United Breweries Ltd (UBL) Q3 FY23 Earnings Concall Transcript

United Breweries Ltd (NSE:UBL) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Radovan Sikorsky — Director and CFO

Analysts:

Harit Kapoor — Investec Capital Services — Analyst

Alok Shah — Ambit Capital — Analyst

Pratik Rangnekar — Credit Suisse — Analyst

Umang Mehta — Kotak Securities — Analyst

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

Tejas Shah — Spark Capital — Analyst

Latika Chopra — JPMorgan — Analyst

Vishal Punmiya — Yes Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY ’23 earnings conference call of United Breweries Limited hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harit Kapoor from Investec Capital Services. Thank you. And over to you, sir.

Harit Kapoor — Investec Capital Services — Analyst

Yes. Thank you, Michelle. On behalf of Investec Capital Services, we’d like to welcome the management of United Breweries and thank them for the opportunity to host this call for the Q3 FY ’23 results. I would also like to thank all participants who are joining the call. From the management of United Breweries we have the senior management team, Mr. Radovan Sikorsky, Director and CFO; and Mr. P. A. Poonacha from Finance and Investor Relations.

I’ll now hand the call to Mr. Sikorsky for his opening remarks in a post which we can take a Q&A. So. Over to you, Radovan. Thank you. So good afternoon, everyone on the call. Thank you for joining. So today we’ll discuss the results of Q3. I’m here together with Mr. Poonacha and after the opening comments as was mentioned, we’re happy to take questions in terms of our financials. So, if you look at quarter three, so volume growth, as you saw, was up 4% in the quarter versus prior year and it was primarily driven by Telangana, Rajasthan, and Karnataka. Nice growth in the premium segment, growing 13% versus the total portfolio of 4%. So that’s nice to see that premium trend that we’ve been talking about continues. Difficult on the EBIT for the quarter down 69% due to the changes in the state mix, the impacts of the state mix, really the inflationary pressure now really coming through as we thought it would come through in these quarters and also some recent market impact as well. This was partially offset by the volume and of course the price increases coming through as well nicely. The inflationary pressure on the cost of sales like I mentioned is impacting the gross profit margins and contributing to a decline on our GP to around 41.8% 42% broadly. In terms of the regions, North performance, if you look at the regional volume performance versus prior year, you can see the split between north, west, east, south. So the north in the quarter growing around 13%, west around 2%, the east 3% and the south flat. Now, despite the growth in the volumes in Telangana, Karnataka and Kerala as well in the south, we were impacted by declines in Tamil Nadu. So, you know, that’s a little bit on the regional level if, you know, we can still chat a bit more about it in the questions. In terms of the net sales on the previous on the next slide, sorry, sales were up around 2% in the quarter. We did have some additional discounts booked in the last quarter which were flowing through from previous quarters, which impacted us our revenue growth by about 1% underlying we’re looking at around 3%. And within our revenues, we also have an impact of we show the net income from our contract brewers in the revenues as net income and of course, the margins on the contract brewers were also down due to the inflationary pressure on COGS as well. So that also had an impact on the revenue growth. In terms of pricing, so pricing continues to be growing at around 5%, 6% what we’re getting through in pricing and we continue to seek further opportunities on pricing also going into 2023 and the state mix had an impact on us, right so strong growth in certain of the key regions where pricing structures are different to our average and that has had an impact on the mix in terms of the state mix. On the next slide where we show the year-to-date. So April to December results, so you can see their great growth in volume. We are 43% in terms of volumes, pricing around 6%. Then we have the impact of the state mix. And so overall, we’re looking at strong revenue growth, net sales growth of around 39% on the year to date. So really nice performance in that respect. Overall our margins — operating margins year to date are broadly flat. So not much growth coming through there but really impacted by inflation and more so, as you could see in our quarter three results. So volumes, of course, the leveraging of the volumes, the growth in the volumes is helping us even though the fixed costs after the business reopening operating profit margins are broadly flat. So that is it, that I think would cover my summary, I think on the outlook. We can also close after the questions. I can just give a little bit of an update on the outlook.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question and answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Alok Shah from Ambit Capital. Please go ahead. Hello. Thank you very much for this opportunity. The first question is what was the operating model change in Tamil Nadu that you highlighted once again and can you quantify the volume impact going to the same? That’s my first question.

