United Spirits Limited (UNITDSPR) Earnings Call Transcript & Summary

Welcome to United Spirits Limited Diageo USL Strategy Refresh and Second Quarter Earnings Conference Webcast. Hosting the call today from USL Limited are Mr. Hina Nagarajan, Managing Director and Chief Executive Officer; Pradeep Jain, Chief Financial Officer; and Abanti Sankaranarayanan, Chief Strategy and Corporate Affairs Officer. To access the slides accompanying today's call, please visit Diageo India's website at www.diageoindia.com. Now it's my pleasure to turn the floor over to Ms. Hina Nagarajan. Over to you, ma'am.

Thank you. Welcome, everyone, to our strategy refresh and second earnings -- second quarter earnings call. It's a pleasure to speak with all of you today, and I hope you and your families are keeping well and safe. I'm joined today by Abanti, our Chief Strategy and Corporate Affairs Officer; and Pradeep Jain, our Chief Financial Officer. The way we will run this session is that I will first cover our strategy refresh. We'll take a 2-minute pause after that. Then we will cover our quarter 2 performance, and then open out to the forum for questions and answers. So we'd now like to share the strategy refresh deck with you. Gaurav, if you could put that on, please. So welcome to our strategy refresh. We are quite excited to share this with you. Next slide, please. Just to give you a context of where we are today since the acquisition. Since the acquisition in 2013 through a spirited journey of holistic and breakthrough transformation, the complex and fragmented USL business has turned the page to Diageo India and created a solid runway for the future. The journey has been pivoted on 3 pillars: profitable growth, transformed reputation, big shifts in talent and culture. With respect to financial outcomes, we have delivered in this period a total NSV growth of 2.8% CAGR, a CAGR of 6.4% growth on P&A, and our EBITDA has moved from a low 6% to now 16.6% in a normal year, I would say. Our debt has seen good progression coming down from INR 5,320 crores in 2015, with 90% reduction now to INR 443 crores. We recognize this period of transformation has had moderate top line growth. But on the strong foundations it is laid, we are well placed now to shift gears. Next slide, please. Towards the new mission. Our mission is to be top-performing CPG company in India, delivering sustained double-digit profitable top line growth and long-term value to all our stakeholders. Sustained double-digit growth will mean that we will aim to improve our NSV growth by more than 300%, so 3x, while staying true to our margin guidance of mid- to high teens. In a context where there -- where the need for a healthy and sustainable world has been underscored as never before, our mission takes a broader and more complete view to deliver long-term value to all our stakeholders: the consumers, trade partners, suppliers, the communities in which we operate and, of course, our shareholders. Next slide, please. For some years now, India has been 1 of the largest and fastest-growing [ TBA ] markets in the world. Growth is attributed to India's unique demographics. We've got nearly 50% of the population less than 25 years, 65% less than 35 years. Rising disposable incomes, urbanization and growing cultural acceptance of alcohol consumption. What is changing now is that we are at an inflection point. Where India has been as a country and a culture is being redefined. It's a time where a whole new chapter of India is being written, where we pick ourselves again and paint the future stronger, wiser, better, resilient, ready. Having rediscovered our roots, Indians are ready to fly, fueled by aspirations, enabled by new forms of technology and access, anchored on individual spirit yet rooted to local heritage and moving progressively into the future. We see certain transformational consumer energies that will define the choices we make for our business and portfolio as we shape the path to our mission, aligning and thriving with these energies. Next one, please. The first one is rising affluence, providing really breakout opportunity at the top. By F '24, 30% of Indian households, which is approximately 100 million households, will be in the upper-mid- and high-income group, contributing to almost the entire increase of household income in the country over F '21 and to F 24. This will mark transformation for the first time of a classic population pyramid structure to a diamond-shaped one, not just in the big cities but also in Tier 2 and 3 towns. A recent study of McKinsey concludes that India is poised to have the third largest number of high-income households globally by 2030. This rising affluence creates opportunity for breakout growth at the top end of our portfolio, as you can see in the chart in front of you. Next one, please. Within this larger macro context, we are also seeing some big consumer shifts within our industry. Premiumization has a sustained trend over the last 8 to 10 years, with the top end growing ahead of the middle and lower segments. This has continued through significant macro events, whether it was demonetization or GST-induced movement from informal to formal, including COVID. Normalization of alcohol in society and post COVID emerging almost as a semi essential. Both these are reflected in consumer behavior during and post COVID when consumers have not downtraded even with constrained pockets. Unlike other categories, they preferred moderation and drinking better. The new India is driven by informality and fluidity, openness and self-discovery, discernment, experiences and repertoire. Even as we see the rise of global connection amongst consumers, we also see huge pride in India and renewed confidence in its future. The pandemic has indeed created a new normal, living in both the digital and the physical world and the changed world of work and socializing. And with that, drinking moving from outside into homes. Finally, consumers are demanding that companies go beyond profits and growth to address the challenges we face in society and our communities to create shared prosperity and sustainability for both business and community. Next one, please. The dominant consumer cohort in our business has always been the adult 30-plus male coming from SEC B and C in Middle India. There are now 4 fast emerging, growing consumer cohorts, which have implications on our portfolio. The first one is affluent, high-net-worth individuals. I touched upon this earlier. India has witnessed a 27% increase in the number of ultra HNI individuals between 2015 to 2020. A recent study by Knight Frank covered by Fortune India's latest issue, estimates a 63% growth in the number of ultra-high net worth individuals from now to 2025. So it's more than doubling in half the period. Right. Legal drinking age to 30 years. I mean the youngest large economy in the world, adding 100 million potential new drinkers in the next 5 years. With a median age of 28 years, India is the youngest country in the top 10 economies in the world. Similarly, women, right? Similar to many countries in the Western world, India, too, is seeing women emerging as a key driver of societal change, building a more inclusive consumption narrative. This is not only about women as a target audience, but also a cultural transformation with a traditionally highly stratified society becoming more equal and inclusive. And then the boom towns. Growth has fast tracked economic development across India, leading to higher consumption and purchasing power beyond the mega cities into smaller cities. I mean if you look at an Agra, a Nagpur, a Vijayawada, industry reports predict that by 2025, Tier 2 and 3 towns will account for 45% of India's domestic consumption and 30% of its affluent households. Next, please. Within this context, therefore, of these big shifts in macro end consumer, we will deliver our mission through 3 pillars: a reshape of our portfolio while delivering our guidance of mid- to high-teens margin; creating an organization of the future that will win in the future that is getting radically redefined by big societal and cultural shifts; and defining and executing an ambitious role for Diageo in society. I will now walk you through a little bit on each pillar. Next slide, please. Our portfolio reshape and margin progression will be delivered through breakout growth on Prestige & Above, new growth engines. Also, you would recall that in February this year, we announced a strategic review of a part of our popular portfolio that we expect will conclude in December. And last but not the least, value chain efficiency extraction to fund our growth and mitigate inflation. Next chart, please. Talking a bit about our portfolio reshape. While we have publicly declared focus since acquisition on P&A, the big shift we want to make now is to go for breakout growth, broader based within P&A beyond the historical 9%, 10%, riding on the rapidly changing consumer and category trends we covered earlier. We will achieve this through 3 choiceful plays. The first is to accelerate in luxury and premium. In scotch, where we have a leadership position in both imported Scotch and bottled-in-India Scotch, we want to further embed our leadership position. We also want to activate the fantastic Diageo global Luxury and Reserve portfolio wider to play to the consumer trend of repertoire, experimentation and discovery. Our iconic brands in Luxury and Premium, customer partnerships, leading presence in the on trade, coupled with organizational capability built through our dedicated luxury SBU, will give us a strong right to win in this space as we are right now, right? The second is strengthening play in upper prestige. The consumer is seeking redefined codes in this category and we want to provide them with highly differentiated offerings that speak to these new codes. We have just launched a renovated signature with a blend that is 100% crafted from nature with all natural ingredients. Louise Martin, our new master blender, brings together a blend that has nature and craft at its core. The overall bundle, including the glass and all the packaging material, has been meticulously crafted with sustainability in mind. 40% of the glass that we use is recycled, the cartons are made of Forest Stewardship Council-certified material that promotes responsible and nature ethical sourcing. Our closures save 130 tonnes of plastic a year versus what we used to use before on caps for our nip and pint packs on Signature. We have also brought a new unique offering called Royal Challenge American Pride to the country. This is a unique offering with bourbon, scotch and select Indian malts and grain spirits, which delivers an absolutely stunning whiskey that challenges the traditional norms of consumption. It is designed to elevate consumers' experience with a delightful liquid that is highly versatile so that it can be consumed in multiple locations, branches and barbecues, outdoor hangouts, refreshing sundowners and at evening and dinner occasions. It is also the first Indian whiskey blend that is offered in the highly innovative hipster format that adds to the product's versatility. You can have it neat, with a dash of water, on the rocks, or a highball with soda. The choice is really yours to make. I invite you to #JointheAmericanPride. Last but not the least, the third aspect of our portfolio reshape is really reshaping the value proposition in lower and mid prestige. Within this, last year's renovation of NO 1 whiskey has created a significant momentum for the brand. India's first IMFL whiskey with 70 years of whiskey heritage, a 100% grain whiskey with scotch and malts, which comes with strong quality checks, we will continue to invest behind NO 1 and premiumize it so that we can continue the momentum we have built behind the brand. Last year, we invested behind NO 1 Galva shops, which also ties up with our agenda of retail transformation. We will continue to invest behind brand building, retail transformation and dial up our consumer experience to further strengthen our brand equity and continue to recruit the next generation of TBA consumers with NO 1. On Royal Challenge whiskey, we will restage Royal Challenge to drive recruitment. As you are aware, Royal Challenge whiskey was renovated last year. The renovated brand is seeing traction in key markets like Haryana, Maharashtra, Goa. We will continue to build the Royal Challenge proposition with new liquid experiences, marketing campaigns and variants as well as strengthen the Royal Challenge whiskey synergy with Royal Challengers Bangalore. Next chart, please. I would now like to show all of you some videos. Can we please have the videos for our participants. [Presentation]

