U.S. Markets closed

Edited Transcript of MCDOWELL-N.NSE earnings conference call or presentation 23-Jul-19 6:30am GMT

Q1 2020 United Spirits Ltd Earnings Call

Bangalore Karnataka Jul 26, 2019 (Thomson StreetEvents) -- Edited Transcript of United Spirits Ltd earnings conference call or presentation Tuesday, July 23, 2019 at 6:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Anand Kripalu

United Spirits Limited - MD, CEO & Additional Director

* Sanjeev Churiwala

United Spirits Limited - CFO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Abneesh Roy

Edelweiss Securities Ltd., Research Division - SVP

* Amit Sinha

Macquarie Research - Analyst

* Arnab Mitra

Crédit Suisse AG, Research Division - Research Analyst

* Avi Mehta

IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary

* Chirag Lodaya

Valuequest Investment Advisors Private Limited - Equity Analyst

* Harit Kapoor

Investec Bank plc, Research Division - Analyst

* Jaimin Shah;RWC Partners;Emerging and Frontier Markets Analyst

* Nillai Shah

Morgan Stanley, Research Division - Equity Analyst

* Prashant Poddar

Abu Dhabi Investment Authority - Portfolio Manager

* Pulkit Singhal

Motilal Oswal Asset Management Company Limited - Associate VP & Analyst

* Vivek Maheshwari

CLSA Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day and welcome to the United Spirits Limited First Quarter FY '20 Results Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Anand Kripalu, Managing Director and Chief Executive Officer; and Mr. Sanjeev Churiwala, ED and Chief Financial Officer from United Spirits Limited. Thank you and over to you, sir.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [2]

--------------------------------------------------------------------------------

Thank you very much and very good afternoon, everyone, and a very warm welcome to the FY '20 Q1 results call.

Before we open up the lines for Q&A, as we typically do, I just wanted to provide a context of our results that we announced last evening. As you may have seen in the published results, net sales grew 10% in the first quarter, partially benefiting from a one-time sale of our surplus Scotch stock in the U.K. Excluding that, underlying net sales grew 6%. The Prestige & Above segment grew 9% on a solid base of 19% net sales growth in the same quarter of the previous year. The Popular segment grew 3% adjusted for the operating model changes enabled by a softer March in Karnataka.

In addition to the broad slowdown to the entire FMCD sector is grappling with, for us, this quarter was also impacted by dry days and restrictive store opening hours, resulting from the general elections.

Moving to the other lines of the P&L, COGS inflation as well as adverse price mix significantly impacted gross margins for the quarter, which came in at 47.3%. Despite that, I'm pleased that we have delivered a like-for-like or indeed underlying EBITDA margin of 16% for the quarter, which is an improvement of 407 basis points versus the previous year. That is after adjusting for the bulk sale and one-off restructuring costs from the base, so the 407 basis points is just pure underlying like-for-like margin improvement.

Most of this margin expansion was made possible through savings in our operating costs as well as the phasing benefit of marketing investments for the quarter. Adjusted for the one-off restructuring costs, staff costs for the quarter were lower by 19% and other overheads were lower by 11% compared to the previous year. While we reiterate the fact that 1 quarter doesn't make a trend, these numbers give us confidence in our ability to mitigate gross margin pressures through operating efficiencies as we have guided in past calls.

While the reported reinvestment made to the quarter was 7.7% of net sales, after adjusting for the one-time sale of bulk Scotch, which obviously doesn't warrant in A&P, the reinvestment rate was 8.1%. Additionally, we trimmed down our marketing investment in light of the ongoing general elections and our marketing investment will kind of normalize over the course of the coming year.

During this quarter, we also launched McDowell's No. 1 Platinum campaign, which featured Vicky Kaushal during the ICC Cricket World Cup, both on television as well as on OTT, which is specifically Hotstar. We continue to stay focused on financing cost efficiencies and interest costs for the quarter were down 11%. As a consequence of this, our profit after tax for the quarter was INR 197 crores, up 143%, mainly the result of improved operating performance and to some extent, lower interest costs.

Looking ahead, while we continue to monitor the broader economic slowdown and its potential impact on the overall consumption in the near term, we'll have to wait and see if there is any specific impact on our category. Having said that, we remain committed to driving consistent and profitable growth of our business and for us, really topline and consistent margin improvement are important. And therefore, I'd like to reiterate our medium-term ambition to grow the top line by double-digit and improve our EBITDA margins to mid- to high teens on a consistent basis in the medium term.

So with those opening comments, I'm going to open up the line for questions and we will address the questions partly from me and partly by Mr. Sanjeev Churiwala who is seated next to me.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [3]

--------------------------------------------------------------------------------

Hi, good afternoon, ladies and gentlemen.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Avi Mehta from IIFL.

--------------------------------------------------------------------------------

Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [2]

--------------------------------------------------------------------------------

Congratulations on a great performance. Just on the Prestige sales growth, you saw a very healthy 9% growth in 1Q. I just wanted to understand, A, would you have any estimate of what the growth would be like if you had adjusted for general elections impact? And B, why are you sounding cautious despite such a healthy performance? I mean, is this linked to the regular performance that is likely to moderate or is something that you witnessed in June?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [3]

--------------------------------------------------------------------------------

Yes. Thank you, Avi. And separately you'll also have to tell me why the stock prices have reacted the way it has today. But specifically answering your question that you asked me, no, no, listen, we are pleased with our performance. There's no doubt about that. It speculate it for me to tell you or give you any view on how much is the impact of the general elections because it's really, really hard to read that. I think we're not being pessimistic, just to be clear, I think we're being realistic because as you've seen with CPG results that are coming out, there is a general moderation of growth across categories in the CPG industry. And we've seen what's happening in automobiles and in general, on consumer spending. So I think it is sensible to just say that we're going to keep these things in our mind as we determine our outlook. It's nothing more than that, just to be clear. Nothing more than that and nothing more deep and insightful than that either.

