United Breweries Ltd (UBL) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the United Breweries Limited Q2 FY '27 Financial 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 and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Jorn Kersten, CFO. Thank you, and over to you, sir.
Jorn Kersten (United Breweries Limited): Thank you, and good afternoon everyone and thank you for joining us for United Breweries second-quarter earnings call for the full year 2027. Before we get into the detail and answer your questions, we're of course very happy with the performance in this quarter and I would like to put it into the context of the journey that we've been discussing with you over the past several quarters as well as earlier this quarter in our Capital Markets Day. When we started this year at the end of full year '26, we saw that the beer category was returning to double-digit growth. But at the same time, of course, we face a significant external shock from the developments in the Middle East.
Jorn Kersten (United Breweries Limited): In the previous quarter, we saw that those realities were both very visible in our results, the beer category continuing to accelerate, but and our sell-in also growing with 13% in the previous quarter and we deliberately reduced inventories by approximately 20% to make sure that we were focusing on delivering cash and working capital improvements. However, gross margin came under pressure from the higher input costs. Despite that, we stayed the course and we've always said we would continue to invest in category growth and behind our brands. Now, during the event earlier in September, our Capital Markets Day, we took a bit of a longer-term perspective to bring you further on the journey, and we spoke about the structural attractiveness of the Indian beer category, the opportunity for us to accelerate premiumization, and, very importantly, answering many of the questions asked, what is our ambition to translate growth into sustainably higher profitability with disciplined revenue management, as well as productivity across the P&L. Now, to get to this quarter, quarter 2 provides for us and hopefully as well for our stakeholders, encouraging evidence that our strategic priorities are translating into the P&L and into value creation. Our volumes grew 16% year-on-year, while net sales increased by 24%. Premium volumes grew by 38%, which is a significant acceleration from the previous quarter, led by Heineken Silver growing at 67% as well as the Ultra portfolio doing well with a 44% growth. At EBITDA, we grew 108% and our EBITDA margin increased by 480 basis points to 11.9%. Last, but not least, EBIT grew 151% with EBIT margin EBIT margin reaching 8.4%. Now that represents a significant improvement from quarter 1, when we had volume growth of 9%, net sales of 7%, and where the external cost environment contributed to a 155 basis point reduction in gross margin. So it's quite of a different story this quarter. And let me spend a moment on what I think is the most important question behind these numbers. How much of this is sustainable? I think it's important that we don't look at quarter 2 as the new quarterly run rate, but equally we should also not view the improvement as simply the consequence of easy comparables from last year or one-off benefits. There are several elements in the quarter, which we consider structural improvements. First of all, there's pricing, and we've mentioned this before, driven also by external, developments, we have taken pricing actions across 24 markets. That's a higher number than we've ever done with UBL. And the benefit from this disciplined revenue management is increasingly visible in our results as all of these pricing efforts are now, visible in our P&L. Then, secondly, it's on premiumization, which we mentioned as one of the big levers for driving long-term profitability. The 38% growth in premium volume is not isolated, for a quarter, but it's an acceleration of the portfolio transformation, and we've been continuously investing behind our brands for multiple multiple periods, and now premium margins continue to be accretive to the total portfolio. Third, and also this was mentioned in the Capital Markets event, our geographic and portfolio choices are increasingly focusing on profitable growth rather than only going after volume or market share. And last, but not least, productivity and tight cost discipline is becoming embedded more and more across the organization. Hold this together, our estimation is that these structural interventions contribute approximately 100 crores to our quarterly EBIT, whilst we still continue to partially invest in higher commercial spend, and we still, of course, let's not forget, we're not out of the woods, that our input costs are impacted by sustained input cost increases. There are volume and market effects, as well, which are particularly supportive in the quarter. We see continued growth in the beer category, on double-digits, supported by strong consumer demand, which stays high, as well as positive regulatory developments in a number of important markets. We all know the change in policy in Karnataka, which happened midway the previous quarter and now we see a full quarter of results trickling through, as well as positive continuous developments in Maharashtra and Jharkhand. These states particularly benefit from policy route to market changes, and it reinforces our confidence in the longer-term opportunity for the beer category. But the magnitude that we've seen in this quarter is not automatically to be extrapolated as becoming the new standard. The low comparison versus last year, which was heavily impacted by the weather, also helped for significant
Jorn Kersten (United Breweries Limited): growth in this quarter, but the structural impact of change in the category is also evident. Volumes grew 6.2 on a three-year CAGR and 6% on a two-year CAGR. So, even if we include that longer-term, we see very positive growth and in line with our expectations for the category development. And lastly, I don't want to go without mentioning non-recurring items and, most importantly, our reported book in the quarter included approximately Rs 36 crore interest income relating to an income tax refund which landed in other income. This benefits the quarter, but is clearly not part of underlying operating discipline. Excluding this one-off, the EBITDA margin still expanded approximately 330 basis points, and our operating profit for the quarter was probably Rs 170-Rs 76 crore versus last year's Rs 81 crore. In other words, while the headline contains meaningful non-recurring benefits, the underlying movement, we really feel remain substantial. And that is also how we want to guide the interpretation of quarter two. It's not a quarterly earnings level that should be extrapolated, but it's, for us, evident that the underlying economics of the business are really improving. And we should