On the back of changes in retail environment that are starting to come through in many states, I'm sure many of you have seen these fantastic stores that are coming around the country, which are improving the shopper experience so much. Next chart, please. The next element of our portfolio reshape is really new growth engines, which is all about transformational innovation. We see a big role for innovation that is transformational, not incremental or cosmetic. Going forward, our innovation will be sharply targeted to fast-growing and most-profitable cohorts. We have significantly enhanced our Atmanirbhar made in India liquid and blend capabilities in our state-of-the-art technical center. This is demonstrated through the renovated NO 1, the new liquid for Signature, Royal Challenge American Pride and the launch of our first craft brand, Epitome Reserve. We see innovation ratcheting up and making a material contribution to our growth in the next 3 to 5 years. It's all about emerging opportunity spaces and fast-growing segments. So far, what you have heard on our portfolio reshape has been about today's core, our brands today and how we will grow them for tomorrow. A big shift we are making now is to go beyond present forward to now present forward and future back, to future-proof our business by tapping into the next sources of growth presented by emerging opportunity spaces and trends that are largely global and witnessing early traction in India. We have planted our first flag in craft through Epitome Reserve. Launched in August 2021 as our first venture into craft, Epitome Reserve is an artisanal, single-grain whiskey made from 100% rice grains. We made a limited edition of 2,000 bottles, all of which are sold out, with rave reviews on the liquid and overall craft presentation. We also believe premium beer presents a growth opportunity, and we have already started seeding Guinness, which is Diageo's iconic beer brand. This is only the beginning, folks. Watch this space for more. Next, please. Last but not the least, our value chain efficiency extraction. On net revenue management, we have a well-oiled running setup looking to extract value from pricing, trade spends and mix. Our portfolio reshape will dial up mix even more as we go forward. We have also built a robust productivity pipeline for year-on-year delivery that offsets almost about 50% of our annual inflation. We will continue to execute our manufacturing footprint optimization strategy and continue to build this productivity pipeline. Over the last year, we have also with agility undertaken office space optimization in response to the new hybrid model in the future of work, and we will continue to explore all these opportunities. We also have been investing smartly, vis-a-vis our marketing and commercial spends. In order to enhance our efficiency and effectiveness of marketing spends, we have a tool called Catalyst which helps us to optimally allocate and maximize the effectiveness of our marketing spend. And on our commercial side, we have EDGE 365 for improved efficiencies in field, whether it's on must-talk list, efficient inventory management, improving our college and coverage rates. And we will continue to leverage these tools for even more effectiveness in the future. Next, please. Coming now to the second pillar of our strategy, creating an organization of the future which is built on digital acceleration, talent and culture as growth drivers, speed and simplicity. Next chart, please. On the digital side for consumers and customers, we have many initiatives, right? Social Goat is a millennial lifestyle content website where we cover all aspects of life from food to events to TV shows, to specific alcobev Diageo brand-related content. It holds our brand homes, food-bearing records, latest campaigns, contests, et cetera. Over the past year, we have seen 3 million visits, 80% of new users coming to the site, 20% repeat usage, with an average view time of a minute, right? These are quite amazing statistics. And we have achieved this by driving traffic from all our digital activations. So consumers just don't see the content on social media, but are able to interact and access a much broader world of celebrations. We are leveraging this data to input into our marketing and innovation agenda, and we will continue to strengthen the same. I have already mentioned to you, Catalyst and EDGE 365 which are cutting-edge tools to improve our spend efficiency. On the supply side, too, we have brought in technology. We have invested in adoption of technology tools and supply planning and logistics in high-speed full automation of our bottling operations at our Nashik factory and on reduction of maturation losses. We are now going a step further and have initiated supply transformation 2.0, which is rooted in driving digital excellence as a culture. This will cover all areas of the supply chain, including Factory of the Future, predictive demand sensing, advanced inventory optimization and capacity planning, artificial intelligence, We are For Employee Safety, intelligence-driven purchase decisions and logistics control towers for real-time information flow. We will be investing in this agenda over the next 3 to 4 years. Beyond the consumer, customer and our supply chain, we are also bringing technology into areas of maximum impact. Our Chief Engagement Officer, Amber, is the first digital employee of Diageo India. I recently had a chat with her talking about my first 6 months here in India and it was very engaging, I tell you. We are also partnering with technical -- technology startups, my apologies, to address counterfeit. We have also recently run a global sustainability challenge to find cutting-edge solutions in solar and water. Next chart, please. On talent and culture as growth drivers. The first point I want to talk about is strong leadership bench. We are very confident in the quality of our leadership and are making targeted interventions to build the right talent for today and tomorrow. We've established a robust process for calibration and validation of talent across levels to drive consistently high standards and build robust succession plans for critical roles. We have customized leadership intervention for high-potential, mid-level managers and future leaders. We aim for a good balance between internal and external hires, and external hires particularly in new age capabilities that we want to build, like digital. Last year, nearly 50% of our positions were filled through internal candidates. The second one, which is a real competitive advantage for us, is our purpose driving performance. We pride ourselves on our unique culture rooted in a deep sense of purpose, a passion for winning and a personal connection to our brands and each other. We have a big focus on coaching our leaders to find their personal purpose, connected with the Diageo purpose of celebrating life every day everywhere and bringing purpose into their work. This is reflected in our most recent Employee Your Voice service scores. 93% of our people say I'm proud to work for Diageo. Our Net Promoter Score on how likely would you be to recommend our products to a friend or relative is actually 82, which is globally best-in-class. 93% of our people say, I know what I can do to help Diageo win market share and our overall engagement index is 88%. We actually exceed benchmark norms quite a bit in all these parameters. And like I said, this is a real competitive advantage, which helps us drive change with agility in our organization, right. Last but not the least, building capabilities of the future. We are building capabilities for the future in sync with our mission. We are already enhancing luxury selling, retail transformation and digital capabilities within our organization. We are also helping our people to upskill and learn through LinkedIn Learning. We have also sponsored a customized learning platform called My Learning Hub, which helps people derive their own learning curriculum and enhance their skills where they want to. Next one, please. On the third element of building an organization of the future, I want to talk about 2 things, which is embedding sprints and #RadicalLiberation. Emerging studies show that organizations of the future operate with a fixation on speed and simplicity. We are -- we have been on a journey to be a flat organization. And now we are putting our flattened structure into greater effect in everyday ways of working and decision-making with sprints. Sprints are cross-functional teams that come together to work rapidly, hence a sprint not a marathon, for 2 to 3 months on critical business projects. They deliver specific outcomes and dissolve thereafter. Through Sprint, our people gain new skills, collaborate across functions and between HO and regions to deliver against our biggest business priorities within a short span of time. A big demonstration of the sprint way of working is Epitome Reserve, which was built or created from concept to launch in 85 days. We are going to be running sprints through our organization. In fact people -- as we speak, we've got about 10 to 12 sprints already running and people are really engaged behind this. And we think this is a great way to build inclusion and diversity. On the #RadicalLiberation, we are running this sprint, which is for process and business simplification. In the first stage, we have found ways to eliminate or simplify our business processes that will liberate more than 100,000 work hours, which is equivalent to 55 full-time employee time which we are repurposing towards our growth-supporting activities. So we will continue to run Radical Liberation through the year and for the years to come so that we will empower and enable our front line to focus on what they want to deliver, which is big time growth. Next one, please. Coming next to our very critical pillar of Diageo in society. Our stakeholders are increasingly challenging businesses to show how they make a positive impact across all aspects of society. They rightly expect to see that businesses are generating wealth, fostering inclusion and diversity, respecting human rights, supporting their communities and acting on important societal and environmental issues, including climate change and water stress. We are committed to building a more sustainable, responsible and inclusive business and society. The issues facing society are complex and connected, and we are focused on the impact we can have throughout our value