--------------------------------------------------------------------------------

Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [4]

--------------------------------------------------------------------------------

Okay. No, because 9% is a fairly good, very good, honestly, in this kind of circumstance as you rightly pointed out and that's why I was surprised to see that comment. That's why. Sir, the second question was on the price increase. Have you received any price increase in any state? And the second part would it be fair to now argue that the gross margin is bottomed out because all those input cost pressures are now -- were, kind of, reflected in this quarter?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [5]

--------------------------------------------------------------------------------

So as far as the input cost pressures are concerned, I would say that glass is more or less done for the foreseeable future. There is some recent hardening of the ENA prices, both grain as well as molasses ENA, right. And we're seeing a bit of an impact on that. I can't tell you categorically gross margin has bottomed out, but I'll be surprised if it erodes any materially from now on, okay? Now as far as pricing is concerned because the compensation for me increase in COGS, the pricing environment remains, I would say, reasonably fertile. We've got almost 15 states in the last quarter, which you'll agree in an industry like ours, is not bad at all. We still have a few stubborn states and those are some of the bigger ones where we've not got price increase still and partly it's because of the political scenario in those states and you know exactly what I'm talking about. But having said that, we have also absorbed a bit of price increase because of certain price corrections that we've taken, specifically, in the state of Maharashtra. In terms of absorbing the very significant tax increase that happened in January, okay? Now I believe that, that was the right decision for us as a business and the numbers really are commensurate with what I'm saying and therefore, we have lost a bit of that pricing benefit by way of excise absorption. Looking ahead, I'm hoping that we don't have to absorb any more tax increases and that we will be able to retain more of the pricing that we are getting.

--------------------------------------------------------------------------------

Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [6]

--------------------------------------------------------------------------------

Okay, sir. And I look forward to sir, you being proven wrong in the double-digit growth as we move forward in next quarters and the same side.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

The next question is from the line of Bhavesh from CLSA.

--------------------------------------------------------------------------------

Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [8]

--------------------------------------------------------------------------------

This is Vivek. Two questions. At the time of analyst meet, you mentioned that the low hanging fruit from cost savings are in the bag, it's only the higher hanging fruits that you will be able to capture. So this quarter, the other expenses, staff costs, all these are high hanging fruits or low hanging in your view? And how much of this is sustainable as you go ahead?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [9]

--------------------------------------------------------------------------------

Sanjeev?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [10]

--------------------------------------------------------------------------------

Yes. I think you asked 3 questions rather than 1 question. So I think in the last call absolutely, we said that look, the low hanging fruits cannot be already eaten and then now looking at the high hanging fruits. And that was Anand's comments largely to the productivity agenda that we've been driving over the years, across all the line items. So kind of, if you look at our cost absolutely, a lot productivity what has happened in the past. And given the inflation environment that we are, we still look for significant productivity happening in that line because this industry normally would have an inflation impact of 4% to 4.5%, we cannot allow that entire inflation to come (inaudible). So significant work would continue happening over there.

Besides that, we also spoke about the other overhead lines, A&P lines, staff cost. And you've seen over the last 3 to 4 years of significant work has happened. Our staff costs, in spite of the inflation, it came about 10% every year, has been flattish or lower, right? A lot of work has happened around there. Going forward also, you will see a similar kind of trend where you will see the other overhead, including staff costs only growing in moderation. We should be able to absorb a large part of the inflation impact also going forward. So absolutely, whether it's a high hanging fruit or low hanging fruit, fruits are still there and we will continue to work on them.

--------------------------------------------------------------------------------

Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

So first quarter run rate on staff and others is something that we should be working with for rest of the year or for 9 months right?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [12]

--------------------------------------------------------------------------------

No. So look, we don't want to go and give you a guidance basis on quarter-on-quarter. We've always told you to look at on a yearly basis. That just is you look at the trend over the last couple of years and try to work out on our interpolation basis that, rather than just looking at the quarter number.

--------------------------------------------------------------------------------

Vivek Maheshwari, CLSA Limited, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

Okay. Okay. And second bit on Ind-AS 116 impact, can you just highlight, which all line items or heads it's impacting? And the quantum?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [14]

--------------------------------------------------------------------------------

Yes. So I think -- sure. In our case, it's not big. The overall impact on the beta it's just about 50 bps around so. And basically, it's impacting your other overhead lines and the interest line, but it's very, very insignificant at a small amount, and of course, the depreciation line. The PBT is neutral because of that. And also have a look at that notes, notes to account which has a complete detail on that.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

The next question is from the line of Abneesh Roy from Edelweiss.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [16]

--------------------------------------------------------------------------------

My question is on the bulk Scotch. So you mentioned INR 57 crores PBT or INR 97 crores sales. So my question is why this kind of a order happened and why it's just a one-off? And why such a high PBT margin? So it's good for the company but wanted to understand the thought process. And what's the impact on the gross profit and any other cost? You said A&P for -- obviously, this will be 0, but how is the impact on the gross profit and any other cost item, is there any impact?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [17]

--------------------------------------------------------------------------------

Okay. It's a good question to ask. Let me give you some background in context so that we can come back to the numbers. United Spirits have been maintaining a U.K. branch for many, many years, I would say, going back to decades. Wherein because we have a significant IMFL production here, we need matured staff coming from our U.K. brand every year in order to deliver ambitions on our blends for us -- for our IMFL. So we recently took a stock of the current matured stocks lying in our U.K. branch and this is that evaluation we came with the workings that we -- with a certain amount of Scotch, which are matured Scotch, matured bulk Scotch, which we don't need immediately in India because our blend profile has changed over the years. And hence, we decided to sell that Scotch. We looked for various parties and finally, we realized that to sell it to Diageo because Diageo needs them. So we did went down the market to quotations around that and basis our evaluation and basis [arms] in transaction. We sold this INR 97 crores worth of bulk Scotch to Diageo.

