now we conclude the call. And stay safe. Look forward to connect again in the next call. Thank you.

Thank you. On behalf of IDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.