United Spirits Limited (UNITDSPR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I, Mahendra Kumar Sharma, Chairman of the company, extend warm welcome to all of you at this 23rd Annual General Meeting of your Company. I am informed that the requisite quorum is present. And I therefor call this meeting to order. I hope you and everyone in your family are safe due to COVID-19 pandemic, social instant norms and considering the safety of the members, this meeting is being held through video conferencing pursuant to the circular issued by the Ministry of Corporate Affairs and the Securities and Exchange Board of India. The shareholders have been provided with the facility to participate in this meeting through video conferencing, other audio-visual means and vote on the items of business to be transacted at the AGM. I'm participating in this AGM from Mumbai. I'll now introduce the other directors of the company participating in this meeting, Ms. Hina Nagarajan, Managing Director and Chief Executive Officer of the company. She is participating from Bangalore; Mr. V.K. Vishwanathan, Independent Director and our Chairman who is participating from Delhi; Dr. Indu Shahani, Independent Director and Chairperson of the Corporate Social Responsibility and Environmental, Social and Governance Committee and Nominations and Remuneration Committee, is participating from Mumbai. Mr. D. Shivanandan, Independent Director and Stakeholders Relationship and General Committee Chairman, participating from Mumbai; Mr. Randal Non-Executive Director participating from Bengal; Mr. Mark Sandy, Non-Executive Director, participated from Dublin; Mr. Pradeep Jain, Chief Financial Officer, participating from Bangalore and; Mr. Mittal Sanghvi, Company Secretary participating from Mumbai; Mr. Ajit Gupta, Independent Director; and Sujon Non-Executive Director expressed the inability participate in this meeting owing to their prior commitments. We also have Mr. Vivek Mujumdar, partner of Pricewaterhouse and Company Charter Accountants and its team, our Secretary Auditor. Mr. Sudhir, our Secretary and Auditor and Scrutinizer for this meeting. All participating in this meeting through video conferencing from Bangalore. In the event of any interruption during the meeting owing to any technical glitch at my end, I hereby authorize Ms. Hina Nagarajan, Managing Director to preside over the meeting to the rest of this meeting or until I can resume. Since the AGM being held electronically, physical attendance of the members is being dispensed with, and the requirement of appointment of proxy is not applicable. The statutory registers as required by the company at 2013 have been made available electronically for inspection by the shareholders during the AGM. Since the notice of the meeting has already been circulated in advance to members, I think the notice of this meeting as read. As the reports of the statutory auditors and secretary to auditor does not contain any qualification, I also take the same as read. Dear shareholders, now I would like to update you on the key financial performance of your company, extending priorities as well as initiatives undertaken towards corporate citizenship. During the year ended 31st March '22, net sales, income from operations of the company were up 18.9% and stood at INR 93,817 million. Net sales of the Prestige & Above segment increased 23.6% and stood at INR 68,050 million, net of duties and taxes. Previous year the corresponding number was INR 55,035 million. The Prestige & Above segment represented 72.5% of the total net sales and 53.9% of the total sales volume during the year. As a result of our strategy and focus on executional excellence, our net sales increased by 18.9% during the year, mainly due to stronger consumer demand in the premiumization and recovery of -- recovering the on-rate business. We saw an increase in net sales of our Prestige & Above segment at 23.6%. This is highest growth rate for the portfolio and double the historical growth rates. In the backlog of the pandemic, that has served to underscore the importance of healthy and sustainable world. Your company's new mission statement takes a broader and more complete view to deliver long-term value to all stakeholders. We are confident of moving forward to the intrinsic strength of our broad portfolio and operational agility. We aim to get into market trends and new consumer to fulfill our mission. Our new mission is to be top-performing CPG company in India, delivering sustained double-digit profitable top line growth and long-term value creation to all our stakeholders. For this, we have been working on the following 3 pillars: one, portfolio reshape; two, be an organization of the future; and C, [indiscernible] in society. Your company has been striving hard with a strong focus on premiumization and at the same time, also trying to maximize value from brands in this popular segment. During the year, we made significant investment in our talent pipeline and progressed towards a culture of inclusivity and shared values. I'm particularly pleased that nearly 28% in the positions in the organization today are occupied by women. Last year, we launched Society 2030 Spirit of Progress, a new 10-year action plan on the role we will play in the society. We have 3 goals that are built around the more healthier issues of our business context in India, driving ESG from grain to glass, moving India towards better, not more, and leading the inclusion and diversity. I do not want to take much of your time as all the above initiatives and achievements are indicated in the annual report already sent to you. I would now like to take you through certain points regarding participation in meeting, which are as follows. Number one, the facility of participating at the meeting will be available to the members on first come first serve basis. Number two, all the shareholders participating in this meeting by default will be put on mute mode to avoid any background noise, disturbance and to ensure seamless conduct of this meeting. Number three, during the question-and-answer session, the name of the speaker shareholder will be announced and the shareholder will be allowed to express his or her views on the performance of the company and ask questions. Number four, in order to provide equal opportunity to all the speaking shareholders, times slot of 3 minutes will be allotted to each shareholder to express their opinion, ask questions and shareholders are requested to adhere to this time line very strictly. Number five, the speaker shareholder is requested to click Audio Video button while speaking. If shareholder is unable to join and express his or her views, he or she is requested to put this video off and speak to the audio mode only. Number six, if there is a connectivity problem at speaker shareholders end, we'll ask the next speaker to join the meeting and once the connectivity issue resumes normalcy, the speakers who has not been able join owing to connectivity issue will be requested to come back to speak. Number seven, during the meeting, if any technical glitch is faced by any shareholder, he or she may get in touch with CDSL at the helpline numbers mentioned in Page 21 of the notice of the Annual General Meeting forming part of the annual report. Number eight, speaker shareholders are requested to minimize any background noise and recommend to use their earphones while speaking for better audibility. The entire proceedings will be recorded and made available at the website of the company and live streaming of this meeting is also being cast on the CDSL website. Members are requested to refer to instructions provided in the notice and appearing on the video conference page for seamless participation to video conference. Before reading out the agenda items for the meeting, I wish to inform our shareholders that on Page 24, and Item #3 on the statement forming part of the Indian Notice. Director details have to be read as follows. He was Chairman of the Board of Directors of ICICI Bank and was on the Board of prestigious companies such as Wipro, Asian Paints and [indiscernible]. He's also a member of the Executive Board of the Indian School of Business. There are some typos there. As per the notice of the meeting, following items of agenda are to be considered at this meeting. As ordinary business, adoption of audited financial statements, including consolidated financial statements for the financial year ended 31st March 2022 and report of directors and auditors thereon. The resolution reads as follows: resolved that the audited financial statements, including consolidated financial statements of the company for the financial year ended 31st March 2022 and the report of the directors and auditors thereon be and hereby adopted. Next item on the ordinary business is appointment of a Director in place of Mr. Randel, [indiscernible] number's 07529943, who retires by rotation and being eligible offers himself for the appointment. The resolution reads as follows: resolve that Mr. Randall, 07529943 who retires by rotation and being eligible offers himself for reappointment, is hereby reappointment as a Director of the company. I now will go on to the special business. Payments of commission to Independent Directors and Non-Executive Directors. Approval of the Section 181A of the Company's Act 2013, Part 1; slump sale of the entire business undertaking association with 32 brands of the company in the popular segment to include Beverages Private Limited in Juhu; and two, brand of franchise in relation to 11 other brands of the company in the popular segment to improve for a period of 5 years with an option for subject to certain specified conditions: a, to convert the system franchise arrangement into a franchise arrangement with perpetual rights in and/or be to acquire such brands. Before I invite members who have registered in advance to speak, I would like to now hand it over to Ms. Hina Nagarajan, Managing Director and Chief Executive Officer, to address a few queries received from section of investors on the proposed divestiture of and franchising of select popular brands. Hina?