So this was completely planned. And this is kind of also claiming up on the scotches that we don't need and we will never need in future. Now because these are matured stocks line for ages and years, right, it's not cost much to us, we are very happy that resulted into a 60% kind of gross profit. No impact on any other line item. We're happy that we were able to release INR 100 crores of almost cash into the business. Pay back our debt, improve our working capital, so it's a very good thing to happen and we are very happy that we think looking at the current Scotch profile that we have, we do have some more surplus that we think, we should be able to sell during the year, but that's more one-off and hence, we're very transparently to call that out.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [18]

--------------------------------------------------------------------------------

Sir, just one follow-up here, so this decision had nothing to do with any slower growth in the Scotch portfolio in India? It was just because of the mix change, which you've done, is that correct?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [19]

--------------------------------------------------------------------------------

Absolutely. It is just because our blend profile, the aging profile we need is very, very different than the matured stock that we have in the U.K. branch. It's nothing to do with the slowdown. In fact, import business is growing. Somewhere, in the starting of the call, we said you guys have been fabulous and you will be really happy to see you've beat your own estimates.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [20]

--------------------------------------------------------------------------------

Sir, my second and last question is on the P&A, you have done a good job, 9% growth on a very high base. So is there any down trading you're seeing within this? P&A is a very wide portfolio now accounting for almost 70% of your mix. So is there any down trading you're seeing and is that also impacting the gross margins?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [21]

--------------------------------------------------------------------------------

So down trading in what sense? If you could just be more clear?

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [22]

--------------------------------------------------------------------------------

Sir, from the higher end of the P&A to the lower, within P&A?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [23]

--------------------------------------------------------------------------------

No, no. Absolutely, not. In fact, in our earlier calls also we said our Scotch portfolio is really growing, our Scotch premium portfolio is definitely growing. So absolutely, we continue to up trade and continue to work on our premiumization journey. Our luxurious...

(technical difficulty)

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Ladies and gentlemen, it seems that we have lost the line for the management. Please stay connected. Ladies and gentlemen, we apologies for the inconvenience. We have the line for the management connected. Over to you, sir. You may go ahead, please.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [25]

--------------------------------------------------------------------------------

Yes. I think just completing the last question that I think Abneesh has raised. I just want to reiterate the fact that the premiumization strategy is fully intact. And just to underscore what Sanjeev said, we have each segment growing faster than the segment beneath it. So luxury is growing faster than premium, premium is growing faster than prestige and prestige is growing faster than popular. So there is no gross margin impact because of premiumization not happening at all.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [26]

--------------------------------------------------------------------------------

And sir, one last follow-up on the ad spent. So adjusted for bulk Scotch, your ad spend was 8.1% of the sales, which is still lower than the 9% to 10% long-term, which you have been guiding. So this was in spite of the World Cup impact being almost fully there in Q1, in Q2 very little impact. So in spite of that, the ad spend is on the lower side, could this mean that because now you're also expecting slower growth and maybe Pernod also that overall industry could come to lower ad spend in balance part of the year also?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [27]

--------------------------------------------------------------------------------

So I don't think that's the case. Just to be clear our ad spend is still very competitive at over 8%. The second thing is that, we are -- there's a global initiative of Diageo, which we also shared in the Global Capital Markets Day presentation in May called Catalyst where we are deploying certain technologies and tools to improve the way our ad spends are planned and how the return on those ads spends is measured. And basically, that's the way of driving significant productivity in ad spends. So for the same spend, we expect to get more bang for the buck or indeed, we could get the same bang for the buck at a lower spend. Now we had given the guidance of 9% to 10% and that was just a judgment. This quarter, I think we have spent a little less because we felt there was general elections and other things. And we set it up to spend behind our new campaign on McDowell's Platinum for the World Cup. So where there was something to be spent on in terms of new, new. We decided to invest behind that.

Now looking ahead, there will be productivity that we will look at on A&P, right. And we will also spend at what is appropriate both competitively and what's optimal in terms of the P&L. So where exactly this will land, I think it's speculative, but it will somewhere in that range could be a little less or little more. But this -- as I've always said, A&P spends, there is no precise signs of what is the right A&P spend. Its management judgment, right? And sometimes you open the purse strings spend a bit more and then you feel you don't need to spend that the much and then you tweak back a little or you spend less and you say, I'm spending too little, let me open up the purse and then spend more. And we will manage this dynamically quarter-to-quarter, but remain healthy and competitive in terms of our advertising support because we believe that's fundamental to our competitiveness and fundamental to category growth.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question is from the line of Nillai Shah from Morgan Stanley.

--------------------------------------------------------------------------------

Nillai Shah, Morgan Stanley, Research Division - Equity Analyst [29]

--------------------------------------------------------------------------------

I just wanted to dwell a little bit on the Maharashtra impact. I understand what you've done and the reasons behind that, you're articulated that quite well. But how are you thinking about the strategy in light of 2 or 3 things, one is, the fact that there is gross margin compression on account of input costs moving up. Secondly, the mixed impact has not been as strong in the last couple of quarters as was the case earlier. And obviously, the overall tax structure has gone up quite dramatically. So how do you think about this general strategy of withholding prices in a free state like Maharashtra going forward? And is the tap on pricing completely shut or would you explore that in the future?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [30]

--------------------------------------------------------------------------------

So I think it's a very good question. And it's something that we are thinking about all the time. Now obviously, the intent in our industry is not to absorb tax, just to put the intent out there. However, you need to be sensible, practical and competitive depending on a situation that you have to face. Now where in segments, and I've said this before now, for instance, I'll tell you, on BIO Scotch, there's been almost no change in pricing in Maharashtra. On BII Scotch, so all our BII Scotch brand, they needed necessitate of 15% increase in consumer price. We took all of it, right? And I was in the trade last week actually in Bombay and Scotch is holding, despite us taking the full price increase.

Now obviously in Prestige, we have partly absorbed depending on the nature of the brand and the nature of the competitiveness in that segment. Now we remain watchful for every opportunity to take price up. Maharashtra, by the way, is a free-pricing market. So the day we feel that, listen, it is right for taking the further price increase, we can apply and we can do that. Now, while there have been tax absorption, which is not ideal and I must admit that. The tax increase came after 5 years and because there was a steep increase, we felt the consumer shock would be too much. And also the competitive environment as such that we couldn't take the full price.

Now -- so the way we're going to play this out is, and you're right and the COGS is also hardening. And therefore, obviously, this is going to lead to some kind of gross margin pressure. Now having said that, I just want to say that Maharashtra is still margin accretive to our national average margin. So whatever is after the absorption, right? So as long as Maharashtra grows, grows faster than the rest of the nation, it's still margin accretive.

