United Spirits Limited (UNITDSPR) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to United Spirits Limited Diageo India's March Quarter and Financial Year 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Hosting the call today from United Spirits Limited are Ms. Hina Nagarajan, Managing Director and Chief Executive Officer; and Mr. Pradeep Jain, Chief Financial Officer. I now hand over the conference to Ms. Hina Nagarajan. Thank you.

Thank you so much. Good morning, ladies and gentlemen. Welcome to the conference call of United Spirits Limited. Last year, you will remember that I had joined the USL call as an observer. Today, I'm delighted to be presenting the financial results of my first year as MD and CEO of USL. We can now get started with the presentation, please. Next chart, please. During the call, we will be walking you through our progress on the new strategy launched last year. We will then cover the financial highlights of the year ended March 31, 2022, which Pradeep Jain, our CFO, will walk you through, and then close with a narrative of our perspective moving ahead. So moving on to the first area, progress on strategy. Can you go to the next chart, please? Next one, please. As most of you know, our mission is to be top-performing CPG company in India delivering sustained double-digit profitable top line growth while staying true to our margin guidance of mid to high teens. Our mission has also taken a broader and more complete, long-term value to all our stakeholders, consumers, employees, trade partners, suppliers, the communities in which we operate and, of course, our shareholders. Our strategy to deliver our mission is built on 3 pillars. Just a reminder that these 3 pillars are a reshape of our portfolio; 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. Speaking to the first pillar, next chart, please, portfolio reshape. While crafting our strategy, we saw several transformational consumer energies that defined the choices we made for our business and portfolio. As I had announced then, our portfolio reshape would be delivered through strategic review of the Popular portfolio, breakout growth on Prestige & Above, new growth engines and, last but not the least, value chain efficiency extraction to fund growth and mitigate inflation. Our portfolio activation and new product offering during the year was fully aligned with this strategy, and let me now walk you through some details. Next chart, please. Let me first cover the Popular strategic review, which has just got concluded. As you all must have heard and read by now, we are selling our portfolio of 32 Popular brands to Inbrew Breweries Private Ltd. for INR 820 crores. The 32 brands sold include Haywards, Old Tavern, White-Mischief, Honey Bee, Green Label and Romanov. We have also entered into a 5-year franchise arrangement for 11 other brands. USL has granted Inbrew the rights to convert the fixed-term franchise arrangement into one with perpetual rights or acquire them outright subject to fulfilling certain conditions. And there is obviously a transaction consideration for that, and Pradeep will walk you through the details in a bit. McDowell's and Director's Special Whiskey brands were not part of this review, and USL continues to retain them. This transaction reflects the continued evolution of the management of the Popular portfolio since 2016 when the company moved to a franchise model in many states to enable a sharpened focus on Prestige & Above. This is a significant move to reshape our portfolio in service of our publicly stated mission to deliver sustained double-digit profitable top line growth. Just to give you a sense of what changes for Diageo after this, I have visualized this on the slide for your easy reference. On the volume, the total volume for USL in FY '22 is 79 million cases. If I consider the spin-off, the revised volume will be 56 million cases. The total NSV will move from INR 9,300 crores, which is reported for FY '22, to INR 8,000 crores after the spin-off. Our P&A NSV salience in FY '22 is 74%. And after the spin-off, this will become 85% of the portfolio. And the Popular brands, we had 47, which will now drop to 15 brands after the spin-off. Like I said, Pradeep will cover more details on the transaction in his financial section. Please move to the next. Coming to our next mission pillar, which was -- or strategic pillar, which was to break out growth on Prestige & Above. The first part of this pillar was to accelerate our Luxury and Premium portfolio, which comprises primarily of Bottled in Origin and Bottled in India Scotches. Our year's performance of very strong double-digit growth on Scotch was enabled by scaled-up activation of very choiceful and the most powerful growth drivers. On Johnnie Walker, there was a bold and vibrant play in culture during the year. The global Keep Walking anthem was launched in India. It took over YouTube, Hotstar and several other digital platforms, reaching more than 100 million consumers. Quotes from cultural trailblazers were seen across high-impact, out-of-home sites in 8 cities, including the airports. We hosted the first-ever drone show in the category across the night sky in Goa on New Year's Eve, a reminder of positivity and resilience as we ushered in the new year. This was witnessed by more than 8,000 people celebrating on the beaches of Goa and reached out to more than 10 million people on digital. Our on-ground presence on the India-South Africa series was unmissable and placed Johnnie Walker top of mind with every cricket fan in India. We've unleashed our new visual identity across more than 400 off-trade stores to completely reframe the shopping experience for consumers at these walk-in stores. ReVibe The Night was a commitment to regenerate the lifeblood of social culture and the nighttime economy. With ReVibe The Night, Johnnie Walker inspired people to keep moving forward and re-vibe their after-hours as a community bringing together the biggest collaboration between bar communities, trending musicians and culture curators to invite people to re-vibe socializing spaces that have been so integral to our after-hours experience. This had 100 million social media reach. It was activated in 650 outlets with more than 70,000 serves in hand. Can we please show the video? [Presentation]

Coming now to Black & White. Black & White is an absolute racehorse in our portfolio. It's been growing at a consistent pace, disproportionately recruiting young adults into scotch. We have a winning mix that plays to the fast-growing casual occasions, and excellent physical availability has brought alive the amazing brand world of Black & White. We collaborated with world-renowned master chef, Heston Blumenthal, to bring alive the magic of sharing Black & White. This partnership was activated through an omnichannel campaign that included a special edition Heston Pack and a digital journal of sharing with secret drink and food recipes from Heston and consumers. We are aspiring to create the world's largest digital photo journal with this campaign. The scale-up of Hipster, our cool pocket scotch format, has helped Black & White recruit faster in boomtowns, and the pack has added to the cool and casual image of Black & White as well. Please play the Heston video now. [Presentation]

On Black Dog, it's been a landmark year with the renovation being rolled out into the market. We did a complete renovation of the brand, including the brand world and its packaging. The renovation has taken the market by storm, and we've set the brand on a growth trajectory that will continue to fuel growth for many more quarters. The second half of the year witnessed the coming together of 2 icons as Keira Knightley embraced the art of savoring the pause with Black Dog in a brand-new campaign. We also launched the 14-year-old edition to further build the brand credentials. This variant strengthens the provenance of our liquids with the Linkwood Distillery. Black Dog is growing ahead of category, and our brand health metrics too have seen substantial improvement. Can we please show the video now? [Presentation]

