United Spirits Limited (UNITDSPR) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to United Spirits Limited, second quarter and first half of fiscal year 2027, Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Arora, Head of Invest Relations, United Spirits Limited. Thank you. And over to you, Ms. Arora.

Thank you, Andrew. Hello, everyone. Good afternoon, and welcome to United Spirits Limited second quarter and first half of fiscal 2087 earnings call. Before proceeding with today's call, I would like to remind the listeners that during the call, there may be some forward-looking statements. These statements are based on our views and assumptions at this point of time. However, this is not a guarantee of our future performance, and results may materially differ from those expressed in or implied by such forward-looking statements. I request all of you to please refer to our financial and press releases posted yesterday. Both are available on Stock Exchange and Companies' website under the Investors section. Moving on, today on the call, we have with us Mr. Praveen Prameshwar, MD, and CEO, who is joined by Mr. Pradeep Jain, Executive Director and CFO. Praveen and Pradeep will take you through the business and financial performance of the quarter, followed by the Q&A session. Thank you, and over to you, Praveen.

Thank you, Shweta, and very good afternoon to everyone. Thanks for joining us today. As always, it's wonderful to connect with all of you. A very, very happy festive season to all of you and your loved ones. We've had a resilient quarter, lapping a high prior year comparative and dealing with the regulatory headwinds. When I mean regulatory headwinds, SSSAI issues, which impacted the organization's bandwidth. That said, I'm happy to share that we have emerged stronger and stayed on course to serve the consumer with the right choices. Quick snapshot of the macro environment and consumer sentiment as we see it. With the prolonged and continuing West Asia crisis, softer monsoons, and inflation, consumer sentiment is not very upbeat, and the same is reflective in various consumer confidence measures. Rural may not have fully absorbed the impact of the weaker monsoon yet, but the bottom end of the urban consumer is feeling the inflationary pressure. Therefore, in our parlance, we speak about India 1, 2, and 3, India 1, the bottom end, the consumer, India 1 consumer, which is a target audience for the lower half of the IMFL portfolio, is showing signs of fatigue due to the impact of inflation on its wallet. India 2 and India 3 are robust and holding up. Overall, I am resiliently optimistic on the India consumer story. This brings me to my last quarter reference for inclusive premiumization. We remain focused on a well-calibrated price-backed architecture across our portfolio that caters to consumers spanning all the trend in India, yet being cognizant all out in Bangalore, ABV, and globally from adjacent categories. And it's now going to pick up pace in India to be buoyant, and we'll continue to develop our portfolio in this stage. Coming to the most awaited, McDowell's transformation. It's reached 80 to 85 percent of the salient markets ahead of the season. The national level is mixed, as should be expected, from a relaunch of this size and packaging of communication. Thank you. for the fiscal year 26-27. Adding further to the exciting Smirnoff flavor world are two brand new offerings, diversity to the existing Minty Jamun and Mirchi Mango, and discover 0.7% in the same quarter prior, 19.7%, despite a very healthy increase in consciously front-loaded ahead of the peak. 7.6% in the prior year, same quarter, reflecting healthy investments. TJ will cover financial performance in detail in his comments. Brightside is the sustained momentum in the top half of the portfolio, with strong growth in luxury and acceleration in the premium segment on the back of primary scotches, which includes the relaunched J&B, and Smirnoff remains McDowell, and having already made agile interventions based on consumer feedback, we look forward to the peak fest returning the momentum trajectory. With our innovation-renovation cap investments, we are excited for the festive season and remain confident on our P&A double-digit growth aspirations. Transaction, DCCI due diligence is underway and at an advanced stage, while the Competition Commission of India has already approved the transaction. We await DCCI approval and other statutory clearances. Looking ahead, as the consumer and regulatory landscape continues to evolve, we will stay anchored in our consumer-first approach, adapting our portfolio to changing preferences with disciplined and agile. For a quick update on the financial performance

