Ladies and gentlemen, good day and welcome to United Spirits Limited conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Hina Nagarajan, MD and CEO, and Mr. Pradeep Jain, CFO from United Spirits Limited. Thank you, and over to you. Thank you very much. Hello, everyone. A very good afternoon from the USL team, and welcome all of you to our FY 2021-2022 first quarter results call. I'm Hina Nagarajan, Managing Director and CEO of USL, and I'm very looking forward to this first interaction. I'm joined by my colleague, Pradeep Jain, CFO of USL. Hope you and your families are staying well during this time. As we normally do, before we open the lines for Q&A, let me share a perspective on the results that we announced Friday evening. As we all know, the country experienced an unprecedented humanitarian crisis in the quarter gone by, with a severe second wave of COVID-19 sweeping the country. Many of us have lost near and dear ones in this wave while fighting gallantly on the personal front. In this context, our most critical priority was to look after the health and well-being of our employees and their families and continue to play our role as a good corporate citizen towards our communities and the extended ecosystem. It fills me with immense pride that in addition to the ongoing two-year Raising the Bar support program of INR 75 crores for the restaurant and bar community that commenced on July 1st, 2020, USL and its parent company, Diageo plc, committed an additional INR 10 crores and INR 25 crores respectively, so cumulatively INR 45 crores in this quarter to support India's long-term public healthcare infrastructure. This additional mobilization commitment and our approach of one state, one district for the program has already started contributing towards expanding hospital bed capacity, oxygen sufficiency, and medical equipment like oxygen concentrators and other critical patient care devices. This will continue over the next few quarters. Let me now come to the operating performance during the quarter. In summary, it's been a resilient performance amidst a very challenging external environment. Albeit, aided by the weak comparator of the prior year. We continue to build on our learnings from the first wave by instilling more agility in our operations in this stop-start environment. As all of you are aware, localized lockdowns started in April in a few markets, and most of the states had restrictions on night curfews in mid-June that led to access being severely compromised. That said, it is reassuring that we were back to full operations as we exited the quarter. Based on our experience of the first wave and the continued expansion in the vaccine coverage, we are confident that the recovery will gain further momentum. Our commitment to innovation and renovation in the portfolio continues. Some of you may have seen the new and renovated bundle of Black Dog Whisky that is now present in three markets as we speak, and will get extended nationally as the year progresses. McDowell's No. 1 continues to retain its momentum after a strong performance over the last few quarters. Hipster, our pocket scotch innovation, now in its second year, also continues to gain momentum and is present in key markets in India. Additionally, we have made a foray into craft whisky with the launch of Epitome Reserve, 100% rye grain whisky, an in-house innovation exclusively crafted by our master blender. While all of you would have seen the press release and the results, let me again call out the key salient points. Our reported revenue increased 57%, with Prestige and Above at 58% growth and Popular at 50%, lacking the national lockdown of last year. Consumer demand in off-trade remained resilient within the constraints of the lockdown. On-trade continued to be adversely impacted, both store opening and footfall. Price mix was unfavorable during the quarter on account of high scotch variance markets, especially North India, impacted adversely by the COVID second wave. On the policy front, we have spoken of West Bengal in the prior quarter. We continue working very closely with the government in our advocacy efforts for reducing levies and having a favorable consideration on pricing. We are looking forward to the new excise policy in Delhi coming into play with effect from October 1st, 2021, and our role in transforming the retail landscape of the national capital city that really befits its stature. Favorable commodity prices and continued management focus on productivity led to 296 basis points improvement in our gross margin to 44.6%. Our A&P reinvestment rate at 5.2% is in line with last year, reflecting the not so conducive external environment for execution and some conscious calibration in view of the impact on the top line during the quarter. Staff costs increased in the quarter, reflecting the prior year one-time decision of the management across the Diageo world to forgo the variable performance-linked salary components given by the global uncertainty of the pandemic. Additionally, INR 17 crores provision in the current quarter has been absorbed on account of a VRS package at one of our facilities, in line with the progression to the end state manufacturing footprint. Our EBITDA margin stands at 10.4% for the quarter, significantly higher versus the negative in the same quarter of the prior year. It is subdued on account of the operating deleverage driven by the impact of the second wave on the top line. The full impact of the accelerated debt retirement in the last four quarters and the lower interest rates now stands reflected in our financials. Our interest cost in the quarter is 60% lower than the prior year. Exceptional item includes a one-off provision towards an additional demand in relation to a historical customer dispute, having its roots much before Diageo's acquisition of USL. We are in dialogue with the customer to close this long outstanding issue in its entirety. In view of the confidentiality, we will not be able to share more details on this. All appropriate disclosures are already reflecting in our financial results. Profit after tax was at INR 69 crores in the quarter, 132% increase versus prior year. Let me conclude by stating that alcohol as a category is, and will remain resilient during difficult times. We remain focused on what is within our circle of influence, and that is to stimulate demand through our renovation, innovation and other category growth initiatives. I also strongly believe that the embedded discipline and learning of the first two waves of the pandemic have enabled us to prepare for short-term disruptions, and this will hold us in good stead in the coming quarters. Last but not the least, and I'm sure a lot of you have these questions in your mind, let me add the following. The strategic review of Popular brands that we announced a couple of quarters ago is on track and will be concluded as per the stated year timeline. I'm working with my team on a business strategy refresh, and over the next few months, we will share the elevated theme once we are ready with full stakeholder alignment. With that, we can now open the line for Q&A. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Participants are also requested to limit their questions to two per participant. Time permitting, you may return to the question queue for a follow-up question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead. Yeah. Hi, good morning. This is Abneesh Roy from Edelweiss. Hina, my first question here is a practical question. You have been in Diageo India for the last four months, three months as CEO designate, and one month as Indian CEO. You have also been in Diageo Africa for two and a half years. My first question is essentially, next two years, what will be your number one priority? Will it be market share expansion against the other large players? Essentially drive volume growth ahead of the industry by pricing and being aggressive on the marketplace. Will it be investing behind the brand, work with regulators, or it will be the third option, which is the current one, wherein status quo in terms of marketing, margins, innovation, sales, et cetera, will continue. Hi, Abneesh, how are you? I said that we are working on a strategy refresh, we will come with all the renovated themes when we are ready with full stakeholder alignment. Having said that, Abneesh, macroeconomic opportunities are opening well for our industry. The market has many growth drivers. Young demographics, increasing number of people entering legal drinking age, low per capita consumption, and demand for iconic brands. The premiumization trend is very strong. We've been scaling up in our Scotch journey. Of course, we want to participate much more in mid and upper Prestige while we strengthen our core with McDowell's No. 1. As we move towards being a low-debt company, we would want to unlock new engines of growth, internally, maybe through more alliances, partnerships. In a sense, market share growth are linked, right? Margin is a given. All these themes are in our minds. I would say that I've got a lot of confidence in our people, our strategy, the resilience of our business, and in our ability to deliver long-term shareholder value. We maintain our aspiration of delivering sustainable and profitable growth over the medium and long term as all these growth opportunities unfold in front of us. Thanks. One small follow-up on this. You have worked for two and a half years in Diageo Africa. How is Indian liquor market different from there? You had worked in India in FMCG companies prior to 2013. In the last eight, nine years, how much has the Indian consumer changed? In the first four months, is there a big realization that consumer has changed dramatically? Yeah. First addressing the question linked to Africa. I think there are lots of similarities and some differences in the African market and Indian market. I mean, the similarities are vibrant demographics, volatility in the regulatory environment, sustainability challenges. I would say the differences are that Africa tends to be a larger beer market, and India is a very vibrant spirits market. Right? I would also say that India has better affordability and the premiumization trend in India is much faster. Right? There are things that I can bring from African market into the India market in terms of I was handling 37 markets in Africa, when some markets have disruptions, the other markets give growth opportunities, and I want to apply the same principles in the 36 states/countries of India. Right? How much has India changed, Abneesh, in these seven, eight years? I would say that India has become far more vibrant, and I think the premiumization trend has really taken off. Right? That is quite exciting. The exciting development for us is online/home delivery opening for our market. Overall, e-commerce has absolutely exploded in India. It wasn't there when I left the country, but now it's absolutely exploding. Retail environment has improved massively, right? Our off-trade is very vibrant now. Online adoption is very good, and we are super excited about home delivery opening up for our industry as well. I would say, the growth opportunities and potential I see today is very exciting. Sure. That's very helpful. That's all from my side. Thank you. Thank you. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi, Hina. Thanks for the opportunity. You highlighted about the business strategy refresh, which we shared. What you also shared earlier, the unlocking new engines of growth, would it be fair to say that as we look to dial up growth rates, you would kind of put preference to sales over margin expansion? Is that the way I should read, at least from a broad concept point of view? I think both are going to be important for us. I don't think we will put one above the other. Both are important. It's an and-game for me, not an or, I would say. Okay. Because there are signs, Hina, the history is being awesome in terms of the expansion that they've done, the net debt reduction. We've seen very strong headway in that kind of trend. I was just trying to kind of compare. From there on, would the focus be more on investing in the market? Because it seemed to be, logically, as you would look to drive new engines of growth, it would need some definite investments. Please correct me if that is not the right way to kind of look at this. We are always on the lookout for more growth opportunities, and so investments in growth engines will definitely be there, but we believe that we