Radovan Sikorsky — Director and CFO

So in Tamil Nadu, we have basically approached the market. We mentioned also in the results in the quarter one, quarter two, I think it was that we changed the operating model there. Basically, we go direct and we are using now our own sales force in Tamil Nadu and operating through a third party. And that was the main change. The volume we have seen coming through in Tamil Nadu in quarter three, we had quite a significant impact in volumes. So of course, we are looking at how we can restore the volumes in Tamil Nadu and what opportunities we have to restore that. And so we were working through that going forward. We look at different operating models that we have and we consider whether we can work with the model that we’ve chosen in Tamil Nadu. We will probably have to readjust certain things in sales and we’ll see we will look at that as we go forward.

Alok Shah — Ambit Capital — Analyst

Got it. Just to understand this little better. So in Tamil Nadu, if the wholesale and the retail is controlled by TASMAC, so how would a private company go direct if you can explain us? So does your salesperson go directly to the retail counter and sources order and passes through TASMAC? Is that what you are doing if you can explain that?

Radovan Sikorsky — Director and CFO

Yeah, well, we sell through TASMAC, but previously we didn’t have the sales force actually employed under us, and now actually the sales are actually part of our team, visiting the retail outlets and therefore the change. Previously we did it through an agent.

Alok Shah — Ambit Capital — Analyst

Okay, so now employees are on your field. Okay, got it. And when you say you plan to restore volume, then no plan of restructuring. What does that mean? Can you explain this also?

Radovan Sikorsky — Director and CFO

Look, we are working through it at the moment. We’re not planning on any restructuring at this point in time in terms of the footprint there. And so we are working through it with management on how we can restore the volumes. I think for now, I don’t want to say more than that. I think it’s an internal decision discussion, and as we progress, then we can give more information on that.

Alok Shah — Ambit Capital — Analyst

Okay, my second question is with respect to this gross margin compression, and specifically the sequential gross margin compression of 500 basis points, and correct me if I’m wrong, but I think at the start of the year, the strategy was not to procure barley for the full year. So would it have happened that this quarter, on the spot basis, you would have procured barley and that was the reason why the [Indecipherable] last margin compression was 500 at this point?

Radovan Sikorsky — Director and CFO

So, as you know, the barley crop comes in around April in India, and that’s when we are procuring the barley for the following season. That’s what we’re doing this year as well. There was a bit of shortage of barley as well for us, actually going into 2022. And we also had to import, actually, malt right, which was quite a significant cost for us as well. And barley prices have gone up significantly. I mean, we are — we are looking at price increases of, also with barley converted into malt, because conversion costs from barley to malt have also gone up because of energy prices, so we’re looking at increases of around 45% and more in terms of that. So that has been a significant impact for us.

And the fact is that beginning of the year, we were still producing under the old crop, right. So the impact wasn’t as big in the beginning, but now it’s fully on the crop of, you know, of April of 2022, which was much higher, and then also the malt that was imported. So therefore that had quite a big impact for, you know, going forward. And I think it’s going to continue for now, also going into quarter four, for sure. But the good news about it all is we can see is that the crop that’s coming in now in April, which we will then start utilizing in sort of July this year, is looking very good, in terms of quality and quantity at this point in time, right. Of course, it can still change once the harvest begins, etc., but it’s looking very good and therefore we see if that will be the case, then that will really ease the pressure on cost in a big way going into quarter two, quarter three next year.

Alok Shah — Ambit Capital — Analyst

Got it. Just a clarification. This 45%, you said, is the [Indecipherable] barley price increase from April till date?

Radovan Sikorsky — Director and CFO

Yes, actually it’s over 50% you should compare quarter to quarter, but year to date it’s around 40% or so. But in the quarter itself it’s aggravated because now we are really purely on that crop and also the imports.

Alok Shah — Ambit Capital — Analyst

Got it. And just a final bit more of a claire. So if there’s an expectation that the volumes will come back, specifically if am going back to Tamil Nadu. Was the impairment necessary, according to management assessment? Because if volumes are likely to come back, then it’s a short term impairment, right.

Radovan Sikorsky — Director and CFO

I said, the management is trying to restore the volumes. I cannot say if they are likely to come back or not. We will do what we can as a management team to get the volumes back. Tamil Nadu is a state where we can see category growth. There is opportunity for the beer segment and we will work what we can in that. So that’s the way we look. But we took an impairment on it based on the current our positions at the end of December in terms of there was a decline in cash flows and EBITDA which triggered an impairment review and therefore we did an impairment review on the assets.