So that's the situation. And I think we just have to continue to watch the space closely and look for every opportunity to push price further. So, for instance, on Royal Challenge, we took our price even though the market never moved, right and we moved up price by about 5% or so. And again, I was in the market, I was looking at our performance and honestly, the decision was right, right? Because the momentum on Royal Challenge stays intact compared to what it was before the price increase even though it got more competitively disadvantaged. So Nillai, we are going to watch this space and we are as hungry for every opportunity to take price as anyone else is and we will not miss an opportunity if we see one.

--------------------------------------------------------------------------------

Nillai Shah, Morgan Stanley, Research Division - Equity Analyst [31]

--------------------------------------------------------------------------------

Got it. Very clear sir. Two small questions. Is there an opportunity to import alcohol, given how benign the global prices are at this point in time, and the fact that the Indian prices are moving up only because of the blending policy? And secondly, could you just clarify on the IDBI Bank issue and the latest update on that? I know there's a detailed explanation of that in the release, but what has happened with the latest course of events and when do you expect court judgments to possibly come through either ways?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [32]

--------------------------------------------------------------------------------

Well, I'll deal with the first part and then I hand over to Sanjeev to deal with the IDBI issue. So -- listen we are looking at it. We have asked our team to look at the possibility of importing of Scotch. I don't think there is still any arbitrage, post-payment of all duties landed in India versus domestic ENA prices. But we're watchful of this. And the moment there is an arbitrage opportunity, we will see that's possible, right? So we're just checking the feasibility right now. It has not been done historically, by the way, okay? So we're just checking the feasibility of doing this and see whether, A, we can do it and B, whether there is any arbitrage.

--------------------------------------------------------------------------------

Nillai Shah, Morgan Stanley, Research Division - Equity Analyst [33]

--------------------------------------------------------------------------------

Because the chemical guys are already doing it.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [34]

--------------------------------------------------------------------------------

Sorry?

--------------------------------------------------------------------------------

Nillai Shah, Morgan Stanley, Research Division - Equity Analyst [35]

--------------------------------------------------------------------------------

Just one point, the chemical manufacturers are already importing alcohol, given the steep increase in price that you've seen domestically.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [36]

--------------------------------------------------------------------------------

I'll take that away and I do not know if alcohol for industrial purposes, it's treated in the same way as alcohol for portable purposes. So domestically, the alcohol is the same, but if it goes to the chemical industry versus going to the portable alcohol industry, it's treated completely differently, yes. So we'll check this out. We'll check this out. Yes.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [37]

--------------------------------------------------------------------------------

Nillai, I'll try and answer your question on IDBI. And for everyone's consumption, I'll still draw everyone's attention to the note in our notes to account and the specific, note number F that you can see. So there is very detailed description on the IDBI matter. Now as you're all aware that historically we have been giving a very detailed note in our quarterly statement as well as in annual report. And the background is as you're all aware that we had repaid the IDBI loan sometimes back and also on request of IDBI, we had also subsequently paid about INR 46-odd crores, which is head in the books of deposit. We've always maintained that this is a very, very strong case that we have because there's nothing that IDBI can hold against. We have been able to repay the entire interest, principal as well as penalty whatever has been asked for. In June '19, in the recent single judge bench hearing, the order our re-petition was dismissed on purely on the ground of merit and the matter has been demanded back to the civil court. Now this order has been disputed by us and the company has since filed an appeal already with the divisional bench of Karnataka High Court and notwithstanding this order, that basis our management estimate supported by external legal opinions on the lead senior councils, we do believe that it's a very, very strong case on merits and we'll continue to fight back. While we speak, possibly our matter has been heard in the court today and hopefully, in the evening, we should have some news on that.

--------------------------------------------------------------------------------

Nillai Shah, Morgan Stanley, Research Division - Equity Analyst [38]

--------------------------------------------------------------------------------

By today evening you said?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [39]

--------------------------------------------------------------------------------

Yes, of course, the matter has been heard in the court today, as we speak.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

The next question is from the line of Jaimin Shah from RWC Partners.

--------------------------------------------------------------------------------

Jaimin Shah;RWC Partners;Emerging and Frontier Markets Analyst, [41]

--------------------------------------------------------------------------------

Great set of numbers. Congrats on that. Two questions. One is on the COGS and raw material. Given our mix shifting into BIO and BII, how much impact does the raw materials have now at overall scheme of things? And again, on the Prestige versus kind of the mass side, we've kind of moved to other higher end, the Prestige side, so again, the pricing power there is fairly high. So just wanted to understand that because, why gross margin is down year-on-year? On a quarter-on-quarter basis, it looks like a small blip to me. So that's one. And the other question, I wanted to understand on the other expenses, right? This has been fairly volatile line item in last few quarters. But again, I kind of when I look at on the year-on-year, as in, trailing 12-month versus trading 12-month basis, it's steadily kind of coming down. How should we think about on an annual basis as well? Is it kind of flat, is it down because trailing 12-month today is down? But is the guidance kind of flat for the full year? Yes. That's about it.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [42]

--------------------------------------------------------------------------------

Yeah, you take the second question then we can come back to first question.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [43]

--------------------------------------------------------------------------------

Yes. So, maybe, I'll try and attempt the question on other overheads. And I think you're right, Mr. Shah. If we look at the trend over the last few years, our growth on the overhead has been fairly subdued. We've largely been able to beat the inflation. So we only expect the other overhead to kind of grow in moderation. And more importantly, we should be able to keep on getting the operating leverage year-on-year and that's the way you should be computing it. We will still go and guide you not to look at as the quarterly trend, and it is volatile, you're very right. The industry is per se, volatile, right? And many things happens on quarterly basis, which is very difficult for us to determine and kind of put up a number to that. But I think we are very, very consistent in terms of our yearly delivery. And as a trend over the last few years, we have been very, very consistent across our delivery just not on the overhead other lines, but as well as on the staff cost line. So our request is to look at the trend over the last couple of years and maybe extrapolate that. That's the better thing to do.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [44]

