Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- United Breweries Ltd (BOM:532478, Financial) reported an 11% increase in volume for Q4, driven by strong underlying demand.
- Net sales rose by 21%, with significant contributions from states like Tamil Nadu, Telangana, and Andhra Pradesh.
- Premium volumes grew by 21%, driven by brands like Kingfisher Ultra, Ultramax, and Heineken.
- Gross margins improved by 312 basis points year-over-year, attributed to revenue management initiatives and cost-saving measures.
- The company has demonstrated a gradual recovery with positive momentum in business performance, particularly in the South and East regions.
Negative Points
- Challenges in certain markets like Haryana and Goa have impacted overall performance.
- The regulatory environment and state-specific issues, such as delays in pricing approvals and elections, have created volatility and uncertainty.
- Higher injection of new bottles due to strong demand has negatively impacted gross margins.
- Increased overhead costs, including higher commercial spend and freight costs, have affected profitability.
- Receivables from Telangana have been delayed, impacting the company's cash flow and financial stability.
Q & A Highlights
Q: South and East India have been doing a lot of heavy lifting for you in terms of volume growth. How is the base now in FY25, given in most quarters these two geographies have done well? And specific to the other side, north and south India, some of the states have been quite challenging. Can you discuss Haryana and Goa?
A: This business is state by state, impacted by regulatory environment and market propositions. We had good growth in Maharashtra last quarter. Goa had weak category trends in Q1 due to retail issues during Christmas. We feel positive about Goa's recovery. Haryana saw rationalized investments impacting margins positively, but we are still cycling through changes. No major structural issues in most markets; recovery in Goa is expected soon. (Vivek Gupta, CEO & Managing Director)
Q: The premium volume growth has been accelerating strongly. What's driving this growth, and is it broad-based across all key cities? Any changes needed in FY25 to maintain momentum?
A: Three factors drive premium growth: sharp consumer understanding, well-planned execution with on-trade customers, and a full portfolio approach. We are expanding our manufacturing footprint to serve premium demand locally, reducing interstate exports. This will ensure consistency and reliability, especially during elections. (Vivek Gupta, CEO & Managing Director)
Q: How do you see the impact of the harsh summer and elections on Q1 performance?
A: The hot summer increases demand, but elections cause disruptions. As a market leader, we face higher impacts due to compliance and operational challenges. Inventory management is crucial, and we are preparing for an extended summer to recover any lost momentum. (Vivek Gupta, CEO & Managing Director)
Q: Despite positive price realization and mix, why is the gross margin improvement only about 300 basis points?
A: Gross margins are impacted by various factors, including new bottle injections and volume growth. Sequential quarter comparisons are not always accurate due to seasonal variations. We are working on initiatives to improve margins over time, focusing on revenue management and cost initiatives. (Radovan Sikorsky, Director & CFO)
Q: Can you provide guidance on margin improvement and address concerns about structural profitability issues?
A: We are focused on sequential margin improvement while investing in growth and category expansion. The regulatory environment and competitive landscape pose challenges, but we are committed to driving revenue growth and improving margins over time. (Vivek Gupta, CEO & Managing Director)
Q: Are there any short-term factors affecting gross margins, particularly related to glass bottles and their costs?
A: State mix and procurement processes impact margins. We are working on improving procurement and managing regulatory volatility. Investments in repair and maintenance, as well as better supplier negotiations, are ongoing to address these challenges. (Vivek Gupta, CEO & Managing Director)
Q: What are the plans for capacity expansion and CapEx investments?
A: We are preparing for long-term growth, which includes capital investments to increase capacities and produce premium products locally. Detailed plans will be shared in an upcoming roadshow in August. (Vivek Gupta, CEO & Managing Director)
Q: How has the industry performed in terms of absolute volumes and growth?
A: Industry growth is estimated at 6-7% for FY24, driven by hot summers and positive category trends. However, regulatory policies and election impacts could influence this growth. (Vivek Gupta, CEO & Managing Director)
Q: What is the current market share of United Breweries?
A: We estimate our market share to be around 50%, with recent gains in market share over the last few quarters. (Vivek Gupta, CEO & Managing Director)
Q: Can you explain the increase in overhead costs year-on-year?
A: Overhead costs increased due to higher investments in brand promotion, freight costs, and organizational strengthening, including consumer insights and commercial teams. (Radovan Sikorsky, Director & CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
