United Spirits: Acquisitions and new launches to lead future growth

United Spirits Limited is the largest alco beverage company in India and is also among the largest consumer goods companies. The company is involved in the manufacture, sale, and distribution of beverage alcohol. It has a comprehensive brand portfolio with over about 80 brands of Scotch whisky, IMFL whisky, brandy, rum, vodka, and gin. 11 of these brands sell more than a million cases annually.

The company has brands spanning across price points operating in all segments of Popular, Prestige, Premium and Luxury. It produces and sells around 79 million cases. McDowell’s No.1, Royal Challenge, Signature, Antiquity, Black Dog, Director’s Special Black, McDowell’s Rum, McDowell’s Brandy, Bagpiper, Old Tavern, Haywards are some of the marquee brands owned by the company.

In addition, the company also imports, manufactures, distributes, and sells various iconic Diageo brands such as Haig Gold Label, Captain Morgan, Johnnie Walker, J&B, Baileys, Lagavulin, Talisker, VAT 69, Black & White, Smirnoff and Ciroc in India under different licensing agreements.

The company has a strong distribution network, and its route to consumer is superior in the industry with almost 1 in every 2 branded spirits bottles being sold in India in the company’s P&A portfolio.

Price increases may drive earnings for United Spirits

Radio Khaitan has received a price increase of ~12% in the state of West Bengal. United Spirits may also benefit from this. West Bengal has ~8% revenue salience for UNSP. Further, there are expectations of price hikes from some large southern states as well. We believe given the input cost inflation alco bev players had witnessed (mid to teens), states are more accommodating to price increases. UNSP has already received price hikes from Haryana, Punjab, UP, Maharashtra and Karnataka in the last 3-6 months.

UNSP has also initiated the phased removal of mono-cartons (for some of its brands) over the next couple of quarters which may be tailwinds for gross margins.

Input cost index remains high, however, expected to moderate - Prices of some of the raw materials have started witnessing some softness however large commodities like ENA and glass continue to be volatile.

The key pillar of portfolio re-shape includes - (1) strong growth on P&A, (2) new growth engines and (3) value chain efficiency extraction. In part of the street getting concerned with no immediate (optical) benefit, is too myopic. Focused approach can accelerate the journey (much efficiently).

Company has 9 brands in its portfolio which sell more than a million cases every year, of which 1 brand sells more than 25 million cases each annually. The company’s exports business is also growing. The company boasts of panIndia manufacturing presence with +47 facilities and robust distribution network of more than 70,000 outlets, which provide access to vendors, suppliers, and distributors. With high brand equity and significant market share, your companies can have a significant influence on industry issues through representations made on behalf of the industry.

Update on launches

• Godawan single malt is now available in five states and in the UAE. It will soon be available in the US and the UK.

• It is seeing good traction on other launches and re-launches as well.

• The management is really excited about the long-term growth in gin and vodka. Gordon, Tanqueray, and Smirnoff are growing at double-digits.

• Franchise and sale of popular brands.

• The sale of 32 popular brands and franchise of 11 brands to In brew Breweries was duly completed in 2QFY23.

• Five manufacturing facilities have been transferred, out of which one was owned and other four were contract manufacturing facilities.

USL owns several distilleries throughout India, and also owns one unit in Nepal Besides these, USL also has several contract and associate distilleries in India, and one in Nepal United Spirits technical centre is located in Bangalore, which develops new products, conducts research and development, flavour testing and quality management and tt has 62 manufacturing units.

United Spirits acquired leading distiller of Scotch whisky Whyte Mackay and Bouvet Ladubay a wine subsidiary of French champagne company Taittinger Whyte Mackay and Bouvet Ladubay are now 100 subsidiaries making United Spirits a manufacturer of 17 millionaire brands.

In April 2022 USL completed the acquisition of Nao Spirits Beverages Private Limited by investing ₹315 million As a result, USL currently has an ownership interest of 22.5% in Nao Spirits.

During FY 22 the Co launched three new brands namely, Epitome Reserve, Godawan and Royal Challenge American Pride the scheme of amalgamation and arrangement in relation to the proposed merger of Pioneer Distilleries Limited and United Spirits Limited obtained the approval of equity shareholders and unsecured creditors with requisite majorities.

As per management vodka around the globe is not as fast-growing as gin, but vodka is growing very fast in India. They are excited about the growth potentials in the white category, both gin and vodka. Even the craft gin segment is quite exciting. The company has invested in a brand, which is Hapusa and Greater than gin, which are the craft side of gin. Company is quite excited about this category in the coming times.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related investment-related decision.