--------------------------------------------------------------------------------

Okay. And on your first question, yes, GM has more or less held when you look at it on a quarter-to-quarter basis even though there's a drop versus the same quarter of the previous year. And that's because most of the COGS inflation has kind of got factored in, right? Barring a little bit of ENA movement that we've seen towards the end of the quarter and it's continuing into the current quarter as well, okay? Now as far as the mix is concerned, yes, the mix is moving towards Scotch, without a doubt. But Scotch is still a relatively modest part of our total business. And therefore, the absolute impact of ENA hardening still remains material. Now when Scotch becomes more and more and more, that will shift, that impact will shift, but for the moment, it's still very, very much there.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [45]

--------------------------------------------------------------------------------

If I can add Anand on the discussion point on the GP margins in the COGS. I think it's important for us to -- for a moment, if you just drawback and see holistically as to how the development is happening. If you remember in our yearly calls, we had very clearly said that we've seen a very good progression on the GM margins, right. We had grown our GM margins almost by 750 bps point in the last 3 years and it's now very, very competitive as compared to the industries and in terms of our benchmarking. But, however, yes, we've been hit this year, especially by the cost inflation as largely around ENA and glass. So our guidance to the market even last time is that you should not be looking at a similar kind of growth in the GM margin profile going forward. It will definitely grow, but very, very moderate, right? And we'll continue to work on growing our EBITDA margins year-on-year. And to that extent try and put sufficient operating leverages across all other line items. And that is the way we will request you to continue to look at the COGS or the GM margin as well as our overall EBITDA margin aspirations.

--------------------------------------------------------------------------------

Jaimin Shah;RWC Partners;Emerging and Frontier Markets Analyst, [46]

--------------------------------------------------------------------------------

Okay, fair enough. If I can just ask a simple bookkeeping question. The INR 97 crores on the 31st March 2019 was sitting in part of inventory for you?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [47]

--------------------------------------------------------------------------------

Yes. It was sitting in inventory. And as explained in the last question, we have now released this inventory. We have received the cash and this cash is entirely gone in terms of releasing our debt.

--------------------------------------------------------------------------------

Jaimin Shah;RWC Partners;Emerging and Frontier Markets Analyst, [48]

--------------------------------------------------------------------------------

Great. So on a full year basis, I should be using the kind of adjusted number as of March 2019?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [49]

--------------------------------------------------------------------------------

Absolutely, yes.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [50]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

The next question is from the line of Prashant Poddar from ADIA.

--------------------------------------------------------------------------------

Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [52]

--------------------------------------------------------------------------------

One quick one on the response that you gave Sanjeev on the previous question. When you say that incremental gains will be more on operating efficiencies and not from gross margin, the gross margin declined that we have seen in this quarter because of certain events and which you are likely to gain back over a period of time, are you saying that the base quarter of last year from there the gains would be modest or is it your -- are you referring this quarter as the base quarter?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [53]

--------------------------------------------------------------------------------

Yes. So just again trying and reflect some of you did mention that this quarter's GM margins perhaps the lowest. And yes, if you kind of open up the last 8 quarters and see the GM margin profile and the trend, it has been declining over the last 3 quarters almost. Even last quarter, to your point, we delivered 46.5% GP margin and this quarter, it's again, 46.5%. So, kind of, yes, GP margin to that extent is holding this quarter in spite of the inflationary impact, which is a good sign. When we say we will see the GM margin kind of just growing moderately, normally we don't give a yearly trend, we don't kind of go back and just say this quarter or the previous quarter. So our thinking philosophy is if we have delivered a certain GM margin profile last year, we would kind of want to see a certain moderate improvement in the profile, rather than just saying the quarterly gain...

--------------------------------------------------------------------------------

Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [54]

--------------------------------------------------------------------------------

For the full year?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [55]

--------------------------------------------------------------------------------

For the full year, yes.

--------------------------------------------------------------------------------

Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [56]

--------------------------------------------------------------------------------

So despite the first half base probably being relatively better, for the full year, you would attempt to improve margins from last year, gross margin?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [57]

--------------------------------------------------------------------------------

We would attempt to. Yes. We would attempt to. But as Anand said, we will not exactly be able to pin down how the inflation will go, how the ENA and the bottling prices could move, right?

--------------------------------------------------------------------------------

Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [58]

--------------------------------------------------------------------------------

Which is fair. I'll not waste your time more on that Sanjeev.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [59]

--------------------------------------------------------------------------------

Yes. So kind of let me just complete this thought. I think our focus this year definitely is, kind of, growing our EBITDA margin as we have reiterated in the past. Rather than getting into each line item of the discussion saying, will we kind of still deliver our GM margin enhancement or not. The absolute idea is to kind of deliver EBITDA growth as well as EBITDA margin growth. And to that extent, we'll play across all the line items.

--------------------------------------------------------------------------------

Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [60]

--------------------------------------------------------------------------------

Sir, the other one is on market shares vis-à-vis Pernod. How would we be doing nationally and are there markets where you're winning or losing. I'm sure there would be markets where you're winning, the other markets where Pernod is winning. But overall, how is it looking in terms of market share?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [61]

--------------------------------------------------------------------------------

Yes. So I don't have the specific information on how we're performing versus category or specifically versus another competitor. Obviously, any performance will be a mix bag of pluses and minuses. But the better opportunity for us is to deliver category growth leading to profitable growth. So for us, managing the top line and increasing our bottom line as you've seen us do this quarter, remains paramount. Because at the end of the day that's what is going to deliver shareholder value. And that's the way we are looking at this. And the big opportunity in this market is the category growth. It doesn't matter -- it's not a winner takes all market at all. And that's our philosophy in terms of how we're approaching our business.

--------------------------------------------------------------------------------

Prashant Poddar, Abu Dhabi Investment Authority - Portfolio Manager [62]

--------------------------------------------------------------------------------

Sir, the question is because we saw Pernod being very aggressive in price -- cuts of price behavior in the past to defend its turfs because they saw course correction at -- since Diageo took over. Are you still seeing high competitive action in terms of pricing?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [63]

--------------------------------------------------------------------------------

So there's competitive intensity, without a doubt. And they're all worthy competitors, right, at the end of the day and you have to take them seriously. Now I can tell you this, where we have seen aggressive price competition? There are some cases where we have said we will not follow. And we'll protect margin and the jury will be out in the long-term on what's the right decision to be taken. So sometimes, you might take a call to say I will forsake the short term to get the longer term. And we have taken a few decisions like this. And I think this is a question of management philosophy at the end of the day. And what's your long-term growth in terms of -- is it volume at any cost? And that's how the old USL used to be versus profitable growth and driving premiumization and holding margin. And clearly, our strategy is the latter.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from Harit Kapoor from Investec.