Next chart, please. Yes. During the year, we also made big moves in our Prestige portfolio. We relaunched Signature, which has a future-forward proposition. Signature is crafted 100% from nature, and it is more sustainable now. The glass has circa 40% recycled content, and the bottle carton is made from forest [ products ] to other certified responsibly sourced paper. This has shown resonance with consumers across Tier 1 and 2 towns. In the markets we have launched, we are seeing significant growth momentum, and the brand is performing ahead of category growth. We will continue to leverage this momentum in the new year. We also launched Royal Challenge American Pride during the year in a few markets. Consumers have really liked this smooth and accessible whiskey with international credentials, especially the younger, legal, drinking-age consumers. We have seen strong trial levels, even stronger repeat levels on the brand, and we will continue to roll out the brand to achieve national presence. On Royal Challenge Whiskey, our renovated bundle was launched in Delhi with hyper-local communication reaching 10 million consumers and refreshed retail visibility and a new variant launched in Telangana and Maharashtra at a very competitive price point. Royal Challenge Whiskey is witnessing very positive momentum in all these 3 states on the back of these initiatives, showing strong and sustainable volume gains. And we will continue to roll out the restage of Royal Challenge Whiskey in the new year. Next chart, please. McDowell's No.1 Whiskey has continued its robust momentum post the renovation. Next chart, please. We continue to invest in the brand across key markets. We are very proud of the fact that McDowell's No.1 partnered with 6 IPL teams as the official celebrations partner to create a new language to express yaari, the #No1YaariCheers. Apart from content created by the team players that is getting aired on YouTube and Hotstar, the brand engaged with a host of celebrity and micro influencers to drive engagement on social media. Key No. 1 Yaari points across key states were also activated with a high-decibel engagement activity during purchase. This engagement is reaching over 50 million consumers. Please go back to the last chart and play the video. [Presentation]

