United Spirits pdf (1)

UNITED SPIRITS

Alcohol beverage industry India
INDIAN ALCHOLBEV INDUSTRY
Indian Made
Foreign Liquor
(IMFL)
Indian Made
Indian Liquor
(IMIL)
Beer
Wine
IMFL category accounts for almost 72% of the market.

Alcohol industry growth rate
Spirits Market in India by Volume
5% 5% 5% 4% 4% 4% 3% 4% 4% 4%
20% 19% 17% 15% 15% 15% 14% 14% 14% 13%
16% 17% 18% 22% 22% 22% 22% 21% 21% 19%
59% 59% 60% 59% 59% 60% 60% 61% 61% 64%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Whisky Brandy Rum White Spirits
Spirit Market in India by Value
5% 5% 4% 4% 6% 6% 5% 6% 6% 6%
14% 14% 13% 12% 10% 10% 10% 10% 10% 9%
11% 12% 12% 12% 12% 12% 12% 11% 11% 10%
70% 69% 71% 72% 72% 73% 73% 73% 74% 75%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Whisky Brandy Rum White Spirits
Source: Equrius Report

Major players in the industry

Major Companies in the Indian Liquor Market
Source: Equrius Report

Source: Equrius Report
Top liquor brands in India

United Spirits – Diageo India
World’s second largest liquor company by Volume.
Subsidiary of Diageo PLC.
One of the leading players of IMFL in India with a strong bouquet of brands like Mcdowell’s, Signature, Royal Challenge
etc.
In 2013, Diageo PLC acquired 10% stake in the company and gradually ramped up its share to 55% by the end of 2014.
The main inflexion point came in 2015, after the whole company came under the control of Diageo PLC.

Brands
Consumer Prices
> Rs. 200
LUXURY
Johnnie Walker, Cîroc, Gordon, Baileys, J&B
Rs. 900-2000
PREMIUM
VAT 69, Black & White, Black Dog, SmirnOff
Rs. 350-900
PRESTIGE
Mcdowells, Signature, Antiquity, Royal Challenge, Captain Morgan
< Rs. 350
POPULAR
Director’s Special, Bagpiper, White Mischief, Haywards

Top brands for United Spirits
Company has a portfolio of 15 brands in its
portfolio, which sell more than a million cases every
year.
Out of the brands 2 brands sells more than 10 million
cases each annually.
McDowell’s No.1, Royal
Challenge, Signature, Antiquity, Director’s Special
Black, McDowell’s VSOP, Romanov, Bagpiper, Old
Tavern, Haywards are some of the marquee brands
owned by your Company.
Source: Equrius Report
In addition, your 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.

IMFL players volumes
Brands (mn cases) Company 2015 2016 2017 2018 2019
Officers Choice Whiskey ABD 32.9 32.9 32 34 30.6
Mc Dowell's No 1 Whiskey United Spirits 25.7 26.6 26.4 29 30.7
Imperial Blue Pernord Ricard 17.5 18 19 22.7 26.3
Royal Stag Pernord Ricard 17.3 18 19 22.7 26.3
Old Tavern United Spirits 11 9.9 7.1 6.2 5.3
Original Choice John Distilleries 10.7 10.1 10.3 11.5 12.7
Hayward's Fine United Spirits 7.1 7.9 8.5 9.4 9.6
Blender's Pride Pernord Ricard 5.6 6.2 6.4 7.3 7.7
Director's Special Whisky United Spirits 5 5 4.1 4.2 4.2
8PM Radico Khaitan 4.1 5.7 7 8.2 8.5
Royal Challenge United Spirits 3.6 4.7 4.5 5.6 5.5
Signature United Spirits 1.5 1.8 2 2.3 2.3
White and Blue Alcobrew 1.2 1.4 1.6 2.1 2.4
Bangalore Malt Whisky John Distilleries 1.1 2.1 3.6 5.2 4.2
Sterling Premium Whisky's ABD 0 0 0 1.2 2.8
Source: Equrius Report

