Q1 2027 United Breweries Ltd Earnings Call Transcript
Key Points
- Industry beer volumes grew ~13% in Q1 FY27, driven by premiumization and supportive regulatory reforms in states like Karnataka, Maharashtra, and Jharkhand.
- Premium portfolio margins turned accretive for the first time, a key milestone achieved ahead of schedule, with premium volumes up 17% and Heineken Silver growing 28%.
- Despite a 300 bps cost shock from the Middle East conflict, the company mitigated half the impact through pricing actions in 22 states, procurement, and productivity, improving EBITDA margin sequentially from 6.5% to 10.9%.
- Deliberate inventory reduction (down ~20% YoY) improved free operating cash flow and working capital by 38%, strengthening the balance sheet.
- Network optimization progressed with the closure of the Punjab brewery, transition to a partnership with ABB, and commissioning of a new can line in Telangana, enhancing long-term efficiency.
- Brand power improved across key brands (Kingfisher, Ultra, Heineken) during the peak summer quarter, supported by innovations like Kingfisher Strong Smooth and expanded cooler placements.
- The company revised its full-year cost impact estimate downward to INR350-400 crore from INR400-500 crore, reflecting better-than-expected recovery.
- Pricing interventions were successfully implemented in 22 states, with an underlying price/mix of +4%, supporting revenue growth.
- Strong category momentum is expected to continue, with management guiding for double-digit volume growth in coming quarters due to favorable reforms and low base.
- The company plans a Capital Markets Day in September to outline its long-term strategy, signaling confidence in the industry's inflection point.
- Gross margin declined 155 bps YoY to 41%, impacted by a 300 bps cost shock from the Middle East conflict, with near-term inflationary pressure expected to remain elevated.
- Sell-in volumes grew only 9% versus sell-out growth of 13%, due to deliberate inventory reduction, which may temporarily dampen reported revenue growth.
- Contract brewing volume growth (ahead of overall) had a ~4% dampening effect on reported revenue growth, and this mix impact is expected to persist.
- The company made tough choices to reduce trade spend in states like Haryana, leading to significant volume drops in those markets, reflecting a trade-off between profitability and market share.
- The business remains highly seasonal, with dependence on summer weather and policy reforms; without reforms, category growth could revert to historical ~6% CAGR.
- The Middle East conflict continues to create volatility in packaging, logistics, and FX, with no clear end in sight, posing ongoing margin risks.
- Premium portfolio is still only ~10-11% of revenue, limiting its ability to offset input cost inflation in the near term.
- The company faced operational disruptions from the Punjab brewery closure and transition, which involved short-term hits to profitability and supply.
- In states like West Bengal, reliance on imports from other states at inflated costs led to volume impacts, highlighting supply chain inefficiencies.
- Management refrained from committing to a definitive margin bottom, indicating uncertainty about future cost pressures and pricing recovery.
Ladies and gentlemen, good day, and welcome to the United Breweries Limited Q1 FY27 earnings conference call. (Operator Instructions)
I now hand the conference over to Mr. Jorn Kersten, CFO. Thank you, and over to you, sir.
Thank you. Thank you. Good afternoon, everyone, and thanks for joining us today. It's been a very interesting quarter. We'll take a bit of time to do an introduction. I'll make a few comments before I hand over to Vivek. And of course, afterwards, we'll very happily address all of your questions.
But before we dive into the questions, I think this last quarter, we can characterize by two very different realities. On the one hand, the beer category continued to accelerate. So industry growth at approximately 13%, very positively supported by both premiumization as well as increasingly supportive regulatory development, which we see across several states, which Vivek will also comment a bit more on, which makes us believe that this is really the start of a new era
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