Next chart, please. The third aspect of our portfolio reshape is new growth engines. In line with our strategy to deliver [ commercial ] innovation and take a more future-back approach 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 took strong steps in the world of craft and gin. Epitome Reserve is a limited-edition, rare and scarce offering in our Indian craft spirits. We launched 2 limited editions in F '22. The first one was the Epitome Reserve single-grain whiskey made from 100% rice grains, 2,000 bottles only. The second was the Epitome Reserve Peated Indian Single Malt, 3,600 bottles only. A limited number of bottles of these were shipped internationally to UAE, Australia and New Zealand. The response to both these LTOs has been very positive. Consumers want more of these highly bespoke limited editions that truly celebrate exceptional Indian craftsmanship and the artisanal nature of these liquids, and we will continue to develop this area. I am very proud to announce that we've also expanded our focus on premiumization with the launch of Godawan, our first single-malt innovation to create liquid experiences that reflect the ethos of global native mindful luxury seekers. Godawan is a beautifully crafted artisanal range of single malts, which will complement Diageo India's vibrant Luxury and Reserve portfolio. The brand combines strategic focus on premiumization, innovation with our commitment to sustainability. Crafted in Rajasthan, Godawan will work to conserve the great Indian bustard and water in the park state as well as combined community efforts on regenerative agriculture. We are very pleased to inform you that not only has Godawan received highly positive response, it was also the official pouring partner at the Cannes Film Festival a couple of weeks ago in partnership with the NFDC. Adding to our craft story, in line with our strategy to add premium craft brands to the portfolio, we have made an investment in Nao Spirits, the makers of Hapusa and Greater Than craft gins. These brands complement our already strong global gin brands, Gordon's and Tanqueray. Both gin brands, Hapusa and Greater Than, have strong ventures within India provenance. Hapusa is the only London dry gin from South Asia recognized by The Gin Guild, and it won gold medal at IWSC Spirits Awards 2021. With significant expansion plans both domestically and in international markets, these brands have the potential to be India's answer to globally competitive craft gin appealing to the millions of Indian-origin consumers living abroad. Our entry in craft has been perceived very positively by industry. To show you one reaction, go to the next chart, please. I just want to read out what Vikram Achanta has to say, "What's heartening for me personally, apart from one more excellent whiskey joining the pantheon, is that a company like Diageo has embraced Indian craft spirits, thereby giving the entire craft spirits ecosystem in India a welcome vote of confidence. It also marks that innovation is not solely confined to small and midsized companies, but that the big boys can dance, too." Please go ahead. Coming now to the last part of our portfolio reshape, we have significantly enhanced our productivity and efficiency extraction initiatives through the value chain. Strong premiumization delivery is enhancing our mix benefit. Launch of margin-enhancing products like Epitome Reserve, Godawan, Royal Challenge American Pride are adding to the mix benefit. We have exceeded our annual targets for COGS, marketing and overheads productivity. We have rebalanced our marketing investments for a larger and meaningful impact when COVID-19 restrictions were prevailing in the country. With this behavioral shifts, our spends were up-weighted in off-trade through tertiary driving initiatives and also hyper-local initiatives. Third, spaces were activated to drive footfalls, and liquid on lips resumed as COVID restrictions eased. On CapEx, our capital allocation strategy is now indexed towards productivity, supporting core growth, innovation and maintenance. This aligns well with our long-term strategy of having an asset-light model. Coming now, next chart, please, to the second pillar of our strategy and the progress there. The organization of the future, please go to the next chart. This pillar comprises of 3 dimensions. Next chart, please. Digital acceleration, speed and simplicity, and talent and culture as growth drivers. On digital, we launched bar.com during the year. This is aligned with our global digital acceleration initiatives. Several activations to bring traffic to the website provide lifestyle and celebration tips, build a community, integrate with world-class campaign to bring together the bartender community, et cetera, are underway with lots more to come. We explored the [ power ] of reality via QR code scan and unlocking a digital distillery tool for Signature, showing our grain-to-glass journey. We hosted the first-ever Holi party and music concert with Daler Mehndi in the metaverse with McDowell's No.1. We have made several other technology interventions. To name a couple: in-sourcing of our sales and operational planning supported by technology; bringing automation and technology enablement to the function as well as productivity; also launching our trade promotion management platform to ensure stronger, more robust, technology-based management of our trade spend to enhance pay for performance. On speed and simplicity, our multiple tech adoptions that I talked about have led to simplifying life for our employees and our ecosystem, which in turn is enabling us to be agile and faster. Radical Liberation sprint made significant progress in F '22. 1.5 lakh man-hours have been saved by several initiatives like reducing the number of vendors, increasing spending limits, standardizing various processes, meeting protocols for efficient meetings, to name a few. We are now directing this time saved to growth initiatives. Speaking now of talent and culture as growth drivers. On the talent front, we have significantly strengthened our capability in marketing, luxury selling, consumer insights, commercial and innovation in F '22. We have launched the Diageo India Distillation and Maturation University to strengthen our capability in this area. The Diageo India Marketing Academy has also been launched with focus on consumer insights, digital, creative agility and omnichannel experiences, keeping brands and consumers at the core. On our culture, our internal anonymous employee engagement survey called Your Voice results have come in now, and they continue to be leading across Diageo global markets. We've had very healthy participation at 94%. India has scored above global averages on most parameters. Our engagement at 86% and inclusion diversity indices at 89% are leading. And on inclusion and diversity, we've actually improved our score by 3 percentage points versus the previous year. 93% of our employees say they are proud to work for Diageo. 85% would recommend Diageo as a great place to work. Our Net Promoter Scores on company and brands of 37% and 85%, respectively, are really strong when benchmarked both internally and externally. 92% of our employees see a clear link between their work and Diageo's immediate business priorities and performance ambition. This is 8 points above global scores. 84% of our people understand our Society 2030 goals and how they can help deliver them. Our score is 17% points higher than global. 94% of our people say they are able to play a role in promoting positive drinking. These scores reflect our people's passion for our purpose and brands, and this continues to be our source of competitive advantage. Coming now to the last but not the least pillar of our strategy. Next chart, please, Diageo in society. Next chart, please, yes. Since the acquisition, we have had 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, our new 10-year action plan on the role we will play in society. It is fundamental to our mission and to our impact of creating 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 to the rest of our business. Next chart, please. Talking of driving ESG from grain to glass, the highlights of our F '22 initiatives on this one are, firstly, Learning for Life. To provide sustainable livelihood opportunity to youth, we admitted 925 students versus a target of 800 with 54% women to undergo training in business and hospitality skills. 610 have already completed the course, and 156 students have been placed in jobs with an average CTC of 12,000. On water stewardship, preserving water for life, we initiated work across 3 of our factory locations, Nashik, Nanda in Maharashtra and [ Kumbalgodu ] in Karnataka to replenish about 4.62 lakh cubic meters of water. On our extended producer's responsibility on plastic waste, we have collected 41,000 metric tons of consumer plastic by March '22 and recycled through our EPR system. By end June this year, we will be plastic waste positive, which means that we will be collecting and recycling more plastic than we are putting out. On our ambition for net zero carbon in our direct operations, our greenhouse gas emission across our own operations has been reduced from 26,000 metric tons to less than 6,000 metric tons, a reduction of over 80,000 -- 80%, my apologies, over F '20. We are sustaining 0 fossil fuels used across our distilleries. We have launched a reforestation drive to plant 80,000 trees to offset our residual greenhouse gas emission. And we have also signed a contract to double our solar capacity from 1.3 to 2.6 megawatts. Our brands are taking forward our ESG narrative. I've already spoken about Signature and Godawan taking bold leaps on sustainability. We are also taking significant, next chart, please, packaging sustainability initiatives which have started in F '22. On our Hipster packs, which are the stylish portability cool packs introduced on our premium brands like Black Dog, Black & White, VAT 69 and also Smirnoff Vodka, these have been in the market for 2.5 years, and we have now started moving them to biodegradable packs. All -- Black & White has already moved to the biodegradable format, and all others will go live in the next few months. These are 100% biodegradable and recyclable packs and a very big step forward on our sustainability initiatives. In line with the Diageo global communication on 27th April '22, announcing that Diageo is starting a program to remove cardboard gift boxes from premium scotch portfolio, Diageo India will lead with our cardboard gift box removal on our premium and upper prestige brands. This phased removal of cardboard gift boxes will test consumer response, reduce waste, contribute to Diageo's 10-year ESG action plan and will enable us to test and learn and expand to other brands based on the response. We hope the rest of the industry will follow as we take this very significant step towards sustainability. I have already spoken about our plastic initiative through the extended producer's responsibility. I will come to the last one, which is digital track and trace. We have been working on a blockchain-enabled track and trace for our brands, and this will go live over the next few months, enabling transparency of our sustainability initiatives. For our key brands, we will be able to trace back the product journey from blend to finished goods, providing auditable sustainability data. Again, another significant step towards our commitment to become more sustainable. Coming now to Moving India Towards Drink Better, Not More. Next chart, please. We have several initiatives which have progressed during the year. To curb underage consumption, through our program, Act Smart India, we have educated 60,000 students with 37.5% taking a survey to capture attitudinal shift against the target of 20%. This is quite significant because we are actually able to map not only through the survey and intent, but also a shift in attitude and behavior through our education program. On the moderation side, 55,000 consumers were educated through the DRINKiQ platform. We have also educated people on anti-drink driving through the wrong side of the road. 84,000 consumers reached through this program. We have also partnered with 5 regional transport offices in 3 states in Rajasthan, Maharashtra and Uttar Pradesh, and have launched driver sensitization tab lab where it is now mandatory for all the candidates to go through our program to become eligible for license application. Coming now to the last area of this initiative and this pillar, leading inclusion and diversity. Next chart, please. Diageo India is driving focused initiatives to lead in the CPG industry on progressive and inclusionary work and brand building. For this, we've invested on deep understanding of the relevant cohorts and consumers, including those on the gender and sexual orientation spectrums, not just how to create for them the brands, but also how to project them respectfully, which is not something that has been done consistently in this industry. This has reflected in our work across brands. More than 42% of our brand communication and content have women, not just represented, but leading the narrative, both front and back of camera. Black & White, Johnnie Walker, McDowell's No.1, Tanqueray, Gordon's, Royal Challenge all have women leads, while brands like Black Dog are amongst the first scotch brands in India with women as the lead store retailer. 8% of our creators are, in fact, with influencers and partners who are on the gender orientation spectrum, including brands like Signature, Gordon's and Smirnoff, all featuring gender-fluid protagonists. Going forward, we are committed to drive these numbers further up and keep setting benchmarks in the industry. In the Creative Comeback India program, we joined New York and London in celebrating female and binary creative talent who are coming back into the workforce post a career break and find it very difficult to find jobs and roles that value their experience and talent without compromise. This is especially true of women, and this platform is an amazing springboard to launch our first batch of creative equal graduates. It is an India first and an India CPG first. We are also, along with Hindustan Unilever, Mondelez and WPP, the founding members of the Unstereotype Alliance program in India, which aims at working with advertisers across industries to be progressive and inclusive in that advertising and communication work. Moving next to talent representation and inclusive leadership within our organization. Next chart, please. We continue to drive our ambition of being one of the most inclusive and diverse companies in India. Female representation in our exec and overall leadership continues to be strong. 48% of our hires in the last 11 months are women. This has increased by 4% versus previous year. We have now hired 62 people with disabilities, which has increased over the previous year. Overall inclusion and diversity score is at 89%. I told you this has gone up by 3 percentage points over previous year, which we are very proud of. We have 54% women participation in our program Learning For Life. Again, this is up by 4%. We are continuing to launch market-leading policies and give infrastructure support to our employees, like the 26-weeks parental leave policy applied to all parents irrespective of gender, sexual orientation; medical insurance coverage included for the same sex partners; fresh facility or partnerships with companies which offer fresh facilities for all locations; prevention of sexual harassment policy; clear flexibility guidelines; and the recently launched thriving through menopause policy for Diageo India, which is the first of its kind in India. We will now move, next chart please, to the financial highlights, and I will hand over to Pradeep Jain to walk you through these.