Alok Shah — Ambit Capital — Analyst

Got it, got it. I have a couple of more questions. I’ll join back in the queue. Lastly, just a request and a suggestion on behalf of clients. Also, if maybe Mr. Rishi too can join the call like many of the CEOs of other companies join, this will help investors and us get a strategic perspective of the business as well. That was just [Indecipherable].

Radovan Sikorsky — Director and CFO

So for sure. The plan would be for our sort of full year results. I’ve asked that the CEO will join us as well so that we can have a discussion with the CEO and the CFO for the full year.

Alok Shah — Ambit Capital — Analyst

Great. Thank you very much.

Operator

Thank you. The next question is from the line of Pratik Rangnekar from Credit Suisse. Please go ahead.

Pratik Rangnekar — Credit Suisse — Analyst

Yeah, hi. Thanks for the opportunity. Just to understand the Tamil Nadu issue a little bit more. I just wanted to understand the change, the sales channel from going from indirect to direct. So is there anything that was necessitating this change as such? And what was the benefit of — what is the benefit that we see in doing this change?

Radovan Sikorsky — Director and CFO

As we mentioned, Heineken acquired the majority in 2021. So we reviewed the business models where we can improve the business, where we can drive efficiencies, we look at, we look at commercial terms, etc. and it was decided that we would take this approach, approach in the state and that was a decision that was done where we now use our own sales force and not through an agent. We have seen now declines in volumes which we need to address. And that’s our position at the moment.

Pratik Rangnekar — Credit Suisse — Analyst

Got it sir [Phonetic] and is it that we would — suppose the decline is not arrested? In that case, would we look at reversing that decision in some time or is it something that we will continue with?

Radovan Sikorsky — Director and CFO

Well, like I said, we will try and restore those volumes. Whether we will manage that is another question. But it is our role as management and our sales team to try and do that and we will look at different options of how we can restore those volumes.

Pratik Rangnekar — Credit Suisse — Analyst

Got it, got it, got it. Thank you so much. So just one more question from my end was that now from the last couple of quarters we’ve seen premium growing much faster than the portfolio, but at the same time, in terms of advertising or marketing spending, we remain at the 5% of sales, end of day at least at an overall annual basis. So is it that once the premium starts going up, there will be some sort of uptake in the advertising spend as well?

Radovan Sikorsky — Director and CFO

Well, our plans for next year as well is to try and increase ATL, BTL spends in the market. Obviously, there is the legislation around advertising can be quite restrictive in some areas. So yeah…

Operator

Ladies and gentlemen, the line for the management has been disconnected. Kindly stay connected while we try to reconnect them. Ladies and gentlemen, thank you for your patience. The management line has been connected over to you, sir.

Radovan Sikorsky — Director and CFO

Yes, sorry, it looks like we were interrupted. So I was talking about marketing spend. I don’t know where I was cut off, but I said going forward we want to increase or store [Phonetic] ATL, BTL but as you know that there are restrictions around how much advertising we can do and where and how, but we will continue with that in terms of how much we put behind premium and also our mainstream and we monitor our return on investment that we are doing the right things.

Pratik Rangnekar — Credit Suisse — Analyst

Thank you so much, sir. That’s all for my side.

Operator

Thank you. The next question Mr. Umang Mehta from Kotak Securities. Please go ahead.

Umang Mehta — Kotak Securities — Analyst

Sir, thank you for the opportunity. I just had two questions. One was again on the change in distribution in AP and Tamil Nadu. We believe the volume contribution from these two states used to be 4% before the change. Would it be possible to share the contribution during the quarter? And the second question was a bit more color on the negative state mix during the quarter. Thanks.

Radovan Sikorsky — Director and CFO

So the volumes were even a bit higher in terms the state of Tamil Nadu. We should remember also with Andhra Pradesh the volume decline has taken place earlier on sort of in the back end of 2019 where we had a big impact, right? So there we had a quite a big volume impact on Andhra Pradesh, just to be clear on that one. That’s why we also mentioned in the notes that [Indecipherable] with combination of regional to market but also changes in policy. So that was the case.