of today for the second quarter and first half of fiscal year 27 earnings call, always a delight. To please refer to the financial and press relief posted last evening, I would want to highlight one small reporting change. The P&A segment now includes the Brandy portfolio. This change is reflective of the consumer MRPs in key states that are broadly aligned with the lower-prestige whisky segment. Consequently, the current quarter and the first half as well as prior year's respective bases have been reported and restated accordingly. Thank you. I would also like to highlight that the festive season is relatively delayed this year compared to the prior year, given the timing of Puja and Deep India. Hence, October, November, December will capture the full benefit of festive demand in the current fiscal year. Praveen has already covered the top-line performance in detail, so will not be repeating anything on that front. I will just briefly touch upon the popular segment. While it continues to be a small part of our business, accounting for less than 10% of the revenues, and in this quarter, approximately 6%, it is important to provide some context for the quarter. The segment has faced two policy-related headwinds, which all of you are well aware of, the continuation of the Maharashtra adverse impact and the full impact of the changes in the Karnataka policy. The downside due to the latter is being captured in the P&A portfolio of the relevant state. On the cost side, this quarter continued to absorb the impact of the West Asia crisis, broadly a range of about 50 crores. While this impact is against the pre-March 26 prices, it does become a little irrelevant and more business as usual when the supposedly temporary disruption carries on for more than a couple of quarters. Impact was across the lines of glass, energy, packaging, and logistics. Neutral alcohol spirit has now started to get inflationary, driven by the El Nino impact on the monsoons, and therefore the associated crop inflation. The marketing reinvestment rate during the quarter was 11.6% of net sales, which is an expansion of 400 basis points compared to prior year same quarter. While this may appear elevated for the quarter, it should be viewed in the context of our heavy innovation, oblique renovation calendar, and is expected to represent the new normal for the current fiscal year. As already mentioned by Praveen earlier, we have also consciously front-ended the higher investments ahead of peak season to get maximum mileage from the same. Consequently, driven by the Conship higher A&P investments in this quarter, our EBITDA declined by 4.3% at Indian rupees 600-hour margin was at a healthy 19-point profit after tax for the quarter was 462 crores, down 2.1% with a net profit margin of 14.2%. All other relevant numbers and information is well contained in our press release. With this, we can now open the floor for the Q&A.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on a touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Abhinish Roy. With Nuwama, please go ahead.

Yeah, thank you. My first question is on the popular segment. We had done this evaluation few years back and sold a large part of the business. Now it is 6% of the revenue this quarter, and my sense is margins would have come off sharply given the operating deleverage, and India continues to premiumize a lot. So, my specific question is, why continue on this 6% of a business where long-term, I think, viability and presence, does it make a lot of sense? So, I wanted to understand, can again a recalibration, evaluation of this end again happen?

Yeah, so Abhish, hi. I think we've answered this earlier, right? You know, the 6% portfolio is largely the McDowell's trademark, right? The McDowell's rum part of the business, right? So it's the same trademark. I mean, we've been carrying on with the segmentation historically. That's why we report the number. But we look at it pretty much as an overall trademark. So that's the reason we don't want to kind of do anything. I guess our insight four years, five years ago that the future profit pool and the growth pool is the prestige and above business, that's playing out in reality. So that's what it is. And I guess, to your point, it may continue to dwindle further and probably die a natural death. But, yeah, as of now, we don't want to make any interventions.

Second question is, Karnataka, a lot of reforms have happened for the P&A. Let's ignore the popular end. Beer industry in Karnataka has seen 50% plus growth now for many months. So, if you could tell us spirits which also saw good benefit of reforms. So, how is P&A done? What pricing initiatives you have done given 16 slaps became 8 slaps? So, there is more flexibility. Give some examples you can give, and are you happy with the performance? Has the competitive intensity gone up because of the reforms? Beer industry, a lot of consumption happening. Obviously, India can't consume both beer and spirits equally so strongly. Someone may be growing slower, so if you could elaborate on that.