Thank you, Mr. M.K. Sharma. Good afternoon, and a warm welcome to all shareholders attending today's meeting. Over the last few days, the company has received few queries from a section of the investors in relation to the proposed divesture and franchising of select popular brands. Resolution #4 of the AGM notice contains this proposal. The proposed resolution as well as explanatory statement circulated to the shareholders on the aforesaid proposal is in conformity with the regulatory requirements. The query is largely pertaining to the process followed, whether a valuation report fairness opinion was obtained and quantum of royalty under the fixed term franchise agreement. On 1st August 2022, company had issued a statement and submitted to stock exchanges, providing further context to the proposal covering the above aspects. Some of the shareholders may wish to seek the same clarifications at today's AGM and hence, let me respond for the benefit of all shareholders. Your company under the guidance of its Board of Directors has followed a robust process for nearly 18 months, which culminated in the signing of the documents in relation to the transaction with Inbrew and unrelated third party. The process involved the company through its financial advisers, Morgan Stanley inviting interesting parties to submit their respective proposals for the portfolio of popular brands. Following multiple discussions with several prospects, 6 parties initially submitted their nonbinding offers. Subsequently, the short-listed party has submitted their final proposals before Inbrew was finally selected by the company. In recommending the transaction to its stakeholders, the Board of Directors of the company took into consideration all alternatives for the portfolio. And after careful consideration, the offer proposed by Inbrew was strategically identified by the Board to be in the best interest of the company and all its stakeholders. The transaction is in line with the company's strategy to premiumize its portfolio to deliver long-term profitable growth. Whilst there is no regulatory requirement to obtain a fairness opinion for the aforesaid transaction, as a good governance practice, a private fairness opinion from a leading global investment bank was obtained and presented to the Audit Committee and the Board of Directors as part of the approval process for the transaction. In so far as the royalty is concerned, as mentioned in the AGM notice, the company will receive a commercial for a period of 5 years under the fixed term franchise agreement. As part of its ongoing business activity, the company routinely executes such franchise arrangements from time to time. The proposed construct agreed with Inbrew under the fixed term franchise agreement is in line with industry practices. And similar to other arrangements previously executed by USL with other parties that are currently as an -- that are currently in force as well. The royalty paid by the franchisees, whether fixed or variable, as a percentage of distillery price, which we call EGP, generally is in the range of 5% to 10% of the EGP, depending on the bottling economics of each geography. The royalty under the fixed-term franchise agreement with Inbrew is also in the same range and is our revenue nature. Accordingly, as also noted in the company's announcement to the stock exchanges on 27th May 2022. The fixed term franchise agreement is in the normal course of the company's business and is therefore not considered material. Over and above the fixed term arrangement mentioned about but not linked in any manner as far as the consideration is concerned, at any time during the term of the fixed-term franchise agreement, the franchisee, Inbrew, shall be entitled to convert the fixed-term franchise arrangements into one with perpetual rights to use by executing a long-term franchise agreement. The consideration payable towards the acquisition of such perpetual right varying depending on the timing of the exercise of the option by Inbrew. As noted in the company's announcement to the stock exchanges on 27th May, 2022 as well as the AGM notice, assuming that the long-term franchise agreement is executed at the end of the 5-year term of the fixed-term franchise agreement, an amount aggregating to approximately INR 12,930 million will be payable by Inbrew towards the perpetual rights to use. Unless the royalty payable under the fixed-term franchise agreement, the consideration payable by Inbrew to acquire perpetual rights to use the franchise brands under the long-term franchise agreement is of capital nature. Since this arrangement is material and not in the normal course of the company's business, the company has duly disclosed this arrangement in the above-mentioned stock exchange announcement. With this, I would like to now hand over to Mr. M.K. Sharma.

