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 5th 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.