United Spirits -UNITDSPR-Q3 FY2025-26 Earnings Conference Call Surges to 14%

United Spirits Beats Policy Headwinds with Premium Pivot: Don Julio Hits Milestone and Rest of India Growth Surges to 14%

United Spirits Limited (Diageo India) delivered what management describes as a resilient third quarter for fiscal year 2026. While the headline volume numbers showed a slight dip, a closer look reveals a company successfully pivoting toward higher-end brands to offset localized policy challenges. The standout story of the quarter is the sharp contrast between a difficult market in Maharashtra and a thriving business across the rest of the country.

The company faced two major hurdles: a high base from the previous year due to pipeline filling in Andhra Pradesh and a significant regulatory shift in Maharashtra. In Maharashtra, the introduction of “Maharashtra-made liquor” (MML) at lower price points has put pressure on the “Popular” and “Lower-prestige” segments. Despite this, United Spirits managed to post a 10% growth in its Prestige & Above (P&A) Net Sales Value (NSV) when excluding the Andhra Pradesh impact.

Perhaps the most encouraging sign for investors is the 14% NSV growth in the P&A segment outside of Maharashtra. This suggests that the company’s core strategy of premiumization is working effectively where market conditions are stable. Additionally, the luxury portfolio is seeing “green shoots,” with global brands like Don Julio reaching significant revenue milestones in record time.

Management remains “cautiously optimistic.” They are holding onto their double-digit growth guidance for the P&A segment, betting on a strong wedding season and potential tailwinds from the upcoming India-UK Free Trade Agreement (FTA).

NSE/BSE

Key Financial Highlights

The financials for Q3 FY26 reflect a company that is trading volume for value. While total volumes were under pressure, the “Price Mix” a measure of how much more consumers are spending per bottle was exceptionally strong.

• P&A Net Sales Value (NSV) Growth: Reported at 8.2%, but adjusted to 10% when excluding the one-time Andhra Pradesh pipeline fill from the previous year.
• Rest of India (Ex-Maharashtra) P&A Growth: A robust 14% NSV growth.
• Price Mix: A stellar 10.2% for the quarter, significantly higher than the historical range of 6-8%.
• Volume: P&A volumes shrank by 2% on a reported basis but remained flat when adjusted for the Andhra Pradesh base. Excluding Maharashtra, volumes actually grew by 6%.
• Nine-Month Performance: YTD P&A NSV growth stands at 9.8%, keeping the company on track for its full-year goals.
• Marketing Spend: Advertising and Promotion (A&P) reinvestment stood at 14% of net sales for the quarter, reflecting heavy investment in the festive season.

Operational and Segment Breakdown

The Premium & Above (P&A) Engine

This segment remains the lifeblood of United Spirits. Management noted that the “top half” of the portfolio is showing the most momentum. Luxury brands and primary scotches are accelerating, driven by affluent consumers who seem less affected by inflationary pressures.

The Maharashtra Challenge (MML)

The elephant in the room is Maharashtra. The state government’s push for MML (Maharashtra-made liquor) has created a price gap that makes traditional lower-prestige brands less competitive. Management admitted this is a “competitive challenge” but noted that the impact is largely confined to the lower end of the portfolio. Interestingly, this volume loss at the bottom actually helped the national “price mix” look better mathematically, as the remaining sales were skewed toward higher-priced bottles.

Brand Performance Highlights

• Don Julio (Tequila): This has become the fastest innovation brand to cross the INR 100 crore NSV mark in just nine months. Management believes the “next decade belongs to Don Julio in India.”
• Smirnoff: India has officially entered the top five Smirnoff markets globally for Diageo. This was driven by the “Minty Jamun” flavor innovation, which resonated well with younger consumers.
• Godawan: The Indian single malt continues to grow, particularly through the CSD (Armed Forces) channel and luxury curated events.
• Signature: Registered strong double-digit growth during the festive season, leading the upper-prestige segment.
• McDowell’s & Royal Challenge: The launch of “pocket packs” is helping these brands penetrate mid-prestige markets by offering convenience and affordability.

Management Commentary and Strategic Direction

CEO Praveen Someshwar and CFO Pradeep Jain emphasized a strategy of “commercial execution and agility.” They are not just waiting for market conditions to improve; they are actively reshaping the portfolio to meet changing consumer tastes.

“The script is playing out on expected lines, and we are holding up well… the rest of India is growing very healthily. Mathematically, the adverse volume impact in Maharashtra provides a flip to the national price mix.” Praveen Someshwar, CEO

The tone was one of “resilience.” Management seems confident that the Maharashtra issue is a localized policy hurdle rather than a flaw in their overall brand strategy. They are also leaning heavily into “culture plays” using music tours (like AP Dhillon and Sunburn) to keep brands like Johnnie Walker and Smirnoff relevant to Gen Z and Millennials.