In terms of this mix — state mix we have very strong growth, I have to say in some of the States rights like Telangana and Rajasthan which is great to see because there is a lot of opportunity there. And whereas in States where we have higher contribution some of the states in the south, like the likes of Karnataka or Maharashtra, those growth haven’t been to the same extent as those ones and that’s just causing the mix impact. So that’s the reasoning behind it for us. It’s important that in these states as we get we have strong positions and the growth is there that we also start extracting more value out of those States in terms of price increases. We’re already seeing some successes this year of getting more price in areas like Rajasthan. So that is nice to see.

Umang Mehta — Kotak Securities — Analyst

Understood, sir. But again…

Radovan Sikorsky — Director and CFO

If I would add to it, if we compare Karnataka, for example, in the quarter, we were up around 12% versus 197% [Phonetic]. So it’s nice to see that there is growth in those states as well, but the other states are growing that much quicker.

Umang Mehta — Kotak Securities — Analyst

Got it sir. And just on the first question is it possible to share the mix of Tamil Nadu in this quarter in volumes?

Radovan Sikorsky — Director and CFO

So yeah, Tamil Nadu was down considerably in terms of the mix. If we had an underlying volume performance of around 4% in the total portfolio, we would be high single digits, excluding Tamil Nadu.

Umang Mehta — Kotak Securities — Analyst

Got it. Understood. That’s helpful. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities. Please go ahead.

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

Yeah, hi. For many discretionary companies during the quarter, it was a case of two halves. So did you see something similar that October or maybe early November was good and the second half of the quarter was weak from a demand perspective?

Radovan Sikorsky — Director and CFO

Not really, no. Actually, no, I can’t really say that. No, I didn’t see that.

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

And if you can comment on the market demand for the quarter not — I’m not talking about your revenues, in the demand for the quarter so far?

Radovan Sikorsky — Director and CFO

You mean [Indecipherable] demand? I’m not sure what you mean. You mean…

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

I mean various discretionary categories have been a slowdown in terms of consumption because the inflation is affecting the consumer wallets. Are you seeing something similar in this particular quarter?

Radovan Sikorsky — Director and CFO

No, I don’t think so. Even compared to 2019, we can see the categories growing. So we don’t see really a slowdown at this point in time. And we are not changing our forecast of the category growing high single digits going forward at this stage in time.

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

Got that. Couple of questions on raw materials. Did I hear you correctly stating that the benefits of lower barley cost will be felt from 2Q onwards and not in 1Q, which is the very crucial quarter summer season quarter for UB?

Radovan Sikorsky — Director and CFO

Let me just clarify that a little bit, so we’re not confused because sometimes I mix calendar year with this financial year. So, just to be clear, so like I said to you, so the barley crop, the new barley crop, we will start using in around June, and July, okay. So that means the impact will be sort of more in quarter two. The impact will be coming through that, we’ll start having benefits. Quarter four will be a difficult quarter four for this still financial year. And we will continue to see pressure on our margins. Quarter one, also quarter two, we’ll start seeing it coming through. Now, what I do see, however, is that the pricing that we have, lagging should start helping those margins as well, definitely right as we put the pricing through as well and where we can. But it’s going to be a difficult quarter, four and quarter one going forward.

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

That’s clear. Just one final question on glass bottle cost, you may not have been affected for this particular quarter, which is seasonally weaker because of higher proportion of market bottles. Are you seeing significant inflation on that front as well, which could impact in Q4 and Q1?

Radovan Sikorsky — Director and CFO

Yes. I mean, on bottles, we still seeing pressure on pricing, definitely. There is really a sort of demand-supply happening there. That the supply is a bit restricted and there is quite a bit of demand, particularly from us as well. So those economics are playing out there. So we see still some pressure going forward on glass prices. So I think what we are working on quite strongly, and we have quite good plans in place for that, is to make sure that all bottles coming back, we can improve on that ratio and we believe there’s quite a bit work to be done on that one. And that is an important efficiency for us in terms of glass going forward. So we are really working as a team and we’ve set up a good project around that to get the old bottles coming back from the market into the season.

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

Okay. Just to clarify, what was the extent of sequential as well as Y-o-Y increase in glass bottle cost, new bottle cost?

Radovan Sikorsky — Director and CFO

New bottles?

Krishnan Sambamoorthy — Motilal Oswal Institutional Equities — Analyst

Yeah.