Thanks. Thanks, Hina. Very good morning to all the audience. Inba, if you could move to the next slide, please. Okay. So what I did want to share is, if you look at the boxed portion on the left-hand portion of the slide, we realize that we've had an accelerated top line momentum right through the year, right? So that's one. Reported net sales increased 18.9% during the quarter. Growth was underpinned by strong consumer demand in the off-trade, premiumization, recovery in on-trade and lapping soft comparators. Underlying net sales increased 18.4%, excluding the one-off bulk sale scotch. Prestige & Above net sales increased 23.6% during the year, benefiting from favorable product mix. We saw double-digit P&A growth across all our regions. The broad-based category growth was driven particularly by scotch, gin, ongoing portfolio renovation and accelerated momentum in states with route to market unlock. Scotch growth was at a very strong double digit, benefiting from end-consumer price correction in few states and impacted global travel. So that's the overall headline I wanted to share that overall fairly strong momentum on the top line right through the year. We can move to the next slide, please. Okay, coming to the EBITDA margin, what I wanted to share upfront was that EBITDA margin is back to the pre-COVID levels, which is roughly the INR 1,500 crores that we had seen prior to the pandemic. Second thing is gross profit increase of INR 662 crores was predominantly volume and mix led, supported by productivity savings and lapping the COVID wave 1 led decline in the comparative period. On a reported basis, staff cost was 6.8% of sales, down 10 basis points. What you will also see is that the A&P investment has increased by almost 25% over the same period prior year. And on the right-hand side, you will also see that our EBITDA margin has pretty much reached the peak that USL had achieved prior to the pandemic. We move to the next slide. And mirroring the EBITDA performance is the PAT margin, very much a mirror image of the top line recovery aided and further significantly aided by the lower interest cost, right? So if you look at the EBITDA margin, which is almost 360 basis points up above prior year and then add to that the interest, which is almost 141 bps additional delivery versus the prior year, that's what is aiding the PAT delivery of INR 770 crores. We can move to the next slide. I mean just a couple of headline thoughts here. Strong cash flow. The business continues to be very, very strong on free cash flow, and that is what has enabled us move to actual debt-free status by the end of quarter 3. And as of the end of the financial year, in fact, we have a cash surplus of almost INR 222 crores, which is lying in liquid investments in our balance sheet. We can move to the next slide, please. Okay. So I mean I can, on a lighter note, say that this chart will pretty much become irrelevant from here onwards. Debt of 0, so therefore, the debt equity ratio is irrelevant. Interest cost almost down to 0, barring for some non-debt-related interest costs on an ongoing basis, and interest coverage ratio effectively becomes irrelevant. I think what the important point to call out is that during the year, CRISIL upgraded its USL rating on its bank facilities to AAA/stable/CRISIL A1+. We can move to the next slide. Okay, so on the left-hand side, again, the same point that our earnings per share is now back to the pre-pandemic levels. In fact, in the financial year 2021-'22, we have reported an all-time highest earnings per share of INR 10.6 per share. Okay, and on the right-hand side, our return on capital employed remains very strong, and it kind of reflects ongoing working capital efficiencies as well as a little bit of reduction in the CapEx intensity as we go towards progress towards our in-state manufacturing footprint of an asset-light model. Okay. Yes, next slide, please. Okay. So I'm sure all of you have been waiting for this one, right? So let me spend a little time to just explain the deal construct that we have announced on Friday evening, right? So the deal of selling our 32 brands to Inbrew Beverages and franchising another 11, right? So let me go very, very slowly and logically on this so that all of you can absorb it. There are 2 legs to the transaction. One is the immediate slump sale, right? So that's the 32 brands. The consideration for that is INR 828 crores, right? In addition to that, we are franchising 11 brands on which royalty is payable to us over 5 years. The legal title very much remains with USL for these 5 years. At the end of the 5 years, right, Inbrew has an option to convert the fixed-term franchise arrangement into a perpetual right-to-use arrangement or acquire the brand. And the consideration for that transaction has already been agreed, so therefore, it's a pre-agreed consideration. And that option to acquire these 11 brands, the consideration agreed is INR 1,331 crores, right, split into INR 1,293 crores at the time of exercise of the call option and the final INR 37 crores when the assignment of the brands will happen to Inbrew. So that's the broad construct of the deal, right? Right now, as part of the slump sale, what is going to Inbrew, one manufacturing facility and 4 contract manufacturing arrangements, right, in the state of Karnataka will be transitioned to Inbrew. And we intend completing the transaction by 30th September 2022. So that's the overall construct, right, and we'll be happy to take more questions in the Q&A session. We can get to the next slide, Inba. Okay, so let me just now hand it back to Hina to wrap up the presentation before we move into the Q&A session.

The next chart, please. Thank you, PJ. So looking ahead, we do anticipate volatility to remain in the short term. We anticipate some temporary import supply constraints in the short term and inflationary headwinds to put pressure on our growth and margins. In the face of unprecedented inflation, we are further driving up our proven productivity muscle. Our organization is mobilized and is targeting twice the usual productivity at a total enterprise level, whether it's buying efficiencies, sharper choice on the investment or sweating our assets more for operating leverage. We are also fast-tracking progression to our end-stage manufacturing footprint over the next couple of years, and we will be in a position to share more details on the same in the coming quarters. We have increased the intensity of our price advocacy engagement with the states, especially with price elasticity being low at the higher end of the portfolio. Overall, we remain confident of the medium- to long-term prospects of our industry and on our strategy. Favorable demographics and rapid premiumization bodes well for our industry and Diageo India. We have a really strong portfolio addressing all the growing segments of the market. Our strategy has been validated over the last year, and the consumer insight-led innovations and renovations have hit home and built momentum, which we will leverage moving forward. Our talent interventions and strength of purpose and culture continue to hold us in good stead. We are making significant positive strides in our Diageo in Society: Spirit of Progress 2030 goals with our people fully engaged and committed to these. Our productivity muscle is proven, and the organization is mobilized to dial our productivity to 2x the historical rates. We have also witnessed regulatory tailwinds over this last year. Last but not the least, I would say, our active portfolio management, adding more margin-accretive brands, products, dialing up growth on P&A and the conclusion of the Popular brands strategic review will allow us to sustainably meet the double-digit profitable growth guidance in this volatile and uncertain environment. And we will be able to recoup the impact of the transaction on Popular over a very reasonable time period just as we have seen in such cases within Diageo PLC. For example, in North America, we divested 17 tail brands to Sazerac. And the business -- the reshaped business really had a kicker and took off on growth after the deal, right? So right now, I would say that we are focused on closing the transaction over the next 3 to 4 months. And we will come back to discuss guidance once the transaction is satisfactorily closed and there is some stability in the external environment. We hope the above context has helped, and we will be happy to now take specific questions. Thank you very much.

[Operator Instructions] We'll take the first question from the line of Avi Mehta from Macquarie.

My question was essentially on the strategic sale. I just wanted to understand, while you've given the volume and the revenue impact from the slump sale, could you also share the EBITDA and working capital impact, if any? And the second linked question is, for the 11 brands that have been franchised, what is the revenue, EBITDA and the payment schedule? Because we are not really clear on how -- what is the fixed portion that comes in and the rest that comes quarterly. So a color on that, please?

Yes, Pradeep can take that question.