“We believe our historically stated price mix of 6-8% is sustainable at the higher end till the Maharashtra volume headwinds continue and at the lower end once the headwinds fall off.” Pradeep Jain, CFO

The strategic review of the IPL team (Royal Challengers Bangalore) is also a key focus. Management confirmed the review covers the “overall asset” (both men’s and women’s teams) and promised an update by March 31, 2026.

Guidance and Outlook

United Spirits is sticking to its guns regarding long-term targets. Despite the noise in the current quarter, the underlying health of the “Rest of India” business gives them the confidence to maintain their trajectory.

• P&A Growth: Reaffirmed double-digit NSV growth guidance.
• Price Mix: Expecting to return to the 6-8% range once the Maharashtra situation stabilizes, though currently trending higher.
• India-UK FTA: Management expects the agreement to be signed between March and May 2026. The actual financial benefits (lower duties on bulk scotch) should start hitting the books in the July-September quarter (Q2 FY27).
• Commodities: Input costs are “holding” steady, except for bulk scotch, which remains inflationary.

Positives to Watch

• Tequila Explosion: The rapid rise of Don Julio suggests a massive untapped market for premium spirits beyond whiskey in India.
• Innovation Success: The “India-first” flavor strategy (like Smirnoff Minty Jamun) is proving that localizing global brands works.
• Resilient Consumer Base: Despite macro concerns, the upper-middle-class consumer is still spending, aided by recent tax slab rationalizations and GST cuts.
• Digital Reach: The company is successfully using “experiential marketing” (concerts, jams) to build brand equity with younger drinkers.

Risks and Concerns

• Regulatory Volatility: The Maharashtra situation proves how quickly a state policy change can disrupt volume growth.
• Geopolitical Undercurrents: Management flagged uncertainty in the job market and global tensions as potential dampers on consumer sentiment.
• Inflation in Scotch: While most raw materials are stable, bulk scotch remains expensive. Without the FTA, this could squeeze margins if the company can’t pass on costs.
• Telangana Dues: There is an ongoing industry-wide issue with outstanding payments from the Telangana government, though management says it hasn’t impacted volumes yet.

Analyst Q&A Insights

Maharashtra and MML Impact

Question: How is the consumer accepting MML brands, and will the pressure intensify? Answer: CEO Praveen Someshwar noted that while consumers are trying MML due to the price gap, they aren’t necessarily “excited” about the product quality. The first MML brands to market saw the most adoption, but newer ones are struggling. The industry is also seeking a “level playing field” through legal channels (sub judice).Our take: The company is relying on a mix of legal action and product innovation (like pocket packs) to fight back, but the price gap remains a steep hill to climb in the short term.

Gross Margins and A&P

Question: What drove the 200+ basis point increase in gross margins? Answer: CFO Pradeep Jain explained that benign raw material costs (except scotch) and a very high “top-end” portfolio salience during the festive quarter were the drivers. A&P spend was high at 14% but will normalize to around 10.5% for the full year.Our take: The margin expansion is impressive, but investors should expect some normalization in the next two quarters as the festive mix fades.

India-UK FTA Timelines

Question: When exactly will we see the benefits of the FTA in the numbers? Answer: Management expects the British Parliament to sign off in March-April. Because of existing inventory pipelines, the lower cost of scotch will likely reflect in the financial results starting from the July-September quarter (Q2 FY27).Our take: This is a major catalyst. If the FTA goes through as planned, it provides a significant cushion for margins and a potential trigger for price reductions to grab market share.

IPL Strategic Review

Question: What is the timeline and scope of the RCB review? Answer: Management was firm that they will come back with a decision by March 31. The review includes the entire asset (Men’s and Women’s teams).Our take: Selling a stake or the entire team could provide a massive cash infusion, though the team currently serves as a powerful marketing vehicle for brands like Royal Challenge.

Delhi Market Opportunity

Question: How does the company view the Delhi market, especially with competitors facing licensing issues? Answer: Management highlighted their “agility,” noting they entered the Andhra market within 30 days of it opening. They view Delhi as a “hyper-capita” market and are ready to “unlock” growth as soon as the new policy is finalized.Our take: Delhi remains a wild card, but United Spirits’ readiness to pivot gives them an edge over slower-moving competitors.

Key Takeaway

United Spirits is successfully navigating a “tale of two Indias.” While one major state (Maharashtra) is posing a regulatory headache, the rest of the country is embracing premium spirits at an accelerated pace. The company’s ability to drive a 10.2% price mix while maintaining flat adjusted volumes speaks to the power of its brand portfolio.

With the potential “gold mine” of the India-UK FTA on the horizon and the explosive growth of newer categories like Tequila, the long-term investment case remains anchored in the premiumization story. However, investors should keep a close eye on the March 31 IPL update and any further regulatory shifts in key states.