United Spirits Limited Q4 FY22 Earnings Conference Call Insights

Key highlights from United Spirits Limited (MCDOWELL-N) Q4 FY22 Earnings Concall

 

Management Update:

• MCDOWELL-N expects volatility, temporary import supply constraint and inflationary headwinds to remain in short term, putting pressure on its growth and margins.

 

Q&A Highlights:

Avi Mehta – Macquarie Group – Analyst

• EBITDA and working capital impact of the slump sales?

Pradeep Jain – Chief Financial Officer

• The EBITDA of the perimeter business (32 sold and 11 franchised) is about INR195 crores for FY22.
• The margin for perimeter is about 14% of net sales, which is about INR1,330 crores.
• Direct and serve model, EBITDA margin is about 11-12%.
• Working capital is an integral component of the enterprise value.

 

Avi Mehta – Macquarie Group – Analyst

• Payment schedule of the 11 brands franchised?

Pradeep Jain – Chief Financial Officer

• On franchise leg, Inbrew has only one call option.
  • If Inbrew was to exercise this call option at the end of 5^th year, the payment of INR1,330 crore will happen from year 6 to year 10.

 

Avi Mehta – Macquarie Group – Analyst

• Update on ENA (Extra Neutral Alcohol) and glass prices in the near term?

Pradeep Jain – Chief Financial Officer

• Inflation is mounting.
• Glass needs to be given another price increase in Feb., early March.
• ENA is going up due to geopolitical tension and Europe conflict as grain is under pressure.
• Hope to make progress on pricing over the next 2-3 months.

 

Jai Doshi – Kotak Mahindra Bank – Analyst

• Breakup of RM basket in terms of contribution between ENA, glass bottle and other key RM?

Pradeep Jain – Chief Financial Officer

• ENA and glass bottles are about two-thirds of the RMPM (Raw Material Packaging Material) basket.
  • Both commodities are under inflationary pressure.

 

Percy Panthaki – IIFL – Analyst

• The 79 million cases are under franchise agreement or done by MCDOWELLN?

Pradeep Jain – Chief Financial Officer

• Do not recognize franchise to company volume.
  • 79 million cases is all direct-and-serve network, which will reduce from 79 million to 56 million.

 

Prakash Kapadia – Anived Portfolio – Analyst

• What kind of EBITDA margins can be expected from higher contribution from the premium portfolio?

Pradeep Jain – Chief Financial Officer

• The margins are almost in line with the portfolio margins.
  • Will not have significant impact on the portfolio margins.

 

Prakash Kapadia – Anived Portfolio – Analyst

• Capex for FY23?

Pradeep Jain – Chief Financial Officer

• Not materially different from the historical run rate.

 

Shirish Pardeshi – Centrum – Analyst

• Hyperlocalization will be done via the franchise route or M&A route?

Hina Nagarajan – Managing Director

• Hyperlocalisation comment was in the context of marketing activation.

 

Shirish Pardeshi – Centrum – Analyst

• If the slump sale and franchise operation will have any positive or negative impact on the distribution?

Hina Nagarajan – Managing Director

• There is no impact on the company and ongoing business.

 

Shirish Pardeshi – Centrum – Analyst

• Given the slump sale, if it will have an impact on employee count?

Pradeep Jain – Chief Financial Officer

• There are a set of employees that are in the perimeter as the sale is as an undertaking.
• Exact numbers cannot be made public.