have opportunity on margin as well. Like I said, it's an and for me, and both will remain on our agenda. Just a related bit. Do these new investments, when you kind of look at new opportunities, you highlighted about alliances. Is it fair to argue that the capital intensity is also going to be remaining under control? Is that why alliances would be the preferred route? Is that? Yeah the right way? I think that would be fair to say. In fact, this is something that I carry in from Africa and my learning, that partnerships can be very valuable in driving growth. Yeah, I think it would be fair to say that. I think Pradeep would like to add something. Yeah. Avi, again, whether you look at our manufacturing footprint progression, right? Whatever, as Hina is kind of talking about new growth engines. Absolutely. That is something which we'll be very conscious of, right? On the capital intensity. Thank you very much. Sorry to interrupt you, sir. I will request you to come back in the question queue. I request all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Aditya Soman from Goldman Sachs. Please go ahead. Hi. Good afternoon, team. Two questions. Firstly, you indicated that you want to do more in sort of middle and upper prestige. If you look back since Diageo took over, we haven't seen a very significant headway as far as market share goes, in particular versus Pernod. Where do you think the opportunities lie, whether it's in the existing brands or new brands, or where do you think the business lies in gaining more share in middle and upper prestige? Moving on to my second question, just in terms of non-whiskey spirits, is this an area which you feel could be a significant contributor, or at this point, are we focused on sort of whiskey in particular, middle and upper prestige? Thanks. Yeah. Okay. I think addressing your question on headway on middle and upper, I think both renovation and innovation have a role to play. We know that, we are aware that Royal Challenge Whisky, for instance, has had a mixed bag performance, right? We've renovated. We were priced challenged in some markets, we've corrected that, and we are beginning to see some headway with that. We are also in the process of thoroughly looking to contemporize the brands to address the new entrants that are driving growth in these segments, right? We have potential also in our brands that exist in upper prestige. We will be looking to press those buttons, and innovation will always play a role. As consumer needs evolve and as we look at what those needs are, we'll definitely have more innovation on the agenda. Coming to your second question on the non-whiskey spirits. Yeah, we look at whites as a category together. Cognac, we have seen a lot of traction on gin, and you might have caught that we've actually started putting a lot more might behind both Boddingtons and Fentimans, which are our brands in the gin category, and we started activating them much more in the market with a lot of traction. We are also conscious that vodka on its own is a large category, and we actually have a power brand, Smirnoff, in this category. We are looking at an action plan on Smirnoff, where we are looking to revitalize this brand and get a fair share of the category, and you will see initiatives rolling out in the 9 months- 12 months in this category as well. We are going to be looking at the whites, definitely. Thank you. That's very clear. Just a follow-up on the first question. You mentioned upper Prestige, but we see that Blenders Pride is significantly larger than anything UNSP or Diageo has. For the consumer to make a switch, what do you think will be the key drivers of that, given how large a share Blenders Pride already has? I think that's fine, because consumer needs are evolving. We are looking at changes in aspiration levels, the desire for experiences from the consumers, and we are seeing a lot of experimentation on flavor profiles, et cetera. We have opportunities and, as the market evolves, we will be tapping into those new opportunities. All right. Thank you very much, and all the best. Thank you. Thank you very much. The next question is from the line of Arnab Mitra from Credit Suisse. Please go ahead. Yeah, thanks for taking my question. The first question was on your margins this quarter. You have highlighted relatively benign commodity costs helping the gross margin. If you could just talk to, going ahead incrementally, as we speak, in June, July, and going ahead, do you anticipate inflation coming in glass prices as well as ethanol? Or do you anticipate that commodity costs are largely reigned down, and therefore gross margin profile would not be under pressure? Yeah. Arnab, I'll take that. Look, there are two items which are a big portion of our cost portfolio, glass and the neutral spirit cost. You're absolutely right, there are some inflationary trends on the glass line. In fact, as we speak, we have given some price increases, so that will feed into the P&L for the coming quarters. On neutral spirits, as all of you are aware, a lot of it is pegged to the Ethanol Blending Policy and the prices that the government declares. Typically, those prices get declared in October, November. We should be stable right now, but it's wait and watch till those policy prices are announced. As an ongoing, what do we keep doing? We have shared earlier also. As a management, we try and target at least 1.5% - 2% of net sales as ongoing productivity, which is value chain extraction and efficiency extraction, and we will again continue to do, as Hina mentioned, we will continue to do what is in our circle of influence, and then we will see what happens. Sure. Thanks. My second question was this negative price realization growth that you have, price mix being negative, I think 4% this quarter. Is it purely a one-off COVID impact of prestige and state mix, or is it something which is going to continue going ahead into the year? Look, as Hina mentioned, India is a kind of portfolio of 36 states and union territories. North is severely impacted, whereas Scotch mix is very high, and in the quarter that just went past, North was severely impacted because of the COVID-19 impact. If you look at our historical trends over the last 12, 16 quarters, by and large, we've delivered a positive price mix every year. I would want to believe it's a one-off, but it's an outcome of the state and the brand mix. One would want to see it reversing in the coming quarters. Just one follow on, because last time when we saw the lockdown, we didn't see a big negative price mix. This is more driven by mix actually or more the state composition? Just to get a sense of which has contributed more to this negative number. The headline for the quarter, the impact on North has been far more significant in wave two compared to what happened nationally. Nationally, it was rather consistent across the country, whereas Scotch, which is a big salient of the North business, has severely got impacted in the current quarter. That's why you see the swing in price mix versus the wave one. Okay. That makes sense. Thanks so much. All the best. Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead. Hi, thanks for the opportunity. Hina, my first question pertains to the observations or the comments that you made that the tailwinds that Indian alcohol sector has in terms of per capita income, young demography, and then you stressed a lot on premiumization also. These factors have been there for last many years, and then despite that, the overall sector growth has been mid-single digit at best, and that is as good or as bad as hair oil sector growth, which is highly penetrated. You bring a very fresh pair of eyes to the problem statement here. In your early assessment, what is dragging down the sector growth from realizing the potential that you spoke about? I think we are seeing positive developments on the regulatory front. That is one. The second is, I think the demographics are there and they are accelerating. We are seeing increased for premiumization. We are seeing increased experimentations. Just to give you an example, you would have read about our foray into craft whisky. This is something that is helping us premiumize the whisky portfolio. We have full intent to do that. There is a lot more role for innovation to play. There is vibrant movement. The millennials are driving experimentation. As the millennials mature, they are bringing much more purchasing power. I would say that the potential is there and it is something that we need to take full advantage of and maximize the growth opportunity. It is there, and I think it is accelerating. Sure. This is helpful. Second, on RM inflation. Not to dwell much on the near-term inflation, how do you see government's ethanol policy impacting ENA prices structurally from here on? On this one, our own assessment is that over a period of time, fundamental economics will prevail. As this becomes very attractive for the ethanol manufacturers or for the India manufacturers, we also expect a lot of capacity to come up. While in the shorter term, we could see some inflation headwinds, but over a slightly extended period of time, we believe that as additional capacity comes up, et cetera, the market will find its right balance. Over a longer term, we don't see any big worry on this front. In the shorter term, you're right. We could face some inflation headwinds, which we will always, like any forward-looking company, manage through a combination of ongoing productivity and pricing. Sure. By shorter term, you mean it's one or two years to come up capacities or it takes longer? Typically in the India environment, with the India entrepreneurial spirit, et cetera, typically these things come very quickly. Let's see how that pans out. We continue to do whatever we are doing to ensure that we are not adversely impacted by that. Thanks. That's all from my side and all the best. Thank you. Next question is from the line of Krishnan Sambamoorthy from Motilal Oswal. Please go ahead. Thanks for taking my question. This is regarding the ongoing strategic review of the Popular segment. Your own thoughts on how critical this is from a medium to longer term perspective, what are the key gains that are expected? Also since you've given a timeline until December, are you looking at ramping up the scope compared to what was envisaged earlier, and will there be more such reviews in the future? I would say that we proactively started the strategic review of our Popular portfolio, and that is on track. We are looking to conclude it as per the stated timeline. We are working through with our advisors and looking to drive it to a tangible decision, whichever way it goes. As and when we reach that decision, these are transparently shared with you. We are not increasing the scope of the review at this point in time. Okay. Your thoughts on medium to longer term benefits coming from this review? Well, depending on the decision. Once we come with the decision, we will also transparently share with you what that means for our business. Understood. The possibility of more such reviews, this will be an ongoing thing that you would be looking at maybe in the three years? Yeah. As the market evolves, every business, we conduct regular portfolio reviews, and that's business as usual. We'll continue to do that as we evolve. Understood. Thanks a lot. Thank you. The next question is from the line of Ashit Desai from Emkay Global Financial Services. Please go ahead. Yeah, thanks for the opportunity. I have a follow-up question on the Popular portfolio that you have retained. This includes Celebration Rum and the Director's Special brands. We've not been investing behind this portfolio for a long time. Going forward, could there be any growth plans for this portfolio, or this is something you would also re-look into the future? This is something that we are looking at, actually it's part of the strategic refresh that we are doing. Again, we are looking at the role in the portfolio, which markets, et cetera. We will come back with the team on that as and when we close the strategy refresh out. I can say that we see a role in our portfolio for the brand, and it will play a role in our strategy by stage. Okay. My second question is on your state presence. We may have exited few states or few markets or may have limited presence in certain markets due to various reasons, be it compliance or the other things. Whereas your larger competitors would still have a decent presence in these markets. Do you