Hi, Avnish Praveen here. Yes, Karnataka has seen, as I see, a very progressive tax policy.

Last question. So, Tamil Nadu, any update you have? All liquor companies yesterday in the call spoke extremely positively on Tamil Nadu. They said that, obviously, this is second largest market, I think, in the country after Uttar Pradesh. And I wanted to get an update. What is your sense of the current reforms? Some of the companies have said that some level of reforms have started. Some of the private companies, national companies are getting more market share, initial days. Second is, do you have any infrastructure ready there? The companies have said some manufacturing, some presence is already there. So if you could update us on infrastructure on manufacturing and distribution, if any.

Look, I'm not going to speculate. First, it will be exciting how it opens over a period of time. But I would really speculate by saying.

Which is that, you know, in case the opportunity does open, you know, We have demonstrated our agility in the prior instances, right? I mean, Andhra Pradesh, if you remember, we were up and running in about 45 days from the date the policy was announced, right? And therefore, we will retain the same nimbleness and agility.

Thanks a lot. That's all for us. Thank you.

Thank you, Agnesh.

Thank you. Next question comes from the line of Aditya Suman, CLSA. Please go ahead.

Hi, good afternoon, and thanks for the opportunity. So, two questions. Firstly, on this whole DRI investigation and checks space, what's the update here, and does this have any sort of bearing on the benefit we are likely to see from the UTFDA? Okay. And secondly, we've seen a very sharp reduction in costs, particularly wage costs as well as other expenses. So is this a new sort of study state and actually expect this level going on? Thanks.

Yeah. Yeah. Hi, I'll say I'll take this, right? So look on the DRI front, you know, we've already made a stock exchange disclosure. We have been very consistently, you know, classifying our Scotch imports in the same HFN code over the last probably 15, 20 years, ever since the entity has been operating. So there is absolutely, you know, no deviation from our side, right? The government was, you know, kind of getting into it, right? So that's fine, absolutely, right? We are cooperating, and this will kind of play out, right? So, we are absolutely confident in terms of our own classification, so no change on that front from our side. Your second question was regarding the sharp reduction in wages part. I think last quarter we did discuss, Praveen and I spoke about the overall organization simplification drive that we have taken, and therefore, in pursuance of those objectives, we have kind of lightened the organization a little bit, right? With the desire of being more faster in artificial thinking, right? So it's the benefit of that exercise that is playing up.

So on the expenses, this is the new steady state that we should expect going forward. And on the DRI issue, again...

And again, as always, I'll maintain, just look at the four-quarter run rate, et cetera, right? Because there would always be a little bit of differences, et cetera. But just look at the four-quarter run rate. As you start tracking that, you will reach the steady state.

And on the DRI issue again, and just to sort of clarify again, so from your perspective, as of now, it's business as usual on the FTA and the benefits to start holding.

Absolutely, and we are cooperating with authorities.

And the benefits, FTA benefits are rolling in as we speak.

July 15th onward, our consignments are being kind of cleared, right? Praveen, you want to add something on the advocacy part?

Yeah, and very clearly, as this is paying off, obviously, there is lots of advocacy around to make sure that the benefits continue to reach the end consumer.

Perfect. Thanks so much for the clarification.

Thank you.

Thank you. Next question comes from the line of Kristen Sambamorti with Ashika Institutional Equities. Please go ahead.

Yeah, hi. A couple of questions. One, Ramin, you highlighted that you are awaiting the BCCI approval for the RCP stake sale. Could you give us some revised timelines on when you are likely to expect this and subsequently the combination of that as well as the dividend payment to investors? Would you hazard a timeline here?

Go ahead, please. So, Saha, I think, again, we have shared this earlier. There is, you know, the long-stop date was earlier six months, but it was an auto extension of two months, right? So that takes us to almost till mid-December. We are hopeful, right? Because through the engagement levels of BCCI, we know we are at a fairly advanced stage, right? And therefore, right now, our assessment is we should be able to close the transaction by the extended long-stop date, which is mid-December.

