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Informist, Friday, Jan. 17, 2025

By Avishek Rakshit

KOLKATA – The notion that one drinks in good times and also in bad times could perhaps be true for alcoholic beverage company United Spirits Ltd. At a time when most of the consumer goods companies and those selling discretionary products are witnessing dark days ushered in by a consumption slowdown in urban areas, United Spirits' financial report card for Oct-Dec could glow in the dark.

According to sector analysts tracking the company, strong sales in the premium portfolio during the wedding season, and an uptick in volumes, primarily on account of the new liquor policy in Andhra Pradesh, is expected to help United Spirits stave off consumer demand blues during Oct-Dec and report a healthy growth in revenue and profit.

The Indian division of the world's fourth-largest alcoholic beverage company by market capitalisation, Diageo Plc., United Spirits, is expected to report a strong 12.9% on-year volume-driven revenue growth in the December quarter to INR 33.8 billion and the profit after tax could rise by 15.1% on year to nearly INR 4 billion, according to the average of estimates from six brokerages. Sequentially, the revenue is expected to grow by 18.7% and profit after tax by 19.2%.

In the year-ago quarter, United Spirits reported a revenue of INR 29.9 billion with a profit after tax of INR 3.5 billion. In Jul-Sept, it posted revenue of INR 28.4 billion and profit after tax of INR 3.4 billion.

Amongst the brokerages, Kotak Institutional Equities estimated the revenue the highest at INR 34.3 billion, and Anand Rathi Share and Stock Brokers Ltd. estimated it the lowest at INR 33.1 billion. Kotak Institutional Equities also had the highest estimate for profit after tax at INR 4.2 billion, while Elara Securities (India) Pvt. Ltd. had the lowest estimate at INR 3.8 billion. The company will detail its earnings for Oct-Dec on Thursday.

At a time when discretionary consumer goods companies are complaining of customers cutting down purchases and opting for low-value pack products, United Spirits could see a volume uptick in its pricier premium products, which usually account for nearly 89% of its sales. Kotak estimates United Spirits' sales volume of premium products to rise by 10% on year, while Nuvama Wealth Management Ltd pegged it slightly higher at 10.5%.

However, the mass product portfolio could see a slower uptick in sales volume. Kotak estimated a 3-4% increase in volume for the popular or mass products, and Nuvama estimated a rise of 2%. Nevertheless, since premium portfolio drives both revenue and sales volume for United Spirits, the impact of low sales growth in mass products could be mitigated to a large extent.

Brokerage Nirmal Bang, however, is less bullish. According to this brokerage, sales volume of the premium range is estimated to increase by 7%, and the mass portfolio could see a decline of 6%. This, Nirmal Bang said, could lead to an overall revenue growth of 12.5% on year.

Brokerages maintained the sales volume uptick could be primarily because of the wedding season, and the demand pull from the lucrative market in Andhra Pradesh, which came up with a new liquor policy in October.

Under the new liquor policy of Andhra Pradesh, companies selling Indian-made foreign liquor, or IMFL as the industry calls it, are expected to get a boost. Under this policy, 3,736 licenses will be granted to private shops in the state that will be valid till September 30, 2026. Additionally, the state will also grant 12 licenses to set up premium stores and high-end liquor retail selling IMFL and luxury alcoholic beverage brands on the lines of Haryana. Such licenses will be issued in major cities like Vijayawada, Visakhapatnam, Rajamahendravaram, Kakinada, Guntur, Nellore, Kurnool, Kadapa, Anantapur and others.

According to a study published in August 2024 by the National Institute of Public Finance and Policy, an autonomous research institute under the Ministry of Finance, among the states and union territories, Andhra Pradesh ranks second in the country after neighbouring Telengana in terms of annual per capita spends on liquor consumption at INR 1,306 during 2022-23 (Apr-Mar).

Karnataka's liquor policy, which cut the maximum retail price of liquor sold in the state, is also expected to help sales down the line, Motilal Oswal said.

United Spirits could report an 18.4% on-year growth in its earnings before interest, tax, depreciation and amortisation at INR 5.8 billion during Oct-Dec, according to the average of estimates from five brokerages. In the year-ago quarter, it reported an EBITDA of INR 4.9 billion, registering a 33.6% on-year growth. Kotak estimated the EBITDA the highest at INR 6.1 billion and Elara Securities estimated it the lowest at INR 5.6 billion.

Elara Securities estimated United Spirits to report an EBITDA margin of 16.7% during Oct-Dec up slightly from 16.4% in the year-ago quarter and Nuvama estimated it at 17.2% after factoring in increasing prices of extra neutered alcohol – the key raw material to make spirits. Glass and packaging material costs, however, remained stable during the December quarter.

Following are the Oct-Dec earnings estimates for United Spirits based on reports from six brokerage firms in the descending order by the estimate of net profit:

At 1223 IST, shares of United Spirits were trading 1.3% higher at INR 1,432.55 on the National Stock Exchange. End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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