Ladies and gentlemen, good day and welcome to the United Spirits Limited Q1 FY 2023 Earnings 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, Managing Director and Chief Executive Officer, and Mr. Pradeep Jain, Chief Financial Officer from United Spirits Limited. Thank you, and over to you. Thank you very much. Good evening, ladies and gentlemen. Thank you for joining us on the Q1 earnings call of United Spirits Limited. As always, it's a pleasure to interact with all of you. I'm joined by Richa, our Investor Relations Head, and Pradeep, our CFO. Let me provide a context on the results that we announced Tuesday evening, and then we can open it up for Q&A. As a headline, we delivered a growth of 34% in the first quarter in apple-to-apple comparatives in prior year. Our price mix was 16.4%. The strategic focus on premiumization reflects in our numbers. On-trade saliency was back to pre-COVID levels, and we are seeing sequential gains in the innovation renovation best placed in the market over the previous year. On EBITDA, double-digit inflation, limitations in Scotch supplies in select markets, as well as a one-time special grant to all employees in extremely challenging times impacted EBITDA margin delivery. Let me talk you through our progress on the pillar strategy, and I will come back to the financials. Our portfolio reshape strategy through innovation and renovation is on track. We have put a lot in the market, mostly in the second half of last year, and are confident of ramping up the same in the current year based on the sequential gains we have seen in the launch markets. To jog your memory once again, our recent innovations renovations are impactful, inclusive and sustainable. Godawan, India's first craft single malt, with sustainability credentials, has already been launched in Rajasthan, Delhi and the UAE. We've also showcased Godawan along with Epitome Reserve at the Cannes Film Festival in partnership with NFDC. The response from consumers has been heartwarming. Black Dog renovation, we launched a new campaign, Savor the Pause with global icon Keira Knightley. We have continued to scale up media reach on the campaign in this quarter, helping reappraise the brand and dialing up aspiration. The brand is performing extremely competitively in the market. Black & White continues to see great traction amongst consumers and the quarter saw enhancement of the brand's association with superstar chef Heston Blumenthal on social media. Royal Challenge American Pride is now rolling out, already available in seven states. Along with the Signature brand end-to-end renovation of the consumer bundle, we are sequentially improving our position with these delightful liquids in the upper grade C segment. We are going strong on Royal Challenge with accelerated momentum from states where we have renovated or had a route to market unlock. The Yaari Cheers and the purpose campaign on our flagship brand, the McDowell's No. One, reached over 65 million people during the IPL, with the brand performing very competitively during the last 15 months or so. Actually more than that, since the time of renovation. Touching upon the pillar of building an organization of the future, elaborating on our digital initiatives first. Our website thebar.com is a one-stop place to help people celebrate and create memorable moments of celebration. The Bar is present on both the website as well as on social media on both Instagram and Facebook. The site has been in beta mode for the last few months, and we have got very good initial response with 1.1 million total visits to the site and very good organic traffic every month. We also have Precision Factory, our powerful digital initiative that is focusing on media, data, analytics, and content, helping us target consumers with the right content in the right occasions and improving the effectiveness and efficiency of our digital marketing expense. Both these are going to be continued to be scaled up as we progress in the year. We are continuously improving, investing in our tools, capability and talent. As we improve, we are creating a virtuous circle that brings us closer to consumers, supports more efficient and effective engagement, and fuels growth. On the third pillar, the one of the most important pillars, Society 2030 goals. We continue to make progress in delivering our Society 2030 goals. We have been shaping drinking attitude towards moderation through sustained programmatic interventions. Two of our flagship global programs continue to expand their reach in India. First one, Wrong Side of the Road, our drink drive program reaching 64,000 people, while SMASHED India educated 12,000 young people on dangers of underage drinking. We continue supporting customers and communities by conducting Learning for Life, a hospitality skills training program with 72% women participation. Under our water stewardship work, we created capacity to replenish almost 5 lakh cubic meters of water in stressed areas like Nandur and Nashik in Maharashtra and Kumbalgodu in Karnataka. We are working towards net zero carbon by 2025. The Black & White whisky brand is using 100% biodegradable and recyclable hipster pack now, and we will be rolling this to our other premium scotch hipster portfolio over the next few months. We've also rolled out a blockchain-based track and trace system with Godawan, Signature and Royal Challenge whisky, and we'll scale it up for our other key brands. This now enables us to trace back the product journey from blend to finished goods, providing auditable sustainability data. Again, another significant step towards our commitments to sustainability. Coming now back to the financial performance and key highlights, which you would have already seen in the press release. Let me again call out some of the salient points. Our reported revenue increased 34.2%. P&A grew by almost 44%, while Popular grew by 13%. Lacking a soft prior year comparator, growth also driven by resilient consumer demand in the off-trade and recovery of on-premises operating fully with footfall back to pre-COVID levels. The P&A growth also reflects the ongoing premiumization trend. Growth has been partly offset by constraints in ENA supplies in select markets on account of ongoing price deliberations with the government. Gross margin was 40.9%, down 356 basis points. This reflects the adverse impact of high commodity inflation. Continued management focus on favorable product mix and a culture of everyday efficiency has partially offset the inflation. Our marketing investment rate was 6.5%, up 128 basis points. We continue to strengthen the equity of our brands and premiumize the portfolio. Staff cost includes a one-time