United Spirits Limited Q2 FY23 Earnings Conference Call Insights

Key highlights from United Spirits Limited (MCDOWELL-N) Q2 FY23 Earnings Concall

Q&A Highlights:

• [00:11:21] Abneesh Roy from Nuvama asked about demand, premium and luxury growing faster than the overall P&A. Hina Nagarajan MD answered that in luxury and premium, MCDOWELL-N continues to see the double digit growth. On the prestige side also the company is seeing healthy growth. Overall MCDOWELL feels very confident about the demand scenario in the industry.

• [00:11:38] Abneesh Roy of Nuvama enquired that if the company’s specific channels, pubs, bars, and larger events etc. are back to pre-COVID levels. Hina Nagarajan MD replied that the channels are back to pre-COVID levels. MCDOWELL-N is seeing larger marriages which is good for demand forecast.

• [00:15:03] Abneesh Roy with Nuvama asked if the corrective action in Royal Challengers has led to any retaliation from other player and Delhi market update. Pradeep Jain CFO answered that Royal Challengers was a bit overpriced in some critical markets, but now it’s competitive on pricing. On Delhi, the company said its strategy is falling in place as expected.

• [00:16:35] Harit Kapoor from Investec enquired about scotch price discussions with some states and if it’s done with and the impact of it. Hina Nagarajan MD answered that in some of the sates the company has concluded discussions and supplies will be normalized in 3Q23. Also, the pending ones are expected to close in 3Q23.

• [00:22:04] Palak Shah of Infina Finance asked about the number of working capital being released post the deal closure. Pradeep Jain CFO replied that it will come in two phases and the number is about INR420 crores, with INR280-285 crores being part of the slump sales and the balance 11 brands being franchised leading to a relief of about INR140 crores.

• [00:22:55] Palak Shah with Infina Finance asked about GM contracting despite some premiumization and other measure. Pradeep Jain CFO answered that inflation is impacting GM and it is expected to continue. But the company is confident that pricing will also ramp up in coming quarters. So currently GM will remain under pressure.

• [00:26:48] Latika Chopra from J.P. Morgan enquired if GM has bottomed out as scotch pricing discussions got concluded and some more might come in. Pradeep Jain CFO replied that company would like to believe it’s bottomed out. However, the commodity environment remains a little volatile.

• [00:29:02] Latika Chopra from J.P. Morgan asked about the growth MCDOWELL is seeing in the non-whisky portfolio. Hina Nagarajan MD said that gin and vodka are the categories that are growing well because they are highly mixable drinks. Cocktails have picked up during and post pandemic, driven by millennial.

• [00:31:09] Prakash Kapadia of Anived asked about the proportion of Delhi contribution to the annual sales. Pradeep Jain CFO answered that it will be about 6-7% of the company’s national P&A business and it’s on the revived ramped up volumes.

• [00:40:39] Chetan Shah with Jeet Capital enquired about backward integration possibility in future in the context of hyperinflation. Pradeep Jain CFO answered that nothing is off the table. However, MCDOWELL believes it can get the same level of efficiency and benefit through aligned partnerships.

• [00:44:10] Manish Poddar of Motilal Oswal asked bout ad spend in 2Q23, how much of it is for BII and BIO. Pradeep Jain CFO replied that the company doesn’t share a breakup of that. However, the company added that it is committed to deliver the mid to-high teen margin guidance on a sustained basis.

• [00:49:00] Manish Poddar from Motilal Oswal asked about price negotiations that’s already done and if it’s inflation protected. Hina Nagarajan MD answered that it’s not inflation protected and the company does have to go back annually and negotiate the price increase again every year.