chain across communities, suppliers, our partners, customers and consumers. Since the acquisition, we have a strong track record in sustainability and citizenship. We want to challenge ourselves to go much further. Last year, we launched Society 2030, Spirit of Progress, which is our new 10-year action plan on the role we will play in society. Society 2030 is fundamental to our mission to create long-term value for all our stakeholders, which is why it sits at the heart of our strategy. We have 3 goals that are built around the most material issues for our business context in India, driving ESG from Grain to Glass; moving India towards Drink Better, Not More; and leading inclusion and diversity. We have the same rigorous data-driven approach to the delivery of our ESG goals as we take for the rest of our business. Next, please. On driving ESG from Grain to Glass, we are really talking about 3 things pioneering grain-to-glass sustainability: tackling water, accelerating to a low-carbon world, and becoming sustainable by design. This also includes marketing -- market-leading practices towards employees, supply chain and local communities and exemplary governance and disclosure. Next, please. Next chart, please. On the Grain to Glass sustainability side, so far, since 2007, we have actually reduced our water usage by 55%. By 2030, we will do further reduction of 40%, and we will replenish more water than we use by 2026. So we will be water positive by 2026. On the low-carbon world side, so far, we have had a 95% reduction in carbon emission on scope 1 and scope 2. And we have already moved to 100% renewable energy in our own operations. By 2025, we [ will ] have zero carbon operations. On the [ Sustainability ] Sustainable by Design, we have already eliminated 2,000 metric tons of plastic from our packaging. And we have collected 20,000 metric tons of plastic waste. By end of this year, we will be plastic waste positive, which means that we will be collecting more plastic from our community than we put out into the community. On the market leading practices side. Our citizenship during COVID was demonstrated right from the start of the pandemic when the country was staring at a huge sanitizer shortage and we lent our shoulder throughout the crisis by making -- donating sanitizers and then by donating medical equipment, supporting our on-trade, including noncustomers to raise the bar, and donating long-term public health assets during the brutal second phase. In all, between USL and Diageo Plc, we have contributed over INR 130 crores to this cause. Diageo's commitment to and respect for human rights is fundamental to who we are and how we work. In alignment with the UN guiding principles for business and human rights, we have completed 2 phases of human rights impact assessments between 2018 and 2021, and this is quite industry-leading. Our own manufacturing sites and third-party manufacturing sites are adhering to high standards on labor rights, health and safety and working conditions for labor. We have put in place strong mechanisms to review and track progress on these standards. We actively impart training on human rights to increase awareness of various employee groups. We also aim to promote this awareness in our tie-up manufacturing units and in our supplier groups. Brand promoters play an important role promoting our brand portfolio to customers and consumers at the point of sale and at events. The Diageo Brand Promoter Standard establishes principles and guidelines for the deployment of brand promoters and is based on our values and our commitments to respect and protect human rights for all those who work with us and our third-party suppliers, business partners as well as the outlets that we partner with. On the employee wellness side, the wellness mantra at Diageo India is ensure health and wellbeing of employees beyond work and not just in their role as employees. The WeCare program focuses on 8 dimensions of wellness: occupational, emotional, spiritual, environmental, financial, physical, social and mental as we move ahead. And as most of you will be aware, we have launched a 26 weeks paternity leave policy, which also has been quite leading. Not only here, but Diageo globally has done that. Next, please. The next element of Diageo in Society is about moving India towards Drink Better, Not More. While most people who choose to enjoy alcohol do so responsibly, we recognize that the misuse of alcohol can harm individuals and those around them, damage our industry's reputation and make it harder for us to create value. We want to move India towards drinking better, not more, an approach that is rooted in our social values and aligns with our business model as a producer of premium drinks. We will do this through shaping drinking attitudes towards moderation, tackling harmful drinking through sustained multiyear programmatic interventions on drink driving and underage drinking, and marketing our brands responsibly through self-regulation. Next chart, please. We champion health literacy and tackle harm through our DRINKiQ platform. Last year, we launched an updated version of DRINKiQ, with comprehensive information on alcohol and health and a new screening tool to identify whether users are drinking at higher risk levels. We have reached 1.6 lakh people so far through DRINKiQ, and we plan to reach 40 lakh people by 2024. On the anti-drink driving, we promote changes and attitudes to drink driving through educating people about the dangers of drink driving and also capacity building for enforcement officials. We are looking at capacity building for 1.2 lakh enforcement officials in 65 cities across 22 states, and we will reach 8 lakh people by 2024 with the anti-drink driving message. We've also been educating young people, parents and teachers on the dangers of underage drinking. We have trained so far 2.3 lakh people in 300 schools in 15 states, and we plan to reach 15 lakh people by 2024. And what makes me really proud is that 95% of our own people say that where I work, people feel confident and able to play a role in promoting positive drinking. Next chart, please. Coming to inclusion and diversity. This is deeply embedded in our values. In India, we've been a pioneer in this space for our industry with regard to women representation in our business. We have extended our inclusion and diversity agenda to include people with disabilities and the LGBTQ community. Our aim is to be the employer of choice, not only on gender but for people with disabilities, and build an inclusive workplace for the LGBTQ community. We want to drive progressive portrayal in every piece of creative work we put out for all our focus brands, moving away from hackneyed, stereotypical representation and portraying real people stories and narratives, particularly our key iconic brands like Johnnie Walker, Black & White, Black Dog Scotch, NO 1 and Signature. All these have women at the heart of their comms work, owning the stories we tell. Not just that, women and members of the gender spectrum play a key role in our content and influencer program. Through our community programs on water, sanitation and learning for life, we empower women in our local communities; 50% of the beneficiaries of our community programs are women. Next, please. On this chart, the one that you see on with figures actually depicts our ExComm. We have moved to -- from 0% of our Executive Committee in Diageo India in F '16 to now 50% of our ExComm is women. Overall women representation in our business has moved from 6.6% in F '15 to 22.2% end of last year. Our target is to have 50% women in leadership by 2025. We focus a lot on inclusion, our Your Voice survey shows inclusion scores of expressing themselves. Our people say, in Diageo, people from different backgrounds and opinions can be themselves and thrive. 87% of our people say that, right? We focus a lot on inclusion through something called Inclusion Week. It's an employee-led week that celebrates diversity, embraces inclusion, encourages colleagues around the world to have open conversations about a range of important and challenging topics. And then we carry this through the year, right? And you can see pictures on the slide of our progressive portrayal in some of our communication work. Next chart, please. Bringing this all to a close, bringing it all together, I know it's been a lot for you to absorb. Our mission is to be top-performing CPG company in India, delivering sustained double-digit profitable top line growth and long-term value to all our stakeholders. This will be done through 3 pillars: portfolio reshape to deliver leverage growth; creating an organization of the future so that we can be a great place to work and create the leaders of tomorrow; and playing a big role of Diageo in Society, really focusing on ESG for stakeholder value. Next one, please. Just to recap it all. There are big shifts in mix. The first one is really focusing on sustained double-digit broad-based, profitable top line growth. Broad-based breakout growth on P&A. Moving from a present forward approach to now a present forward and future back view of the consumer. Transforming our culture, not to look at legacy but to look at what is best-in-class and get there. A culture which is built on speed and simplicity. And playing a very bold role in society through our Diageo in Society goals, really using ESG for stakeholder value. Last chart, please. Before I end, I actually wanted to extend an invitation to all of you to visit our DRINKiQ India website. As we approach the 2 most festive months in the year, we would love to go a step further actually and host you for an online DRINKiQ session in December, if you're willing. About a year ago, we approached the Indian Navy to conduct a DRINKiQ session. Hesitant at first, they agreed to a pilot. Delighted at the positive response, we were then invited to do more sessions. And within a few months, we covered INS Kadamba, the naval dockyard in Visakhapatnam; INS Valsura, Indian Naval Academy; and Southern Naval Command at Cochin. We went on to the Indian Army. And finally, the Indian Air Force station at Pathankot. We feel truly privileged to have covered nearly 1,500 officials of the armed forces. So I invite you to this session. And I would like to say thank you very much. That's the end of our Strategy Refresh presentation. We will just take a 2-minute break and be back with you to talk about our quarter 2 performance. Thank you very much. [Break]