special recognition grant to employees for their outstanding contribution and commitment in an extraordinarily challenging operating environment for the last few years, and now aggravated by macro volatility and high cost of living inflation. Our underlying EBITDA margin was 13.8% for the quarter, up 346 basis points, primarily driven by operating leverage, and tax was at INR 210 crore in the quarter, up 204%. We are on track to close the transaction with Inbrew Beverages as per schedule. We had mentioned that we will close this by end September. We are on track to do that. Our outlook on inflation, we are seeing inflationary pressures to continue in the near term. In our assessment, inflation is a combination of some permanent reset and some temporary pressures. However, in the near term, the combination of material cost increases and external economic challenges will drive double-digit inflation for our portfolio. In conclusion, all I want to say is that we are confident of the resilience of our business and our ability to navigate headwinds, as our team has demonstrated over the last couple of years. We remain focused on our strategy of reshaping the portfolio, driving commercial excellence in store and in on-trade, revenue growth management, and everyday efficiency. We are confident in our ability to deliver sustainable long-term growth and stakeholder value. With this, 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 the touch-tone 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead. Yeah, thanks for the opportunity. My first question is on marketing spend. If I see quarter-on-quarter, because YOY may not make too much of sense. Quarter-on-quarter sales is down 10%, while marketing spend are up 7%. I understand there is a seasonality in marketing investment. My question is, because of the gross margin pressure of, say, 366 basis points, which must be there for you and the industry also, will the industry see much lower ad spend than the normative years? In the normal years, your ad spends have been more like 8%-9%. Currently, it's only 6.5%. Wanted to understand, has the competition also cut down versus the normal years? Hi, Abneesh. First of all, good to have you back on the call. We missed you last time. Look, I think on the question, I'm not in a position to say what industry will do. At Diageo, we believe that, you know, particularly in more difficult times, we should be investing behind our brands. We are playing the game for the longer term. We are a brand building company, and we will not be pulling down our brand investment, but we will rather be using these more effectively, more efficiently to drive the top-line growth objectives that we have. We have very aggressive top-line growth objectives, so we would like to support that by investing into the brand equity. One follow-up on that. For FMCG companies, digital ad spend is around 25%-35% of the total. Traditional is now only 65%-75%. What could be the number for you? Any sense what it was, say, five years back? What are you asking me to do? The digital mix of the advertising spend. It has been increasing, Abneesh, for a very long time now, for the last few years. I would say that I mean, this differs from brand to brand, right? On some brands, you know, maybe 65%-70% of our spend is on digital, whereas on others, you know, there is a more focus on in-store, et cetera. Overall, I would say that, you know, more than 50% of our spend is on digital. About 50% would be the right weighted average number, Abneesh, across the portfolio. Thanks. That's useful. My last question is coming back to the sales number. When I see historically quarter-over-quarter, the dip was always there in Q1 in most of the years, but the 10%-11% dip seen quarter-over-quarter this time seems to be slightly higher. Is it because of the beer regaining some market share because very harsh summer was there? If you could comment on period, how has been your sense in terms of market share, any sense you have got on how things would have changed, say, quarter on quarter? Abneesh, I would say that if I just break this down to P&A first, right? Our performance at the book end of our portfolio, right? Scotch has performed extremely competitively despite the limitation on supply. I would say Number One continues to perform extremely competitively for a second year in a row after renovation. In the middle, on mid and upper prestige, basically our renovations and innovations, I was just calling that out, that actually they started rolling out in the second half of last year. We are seeing sequential improvement in our position in these segments as well, right? There has been some impact of the limited Scotch supply and that explains the little bit of delta that you are seeing there. Other than that, there is no unusual, sort of, impact on our sales. Could you elaborate on the Scotch supply constraint? When do you see it fully resolving, and how much was the impact in Q1, if it is possible to share? Okay. Basically, look, I mean, just to give, you know, everyone a perspective, Scotch, as you know, is a very scarce and limited commodity, right? This year, Scotch is seeing a high level of inflation, and we need pricing for sustained supply. We have been proactively engaging to get the right pricing, you know, with a few state governments. We will commence supply once we close the discussions. In the quarter, we have had an impact of about INR 60-70 crores, and this would be about on our P&A portfolio, you know, about 6 percentage points of growth, right? Now, we are hopeful that in this quarter we will be able to come to the right, you know, closure on this. Therefore, I mean, we do see impact for this quarter, right? We are quite hopeful that by the end of this quarter we would have, you know, reached the right win-win situation for both sides. Sure. Thanks. That's all from my side. Thank you. Thanks, Abneesh. Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead. Hi, good evening, and thanks for the opportunity. Am I audible? Yeah. I hear you. Yes, Jay. Hi. Hi. My question is somewhat connected to what Abneesh asked earlier. See, when I looked at 2017, 2018, 2019 calendar years, the usual seasonality was that from March quarter to June quarter, you would see about 0.2 million cases of decline in P&A volumes. In this quarter, this year, March was impacted by Omicron wave and June was a normal quarter, and yet we have seen 0.9 million cases of decline. Is there some change in seasonality? Or, you know, if you could comment on, you know, broadly. Again, when I look at June 2022 versus June 2019, P&A volumes have declined. Now, I'm aware about route to market change of A&P, but adjusted for that also it was the modest growth. Whereas in the previous two quarters versus respective quarters of 2019, you were tracking at a very high, significantly higher growth, volume growth number. I'm unable to understand this. You know, at least to me, it seems like this quarter is weaker than what I would have expected at the beginning of the fiscal year or quarter. If you could comment on this, please. Jay, let me attempt to take that. Two points. You've asked a seasonality question. I think the way I will look at it is that when COVID wave one happened, there was a bit of an inflection point there, right? If you look at the last three years, I think there is absolutely no change in the quarter-on-quarter seasonality, barring a little bit here and there, right? If you compare the Q4, you know, the April/June seasonality versus pre-COVID, yes, you would see a little bit of a shift, right? That was a bit of an inflection point, to answer your question, that the seasonality has changed a little bit, right? You know, there was a one-time inventory correction that all of us did when COVID wave one happened, et cetera. Then we've just stuck to that. It just, you know, it just helps us, right? To kind of, you know. That is the first part of your question. Second part, if you look at it, one is you've answered it yourself. There is an Andhra adjustment. That is a large business for us, right? Large business not just in top line, even in bottom line from the franchise part, right? Excluding that, we are in the positive zone on our three-year zone also. As Hina has already responded to Abneesh's question earlier, we lost about INR 70 crore of NSV, right, in the top end of our P&A segment. Once you factor that in, I think we are by and large in the same zone, right? I mean, that's broadly what our assessment is. Understood. Second question is, you know, you had articulated your aspiration for double-digit sales growth last year. Now with Popular business being divested, I'm assuming, you know, that aspiration should have moved up an inch, given Popular was anyway not growing. If you could, you know, share your revised aspirations for the business. More importantly, what is the growth construct that one we should think of in terms of the contribution of volume and contribution of pricing plus mix in this 10% or 10%+ growth aspiration? Yeah. Thanks, Jay, for the question. I mean, as we have said since the time of launch of strategy, that in one way we had already factored you know the going away of Popular when we said we want to target you know strong double-digit you know top-line growth. We are still sticking with that acceleration of you know double-digit top-line growth, right? Basically that's it. I think in a year which is so volatile, et cetera, I mean, we are not in a position to change that guidance right away, right? I mean, it's a very difficult macroeconomic environment, and we will stay with the guidance that we've given, right? Sure. No, my question is different, Hina. I understand. I'm not asking about near term. It's essentially in the medium term or maybe next year if things are normal. If you were to sort of pencil in 10% revenue growth, will it be 5% volume in in- Yeah, I'm coming to that. Sorry, I'm coming to the price mix and the volume question. Look, on the price mix we have had, because of the COVID base effects, right? Our price mix and our scotch growth, we have had a price mix which is quite high. We have said that on a normalized basis we would see about 7%-8% price mix on a steady state basis, right? Just building on that, Jay broadly, if you are saying that as a portfolio. Yes. As a portfolio, if you're looking at double-digit growth, right? Yeah. Our price mix would be in the 7%-8% range, driven by the consistent. Correct. premiumization of the portfolio, and volume will be in the 3%-4%. 3%-4%. That's the broad math. That's very helpful. Final bookkeeping, Pradeep, if I may. This quarter employee cost had some ballpark INR 25-26 crore of one-time grant. What should be the normalized employee cost that we should sort of model going forward? If you can give us an idea of how it would be once the divestment of Popular business is complete? Jay, I don't want to comment. You know, post the divestment, we come back. I mean, you'll pretty much start seeing the P&L once we close the transaction on September thirtieth, right? You'll start seeing the you know real excluded P&L. But I think the staff cost is about INR 167 crores currently, right? You knock off 26 out of that. That's broadly the you know the organic run rate that we can look at. Understood. Thank you so much. That's it from my side. Thank you. Thank you. Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead. Good evening, everyone. My first question is on the P&A growth. While some people have looked at it sequentially, what I'm looking at is on a three-year CAGR basis, after adjusting this INR 65 crore of scotch issue, which has happened this quarter. Even after adjusting that, the three-year value CAGR is only 4%. I mean, this is a completely normal quarter after adjusting the INR 65 crore. The base quarter, which is Q1 FY 2020, is also a completely normal quarter. Therefore, whatever happened in COVID times or didn't happen, plus, minus, is really irrelevant at that on this three-year sort of comparison. What is the reason that the growth is so low, only 4%, and our target is the double digit? What really will need to change for the growth to accelerate from 4% to 10%, 11%, whatever that number is? Yeah. Percy, you're right. I mean, adjusted that. I think what you've probably not excluded is the Andhra sitting in the three years ago base, right? Now, that was a large Probably, yeah. business, and that was a large franchise royalty business. I'm not talking about the bottom line here. We've absorbed all that, right? We've recouped all that, et cetera, and our margins are kind of, you know, come back to the pre-COVID levels. The top line, if you adjust for Andhra, that 4% moves us to about, you know, to about a 7.5, 7-7.5% broadly, right? Yeah. If you look at our P&A performance, Percy, don't look at one quarter. Look at it on a four-quarter basis. Have we picked up momentum versus our historical run rate? The answer is an emphatic yes, right? Yes, one quarter, maybe we are a little short of the double digit, et cetera, but if you look at our four-quarter rolling number, et cetera, we are significantly ahead of the double digit. Percy, I would say that our strategy that we announced a year ago is exactly about this. This is exactly what's changing. We are betting on growth on luxury and, you know, strengthening our presence in upper prestige and, you