United Breweries held a conference call on 27 April 2022 to discuss the results for the quarter ended Mar'22 and way forward. Mr. Berend Odink – Chief Financial Officer and Mr. PA Poonacha - Vice president (Finance and Investor Relations) of the company addressed the call.

Highlights of the Concall

• Volume growth was 7% YoY and 14% on a QoQ basis. The company's overall volume growth during the quarter was impacted by lower on-trade volumes in January due to Omicron variant. Current year's peak season has shown a promising start in March, which was a record month in terms of volumes in the company's history. Laggard states (including Maharashtra) have seen good growth with recovery in on-trade demand since March.

• The company expects volume to reach pre-pandemic levels in FY23.

• The company had undergone corporate restructuring last year and expects the current employee expense run-rate to be the new normal

• Barley constitutes about 15% of the raw material basket while glass constitutes about 35% of the raw material cost while cans, secondary packaging and other materials account for the rest.

• The company had mentioned previously that they carry low-cost barley inventory for the next quarter, but the same got absorbed earlier due to higher volume in 4QFY22.

• India barley prices have witnessed 70% YoY inflation in March and April 2022 due to quality of some crops being affected by high temperatures, and not meeting brewing industry standards, accelerated pick-up in beer demand in March, and speculative buying due to Russia-Ukraine war. Therefore, the impact of higher barley prices will be seen to some extent in Q1FY23.

• The company has seen mid to high single-digit YoY inflation in glass bottles as higher glass prices (driven by higher energy and soda ash costs) are partly offset by better collection of used bottles.

• The company expects to pass on rising costs partially to the consumers. Currently, the company has increased prices in Delhi while higher realizations have been reported in Rajasthan, Uttar Pradesh, Maharashtra, Karnataka, Odisha, Madhya Pradesh and few smaller states. There is a possibility that the company may increase prices again in the states where price hikes have already been implemented, as seen in other industry.

• Excise policy in many key markets has been stable and is a positive in terms of demand

• The company noted that as it entered a more normalized demand environment, focus will return to expansion. Capex may not immediately go back to pre-Covid levels but may increase to Rs 250-300 crore. Even on working capital front, the company expects an increase from here, led by higher volumes.

• The company volume market share stood at 54-55% in Q4FY22

• The company mentioned that premium portfolio is margin dilutive due to higher investments in brand building, trials, and distribution but has positive operating margins on an absolute basis.

• Competitive intensity remains high as large international brewers are very active in the market in India and smaller regional players are active as well by investing in products and innovation.