Thank you so much.

Are we ready to start?

Yes. [Operator Instructions]

No. We have -- sorry we are not -- I will be making some comments on our quarter 2 performance and then we'll move to questions. Right. So good afternoon, once again, to all of you from the USL team. Let me now switch gears and provide a perspective on the quarter 2 results that we announced last evening. Having now heard the strategy refresh over the last 45 minutes or so, I'm sure you will start connecting the same to our performance in the quarter as well. As we anticipated in the July investor call, the quarter gone by witnessed normal operations by and large, barring for night curfew in major cities for some period. With the increased vaccination coverage in India crossing the 1 billion mark last week, the bounce back to normalcy has been faster than that experienced post wave 1, and this augurs well on the demand front. The supply side has been resilient, even though inflation continued to increase as we exited the quarter. On the overall operating performance during the quarter, in summary, it's been a strong quarter underpinning improved momentum across the business. Our people have responded with pace, agility and creativity to seize the marketplace opportunities. As I mentioned in the press release, we have indeed emerged stronger from the crisis. Our commitment to innovation and renovation in the portfolio continues. In addition to the renovated bundle of Black Dog whiskey rolled out in quarter 1, quarter 2 witnessed the following interventions: completely new 100% crafted from nature consumer bundle on Signature whiskey with master blender credentials, unique recruitment offering with bourbon scotch and select Indian malts and grain spirits, Royal Challenge American Pride, success of Hipster on [ pocket ] now being extended to Smirnoff Vodka. Please do go and pick it up from your nearest store. Signature and Royal Challenge American Pride are in service of strengthening our presence in the upper Prestige segment and premiumizing the portfolio. I have already [ spoken to both ] of these at length in the strategy session a little while ago. While all of you have seen the press release and the results, let me again call out the key salient points. Our reported revenue increased 14%. This is our highest underlying growth in the last 11 quarters. Our P&A segment grew at 20.8%, which is also the highest in the last 20 quarters. We were flat on Popular. Consumer demand in off-trade regained momentum rapidly after the COVID wave 2 impact in the preceding quarter. On-trade also demonstrated continuous recovery through the quarter, both store opening and footfalls. Price/mix was strong at double digits during the quarter, driven by the top end in the P&A segment growing high double digits. On the policy front, the industry is closely working with the government in West Bengal and Delhi. As communicated last time, we are keenly looking forward to the new policy in West Bengal, and the operationalization of the new policy in Delhi at the earliest. Inflation has been on an increasing trend during the quarter and continued management focus on portfolio mix and productivity led to 190 bps underlying improvement in our gross margins to 45.1%. Our A&P reinvestment rate at 7.3% is in line with last year's same quarter, and reflects a normalization post the muted levels in the preceding COVID-impacted quarter. As also mentioned last time, staff cost increased in the quarter, and the half is lapping the prior year onetime decision of the management across the Diageo world to forego the variable performance-linked salary component, driven by the global uncertainty of the pandemic. Underlying EBITDA margin stands at 16.4% for the quarter, up 194 basis points versus prior year same quarter, primarily driven by the gross margin improvement. With the full impact of the accelerated debt requirement -- debt retirement, apologies, in 2020, '21 and the lower interest rates post retirement of the nonconvertible debentures now reflecting in our financials, the underlying interest cost in the quarter is 58% lower than prior year. External debt now stands at less than INR 500 crores as of September 30, 2021. Profit after tax was at INR 273 crores in the quarter, a 113% increase versus prior year. In conclusion, I would like to reemphasize the following. We are happy with the current momentum in the business and are focused on sustaining the same. We are conscious of the inflation headwinds and are, therefore, working on a continuous pipeline of revenue management and productivity initiatives across the value chain. Our portfolio with the latest round of innovation and renovation is well positioned to capitalize on the rapidly growing premiumization in the category. And we remain committed to sustainable, profitable growth and long-term value to all our stakeholders. Last but not the least, the strategic review of Popular brands that we announced in the Jan-March quarter is on track, and we will conclude the same by the end of the calendar year. With that, we can now open the lines for Q&A.

[Operator Instructions] We have the first question from Abneesh, Edelweiss.

Yes. Congrats on a brilliant presentation and very good numbers. My first question is on your [ year ] foray. So it's an iconic brand. It's a premium brand. And you also said that you're seeding the market. India is a mass consumption market. So want to understand how the LUP strategy can happen here. At some stage, do you see once the premium foray is successful, do you see a mass offering also in beer in the longer term?

This is a very initial foray and we are seeding Guinness, which is our most premium and popular brand around the world, as you know, Abneesh. We will continue to seed Guinness. And the initial response is actually very good. And so we'll continue to seed Guinness. And at this point in time, we have no plans to go mainstream on beer.

Sure. That's helpful. My second question is on the P&A. When I see the P&A volume growth and sales growth, I see almost a 14%, 15% gap, which was not the case in the previous quarter. So is there any one-off here? How should we read the 15% gap?

No, there is no one-off in this. It is actually a price/mix, with the top end growing very fast and giving us that healthy price/mix.

And this could sustain the premium end growing much faster in the gap between the volume and price, the sales growth?

Yes.

Yes. So Abneesh, even if you look at our historical results, we always get a price/mix of about anything between 2% to 4%, right? And this quarter, obviously, it's close to almost double digit. We believe with the strategy refresh that Hina has just spoken about, right, our desire will be to up the numbers from our historical delivery, right? And probably to land somewhere in between the historical range and what we have seen in the current quarter, right?

Sure. And the last question is on your innovation strategy and the advertising spend. So in the historical, when I see your SP's number, ad spend has been around 8% to 10% of the sales. This time, it is a bit lower, 7.3%. I do understand pubs, bars are not open, plus we have not seen the full normalcy. Going ahead, how do you see advertising as a percentage of sales? And if you could also discuss the innovation funnel, do you see that accelerating much more? You did discuss a bit, but if you could discuss in the next 1, 2 years, how is the innovation funnel?

So Abneesh, you're right. I think our A&P spends are traditionally in the 8% to 10%. We have a very robust A&P plan to support our growth initiatives, both on the core and innovation. So clearly, I mean, it was muted because of COVID, right? And even in the current quarter, right, it was 7% because for part of the period, on-trade was subject to night curfews, et cetera. So going forward, yes, what we see happening is a virtuous cycle of A&P generation. As we premiumize more, we generate more A&P and we spend more and invest to grow. And also that gives us operating leverage on A&P. And then when we combine this with the spend effectiveness that we are generating through our catalyst tool that I spoke about, we actually feel very confident about a very good level of A&P support to all our growth initiatives. On the innovation side, as I mentioned, we are now taking a bigger future-back approach. And we've actually created a big pipeline of portfolio opportunities as well as fast growth segments that can emerge, even channel formats, et cetera. And our first foray in craft was just one of the beginnings of innovation. Innovation will certainly contribute much more to our growth going forward. I mentioned that we've developed a very strong capability now in liquid and blend at our state-of-the-art technical center. And our renovations now are very powerful. So I would say, watch this space, Abneesh. We want to be able to give you news quarter after quarter.

We have the next question from Percy, IIFL Securities.

Congrats on a very good set of numbers. My first question is on the results. So you mentioned that this is broadly a normal quarter. So if I look at your sales growth versus the 2-year-ago period, the same quarter 2 years ago, your sales growth point-to-point is about 11%, which is about 5.5% CAGR. So isn't this a rather low growth for the kind of initiatives that you are doing? And can you give me some idea on what kind of growth would you be targeting going into the future, certainly not 5%, 6%, right?

Yes. So Percy, there is noise versus F '19. You are well aware of the Uttar Pradesh market access issue. F '19 had fully Uttar Pradesh incorporated, right? So one is that, you'll just have to eliminate that noise to arrive at what our genuine growth in the current quarter is. We are very, very happy with what we have delivered. Hina have already spoken about what our sustained top line aspirations are, which is double-digit revenue growth, right? And we will absolutely be committed to that.

Right. Secondly, with the kind of premiumization that you're seeing, would you say that your margin journey is not yet complete and there is a decent amount of headroom for the EBITDA margin to go more towards the 20% kind of a number over a 2-, 3-year period?

So Percy, again, we have already called it out, right, in the strategy refresh that Hina just shared. We remain committed to our mid- to high-teen margin progression. Broadly, if you see, we are there somewhere around mid-teens, right? And like Hina has mentioned earlier also, it is an and journey for us. We do expect that to inch up gradually to the high teens.

And last question, if I may be allowed. The refresh -- sorry, the review of the popular brands, what exactly is the thought behind that? I mean, I understand that these brands would not be very high-margin brands. But unless they are loss-making or unless they're sort of giving you a return on investment which is below your cost of capital, why would you want to exit these brands? It does give us some heft in distribution, and there are some other sort of intangible advantages of being in there. So your thoughts on that, please?

Yes. So again, too early for us to call out anything. As we have mentioned, the strategic review is on track. And what we had disclosed at that point of time also, right, in the Jan-March quarter when we announced it, that this is a logical progression of the strategy that we have been following over the last 4 to 5 years. So again, as we get closer to a final outcome of the strategic review, we will be able to share more details on that.

We have the next question from Avi Mehta, Macquarie.

I actually had 2 specific points. One, just following up on what Abneesh said. Could you give us a sense on what levels of ad spend to sales would you target on a steady-state basis? Is there a number that you have in mind? And 2, I mean, if I go through your -- what you highlighted, as we look to break out growth in the prestige segment, I see a lot -- clear focus on accelerating the luxury and upper prestige as you rightly called out. Does that entail a higher dependence or higher partnership with Diageo brands? Is that understanding correct?

Yes. So thanks, Avi. Let me take your first question.

I'll answer the second.

Yes. Our A&P guidance is -- I mean, broadly, we target about 8% to 8.5%. That's our full year number if you look at the last set of historical also. And then if you kind of look at what that translates into only our P&A segment, it's close to double-digit spend, right? So -- and that stays exactly the same. We are not changing that. You might see a little bit of noise between quarters, et cetera. But by and large, on a full year basis, we will be exactly in the same range. Right, I'll just hand it over to Hina to answer your second question.