also be clear, and we've been clear about this in the past as well, that this is not a linear path. What matters is the trajectory across multiple quarters. And for us as UBL, we believe that our strategy is the right one, and that we stay the course. In the beginning of this calendar year, like I mentioned, beer category grew, beer category growth returns double digit digits. And our premium portfolio was at 16% growth. In the previous quarter to this one, category momentum accelerated further, and we deliberately made some choices, especially on cash and cash discipline to make sure that we were ready to absorb whatever shocks we expected from the external developments. Now, in this quarter ending in September, we demonstrated much stronger conversion of our top-line growth into earnings, which is a very positive development that we really welcome. As we move into the next quarter, I'd like to mention that we expect that commercial investments will normalize from a relatively low base. And we see some of the higher raw material costs we're coming through into P&L. Items like sugar, we see increased pricing. In addition, preparing for peak season, we will stay with investments behind our brands, as well as our breweries to make sure that we are ready for next year's summer. And as a consequence, we do expect profitability growth to moderate sequentially versus this quarter. In our view, that is not a reversal of the underlying progress we're making on pricing, premiumization, productivity, and the portfolio choices. In fact, we actually believe that that progression is consistent with the strategy that we presented during the Capital Markets Day. Grow the beer category, accelerate premiumization, improve the quality of revenue, and translate growth into structurally higher profitability through productivity and disciplined execution, still is the way to go. So, we are extremely pleased with the quarter. We remain very disciplined on how we interpret it. One strong quarter doesn't establish a trend. It gives us a lot of confidence that several of the drivers behind the quarter are the same strategic and operational operational levers that we've been building over time, and that now start showing results. We remain extremely focused on executing against these levers while we navigate the inevitable volatility that will always be here, whether it's commodity costs, regulations, weather, or individual state developments. With that being said, I'm happy to hand over to Vivek to talk a bit more in detail about the category and the brands. And before we go to the Q&A, I'll pick it up again because there's a few questions that we anticipate that we'll dive into a bit more before we open up for questions. So, Vivek, let's go over to you first.
Vivek (United Breweries Limited): Yeah, thanks, John. And thank you for this. Thanks for giving the overall perspective. I would just highlight two things. I think some of you who joined us in the Capital Market Day, I think this you know this quarter's results is a clear indicator that those choices are working. And few of these choices which are really working, number one, we talked about we want to be the category makers. And I think it is a clear data which shows that the states which actually went to a differentiation policy on beer and better corporate affairs policy have better category growth. So, Karnataka is growing more than 50% of beer, Jharkhand is growing more than 40% of beer because of the retail model, Maharashtra continues to grow. And this is extremely important, because a lot of it can be seen on the weather, but it is not weather, because not every state is growing at that level and there is a clear distinction in that.
Vivek (United Breweries Limited): which are growing, disproportionate growth versus other. So, the path to success of creating beer category is very clear. It is about affordability, availability and the clear tax differentiation. Second thing is the strength of our portfolio. You You guys heard me talk about our our bullishness of premiumization. This is something not new we are talking because in the calendar year '24 we grew our premium business more than 25%. The last year we grew at 23% and this year we are on the similar trajectory. This quarter we grew 38%. Heineken Silver brand grew 67%. And I'm and and it and the brand is on fire. This is the most valuable beer brand in the world and we are only in 11 states. So, as we are expanding state-by-state, you know, the opportunity is huge and we are just scratching the surface and we now with Heineken Silver found the right product in the Indian market which can actually drive the trend on premiumization. Our Ultra brand, driven by localization of our supplies in the breweries and the relaunch of the brand behind new packaging, also grew 44%. So, our premium growth, which we always talked about, is is is accelerating. And since we have now made premium portfolio more margin accretive behind all the choices we made, it's also showing up in the margins. The second thing which also gives me a lot of confidence, the discipline on revenue management. Because it is not about pricing only. It's about state mix, brand mix, our own brewery mix versus the the contract brewers, the mix on which state you want to play, how much trade investment we do, the whole choices has led to a very strong pricing mix in this quarter and the cost discipline on on A, continues to invest where we want to invest, but at the same time, you know, looking hard at our our waste or the things which we can take that out of the system. So, overall, strong cash flow, strong inventory management, very strong growth rate, premiumization, all of this gives us an indication we are absolutely on the right track. It gives us the indication there is a lot of potential to be had. And also it also gives us more confidence that our strategy is working and we are going to invest more. Going into the next quarter, which is in October, November, December, we are going to double down our investment both commercially, but also being ready for the next year. Please understand the supply chain in India is not fully geared up for disproportionate growth on year-on-year and for us, as a large player, we need to make sure we make us ready for the next season. Because as we get into the next summer, we will be cycling a strong growth rate and those investments need to happen now. So, we are going to make investment in in this quarter. So, one of the things which Jorn said, I would not look at this quarter-by-quarter results and say, okay, let's keep delivering this top-line, bottom-line every quarter. I think it is the health of the business is very strong, the strategic shape of P&L is very strong and there are enough proof points that our strategy is working and it is only going to create a much bigger category and much bigger profitable business for UBL in India. So, with this, Jorn, I'll hand over back to you.