Perfect. My second question is on adspends. You indicated that there was some front ending of adspend ahead of the festive season, but would you like to state your adspend guidance for the full year, and would it be higher than what you had been guiding earlier? Yeah.

So, again, we'll be consistent on that. We had always said that, you know, for our core portfolio, we should, we will probably be in the range of about 11%, right? And then, you know, whatever new platforms we are launching, you know, like the RGD, the Smirnoff Ice that, you know, Praveen mentioned about, that will, to some extent, come and sit on top of the 11%.

Okay, just if I can squeeze in one more question. This is on the JNB Scots relaunch. Just to clarify, will this be under the erstwhile DRGO portfolio and therefore subject to a 10% margin cap, or would it not be a part of that?

Yes, yes. No, JNB is very much a DRGO global trademark, right? So it will be within the margin cap. Thanks. Very useful. Thanks. Thank you.

Thank you. Next question comes from the line of Raksha Thishai with IIFL Capital. Please go ahead.

Hi, this is Percy Panthikhi here. I just wanted to understand the gross margin movement on a sequential basis, that is versus Q1. Q2 gross margins have expanded while the inflationary pressures have sort of intensified. And this is also in light of the other two listed players who have shown a sequential contraction in gross margin. So, just wanted to understand the drivers behind the same.

Yeah. No, so, Percy, look, you know, like, again, the FTA benefit has started coming in, right? So, that's one driver of how the gross margin is holding, right? Right. And I think I had mentioned on the last quarter call also, while there is an adverse impact on account of the West Asia crisis. Right. Neutral alcohol spirit was holding up wonderfully well. Right. In the April, June quarter, neutral alcohol spirit was actually deflationary. Right. In July, September, it's by and large, par versus last year. And as I've already mentioned in the opening comment, it will get inflationary driven by the poor monsoon and the El Nino effect, right? But having said that, it should also get offset with the FTA, full FTA impact as it gets more absorbed into the P&L, right? So sequentially, I'll probably say the growth margin should hold, right, for the coming quarter.

Understood. And while we have discussed this in the past, now that FTA is a reality in actually seeing sort of the consumption cost at a new level, can you just let us know what is the FTA benefit in terms of basis points of gross margin?

Well, see, that I don't want to comment right now, right, because there are multiple things happening. Again, I want to be consistent on that. What I've always maintained, I don't want to quote that number, because you guys will pick it up as a standalone number, right? However, there are multiple things happening, right? The currency is depreciating, right? There is force inflation on scotch at the base level, etc. So I don't want to comment on that number, right? But everything will be there in the P&L, and we are trying to hold an overall blended P&L and give you guidance for that.

So, the gross margin on a sequential basis, the expansion, the driver, is the FTA benefit only, or apart from that, is there any driver, and I'm talking only about Q2 compared to Q1, the gross margins, what has changed in that?

The mix is a big driver per seat, right? So, it's mix and FTA impact. FTA impact, July 15th onwards, all our consignments are at the concessional rate. So, that is almost kind of, you know, not the weighted average, but it is fully coming into the P&L in terms of impacting the weighted average price.

Understood. Understood. Thanks a lot, Prabhupada. That's all from me. All the best.

Thank you. Next question comes from the line of Harit Kapoor with Investec. Please go ahead.

Hi, good evening, team.

Hi, good evening.

So just a couple of things from my end. You know, the first half, as you've mentioned, you know, has been in the high seven, it goes to 8% on P&A growth. And, you know, your aspiration continues to be a double-digit number, which obviously requires mathematically,

that's a 12-ish percent growth in the H2O.

