Ladies and gentlemen, good day and welcome to the United Spirits Ltd Financial Year 2025 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, please signal an operator by pressing star and then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations, United Spirits Ltd. Thank you, and over to you, ma'am.
Thank you, Robin. Hello everyone, good evening, and welcome to United Spirits Q4 and full year FY2025 earnings call. Before proceeding with today's presentation, 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 refer to our financial and press release posted on Tuesday and the presentation posted today. Both are available on the stock exchange and company's website under the investor section. Moving on, today on the call, we have with us Mr. Praveen Swamy, our MD and CEO, who is joined by Mr. Pradeep Jain, Executive Director and CFO.
Praveen and Pradeep will take you through the financial and business performance for the fiscal year 2025, followed by the Q&A session. Before we begin, I would like to invite Pradeep to open today's call. Thank you, and over to you, Pradeep.
Thank you, Shweta. Good afternoon to all. It's always a delight to interact with this cohort. Shweta has given me the onerous task of introducing Praveen. Having overlapped with him for more than 20 years in PepsiCo, and both of us having our roots in finance, can emphatically state the following about him. He understands the Indian consumer inside out and his understanding is data-backed. He's ran both businesses of PepsiCo as a consumer-first business, and he was a huge role model in PepsiCo, not just for the finance fraternity, but for the overall business fraternity. He was also instrumental in creating PepsiCo's end-state bottling vision of a national mega-bottler, which most of you have seen play, today. He ran a portfolio region in PepsiCo, Asia-Pacific, which had a system revenue of $4-$5 billion, multiple operating models, and a culturally diverse region.
In HT Media, he created a digital-first organization, navigating the organization through the pandemic and future-proofing the business while emerging stronger. With that, I will hand over to Praveen to take you through the business highlights for fiscal 2025.
Thank you, PJ, and good day, everyone. Thank you, PJ, again for the very warm welcome. It's my absolute honor to represent United Spirits. I'm truly excited to be here at a time when the India consumer is evolving, becoming more discerning, choiceful, and purpose-led. As the undisputed leader of Scotch, or should I say IMFL, also in India, with global and USL trademarks, a portfolio that caters to the entire consumer ladder, which could be INR 120 per bottle to INR 25,000 per bottle, in the world's largest whiskey market, this presents a remarkable opportunity to shape the next curve of growth. I must admit that my outside-in perspective of the sector was that of a tightly regulated industry, marked more by headwinds than tailwinds. However, recent policy shifts are progressive, encouraging, and offer fertile ground for building momentum.
I look forward to what we build together with purpose, ambition, and impact. You know, I thought the first best way to start is just see what the landscape looks like and what a way to kick it off. The India-U.K. Free Trade Agreement, which has halved the duty on Scotch from 150% to 75%, it's landmark. It shall enhance accessibility of Scotch in the world's largest whiskey market. As a category captain, as USL, it presents a valuable opportunity to drive deeper penetration and introduce new premium offerings that cater to India's evolving repertoire consumer. During the year, we witnessed policy advancements in several states, starting from UP, which introduced a key reform in 2025-2026 excise policy.
Liquor retail shops that previously sold either beer or spirits exclusively will now operate as composite outlets, permitted to offer both, resulting in doubling of the retail touchpoints for spirits, from 6,500 outlets to roughly 12,500. It's a move in the right direction, more so on expanding the access while enhancing the consumer choice. This year, we recommence the business in Andhra Pradesh after a five-year hiatus, enabled by progressive policy changes from the new administration, encouraging to see how our trademarks regain fair representation. In fact, now pretty much our national market share. Our brands are connecting again with the consumer, backed by renewed and meaningful engagement in Andhra Pradesh. That said, it's not all green. The broader environment continues to be challenging. Demand is, as all you folks know, currently subdued, while long-term consumption trends are favorable.
Hence, we must stay agile and continue delivering compelling value for our consumers. Moreover, some restrictive route-to-market policies in Delhi and some other states have hindered our brand presence in what is a high-potential premium market. Similarly, we are facing bureaucratic delays in a key Scotch salient state, which is again limiting our full potential. These issues warrant resolution. Notwithstanding, we remain optimistic and confident that market access will continue to improve in due course as states continue to align policy with consumer demand and economic opportunity. These, as you know, are the three key pillars of our strategy: the portfolio reshape, keep walking no matter the setbacks. The brand invokes a lot of emotions and resonates with a very wide consumer base. Over the years, we made significant strides in building a compelling consumer value proposition around this trademark.
