Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- United Spirits Ltd (BOM:532432, Financial) has commenced business in Andhra Pradesh after a five-year gap, which is expected to contribute significantly to sales.
- The company is optimistic about achieving double-digit growth in the P&A segment for the full fiscal year, driven by strong commercial plans and innovations.
- Margin performance exceeded expectations due to benign commodity basket inflation and effective cost management strategies.
- United Spirits Ltd (BOM:532432) has launched several new products and flavors, including Smirnoff Vodka's new flavors and the X series from McDowell, which have been well-received.
- The company has expanded its presence in the Indian single malt category with Godawan, which has won numerous awards and is being distributed more widely.
Negative Points
- Overall net sales value declined marginally year-on-year, with the P&A segment remaining flat, reflecting a muted demand environment.
- A major route to market disruption in a key northern state has impacted performance and may continue to affect future quarters.
- The top-end market segment is lagging behind the middle segment, indicating a shift in consumer spending patterns.
- Despite the reopening of the Andhra Pradesh market, it may take 18 to 24 months to reach its previous sales contribution levels.
- The company faces ongoing challenges with high ENA inflation, which remains in the double digits, affecting overall cost structures.
Q & A Highlights
Q: Have you seen any change in the demand environment for your category during the second quarter?
A: Hina Nagarajan, Managing Director and CEO: The growth has moderated in the category over the last few quarters. This is the first quarter where the top end is lagging the middle bulk end in terms of performance. However, we believe this is a temporary blip and not structural, expecting the top end to continue outperforming the overall category growth on a rolling four-quarter basis.
Q: You mentioned a couple of percentage points lower growth in the first half. Are you confident of achieving double-digit growth for the full year?
A: Hina Nagarajan, Managing Director and CEO: We are optimistic about achieving double-digit growth for the P&A portfolio if the festive season goes well. Factors like the opening of the Andhra Pradesh market and our strong commercial plans will help recoup the deficit.
Q: Can you provide some color on the progress in Karnataka post-reduction in prices for prestige and above?
A: Hina Nagarajan, Managing Director and CEO: It's early days in Karnataka. The price reduction has helped overcome previous losses, but prices remain higher than many key markets in India. We expect some uplift, but given the scale of P&A in Karnataka, it won't significantly impact our overall portfolio.
Q: How should we look at margins given the relatively weak top line but strong margin performance?
A: Pradeep Jain, Executive Director and CFO: The A&P reinvestment rates differ significantly between the first and second halves of the fiscal year. We aim for a sustained high-teen margin over the next 2-3 years, with potential for moderate expansion beyond that.
Q: What is the impact of the market change in the northern state on your growth, and could it affect the third quarter numbers?
A: Pradeep Jain, Executive Director and CFO: Almost all of the couple of percentage points behind our target is due to the disruption. Most disruptions are resolved, except one in a northern state, which could impact the third quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