Radovan Sikorsky — Director and CFO

Sort of high level. It was double-digit percentages in a range of around 10%, anything between 8% and 15%. That’s very useful. Thanks for [Indecipherable].

Operator

Thank you very much. [Operator Instructions] We have the next question from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi, thanks [Technical Issues]. You mentioned in your press release that Delhi slowdown attributed to frequent market change policy. So is this slowdown observed for the whole industry or we would have lost market share A? And B just curious to know, in such scenarios, how does a consumer behave? They stop drinking beer or they source it from other states or they move on to some other liquor formats which are available more easily versus let’s say beer? So, if you can throw some light on these two aspects.

Radovan Sikorsky — Director and CFO

You are asking particularly about daily, yes?

Tejas Shah — Spark Capital — Analyst

Yes, yes.

Radovan Sikorsky — Director and CFO

So daily our volumes have come down and we have lost some market share there, yes. So we have lost share. In terms of consumers. Well, I think consumption is probably lower, but consumption is going also to some of the local players.

Tejas Shah — Spark Capital — Analyst

Sure. So basically in such disruptions the market share actually goes back to local players versus the organized large players. Is that a fair understanding?

Radovan Sikorsky — Director and CFO

In Delhi, I would see that happening.

Tejas Shah — Spark Capital — Analyst

And sir, on barley prices earlier we have actually in the past we have entered into very long term contracts to protect our margins considering the experience that we have had recently on barley. Will we explore that option as we move into buying season disputed [Phonetic]?

Radovan Sikorsky — Director and CFO

Well, long-term contracts. We do annual contracts with the barley producers on the next crop and the barley is really much based on how good the crop will be at the end of the day and that’s the approach we are taking for barley going forward as well at this point in time. What we are doing, however, quite a bit now is that we are working with barley farmers, how we can increase acreage, and how we can improve barley crops. And as Heineken, we draw a lot on Heineken’s experience in that respect because they have exposure across the globe with barley and so we are trying to leverage on those experiences and work with local farmers on how we can improve that. So I think that is very positive going forward seeing barley is such an important ingredient for us. So I’m very positive about that going forward.

Tejas Shah — Spark Capital — Analyst

Sure, in the past you have mentioned that imported barley is also an option and we have seen that there is a better malt yield that we have seen in imported barley. So any thoughts around that, if we are going on that route as well?

Radovan Sikorsky — Director and CFO

No, I think it’s again dependent on the crop. So the 2022 crop was not of such good quality. The barley was a little bit moist. Okay. So that — the conversion ratios than are not as good as they should be into malt, whereas what we’re seeing for the next crop, this crop coming through now in ’23, seems to be a very good quality crop, and that should be very good for us as well, like I said, in terms of quality and quantity. We imported at the back end of 2022 as well, there were some shortages and also some quality issues. So we imported malt as well, which comes with quite a cost. And that also, of course, impacted our margins, like I mentioned earlier. But for sure, our drive is to source locally. We want to use Indian raw materials as much as we can, and we want to try and improve going forward the barley crops here locally, because that is the ideal situation.

Tejas Shah — Spark Capital — Analyst

Sure. Last one, have you taken any price hikes in the recent months? In terms of pricing, there is some that we’ve taken. So we’ve taken some pricing across West Bengal, also in Kerala, we took a bid in Goa as well. So continuously, we are looking at opportunities and going into ’23 as well. So we will take pricing. There is a pricing, like I said, lag with this inflation. But the big benefit we see, if we’re talking quarter three 2023 and going forward, if we have the pressure of inflation coming down, with a mix of our pricing coming through and with the cost of sales coming down, we can see that that will be a really nice reflection on our margins going forward. Sir. If you can share some number, what was the weighted average hike that we would have taken and what was the time period? Was December factored of the quarter, or was it during the quarter or on the period of quarter? [Phonetic]

Radovan Sikorsky — Director and CFO

Sorry, I didn’t understand that. It was very unclear.

Operator

Mr. Shaw sir can you please use your handset to ask a question? It would be more clear. Thank you, sir.

Tejas Shah — Spark Capital — Analyst

Hello. I just wanted to know — what I asked was that if you can share the weighted average price hike that we would have taken in the last quarter, and was it at the fag end of the quarter or at the beginning of the quarter we were carrying this?

Radovan Sikorsky — Director and CFO

The pricing?

Tejas Shah — Spark Capital — Analyst

Yes, sir.