IMFL players market share
Brands Market Share Company 2015 2016 2017 2018 2019
Officers Choice Whiskey ABD 23% 22% 21% 20% 17%
Mc Dowells No 1 Whiskey United Spirits 18% 18% 17% 17% 17%
Imperial Blue Pernord Ricard 12% 12% 13% 13% 15%
Royal Stag Pernord Ricard 12% 12% 13% 13% 15%
Old Tavern United Spirits 8% 7% 5% 4% 3%
Original Choice John Distilleries 7% 7% 7% 7% 7%
Hayward's Fine United Spirits 5% 5% 6% 5% 5%
Blender's Pride Pernord Ricard 4% 4% 4% 4% 4%
Director's Special Whisky United Spirits 3% 3% 3% 2% 2%
8PM Radico Khaitan 3% 4% 5% 5% 5%
Royal Challenge United Spirits 2% 3% 3% 3% 3%
Signature United Spirits 1% 1% 1% 1% 1%
White and Blue Alcobrew 1% 1% 1% 1% 1%
Bangalore Malt Whisky John Distilleries 1% 1% 2% 3% 2%
Sterling Premium Whisky's ABD 0% 0% 0% 1% 2%
Source: Equrius Report

Meet the new United Spirits
UNITED SPIRITS PRE-2015
UNITED SPIRITS POST-2015
BAD
CORPORATE
GOVERNANC
E
CLEAN
CORPORATE
GOVERNANCE
DEBT LADEN
SICK
ACQUISITIONS
STRONG
MANAGEMENT
SUBSIDIARIES
RATIONALISATION
HIGH VOLUMES
BUT LESS
REALISATIONS
CORRUPT
MANAGEMENT
CONTINOUSLY
REDUCING DEBT
CLEAN
ACCOUNTS
BAD
ACCOUNTS
LESS VOLUMES
BUT HIGH
REALISATIONS

WHAT CHANGED AFTER 2015?

1. Manufacturing and subsidiaries rationalizations
Subsidiaries
79 78 80
68
Number of Own Manufacturing Plants
46
28
27
22
19 18 20 20
19 19
15
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2016 2017 2018 2019 2020

2.Focusing more on realizations than volumes
Volume (cases in mn)
38
56 59
66
74
88
100
113
120 123 121 117
93 90
78 82 80
51
21
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M
FY21
3405 3521 3603
3871
2572
2862
1961
1021 1762
1915
760
1053
1524
725 466 339 638
1103
1257
479
628 618 636 653 770 854 877 798 913 980 1101 1139 1166 1157
309 222
362 446
26 18 13 32 66 144 44 72 101 93 89 -11 3 104 110 155 170 190 129
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
Revenue per Case (in Rs) EBITDA per Case (in Rs) Gross Revenue per Case

3. Increasing focus more on Prestige and Above category
93 94
88 86
59
53
27 29
33 31
34
37 37
41 42 40 41 39
2012 2013 2014 2015 2016 2017 2018 2019 2020
P&A (mn cases)
Popular (mn Cases)
78% 76% 73% 74%
63% 59%
52% 49% 49%
22% 24% 27% 26%
37% 41%
48% 51% 51%
2012 2013 2014 2015 2016 2017 2018 2019 2020
P&A Volume Contribution
Popular Volume Contribution

3(a). Prestige and above category brands
Volume (in mn cases)
25.7
26.6 26.4
29
30.7
3.6
4.7 4.5
5.6 6.1
1.5 1.5 2 2.3 2.3
2015 2016 2017 2018 2019
Mc Dowell's No 1 Whisky Royal Challenge Siganture
83%
Brand wise Contribution to P&A Segment
78%
78%
71%
73%
12% 14% 12% 15% 15%
5% 4% 5% 6% 5%
2015 2016 2017 2018 2019
Mc Dowell's Royal Challenge Siganture

3 (b). Category wise turnover
3580
6919
4257
6358
3650
5685
5910 5968
4601
4966 5128
3894 3852
3463 3431 3357
2013 2014 2015 2016 2017 2018 2019 2020
P&A Turnover (Rs Crores)
Popular Turnover (Rs Crores)
66% 60% 61%
46% 44% 40% 37% 36%
34% 40% 39%
54% 56% 60% 63% 64%
2013 2014 2015 2016 2017 2018 2019 2020
P&A Contribution to Total Revenue
Popular Contribution to Total Net Revenue