Our "Can't Stay Still" campaign with global icon Priyanka Chopra Jonas has further strengthened brand equity and resonated deeply with our audiences. Continued our association with exclusive platforms to dial up aspiration, consumer engagement, and build cultural relevance on the brand. Some of the most prominent ones being Lollapalooza, third year in a row, some marquee events around music by Dosanjh and Dua Lipa. All of these helped us to leverage and drive sampling and visibility, therefore unlocking leadership equity in the luxury space. Malls. There are two bookends to single malts. There are the iconic trademarks of Lagavulin and Talisker that have commanded loyalty and admiration across generations. There is Singleton, where our ambition is to build enduring brand equity on par with the iconic global malts amongst the new generation of malt enthusiasts.
We launched the Single Moment campaign for the Singleton Social, featuring Shobhita Dhulipala as the first-ever brand ambassador for Singleton in India. The brand was also active in culturally relevant local events such as the Wedding Collective by Jio. Coming to our Indian single malt, Godawan, we are nurturing the brand. Multiple brand-led and commercial initiatives are underway to build its stage both at home and abroad. Recently launched Godawan Expressions through the CSD, the Canteen Stores Department, a significant milestone in driving salience for India's own single malt among our nation's heroes. We introduced the Godawan Durbar Experience IP during the New Year, a rich, immersive experience that welcomed consumers into the world of Godawan. Internationally, we are strengthening the brand's footprint by activating premium on-trade and e-commerce channels. Clearly, this is a massive opportunity. Our BII portfolio continues to be on fire.
It's seen healthy growth over the last few years, and it continues to be rocking. Black & White continues to perform competitively. We created experientials with playable for everyone, a big playing culture with integrated comms and experientials across on-trade, off-trade, and the third spaces. Black Dog continues to maintain its equity leadership in the BII Scotch segment, 1.3x to the nearest competitor. We introduced a limited-edition Black Dog Triple Gold Reserve pack in collaboration with Renault fashion designer Falguni Shane Peacock, designed for the festive and wedding season. Black Dog also sponsored events like Spoken Fest, resonating well with the ethos of the brand and its proposition, "Savor the Box." Tequila, as a category, has seen massive growth over the last few years. Don Julio Tequila was one of our biggest launches. While the launch happened at the end of 2023, this was the first annual year for the brand.
Don Julio resonates well and is in favor with our luxury consumers for their most exclusive occasions. We are building the brand with high-visibility events such as the Day of the Dead and associations with a month-long cocktail festival with love from Mexico. Overall, it has done well in this space, especially at the high end. The gin category has seen some slowdown, if I may say so, while Kure continues to progress robustly. We continue to build excitement in vodka with our flavor repertoire, curated specifically for the Indian palate. The innovation, after 13 years, marks an exciting new chapter in the brand's journey, and we are just about getting started. Mirchi Mango, Minty Jamun, and Zesty Lime, as a concept, flavor as a vibe, resonated very well with our consumers. Coming to our Prestige portfolio.
In the upper Prestige segment, Signature is one of our strongest performing brands and is witnessing sustained strength in brand equity scores. We amplified our purpose communication on digital, scaled up our long-term association with the Zero Festival of Music, and also extended it to Telangana. We made significant progress on our mangrove replenishment project, an initiative to regenerate the mangrove plantations in Odisha. Restoration efforts spread across 60 acres in five villages near Puri, Odisha. Our focus on Antiquity continues to be on building awareness on the new bundle, which was renovated a year back. Recent renovations were in the CSD channel through the launch of a music and art experiential event for the armed forces titled "Beyond the Barracks." Coming down to the mid Prestige, you know, we continue to expand RCAP, Royal Challenge American Pride, for national presence.
We recently associated RCAP with Ed Sheeran's India tour across Delhi, NCR, Bangalore, Hyderabad, and Chulan, one of the biggest music events in the country. On Royal Challenge, we launched our Choose Bold 2.0 campaign featuring Virat Kohli, Smriti, and Vidyut on both TV and digital platform during the T20 World Cup, the Women's IPL, and IPL, as well as the Jersey 18 final. Also, for the first time, Diageo explored into esports with RC. Also launched the Royal Challenge Pocket Packs in key markets like Maharashtra to drive occasion and unlock that price play. RCB, our differentiated asset, continues to build on its strength. It commands exceptional brand equity, has top viewership charts this season, and continues to be the showstopper amongst the IPL teams. Ranks amongst the top five most popular global sports teams on engagement, trailing only to football giants Real Madrid and FC Barcelona.
The annual standout experience is RCB Unbox event, a grand celebration that sets the tone for the IPL season. It brings fans up close with player introductions, jersey launches, and dynamic performances. Beyond the pitch, RCB is also making a meaningful social impact by nurturing young sprinting talent from the Siddi community in Mundgod, Karnataka. On a lighter note, I hope they bring the cup back this year. Another iconic trademark, McDowell's. We renovated the brand in key markets, followed by a 360-degree activation with media and trade. Also launched Double Oak Barrel, a premium vibrant whiskey exclusively in the Assam market and Uttar Pradesh, our battle markets. Additionally, we introduced the number one hipster pack, which is our pack price play. Our Yari Jam concert drew over 25,000 attendees and ramped up engagement with McDowell's. We are constantly working on premiumizing our brands.