You know, in the context of, you know, your realizations, or, you know, probably normalizing, you know, because of number one, because of Maharashtra now in the base, some of the heavy lifting will have to be done with volume growth. So, just wanted to get your thought process on kind of what drives this kind of volume growth number, and maybe, you know, if you could give a sense of ex-Maharashtra, Are you already growing at that pace? You gave a number in Q1, but just to give a sense of, you know, some more confidence in how you see this trajectory play out to get to your double-digit aspiration for the year would be helpful.

Look, great question. And yes, we are around 8%. And if you have, we're talking about double digits, you are talking in the range of 12%. The whole idea has to be volume value for us. We are seeing a healthy growth. It got impacted this quarter a little because of all the regulatory headwinds, as I said, and it did impact us, but as we see it, and we've seen September, we are now starting to see October, we're starting to see how it's coming back and therefore building up. The season was to drive availability, was to be in the portfolio.

I'll just add, Harit, to your pointed question, which is that if you remember, all of you will remember, that the first set of MML brands came into the market sometime around October, right? So the last will be complete from the end-swing quarter now, right? So therefore, that itself, the mathematics will give us, hopefully, anything between two to three additional points of growth, right? So that's exactly. And if I also remember in the May, in the May investor call, the annual investor call, Praveen and I had very clearly said that first half will be a little lower and the second half have to be naturally a little higher, right? So the script is playing out in line with our expectations. I won't be too worried on that front.

And with the follow up on that, you know, do you expect second half to also, you know, show the full benefit of some of these innovation renovations that you're doing? I mean, I think number one should fully start to play out in H2, you know, the launch of ICE, the launch of flavors, J&B, and probably some more from your stable. So the innovation percentage, innovation, innovation percentage, however you calculate it, could that also be an additional kicker on growth?

Yeah, yeah. Well, see, if you look at it, Smirnoff flavor, right, the run rate has got established from the Jan-March quarter, right? So we already have, you know, taken three quarters of Smirnoff flavors, right? But now the new flavors. The intent is that the new flavors are, you know, now if one of them fires like minty jamun, who knows, Harit, right? But all that is well incorporated, right? Now Smirnoff is too small right now to impact the numbers, but the intent is, yes, you know, probably two, three years down the line, that will start giving us serious numbers on the market.

Harit, overall, innovation is chugging, and it will continue to build. J&B is going to add serious revenue to that. But you're absolutely right. Each of these will help us deliver what we thought.

Got it. That's all for me. Wish you all the best. Thank you.

Thanks, Harit.

Thank you. Next question comes from the line of Adna Pitra, Coleman Chacks. Please go ahead.

Yeah, hi. Thanks for the opportunity. My first question was on the two challenges in the quarter that you mentioned. One was the FSSAI issues, and second, your comment on the McDowell's number one feedback on acceptance in some of the large states. So just wanted to understand, did these two really impact sales in this quarter in terms of either pipelining or actual consumer offtake? And are both of them behind in terms of are you now seeing both these issues completely behind?

So the first issue is completely behind us. We still are in the process of doing the changes and getting it into market, but it's pretty much complete and well planned out. So the first issue is absolutely behind us. The second is a massive opportunity. Number one, as I said, as we have in an agile and nimble manner, but done some changes around packaging, and as the packaging is reaching the market, We are seeing improvements, market after market, roughly until end November. So this is an ongoing process, but we believe sequentially you're going to see significant improvement.

Got it. And any of these two issues, did it really impact consumer offtake, or it was more like you're selling primary sales, which got impacted, but availability was there in the market in this period of time?

Interesting.

Go on, Peter. Yeah, so maybe I'll just start and you can better. So look, Arnab, you know, it's very difficult to quantify that. Our reality is when the, you know, when you have SSSAI, you know, officials visiting your plants, right, and spending extended duration, the organizational bandwidth gets diverted, right? So the supply momentum gets impacted, right? And therefore, you know, you end up kind of having probably for a temporary period, wrong things at the wrong, you know, point of dispatch, etc. So that's the bit that we had gone through, you know, during the quarter. But as Praveen mentioned, that is well behind us, everything, and we are pretty much kind of, you know, firing on our supply processes now.

