USL liquidating low-cost liquor brands

Liquor major United Spirits Ltd (USL) is likely to drop some of its low cost brands as part of its

strategic review with an eye to drive more earnings from its premium brands.

Though the company has not specified any timeline for such exercise, it is currently conducting the review on its popular brands (that are available on lower price points than premium brands).

"We have proactively started the strategic review of our popular portfolio and that is on track. And we are looking to conclude it as per the stated timeline. We are working through with our advisors and looking to drive it to a tangible decision," Hina Nagarajan, the newly appointed Chief Exeutive Officer of United Spirits Ltd, said in the analyst call post announcement of its Q1 earnings.

USL management is focused on driving premiumisation across brands as millennial population of India matures with more disposable income to afford better brands.

The Diageo-owned company saw sales in prestige and above segment comprising premium brands growing 58 per cent in Q1 of FY22, while popular segment' net sales grew 60 per cent on year-on-year basis.

USL's popular portfolio comprises around 30 brands with several entry-level brands costing less than Rs400 for a 750 ml bottle. Some of the popular brands include Bagpiper, Old Tavern, and White Mischief among others. With the strategic review, the company is looking at reducing many of these popular brands to half by volume. Meanwhile, the company is also looking at revitalizing its gin and vodka category.

On the impact of second wave on sales, the company pointed out that it was more severe on

northern states during this period. After the lockdown, off trade operations are back on track

towards June quarter, while on trade remains subdued. Though the home delivery model has evolved as a new route of distribution, the company said it is not differentiated enough though it is looking at evolving models in this area.

On the margin front, the company said stable input costs would support margin profile. USL eyes operating margin at mid to high teens for this fiscal year. "Diageo's strategy to focus on the premium-end is bearing fruit. Recovery in urban growth will

enhance disposable incomes, low per capita consumption (at 2.2 litres/year/person versus 4.5 litres' world average), favourable demographics, and steady conversion from country liquor to IMFL, of which USL will be a prime beneficiary over the long term," Edelweiss wrote in a research note.