This week, this with our consumer in innovation led to X Series. Our latest offerings from the House of McDowell's, X Series package with offerings in three fast-growing categories: rum, vodka, and gin. The brand is starting to expand its footprint. We also collaborated with NH7 Weekender, one of India's most prominent music festivals, and reached audiences across Jaipur, Indore, Noida, and other towns. Overall, dialing up the brand McDowell's. This chart effectively summarizes the impact of all initiatives that we have undertaken to build and strengthen our trademarks. The results speak for themselves. The complementary portfolio delivering both on volume and value, the right balance between scale and premiumization. Three trademarks which are greater than INR 1,000 crore NSV, as is very visible, McDowell's, RC, and Johnnie Walker. There are another three which are greater than INR 500 crore NSV, which are Signature, Black Dog, and Black & White.
There are another four which are greater than INR 100 crore NSV, which are Smirnoff, VAT 69, Antiquity, and Director's Special. We have seen 1 million case trademarks in our portfolio, of which McDowell's, which is the largest selling whiskey in the world with 30 million cases. We have seven 1 million case trademarks in our portfolio, of which McDowell's, which is the largest selling whiskey in the world with 30 million cases. Clearly, this is a powerful portfolio. Our innovation strategy is not about chasing strengths; it is about shaping them. Innovation is starting to be embedded in our mindset as an organization. This slide captures the powerful innovation calendar for the year. You know, it is built on four key pillars, if I may say so. It is premiumizing our trademarks. It is addressing consumer repertoire.
It's driving and focused on occasions and extending the reach of our innovations through back price play. It's how we unlock value, reimagine categories, and stay a step ahead of evolving consumer aspirations. Now, I'll just get to the next pillar, if I may say so, organization of the future. As you saw just now, we are building the innovation muscle for the organization, and this commands focused interventions to develop specialized innovation capabilities for the commercial team. We are therefore investing to build organization's capability to target innovation commercialization in a very sharp manner. Our target over the next three to five years is to double the innovation contribution to growth in NSV, which currently is at a high single digit, low double digit. On-trade execution is another big imperative where we have kicked off some investments.
We are strengthening our org capabilities by constantly identifying training needs and engaging our people. We are doing targeted interventions at each grade to build capability and upskill our employees. Overall, creating a strong pipeline of future leaders, a factory of talent and future industry captains, I hope. Our dial-up behaviors are designed to move with greater speed and agility as an organization and deliver on our stated growth ambition. We are also committed to embedding inclusion and diversity culture at workplace, whether it's through our Spirited Women's Network or RISE, or through our Rainbow Network. Furthermore, we are enhancing the representation of persons with disabilities. We are committed to build on this at our workplace. We presently have roughly 56 persons with disabilities across our own manufacturing facilities. All our org initiatives have in turn resulted in higher overall employee engagement results.
What you see on the slide is the result of our annual Your Voice Survey results. Outstanding set of results by any external benchmark demonstrate the pride, purpose, and commitment that our employees feel about our business, brands, culture, and our colleagues. Our overall engagement score is 89%, 13 points higher than the external benchmark. 94% of our people say they are proud to work for Diageo India. 89% of the people recommend Diageo as a great place to work, and 85% of our people feel extremely satisfied to work at Diageo. Overall, this motivates and inspires us to create an empowering and inclusive workplace. Diageo digital is a key priority, and honestly, there is a lot, a lot to be done here, and the journey has just begun.
Digitization must evolve and embed every part of the value chain and should pave the way and determine how we drive growth, deliver efficiencies while delighting the consumer. As you can see, we're looking at it in commercial, in marketing, and in our supply. Now, I just go to the third pillar, and that's Diageo in society, ESG for us, stakeholder value. Okay, water is a key resource for us, and we have embedded water stewardship as a core principle in our operations, guided by a structured hierarchy and an intuitive framework of water circularity. Till date, we have created replenishment capacity of 1.1 million cubic meters of water. We have also advanced water use efficiency. Our distillation efficiency has risen to 54%, up from 48% in the prior year. Packaging use efficiency has improved to 35% compared to 30% in the prior year.
We are at 99% of renewable energy in our operations. 100% of our thermal energy is sourced through renewable, as we have converted fully from coal to biomass. These interventions have resulted in improving our renewable energy share and a 93% reduction in Scope 1 and 2 emissions from our 20-year base year level. Giving back to communities through our Learning for Life program, business and hospitality skills training program, which has conducted skill development for more than 7,000 individuals since July 2020. During the year, 1,900 students were trained, including the 300 students with speech and hearing disability under the partnership with Skill Council for Persons with Disability to train persons with disability in the hospitality industry. Placement support was provided, as you can see on the slide, with suitable placements in the very reputed organizations. Progressing on our key pillars of Diageo in society.