Jorn Kersten (United Breweries Limited): Yeah. Yeah, thanks, Vivek. We There's a few things I would like to clarify, given the results, and to give a bit more breakdown of of what's underlying, which is both on on net sales, on the revenue, as well as on the margins and of course addressing the question that many of you will have, how much of this do we expect to be structural? Now, let me start at the top in the in the net sales, where we delivered 8% percentage points of price mix on net sales. Now, over 50% is on account of pricing, due to both gross pricing, as well as rationalization of trade spend. About 300 basis points is on account of the choices in geographic mix, so the state mix, where of course state like Karnataka has a positive contribution, as well as premiumization. And the final part, around 50 basis points of our Q2 performance is a better leverage of our own breweries and that's a big swing versus previous quarters. And I'll get to that in a moment. On the gross pricing, we can consider that to be structural, while we see that the trade spend rationalization has a seasonal element to it and it's also a learning curve for us. We see where we can accelerate, but we also learn in which pockets we have gone too far and have been too bold.
Jorn Kersten (United Breweries Limited): Maharashtra and and Karnataka. But it's also impacted by limiting our investments in states such as Telangana where we see that we have muted profitability. And hence, the choices that we announced are also resulting affecting the P&L. We continue on this path of being choiceful, and we expect that the impact should remain there structurally for 40% to 60% of the contribution on the longer term. Now to get to the point of CBU mix and I know that that triggers a a lot of questions because it has an impact mostly on the on the revenue line items that we report. Over the last quarters, the operating model mix had a significant negative impact on our net sales, contracting the growth with a range of 400 to 600 basis points. This quarter, we actually see a reverse impact with approximately 60 basis point gain because we leverage our own breweries more. In general, we expect more reliance on our CBUs, our contract breweries, before and during the season. On the other hand, we see capacity extension with two new canning lines coming up this quarter as well as the investment that we're doing in greenfield in UP will definitely help to structurally bring more volumes to the market through our own breweries. So, hence having a positive impact on the reported net revenue. Of course, all of this depends heavily on how states develop. But that's to give a bit of background on the breakdown of sales and revenue and how much of that is structurally. Now similarly on margins, currently reporting in the quarter 44.7% gross margin versus a 41% last quarter, which then created a lot of questions whether or not we believe that was the low point for margin delivery. Structurally, we expect positive impact from pricing on the margins and trade rationalization to continue. So, where that impact positively in that revenue, it will also have the positive impact on our margins. Furthermore, the improvements that we're doing with NBI new bottles will also sustain. So, we see better use of return bottles in the quarter. However, we see the NBI in this quarter is exceptionally low also because after the season there is more bottles coming back. So, good for the P&L but always bit of seasonal impact post the the summer season. On the state mix is very healthy where we gained share in profitable states Karnataka growing more than 50% in the quarter. Part of this we expect to be structural because this is also part of the choices that we make. Now, on the other hand, we see that the impact from the Middle East on the impact cost on the input cost is expected to remain, and we see significant input pricing as well on some of the commodities that we source in India actually. Additionally, we still aim to get pricing in states where we haven't taken pricing yet and where gross margins have actually significantly reduced this year because of the rise in input costs. So, it continues to be the same journey to make sure that we navigate the pressure on cost through taking the right choices and going after the right moves in the market. Yeah, all in all, there's a lot of moving parts, but we expect margins to remain around the range of 43 to 45% which I think is a good number for everyone to keep in mind.
Vivek (United Breweries Limited): Yeah. Thanks, John. Just to close before we ask questions, I think there is one question which had come on brand power, because this is most critical for us, because stronger brand means stronger category and stronger future. You know, again you know, we we got the brand power data last week for the quarter July, August, September. And I'm very happy to say that Kingfisher brand has again gained scores on the brand power. Ultra has gained score on the brand power and Heineken has also gained brand power in the geographies it competes in. So, overall, the brands are getting stronger despite a significant momentum on the category, which gives us even more confidence to con- continue to invest behind this commercially. So, with this, we hand over back to the moderator for the questions. Yeah.
Moderator: Thank you very much. We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. If you wish to remove yourself
Vivek (United Breweries Limited): Are we still on the call?
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