Embed Size (px)
Citation preview
UNITED SPIRITS
Alcohol beverage industry India
INDIAN ALCHOLBEV INDUSTRY
Indian Made Foreign Liquor
Indian Made Indian Liquor
Beer Wine
IMFL category accounts for almost 72% of the market.
Indian Made Foreign Liquor
(IMFL)
Indian Made Indian Liquor
(IMIL)
Beer
Alcohol industry growth rate
59% 59% 60% 59% 59% 60% 60% 61% 61% 64%
16% 17% 18% 22% 22% 22% 22% 21% 21% 19%
20% 19% 17% 15% 15% 15% 14% 14% 14% 13%5% 5% 5% 4% 4% 4% 3% 4% 4% 4%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Spirits Market in India by Volume
Whisky Brandy Rum White Spirits
70% 69% 71% 72% 72% 73% 73% 73% 74% 75%
11% 12% 12% 12% 12% 12% 12% 11% 11% 10%14% 14% 13% 12% 10% 10% 10% 10% 10% 9%5% 5% 4% 4% 6% 6% 5% 6% 6% 6%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Spirit Market in India by Value
Whisky Brandy Rum White Spirits
Source: Equrius Report
Major players in the industry
Major Companies in the Indian Liquor Market
Source: Equrius Report
Top liquor brands in India
Source: Equrius Report
United Spirits – Diageo India
World’s second largest liquor company by Volume.
Subsidiary of Diageo PLC.
One of the leading players of IMFL in India with a strong bouquet of brands like Mcdowell’s, Signature, Royal Challenge etc.
In 2013, Diageo PLC acquired 10% stake in the company and gradually ramped up its share to 55% by the end of 2014.
The main inflexion point came in 2015, after the whole company came under the control of Diageo PLC.
Brands
Consumer Prices
> Rs. 200
Rs. 900-2000
LUXURY
PREMIUM
PRESTIGE
POPULAR
Rs. 350-900
< Rs. 350
Johnnie Walker, Cîroc, Gordon, Baileys, J&B
Mcdowells, Signature, Antiquity, Royal Challenge, Captain Morgan
VAT 69, Black & White, Black Dog, SmirnOff
Director’s Special, Bagpiper, White Mischief, Haywards
Top brands for United Spirits
Company has a portfolio of 15 brands in its portfolio, which sell more than a million cases every year.
Out of the brands 2 brands sells more than 10 million cases each annually.
McDowell’s No.1, Royal Challenge, Signature, Antiquity, Director’s Special Black, McDowell’s VSOP, Romanov, Bagpiper, Old Tavern, Haywards are some of the marquee brands owned by your Company.
In addition, your Company also imports, manufactures, distributes and sells various iconic Diageo brands such as Haig Gold Label, Captain Morgan, Johnnie Walker, J&B, Baileys, Lagavulin, Talisker, VAT 69, Black & White, Smirnoff and Ciroc in India under different licensing agreements.
Source: Equrius Report
IMFL players volumes
Brands (mn cases) Company 2015 2016 2017 2018 2019
Officers Choice Whiskey ABD 32.9 32.9 32 34 30.6
Mc Dowell's No 1 Whiskey United Spirits 25.7 26.6 26.4 29 30.7
Imperial Blue Pernord Ricard 17.5 18 19 22.7 26.3
Royal Stag Pernord Ricard 17.3 18 19 22.7 26.3
Old Tavern United Spirits 11 9.9 7.1 6.2 5.3
Original Choice John Distilleries 10.7 10.1 10.3 11.5 12.7
Hayward's Fine United Spirits 7.1 7.9 8.5 9.4 9.6
Blender's Pride Pernord Ricard 5.6 6.2 6.4 7.3 7.7
Director's Special Whisky United Spirits 5 5 4.1 4.2 4.2
8PM Radico Khaitan 4.1 5.7 7 8.2 8.5
Royal Challenge United Spirits 3.6 4.7 4.5 5.6 5.5
Signature United Spirits 1.5 1.8 2 2.3 2.3
White and Blue Alcobrew 1.2 1.4 1.6 2.1 2.4
Bangalore Malt Whisky John Distilleries 1.1 2.1 3.6 5.2 4.2
Sterling Premium Whisky's ABD 0 0 0 1.2 2.8
Source: Equrius Report
IMFL players market share
Brands Market Share Company 2015 2016 2017 2018 2019
Officers Choice Whiskey ABD 23% 22% 21% 20% 17%
Mc Dowells No 1 Whiskey United Spirits 18% 18% 17% 17% 17%
Imperial Blue Pernord Ricard 12% 12% 13% 13% 15%
Royal Stag Pernord Ricard 12% 12% 13% 13% 15%
Old Tavern United Spirits 8% 7% 5% 4% 3%
Original Choice John Distilleries 7% 7% 7% 7% 7%
Hayward's Fine United Spirits 5% 5% 6% 5% 5%
Blender's Pride Pernord Ricard 4% 4% 4% 4% 4%
Director's Special Whisky United Spirits 3% 3% 3% 2% 2%
8PM Radico Khaitan 3% 4% 5% 5% 5%
Royal Challenge United Spirits 2% 3% 3% 3% 3%
Signature United Spirits 1% 1% 1% 1% 1%
White and Blue Alcobrew 1% 1% 1% 1% 1%
Bangalore Malt Whisky John Distilleries 1% 1% 2% 3% 2%
Sterling Premium Whisky's ABD 0% 0% 0% 1% 2%
Source: Equrius Report
Meet the new United Spirits
BAD CORPORATE GOVERNANC
E
SICK ACQUISITIONS
CORRUPT MANAGEMENT
BAD ACCOUNTS
HIGH VOLUMES BUT LESS
REALISATIONS
DEBT LADEN
CLEAN CORPORATE
GOVERNANCE
SUBSIDIARIES RATIONALISATION
CLEAN ACCOUNTS
LESS VOLUMES BUT HIGH
REALISATIONS
CONTINOUSLY REDUCING DEBT
STRONG MANAGEMENT
UNITED SPIRITS PRE-2015 UNITED SPIRITS POST-2015
WHAT CHANGED AFTER 2015?