Okay, most important pillars promote positive drinking, promotes moderation, and addressing the harmful use of alcohol. We expanded our Wrong Side of the Road initiative, which focuses on anti-drink drive. Till date, we have educated 1.2 million consumers across 79 regional transport offices and 10 states. Next one is Act Smart India program, educating us on the danger of the underage drinking. The initiative is across government and private schools, and till date, we have covered 500,000 plus people under this initiative. Last one is drinkiq.com, which focuses on responsible consumption through consumer-facing campaigns. In the last 12 months, we have generated a reach of over 17 million. All these actions are also reflected in the external ratings and rewards. Rated A on the MSCI ESG ratings for the fourth consecutive year. Latest ESG risk rating by Sustainalytics in September 2024 as low risk.
We've also received multiple accolades for our manufacturing and ESG practices from prestigious industry bodies. This virtual cycle of growth that you see is very crucial for a healthy business. Focus, our continued focus will be to see how to make this flywheel work. We'll be focused on premiumizing the portfolio and driving top-line growth. Productivity plus pricing needs to cover for inflation and drive a delicate balance of marketing efficiency while maintaining sufficiency and building our brands. All this, I hope, will help deliver leverage growth. At this point, we'll hand over to PJ for taking us through the financials.
Thank you, Praveen. Thank you very much. I will move over to the financial highlights of financial year 2025.
Okay, so what you see, by and large, you know, I would want to believe that most of them are green, but without going through each of them individually, I would want to call out three or four points. The first one is our P&A growth. As communicated earlier, in line with the priorities, our P&A growth is close to double digit. Second, if you look at our value growth, top-line growth, GP growth, and EBITDA growth, you will see a healthy leverage in the delivery as we move from volume to value to profit. Our EBITDA margin, I have to say, is in the high teen range now, something that we have been talking about over the last 10 years. We are finally there. Last but not the least, our return on capital employed has gone beyond 25%. It stands at 26.4% for the financial year.
Moving over to the next page, this is a very familiar chart, right? I would request all to focus on the right-hand side. The only point we made is that after the high growth phase of 2021 to 2024, whether it's P&A or it's total NSV, the growth has sequentially moderated a little bit, right? On a standalone basis and relative to what we see in the overall CPG environment, it's very, very resilient to our mind. We get to the next chart. This is what we started a couple of years ago, the sources of growth for our in-year performance. Now, again, you know, we are showing what we have delivered in 2024-2025 versus what we delivered in 2023-2024. Therefore, you will see a striking similarity between the sources of growth of the two years.
70% of our growth is coming from the top half of the portfolio, which kind of suggests that the premium, that the premiumization ladder is very much intact for this category. I dare say that the second redeeming feature for this year is that Lower Prestige, which houses our anchor trademark of McDowell's, has also delivered and contributed very, very handsomely to our growth during the year. I'll go to the next page. This is our annual update to all of you on the multi-year supply agility program that we had kicked off in January 2023. Happy to share that it is very much on track. The last two, three interventions on the manufacturing footprint optimization are left and will be done over the next couple of years.
If you look at the cost optimization versus our targets, we have reached almost two-thirds of our program benefits, which involves almost like INR 700 million into the P&L and another INR 150-200 million on working capital efficiencies. Net-net overall, the program is very much on track. Next chart, we will move to what we share on, you know, on productivity, pricing, and revenue growth management and networking capital. Again, the muscle continues, the machine continues to chug. I think the left side in the productivity numbers, we have delivered about INR 3,880 million for the year, down from the INR 5,140 million because the INR 5,140 million, as all of you will remember, contained a one-time intervention of roughly INR 1,500 million on account of the monocarton removal across our portfolio, right? Top right-hand side, three good years of headline pricing and revenue growth management.
We do believe that this will mute a little, moderate a little in, you know, in the years going forward. And last but not the least, right, the working capital, as always said, will by and large remain range bound between that 16-20%, but we believe that we have extracted all the efficiencies that we could on this front, and now we will remain range bound, right? Next slide, you know, as Praveen mentioned, about the, about the Diageo growth flywheel, A&P is a very, very critical component of that flywheel. And as you will see from the chart, right, that the absolute investments in this continue to increase, this is what keeps us giving the sustained fuel to, to grow the business, you know, on an ongoing basis, and which in turn then drives the realization per case and therefore the premiumization potential of this category.
My last chart is, is all that I have shared about and all that Praveen has shared about our portfolio, leads to what we call a consistent delivery over the years. If you look at our pre-exceptional earnings per share over the years, it has consistently inched up, and we have crossed INR 20 a share for the first time in our history. Like I already mentioned on the first slide, our return on capital employed has crossed beyond 25% for the first year. With this, I will just hand it back to Praveen to kind of draw close to the presentation, and then we can open up the Q&A.
