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United Spirits Q3 - Divestment, A Right Strategy; Now The Core Must Fire On All Cylinders: ICICI Securities

Value growth in P&A stayed significantly ahead of volume growth.

<div class="paragraphs"><p>United Spirits Ltd.'s black label brand. (Source: Company website)</p></div>
United Spirits Ltd.'s black label brand. (Source: Company website)

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ICICI Securities Report

United Spirits Ltd. continued outperformance in prestige and above portfolio, driven by premiumisation (higher scotch sales), is encouraging. Value growth in P&A stayed significantly ahead of volume growth. Post adjusting for the slump-sale of the popular portfolio in base quarter; we note that the segment’s performance continues to remain subdued (2% revenue growth YoY, 3% volume growth YoY).

Also, as per our estimates, business economics of the divested-business (at ~12% Ebitda margin) has been margin dilutive to existing business. However, the impact of operating de-leverage on Ebitda margin is also significant at ~8%.

We expect this impact to be re-couped from the current business over a period of time through volume growth and mix improvement.

During the quarter, United Spirits completed merger of Pioneer Distilleries. Also, the board has approved a multiyear supply chain agility programme which shall help in strengthening overall supply-chain ecosystem to address future demand and efficient cost saving.

Overall headline numbers have been in line with our estimates. Inflation continues to impact operating profit margin (and is not likely to moderate in near term).

Click on the attachment to read the full report:

ICICI Securities United Spirits Q3FY23 Results.pdf

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