So on your question on Bottled in Origin, which is the Diageo portfolio, right? So we are definitely looking to accelerate luxury and premium, as I mentioned in the strategy refresh. I mean we are leaders in Bottled in Origin and Bottled in India scotches, right? And we are going to look to continue to strengthen this leadership in both the segments, both through still penetration of these brands and by bringing newer offerings from the Diageo Global portfolio to this -- to India. Because these brands really have global equity, and they are very much in demand as the market is premiumizing as Indians travel. I mean Indians love to travel, right? So there is huge exposure to our brands, and there is definitely, given the experimentation, the repertoire drinking that we are seeing in India, we see a definite trend towards demand for more. So we will bring in more and focus on this segment.

That -- if there is a dependence on -- if we are going to enhance that relationship, could you share whether the commercials which we have with Diageo, does that change? Or is that -- what is the -- because I -- when we had initially done the agreement, there was some talk of margins, what level of margins they would be. How is that going to -- is there a number that is available? Or can we kind of have some clarity on how the commercials are? That's all for my side.

So I think we are the national distributors for Diageo in India, right? And this portfolio, because of the fact that it's high pricing and at the top end, is very gross margin accretive for us to premium. It is really gross margin accretive. And even if you look at an EBITDA per case, right, it is almost double that of USL portfolio on a case basis, right? So it gives us huge fixed cost absorption and also operating leverage, right, to bring in this portfolio. And the third thing I would say is that this is 0 fixed asset investment portfolio, right? So our return on invested capital, I mean, pretax is more than 35% on this portfolio and even on a post-tax basis, very healthy 25%, 30%. So actually, the commercials work very well for our USL business and actually help our mix, right?

Okay. So sorry, it's -- the understanding is that gross margin may not be the right way. It's the EBITDA margin that kind of flows through because of the high realization that comes through. And that is the way I should look at it, correct?

Yes.

Yes, that's right. And that is an existent response, it's rupees per case accretive.

We have the next question from Mr. Manoj Menon, ICICI Securities.

And wishing you good luck as you execute this over the next few years. Question number one is on the policy front. There are 2 parts to that thought process which I have. Anand used to tell us for the last 3, 4 years that as an organization and as a responsible market leader, we have been working with multiple state governments at different levels in terms of, let's say, working with the government in optimizing the collection. And it's a good win-win for everyone. If you could just help us understand where are we in this journey, because we have seen some improvement, I would say, "from a policy point of view" in the last few years. So that's point number one on the policy side. Some examples and directional comment would be very helpful. The second aspect is also of what the industry has been requesting or lobbying for, let's say, reduction in customs duty, et cetera, for the premium portfolio. That also can be a significant option value from a portfolio point of view. That's question number one, the 2 aspects to the government. The second one is what my friend Percy asked a little earlier. I just want to push the envelope a little more on that. Honestly, I'm a little worried when I look at the strategy of, let's say -- I understand that there is a profit pool part in the mass market or what we call it the Popular segment. I completely understand that part. But as Percy rightly asked kind of, as long as these are EV positive, it may be P&L percentage margin or profitability dilutive. I get that. And there may be reasons where you're doing what you're doing. But I'm looking at a few case studies in India, we can discuss that separately offline. And I'm little worried about this because some, let's say, share of sell which may not be profitable for you today, let's say, for an XYZ with the right business model, "in the Indian context" maybe profitable. So in the real long term, how is the thought about this aspect? I'm sure you would have in your strategy a thought process on that. That is it, that is 2 questions.

So can I request Abanti to answer the first 2 questions, and then I will come back on the third question, yes.

Yes, sure. So thank you, Manoj, for that question. So on the policy wise, let me start with the answer to the first one, which is a little bit more sort of about things that can unlock sourcing which has been the center-ish point in Hina's Strategy Refresh. So 2 things to this. The first one is, absolutely as an industry, we are working very closely with relevant stakeholders to put out a case for why from a consumer premiumization trend perspective, it makes sense to make imported spirits more accessible to consumers in India, and the fact that customs duty remains very high. All I will say is it is very promisingly poised at the moment as U.K. and India look to really sort of recraft their investment and trade sort of partnership in the FDA that's underway. So that's what I will say that that's the effort that's happening. But the second point I would add here is we haven't, as an industry, kind of waited only for the U.K.-India trade review and FDA, but have been working with states to look at what opportunities there might be to reduce state level excise duties on BIO. And you would know that this has met with success across many states, including Delhi, Uttar Pradesh, Rajasthan, some years ago, Karnataka. And we are looking at a few more such opportunities with critical states. And the interesting thing is that state duties contribute a large part, upwards of 34% of the value chain. So actually, to the extent that state duties are brought down on BIO that really has a big impact on moving consumer prices down and making BIO more accessible. So that's something that's already happening, and that's in fact one of the things that's also underlying the accelerated premiumization that's happening at the top end at the BIO, right. On working towards unlocking sort of opportunities for better working capital management, I think that's been work, which has been done. So for example, in the state of Telangana, Andhra Pradesh, that's something that we have achieved. I will just ask actually PJ to come in here and just add a little bit more color.

Yes. Manoj, yes, on working capital, like Abanti has mentioned, we continue to work with government, right? We've had a few successes over the last couple of years, et cetera. And that's an ongoing effort. I guess, at a slightly more elevated level, the simple response that I have provided always is that if you look at the last 3- to 4-year progression, our working capital as a percentage of NSV has come down broadly from about 35% to roughly about 23% to 24%, right? And we believe that this is right now the steady state. We continue to work with the government to ensure that some unlocks.

Right. Coming to your question around the Popular portfolio, Manoj, I would say 2 things, right? So the first thing is to say that it was called a strategic review for a reason, right? It is core to our strategy, our portfolio reshape and focusing on premiumization, where the biggest growth opportunities are. Now having said that, we have not reached any conclusion on the Popular portfolio, right? It can have many -- it can have multiple directions, right? So one could be extension of the current franchisee model, right? It could also be about accelerating select brands through more investment. It could be divestment. It could be an organizational review around the operating model, et cetera. So this review is underway and we will try and conclude it by December. And then I think we'll be in a better position to talk about the implications once we've reached some direction, final direction, yes?

We have the next question from Vishal Punmiya, Nirmal Bang.

Am I audible?

Yes, you are.

Yes, you are.

So the first question is actually from a medium-term perspective, you covered in your presentation that you are looking for a double-digit growth at a portfolio level in the medium term. But if I just see from a Prestige & Above portfolio perspective, because the Popular portfolio is under review, so no point discussing that portfolio. But where do you see the Prestige & Above growing in that particular time line? And within that, what could be the breakup of sales growth between volumes mix as well as pricing? How do you see those panning out over the medium term? And the second question is more from a near term. In terms of margins how do you see RM panning out in the next 2, 3 quarters, especially more from a point of view of glass as well as ENA? While I know the fact that the government would be coming out with the ENA prices in a month or so. But if you can give some sense on the RM scenario going forward and obviously, in terms of margin profile going forward.

So I'll answer your first question, and I'll hand over to Pradeep to answer the second one. So on your growth question, I think if you look at premiumization, which has been a sustained trend in the industry for the last 8 to 10 years, we've seen that the top end is growing faster than the middle and the lower end, right? And given the consumer trends I talked about, right, of evolving needs, of repertoire experimentation, I mean we see growth in the upper, mid prestige and luxury and premium all, right, going forward. We -- our strategy calls out that we will accelerate luxury and premium. We will strengthen our play in upper prestige, and we will reshape the value proposition in new -- I mean in the lower and the mid-prestige to cater to these evolving consumer needs. Now our premiumization journey will only get accelerated and become more broad-based. So our growth of double digit comes from the fact that it is broad-based breakout growth based on these transformation -- transformative innovations and offerings in the segments, as well as the new growth engines that I called, right, which is about the future opportunities and taking lead in that, for example, the Epitome Reserve craft. So we do see very healthy growth and premiumization momentum to continue, and we feel confident about delivering a double-digit growth with this strategy. And coming to the margin question, over to Pradeep.

Yes. So Nirmal, I mean, your question was specifically focused around inflation. So as Hina mentioned in her opening comments also, we are seeing inflation headwinds as is the rest of the CPG sector in India. In fact, if at all, we are slightly lower than the rest of the CPG. And we continue to work on our productivity pipeline, right? As we have always said, we would want to focus on things we can control and influence, right, which is our own productivity, which is revenue management, as well as our COGS productivity initiatives, apart from our A&P operating leverage and overhead optimization, right? Broadly to give you some numbers, this quarter, the quarter that has just passed, inflation was in the range of about 1.5% to 2% in our overall portfolio, right, and it is inching up, right? As all of you are aware, with the fuel cost, the energy cost and, let's say, the international logistics costs, et cetera, right, inflation is shooting up. So we do expect this range to go up in the coming quarter, and we are trying our best to mitigate through revenue management and productivity.