Thanks, PJ. We are gearing up for the future in the consumer market of the next decade, if I may say so.
Significant opportunity with penetration headroom, more than 100 million individuals entering the LDA over the next five years. Momentum behind premiumization continues to build. Women are emerging as a rapidly growing and influential consumer core. This market holds immense potential, and we will move from strength to scale. As we prepare for the consumer landscape of the coming decade, we are encouraged by progressive policy measures that actively support the industry's growth trajectory. Our innovation strategy is firmly rooted in consumer trends with a clear focus on premiumizing categories to meet evolving repertoire tastes. We are building future-ready brands with long-term potential guided by a simple belief: what is good for the consumer is good for Diageo India. We are making deliberate future-backed investment decisions with an intention to sharpen, not overhaul, our portfolio and deepen our relevance, if I may say so.
Our commercial strategy is being reshaped, not replaced, with a renewed emphasis on the on-premise channel to drive bold, coherent, and purposeful brand visibility and consumption. We will remain bold in ambition, but grounded in execution. We are going deeper, not just wider, accelerating our digital penetration to connect meaningfully with consumers at point of consumption while enhancing marketing efficiency and organizational effectiveness. Productivity, as PJ said, remains our fuel for growth, an essential enabler that drives consistency, resilience, and long-term value creation across our business. Before I close, let me reaffirm our commitment to becoming one of India's top-performing CPG companies, delivering sustained, profitable top-line growth and generating long-term value for all our stakeholders. With this, I'd like to open the floor for Q&A.
Thank you very much. We will now begin the question and answer session.
Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question comes from the line of Abneesh Roy from Nuvama. Please go ahead.
Yeah, thanks, and congrats on good performance. I have three quick questions. My first question is to Praveen. Praveen, you have spent around three months in this new company as the MD and CEO. Your prior experience is in very different industries. So HT Media, six and a half years experience, and Pepsi around 20-25 years experience. How is the finding, this industry versus your earlier background?
Given it's a very, very highly regulated industry, and in FY2026, what are the key improvement areas you have noticed in the first three months? You mentioned innovations multiple times, so, and you did say that you want to double that over the longer term. In FY2026, will it be more of engagement with regulators or, say, improving some of the improvement areas you have seen? If you could discuss some of that, that will be the first question.
Do you want to say all your questions?
No, he said all this.
Okay. All right. So first, thanks, Abnesh. You know, I do come from an FMCG background. I believe even though I was in publishing, it was very much a consumer business. Okay. Overall, I believe this is a consumer product company with a difference. Okay, let's put it that way.
There's legislation on pricing, there's legislation on route to market, and legislation on marketing. Once you embrace that reality, you learn to work with those. If I may say, at times, it's a handicap versus other FMCGs. But you know, what you do is you build your brands through experientials. And that, to me, is a powerful way of unlocking it. And as you build your brands, you tend to build pricing power. Over a period of time, I think legislation follows when they realize the pricing power of your brands to provide you pricing opportunities, albeit it comes a little slowly. I think in summary, there are some challenges in the consumer market of the next decade, but I think we need to learn to solve them and live with them.
On go forward, you know, I think there were some areas I spoke about, but look, you know, as I say consistently over the last three years, if you see the performance of our business, it's gone from strength to strength year on year. And PJ just spoke about some outstanding financial results that should say how we have, how we have delivered in the last three months. You know, as I say, that's the past, but the future holds immense potential. We'll continue to build on the innovation platforms. We've done some great work over the last 18 months. We'll build on that and sharpen it. We'll continue to reach, as I said, reshape our commercial strategy. We'll not need to replace anything much because things are going on well.
Continue to focus and be bold in our ambition, but as I said, very, very grounded in our execution. We will pick up on our digitization as we go through this. As I said, reaffirm, things are going very, very well. We will build on our existing set of initiatives.
Thanks for the thoughts. My second quick question is on the U.K. FTA. Finally, after many years, it has been announced, and I do understand FY2027 is the year where it will actually get executed. My specific question is, your parent company has already said that, fully, the prices will be passed to end customer, which I think is the right strategy. Here, it will be just the volume uptick which will happen. How does the consumption change?
Does the duty-free sales shift here or the mid-end shifts towards the top end because of the affordability? In terms of raw material, there will be some benefit again. When the parent company is saying it will be passed to end customer, are you also saying that even at the raw material side, any benefit happens, that will also be passed on? No gross margin expansion at all. A bit of margin expansion can happen because of the operating leverage. What portion of the volume gets benefited because of this, based on whatever you have understood currently? I'm sure you would have known the numbers because that anyway is not linked to the nitty-gritty. What are your thoughts on these questions?
Yeah, Abnesh, let me take this, right?