Thank you, Hina. I now invite the following members who have registered in advance for speaking at the AGM. The queries will be answered collectively at the end to avoid repetitions. I once again request the shareholders to receive their time limit to 5 minutes in order to give equal opportunity to all other shareholders. Number one, shareholder who has registered with us is [ Mr Tokshi Sen Patel ].

Mr. has not joined yet the meeting. Can we move to the next speaker shareholder?

Next speaker shareholder is [ Mrs. Mascarenas Harsh ].

Can you hear me, ma'am?

Yes, ma'am, you are audible, please proceed.

And visible also?

Yes, you are very much audible.

Respected Chairman, Mr. M.K. Sharma; MD and CEO, Hina Nagarajan, members of the Board, Board members, my fellow shareholders attending this virtual meet, I am Ms. Mascarenas. I'm speaking from Mumbai Vadala. First of all, I thank the Company Secretary, Mr. [ Mital ] and his team for sending me an annual report and also registering me as a speaker at my request and also giving me the Zoom platform to speak along with the video. Thank you so much. Now our revenues are [indiscernible] but due to past losses, no dividend could be declared. My question, when will we come to the dividend list? Next is congratulations for all the awards and accolades received during the year in very difficult conditions. I also appreciate the CSR work done to the society and also ESG initiatives taken by our company. Here, I would like to know whether we have gone for ESG rating? And if so, which agency and what is the rating score? My queries sir, why so many brands are sold as slump sales? Some of them are very popular, like Men's Club, Romano, White Mischief. Now the proceeds which come, where will it be invested? Or will it be invested for bringing down our losses? Now on Page 12, Johnnie Walker photo is given. Johnnie Walker Black Label is put, whatever it is, red, black, green and gold and blue and all. Is this -- all these Johnnie Walkers different colors are manufactured here or they are manufactured abroad and only sold here? Please speak which is our most popular brand where our market share is the highest and also we get a good margin? We are supposed to be number 1 spirit company. Who is our next main competitor in the listed segment? What -- how much of the percentage of the total sales is on online? About what will the amount -- means how much that amount will come -- get of the royalty for 5 years under the franchisee agreement, what will be the total amount, like the working must have been done by the team. What will be the total amount which we get as royalty under the franchisee agreement? And will this be used for bringing down our losses? Why I say, after 2 years, this is the 23rd AGM. After 2 years, we will be celebrating silver jubilee. We'll -- by that time, will our -- all our losses be wiped off so that you can go to the next 25 years with profit and profit? With this, I support all the resolutions. I wish my company all the best. May it grow in leaps and bounds. And above all, I wish the Diageo, you and Diageo team the best of health. Thank you very much. May God bless you.