And the next question is from [indiscernible], investor.

I'm a retail investor. I've been associated with United Spirits from 2014. So I have a few basic questions from me to the Board of United Spirits. One, what is the percentage of premium products going forward? I could see there is a mix saying that it was less than 50%. Now it has grown to 72% P&A segment. And what is the equation going forward in '23, '24. That's my first question. And second question is, any updates or any information about the share buyback, from the investor point I'm asking?

Multiple legacy one-off issues that we had to absorb in our P&L post acquisition. We are pretty much on the verge of wiping out our accumulated losses, which is a mandatory requirement for distribution of dividend, right? So that should happen very, very soon over the next 4 to 6 quarters in our assessment, and we should be back to a distribution of dividend from that point of time.

Any updates on the buyback? Because from 2019 and '20, there are news coming up when Anand was there as the CEO, probably a lot of things happening around the share buyback.

There is nothing that we have discussed specifically so far. I think first, we want to get back to distribution of dividend. And then like multiple options, that would also be an option at some subsequent point of time.

We have the next question from Mr. Jaykumar Doshi, Kotak.

I have 2 questions. The first one is bulk of the profit for industry resides in the Prestige segment. And if we look for the past 5 years or maybe even beyond 5 years, United Spirits has lost market share to Pernod in both mid-Prestige and upper Prestige. There is an interesting comment in the presentation that 93% of your employees know what is needed to gain market share. So I would like to sort of understand what is your early assessment, what are the steps necessary to gain market share in both these segments? I'm aware that you're doing quite well at the luxury end, but with Prestige and upper Prestige, please.

So first, Jaykumar, thanks for your question. The first thing I would say is that in our assessment, we have found very competitively over the last few quarters, especially after the COVID first wave lockdown opened, right, when we launched the renovation of No.1 and also Royal Challenge whiskey in the market, right? So the No.1 renovation has done extremely well. And basically, it's got significant momentum. We are very proud of the brand. It has 70 years of whiskey heritage. And we are continuing to invest in No.1. And basically, continue to build the brand, premiumize it, invest in [ Galva ] stores and leverage this momentum. On Royal Challenge whiskey, it has done -- it has had a mixed response. So in some states, it's done quite well. And in some states, we have more to do. And actually, as we speak, we are reviewing the whole mix. And like I mentioned in my strategy, we will be looking to restage Royal Challenge at some point in time to do even better, right? Now on the upper Prestige, I just spoke about 2 big renovation and innovation launches, right? So the Signature renovation, which is really all about nature and craft. Very, very differentiated in upper Prestige playing to the new chords that the consumer wants. And also a very sustainable bundle, right? We spoke about the glass being recycled, and we spoke about being responsibly sourced, removing plastic. And the young consumers in upper Prestige actually are really wanting to buy more of such products, right? Royal Challenge American Pride is a brand-new bourbon-based IMFL offering from us, and the first of its kind again. So definitely, our team knows what they have to do to gain market share and they've been working furiously on these innovations and more to perform even more competitively going forward.

That's helpful. Second question is practices or best practices or learnings that you -- from your experience in Africa that you think is applicable and can be replicated in India?

So I would say that Africa has a lot of similarities and a lot of differences, right? So I mean, I would say in terms of managing the volatility, managing the regulatory, sustainability challenges, India and Africa are quite similar, right? I would say that it's not about comparison with Africa. We want to be best-in-class in India on all the aspects, whether it is consumer insight and innovation, which is transformational, whether it is our supply chain. And as we have called out very ambitiously, the ESG part, right? So being -- driving a lot of sustainability and contributing to our communities. I think we have a competitive advantage in terms of our people being completely connected with the company purpose, right? And our company purpose is about celebrating life every day, everywhere. And that is built on creating a win-win for all the stakeholders, whether it's employees, whether it's customers, consumers, et cetera. So this change of best-in-class actually will come very fast in our company because everyone is so connected to the purpose, right? So it is about being best-in-class, Jaykumar, in every aspect of the business.

If I may ask 1 quick one, sorry. Inflation, what are your views from the short- to medium-term perspective? And are you engaged with the state governments proactively for some price increases in anticipation of any inflationary pressures?

Look, I think the answer is absolutely yes. We are engaged with the state governments for price increases, and I think we will continue to do that as inflation headwinds continue to emerge, right? Overall, I would say that our equation really is about productivity and net revenue management to mitigate inflation. And we try and mitigate at least half the inflation every year through these initiatives. [ In some ] years, commodities go up, and it's difficult to do that, in some years, it's much better and actually we do better on this equation. And therefore, it evens out over a period of mid-to-longer, right? So we are continuing to do that. Pradeep just spoke about the fact that we are trying to mitigate at least half the inflation through productivity across the value chain, through revenue management levers of mix and trade spend efficiencies, through overhead optimization. So our view is that we will continue to focus on the area that we control and influence, which is doing all these initiatives. And over a period of time, I think this strategy works well for us internally.

We have the next question from Mr. Prakash Kapadia.

A couple of questions from my end. In our endeavor to grow double digits, is it fair to look at -- over the next 4, 5 years, 6%, 7% kind of a mix and a price growth and 4%, 5% volume growth, is that more sustainable in our view over the mid- to longer term? That's my first question. Secondly, on Mumbai and Maharashtra and Karnataka, which are the so-called free-pricing markets, what trends are we seeing in terms of premiumization? And also, if you could give us some color on geographies where we have lower market share versus competition, which could be a focus area to grow faster across India.

So let me take that, Prakash. I mean, broadly, the -- so we've never got into a split of the guidance. We will restrict ourselves to our aspirations, which Hina has clearly articulated in the Strategy Refresh session, which is that of growing double digits on a sustained basis, right? Now the breakup of that double-digit could be different, right, over a 4- to 5-year period, that could be different. Some quarters, our volume could be a little higher, et cetera, mix could be a little lower. But broadly, through a combination of these 3 levers of volume, pricing and mix, our endeavor would be to try and hit double digit on a sustained basis, which, as Hina has acknowledged also very candidly, we haven't been able to deliver historically, right? So that's the pitch we want to make on our top line growth. Can you just remind me on your second question, Prakash?

Yes. On free pricing markets, Maharashtra and Karnataka, what trends are we seeing in terms of premiumization? And across India, some color on geographies where we have lower market share, which can be a focus area, which can help us grow faster in key markets or win markets, what are we seeing?

Yes. So Prakash, again, I'll have to keep it a little general. We have normally not kind of got into the disclosure of state-wise positions, et cetera, right? But...

If not, geography, East, West, North, South is also fine. I'm not looking at...

So -- but the premiumization trend, suffice to say, that's largely consistent throughout the country, right? Very clearly, P&A is growing above Popular, right? And within P&A, the top end of the P&A portfolio is growing significantly ahead of total P&A, right? So those are 2 underlying trends that are fairly consistent across the country. There are no pockets, et cetera, right? So that's one. Between Maharashtra and Karnataka, I just have the privilege of having Abanti, right? So maybe I'll just pass on the question to her on pricing. Karnataka is definitely not a free pricing state, but I'll let Abanti answer.

Yes. So just on pricing, firstly, Prakash, Maharashtra is a free-pricing state. Karnataka is in some ways, in theory, a free-pricing state because manufacturers are free to decide which particular excise duty slab they want to operate on. But the issue in Karnataka is manufacturers hesitate to do that for commercial reasons because of the way the excise duty slabs are moving from one slab to the other results in a very big X times impact on the consumer price. And obviously, as commercial operators, we are all very sensitive to that. So that's sort of what holds back sometimes individual players who decide on their own, obviously. But [ look at ] the bigger opportunity, as you may have rightly called out, is really to premiumize the structure of the market. Right now, and this is industry domain information publicly available, about 92% of the Karnataka market is really Popular. And there's only 8% which is Prestige [indiscernible]. And that's obviously very hugely under-indexed to the GDP per capita as well as other sort of consumer macro factors. So that is a real opportunity for the industry, and it's something that many industry players, together within their associations, are working on. On Maharashtra, I mentioned that it is a free-pricing state. You still have to get kind of approval like in more states from the excise departments, but that's more a procedural thing rather than an ideological thing. Again, in Maharashtra, there is an opportunity for premiumization, accelerated premiumization, particularly at the BIO end where, as you might be aware because of very high excise duties, BIO pricing is much higher in Maharashtra than other states. So that's another opportunity that industry is working on.

Great. That is helpful. And is it fair to assume Maharashtra would be the largest contributor to premium brands for us?

Well, it is in the top 5, Prakash.

We take the next question from Mr. Alok Shah, AMBIT Capital.

Sure. My first question is when we look -- when we think of the new launches, be it the American Pride or be it the Signature, and in the past also, your team has done multiple renovations, innovations. But the current confidence in terms of winning back market share, getting double-digit growth, et cetera, so does it come because now you believe your pricing is right or you believe the blend was somewhere not appropriate previously? From where do you think you're getting this strong confidence? That is my first question.