I mean, this is something that we have been consistently conveying over the last two to three years, right? You won't get any different response this time, which is that reduction of duties from 150% to 75% will typically lead to about a high single-digit reduction in consumer prices. You're absolutely right. We, not just we, my sense is that the government will also insist that we pass on the pricing benefit to the consumer. We are absolutely of the same view that we would want to pass on this benefit completely to the consumer. Therefore, keeping the consumer spend constant, it's reasonable to assume that in this part of the portfolio, a high single-digit additional volume growth should occur, right? That's on the BIO and BII portfolio. On the BII, because it's a lesser component of the benefit, right?
The price reduction might be slightly lesser than high single-digit. My sense is it'll be in the range of 4-5%, right? Coming to your second point, you're absolutely right. There will be a benefit that accrues into the raw material prices also. Again, we'll take a call on that as and when that happens. You yourself have mentioned that there is still some amount of work to happen before this actually becomes legislation. Probably the benefit will start coming only in financial year 2026-2027. At that point of time, we will see, right? I don't want to comment right now, of, you know, what will happen 10, 12 months down the line.
Only thing I'd add to what PJ said.
Yeah.
Only thing I'd add to what PJ said is it also opens up the opportunity of exploring our global portfolio. Okay.
As we see reduction in duties, there will be some opportunities, and that will be very exciting from a consumer front.
Yeah, absolutely.
One quick follow-up on that, Praveen and Pradeep, can competition also increase? Because if you can bring a global portfolio, there can be some companies which are not there in India, or maybe existing companies can also bring more portfolio. In terms of competition, are you worried, or because approvals are so high and there's a loyalty factor, it is not much of an issue?
Competition never worries you. It energizes you. That's the way to look at it. It'll increase the pie. It'll increase the pie. You just, you know, any play by a competitor will, you know, expand the play. To me, that's an exciting space to be in, and we just need to play our space well.
Sure.
My last and quick question there, and I'll end there. 9% plus P&A volume growth, X of Karnataka and Andhra, will it be below 4% kind of volume growth? If you could talk about Karnataka, the tax cuts, how has that helped? Has it fully, already benefited, or is there still some lag effect before the full benefit happens?
No, so Abnesh, let me just understand your question. You've said our P&A volume growth is in the range of
9% plus. If I knock off Karnataka, where the, I think volume growth would have been good because of the duty, tax cut, and Andhra, which was almost zero in the base, then the balance, say, 25 states or whatever, 24 states, the growth rate there will be, say, 4-5% only because obviously, Andhra will be contributing 3-4%.
Yeah, in terms of total value, right, our overall growth rate is about, full year is about 8.2%, right? And Andhra has contributed about 3.1% to this, right? So X Andhra, our NSV growth for the year is about 5.1%.
And Karnataka, is there a big benefit already in terms of volume?
Karnataka, Abnesh, the numbers are immaterial, right?
It's materially very different.
It's such a small salience in the overall pie, right? It's immaterial.
Okay. Thanks a lot. That's all from my side. Thank you.
Thank you. Thanks, Abneesh.
Thank you. The next question is from the line of Harit Kapoor from Investec . Please go ahead.
Yeah, hi, good evening. so my first question was on, you know, yeah, hi. the first question was on, you know, the innovation bit. I think it was mentioned in your, in the presentation that, you know, 2X innovation.
I just wanted to understand the nature of this innovation. You know, do we view this, given that there's been already a sizable chunk of the global portfolio in India now, is this more likely to be Indian-centered innovation where you're launching more Indian brands? Just now you've done a McDowell's No.1 Open Battle as well. Or it would be still more heavy, set on the global portfolio. In that context, do we expect, in order to support this, this 9-10% A&P to sales ratio to actually go up in the next one or two years? That's my first question.
Look, first I'd say innovation, as I said through the discussion, innovation strategy isn't about only chasing trends. It's about shaping them. Okay.
It is built on four key pillars, if I just want to remind on the, which is about premiumizing our trademarks, addressing the consumer repertoire, driving occasions, and getting fact price to play. Now, it will be both international, our global portfolio, as well as our local trademark. It is going to be through this. As we look at it, we keep looking at opportunities on how to unlock value, how could we reimagine categories, and how do we stay a step ahead of evolving consumer aspirations and a competitive play within that. That is how I would put it. Yeah.
Harit, I will just add, right? I mean, again, we would want to be consistent. For us, it is an end strategy, right? It is our global trademarks, and it is our USL trademarks, right? Honestly, all of you should keep us under pressure on that front, right?
That we have to innovate across both portfolios and grow both portfolios on a sustained basis.
Pradeep, the 9-10% A&P spend, you know, given that pace of innovation seems to be accelerating, at least from an expectation perspective, should that still be maintained?
Absolutely. You know, Praveen, you're smiling as you ask this question.
No, I didn't, would that go up is my question. Would that go up?