know, reshaping our value proposition in mid prestige and lower prestige. All the renovation work that I've called out, you know, a couple of times, all that has happened to strengthen our participation in these segments, and it is giving us sequential gains, and we are rolling this out. You know that renovations in our industry take, you know, time because of the registration, labor registration state by state, et cetera. You know, we have confidence that these are working and that, you know, we will be able to scale them up in this year. Sure. I was also a little surprised on your volume guidance of about 3%-4% in the medium term. This is now we are going to be only a P&A company. This would imply that the overall sort of industry volume growth, which includes the regular segment which we will not participate, would be even lower than this 3%-4%. Then are we saying that basically the spirits business is a business which is likely to grow even below overall FMCG industry in volume terms? That doesn't seem intuitively right. Yeah. Percy, I think what I did respond to is on our aggregate portfolio, which has a huge negative on account of Popular, right? Now, once post the divestiture, right, our portfolio will become 85% weighted towards PMA. Obviously, this mix is gonna change a little, right? We will be, as Hina and I mentioned in the last quarter, we want a little bit of peace time to revert before we, you know, come and discuss what our go-forward guidance will be. Right now in this extremely volatile condition, we don't want to discuss the guidance, right? We'll be happy to discuss that once a little more, you know, stability is back. Sure. My last question is on the margin. You have done 12.5%, this quarter, even adjusted for these one-offs in the Scotch portfolio and the extra employee cost, et cetera. You would be close to a 13.5% or maximum 14%, versus the last three quarters average of 17%. Now this is very clear that it's because of higher input costs. You also mentioned that this double-digit input cost inflation will last for a few quarters more. In this kind of a scenario, this adjusted margin of 13.5%-14% that we are seeing right now, is there any reason that in the next 2-3 quarters, the margin will improve from that level? If so, what would be the drivers for it to improve to above the 14% mark? Yeah. Percy, let me take the first part of your question. I mean, we've already stated in our press release, our underlying margin adjusted for the one-time employee grant is about 13.8%. Hina has already spoken about the range of the revenue loss that we have had, right? That broadly would be another 70-80 basis points probably, right? That's broadly where we are right now. Two things, right? I mean, all I can say is, yes, inflationary trends will continue, so therefore margins will be under pressure. In the next, you know, in the current quarter as well as the next quarter also, it will be under pressure. We continue to I mean, some of the, you know, stronger actions that we have taken on the pricing front, which we are talking about, right? We continue to advocate, and we continue to build and expand our productivity pipeline, right? Which are the things under our influence. Last but not the least, the big one that we are banking on, Percy, is mix, right? What is reassuring is that our renovations and innovations that we kind of rolled out in the last year are beginning to pick up momentum in the markets. We are seeing sequential gains. If we can continue that momentum, I think mix will be a big, big driver of our, you know, of our call it inflation mitigation or call it our, you know, margin holding strategy over the next two to three quarters. I don't know if, I mean, Hina wants to add. Well, no. I mean, the thing is that, we are hopeful that we will get pricing as we go along. Yeah. Absolutely, right. The last thing, which is that, you know, Q4, I mean the April-June quarter is our lowest sales quarter. We'll get operating leverage also, right? We will be upwards of INR 2,500 crores, hopefully in the next three quarters. What kind of pricing should we sort of pencil into our models over the next 4-6 quarters in total? Percy, that's very, very difficult for me to say. I mean, I. You know, honestly, if you ask me, you know, and I've been in a free pricing category, right, I'm seeing enough CPG reports, et cetera. Inflation becomes an opportunity to enhance margin actually, right? Because you price ahead of inflation, and when inflation unwinds a little, you don't obviously price back. Right? That's a difficult one for me to say in this category, right? Our desire will be that, you know, in a normal ongoing business, we should get at least two-thirds recovery, you know, two-thirds from pricing. This category is very different, right? All I can say is that Hina and my aspiration, the kind of efforts we are making is we are trying to beat what we have achieved in the last five years, right? If we can achieve that, then we would want to build from there on. Thank you. Mr. Panthaki, may we request that you return to the question queue for follow-up questions. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, we would request you to please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Kavi Mehta from Macquarie Group. Please go ahead. Hi. Hi, Hina. Hi, Pradeep. Just wanted to pick up on the last. First on the pricing. Have you received any hikes in this, any pricing actions in this quarter, or any, you know, coming up in state or any state? Yeah. We received pricing, fresh pricing from UP and Haryana in the quarter gone by. Prior to that, we've had pricing from several other states. We had, you know, some states like MP, Rajasthan, Punjab. Yes, the answer is yes, we have received pricing and we have received fresh pricing from UP, Haryana. any rough quantum of what kind of ranges are these in? Is this like to offset in that particular geography the inflation in double-digit inflation to some extent? Or how is it- To some extent, yes, Kavi, right? Clearly, I mean, the inflation is double digits. It's not enough. The pricing is much lower, right? Like I said earlier, we are really counting on mix. I mean, obviously we are not leaving any stone unturned. Unturned on pricing. Right, on pricing. We would want to dial up the mix factor, which is, you know, our interventions of Signature, Royal Challenge, American Pride, and the renovation of Royal Challenge. Okay, perfect. Just, you know, I'm asking on the input inflation or input cost environment. You had earlier highlighted that ENA is transient, is what you felt. You know, in this comment, at least in the start, you know, I was arguing that some of it is structural, some