Radovan Sikorsky — Director and CFO

The price increases, it’s a range of, like, between 2% and 6% up to 8%, and then it’s averaging out around 5%, I think, in that quarter. And then, of course, carryover is coming through from previous quarters. And yeah, it’s actually still the same sort of average.

Tejas Shah — Spark Capital — Analyst

Got it. That’s all from my side. Thanks and all the best.

Operator

Thank you. Before the next question, a reminder to all the participants. [Operator Instructions] The next question is from the line of Latika Chopra from JPMorgan. Please go ahead.

Latika Chopra — JPMorgan — Analyst

Yeah, hi, thanks for the opportunity. Apologies I joined this call a little late. I’m not sure if this is touched upon, but let me discuss with you the Tamil Nadu and Andhra issue. I wanted to understand at this point, what is your understanding — how much time it would take for business to get back to more normalized levels? What is your best guess here? The second part is how are [Phonetic] market share trends for your brands being in these states? If you could share some color here.

Radovan Sikorsky — Director and CFO

Okay, so we spoke quite a bit about Tamil Nadu probably before you came. In terms of best guess, I cannot really give a guess on that. It’s difficult. Like I said, we will be looking at restoring them. Hopefully, we can have some growth coming in as there is more demand coming through in the season in terms of the capacity, availability in the state. But it’s really difficult for me to say that we need the time to work through it. And we should remember that India is a huge country, right, with a lot of opportunities across a number of states. So we are not dependent on just one state or two states in terms of our business. We have excellent growth in the other states. We have opportunities to take pricing in other states as well. So of course, we like to be present and strong in all the states, but the beauty about our business is that we [Technical Issues] the whole of India. And like I said, we will take the necessary actions to try and restore the volumes and then we’ll see. We’ll take it from there.

Latika Chopra — JPMorgan — Analyst

Sure. And coming back to the other bit, which is gross margin profile I heard that by June, July you would expect the new barley crop to come through, meanwhile, there could be some benefits of price increases. Is it fair to assume that this quarter saw the bottoming of gross margin? And I was just wondering, if we look out two, three years out, how confident are you that this business could reverse back to midteens kind of operating margins, after we navigate this immediate raw material, volatility and the whole Tamil Nadu and Andhra issue?

Radovan Sikorsky — Director and CFO

So — in terms of the margins, the margin will continue to be in this sort of range and under pressure like I’ve mentioned before, going into quarter four and into quarter one of 2023, right. That will continue and we see if all things go well in quarter two, improvement coming through a combination of the pricing and then inflation, the impact of the cost increase. Now, it’s a volatile world we are living in at the moment. So any type of forecasts, do not necessarily have to reflect actual [Indecipherable] right because things change. But based on what we know and what I’m aware of at this moment the barley is looking as a positive indicator for us which is quite a big cost component part for us in terms of our production. So that is good news.

In the longer term again. Like I said, the fundamentals of our business are strong, okay. We see also the category continuing to grow, like I’ve said before, in the sort of high single digits, and we see premiumization continuing. So those are all positives for the business. But again, like I said, we’re living in such volatile times, things could change, but the fundamentals are there.

Latika Chopra — JPMorgan — Analyst

Sure. Are there any other cost [Indecipherable] of the company that you feel could be something that you could look to mitigate these cost pressures on COGS side?

Radovan Sikorsky — Director and CFO

Yes, we do look at that, and of course, at our prospect [Phonetic], I think I mentioned it at the last call, in terms of production efficiencies, we’re doing now quite a bit, and hopefully some of these things will be kicking in. In terms of being more efficient in our production, we are looking at also how efficient we are with our recipes, but without touching the quality of the brand. You must remember we are very much focused on quality, right? And in terms of quality, we source very good barley. And those barley prices have gone up significantly in the 2022 crop. And actually, that crop was not of the high quality that we would have expected, and that had also an impact. But 2023 crop is really looking good at this point in time, and I have to mention at this point in time, in terms of quality and quantity, we’ll know that once the harvest is done and once we do the necessary tests on that barley and it goes for conversion into malt, but what I know now — what we know now as a business, we feel quite positive about it. But let’s see what the reality brings.

Latika Chopra — JPMorgan — Analyst

Sure. And the last bit was on any color or any thoughts on capacity addition plans or capex plans for FY ’24?