--------------------------------------------------------------------------------

Harit Kapoor, Investec Bank plc, Research Division - Analyst [65]

--------------------------------------------------------------------------------

Just had 2 questions. Firstly, on the Andhra Pradesh side, just could you give us any update on how the situation is there? We understand that the TDP government is going to take over the retail rent as well, so any update would be helpful.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [66]

--------------------------------------------------------------------------------

Yes. So that's right. There's a notification to that effect. So the good news is that prohibition is not immediately on the horizon, okay? If there is prohibition at all, then it's some distance away. Yes. And the fact is, they have issued a notification to takeover retail, so government will take over retail. Now how will this -- like I said, our business -- I've said this earlier, somewhere between 3% to 4% contribution in the state of Andhra Pradesh, so it's worth putting that into context.

Now within that, so I'll tell you we've had mixed experiences at dealing with the government retail. There are some states where we have actually done very well dealing with government retail and dealing with them compliantly but yet building share and building our business. And there are some states where we have got seriously compromised. Now we are hoping that we will use all the lessons of how we've done it right and won, in Andhra Pradesh as Andhra Pradesh rolls out. Now the state government what they've also done is that they've also announced the closure of belt shops, which are typically unauthorized shops but they've also announced that they want to increase revenue from excise duty. So if you look at this whole picture together, I would say that the opportunities in Andhra Pradesh, if we have the right strategy in place to deal with government retail should remain intact.

--------------------------------------------------------------------------------

Harit Kapoor, Investec Bank plc, Research Division - Analyst [67]

--------------------------------------------------------------------------------

Perfect sir. Perfect. The second question was to Sanjeev and this was largely about the IDBI issue. Just a hypothetical that it doesn't work in our favor, does that mean that we get the INR 600-odd crores money back that we had given earlier to kind of release these shares, I just wanted to understand the technicality?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [68]

--------------------------------------------------------------------------------

Yes. There's no INR 600 crores, what we have given is INR 50-odd crores, it's little lesser than INR 50-odd crores, which is lying in deposit. But again, this is hypothetical because we are trying not just to get the INR 50-odd crores, we're trying to get back all our assets had been placed. So we have a larger cause and we think we are in a strong wicket.

--------------------------------------------------------------------------------

Harit Kapoor, Investec Bank plc, Research Division - Analyst [69]

--------------------------------------------------------------------------------

Okay. Because it's said that -- your note said that it had deposited a sum of INR 628 crore initially with the bank...

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [70]

--------------------------------------------------------------------------------

The note says INR 459 million. So maybe you're confusing million with crore, that's INR 45.9 crores, so INR 46 crores.

--------------------------------------------------------------------------------

Operator [71]

--------------------------------------------------------------------------------

The next question is from the line of Pulkit Singhal from Motilal Oswal AMC.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [72]

--------------------------------------------------------------------------------

So when I -- I mean, I can understand a lot of cost items you have some discretion and kind of when it comes to A&P and maybe even other expenses. But when it comes to employee expense and I look at the last 5 quarters, I have seen it move from 170, 140, 160, 170 and now, again, 140. I'm just trying to understand what is it there in your business model that allows for such variability of employee costs on a quarter-on-quarter basis, which we actually don't see in any other company?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [73]

--------------------------------------------------------------------------------

Yes. So no other company would also reduce 80 factories to 50, and no other companies would have such large severance costs planned throughout the year. So what happens is, while we haven't still planned agenda around our OE effectiveness, the organization effectiveness, the timing of the payment and the provisioning is only determined as to how we progress during the year. So as a result, you will always see this quarter-on-quarter movements. Sorry for that hard remarks, but that's like what it is. But what is most important for us and what is more satisfying for us is that also on the very, very few companies to your point that over the last 3 to 4 years, we have been able to manage our staff costs very, very significantly well. So if you see the staff costs efficiencies that we've driven over the last 3 years you can calculate it for yourself, we've been able to really achieve significant efficiency around that.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [74]

--------------------------------------------------------------------------------

No, absolutely, staff costs have been flat for almost last 3 years, which is incredible. But this year, run rate seems to suggest a major decline because even based on this quarter, even if I were to see the residual quarterly run rate, it would be way higher at INR 180 crores, which doesn't seem to the case. So should we be building our staff cost decline over the next 1 or 2 years and is it more -- and what would that be driven by? As you talked, you talked about factories being reduced, I mean...

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [75]

--------------------------------------------------------------------------------

Maybe I'll give you a simple answer to solve your issues. Just look at the last couple of years run rate and just try and build that. Our whole idea has been to kind of ensuring that we significantly mitigate the inflation around staff and other overhead costs. We will continue to kind of do that. So our growth in staff costs and other overheads in the subsequent years and this year also as a full year will only be in moderation. So -- and you should not be looking at the quarterly run rate because what happens is in the previous quarter, there will be some additional expenses, one-off severance cost sitting. This quarter it would not be sitting. So as a result, quarter-on-quarter is very, very difficult to kind of draw a trend line and my request is to look at on a full year basis. And draw your projections, this is a full year number rather than a quarterly number.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [76]

--------------------------------------------------------------------------------

And do you have enough run rate for this for the next 3 years or is it because it's already been 3 years, so how much run rate do we have here?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [77]

--------------------------------------------------------------------------------

Well, I will not get into specifically telling you how many years in future, but, of course, if you're looking at the near term, we will definitely try and ensure that we significantly have productivity across all the line items in order to kind of keep it flattish or just grow it in moderation. So we should still be able to beat inflation largely.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [78]

--------------------------------------------------------------------------------

Okay. Sir lastly on the Popular, it's heartening to see some growth on the Popular side as well, although on the lower digit side, 3% odd. I just wanted to understand the strategy here, are we going to finally, I mean have we reached the level of Popular sales that we are comfortable with and we want to grow the business or should we expect that to, I mean be flattish, again, for the next 2, 3 years as it has been in the past? How should we look at Popular going ahead?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [79]

