United Spirits Q3FY17 Concall Summary

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Financial Highlights

Q3FY17 Financial Performance
  • The quarter was better than expectation. Gross margins improved by 150 Bps in 9 month
  • EBITDA margins improved to 11.8% due to 112 Bps increase in gross margin
  •  Increased prices in Maharashtra due to LBT (local body tax) increase
  • Input cost increases are taken care by production improvement, all the price increase adding to margins of the company
  • Input cost is increased by 2-3% which was mitigated by cost saving initiated
  • Increased investments in the brand by 60 bps
  • Other income includes 12Cr from tax reversal and SCr from dividend from subs
  • The company renewed the brand McDowell no. 1 a year ago, and its core variant has grown by 19% this year
  • Signature has grown 50% this quarter and 30% in 9 months
  • The company introduced Mcdowell no. silk which is first honey flavour and royal challenger bold
  • Popular category has grown by 6% in 9 months
United Spirits Revenue and EBITDA Q3FY17

Business Updates

  • Big focus of premiumisation, which has worked for company and constitute about 60% of business
  • Q4 would also be impacted due to demonetisation, also supreme court order of stores near highway would impact the business
  • There is no clarity on clos ing of outlets near highways
  • Cash supply is not enough in rural areas and also supreme court order may affect their business
  • The company currently manufactures through third party
  • The company has reduced manufacturing units from 93 to 76, and will continue to shut non effective assets in Q4

Price increase

  • Price increase impact in Maharashtra cannot be analysed due to demonetisation but there was drop in the volume which will come back
  • Karnataka and Maharashtra together contribute 40% of volume
  • Prices were hiked in West Bengal this quarter due to increase in taxes by the govt
  • Price increases are due to increase in taxes which every player has to follow

Franchisees

  • The company was loo king for franchise, they have signed deals and will start from Jan 2017
  • Only popular brands will be ava ila ble for franchise
  • They will have separate management with their own manufactured unit
  • Not all the popular brands are bring to franchisee model
  • The company looks  states to states for their "Popular" business and opportunity to grow
  • The franchisees will have cost advantage and will be making 20% gross margins
  • The company will securitize it on fixed margins basis which they currently make
  • The company will focus more on Prestige brands which is driving growth for them now
  • The company will keep control over brand and quality for franchisee
  • The company has franchised all the brands in Kerala, as it has marginal margins in Kerala

Other updates  

  • Plans to monetise Rs. 2000Cr of noncore assets
  • Other income of 26Cr from selling noncore assets in this quarter 
  • They will continue to sell in coming period

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