Yes, thanks, Hina. So Avi, thanks. Great question, right? So let me kind of try and respond, right? So since you asked the question about both the legs of the transaction, right, I will kind of provide a consolidated view of the combined leg and then maybe we can see further also. So the EBITDA of the perimeter business, which is the 32 brands which are being sold and the 11 brands that are being franchised, right, is roughly about INR 195 crores, right, on '21-'22, right? So therefore, the EBITDA margin is about -- of the perimeter business is roughly about 14% to 15% of the net sales. The net sales is about INR 1,350 crores, right? So that's the broad breakup. Now it's important to point out to the audience that this is -- both the legs of the transaction are a hybrid of our direct-and-serve model as well as our franchise model, right? So a very headline direct-and-serve model, the EBITDA margin is roughly about 11% to 12%. And then obviously, there is a kicker that comes on the EBITDA margin because of the franchise, because the entire net sales literally kind of flows down to the EBITDA line. So that provides the kicker and takes it up to about 14% to 15%, right? So that's the response to the first question, Avi. I hope that answers. And yes, and the working capital is an integral component of the enterprise value, right? So on the slump sale part, the working capital is an integral component of the INR 828 crores. And similarly, the working capital is also an integral component of the INR 1,330 crores that is on the franchise leg of the brand, right? Your next question was that -- what's the payment schedule? So the franchise leg, there is only a call that Inbrew has. If Inbrew was to exercise that call option at the end of the fifth year, right, the payment of the INR 1,330 crores will happen from year 6 to year 10, which is a 5-year EBIT construct, right? Hope that answers completely.

Okay. And that is -- sorry, just a clarification, that is an equal installment over -- quarterly installments that are...

That's right. That's right.

Is that correct?

That's right, [ 20 quarterly ] EBITDA.

Okay, okay. Perfect, perfect. This is extremely helpful. Just clarifying the direct and serve, which is the slump sale margins, those are at 11%, 12%. The rest is essentially going to be franchised. Whatever EBITDA is there will now flow directly as part of the franchisee cost, at least in the next 5 years?

Avi, let me just clarify again, right? Slump sale leg as well as the franchise brand leg is a hybrid of direct and serve and franchise currently, right? So therefore, both the legs have an EBITDA margin right now of about 14% to 15%, but the direct and serve makes about 11% to 12%. And then the kicker to that 15% is on account of the franchise royalty that both the legs command currently also.

Okay. Pradeep, is it possible to give the slump sales part EBITDA margin so that we can just understand the potential kind of work in the numbers? Or should we wait for clarity later? If you could kind of just help us in that last line.

I can share it. It's about 14% to 15%, right? So the slump sale part is -- the NSV is roughly about INR 760 crores, and the EBITDA is around INR 118 crores, very broadly, okay? But again, it's a combination of -- that INR 118 crores is a combination of direct-and-serve model as well as franchise royalty.

No, no, that's clear. That's clear. Just the last bit, I have a few more questions that I'll come back in the queue. The second question I have was essentially on the input cost inflation. If you could give us an update on where ENA and glass prices are, how do you see the near-term environment? And what are the price hikes that you've received, which can help offset it? Just so that -- I understand these are near-term pressures, but just to help us navigate or/and appreciate how the near term is likely to play out.

Yes, yes. No, so Hina has already called it out in the press release, Avi, right? Inflation is mounting up, right, so therefore, there will be pressures. Glass, we've had to give another price increase sometime in February and early March, the impact of which will obviously be felt in the April to June quarter. And ENA, driven by the geopolitical tensions and the conflict in Europe, grain is under pressure. So therefore, ENA is also going up. So one is, yes, commodity costs are going up, right? And therefore, there will be short-term margin pressure. In terms of pricing, like Hina mentioned, we have rapidly increased the intensity of our advocacy. I think over the last 3 to 4 months, we've received price increases from Assam, from Rajasthan, from Madhya Pradesh, right? These are the 3 that are absolutely top of mind, right, and the cycle is currently on. So we hope to make progress on that front over the next 2 to 3 months.

Our next question is from the line of Jay Doshi from Kotak.

Just a follow-up on the responses. So for the slump sale, revenue is about INR 768 crores net sales, and EBITDA impact will be about INR 118 crores. And for the franchisee part, revenue would be balance INR 540 crores, INR 550 crores. And will your royalty fee or franchise income offset be equivalent to the EBITDA that you are making on that business of 14%, 15% today? Or will that be lower?

No, no. So good question, Jay, right? Now this is -- it won't. Reality is it won't. The reality is that the business does require a reboot, right? So therefore, our royalty payments are a little staggered, and they accelerate over a period of 5 years, right? So obviously, well, these are in the ordinary course of business, right, and I would not want to divulge the details on the royalty. But it will not be in line with the EBITDA that the business should rate.

But Jay, I would go on to say that I think with the renewed management focus and sort of reinvestment and resource allocation going more to P&A, I would say that we would recoup it from the other part of the business, right? So that should give you reassurance.

Yes, absolutely. I mean you have to have the comfort, right, that whatever this unleashes in terms of management bandwidth and attention, we will be able to divert it on the P&A side and extract more out of it.

Understood. Now if I've come to understand that this franchise arrangement was partly because of some impending -- pending litigations around the brand rights and brand logo, so do you expect some of these issues to be resolved and, hence, the call option which allows Inbrew to acquire it once those issues are addressed or this arrangement will continue for 5 years?

Well, look, ideally, yes, we would have wanted to do an outright slump sale. And we -- as we have disclosed, the franchise brands are under an encumbrance, which we have disputed the validity of because we have fully repaid the underlying loans and the accrued interest. So pending the resolution of this ongoing matter, we've structured in a manner that makes it work mutually for both parties and that they are able to achieve their strategic objective with this arrangement. Yes?

Understood. Now a couple of other questions on the business front. First is on A&P, it was 5.6% of sales in this quarter. So is this a tactical move in view in -- given there is inflationary pressure on the RM front? Or do you think that your A&P is a lot more efficient or you are more effective today than what you were maybe a couple of years ago, and hence, we should expect this to settle at a lower level than the original band of 8%, 9%?

What I would say is that, Jay, it's not tactical at all. I mean there are 2, 3 factors. I mean we approach A&P as completely the strategic reinvestment for growth in business. So 2, 3 things. One is that if you look at historically, our Q4 tends to be lower because we come from the October, December quarter, which is a very, very high spend quarter every time, right? And therefore, we do, as the quarter and consumption trends slow down in the following quarter, we do bring down the A&P percentage. I think a little bit of aggravation also happened with Omicron, which kind of hit us sort of last week of December to almost all of January. And this is a very peak consumption period. And we have to calibrate A&P bases with the lockdowns and the disruptions we saw in the market, right? And I think going forward, our stated ambition is to do between 7%, 8% A&P. Our media has become very efficient. I mean a lot of our media through programs like Catalyst where we look at very scientific approach to media investment and the fact that we have diverted a lot of our media spend to digital, which we find very effective, right? That effectiveness and efficiency work that has been done and accelerated over the last few months and years is also helping us spend very smartly.

Understood. 7% to 8%, that is after divestment of the portfolio, right? So whatever residual revenue of INR 8,000 crores, 7% to 8% of that is what roughly would be your ballpark target, right?

No. So Jay, let me kind of clarify that, right? This is on a business as in usual basis, right? Look, we will come back to you. When we close the transaction, we will get into these final level of details, right? On the -- after the carve-out, the A&P will actually go up, right, because we never used to spend any A&P on the Popular part, right? So therefore, the A&P as a percentage of NSV is likely to go up post the divestiture.