Now I request Mr. Kaushik [indiscernible]. Moderator, is Mr. Kaushik in the queue?

Yes. Mr. Kaushik is there. You are audible. Please proceed now.

Good afternoon, everyone. First off, I would like to thank the Board of Directors for giving me opportunity again to speak in this forum. Many of you would remember me from the conversation in the past. So I will keep both my ask and introduction brief. I hope I'm clearly audible?

You are.

Myself Kaushik [indiscernible], a qualified and practicing chartered accountant from Mumbai. I have been suffering from dystonia, which has rendered 55% of body paralyzed, impacting my right hand, my right leg at this stage while I have not let that come in my way of becoming a chartered accountant and practicing, I do request your support in helping me continue to be self reliant. I hope I clearly audible till now?

You are.

I was optimistic after my conversation we had last year about me working for our organization on certification work, including Form 15CB. However, nothing has progressed since. While I understand things may have not progressed due to pandemic situation last year, I do request -- I do hope that after our conversation today, our organization will start engaging in these areas as soon as possible. Once again, thank you for the opportunity to for today and I hope to see a positive moment forward with my ask. I support all the resolutions. Also thanks to please provide reply for the ask. Thanks. Thank you so much.

The next speaker is Mr Mohit [indiscernible] .

Mr. Mohit, request you to unmute yourself and proceed.

Am I audible?

Yes, you are very much audible. Please proceed.

I have only few questions. What about the next year's AGM, whether it can be a virtual AGM or a physical AGM. Even its physical AGM, kindly help us the people from outside Bangalore can also attend this AGM. My next question, what about the dividend plans? Since our company is look at a debt-free company, so how we are going to address the dividend? Since the company -- and my next question is since the company is also generating more cash, is there any chance of buybacks? And another question is that in news, the rumor is coming that Diageo is going to delist our shares. Is that true? And my next question is the agreement which we signed for selling our premium brands to a company. Sir, how it is going to help our company to grow in future? Then regarding the CSR. Sir, what companies are going to do in CSR? Even alcoholic is good, but the chronic alcoholic is bad. Whether our CSR is going to work on that? That's all Chairman sir my questions.

Thank you. Thank you, Mr. Mohit. The next speaker is Mr. [indiscernible] Shastri.

Mr. Shastri request you to unmute yourself and proceed.

Okay. Good afternoon, sir. I'm [indiscernible] Shastri from Bangalore. My number is 11702201. Coming to the report, Page #3, in Managing Director's message, it is our talked about the reshaping of products, but nothing is said about the reshaping of the picture of accumulated loss. Then what is your next plan to bring the accumulated net results to positive? Secondly, you have also now touched about the -- how the company is prepared to face competitions? Next, as far as innovations are concerned, Singapore people are preparing beer from urine and sewage water, which would be cheaper one. What is the company's comment about it? Page #25, it seems the company is giving wrong information to shareholders and investors. It is said that in the profile of a Director, Mr. V.K. Vishwanathan. He is currently Chairman of Bosch Limited. But on 3rd, I have attended the Bosch meeting, AGM, that Mr. Vishwanathan was not on the Chairman chair, please clarify sir. Page #31, Board's report even in pandemic period, company's performance is good, that is making a profit of INR 8,106 million. But ultimate result is loss, which is bad. Company has to make good the accumulated loss to the extent of INR 10,642 million. How do the company make it good? Now here, reshaping is required to make the negative results to positive. Page #49, out of 13 subsidiaries, Item 5 and 12 are giving a big negative results. It seems that losses made by subsidiaries is making way to accumulation of loss. What is your efforts to turn this to the track? Page #77, net loss of 5,000 -- net about INR 5,013 million more drained out in foreign exchange fluctuation. Does it help to boost your revenue? Page #196, consolidated balance sheet, last year, investment as shown nil. What reason made the company to invest INR 2,221 million all of a sudden? Secondly, in trade receivables, credit impairments are imminent. Losses are increasing more, what steps you are taking to restrict furthermore loss. Thank you very much, sir. See you next year.