Okay. Alok, so I think our confidence comes from sharp consumer insight, and the liquid and blends capabilities that we built, which are really best-in-class in India at our state-of-the-art technical center. So we have been investing and are investing much more deliberately on getting very sharp consumer insights, using the data and analytics through our -- I described through Social Goat, et cetera, right, to come to a very good picture of what consumers want, what are they seeking and then developing our innovation and renovations in line with that. I mean if you look at the Signature, it is quite different, right? It plays to the chords of 100% natural, it plays to the chords of sustainability. It is crafted by our master blender, Louise Martin, right? And the new consumer really wants this. They want craft, they want sustainability, they want natural chords. It is for people who are celebrating their authentic selves, right, and seeking those personalized chords of success. So we are very confident in our insights. We are very confident in our technical capability to give out fantastic liquids. This is evident in Signature, Royal Challenge, American Pride, No.1 Renovation. And so -- and we are also very confident because of the future back view we are taking on new growth engines, which is giving us a lot of insight on where the market is going.

And on pricing, do you think that the pricing of the product is not going to be really a challenge considering the slab in which you operate?

Look, I mean, we are going to be competitive on pricing in the segments we are playing in, right? So we are going to give the right offerings at the right price within each category and segment. And I think that's a normal course of business. So I mean, we are able to charge value to the concepts we bring and the differentiation we bring. And wherever we have a chance to, we will, right.

Got it. My second question is on your medium-term EBITDA margin guidance, which remains mid- to high teens. While giving this guidance, do you factor in your outcome of strategic review? Or once the strategic review outcome comes by, that would be a reset? Essentially, the reason that I'm asking is that once you strip out your Popular segment, technically your EBITDA margin should go up unless you are saying that there are some inefficiencies because of the base change, volume deleveraging, et cetera. So that's promising.

Yes. So Alok, again, right now, we are talking of the portfolio as is, right, and everything you have to do. What is the outcome of the strategic review, Hina have already mentioned, look, we haven't reached the final outcome, right? So as and when that happens, yes, we will engage with this audience very, very quickly, right? So as of now, whatever we have shared, it's in line with the portfolio as it stands right now.

Got it. My only last suggestion is that while we have followed multiple strategies and initiatives, would you be disclosing more details quarter after quarter for us and the investors to analyze, as you know, essentially how do we fare on some of the plans? Any thoughts on that?

We will definitely endeavor to do that. I mean the first step was to take you through the strategy. And as we unfold our milestones every quarter, we will definitely share them with you.

We take the next question from Mr. Vaibhav Shah, ICICI Prudential.

Yes, am I audible?

Yes, you're audible.

So first of all, congratulations to United team for a very good presentation and very good set of operational numbers. I have 2 questions. First one is relating to the target that you have set, double-digit top line growth. So when you talk about this, I just want to understand the finer point as to other segment. When we talk about the IMFL, you talked about whiskey being a space. But how do you see the other segments in the IMFL space, particularly white spirits, rum and brandy? So is that a part of focus area for us? And we have seen past data also, we have kind of lost some bit of market share in vodka as well. So can you provide what segments particularly do you see growing faster versus whiskey? And how do we plan to achieve this double-digit growth? And second question, particularly pertains to our capital allocation policy. Now since we have reduced our debt to minimum and we would be in a position to be a net debt cash positive company, incrementally, our CapEx spends have been range-bound. So can you just please provide us some guidance on our capital allocation policy? How do we plan to use the cash?

So I'll answer the first one and I'll let Pradeep...

Yes, there is an echo coming, if you can go on mute, yes.

Right. So on your question on the white spirits, et cetera. So I mentioned that there is a big consumer trend of experimentation in repertoire drinking. And so we are looking at the white portfolio as a whole in context of this repertoire drinking. We've already seen some traction on our gin portfolio, right, both with Gordon's and Tanqueray. So we dialed up activation of this. And even on vodka, I did mention, I think, during my commentary that we have put Smirnoff in this very innovative Hipster pack, which is giving it momentum. So we are going to look at the white portfolio definitely and activate it because of this repertoire drinking phenomenon that we see in the market. And while the big focus, of course, will be, as I've described in the strategy, our whites will also be activated.

Yes. And let me take your second question, which is on capital allocation. So historically, our CapEx spending has been in the range of about 2% to 2.5%, very broad ballpark numbers that are in my head, right? And I don't think that has got anything to do with, per se, what are our debt levels on our balance sheet. We know that our business generates healthy free cash, and therefore, that has resulted in the debt retirement of more than INR 5,000 crores over the last 3 to 5 years. Our capital decisions, capital spending decisions are more based on the principles of need, capacity and growth, right, rather than any allocation principle, right? That's what I would want to say to CapEx, right. And we don't expect any dramatic shift in our range-bound -- in our range of CapEx spending versus the historical.

Sure. So if I may just follow up on that, the question more pertains to the forward-looking capital allocation policy. Do you look to imbibe any kind of dividend payout or some kind of guidance on that? And firstly, on the double-digit growth, what I wanted to understand is that our -- we have a very strong brand portfolio. So when we talk about in our presentation that India being a population of less -- more than 65% in the age group of less than 35 and newer population being the female who are more open to experimentation and white spirits also. So if I take just a consumer behavior trend from the West, where kind of gin and vodkas have outpaced the whiskey growth, so do you plan to actively use this segment? Or our focus area would still be more on the whiskey side and probably the activations and innovations in gin and vodka would be a more slower pace?

The CapEx?

Yes. So again -- I think there is an echo coming, if you can just go on mute, right? So very consistent with what we have said, which is, that Hina has already mentioned, that the entire white space, especially gin, we have already demonstrated actions and we would really want to kind of expand our play on that. In terms of exploring opportunities, we continue to remain on the lookout of opportunities. And any exciting opportunity that comes, we will definitely want to go after it, right? I mean, I don't think we were waiting for us to become debt-free from that perspective. As and when an opportunity comes, we will be happy to explore that independently. To your last question, to your other reference of about the distribution of dividend, I thought we answered that again about 4 to 5 questions ago. Yes, that is very much on our minds, right? And we are about probably -- based on run rates, we are probably 4 to 6 quarters away from that. And that's very, very actively on our mind. We would want to come back to distributing dividends for our shareholders and increase our total shareholder return.

We take the next question from Susmit Patodia.

Welcome back to India, Hina, and all the best to you. My first question is if you can tell us, has there been any incentive restructuring? Because clearly, the organization seems to be moving from cleansing, cleaning up to now growth. So are there any changes at the employee level for incentive programs? Is there an outlook change?

I mean nothing -- I mean not really. Very much -- very much the same. The key metrics of top line growth, share, profit and cash. Those are broadly the 3, 4 metrics. So nothing significant, Susmit, that needs to be called out.

Got it. And my next question is what's your thought as, Hina, to you specifically, what's your thought on RCB? How do you see that as an asset? We obviously knew the interest Anand had for cricket. But just wanted to understand how you think of RCB?

Look, RCB is very core to our business. So we remain very committed to RCB as an asset, and we are very delighted with what's happened in the recent bids on the asset value. So no change in our strategy. We are very delighted. I've spent a few weeks in Dubai with the last IPL session. So we remain extremely committed.

We have the next question from Ms. Latika.

I have 2 questions. The first one is on the scotch portfolio. Clearly, this is going to be a larger piece going ahead. If you could elaborate, what is the current volume contribution and value contribution in your existing sales mix for this portfolio? And also, if you could tell us about how you're thinking about reach of this portfolio? What is the current outlet reach for the scotch portfolio? And how do you see that expanding going forward? So that's the first piece on the scotch side. The second question I had was for Pradeep. One of the things I think we were trying to do was getting more efficiencies on the ENA in-house distillation, right? So what is the current update there? Are you looking at some bit of backward integration out there to ensure the volatility in raw material inflation is relatively lower?

Yes, Latika. Thanks. Can you hear me, Latika?

Yes, I can.

Okay. So let me take the first question, which is what's -- yes, on our scotch, right, broadly what our scotch. So I have some kind of headline numbers parked in my mind, right? Scotch would roughly be about low double digit right now in our overall portfolio. And clearly, you've seen Hina call out, we really want to accelerate on that growth. So again, like the P&A versus Popular, fair to suffice to say that it will jack up in salience, right? So -- and we do expect it to reach a sizable salience over the next 3 to 5 years, right? So that's on scotch piece. Your second question was on the ENA co-location. Absolutely, we continue to work with our business partners to expand our co-location footprint. I think 3 to 4 years ago, our co-location footprint would have been in the range of 15% to 20%. Currently, we stand at about 50%, right? And we would want to -- over the next 3 to 4 years, we would want to continue to increase that co-location footprint. What that gets us is supply security during volatile times. And it also gives us a little bit of productivity, rupee productivity efficiencies.

One part of the question was the outlet reach today for the scotch portfolio. Is that something that you're ramping up strategically a lot more?

Yes.