Right. Final bookkeeping question, can you give a breakup of your RM basket in terms of contribution between ENA, glass bottle and other key raw materials? And what is the level of inflation that you see in the last 6 months or on a Y-o-Y basis on 2 or 3 key RM inputs?

Yes. Yes, so I'll give you a headline, right? ENA and glass are roughly 2/3 of our RM basket, right, our MPM basket, right? So that's a good headline to keep, right? It's about 2/3 of our COGS, right? And both the commodities are right now under inflationary pressures, glass much more. ENA, we would want to believe it's more short term driven by the geopolitical tensions.

Is it possible to give us some number in terms of whether it's 20%, 30%, 40% or even more?

I would say that it would be in the range of about close to double-digit levels.

Our next question is an audio question from Harit Kapoor from Investec.

So I just had 2 questions. Can you just -- so firstly, just wanted to get a sense from you is what is the residual kind of franchise income that remains in the business? Was there anything in terms of Director's Special or McDowell's No.1 for -- in any of our noncore or noncore states that still remains? That's the first question.

Yes. So Harit, I mean I don't have the numbers right now off the hand, right? But obviously, we will get into all this once we close the transaction 3, 4 months later. But McDowell's Celebration Rum and DSP are also franchised brands, right? So there will be a franchise income stream, royalty income stream that stays in our P&L, absolutely, right? I think that's the headline response to your question.

Got it. I just wanted to kind of get a sense of what the residual number is. That's all right. The second question is on the working capital unlock. So you did mention in your annexes of the release that the net worth of the business undertaking is about INR 357 crores, and I think that's the one that's going out on a slump sale. Just wanted to get your sense of whether you can give a complete total working capital or total capital employed unlock that you could see or should we wait for that once the transaction is complete?

Yes. So roughly, that's the number. I mean you've picked it up absolutely perfectly, right, on the slump sale part, right? And then what the franchising of the 11 brands will also do is it unlocks another stream of working capital immediately, right? So that's what it is.

Would that be as significant as the slump sale number it's on or I mean not to that extent?

No, I mean it will be lesser. There won't be any fixed assets. It's only working capital.

Correct. Correct. Got it. Got it, sir. And I assume that you would give closer to exact number on this once you're close to the transaction end?

Yes, once we close the transaction in September 30, we'll be -- absolutely, we will completely kind of actualize all numbers, right? But by and large, the numbers that you have picked up are absolutely in the range. Right? There will be some transaction cost from the realization of INR 828 crores, as all of you know, there will be transaction costs, right? So that will certainly not be a net realization, right? So that will come down. And then by and large, what you have picked up is right.

Right. Just one question, slightly longer term. Just wanted to get a sense on this transaction creates probably a player who was nonexistent in spirits and now is probably going to be #4, #5 player by volume in India in 2, 3 years, and you know how difficult it is to get shelf space in this industry with very high entry barrier. Just wanted to get your sense on, do you foresee that -- while it would be a different segment altogether, but could this be, in 2, 3, 4 years' time, creating a credible player in the spirits space? How do you -- was there any -- were there considerations made on that thought process? I'm sure there were when you were kind of thinking about this. So just wanted to get maybe Hina's thought process on this.

Yes. I think it's a great question. Look, a couple of perspectives on this, right? So the first thing is that if you look at spirits penetration in India, right, it's very low. Right? So we are amongst the lowest per capita and penetration countries in the world, right? So there is enough and more headroom for this industry and category to grow. And frankly, we think more players will bring more category growth. That's one, right? The second perspective is that we have very clearly stated in our mission and strategy that we are looking at breakout growth in Prestige & Above. And one of the things that feeds well into our Prestige category is the upgrade from Popular, right? So we think that both these will give opportunity for further growth in the industry and penetration and per cap. And we are quite excited. I mean the categories honestly behave quite differently. Our core brands positioned in Prestige & Above have their own equity and consumption sets and consumers. And we don't see this in any way cannibalizing that prospect of growth for our brands.

Our next audio question is from Krishnan Sambamoorthy from Motilal Oswal Institutional Equities.

My question is regarding -- I understand you mentioned that the INR 830 crores is subject to transaction cost. A, what is the eventual plan here once you receive this, say, sometime towards the end of the second quarter? And will this be used as the payout?

Krishnan, I think the payout -- I mean, clearly, that onetime cash, I mean, dividend payout is subject to wiping out of the accumulated losses, right? So we will first have to achieve that state before we give a dividend distribution. But clearly, I think this does accelerate our journey towards dividend distribution.

Sure. My second question is something that you mentioned that the encumbrances are something that you are confident clearing because you have paid out those loans. Is there also any approvals to be sought from the Competition Commission? And is that on a national level? Or is it on a statewide level?

No. I mean there are no CCI approvals required in this transaction.

Okay, very useful. So it is only the encumbrances that has -- it's the value that is to be cleared, right?

That's right. That's right.

That's right. Yes.

Our next question is from the line of Sameer Gupta from India Infoline.

This is Percy here, Percy Panthaki. My first question is, again, on the transaction. The current 79 million cases that you're showing, are any of those 79 million cases already under a franchising agreement? Or are they all sort of being done on your own?

Yes. So Percy, we do not recognize franchise volume into our volume. So the 79 million cases is all our direct-and-serve network, right? And that's what will reduce from 79 million to 56 million cases.

So basically, the difference of 23 million is what is going in the slump sale. Is that understanding correct? And then the 11 brands being franchised is over and above these 23 million cases.

No, no, not really, right? Some part of, let's say, the 11 brands was right now in our direct-and-serve model and will now move into a franchise model, right, with Inbrew being -- becoming the franchisee, right? So it's a combination. I think headline, the combination is 75-25.

Understood. Would you be able to give an idea, actually, how many million cases are going to Inbrew either through a slump sale or through a franchising arrangement?

Okay. I don't have that readily available. What I'll do probably is request Richa to kind of share it.

Richa will get back to you.

Yes, Richa will later -- Richa will share it, right? In terms of what are the franchising arrangements that are transitioning from USL to Inbrew, right, through a sub-franchisee route, Richa will probably share those details after the call.

Okay. Understood. Next question is on the cost inflation. You basically said that 2/3 of your cost is glass plus ENA. I'm assuming a large percentage of the remaining 1/3 would be PET. And since crude prices have gone up, is there sort of an inflation in that basket also which is material enough to call out?

Yes, Percy. I mean you are absolutely right, the balance 1/3 also comprises smaller packaging materials, so PET, right, then the outer, the carton and therefore the paper.

You have the paper cost.

Yes, the paper cost, et cetera, that is also inflating, right? So yes, I mean almost the entire portfolio is probably inflating around the double-digit mark.

So at the overall basket level, how much would be the inflation for your overall cost basket on a Y-o-Y basis currently as we sit today? Would it be in double digits?

Yes, it's around double digits. Right now, for this quarter, it's around the double-digit mark.