of it is transient. Could you clarify what did you mean by that? Is it fair to, you know, extend what you said to argue that one is probably the bottom on the gross margin because mix will steadily improve and more or less inflation is behind us. Is that a right way to look at things or no? I mean, inflation is certainly not behind us. Like, I mean, we would want to be candid on that. We do expect this double-digit inflation, right, to continue at least for the next three quarters, right? Which is July, September and October, December. Once we start lapping probably the inflation versus prior year will reduce. Inflation will continue, right? What we meant by part of it is we believe that, you know, some part of the inflation is also on account of the geopolitical factors. Let's say what's happening in Ukraine, Big Bear and Green, et cetera. That's impacting the sentiments, et cetera. Some part of that will hopefully unwind, right? Some part of it is probably more longer term, right? Whatever the Indian government is doing on account of the ethanol blending, et cetera, will probably ignore. That's what we meant, right? It's that it's a combination of two. We will have to wait for the next at least 4-6 months to see how much of it is, you know, or how much of it unwinds after that and how much of it stays in the P&L. Thank you, Mr. Mehta. May we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead. Harit Kapoor. This is Harit here from Investec. Good evening. I just had two questions. Firstly, on the pricing side. You know, I think in the quarter four call you mentioned that, you know, you're hopeful of getting at least a 2% kind of weighted average price hike. I just wanted to know, you know, what's your confidence level on that? You know, is there probably an increased outlook given the multiple states that they, you know, have given you a pricing, or you kind of still hold to that broad range? I would just say that our pipeline of initiatives and the advocacy, you know, efforts are all to try and get that done, right? Our pipeline is actually a little bit bigger than that, right? I mean, basically, you know, we are, you know, pushing for this and we are hopeful that in the quarter we will be able to get, you know, the BIO pricing, et cetera, realized and come close to that aspiration. I mean, there's no guarantee in this one, right? Because it's not in our sphere of direct control. Yes, I think there are enough and more conversations happening to try and get there. Yeah. If you look at, again, if I look at the last six to eight months, there are nine, ten states which have given us pricing. Yes. So that's reassuring, right? But what I do also want to say is that there is a little bit of a negative carry forward also, right? When the BIO prices got adjusted last year in Maharashtra, et cetera, the industry, I mean, the regulators did kind of also make the industry participate in the reduction of the consumer price, right? So there is a little bit of negative carry forward also that we are carrying into the P&L in 2023, right? That's why it makes it a little more challenging I think what is reassuring for us is that we are seeing a lot of fresh pricing coming from the states. Okay. My second question is on the rollout for some of the initiatives which you have taken. I think just give a sense on, you know, where. You did mention the multiple states that you've already rolled out some of the initiatives. Will you give a sense on, you know, how long will it take for national rollout for some of these going forward over the next two, three quarters? Maybe, yeah, you know, there's the Royal Challenge American Pride, you know, is in five states right now. Almost seven states now. So another, you know, quarter or two will be. Yeah. So another 4 to 5. Detailed over. Yeah. Another 4-5 months, I think we should reach about 75% of NSV, right? Yes. Signature's rollout is pretty much national. Godawan is early, and anyway, that's a category that will take a little bit of time, right? It's a very high-end premium category. We launched in two states and the UAE, et cetera. So that is anyway a much longer gestation period. Just a follow-up on this, given that you know it's a fairly volatile environment, is the focus on the current year you know basically kind of seesaw some of the things which were done in the second half of last year, and probably new initiatives could then come post. Is that the way to think about it or am I getting it wrong? I mean, our first priority is definitely to start, you know, building up and scaling up what we've rolled out in the second half of last year. That will be first priority. That doesn't stop us from looking at new innovation and renovation initiatives. It will be fair to assume that in the first five, six months, we will be focusing on, you know, leveraging what we've done, right, from the previous year. Got it. That's it from me. Thank you. Thank you so much. Thanks. Thanks a lot. Thank you. The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities. Please go ahead. Yeah. Hi. Hi. Hi. In the last couple of years, you would have seen some benefit coming from duty paid sales rather than duty free sales, which get booked as a part of the previous books. How significant was that and would that present a bit of a barrier, particularly in FY 2023 over the course of FY 2021 and 2022? Actually, we find that there's been a sort of a fundamental change, you know, in this COVID period, where basically the duty-free sales, because of the pricing of, you know, our BIO coming down due to state positive development on the sort of, you know, route to market changes that have come in Delhi, Maharashtra, et cetera, the prices have kind of evened out, right? We don't see any fundamental shift back to duty-free and, you know, any sort of incremental cannibalization of domestic sales because of that so far. I mean, we basically activate in our stores as fantastically as duty-free stores, you know, activate in theirs. At this point in time, we don't see a significant shift, you know, taking away sales from the domestic market. This is true even as people have started traveling internationally and therefore that's even there. There you've not seen any evidence of that slowing down. Not really. No. Yeah. Krishnan, there would be some impact, without doubt, right? The reality is, I think the larger point Hina is making is I don't think it'll be material enough to change our aspiration from, you know, what we do in the domestic market. I think the lines are completely blurred, driven by the combination of reduced price arbitrage between duty-free and duty paid, right? Obviously, driven by the reduction of taxes