--------------------------------------------------------------------------------

I mean, our best understanding of the growth of Popular is that it is flattish, as a segment, okay? And this quarter, the numbers look better because the previous quarters there was some softness. And this is particularly due to the state of Karnataka. Every year in Karnataka they normally have an excise entry in the 1st of April. So trade buys up a lot in March. This year it didn't happen. So they didn't buy that in March. So that for April it has come back to normal pace, all right? So it is not as if there is some underlying momentum change, okay, to be absolutely, transparent about it. So our guidance on Popular remains what it was in the past, no major shift.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [80]

--------------------------------------------------------------------------------

Sir lastly, on asset sales and your ability to improve working capital, will the pace be faster or slower than what has been in the past on both these aspects?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [81]

--------------------------------------------------------------------------------

Well, first answer on the asset sale, absolutely. We'll only sell what we have and we have been selling significant asset it in the past 3 years as you've seen in our books already. Going forward, we do have some assets that we want to sell. But most of the assets will largely give us cash rather than profits. That's on the asset side. On the working capital, as in the previous call, I've mentioned that over the last 3 years, we have been able to significantly reduce our average working capital, and of course, that means our working capital has been almost like 12,000 bps point reduction over the last 3 years. I think we are now standing where we are very, very competitive because we are a very capital-intensive industry when it comes to working capital. The cost for our INR 100 of sales that we need to do, almost INR 300 of spend has to happen in the managing working capital because INR 1 of item there's this INR 3 of excise payment. So as a result, since we want to continue to grow our top line. Our average working capital will only now reduce in moderation. We'll still look at efficiency and effectiveness as we move forward, but you'll not see the kind of steep reduction that you have seen in the last 3 years.

--------------------------------------------------------------------------------

Operator [82]

--------------------------------------------------------------------------------

The next question is from the line of Amit Sinha from Macquarie.

--------------------------------------------------------------------------------

Amit Sinha, Macquarie Research - Analyst [83]

--------------------------------------------------------------------------------

Sir, my -- firstly, I would like to get some commentary from you on the overall competitive intensity and not only from the Pernod but also what we have seen in the last 2 years is some of the new brands ramping up in that space. But I mean, is it a fair assumption that in the last few months incrementally the competitive intensity has come off. We understand that the last quarter was, I mean because the restrictions on the A&P spend you would not have been able to spend, but I mean how should we look at this kind of A&P spend coming off in kind of cognizance the fact that competitive intensity in the market would have come off at the same time?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [84]

--------------------------------------------------------------------------------

No. So honestly the A&P spend has not come off because of the competitive intensity coming off. So it's just our plan and our ability to spend at a time when we believe there was a bit of uncertainty in demand. And therefore, let's press the -- spend the right amount. I just want to make it clear that we are committed to spending competitively, in fact, more than competitively. As far as A&P is concerned, we will keep look at opportunities to spend that money as efficiently and as effectively as possible. Now to your earlier point, yes, there has been an emergence of some local brands in the market, right? And some of them have done well. People have -- in some cases, they've done well because the product offer is good. In some cases, people have invested discontinuous amounts behind those mixes to drive it. Now in any category, in any business, if a new person comes and is willing to really bet the bank on a brand, you'll get traction. So we're seeing some traction there. I think, the big question is how many of these will sustain long-term and continue to build share when that kind of discontinuous spends starts tapering off. And that I think time will tell. But the good news about the industry is that the opportunity for growth is still limitless almost. And the more people invest, the more new products that come in, the faster this category is going to grow. And as long as we are able to get a reasonable share of that category growth and do that profitably, I think it augurs very, very well for our business. And that's the way we see it, right.

In fact, there are very few industries where you have as dominant a presence of major players as you see in Alco-Bev. If you look at most of the categories in CPG, you have many more players buying for a share of that category. And I think there are few more competitors arriving on the scene here as well and I'm not sure that it's always bad news. That's all I'm saying.

--------------------------------------------------------------------------------

Amit Sinha, Macquarie Research - Analyst [85]

--------------------------------------------------------------------------------

And have you already started seeing this disproportionate investment in terms of media spends and promotions coming off incrementally?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [86]

--------------------------------------------------------------------------------

Coming off, I actually have not read that closely, to be honest with you. I don't think there's going to be a major -- there might have been some softening or coming off as you call it of competitive media spends on some of the launches that have happened. But I haven't got the hard data on media spend from the tracking the company yet to really tell you with certainty.

--------------------------------------------------------------------------------

Amit Sinha, Macquarie Research - Analyst [87]

--------------------------------------------------------------------------------

Sure sir. Secondly, again, you mentioned efficiency in the A&P line. So should we expect to lower overall A&P spend for the full year FY '20, I mean, I understand that you haven't revised your guidance for A&P, but this efficiency should -- ideally should lead to lower spend on an absolute number?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [88]

--------------------------------------------------------------------------------

No. It may, it may not honestly. So I can't give you enough clarity as far as that is concerned. I think the important thing is we are always watchful of how much we need to spend to stay competitive segment by segment, brand by brand. And we're going to do that be competitive and then do that most efficiently. Now Diageo has unlocked through its global tool called Catalyst. Significant A&P productivity around the world. And we are hoping to harness a good part of that here too and we have now put that tool into action in the business. So all our plans for the prospective year are going to go through the rigor of Catalyst. Now what exactly it throws up in terms of productivity and so on, I think we'll just have to watch this space. But I don't think you should be alarmed in any major way that we're going to start cutting, right, or be surprised that we're going to spend too much more. We're going to be in this zone give or take a bit.

--------------------------------------------------------------------------------

Operator [89]

--------------------------------------------------------------------------------

The next question is from the line of Arnab Mitra from Crédit Suisse.

--------------------------------------------------------------------------------

Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [90]

--------------------------------------------------------------------------------

I had just one question on the bulk Scotch. So I think Sanjeev mentioned that you still have some incremental excess bulk Scotch. If you could help us give some sense of what could be the value there and what is the timeframe in which you would want to kind of sell this off? If you've taken a decision on that?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [91]

--------------------------------------------------------------------------------

Yes. So we want to sell them off in the next 6 months to a year time. But because it's one-off, we would not like to land up in giving any projections on that. My request to all of you would be not to consider in your future workings and kind of allow it to happen when it happens because the acquisitions should be more bigger than usual rather than considering one-offs.