3 (c). Prudent focus shift
1234
1290
1177
1353 1342 1378 1407
1456
736 723
661 660
727
849 858 861
2013 2014 2015 2016 2017 2018 2019 2020
P&A Revenue per case
Popular Revenue per case

4. Change in Management
Anand Kripalu- MD&CEO ( 2014-20)
Mr. Anand Kripalu joined Diageo India in May 2014 as Chief Executive Officer. In his
current position his task is to transform the company, making it one of the most
trusted and respected consumer goods company. His focus has been around
transformation of corporate citizenship as well as ethical standards in the industry.
Anand has over 30 years of experience in the Indian consumer goods market
Ms. Hina Nagrajan- MD&CEO
( w.e.f July 2021)
Ms. Hina is currently MD, Africa Regional Markets (ARM) at Diageo. She will take over
as Managing Director and CEO of UNSP and will also join the Diageo Executive
Committee, reporting to John Kennedy, President Diageo Europe & India. She has
spent over 30 years in CPG businesses and held several senior marketing and general
management positions at Reckitt Benckiser, Nestle India and Mary Kay India.

5. Debt reduction
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
13%
13%
10%
8%
4%
3%
7804
6604
6%
5850
4%
3%
4048
338 334 973 1543 1480
12%
9%
9%
7718 7476
8239 7%
4963
5%
4%
3% 3%
3729 4137
2%
3417
2900
2401
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 6M FY21
3%
1775
16%
14%
12%
10%
8%
6%
4%
2%
0%
Total Debt
Interest Expense as a % of Sales
D/E
7.6
1.3 1.2
3.6
1.8
1.1
3.2 3.3
1.6 1.6 1.8 1.7
2.7
2.6 2.3
1.4
0.9 0.6 0.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 6M FY21

6. Adopting franchise model
Income from Brand Franchisee (in Rs crores)
149
185
167
95
69
53
2015 2016 2017 2018 2019 2020
To enhance focus on the premium range, UNSP curtailed production of some low-margin products in select markets
and also started franchising popular brands in some markets to local distilleries since FY15.
This helps the company to have its popular range of products in markets lower the working capital requirements and
use resources to focus on the core portfolio of brands.
Currently, company has brand franchise agreements (typically for 3-5 years) across 13 states.

Uncertain regulations
The Alcoholic Beverages Industry continues to suffer the twin impact of excessive taxation and over-regulation.
A favorite of Governments, when they need to bridge their budgetary deficits, they increase the duties.
In 2017, supreme court banned liquor vendors within 500 m of state or national highway.
The highway ban lead to closure of 30000 shops but it has been normalized for now
Black swan events like Liquor ban in Bihar.
Nearly two-third of the street price of a bottle of alcohol goes to the State and local Governments towards taxes and duties.
In states with government control on pricing, price increase is based on government notifications.
In states where retailing is controlled by the state government, there is a specified quota that each player can sell, capping potential to
increase market share for our products. These regulations make operations restrictive for the industry players.
Recently, Government in the state of Maharashtra has increased the excise duties abnormally which had a cascading impact on the sale
of liquor in the state. Further, declaration of General Election in April has also resulted in multiple challenges in terms of effective supply
chain since timing of election coincide with annual excise licence renewal cycle in majority of states etc. (2019 AR)

Regulations
80%
70%
60%
50%
40%
30%
20%
10%
0%
48% 49% 52%
43% 41%
41% 42%
39%
34% 34% 34%
908
754
605
246
276 314 393 435 467
157 117
58%
55%
1659
1083 1117
70%
64% 66% 68% 68% 68%
2714
1882 2303 2382 2437
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
3000
2500
2000
1500
1000
500
0
Excise per Case (in Rs)
Excise as a % of Gross Revenue
The government is continuously burdening the liquor industry, by increasing the excise duty. Currently it is the
highest.
A favorite of Governments, when they need to bridge their budgetary deficits, they increase the excise.