see any possibilities where you can reenter these markets, maybe through a different route or have some sort of presence? The first thing I want to say is that we will stick to the right way of doing business, and if that means that we are out of the market, so be it. I mean, do we see a possibility? Of course. We are continuing to advocate with the government there to come to solutions that are acceptable and help us do business in the right way. We have seen that markets come back. No situation remains permanent. I think we've seen markets close and come back with good solutions. When one door closes, there are opportunities in other states, and this is an ongoing part of the environment in India. We are very sure that those markets which are closed today will be back one day. This also is, just to add to what Hina has mentioned, I mean, we've seen that play out over the last four to five years, right? If you look at Uttarakhand three years ago, that's back with a bang last year. Chhattisgarh was closed for about two to three years, et cetera. That's back with a bang last year. This is very clearly playing out, and we are confident that no market will remain closed permanently for us. It requires a little bit of effort on the advocacy and the work with the government, but hopefully they'll all come back. Got it. Thanks an abundance. Thank you. The next question is on the line of Namant Satiya from Ambit Capital. Please go ahead. Yeah, hi. This is Alok here from Ambit Capital. Good afternoon, thank you for giving me this opportunity. Firstly, you mentioned that volume growth and margins both would be equally important. In that context, I just wanted to check, over the last four or five years, whatever cost savings that you have seen, be it in terms of ad spend, item or employee cost, et cetera, you do not think that would have positively impacted United Spirits' revenue growth momentum, right? Sorry, I'm not clear about the question. Yeah. Just repeating the question. Your voice was not very clear, so I didn't get the question. Can you repeat that, please? Okay. Sorry. You had mentioned previously that volume growth and margins both would be equally important for you in your strategy going ahead. Just wanted to check, in the past, we have already seen very healthy EBITDA margin expansion. The sense that I get is you remain confident that with the current cost line items at which the business is operating, there has not been any revenue impact, so to say, because of the past cost savings. Let me just try and interpret your question first. Your question, if I understand it right, is that in view of the aggressive cost-savings program that we have ran over the last four, five years, we've not foregone any growth opportunity, right? Is that the question? Yeah. One would tend to agree that I don't think we have cut anything vis-a-vis the consumer or the customer over the last five to seven years. I mean, ongoing efficiency extraction, absolutely. That any organization should continue to do, and we have done the same. I don't think we have compromised anything for growth of the organization. Does that answer? Yes. Thank you. My second question was on the distribution. While of course it's a complex environment to run the liquor business in India, but do you think there is scope for you to do differently on the distribution side, at least in the states where it's privately held? Your thoughts around this, please. Look, Hina and my view would be that alcohol category, the distribution is capped by the government on the outlet access. I mean, the entire category is like 50,000-60,000 outlets, out of which 80%-90% of the business is probably done by the 35,000 outlets. Distribution is not really a big differentiator. It is the battle in the store of what we typically focus on. What I would say is I think the opportunities are coming with the route to markets and policy changes that we are seeing in Delhi, for instance, where the retail environment is expected to change dramatically and become much more positive. Definitely we see opportunity there. We see a lot of opportunity in new evolving channels like home delivery, where though it's very nascent today, and we know that it takes time to build, we expect that it'll reach a tipping point one day and then really explode. In that sense, there are definitely positive distribution opportunities that we see. Right. My question was more on, is there scope to work even more closer with the retailers and distributors that you are currently operating with, or you think that you're operating in the best way possible? That's an ongoing part of our business. I mean, We work very closely with them all the time. As and when we see opportunities, we take those opportunities to expand presence and visibility. Vary from state to state, I would say. Like Maharashtra is as close to a classic CPG/FMCG model, and we have very strong distributor relationships, and we continue to work with them in terms of what we can do or in terms of joint business planning and how to expand the business. Wonderful. Thank you very much, sir. Thank you. Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead. Yeah. Thanks for the opportunity. Hi, Hina and Pradeep. My first question was around the demand landscape. If you could share exit June rates, both for off-trade and on-trade recovery versus pre-COVID levels. Just trying to gauge a sense where we ended the quarter with. Any early thoughts on how July is shaping up for you? Yeah. As we exited June, we were back to full operations as far as the off-trade is concerned, right? Now, on-trade, of course, remains restricted. There are restrictions on capacity, on timing, and the size of social gatherings around the country. On-trade still remains subdued. As you know, also global travel remains muted, right? I would say off-trade is looking promising and on-trade, we are hopeful that it will start opening up as the COVID-19 rates sort of come down and recovery and vaccination coverage goes up. We are hopeful that on-trade will also start opening up slowly but surely. Sure. The second bit was just checking on your thoughts on potential foray into non-alcobev space. We saw this clarification being given in your memorandum of association. That, Latika, is