Radovan Sikorsky — Director and CFO

Yeah, well, I think I mentioned that for ’23 we looked looking at around anywhere between INR300 to INR400 crores of investments of capex into the business. So for sure we are continuing to invest, improve our lines. We are looking to expand some of the capacities. We are also working with contract brewers to offer us capacity where we are short because we did run into some constraints during summer last year where there was more demand that we could actually supply. So I think yes, we are definitely looking into that.

Latika Chopra — JPMorgan — Analyst

So this is for calendar year 2023 or FY ’24, right?

Radovan Sikorsky — Director and CFO

Yes. For the financial year, in ’24, yes.

Latika Chopra — JPMorgan — Analyst

Perfect. Thank you so much, Radovan.

Operator

Thank you. The next question is from the line of Vishal Punmiya from Yes Securities. Please go ahead.

Vishal Punmiya — Yes Securities — Analyst

Yeah, thank you. Just wanted to understand the demand environment for 3Q FY ’23 and maybe also if you can help us with the month of January, if you can just highlight the growth trends between on-trade and off-trade for 3Q and for January, and what was the mix of on-trade and off-trade for the quarter and for the base quarter? That would be helpful.

Radovan Sikorsky — Director and CFO

I mean, I’m not going to now start speaking about exactly what January was. I think that — I think we’ll leave for when we have the investor call in for quarter four. Generally, I can just say that the volumes came in within expectation on our forecast, so that’s good news and growth versus the previous year and so growth versus 2022. So that is on January. What was the other question in terms of… So basically I wanted to understand the demand or the volume trends between on-premise and off-trade. There was no [Indecipherable] difference between the two. So we’re not seeing that there’s a decline in the on trade volumes. Consumers keep going up despite that there’s a lot of inflationary pressure on consumers. But the mix between on and off is still the same for us. I think it’s around 80 to 85 in [Indecipherable] or actually even less around 10% in the on.

Vishal Punmiya — Yes Securities — Analyst

And that would be 1585 [Phonetic] in the base quarter or would it be similar?

Radovan Sikorsky — Director and CFO

Similar. It’s really sort of similar.

Vishal Punmiya — Yes Securities — Analyst

So it hasn’t changed much over the last one year?

Radovan Sikorsky — Director and CFO

No, not really, no.

Vishal Punmiya — Yes Securities — Analyst

Okay because I believe that with on-trade or footfall in retail kind of going up, the mix would have changed in favor of on-trade, at least in terms of volume. So it hasn’t changed much? Is that what you’re saying?

Radovan Sikorsky — Director and CFO

Not really, no. I think on-trade is an area that we’re seeing on more and more, especially in terms of draft beer. It’s something that we want to be looking at more and more, to promote our brand through the on-trade as well and offer draft opportunities. Yeah, actually, my second question was on that. So the gross margins are under pressure in the very near term. So how do we then increase our promotions on-premise as well as basically support the relatively newer brands in the portfolio? What would be the additional levers for that? Well, we’re not looking at increasing our promotional activities at this point in time. I mean, we’ll be seeking pricing and we will manage our promotion activities a little bit based on how we are faring also against competition in the market. So I think we try and balance that in the right way. It’s important us to gain value in the business and therefore have strict control over our BTL and then that’s managed in a proper way depending on how the competitive environment is turning out.

Vishal Punmiya — Yes Securities — Analyst

Okay, understood, thank you and best of luck for the current quarter.

Operator

Thank you. The next question is from the line of Harith Kapoor from Investec Capital. Please go ahead.

Harit Kapoor — Investec Capital Services — Analyst

Yes. I just had two questions. One was on the premium portfolio. If you can just give us a little bit of sense on why this 13% growth, how in terms of what brands have driven this, and the rollout of the Kingfisher wheat beer, as well as Heineken Silver, at what stage it is and how do you expect going forward?

Radovan Sikorsky — Director and CFO

Sure. So, in terms of the mix within our premium brands, so Kingfisher Ultra is doing very well, I have to say, as a start. So let’s first focus on the Kingfisher sort of portfolio. Ultra is doing very nicely. It grew, I think, over 20% in the quarter. Max is something we still need to run as well. But it will be also very strong double-digit growth, close to Ultra, but we want more out of it and Silver is, of course, performing nicely for us. We’ve now launched Silver in Karnataka, as you probably know, in Maharashtra and also in Goa now as well, it’s available. It’s doing very well in Karnataka, in Maharashtra, it’s growing very nicely as well. We want to also push it more in Mumbai itself more, it’s there, but we see a lot of opportunity there. And in Goa it’s reaching [Phonetic] expectations. So we are positive about it. But now it’s a step-by-step approach. For us it’s important to see that we are beating premium in total. And I think that is happening. And, you know, our ambition to have a fair share of premium is what we’re striving for, and we’re working towards that.