Example of how fragmented the market is?
Mc Dowells MRP
530
600
900
778
720
720
380
UP Rajasthan Kerala Karnataka Tamil Nadu Delhi West Bengal
MRP of McDowell’s No 1 premium whisky ranges from Rs 380-Rs 900 for a 750ml bottle

Revenue from operations
12000
10000
8000
6000
4000
2000
15%
1016 1172 1244
6%
73%
10499 10615
9244
56%
7376
38%
6362
5468
25%
4628 18% 16% 16%
14%
2962
1%
2148
9335
9341 9325
8495 8818 8591
9%
4%
-3%
0%
-12% -9%
0.8
0.6
0.4
5901
0.2
0
-20%-0.2
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M
FY21
-0.4
Net Sales
Growth Y-o-Y
Although the Revenue is flat over the last 5 years but realizations per case sold has increased.
There has been many regulatory roadblocks over the previous years which has hampered revenue growth.
The company’s main focus is on premiumisation of offerings.

Gross Profitability
Gross Margins
44% 44%
39%
47% 46%
55%
51% 50% 48% 45% 45% 45% 44% 44% 44%
50% 51%
46% 46%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
The raw material prices are very fluctuating which leads to unstable gross margins.
The company cannot pass on the price increases to end customers because of different policy of sale in different
states.
For e.g. Andhra Pradesh government during one instance denied the industry even reasonable inflation-linked
increases.

Major costs
Employee Cost as a % of Sales
12%
7% 7% 7%
8%
7% 7%
8%
6%
8% 7%
8% 8% 8% 8% 8% 7%
6%
7%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
11%
12%
10%
11%
10%
Advertisement and Sales Promotion as a % of Sales
12%
12%
10%
11%
11%
11%
10%
10%
7%
8%
The new management has
made the advertisement
spend more effective
9% 9%
8% 8%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21

Operating Profitability
1600
1400
1200
1000
800
600
400
200
0
-200
-400
1517
2
1394
169%
144%
1207
2
1144 1118
1062
1091
717
965 989
127%
1
84%
60%
656 1
26%
-2%
436
2%
389
-2%
3%
9%
0
22% 15%
192
0%
56 70 72
33
-50% -1
-63%
-1
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
-138
-124%
-113%
-2
EBITDA
Growth Y-o-Y
23%
EBITDA Margins
Increase in EBITDA margins is
because of increased share of
prestige and above category
5% 6% 6%
9%
15%
7%
11%
16%
12%
10%
11% 11%
14%
15%
16%
11%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
-1%
0%

Net profitability
PAT
12 24 6 45
611
301
568
187
143 93
652 685 624
160
2003 2004 2005 2006 2007 2008 2009 2010 -23 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
-408
-105
-1687
-4489
PAT Margins
1% 2%
21%
7%
8%
8% 7% 7%
1% 2%
0%
2%
2%
-1%
1%
-7%
3%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
-18%
-42%

Return ratios
5%
2%
9%
8%
4%
18%
56%
14%
13%
5%
31% 25%
18%
-117% -91%
8%
12%
6%
14%
13%
10% 8%
20%
32%
13%
14%
9%
20%
5%
21%
23%
2003 2004 2005 2006 2007 2008 2009
-1%
2010 2011 2012 2013 -2% -24%
2014
-11%
2015 2016 2017 2018 2019 2020
-19%
ROCE % ROE %

Efficient manufacturing
28
Number of Own Manufacturing Plants
27
19 19
15
The reduction in the number of owned manufacturing
plants and moving towards outsourcing/franchisee has
led to significant jump in the asset turnover.
2016 2017 2018 2019 2020
Fixed Asset Turnover
3.0 3.1 3.0 3.1 2.9
1.8 2.0
1.5 1.6 1.4
1.1
0.9 1.0
1.2 1.3 1.3 1.5
2.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Working capital cycle
610
572
362
298
316
277
293 286
259
237
253 216 267
201 201 198
185 202 190
158
123
6883 6475 78 95 81
52 55 49 66 59 77 69 70 84 78 68
144 202 195 149
150
99
122
143
165 153 140
116
115 99 89
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Debtors Days Inventory Days Payable Days
Working Capital as a % of Sales
30% 28%
31%
28% 27% 29%
32%
29%
38%
41%
37%
33% 32%
9% 11%
2%
5%
8%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Turning cash and FCF positive
Operations back on
track with consistent
CFO and FCF generation
3583
31 70 40 52
530459
523
267 235
0
1591
1723
756
1969 1980
1617
283317
647617
1050
925 948
898
783669
-302003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-85
-116
-116 -518
-552 -196
-753
-1133
CFO FCF

Steadily converting operating profits into cash
CFO/EBITDA
198%
278%
37%
67%
102%
63% 67%
47%
121% 133% 16%
81%
49%
86% 111% 128% 90%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-167%
Prudent cash conversion post 2015, indicates that the operating profit is actually being converted into cash and is not
getting stuck in working capital.