locally, and the fact that all the industry players are doing a phenomenally good job of activating what we call the modern off-street, right? Let's say the top 2.5-3,000 stores, out of that 65,000 base, et cetera, which is. I mean, the shopping experience is delightful. Sure. My next question is on the Hina you mentioned, particularly on Godawan and Black & White. You have a blockchain-based tracking system. Can you just elaborate a bit on that? How exactly does that benefit you, particularly over the medium to longer term period? Yeah. I think the track and trace system is particularly, I mean, as we stated our ambition on sustainability, right? We talked of sort of going net zero on scope 1 and 2 by 2025, and going net zero on carbon footprint on scope 3 by 2030. Basically, how it helps us is to track, you know, from grain to end of life cycle, our carbon footprint, and we are getting more transparency of data, and we are building this database to be able to rigorously track as we take our carbon footprint reduction initiatives, to be able to audit the data, measure it, and then to report it very transparently, right? The whole idea is across the value chain to have that visibility, right from the time of sourcing to making to, you know, the consumer, et cetera, and be able to keep ourselves firstly accountable and then reporting this transparently outside. That's how the track and trace system helps us. It's actually a first of a kind in the industry, and I would say the first of a kind perhaps even among broader CPG. We are quite proud of the fact that we are, you know, taking this significant step to get to our goals. Thank you. Mr. Sambamoorthy, may we request that you return to the question queue for follow-up questions. The next question is from the line of Himanshu Shah from Dolat Capital. Yeah, thank you. Thanks for the opportunity. Hello. Couple of questions. Yeah. Yeah, hi. Can you just elaborate more on the Scotch issue? Basically, are we looking for renegotiation of prices with the government, local government, because of the inflationary pressure, and therefore we have reduced our supply? Or it has been more of an import issue of Scotch because of this Russia-Ukraine? We are asking for price increases from the government to align with the inflation that's happening on scotch, and therefore we have reduced supply. Okay. This has been more from our end. We have deliberately reduced the sales. Yeah. While we are doing the discussions with the government, we have had measured supply so that we can get the price increases and get a more sustainable, you know, pricing and supply system established with the government. Sure. Secondly, in our annual report, Pradeep, if you can help, the rates and taxes cost line item has gone down from INR 150 crore run rate to INR 40 crore in FY 2022. What is driving this reduction, and is this a permanent one or it shall come back in FY 2023? I mean, you'll have to. I'll have to request Richa to get back to you. If you could just be in touch with Richa, right? That's what. I mean, Richa will have to help you with that. I don't have a line-wise, you know, annual report account recorded in my mind, right? No. We'll definitely answer that, right? There could be a change of the, you know, own manufacturing to the, third-party manufacturing, which leads to a change in the accounting lines of capture. That's the only calculated kind of, you know, response that I can place. Please be in touch with Richa. She will provide a very comprehensive response to that. Sure. Just couple of more questions. Can you help me with the share of volume of BIA and BIO in FY 2022? What would be the volume share of BIA and BIO of our total volumes? It's about 50-50, broadly. No, I'm asking for BIA plus BIO put together as percentage of total volumes of ours. Volume. Well, I have the value mix blocked in my mind. It's about 20%. BIA plus BI-Total, it's about 23%, right? Volume will be significantly lesser because of the per unit value difference. I would probably. I'm taking a completely rough guess. Again, Richa could help you with that. I'm assuming volume would be about 8%-10% probably. Okay. Just one more. If the BIO volume grew at a much faster pace than the overall company average, will that pull down our margin? Can you confirm on that because of the distribution arrangement with the rest that we have with Diageo plc? Yeah. You know, again, I think I would want to respond it the other way, right? Yes. First of all, mathematically, if you say that, you know, BIO will continue to gain salience, right, it will mathematically, you know, reduce our margins, right? Because we make a 10% EBITDA, right? But the 10% EBITDA is after a very healthy, very, very healthy A&P spend, and after a full absorption of all the overhead, the entire overhead structure that we have put in place to kind of execute our BIO business, right? That is one. I just want to provide, you know, that assurance to you. The second thing I will say is that all the renovation interventions that Hina has talked about for the last two, three quarters, this significantly uplifts the USL mix advantage, right? If you see the kind of interventions we have made in Upper Prestige, right? Yes, sir. Then Mid Prestige and the Godawan of the world and the investments that we have made in the Nao Spirits of the world, etc., they are all geared towards premiumizing the standalone USL portfolio also, right? Therefore, our role as the USL management is two-fold, right? We have to work on our Diageo global brands also. That obviously is, you know, a huge premiumization opportunity. Simultaneously, we're also ensuring that we are building the USL portfolio also towards the premiumization. We'll have to balance these multiple parts, right? That's why our guidance remains in the longer term, the mid- to high-teens, right? Yeah, we should be able to, you know, balance all that with this competing process. Thank you, Mr. Shah. We request that you return to the question queue for follow-up questions. The next question is from the line of Alok Shah from Ambit Capital. Please go ahead. Yeah, hi. Thanks for the opportunity. Hina, I think my first question was on the renovation and innovation. This time around, are there any different initiatives that are being considered from a sales incentive or a distribution side, specifically to the on-trade channel? Especially now that on-trade is coming back after sort of a distressed period, do you see that as an opportunity to outspend vis-à-vis competition in that channel? That's my first question. I mean, on-trade is back, and therefore, you know, our spend is now, you know, back in terms of the split of spend on on-trade activation and off-trade, right? During COVID, it was only off-trade. You know, all our activations were being done in the off-trade. Now that on-trade is back, I mean, traditionally our split of on-trade and off-trade is about, you know, 30/70, right? 