Our desire will be, our desire will be to grow it, right? If you look at the Diageo flywheel, right? Obviously, you know, we will try and balance it for sufficiency and effectiveness as well.
Great.
My second question was on a couple of the numbers that you gave on the P&A side, you know, growth, as far as, of one, the lower price segment is concerned, where 8% is the highest growth we've seen in three years, and 11% in the luxury and premium portfolio, which is, you know, a tad lower than what's been seen in the last couple of years. You know, what have been the moving parts there? I understand, in the lower price is also, you know, one of the brands which could be on the block, but just what are the two, you know, what are the moving parts which have played out on a better than expected lower price number and a probably slightly weaker than expected luxury and premium growth?
Okay, good.
No, so again, you know, I think it's been a consistent narrative. Look, for lower prestige, I think Andhra is the big kicker, Harit, right? Andhra is a big lower prestige market, and as McDowell's has come back into the market, that has provided a fill up, right? That's one big driver on the lower prestige. The top end luxury plus premium, 11%. Look, standalone, it's very, very healthy, right? If you look at our sources of growth, that segment still contributes to 41% of our value growth, right? Which is in line with the 41% that we experienced in the prior year also, right? From a sources of growth perspective, I don't think we've moderated at all, right? Yes, this segment was growing at almost like 25-30%, you know, two, three years ago.
Sequentially moderated, we have discussed some hypotheses around it, repertoire consumption, the post-COVID revenge consumption kind of moderating, right? And the little bit of tailwind that we had, when global travel was off from duty-free to duty-paid, that also moderating, right? These are the two or three things. Again, I do want to re-emphasize that we do not see anything structurally wrong in terms of luxury and premium consumption in India. This is a temporary blip. We believe that another three, four quarters down the line, we should come back to our healthy growth. I do not know, Praveen, if you have something to add.
Great. Those were my two questions. Wish you all the best, and Praveen, especially to you, all the best in your stay. Thank you.
Thank you to all of us.
Thank you.
Thank you.
We have an expression from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi, that's on reaching that target of high teens margin. What I wanted to ask is, what next? I mean, is there a plan or is there a possibility of going beyond 20% over the next few years? If so, what would be the drivers? And if not, what would constrain us?
Okay, Percy, now this is a trick question, obviously. I do not want to get, you know, get carried away by this, right? Look, we have always maintained that, you know, once, so the idea is to sustain, you know, at this high teen level, right? And once we are able to establish sustainability at this high, you know, high teen level, right?
We will, we will figure out what the, what the next set of, you know, inflection point is, right? But I would want to believe that in the next couple of years, right, the margin will be, will be range bound, and we just have to focus all our energies into getting back on a sustained P&A double digit, ideally total portfolio double digit. Praveen, it's got it,
but if you could just explain the up elevators, down elevators for margins, because see, there is premiumization happening. I'm sure there are cost saving plans in place, supply chain efficiencies, et cetera, et cetera. And, and you know, Pernod is making, sort of 22-23% kind of margins, and, sort of we are a direct competitor. We have similar portfolio to them.
What really prevents us to go to that level, not immediately, but at least over the next few years?
Yeah. Again, you know, Percy, couple of, you know, thoughts on this, right? If you look at some of our charts that we have just taken you through, headline pricing has been very, very good for the last three years, right? Now, having stayed in the company for eight years, I can say this comes in peaks and troughs, right? I mean, five years from 2017 to 2022, we had headline pricing of the average of 0.2-0.3%, right? The last three years, it has been raised, you know, it has been in the range of 2%, right? Therefore, I do not want to comment, right, in terms of what these numbers will be, right? I mean, we just have to incorporate that into an algorithm.
Like a forward-looking organization, we will obviously continue to drive the productivity muscle, right? Now, will that and headline pricing, as Praveen mentioned, offset inflation? Last two, three years, we've been fortunate. It has been, and therefore the margin expansion in some years that may not do that, right? Over a longer period of time, it does, right? That's what I will say at this point of time, right? Like a good organization, absolutely year on year, we try and aspire for a marginal margin expansion, which is the leverage growth phenomenon that we spoke about. Therefore,
Percy, just to add to what PJ is saying, I think it's important to sustain now while investing for driving growth. We spoke about innovation. We spoke about some capabilities. All of this will help us sustain and build growth.
Important to look at both ends of it, which certainly means that any opportunity on expansion will be focused and unlocked.
Thank you. The next question comes from the line of Vismaya Agarwal from Citi. Please go ahead.
Hi, Praveen, Pradeep and team. I just wanted to get you, if you could shed some more light on the renewed emphasis on the on-premise channel and this bit here, and you know, also what will be the initiatives here and maybe even how big the on-premise channel is for you guys.
Too early to say, clearly, to say whether how big the channel is and how big the opportunity is. What we all know, it is a very, very important channel where you can drive sampling, and build habit over a period of time.