just an enabling provision for us to do brand extension work, right? To undertake brand extension. As far as a standalone business in this respect, we have no intent right now, but the No-Low alcobev space is developing in the Western world, right? We watch for it. Whether there's a future possibility or not, we don't know. We continue to watch that space. Sure. All right. Thank you. Thank you. The next question is from the line of Harit from Investec. Please go ahead. Pradeep, just had one question on the gross margin side. In spite of the product mix and sales mix being adverse for the quarter, we've seen a sequential kind of improvement in the gross margin. I just wanted to get your sense on how you're thinking about this from an annual perspective. On the one hand, your product mix will continue to improve, sales mix will normalize, on-trade improve. On the other hand, you have some level of inflation coming in, especially as you mentioned, from glass. Should we see an improving trend in this line item going forward? Or should it be somewhere back? Just wanted to get a sense on that. Yeah. Harit, look, it's a conglomeration of multiple drivers, right? You're right, there will be a little bit of inflation, as we've already spoken of, but we continue to press all levers of mix management, ongoing revenue management efficiencies, and our pipeline of the cost productivity initiative, right? These are the three things that we continue to proactively work on. In some years, inflation is kind of slightly higher, so therefore, we take a little bit of a backseat. In case the inflation is kind of stable, the prices, et cetera, we do see a little bit of higher margin expansion, right? That's broadly how we think about this, right? The intent always is to continue to extract ongoing efficiencies across the entire value chain of the business. Got it. Thank you, Pradeep. One more question is on the renovation side of the portfolio. You mentioned there is a Black Dog renovation. You took that out in three markets. I just wanted to get your sense on, in terms of the overhaul of Black Dog, is this a packaging innovation, a blend plus packaging innovation? What happened on that side? If you could give a little bit more color, as well as what the kind of market expansion will be in the next three to six months on this? Black Dog started rolling out, and the renovation is now available in three markets, right? It's in Punjab, Haryana, and Telangana, and by December, we'll be rolling it out nationally. It is a full change. On the Triple Gold Reserve, there's a liquid change, there is a packaging change across, and we also launched a new 14-year-old whiskey within the portfolio, right? Black Dog was a bit slow in the past, and this is our renovation to contemporize the brand and get consumers to reassess it as a premium contemporary scotch. Actually, we have a lot of Black Dog lovers in the country, right? Really the positioning platform of Savour the Bold. Our initial feedback from these three markets is very positive. People are really appreciating the liquid change on Triple Gold Reserve and the 14-year-old, and we are seeing very good repeat rates off the shelves from markets like Hyderabad. I would say I am very confident that this change is going to sort of revitalize the brand. That was my few questions. Thanks a lot, guys. Thank you. The next question is from the line of Sunita Sachdev from UBS Securities. Please go ahead. Hi, Hina and Pradeep. Welcome, Hina, I just had two very short questions. All the best for your stint here. Just wanted you to talk around your strategy around the BIO business, since that is of strategic importance for Diageo as well. How do we run with it going forward? How does that business do? If you can provide any more color on that business, that would be appreciated. Secondly, given your comments that you were excited about the online business, I'm a little surprised that you've exited the HipBar investment. These are my two questions. Thank you so much. Thanks. BIO, I think we've been on a continuous journey of scaling up as premiumization is growing. We will continue to drive that as a key part of our portfolio. We will be looking at levers such as newer additions in the portfolio as we go along to continue to build this part of our business. It is a critical element of our portfolio and will remain so in the coming year. Your question on HipBar. I would say that, yeah, we are very excited about home delivery. Look, I will say that HipBar, when we entered HipBar, it was a very differentiated model. It was the only one that had a home delivery license in Karnataka. Since then, there have been newer entrants and the models are evolving. My experience, when I tell you my three years spent in China, I learned a lot on e-commerce and with Trump. One, this takes a long time to evolve. There is a maturing period where it will be a few years before we see its giving stage. In this period, there will be a lot of test and learn with different models to cater to the environment that exists in the country. At this point in time, we feel that HipBar's model maybe is not as differentiated as the Swiggy and Zomato of the world. It's not differentiated enough, and it is not appropriate for us to invest in an exclusive alco-led only home delivery platform. It makes sense to release the promoter to do his other parts of the business. We will continue to work with retailers, regulators, and delivery platforms to determine what are the best models that evolve in this space. We will continue to look at this space and be very active to participate in the opportunity that we think can be a game changer in the future. Sure. Thanks for that. Apologies for pressing on the BIO question a bit. We all know it is strategically important for Diageo and USL. We wanted a little more insight into how that pans out for USL. Are we just getting a marketing fee or do we take part in any other way in the profit pool? I wanted to know more about what you, coming from Diageo, think about India as a delivery business, I guess. A retailing mix. Yeah. Let me take that, Sunita, since this does come up repeatedly. Look, we are a national distributor. USL is the national distributor for the Diageo global brands. Extremely