30 on-trade and 70 off-trade, and we are back with a bang activating, you know, with on-trade in that split of our spend. We have taken the opportunity as on-trade has opened up. I mean, I talked a couple of quarters ago about Johnnie Walker Revive the Night, which is a very, very big initiative on, you know, Johnnie Walker in the on-trade, welcoming people back and celebrating the after hours, right? You know, Black & White has a table for all, you know, sharing and food pairing activation that we do. Certainly, I mean, as on-trade has opened, we have taken that opportunity, and we are back very strong on the activation with on-trade. My question was, do you base your internal data points that you could be outspending competition or it's broadly in line with, you know, your shares, et cetera? We don't track that, right? I mean, honestly, we don't track a channel by channel spending of competition, et cetera. We have a commercial calendar, right, that we create at the beginning of the year, and we try and stick to, you know, our commercial calendar. We do what is right for the brand activation. The consumer. Right? For the brand activations and the consumer. We take a consumer-led lens for what makes sense and spend, and we think we are well spent in the on-trade. Thank you, Mr. Shah. We request that you return to the question queue for follow-up questions. The next question is from the line of Tejas Shah from Spark Capital. Hi. Thanks for the opportunity. Couple of questions. First, Hina, you spoke about in earlier calls that vodka and white spirit will be our focus area in the coming years. Any update on the same? I mean, on gin, we have, you know, we see whites as a full category, right? We don't see it separately. While on the whites, we have been activating, you know, our two brands, Tanqueray and Gordon's, which have been growing very, very healthily, strong double-digit growth there. Then our investment in Nao Spirits, which is working well. I mean, Nao has done extremely well in the quarter gone by, and I think they've tripled their volumes vis-à-vis the, you know, same period last year. Our activations remain very strong in whites and, you know, Smirnoff relaunched, our vodka brand. We launched the Hip Pocket Scotch, Pocket Scotch format, you know, the same Hipster format we launched in Smirnoff, which is doing very well. We remain committed to strong activations, you know, in these categories, and we continue to see growth in these categories. Sure. The second question pertains to the overall guidance that we have given. Now, you spoke about that you need some stable environment for us to actually follow up on that guidance. Now, stability has been elusive in global economy and local economy for a while now. Looking at geopolitical scenario, nothing points out that situation will go back to stability in coming years also. Keeping that as a backdrop, our double-digit guidance, is the current quarter just an aberration or you believe that, you know, many more things need to fall in place at the macro level for us to follow up on that guidance? I would say that, I mean, we have factored the macro, you know, instability and volatility in our plans, and we are still committed to the double-digit growth, you know, guidance. We are fundamentally, you know, working on the strategic pillars, which we think are validated and are working for our business. We will continue to invest behind this and continue to drive, you know, to that aspiration and ambition. Now, look, I can't predict the future. I mean, if something goes absolutely wrong in the macroeconomic environment and, you know, I mean, we never imagined war, right? Nobody could have imagined a war scenario after, you know, so many years. Now, if something again happens like that, we will have to review it. At the moment, I think we are still committed to that guidance. Thank you. Mr. Shah, may I request that you return to the question queue for follow-up questions. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead. Yeah, thanks. I had two questions. You know, if I look at the last few years, five, six years, around 38% of our, you know, raw material costs have been packaging related costs. As we move towards, you know, more premiumization, how will these packaging costs shape up? And also if you could, you know, give some color, the current gross margin fall of 370 basis points, you know, how much is it packaging related, how much of it is crude-based derivatives or some color on that would be helpful. Yeah. Okay. I don't know whether I'll answer your question completely or not, right? Broadly, if you look at our costs or our material costs, right? Right. Glass is the big one that gets counted as packaging costs, right? The neutral alcohol spirit is counted as the raw material, right? Between these two materials, 65%-70% of our costs is covered, right? The rest is largely kind of, you know, which is, which will be the crude-based derivatives, right? Which is the PET, the carton, the paper, et cetera, et cetera, right? That's broadly what the. Okay. Landscape of our you know costs portfolio is right? To answer the latter part of your question, both the critical commodities, which is the neutral alcohol spirit as well as glass, is inflating close to double digits, more than double digits right now. That is what has led to the gross margin reduction. I would make a slightly separate point. I mean, however, as we premiumize our portfolio and work towards more sustainability, right, I think we are going to look at, you know, what we can do on packaging, not just from the cost point of view, but from the- Alternate. You may be aware, we've already announced that on our premium portfolio, we're going to remove the outer cartons in a phased manner over the next year. This is primarily on account of sustainability, but it helps us on cost as well, right? Similarly, on glass, we have been working on light-weighting glass because of the carbon footprint that glass contributes to. We are looking at, you know, tram lining initiatives, market bottle use, so where it makes sense, right? We would probably see, you know, light-weighting of packaging for sustainability and therefore some, you know, benefits on cost as we go forward. Sure. That is helpful. Lastly, Pradeep, on interest cost, you know, it's a non-debt expense. What is that? Can you explain that in the BNL? Principally, India requires your leased assets and the lease