--------------------------------------------------------------------------------

Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [92]

--------------------------------------------------------------------------------

Sure. And last question was on non-core asset sales. So you've had some non-core assets sales last year, but the big-ticket residential properties and land and things like that, I think have not been -- those have not gone out. So do you see FY '20 being a year when possibly some of this happens or our market condition is still very bad and this could get pushed out into the further years?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [93]

--------------------------------------------------------------------------------

Market conditions are definitely bad and most of you are aware of that where real estate stands. For us, it's important that we get a good realization across all those asset class and largely, industrial or some of the residential property that we have. We don't think any of that asset will give us profit now and we're kind of only eyeing at cash. And we will just sell it at the right time when we're able to get a good price for them.

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

Ladies and gentlemen, due to appositive time, we'll take the last question. That is from the line of Chirag Lodaya from Valuequest Investment.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [95]

--------------------------------------------------------------------------------

You mentioned 15 states gave price increase in last quarter. So what would be the portfolio level increase in pricing?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [96]

--------------------------------------------------------------------------------

I'm not sure, we are getting into that kind of granularity honestly. But -- and like I had said in the previous call, in the previous quarter that these increases range from very small to kind of medium numbers, but it's tough to say what is the impact on the portfolio total. But I want you to also keep in mind the fact that, while we have got this pricing, we've also had a bit of pricing reinvestment going back into excise absorption, particularly in Maharashtra, which we've spoken about and COGS, and the pressure on COGS that is there and continues to some extent. So it's hard for me to give you a number of what is the percentage that we have achieved yet. We'll take a look at it specifically and see what is going to be on an annual basis and if we can share it then, we will. But I don't think we've shared that kind of number in the past.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [97]

--------------------------------------------------------------------------------

Right. And any big state you're looking where -- I mean expecting any price increase in near term?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [98]

--------------------------------------------------------------------------------

We're expecting in all the balance state, but whether we'll get it time will tell. We certainly are trying our best to see what we can do in Karnataka. Now Karnataka, everybody knows what the political situation is right now and really it's the government functioning and will they take any big decision or not. But that's the real big one really that we need to try and find a way to unlock honestly.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [99]

--------------------------------------------------------------------------------

Right. And sir, you mentioned in Prestige & Above also higher categories growing much faster, so we're seeing premiumization as a trend strengthening further. But when I look at realization per case, between last 2 quarters realization per case number is not moving up. So what exactly is happening on that front? Price increases there.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [100]

--------------------------------------------------------------------------------

On a like-for-like comparison absolutely, the perk is moving up. Yes, we do have this movement and especially the Maharashtra excise policy increase that we had in January and we have not been able to pass on the full price increase. To that extent when you compare, yes, it does undermine some of this effort. But yes absolutely, the luxury perk is -- will be definitely higher than Premium and Premium will be higher than Prestige. What I can tell you...

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [101]

--------------------------------------------------------------------------------

Quantum which was like...

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [102]

--------------------------------------------------------------------------------

What I can tell you is that when you're taking upon Maharashtra as well and despite whatever price increase we've got, when you net all this off, there is still negative pricing pressure on the business at this point in time.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [103]

--------------------------------------------------------------------------------

Okay, okay. Got it. Got it. And sir lastly, on this gross margin, so you mentioned you're focusing on improving overall EBITDA margin. I understand that part. FY '19, your gross margin sir, around 48.8%. Q1 was 46.5% adjusted. And you are still talking of maintaining this kind of operating margin or improving slightly. That means H2, you're hoping to have a much better gross margin. Is the understanding correct?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [104]

--------------------------------------------------------------------------------

Well, we don't get into the specific numbers. Our attempt, absolutely, would be to keep on improving slightly, to that extent on a like-for-like basis, given the GM margins are slightly better than the previous quarter, not the corresponding quarter last year. But yes, I think there is a sizing issue on the inflationary community, inflationary issue that we're facing right now and, you know, to see how we play that around. Now for some reasons, we think that we have a -- we will be under intense pressure on the GM margins. We'll have to play for the other line items and still deliver our EBITDA and EBITDA margin aspirations because finally, what matters is the top line and the bottom line delivery. Rest is all the line items that we need to play around.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [105]

--------------------------------------------------------------------------------

Fair, fair. And bookkeeping question, depreciation for the quarter was INR 50 crores, should we take this as a run rate going ahead?

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [106]

--------------------------------------------------------------------------------

It should be around that because depreciation is kind of almost flattish and growing very, very marginally. So I think look at the, again, the yearly trend...

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [107]

--------------------------------------------------------------------------------

Historically, we're in the range of INR 35 crores to INR 40 crores and this quarter, it's INR 50 crores. So just trying to understand.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [108]

--------------------------------------------------------------------------------

Yes. So I think, it's also impacted slightly but the Ind-AS 116 numbers, and if you go to the notes, the exact breakup is there.

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [109]

--------------------------------------------------------------------------------

I think it's 1:00 now. So I think we'll have to bring the call to a close.

--------------------------------------------------------------------------------

Operator [110]

--------------------------------------------------------------------------------

Sure sir. Would you like to add any closing remarks before we close the call, sir?

--------------------------------------------------------------------------------

Anand Kripalu, United Spirits Limited - MD, CEO & Additional Director [111]

--------------------------------------------------------------------------------

No, I just want to thank everybody for their continued confidence in the company and their sharp questions as always. And I look forward to staying connected.

--------------------------------------------------------------------------------

Sanjeev Churiwala, United Spirits Limited - CFO & Executive Director [112]

--------------------------------------------------------------------------------

Pleasure talking to all of the folks. Thank you very much.

--------------------------------------------------------------------------------

Operator [113]

--------------------------------------------------------------------------------

Thank you very much. Ladies and gentlemen, on behalf of United Spirits Limited, that concludes this conference. Thank you all for joining us. And you may now disconnect your lines.