United Spirits Ltd., a leading Indian alcoholic beverage company and a subsidiary of Diageo, in its Q3 earnings call highlighted CEO Hina Nagarajan’s successful tenure and the new CEO Praveen Someshwar’s transition, with key achievements including making India the third-largest market for Johnnie Walker and improving gender diversity in leadership. The company also discussed strong performance with successful entry into the Andhra market and sequential improvement in demand driven by festive season. Management highlighted that its innovation pipeline has been successful with products like Don Julio, X Series, and Godawan single malt performing well. Despite temporary moderation in top-end consumption, the company maintained confidence in double-digit growth targets for its prestige segment, while also addressing state-specific challenges like potential prohibition in Madhya Pradesh religious towns and Extra Neutral Alcohol (ENA) price impacts.
United Spirits reported mixed results, with consolidated revenue growing 11% year-on-year and net sales rising 14.4%, driven by festive demand and expansion in Andhra Pradesh. While net profit declined 4.3% to INR335 crore due to increased expenses of INR7,256 crore and a INR65 crore exceptional severance charge, EBITDA grew 17% to INR568 crore with margins improving to 16.6%. Gross margins rose by 131 basis points to 44.7% due to pricing strategies and productivity gains. The prestige & above segment, contributing 89% of standalone sales, grew 16.1%, while the popular segment rose 9.6%. Going forward, the company expressed cautious optimism about improving demand.
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Financial/Operational Metrics:
- Net Sales: INR3,433 crore, up 14% YoY.
- Profit After Tax: INR335 crore, down 4% YoY.
- EPS: INR4.61, down 4% YoY.
- Volume: 18,155,000 cases, up 10.2% YoY.
- Gross Margin: 44.7%, up 131 bps YoY.
Outlook:
- Short-Term: Cautious optimism amid improving demand.
- Long-Term: Optimism for growth driven by India’s consumer market.
- Strategic Focus: Continued premiumization and geographic expansion.
Analyst Crossfire:
- Andhra Market Challenges and Profitability (Abneesh Roy – Nuvama): The Andhra Pradesh market has aligned well with the company’s national performance. Initial challenges included ramping up supplies and forecasting demand due to retail pipeline filling, but the team is now confident in maintaining stability over the next few quarters. Profitability is slightly better than in Telangana due to a superior cost footprint (Hina Nagarajan – CEO, Pradeep Jain – CFO).
- Leadership Succession & Sequential Demand Improvement (Abneesh Roy – Nuvama): The incoming CEO, Praveen Someshwar, brings strong consumer expertise and international experience. The transition plan includes a six-week overlap with Hina Nagarajan. The change is driven by a consumer-first approach rather than political relationships. Improved demand in Q3 was driven by festive celebrations and gifting rather than solely by the wedding season. The Karnataka market’s tax cuts had a minor impact due to its lower salience after divesting popular brands (Hina Nagarajan – CEO, Pradeep Jain – CFO).
- P&A Growth Aspiration & Channel Inventory in Andhra (Percy Panthaki – IIFL): Despite macroeconomic challenges, the company remains committed to achieving double-digit growth in the Prestige & Above (P&A) segment for FY25, including Andhra Pradesh contributions. The 6% contribution from Andhra Pradesh in Q3 included significant channel filling, with retailers holding approximately 60 days of inventory. Future quarters are expected to stabilize without this effect (Pradeep Jain – CFO).
- Top-End Demand Weakness & Margin Outlook (Avi Mehta – Macquarie): The moderation at the top end is attributed to inflationary pressures and normalization post-COVID. The premiumization trend remains intact, with expectations for recovery over the next 3–5 quarters. The company anticipates continued margin expansion supported by cost management and revenue growth strategies, despite headwinds like high ethanol prices. Glass deflation may wane as comparisons with prior periods normalize (Hina Nagarajan – CEO, Pradeep Jain – CFO).
- Northern State Recovery & ENA Pricing (Krishnan Sambamoorthy – Nirmal Bang, Sanjay Manyal – DAM Capital): Challenges in a key northern state have largely been resolved, contributing to better performance in Q3. Despite recent reductions in rice prices, structural inflation in ethanol prices is expected to persist due to government blending targets (Hina Nagarajan – CEO, Pradeep Jain – CFO).
- Excise Policy and Price Increases, Top-End Moderation (Harit Kapoor – Investec, Arnab Mitra – Goldman Sachs): Advocacy efforts continue to push for price increases during excise policy cycles to address lingering inflationary pressures, especially since prior price increases covered only a fraction of inflation. Moderation in the top-end segment is linked to macroeconomic factors and consumer sentiment, not competition. The company continues brand investments and has introduced pocket packs to address affordability concerns (Pradeep Jain – CFO, Hina Nagarajan – CEO).
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