rentals that you pay to be accounted for as interest. That's the larger component of it. Then there are some old litigations, et cetera, on which we have to accrue interest, right, so which we are accruing on a quarter-on-quarter basis. That also comes into play. Thank you. Mr. Kapadia, may we request that you return to the question queue for follow-up questions. The next question is from the line of Chinmay Gandhi from Reliance Nippon Life Insurance. Please go ahead. Yeah. Thank you for taking the question. I just wanted to understand your comment on, I mean, you mentioned that ex of P&A maybe, the sales pre-COVID on a prior basis with respect to prestige has grown at 7.5%. My understanding was, so P&A used to contribute maybe 45% in terms of our volume mix in prestige. If I give that adjustment also, I mean, the category not increase more than 5%. I just wanted to get this thing sorted. We haven't done the numbers so accurately, right? I mean, broadly, if you say that, you know, if we layer on the BIO sales impact that Hina mentioned and the Andhra, we will be upwards of 5%, right? That we are, you know, very sure of, right? Yes, it could be off a little bit here and there. Sure. Secondly, I mean, just on the raw material, I mean, we did see some kind of a softening of crudes from the high levels to maybe near $100-ish now. Any of our raw materials, are we seeing some kind of relief or, especially with respect to our discussions with glass? Can you throw some light on this? I mean, there is typically about a 2-3-month lag. I think the reassuring part is crude has come down, you know, much below 100 recently. Hopefully, yes. I mean, even though it is a small part of our portfolio, but it should hopefully provide us relief over the next 2-3 months, right? But I think what is very, very critical for us is the neutral alcohol spirit and the glass. Right now, both of them are kind of, you know, on a boil. Thank you, Mr. Gandhi. We request that you return to the question queue for follow-up questions. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead. Well, hi. Hi, Latika. Hi, Latika. Yes. Yeah, thank you know, for the opportunity. I just have extension to, you know, the comments that you made on margins and another one on revenue. Just to start with margins, because we just talked about it, could you give us some sense on, you know, both ENA and glass inflation? Is it worsening as you exited the quarter? Clearly, you know, we will see price and mix impact to increase sequentially. Is it fair to say that glass margins bottomed out in Q1 for you? Yeah. Latika, like I said, right now both the commodities are on a boil, right? We are not seeing any respite. As Hina mentioned in our opening comments also, we do expect, you know, inflation to continue, right? Therefore, the next two quarters are very, very critical. Yes, we do expect the inflation to continue. Having said that, you know what, as kind of months pass, the negative carry forward of the pricing that I mentioned earlier will wear down, and our fresh pricing will kind of start contributing to the P&L. The second thing that will happen is that, the sequential momentum that I talked about on the... That Hina talked about on the innovation, the renovation in the portfolio, that would also start, you know, contributing in higher sales. All right. Thanks for that. Just second. Sorry, Latika. Just to add to that, I think also the productivity I'd mentioned that we are going for, you know, 2-5 times the productivity of a usual year. We also see some scaling up of initiatives. Right. As we go through the year, right? We see the impact of all these 2-3 things helping us on the growth margin. Very clear. Thanks. The second one was on demand, and I know we've talked about various parts, stock disruptions, supply disruption. We've talked about Andhra Pradesh. I wanted to get a broader flavor on, you know, in your assessment, how has been consumer behavior towards spirits consumption amidst the broader inflationary pressures on consumer wallets? You know, are you sensing that the lower prestige is facing, you know, some signs, some kind of demand concerns? Another aspect I wanted to check with you was that, you know, during the whole pandemic period of stay at home, it seemed that spirits consumption definitely benefited, right? Probably spirits versus beer. Now, with the whole reopening thing, do you sense there is some bit of a pullback on off-trade even though on-trade has, you know, normalized? Any broad thoughts here? Thank you. On the broader demand question, I think the top end and the premium end, we are seeing absolutely no stoppage, right? We are still seeing very strong demand at the top end and, you know, the upper end of the portfolio, right? There is no demand gap there. I would say no slowdown. That's to be expected, I guess. At the lower end, Latika, it's very difficult for me to say because, I mean, if I look at the pre-COVID and the post-COVID, and as I look at the two-year period, actually the market was just about leveled off, in terms of where we were pre-COVID levels, if I look at industry as a whole. Now, how this will grow, as we go forward is very difficult to tell right now. I do not have a trend to tell me that. All I can say is that, yes, on popular and, you know, the lower end, we do see a little bit of slowdown. Again, I expect that would be the case, right? How much of a slowdown? Very difficult for me to say. We don't have enough data, you know, consistent data without the funny effects of the bases of previous years to be able to say that I'm actually seeing a big slowdown or a smaller slowdown. This is an area to watch for us. Sure. Thank you so much, Hina. Thank you. I think we should, yeah. Ladies and gentlemen. We should pretty much wrap up the call now. It's already past 6:30 P.M. Sure. Ladies and gentlemen, that was the last question for today. Please reach out to IR head, Richa for any other queries. I now hand the conference over to Ms. Hina Nagarajan for closing comments. Thank you. I think I would just like to say, again, you know, thank you very much for the, you know, continuing to engage with us and, discussing our business and your commitments to our business. I do want to leave by saying that we remain confident in the resilience of our business and industry in the, you know, despite the short-term challenges. We are committed to delivering long-term value to our stakeholders, and, we are pressing on with our strategy. Thanks again for joining us, and I look forward to meeting again next quarter. Thank you. Bye-bye. Thank you. Ladies and gentlemen, on behalf of United Spirits Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.