Our next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Congrats on being net debt this year. Given that divestment of Popular brand is over, directionally, what kind of EBITDA margins can we expect from higher contribution from Premium portfolio? Directionally, is it right to say we could be at 20% EBITDA over the next few years?

So Prakash, I mean I've already shared the details of the divested portfolio margins. They are almost in line with the portfolio margins, right? So I don't think this will have any significant impact on our portfolio margins, right? That's one. But very clearly, as we have called out, is that the release of the time, of the management time and bandwidth will just allow us to focus a lot better on our retained P&A portfolio, retained P&A and retained Popular portfolio. And therefore, we should be able to translate that into higher growth in the subsequent years.

What kind of CapEx are we looking for the current financial year?

Nothing materially different from the historical run rates, Prakash.

Okay. And what could be helpful, once we have the accumulated losses wiped out, which is a very small number, maybe if we can communicate a capital allocation policy in terms of dividend or buyback or what would do we do that would be helpful going forward? So I think over the next few months, we can finalize that and communicate that, that would really give a sense of direction, what shareholders can expect. So just...

Absolutely.

I agree. Yes.

I mean that's a topmost priority. I mean we are ready with our policy, right? So we just need to time it with -- along with the -- when we are close to kind of wiping out the losses.

We'll take our next question from the line of Shirish Pardeshi from Centrum Capital.

Hina, in your opening remarks, you made a very interesting comment that you're going to follow hyper-localization policy. Is that going to be through an M&A route or we will expand our own franchise?

The hyper-localization actually comment that I made was in context of our marketing activations, right? And especially during COVID, we've seen that basically, obviously, markets were opening/shutting at different times, right? So there were different disruptions across different periods of time. And the hyper-local activation actually refers to our marketing programs, not the part of business that you're talking about.

Okay. So I was just under impression, because now we're going to get a lot of money, and is that the M&A route where we are seeing and we have seen now Spirit acquisition? So is that a significant elevation which will go towards the [ such niche ]?

So as we did state even when we launched the new strategy under the guidance of our Board, right, we are going to continue to allocate capital in a way that enhances long-term value to our stakeholders. I mean, absolutely, dividend distribution is a top priority for us. And definitely, we will be looking for opportunities for growth or productivity alliances. And if some interesting opportunities come, then we will definitely be open to them. So we will continue to look for these opportunities.

Yes. And Shirish, I'll just add to what Hina has mentioned. I mean we were not waiting to become debt-free to exploit these opportunities, right? We had enough leverage on our balance sheet. It's just a strong free cash flow generating business, right? So as and when we get the opportunity, we will anyway go ahead and seize that.

Anyway, going ahead, but then as you said that, the P&A opportunity is very large, and there are a lot of niches that people have created. So I just was quite looking at if that is the growth driver also.

No, it is stated as a new growth engine driver in our strategy very clearly, right? And we are watching for -- but we are taking a very consumer back view, right? So if there is a trend that is showing consumer traction and if there are the right opportunities for us to invest in that, like now Spirits, right, which you referenced to, if there are interesting opportunities like that, we will certainly be open to them.

Sure. My second and last question, Hina. After this slump sale and [ franchise distribution ], will it have any impact on our distribution, positive or negative?

Actually, the P&A and the Popular businesses were operating pretty independently, right? So there is no dis-synergy in this transaction. And our operation on P&A continues business as usual. It was independent. Even in the states where we had franchise arrangements for Popular, we've had an independent Prestige & Above frontline force, et cetera. So the answer is no, this does not have any impact on our ongoing business.

The reason why I'm saying, now we have a single concentration, and Pradeep mentioned that we will rationalize the management time. So P&A, if you can share the number, what's the universe and where we are stacking up in terms of on-trade and off-trade?

No, Shirish, I didn't get this question. Sorry, sorry, we completely missed the question. So where are you headed with this?

Distribution.

No, I'm saying, P&A, if there is a single-minded focus which is going to be there, so there is a significant ramp-up which I'm expecting in terms of our distribution in on-trade and off-trade. Obviously, Popular will have a larger franchise. So in terms of current, where we are?

Okay, okay, okay. So let me address that, right, and then maybe Hina can add to this. So distribution, honestly, Shirish, is not really a differentiator in this category where access is completely controlled by government, right? So if you look at the evolution of the category, I mean the access is capped to that 60,000 to 65,000 outlets, right? And we are very, very sure that our weighted distribution anyway is in the upwards of 95% to 98% with our P&A portfolio, right? So I don't think that's big. So therefore, it's all about penetration and frequency that we have to drive. Does that answer?

Sure. Yes, sure. And just one last follow-up on this. Given this slump sale, will it have an impact on employee count?

So there is a set of employees which are in the perimeter, right, because we are selling it as an undertaking, right? So that goes along with the undertaking, absolutely, right?

Would you like to quantify?

I mean that, honestly, we've not shared, so I would not want to kind of make that number public, right? So once we kind of closed the transaction, Shirish, towards end of September, we'll be happy to share the details.

Our next question is from the line of Tejash Shah from Spark Capital.

My first question pertains to broad strategy here. And then I believe, broadly, most of us were under the impression that the Popular segment will have materially lower margins than P&A segment, which you actually clarified which were not materially lower. Then the question is this, that coming from a consumer company perspective, usually, in an under-penetrated category, we recruit more consumers at a massing and then we premiumize within the portfolio as we go along. Now we have been saying for a while that this has been a very highly under-penetrated category. And to give away the entry-level part of the portfolio, which now today is a positive, it's not even margin dilutive as much, so I am just trying to understand what is the upside out of this transaction for us, in addition to what we spoke about, managerial bandwidth and other issues?

So I think, look, the decision is a composite result of looking at 2 criteria: where is the market headed and where lie our core strengths and portfolio, right? So it's a question of fit and value. The brands being divested are not core to our business. We do not have a longer-term right to win in these categories, right? And it would require substantial investment, management time. The market, on the other hand, is moving very rapidly to premium, right? And this is where Diageo is a company that builds brands and is packed on innovation and brands, right? And the fit with the more premium Prestige & Above categories is a perfect fit for Diageo, right? So we stated in our strategy that we will reshape our portfolio towards these new consumer trends and energies, which are transformational in the industry and where we have the right to win with our brands. And this is exactly what we are doing, we're using a future-back approach to shape our portfolio to the right areas. So a breakout growth in Prestige & Above, which is where the market is headed; a focus on innovation and renovation on the new trends that we are seeing, which is our new growth engines, right? And we are committed to delivering this sustained double-digit profitable top line growth through this V-shaped portfolio. So the strategic context was set out in our strategy, and we are just following that. It is about the fit and core competency for the portfolio we have. Honestly, we believe that the brands that we are giving to Inbrew will be sitting center of plate for them, right? It is core to them. And they will do justice to these brands being able to invest behind them and grow the market for these brands. So I think it's a win-win for both sides by doing this.

Fair enough. Second question, Hina, in your presentation, you made an interesting point on our regulatory environment tailwind incremental. So if you can elaborate that point a bit.