Got it, got it. And my second question was on the FTA in terms of the other part of the FTA, which is as consumer prices come down on the imported products, you were expecting a certain price elasticity of demand. Could you help us appreciate it? Are you seeing that elasticity in the market? What kind of uplift you could be getting on volumes on those categories?

Yeah. So, Arnab, look, the BIO part, right, I think the prices, just as we speak, are beginning to reach the consumer, right? Like I said, you know, the machinery, the excise cost cards were all submitted. Some of the states have approved. Some of the states have still not approved. So literally between now and probably the next 30 days, the consumer will start seeing the lower prices. So hopefully, we will get a sense of it over the next three to four months in terms of how the response to BIO is. BII, we already fired the salvo, which is JNB. We have been working on it for nine months in anticipation. We are so glad and delighted that that has gone absolutely on plan and on schedule, right? JNB is pretty much, Praveen, am I right? Is it pretty much available across the country as we speak?

Got it. Thanks. That's it from my side. All the best. Thanks, Arun.

Thank you. Next question comes from the line of Abhimeta with 361 Capital. Please go ahead.

Yeah. Hi, team. Thanks for the opportunity. Thanks. It was, I only had one question and I just wanted to check if this was answered or not.

But if I were to remove Maharashtra, what are we trending right now?

Now, I do understand the timing, but first half growth rates, just to appreciate, you know, the tailwinds as we go forward into the second half, beyond the benefits of price cuts in the BIA portfolio.

Yeah, I mean, so, you know, like I just responded to one of the earlier questions, you know, where, you know, the Maharashtra lap is almost complete, right? So, for the first half, ex-Maharashtra, we've grown at about 10.5%. That's broadly the number. It has got impacted a little bit in the quarter, as Praveen mentioned, but for the first half, ex-Maharashtra, we are at about 10.3% to 10.5%.

Perfect. And just to clarify, this would have the additional tailwind from Karnataka impact now coming, as well as the cuts that should come in as we flow through from the BIO portfolio.

Absolutely. It includes the Karnataka tailwind. Absolutely.

Okay. Okay. That's it. And just the other bit I wanted to clarify on the gross margin side. Right. You know, we did see, you know, the expansion, and you would clarify towards the mix. Is this mix a state mix that you're talking about, or is this more product level, you know, between white and brown spirits, if you could clarify that?

It's category mix. It's category mix, right? So, it's the premiumization mix, right? It's absolutely the premiumization mix, right? Smirnoff, you know, growing so well, that itself adds so significantly to the mix, right? And even the rest of the, you know, top half of the portfolio is growing well.

Perfect. That's all from my side. Thanks a lot for taking this.

Thank you. Next question comes from the line of Chai Toshi, the Court of Securities. Please go ahead.

Hi, thanks for the opportunity. Now, Maharashtra as a geography and lower prestige as a portfolio segment have dragged your growth for the past few quarters. With the relaunch of MacDowell's one and Maharashtra also getting anniversarized, are you, you know, the way you see things today, do you think starting March quarter, both these, you know, buckets will also start growing at at least 8, 9%, 10% kind of growth rate? Or, you know, are there any other headwinds that we are not aware about? And, you know, when I'm referring to lower price range, it's largely competitive landscape, right? So, if you get your relaunch right, and once you are fully, India rollout is complete, do you think that portfolio can potentially grow at 8-10% in value terms?

So, Jay, great question. You know, if only I could, Jay, I genuinely believe it's a number in terms of growth, but

Arashtra lapping will probably give us two, three points, right, which takes to whatever, you know, the nine, nine and a half, right, from the current quarter. And if we are saying, right, literally that we are committed to double-digit P&A, right, for the full year, which means that we have to grow about 12, right? So the balance points of, you know, two and a half, three is on account of the McDowell's and the innovation that we are doing, right? So absolutely, that is very much. Now, to Praveen's point, whether McDowell's will reach the 7-8%, that's a difficult one to call out, right? Too early to call out.