It's in terms of consumer spaces, as I call it, it's a massive connect platform, and that's where roughly one third of our business happens. Therefore, clearly a big area of opportunity. We certainly play that opportunity. As we look at it, we believe we have some opportunity to dial up our play, and that's the focus we'll bring on on-premise.
Got it, Praveen. Understood. And, you know, just the last bit on the margin and rather more on the commodity cost environment. Pradeep, if any, comments on how things are, how do you expect the outlook to be in FY2026?
Come on. Okay, okay. Yeah. Yeah. So, Vismaya, right now I would say by and large stable, right? It's good to see that, you know, so it's kind of, you know, neutral alcohol spirit. We've started lapping the high prices of prior year.
In terms of inflation percentage, that has moderated. On the reverse side, you know, glass, we've started lapping the low prices of prior year, right? There also the deflation has kind of, you know, gone up to flat levels, right? Therefore the two are kind of neatly squaring off against each other, but can't complain about inflation right now. I think our next inflection point will be somewhere around September, October, when government announces the ethanol fuel blending, price-led, you know, prices for neutral alcohol spirit, right? That would be the next inflection point. Commodities, nothing else. Margins have already communicated, you know, our point of view to Percy, so nothing else.
Understood. I guess this one last bookkeeping one is, any particular one-off in the other income in the quarter because it seemed a bit higher than usual?
The other income has, one non-core asset disposal in the January-March quarter, and that's a big one, right? Honestly, I, you know, we thought we would not be able to conclude that deal in our lifetime, but finally we did manage to do that. There is almost a, I think a INR 90-100 crore profit, on account of that, disposal of a bungalow in South Mumbai.
I got it. Pretty helpful. Thank you and all the best.
Thank you.
Thank you. Ladies and gentlemen, we will now take our last question from the line of Himanshu Shah from Dolat Capital. Please go ahead.
Hi, hi, Himanshu.
Hello. Thanks for, hi, thanks for the opportunity. So just a couple of questions. One, on McDowell's X series, almost a year since launch, but we have not, at least from our channel checks, we are not seeing much of action.
Any specific thing over there on vodka, brandy, rum, all three segment sides? This is the first question. Second, on the UP market, while it is seen as a very large growth market, a lot of investments from our peer sets, both on the beer as well as on the IMFL side in those markets, but we seem to be lagging in that market. Any specific, if you can share to drive the share over there?
First, let me take the McDowell's X series and its roll-up. Yeah. It's roll-up. Look, like in any rollouts, it's a slow process in India. You know, each state is unique in this category, and you need to make sure that you get the legislation and all clearances before you take it to market. We've rolled out to five markets already.
If I remember right, we roll out to another four markets in the coming couple of quarters. Clearly, that's in play. Yeah, there are, like in every launch and every innovation, some things which are doing very, very well and some things which are a little slow. I do know that rum is doing exceedingly well in whichever market we have done. That's a positive as we take it, but it also tells us we need to work a little harder on some of the other spaces as we build it. That was on McDowell's. Your second question was UP. UP is, you know, a very, very competitive market. I do not know the landscape of India well enough in this sector as yet, if I may say so, but UP is a very, very competitive market.
We, you know, for the last few years, we have struggled to really grow our share in that state, and now we're working very hard. We've just recently done a few sets. First, the market has opened up. The category has seen opening up. In fact, earlier this month, with the new excise law, pretty much the number of our retail outlets selling spirits has doubled. We've launched Double Oak Barrel recently, it's been around three months, and it's getting seeded into the market in Uttar Pradesh. We also launched the McDowell's X series, and it's done reasonably well. We believe we have a whole set of initiatives, route to market, our own go-to-market capability, and some of these innovations. We've also launched a McDowell's pocket, that, we're about to launch a McDowell's pocket-sized product. So each of these we believe will unlock some opportunity in you.
Sure, sir.
Thanks. That was useful. Just one last question, a bookkeeping question to Pradeep. Pradeep, the INR 37 crore impairment of interest on receivables, is this a one-time entry or this will be a recurring phenomena every quarter, every year? How should we read it? If you can deep dive more, the context behind this particular revenue reversal.
Okay. First of all, the context is Indian accounting standards, right? Beyond that, I will not be able to comment, right? This is a one-time with specificity to one particular customer, right? Therefore, it is one-time, and it stays within the P&L, right? While you are seeing the INR 37 crore impact in the revenue line, right? It gets recognized over a period of time in the interest line, right? That is the only point, right? It is absolutely governed by Indian accounting standards, AS 115, if I'm not wrong, right?
I mean, Shweta will be happy to talk you through that separately offline.
Sure. That's it from my side. Thank you and all the best.
Thank you.
Thank you. Thank you, members of the management team. On behalf of United Spirits Ltd, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.