I mean, basically, it's -- there are many factors. I mean, definitely, we are ramping up reach, right? I think it's more about where the demand is picking up and where states are launching progressive policies for development of the category. I think that's where you see the demand, and that's where we are activating, and in fact, transforming the retail, where we are able to improve the shopper experience, right, not only for scotches but for all our brands, right? So I mean, we don't -- we have a limited set of outlets to play with it, right? And it's 80,000 outlets. So I mean, for us, every outlet is important as a contact point with the consumer.

Yes. And Latika, just to add to what Hina has said, I was -- my mind was working on the same thing. Look, I don't think outlet distribution reach is really a differentiator in this category, right? I mean 80,000 outlets total, but actual active outlets might be more closer to 55,000, 60,000, right? So definitely that is increasing. But I think it's the consumer penetration that is relevant. And without doubt, that is kind of going up, and that's what is allowing us to capture the kind of growth that we are capturing.

Sure. No, Pradeep, where I was coming from is, clearly, yes, you're right, maybe these 50,000 outlets are maybe active outlets for you. But considering a couple of states have eased taxes on scotch, BIO and BII, what is the existing presence? How many outlets do carry these products? So I was just kind of thinking that number will only increase, right?

I would say, Latika, everyone carries them, right? I think the traction level is dependent on the price affordability in different states, and that's what Abanti is working on in terms of the premiumization agenda in different states where the prices are not viable for the consumer. But I would say the traction of our brands is so high that everyone carries some, right?

We invite the next question from Mr. Harit Kapoor, Investec Capital.

Just had 2 questions. The first one was on your P&A strategy. So obviously, this space is exploding, as you said, and you are looking at extremely strong growth. I think it will probably be as attractive for you as it would be for even your competitors in the space, and there would be an increased activity there, probably led by you, but also by the other players in the space. I just wanted to understand whether you believe, over the next 3 to 5 years, structurally, the investment space or the ad spend that you kind of spend in this portfolio would have to go up to meet your growth targets as well as to kind of compete with all the new players or even the existing players who are launching products to capture space in this segment? So that's my first question.

So Harit, we are actually very delighted that everyone is looking at this space and investing in it because that helps category growth, right? And it actually accelerates the premiumization trend even more. So we are quite delighted. And we are going to focus on what we take as a consumer in view, right, and give the differentiated offerings that -- to cater to these evolving consumer needs. On A&P, I did say that as we premiumize, right, we generate the ability to invest more. So it's a very virtuous cycle. And it gives us operating leverage on A&P. And then combined with the efficacy that we drive, effectiveness that we drive through our catalyst tool, we have a very robust sort of investment plan in our growth. right? So it's actually a good phenomenon for the industry to invest.

You're saying it's -- even on a net basis, taking all factors, you still believe this could be materially margin -- or at least per case accretive for the business over the next 3 to 5 years?

Definitely.

Absolutely. Absolutely. Emphatically, yes. Emphatically, yes. It's gross margin percentage accretive and usually rupees per case accretive on EBITDA.

Correct, correct, correct. And the second one was on the franchising part in the Popular business. You've seen some changes there over the last 18 to 24 months, probably accentuated by COVID as well. Just if you could give us a status check on where you are, what are those terms now probably without -- obviously, I know you wouldn't go into some of them because you are doing a strategic review as well. But just from a franchise perspective, where we are, what are those terms now and what gets booked now in the P&L versus what it was maybe 18, 24 months back?

Yes. So very similar. Nothing has changed, right? But again, I do want to reemphasize, Harit, on some of the operating model changes that we have done in terms of ways of doing work, business with the franchisees. So about 12 to 15 months ago, we had created a separate dedicated strategic business unit for our Popular business. And we had a very, very senior team leader who kind of runs that business, someone who understands category management as well as operating models, right? So we had transitioned into a joint business planning process with our franchisees. That has really dialed up the engagement and the speed and agility with which we respond in the marketplace of our franchise territories also, right? So overall, we are happy with how that is done. The model remains exactly the same. The franchise royalty gets booked in our NSP and that flows directly into our EBITDA. Obviously, as you are aware, Andhra Pradesh market access issue created a bit of a headwind there because that was a large business, and it was also the anchor business, the cash cow of our master franchisee, right? But we are pretty much through that and we have started lapping the impact of that.

So ex-Andhra, you feel the business on the franchise side is fairly stable and the royalty income...

Yes, yes, stable and doing well.

We take the next question from Tejash Shah, Spark Capital.

In past, we have seen that the growth momentum in the industry gets disrupted with this regulatory interventions and Andhra being the latest case. So the guidance that we have shared of double-digit growth is accommodating for such regulatory disruptions which are quite periodic or regular in this sector.

Yes, the answer is yes. I mean, basically, we have seen this volatility and I described this best by saying that I used to handle 37 countries in Africa. And when some did -- some had issues, the others did very well. So net-net, we were quite okay. And I think India is a combination of 36 countries, right? So the answer is the same, right, where some shut down, others open up. And we've seen that even when markets close down, they do come back. We've seen that, and we've seen that models become -- we are able to work with the government to get more acceptable models like we did in Uttarakhand and Chhattisgarh. So basically, it does factor this and it does factor the outlook that, look, over a period of time, this all balances out, yes.

Yes. Sure. Second question is, Hina, you made a very passionate case on renovation and innovation in the portfolio. If you can share some thoughts on potential intervention, if at all, required, and go-to-market strategy as well.

So I mean, look, the route to market and go-to-market for us is quite defined, right? There is not a very different way to go. So basically -- but there are newer avenues opening up, like home delivery, for instance, right? So it's an unlock that happened during COVID. And basically, while it is still quite small and we know that these types of models take a long time to reach a tipping point, we see it as a growth -- a game changer in the future. So we are going to continue to work on these models with regulators, retailers and the platforms, right, as they evolve. The other go-to-market, which I think is very important is this whole phenomenon of retail transformation, right? So we are very happy that states are gradually giving very progressive policies on changing the shape of retail in the state, right? And look at what's happening in Delhi, for instance. It's a real game changer. So we will continue to strategically invest in retail transformation, some of the pictures I showed on my slide, really improve the shopper experience, come closer to the consumer through this. And of course, digital, right? So I mean online -- whether online itself as a delivery mechanism is not big or not, but digital engagement is quite high. And we are able to -- we have been engaging, we have got programs like Social Goat, et cetera, which take us closer to the consumer and actually activate around in-home consumption, which has gone up quite a bit. So I mean there is opportunity for us on the retail side on home delivery as it evolves on the digital side, right.

Sure. And the last one, apart from Pernod, whom do you consider your key competition in the market? And are you concerned about players like Radico gaining significant market share in IMFL segment?

Look, I would say we are pompous, right? I think we look at all competition as competition to us, right? And I think each company is doing well in what they are doing, right? So we are taking -- our view is to focus on the consumer and provide competitive and differentiated offerings in each segment for us to perform competitively, right? Definitely, I mean, we are cognizant of all competition and what they're doing.

4 minutes to go. So maybe we can make this the last question. Is that okay?

Sure, sir. We take the next question from Mr. [ Anand Tyagi ].

Hello, everyone. I hope I'm audible.

Yes, [ Anand ], you're clear.

Sure. Okay. So can we expect the company to be debt free by the end of this financial year? And I know I -- and with regards to the dividend distribution policy, if you could share the dividend payout range in percentage terms? And any plans to separately list RCB?

Yes. So [ Anand ], 3 questions. I'll have to go very cautiously right now on each of them. Obviously, we cannot provide any forward-looking guidance, right? But all I'll say is you can see the run rates, right, what kind of cash flows we generate, et cetera. And therefore, what is the time line by which you expect us to be debt free, it will be hopefully very soon, one. Second thing is -- no, again, like I have said, definitely coming back into distribution of dividends is a topmost priority, right? We are just kind of restricted by the wipe out of the accumulated losses. You are as close to the numbers as I am, right? And again, based on run rate, you will broadly get a sense of when we will tip over that, right? So that's the second thing. And I definitely cannot disclose what are the kind of dividend distribution ratios that we will get in. But as and when we reach that point of time, we will be happy to disclose, right? Yes, that's it. And RCB, Hina has already mentioned, very, very core to our business, very, very dear to us. We are absolutely excited by the kind of returns it generates, and we are happy to see its valuation going up by the recent bids also. Nothing beyond that, that we want to share.

All right. I think time to wrap up. I just wanted to use the last few minutes to thank you all for your questions. I mean to wrap up, I would just like to say that I can best describe this time as a celebration of our culture and a great example of how diverse experiences and perspectives drives growth and creates value. We continue to be focused on meeting the moment and deliver in financial year '22, and build on our current top line momentum. We will continue to invest in and accelerate what's already working, and explore future growth opportunities and further unlock value from our ecosystem. I would really like to express my gratitude to all for their continued resilience, passion and ownership. I really want to thank you for your time today, your ongoing partnership and support for our business. Please do stay safe and well, and I wish all of you and your families a very happy Diwali. Thank you so much.