Yeah.

Historically, the premiumization, you know, the category has not grown at that level in that segment.

Understood. This is helpful. Thank you so much and wish you the very best.

Thank you. The next call comes from the line of Nitin with SGSC Securities. Please go ahead.

Yeah. Hi. Thanks for answering my question. First question pertains to Vodka segment. Like if you can highlight like how material is the Vodka revenue for us in first half. And also, if you can share, like, what is the salience of flavors and any thoughts around getting into the deluxe price segment?

Getting into the? Sorry? Deluxe. We are already in the deluxe, but I'll let Praveen ask. Look, the whites are on fire, okay? Beetle, it's on fire. You know, in my opening comments, we feel good about evaluating the car gets bigger and bigger and unlock the opportunity and play to potential.

Sure, this is helpful. My second question pertains to, like, for BIO grants, like, we are going ahead with the price cut. So, like, as we are selectively with the price cut, like, I just want to check, like, state governments may look to protect their excise revenue in the next budget after this due to reduction. So, are we also factoring those things or, like, that can be a spoilsport ahead? I just wanted to be clear on that.

Yeah. So, I mean, we are not doing that kind of scenario. I mean, whatever our early experience has been, you know, the states where I mentioned have already approved the excise cost cards, etc. They have not done anything of that sort, right? The price benefit is going to be passed on to the consumer, right? The intention is to grow revenue. Seemingly so far, right, even the states are wanting to grow revenue.

I think the states overall benefit from the growth. So, as we have seen, they have completely come into the same scenario and starting to build on them.

Sure. This is really helpful. Thanks a lot and all the best.

Thanks. Thanks, Nathan.

Thank you. Next question comes from the line of Ashutosh Jain.

Hello. Thank you for taking my questions. I have three questions, please. So, the first one is like I just want a little bit more clarity around the DRI situations. When you say, like, you know, the all consignments have been approved, so I'm sure this includes both HSN codes, which covers bulk and the BIO portfolio. And as we all know, like, of this bulk, part goes into your raw material mix, and part is your BII portfolio. So, hypothetically, assuming if the final outcome is against us on bulk portfolio, am I right in thinking, like, there will be a material impact on numbers given, like, you know, you mentioned some gross profit,

the gross margin benefit also, And

also the pricing benefit on the BII portfolio. And where there is pricing benefit on the BIO portfolio, there also you have a margin cap. So could you just throw some more color on that? So that is like my first question. My second question would be on Smirnoff Ice. Could you just give some examples of price points and, you know, the distribution strategy? How should we think? Because, you know, it's more of, in my assumption, because of malt nature, it's more of a beer R2M category versus, say, a spirits market. So how do you see that category evolving?

And, you know, how do you see the synergies between that, between the new launch and your current portfolio?

And my third question would be, you know, just a quick update on your McDonald's X series. There has been, like, you know, like, limited information on that, like, how that category, how that brand is doing, and where do you see that brand going ahead? Thank you.

Praveen, you want to take the Smirnoff Ice question first, maybe the two brand questions, and then I'll come back on the show.

Smirnoff Ice, look, overall Smirnoff Ice, as I said, will unlock new avenues of growth for us, okay? It brings together very simply flavor, refreshment, and convenience, and plays to the ready-to-enjoy format. Very much plays to the beer and wine locations, early evening, mid-evening, late evening. We've launched 4.8% and 8% ABVs, and yes, our present go-to-market works on that. We go to the same stores in the same manner. Additionally, we need to make sure that it is additional work which is being done. And that's why we've picked up three markets. We've got to perfect our playbook and replicate it across the country. So, very clearly, that's the first thing. Now, what are the synergies? It's the same go-to-market, goes without saying. More importantly, it is the same trademark, which is Smarnoff, and it drives a whole set of new consumers coming into the category, and we've seen there is a RTD drinker will start.