Harit Kapoor — Investec Capital Services — Analyst

And in this ambition, you know, do you expect over the next, say, 12 to 24 months, more products to be launched or to believe the portfolio in terms of products is full and we can just focus on kind of driving distribution for our premium portfolio currently.

Radovan Sikorsky — Director and CFO

So you mentioned [Indecipherable], so we will focus on that as well. But at this point in time, we want to focus on those winning horses. So Heineken, the Ultra Portfolio and with beer as well of course, we’ll be focusing on and doing the right job with those. So that there’s focus on those brands. If you have too many brands launched at the same time, then you start losing focus on it. It’s all about the right focus to build those brands.

Harit Kapoor — Investec Capital Services — Analyst

Got it. And the second question on the regulatory environment, you’ve seen a few of the excise policies come out over the last, say, 30 to 45 days. Any kind of key positive or key negative kind of takeaway that you could share from the same that was my second question.

Radovan Sikorsky — Director and CFO

No, I think positive as well in some states, I have to say. So that is quite positive for us. But overall we’re still assessing it, but we’re not seeing any sort of negative impact on the business at this point in time.

Harit Kapoor — Investec Capital Services — Analyst

Great. Those are my two questions. Thank you.

Operator

Thank you. We have the next follow-up question from the line of Alok Shah from Ambit Capital. Please go ahead.

Alok Shah — Ambit Capital — Analyst

Yeah, hi. Thank you for giving me this opportunity. The first point was, any plans to initiate the operating model change in any other state where also there will be a scope to increase, say, the market share or accelerate the volume growth? That’s one of my first question.

Radovan Sikorsky — Director and CFO

We review state by state our positions, and at this point in time, I don’t see anything really, but I can’t really go into more detail than that. But at this point in time, no.

Alok Shah — Ambit Capital — Analyst

Okay. Second was any sense that you can give what would be the industry level growth of the premium segment in terms of volume or value, whatever, if at all. There’s any syndicated data available [Phonetic]?

Radovan Sikorsky — Director and CFO

In the quarter?

Alok Shah — Ambit Capital — Analyst

In the quarter or nine months whatever you can share, this will be the quarter.

Radovan Sikorsky — Director and CFO

We grew share in premium. I know that, we grew around 75% in premium versus last year from April to December. So it’s significant growth. And we gained share. I don’t recall exactly now how many percentage points, but we did gain share.

Alok Shah — Ambit Capital — Analyst

Good. And there is a bookkeeping? What will be the overall market share at overall company level now?

Radovan Sikorsky — Director and CFO

It’s about 50% [Indecipherable]. So we still maintaining that sort of share. As you know, the shares are up and down depending on movements, state by state. And it’s above 50%.

Alok Shah — Ambit Capital — Analyst

Got it. Thank you very much for the [Indecipherable]. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Harit Kapoor for closing comments. Over to you, sir.

Harit Kapoor — Investec Capital Services — Analyst

Yeah. Thanks, Michelle. On behalf of Investec I would like to thank the management of United Breweries for taking of time for this call as well as thank all participants who joined the call. I’ll now hand over the call to Radovan for his closing comments.

Radovan Sikorsky — Director and CFO

Okay, so to close, I would just like to say that inflationary pressure will remain in the near term. And I mentioned that quite a bit during the call. But we will take the necessary actions to mitigate those impacts. Whether it be through pricing, whether it be through better cost efficiencies in our supply chain footprint, and also ensuring that our sourcing going forward through Bali, through the other materials that we require that we get good prices for that and good quality products. But we see opportunity there as well. But I think it’s important to add that we remain confident about this beer category. We see younger consumers coming into the category. We see such high potential for India actually in terms of GDP per capita growth going forward in the longer term. And also the premiumization part. Consumers are seeking premium products, looking for variety, and as a business, we are able to offer that so we remain positive for the longer term. So I would like to end on that.

Operator

[Operator Closing Remarks]