See industry growing 5-6% in FY16: United Breweries

Kalyan Ganguly, MD, United Breweries Limited is confident of a 5-6 percent industry growth and 16 percent EBITDA margin growth for the company in FY16.The first quarter was a bit lack luster for the company because of unseasonal rains in WB and Karnataka, dispute between income tax department and corporation in Andhra Pradesh, pricing issues in Odisha etc, says Ganguly.The liquor firm reported a standalone net profit of Rs 48.13 crore for the quarter ended March 31, 2015. It had posted a net profit of Rs 67.71 crore in the January-March quarter of 2013-14.When asked if the company was looking for any capital infusion, Ganguly denied saying they were not looking for any partners and that they were adequately capitalized currently.

Below is the transcript of Kalyan Ganguly\\'s interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18. Reema: How is the start to the new year been because in the previous year you faced some pressure in states like Tamil Nadu, Kerala, Orissa because of which the FY15 volumes were muted at 6 percent. What can we expect by way of volume off take in FY16? A: I think that the industry will grow again in the region of 5-6 percent this year. The Q1 has been a bit of a setback because of unseasonal rain in West Bengal and Karnataka. The problem in Tamil Nadu continues. In Andhra Pradesh, which is a very large market, there was a dispute between the income tax department and the corporation which disrupted trade. We had some problems with regard to our pricing in Odisha, so therefore we could not supply any stock for larger part of the Q1. So Q1 has been lacklustre but I still think the industry will grow in the region of about 5-6 percent.

Latha: How would you expect margins to pan out - that was another disappointment in the last quarter about 390 bps reduction in margins, any price realisations or any cost cuts that you could manage?A: Last year there were some extraordinary developments which caused us to source our products. We had to carry stocks across the country from one point to another point which caused us a huge loss in terms of margin. I do not think that similar problems will be faced this year. So there is no problem in terms of getting to the margin that we have given as a forecast.Reema: What is your margin forecast for FY16?A: At the EBITDA level we should be in the region of about 16 percent or so.Latha: What is the current status in terms of your obligations towards the bankers of Kingfisher Airlines?A: We have no obligations to the bankers of Kingfisher Airlines because United Breweries (UBL) is an independent company and there is no demand on us from any of the bankers.Latha: There were no corporate guarantees or no shared liabilities?A: Nothing at all.Latha: They were all with only the holding company?A: That is right, nothing from our company.Latha: Is United Breweries looking for any kind of capital infusion, strategic partnership?A: Not at the moment because our internal accruals are good enough. There has been reduction in debt, so we are not looking at any infusion of capital or any partnership, nothing of that kind.Reema: Your return on capital employed is sub-10 percent which makes it less than what the cost of capital is and this has been the case for the last five years or so. Is there anything that the company can do or is the company trying to improve its return ratios?A: Obviously we are trying but what happens is there are two pressures on us - (1) the growth in demand for our products which necessitates a lot of capital investment. For a brewery the investment has to be fairly substantial, and you have to wait for about two years for the brewery to be ready, for it to start generating returns. (2) on the other hand we have some revenue pressures because the pricing policies are such that we have to depend upon the government to give us price increase. So we are not able to pass on to the consumer the cost pressures. So we have therefore on both fronts; on one hand we have to deploy capital and on the other hand we are not able to get the realisation that we desire or we need.Latha: Purely from investors' angle - when would you see or return on capital employed (RoCe) improving. What might it be in FY16-FY17?A: If you plot RoCe over the last five years, there have been ups and downs but the trend is positive, so I think that the returns would be stabilising unless something extraordinary happens. You must appreciate one thing that we are dealing with multiple governments and different state governments have different needs in terms of their revenue and so on. Therefore, it is very difficult in an industry like this to give a straight cut answer to your question, but we are doing everything possible to see that the investors get the returns that they deserve from this company.\\