On the DRI, we have been very, very consistent, you know, in our classifications, right? And, you know, we are cooperating with the DRI and authorities. In case some additional developments happen on this, which has a material impact, obviously we will be regulatory bound to kind of come and disclose it to all of you, right? So as of now, we don't want to say anything more than that, right? But, yes, the impact will be material in case there's a class with that. That goes without the hypothesis. So, therefore, yeah, we don't need to kind of, you know, think.

No, no, absolutely. Thank you so much for the color. And even, you know, I just don't want to get there, but he just wanted to have some clarity. Also, one quick follow-up, if I may have, is like on the BIO portfolio, given you have a margin cap and this FTA benefits is passed on to the margin, not the product which you get as a raw material which gets built from the global parent. So, like, does that have an impact on your margin profile or, like, somewhere in your cost lines, or does it not have an impact over there?

No, no, for you, you pretty much kind of, you know, got it right. You know, USL will remain margin capped, right, based on whatever the P&L is, right? So, therefore, we will not get it.

Got it. Thank you. Thank you. Next question comes from the line of Karan Kamdar with Choice Institution. Please, please go.

Great numbers on the, especially the margin fund. What I wanted to understand is that how far do we see this margin, gross margin sort of continuing? Or do we see some compression due to West Asia impact or glass pricing? Or do you see this high sort of margin continuing over the next two, three quarters?

Yeah, Karan, so, yeah, so, look, like I've already said, I mean, there are tailwinds, right, which is the FTA tailwind, right, which is, you know, which will, which has held us in good stead for the current quarter that we have reported. Immediately next quarter, what I've seen the short term is ENA going up on account of the El Nino and the monsoon effect, right, but hopefully that will be neutralized by the full effect of the FTA benefit, right, Right. And post that, very difficult to call out, right? I mean, we would want to, ideally, we would want to maintain the growth margins at the current level. But again, you know, we will form that view as we kind of go along, right? Right now, we don't want to think beyond that.

Got it, got it. Second question is more on the competition side. Generally, we are seeing like the competition is heating up, especially like Spirits and beer now and before, just Spirits as well is heating up and there's too many new players coming up, new brands coming up. How do you see this landscape, and how do you plan to sort of defend the number two spot that we have currently? And do you see any slippages because of heightened competition, or do you see it as an opportunity for acquisitions, maybe?

So, Karan, that competition is very healthy, okay? When there are more competitors, you will see the categories showing growth. That's a great place to be in. So, what it's telling us is mining data and seeing the opportunity and want to play in this category space. We are excited about it because with competition comes category growth. We need to be disciplined on how we speak to our consumers, how we ladder our products to our consumers, and how we play each of these categories. It could be international whiskey. It could be Indian whiskey. It could be vodka. It could be tequila. How do we play it in a disciplined manner? So, that's how we will look at it, and we are excited to embrace competition and play to our potential.

Maybe you can outline what part of the portfolio excites you most in terms of growth, apart from the innovation side and the JG and the new brand out of the existing portfolio. Where do you see most growth coming in?

Look, if you see overall, if you look at the category, whites as the category has seen explosive growth. Okay. That's the way the category is behaving. Repertoire is growing, and with repertoires coming, consumers are expanding their consumption, and whites, that's why you see Smirnoff's performance. You are seeing it in terms of growth. So, therefore, you know, these trends will keep coming. We have to play discipline in each of these categories so that we can play to us.

Thank you and all the best.

Thank you.

Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session. I now hand the conference over to Ms. Shweta Arvura for closing comments.

Thank you. I'm fortunate that many of you have back-to-back calls today. We're just finishing on time today. On behalf of United Spirits Limited, I wish you and your loved ones are very happy and safe, Diwali. And if there are any questions, please feel free to reach out to me. Thank you for joining. Have a good evening.

Thank you to all. I'll be to Diwali to all. Thank you.

Thank you. On behalf of United Spirits Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.