high pricing, therefore extremely gross margin accretive. Therefore, clearly, as Sunita has pointed out, remains a very high focus. It allows us to tap into the premiumization space. The brands have a fundamental global equity associated with them, therefore very strategically important. On the margin perspective, what I want to share is that ultimately, we need a portfolio of brands to play our margin game also. What this allows us to do is, this is extremely high on the return on invested capital, if you see. We do not invest anything in our manufacturing capacity. All we are doing is getting the product from abroad, distributing it, and the margins are in line with any independent third-party distributor margins. Therefore, very high return on invested capital, and it has a very solid base in our portfolio that we would want to build and grow. All right. Thanks for that, Pradeep. One request. If it's possible to add this load run in your presentations every quarter on the BIO business, that will be very interesting. That will be very helpful. Thank you. We'll have to explore that. We don't want to make any commitments right now, but yes, we're happy to consider that and come back to you. Thank you. The next question is from the line of Chanchal Khandelwal from Aditya Birla Capital. Please go ahead. Hi, thanks team. Welcome, Suneet, on board. Just a few questions on the balance sheet. Today, you have the best balance sheet in the last five years from a United Spirits perspective. What are the kind of CapEx plans for next two to three years? Given that you want to reduce the volatility of ENA, what kind of alliance or investment you will do to reduce this volatility? Let me take that. In terms of the capital CapEx intensity, if you look at our runway through the last three, four years, post-acquisition, they have by and large been in a particular range. We pretty much expect that range to continue. There is nothing right now that we are seeing which will dramatically kind of change it. That's one. Second thing is, yes, in the Indian environment, we believe that alliances is the way to go. That's exactly what we have done on our manufacturing footprint also, which includes a lot of co-located ENA distillation facilities. We will continue to progress on that premise as we reach our end state manufacturing. You can locate co-location of distillation facility and anything more you are doing to make sure that the supply of ENA is secured and the volatility in ENA reduced? Basically, it provides a supply security, right? With our third-party manufacturing partners, they have a co-located distillation facility, and therefore the neutral spirit supplies are secured, and it does come with a set of cost advantages also. Sure. Thanks. One more question, if I may. If I look at competitive spirit, you have, if I can name Pernod at one end, where if you look at the sales per case, it's far superior. You have Radico on the other end who has gained market share. If I look at the state mix or brand mix, if you want to play, if you can, and if you want to answer, on how will you play it out and which are the states which is the focus now for you to improve your premiumization. You started saying that premiumization is what India has a big opportunity on. Anything you want to call out for which are the states, which are the critical areas you want to attack so that you become far superior than competition in Indian market? It's difficult to outline which states are important. I think all states are important for different parts of our portfolio. That would be my answer, right? I think we are very clear about clearly defining which parts of our portfolio are important. A market which is a Popular, a lower Prestige dominated market, and McDowell's, No.1, will have a big role to play in both attracting people from the lower segments and catering to the aspiration of the consumer. We have the depth of portfolio to be able to play that in every state to an advantage. I would say that, I think as an ongoing part of strategy, we clarify which portfolio plays in which state, and we are going to continue to make that sharper and sharper and then bring our renovations and innovations to take advantage of that. Sure. Thanks. Thank you. The next question is from the line of Shirish from Centrum Capital. Please go ahead. Good afternoon, Hina and Pradeep. Thanks for the opportunity, welcome back to India. I have two questions. The first question is that in quarter one, what is the weighted inflation we have experienced? How much price increases we have tried to mitigate this cost inflation? My second question is in relation to the previous participant's question. I think our channel checks suggest that mid-premium segment is picking up very quickly, there is original players also trying to throw in their hat. While it may be true, the important factor which I wanted to have your candid view is that when the off-trade is becoming little more important during this lockdown period, do you see any abrupt or different behavior from the competition? If that's so, what is our thought and how we are trying to explain our position to the retailer? One question at a time. Maybe I'll take the inflation and the pricing question first, and then I have to request you to summarize your, and repeat your second part of the question so that Hina can take that, right? Q1 versus Q1 of prior year, I think inflation, there was hardly any inflation, right? At least in the core raw and packaging material. Like we said in the earlier part of the call, we have given draft price increases, as we kind of exited the quarter, and therefore we will see the impact of that in the subsequent quarter. Pricing, again, we've got pricing from a few states, right, as the pricing cycle finished. Again, you'll start seeing a little bit on account of that in the coming quarters, right? Pricing will be in the range of 0.5%-0.6%. That's roughly the national weighted average that we get pretty much, which we have got over the last nine, 12 months, right? That's to bit of your first question. If you can just repeat your second question, which was largely around mid-Prestige. You made the point about new competitors coming into the category, we didn't exactly catch as to