Sure. So I think if you look at the year gone by, I think we've had several tailwinds on the route to market and the opening up of that, right? So I will talk about Delhi, which was a massive opening of the route to market. I will talk about the BIO, duty drops by several states. So it was Delhi then Maharashtra, West Bengal, which has really unlocked the pace and momentum for the scotch category, right? Madhya Pradesh has recently had a route-to-market change where they are talking of composite outlets for country liquor and IMFL, et cetera, which really opens up the access to the market. There have been duty drops also in Madhya Pradesh. Rajasthan has had some positive developments on duty reductions and also giving us price increases. So if I look around, if I look at the year gone by, I would say there have been more tailwinds than headwinds on the regulatory side. So -- and we've got the U.K.-India FDA on the table so far, right, which is on custom duty reduction on scotches. So net-net, I would say it's tilting more to the positive than the negative over the last year or so.

Would you add any pricing part to this regulatory tailwind? Are they more lenient on pricing? Because the states that you spoke about, Assam, Rajasthan are not the key states. So any comment on that part?

Yes. So I think like we mentioned, Pradeep had mentioned this, that we've actually really dialed up our advocacy with the states on -- given the inflation, et cetera. Especially at the higher end, where there's lower price elasticity, those conversations are ongoing. I mean 3 states have already given price increases. We are hopeful that with our continued advocacy, we will get more. And that work is underway.

Our next question is from the line of Chinmay Gandre from Reliance Nippon Life Insurance.

So just one clarification. So in terms of the press release, Popular sales is roughly INR 2,460 crores. And basically, we are selling, and also through franchisees, say, roughly INR 1,350 crores. So broadly from your own, INR 1,100 crores kind of a Popular business should be retained with us, right?

Yes, broadly, you're in the right range.

Yes. And roughly on -- I mean the way you report, broadly 10 million cases will be retained with us in Popular?

So we've given a salience. I think you can calculate that, right? I think our [ residual ] business is 6 million cases, right? And you can calculate that, right? So therefore, yes, you're right, probably in that range.

Yes, yes, yes. And basically, we will be getting royalties with respect to the franchisees and -- with respect to the 11 brands, which we are going to franchise, right? So what would be the royalty rate that we will get? I mean I presume there is -- that would be, like you mentioned, maybe it's not like flat [ pro dial ], but were being -- might be increasing, but what could be a roughly broad range of royalty that we would be getting?

I mean that number, I would not want to disclose. It's an indicative number right now. That number also, since this is an ongoing running business, right, it will require discussions with the franchise business part on an ongoing basis. But yes, the royalty in the initial years is a little low so that it gives the headroom to the franchisee to invest back in the business and resurrect the momentum, and then it kind of accelerates towards the rear end of the agreement.

Sure. And just coming to, I mean, the overall business per se. I mean, so what kind of price hikes on a blended basis ex of, I mean, premiumization or mix impact, I mean, what kind of price hikes we have been able to take on a portfolio basis so far?

So on an annualized basis, I mean, the exercise is still on, right? The pricing cycles and the advocacy work, as Hina mentioned, right, is still on. But in terms of our aspiration, we would want to get about at least 1.25% to 1.5% of our net sales as pricing flow-through for '22-'23.

So 2% kind of a price increase, I mean, then we are going to be really able to offset a double-digit kind of an inflation, right? I mean...

Yes. So I think we've always said that how we offset inflation is a combination of 3 things, right? It's pricing, it's productivity and it's mix, right? So there is a substantive mix kicker that we are seeing with our new strategy, and we continue to keep dialing that up. Our productivity usually offsets half the inflation. So in a typical year, right, we would do 1.5%, 2% pricing, we would do another couple of percentage points of productivity. And we are dialing that up this year given the inflation levels are higher. So we are -- I mentioned in my opening that we are looking to deliver double the historical rates of productivity within the organization. So we will continue to dial up all 3 to achieve our mitigation of inflation and the EBITDA guidance, right?

Our next question is a follow-up from the line of Avi Mehta from Macquarie.

Yes. And well, we'll just make it the last question, right? We're on time. So Avi, you're pretty much drawing the curtain.

Okay. Just 2 bits on the Prestige segment. One, if you could give us a sense, how is the Scotch growth in the fourth quarter? Because we did see realization growth coming off. So any color on that, please?

Well, Scotch has continued to grow high double digits in the quarter. Like I mentioned, there was some temporary bump with the Omicron in a peak consumption period. And clearly, the scotch markets were a bit impacted during that month, right? So other than that, I mean Scotch continues its robust momentum.

Perfect. And the second bit was more of an understanding. See, you launched Godawan. Is that IP with USL? Or is it with Diageo? How has that...

That's with USL.

That's USL. Yes, USL.

USL.

So how does it work in terms of the portfolio? You have some of Diageo's -- we have very good brands from Diageo, which we are also selling, which are in a very attractive price range. As the consumer premiumizes, you have in the Prestige, which you have -- so would you -- is there no -- like you can go in any pricing that Johnnie Walker, for example, is also present in? Or you would prefer to kind of operate in different price point? Any understanding of how do we look at the space now that the focus will be on the Prestige only, and there are some very, very good brands over there from Diageo as well?

So I think I would say, Avi, that we are led by consumer first, right? So -- and I highlighted this when I was announcing strategy that one of the things we've seen is that while there is a very big equity for brands like Johnnie Walker and our global brands, Gordon's, Tanqueray, Johnnie Walker, et cetera, and our malls, right, there has been a sort of trend of local pride which has been developing in India, and it's actually got accelerated during this period of COVID, right? And so there is a group of consumers who like this Indian craft and they like artisanal, limited, rare and scarce editions of whiskey, et cetera. And understanding that trend, we have launched brands like Epitome Reserve and Godawan. And these coexist because the consumer drinks repertoire. The consumer does not drink only one drink. The consumer drinks different brands of whiskey, and the consumer drinks whiskey and gin and other white spirits, right? And so we need to provide the repertoire. We have absolutely no restrictions from Diageo to launch any brands. It is purely from consumer insight. Price points are set to be competitive in the market against the relevant offerings. Or if we are creating a new offering, we have our own benchmarks of how to price the brands. So it is very much a consumer-led exercise and nothing to do with USL/Diageo in the sense of brand portfolio, right? So we will continue to grow both our international brands and continue to look at the craft and Indian whiskey space.

Okay. So I mean you're essentially filling the white spaces and led the global strength, thus brand ceilings will kind of exploit that by our distribution strength that kind of -- that USL kind of possesses. That is the way I should kind of read through?

No, I think the way to say that is that there is a relevance of both brands in the life of the consumer with their respective positioning. And we are addressing all the opportunity spaces that consumer trends are providing us.

Thank you so much. Inba, can we wrap up the call now?

Yes, that was the last question.

So I would just like to thank all our audience participants. Thank you very much for being here today. And it's been a pleasure sort of taking you through our business progress and context and also being able to clarify all your questions. Bye-bye.

Thank you so much to all. Have a great day.

Thank you. Thank you, members of the management. Ladies and gentlemen, on behalf of United Spirits Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.