Thank you, Mr. Shastri. The next speaker is Mr Shashikant [indiscernible].

Mr. Shashikant has not joined the meeting yet. Can we move to the next speaker shareholder?

Mr. Mahesh Kumar Gupta is the next speaker.

Very good afternoon. the respected Chairman, Board of Directors, Company Secretary, CFO, all other dignitaries as well as my colleague shareholders. [Foreign Language] in total length of the company's life is there. [Foreign Language] As per the new government guideline, you must have to give figure either in lakhs or in millions. It's to have a similarity with the international companies this must be not in crores. [Foreign Language] Because your foreign directors are also there. So if I will speak in Hindi they will not understand. Now I will speaking in English. So this indicates that a share prices at INR 888, while last year, it was INR 556. When share prices are so high and the company will not pay dividend for consecutive 3 years, then the category in the stock market will be come down and the reputation of the company will be come down. So better, at least, we might have to produce something for the shareholder benefit because, suppose person purchasing at INR 900 per share, and after the year, he will not get a single penny as a dividend as interest, why he will invest in this company? Sir, we having 13 companies and associates. All are built by Mr. Vijay Mallya which was also with this company, a large number of this company and a lot of this lens belongs to it, which was also mentioned in this annual report. So if we will have to enhance our productivity and we will export to the other countries because the U.S. is the major participant in the breweries. So if we will have to compete with America and other European countries, then we can able to have a macroeconomic production as well as saving, and we can able to give a proper result. And also, the split is very consumable around the world. If you go to this Hong Kong, Singapore, Germany, Britain everywhere, America is the largest consumer of this. So we will have to enhance our export to all these countries throughout the world, then we can able to achieve a higher growth -- higher production economic cost and better result. Sir, coming to the Corporate Governance report 96 page, this company is promoter is -- promoter is holding 57% approx shareholding. But I see in the next column, bank financial institution, government, et cetera, is holding 30.41%. And if you see the public resident individuals, 10.07%. As per the new guidelines by the government of India, Ministry of Corporate Affairs, minimum public shareholding must be 25%. So it is not as per the government guidelines. So you have to think that we should not have to surpass the allowed length. Maybe it is a foreign company, as per this company is registered in our country and allowed length should not be violated. So the Indian public should be benefited globally. When the company will come in a huge profitability that maximum voter will be benefited, not Indian public. So things that this should be rescheduled. So that the minimum 25% shareholding might be attempt. If you see on Page #117, today, I will not take much more time because it is a first introductory with you and all other directors. I'm just summing up with 1, 2 points. Sir, I've seen on 117 in balance sheet, the trade receivables, this is the maximum figure I've seen in the balance sheet that trade receivables are so high, this 23,021 million. Last year was it was so high, 21,601 million. So this money has dropped without any production, any interest, any profitability. So why our team is doing to -- not to recover this money to rerolling our...

Mahesh, request you keep...

If you can able to...Hello?

Sir, Mahesh, you're audible. Request you to conclude your speech.

I'm not audible?

Sir, you're audible. I am saying request you to conclude your speech.

Keep patience. Mr. Sharma knows me very well. Keep patience very well. Since morning, 2, 3 meetings I skipped, I not attended. I having the value. I am also companies a practitioner for the last 45 to 50 years at a high court level. Mr. Sharma knows me very well.

Mr. Bubna, please come back to the topic. I think...

Yes. Mind should not be disturbed. You see we're having a very less financial cost, borrowing also very less. But if you -- there's -- state receivables should be collected and it should be fed of the borrowing, then it can be a debt-free company. So better you can do this debt-free company and the category of the company in the share market should also be changed. Sir, I am not going to take much more time. I told you that this -- with this remark, I sum up my this -- all these comments. Next year, I will come with proper -- and other shareholders have also said that this meeting should be keep online. Because now everything are going on Internet based. Government is saying that every transaction should also be on Internet based. Everything will be Internet based. In abroad also, all meetings are on Internet based. When India already started, it must be kept in online. This is my humble request. And I think so that Ministry of Corporate Affair will also be extend this scheme. 3, 4 days earlier, I seen that Supreme Court also directed that all High Court stop the physical meeting and all this hearing will be started on the virtual meeting. So government is much more interested to come with all Internet based. And...