what was your question. Question. Yeah. Just to rephrase the question, during this lockdown period, off-trade is becoming a little more important in terms of consumer traction and the exposure. I would suspect that the competition would have been little aggressive on that front. Of course, once the on-trade opens up, we will have your merit to say that drink item. My view is how would you manage if this lockdown get little extended, and how have you managed the competition? We've pivoted very much to the off-trade as well, right? As off-trade became more important, as in-home consumption picked up, right, we have also pivoted very quickly, and I would say I'm very proud of the team and the agility they've shown in pivoting to off-trade and to using digital for in-home consumption and really moving our content to that. I would say that's part of doing business and managing competition, and I think we've done it really well, I would say. I'm quite pleased with how fast we have moved there. We have also deployed resources additionally into off-trade and invested as the market has evolved. We continue to watch this mix of channels. I'm very confident that with the learning that we've had over the last two waves and what we've seen as changes, if we see changes further, we will be able to adapt very quickly to that. Yeah. All right. Thank you, and all the best to you. Thank you. Thank you. Thank you. The next question is from the line of Siddharth Gupta from YOY Capital. Please go ahead. Good afternoon to the entire team. Welcome, Hina Nagarajan, back to India. Let me just say, I'm very excited for the future of this company, both as a stakeholder and also the fact that I've recently turned 26, so I'm legally allowed to drink, so also as a consumer. Let me just get to the question quickly. From a very basic overlook, if I could see, there's roughly about 50% of your sales has come through what you're planning in your strategic to offload in your strategic review. What effect do you think would it come on our OPM, which is roughly covered between 12%-16% over the past few years? Secondly, when it comes to what I've noticed is that the firm hasn't really been, I know that advertising is banned in India for alcohol, but I have seen competitive brands using quasi-marketing on social media a lot more than our brand. Is that something that's on the table? As you said, millennials are ready to tap in and spend more money on premium product. I haven't been seeing a lot of activity from United Spirits on this front. If you answer both those questions, please. Just to, again, frame your question, Siddharth, your question is that, what could be the implication on our business depending on the outcome of the strategic review? Is that the right understanding of your question? Right, sir. Sir, from my understanding, the total volumes of the mass brands which you are seeking to offload is roughly 49% of your sales volume. Our OPM has been hovering anywhere between 11%-16% over the past four, five years, how would this fall in revenue be compensated in the OPM? How much percentage-wise, OPM are we expecting an increase in? Siddharth, I don't think the numbers that you have are right. Let me just respond at a slightly elevated level. Exactly what Hina mentioned earlier in the call. We are midway through our strategic review. We haven't reached any concrete outcomes. Right? A plethora of options is possible. Right? Depending on whatever option emerges as the final recommendation, we are live to the implications of what it will have on our business model and our overall margins, et cetera. We are working proactively to figure out a way of ensuring that we are absolutely covered on that front. Right? That's what we would want to say at this point in time. Right. What is the OPM that we're targeting over the next few years, if I can reframe my question in that sense? Because that has largely, if I exclude the years where we were making losses, we've actually been stuck in this OPM margin for a very long time now. Is there a strategic target of moving fast to a certain level of profitability, or are we not having that number on the table and just targeting pure number as profits? Yeah. We have maintained what we have said earlier, which is mid to high teens, and we remain absolutely committed. Right? If you look at our progression over the last, whatever, five years. Right? Let's say post the acquisition, we gradually in-stepped our operating margins from, let's say, high single digits. We are broadly there in mid-teens. Right? Therefore, we would want to remain committed to the mid to high teens that we have always maintained. Okay. Right. If you could answer my other question with regard to the marketing endeavors, because that's also another thing that we've noticed over the past few years, that our sales haven't grown at an exponential rate. It's grown incrementally, which has been great. We have done amazing work on the debt reduction front, which I commend the team management for. What is it in terms of innovative advertising or outreach methods that the company plans on adapting? Yeah. I think we do what is possible within the regulatory framework, right? Whether it is brand extensions or whether it is being able to do visibility at the store level and digital. I would say that I'm very pleased about the work we've done to digital advertising, and our work is actually quite breakthrough, and it is addressing the target audience quite sharply. Actually, we have a bigger commitment to become even more targeted. Yeah. Focused, and we have some really good tools that we use internally to make our marketing programs much more focused to the target audience that we are seeking through digital. We will continue to drive that. We have seen very good ROI from that. Our return on those investments is really good, and we will keep dialing that up. Thank you very much. Hina, we can close the call now, right? It's past 1 o'clock. Yes, sir. I now hand the conference over to Ms. Hina Nagarajan for closing comments. Yeah. I would just like to say thank you very much for your time and the engagement on this call. I wish you a good day. Thank you very much. On behalf of United Spirits Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.