PEERS- Revenue from operations
Net Sales (in Rs Crores)
8495 8818 8591
6357 6523
7239
9341
8572
2498
2953
1794 1651 2012
1679 1822
715 704 818 936
2096
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd.
John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
United Spirits
Radico Khaitan
Excise duty as a % of Sales
74% 75% 76% 76%
64% 66% 66% 68% 71% 74%
67% 68%
61%
66%
54% 58%
47% 49% 49%
40%
Gross Sales (in Rs Crores)
2016 2017 2018 2019
28873
25757 26556
23921
20271
15820
11975 12849
8935
7411
8058
6270
3007 4271
2712
3962
4868
2833 3396 3949
Allied Blenders And Distillers Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
Radico Khaitan
John Distilleries Pvt Ltd.
United Spirits
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd.
John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
United Spirits
Radico Khaitan

PEERS - Margins
EBITDA Margin
14%
14%
12% 12%
11% 11%
11%
15%
7%
5% 5%
5% 5% 5%
3% 4%
3% 3% 3% 3%
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd.
John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
United Spirits
Radico Khaitan
Gross Margins
67%
56%
52%
49% 48%
50% 51% 51% 52%
44% 46% 44% 45%
48%
37% 39% 40%
35% 37%
32%
PAT Margin
9%
7% 8%
8% 7%
6%
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd. Pernod Ricard India Pvt. Ltd.
2%
2% 2% 2% 2% 2%
1% 1% 1%
1%
0% 0.2% 0.1% 0.4%
United Spirits
Radico Khaitan
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
Radico Khaitan
John Distilleries Pvt Ltd.
United Spirits

PEERS- Return ratios
2.8
2.6
2.8
2.3
D/E
3.8
4.2
95%
69%
ROCE %
81% 83%
1.4 1.3
1.4
1.2
1.0
0.8
1.0
0.5
0.0 0.1 0.0 0.0
0.9
0.3
20%
16% 17% 20% 20%
14%
11% 13% 15% 18% 21%
13%
9% 10%
14%
19%
2016 2017 2018 2019
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
Radico Khaitan
John Distilleries Pvt Ltd.
United Spirits
Allied Blenders And Distillers Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
Radico Khaitan
John Distilleries Pvt Ltd.
United Spirits
ROE %
61%
45%
53% 52%
25% 26%
13% 13%
31% 30% 31%
11%
11%
5% 8%
1%
4% 3%
25%
15%
2016 2017 2018 2019
Allied Blenders And Distillers Pvt Ltd.
Pernod Ricard India Pvt. Ltd.
Radico Khaitan
John Distilleries Pvt Ltd.
United Spirits

SWOT Analysis
STRENGTHS
WEAKNESS
Strong Brand Portfolio.
Largest Alco Bev company in India.
Diageo Expertise helping United Spirits.
More than 10 millionaire brands.
Best Margins in the Industry.
The company is susceptible to raw material price
volatility, which leads to fluctuating Gross
Margins.
No pricing power even if the raw material price
increases.
Direct advertisement of alcobev products are
not permitted in India.
P&A Category, the largest contributor to
Revenue.

SWOT Analysis
OPPORTUNITIES
THREATS
Transition from country liquor to IMFL
presents a huge opportunity.
Per capita consumption of Liquor is among
the lowest in India.
Excessive regulation risk from both Central and
State Governments.
Rise in Competitive Intensity from Pernord
Ricard.
Liquor Ban in any State (E.g. Ban in Bihar in
2017).
Lower than expected growth in P&A segment
could delay margin expansion.

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