United Spirits: inflation hits cheap segments while premium brands hold up revenue

what happened

Inflation and a weaker monsoon are squeezing lower-income urban consumers in India, creating a problem for United Spirits, which Diageo controls. CEO Praveen Someshwar said on the September-quarter earnings call that buyers in the India 1 group are showing signs of fatigue, while India 2 and India 3 remain resilient. Net sales value in the popular segment dropped 22.7% to 181 crore, roughly 6% of revenue. The hit also came from unfavourable policy changes in Maharashtra and Karnataka.

The prestige-and-above portfolio grew 6% and now accounts for 94% of revenue. The company has no immediate plans to act on the mass segment, which is mostly McDowell's rum, and expects future profit to come from higher-priced brands. Costs are rising too: the West Asia conflict added about 50 crore in the quarter, and neutral alcohol prices have started climbing because El Niño is affecting monsoons. CFO Pradeep Jain said lower Scotch import duties under the India-UK free trade agreement should offset that cost in the coming quarter, though he called the impact beyond that hard to pin down. Separately, the Directorate of Revenue Intelligence is investigating how Scotch imports are classified.

why it matters

For markets, the message is that growth in Indian spirits is coming from premium brands, while the mass segment faces pressure from inflation and regulation. What comes next depends on whether the trade agreement benefit can outweigh higher costs and how the Scotch import probe ends.

market impact

United Spirits: weak mass-segment demand and higher costs pressure the company's margins

• ▼United Spirits pressure down — weak mass-segment demand and higher costs pressure margins

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