1. Manufacturing and subsidiaries rationalizations
28 27
19 19
15
2016 2017 2018 2019 2020
Number of Own Manufacturing Plants
79 78 80
68
46
22 19 18 20 20
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Subsidiaries
2.Focusing more on realizations than volumes
21
38
56 5966
74
88100
113120 123 121 117
93 9078 82 80
51
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9MFY21
Volume (cases in mn)
479309 222 362 446
628 618 636 653 770 854 877 798 913 980 1101 1139 1166 1157
26 18 13 32 66 144 44 72 101 93 89 -11 3 104 110 155 170 190 129
725 466 339 638760
1021 1053
1103 12571524
17621961 1915
25722862
3405 3521 36033871
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
Revenue per Case (in Rs) EBITDA per Case (in Rs) Gross Revenue per Case
3. Increasing focus more on Prestige and Above category
27 2933 31
3437 37
42 41
93 9488 86
5953
41 40 39
2012 2013 2014 2015 2016 2017 2018 2019 2020
P&A (mn cases) Popular (mn Cases)
22% 24% 27% 26%37% 41% 48% 51% 51%
78% 76% 73% 74%63% 59% 52% 49% 49%
2012 2013 2014 2015 2016 2017 2018 2019 2020
P&A Volume Contribution Popular Volume Contribution
3(a). Prestige and above category brands
25.7 26.6 26.429
30.7
3.6 4.7 4.5 5.6 6.1
1.5 1.5 2 2.3 2.3
2015 2016 2017 2018 2019
Mc Dowell's No 1 Whisky Royal Challenge Siganture
83%78%
71%78%
73%
12% 14% 12% 15% 15%
5% 4% 5% 6% 5%
2015 2016 2017 2018 2019
Brand wise Contribution to P&A Segment
Mc Dowell's Royal Challenge Siganture
Volume (in mn cases)
3 (b). Category wise turnover
35804257
3650
46014966 5128
5910 5968
69196358
5685
3894 38523463 3431 3357
2013 2014 2015 2016 2017 2018 2019 2020
P&A Turnover (Rs Crores) Popular Turnover (Rs Crores)
34% 40% 39%54% 56% 60% 63% 64%
66% 60% 61%46% 44% 40% 37% 36%
2013 2014 2015 2016 2017 2018 2019 2020
P&A Contribution to Total Revenue Popular Contribution to Total Net Revenue
3 (c). Prudent focus shift
1234 12901177
1353 1342 1378 1407 1456
736 723661 660
727849 858 861
2013 2014 2015 2016 2017 2018 2019 2020
P&A Revenue per case Popular Revenue per case
4. Change in Management
Anand Kripalu- MD&CEO ( 2014-20)
Mr. Anand Kripalu joined Diageo India in May 2014 as Chief Executive Officer. In hiscurrent position his task is to transform the company, making it one of the mosttrusted and respected consumer goods company. His focus has been aroundtransformation of corporate citizenship as well as ethical standards in the industry.Anand has over 30 years of experience in the Indian consumer goods market
Ms. Hina Nagrajan- MD&CEO( w.e.f July 2021)
Ms. Hina is currently MD, Africa Regional Markets (ARM) at Diageo. She will take overas Managing Director and CEO of UNSP and will also join the Diageo ExecutiveCommittee, reporting to John Kennedy, President Diageo Europe & India. She hasspent over 30 years in CPG businesses and held several senior marketing and generalmanagement positions at Reckitt Benckiser, Nestle India and Mary Kay India.
5. Debt reduction
338 334 973 1543 1480
66047804
5850
4048
7718 74768239
49633729 4137
3417 2900 24011775
4%3%
3%
8%
4%
13%13%
10%
6%
9%9%
12%
7%5%
4%
3% 3%2%
3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 6M FY21
Total Debt Interest Expense as a % of Sales
1.3 1.2
3.6
1.81.1
3.2 3.3
1.6 1.6 1.8 1.72.7
7.6
2.6 2.31.4 0.9 0.6 0.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 6M FY21
D/E
6. Adopting franchise model
95
69
53
149
185
167
2015 2016 2017 2018 2019 2020
Income from Brand Franchisee (in Rs crores)
To enhance focus on the premium range, UNSP curtailed production of some low-margin products in select marketsand also started franchising popular brands in some markets to local distilleries since FY15.
This helps the company to have its popular range of products in markets lower the working capital requirements anduse resources to focus on the core portfolio of brands.
Currently, company has brand franchise agreements (typically for 3-5 years) across 13 states.
Uncertain regulations
The Alcoholic Beverages Industry continues to suffer the twin impact of excessive taxation and over-regulation.
A favorite of Governments, when they need to bridge their budgetary deficits, they increase the duties.
In 2017, supreme court banned liquor vendors within 500 m of state or national highway.
The highway ban lead to closure of 30000 shops but it has been normalized for now
Black swan events like Liquor ban in Bihar.
Nearly two-third of the street price of a bottle of alcohol goes to the State and local Governments towards taxes and duties.
In states with government control on pricing, price increase is based on government notifications.
In states where retailing is controlled by the state government, there is a specified quota that each player can sell, capping potential to increase market share for our products. These regulations make operations restrictive for the industry players.
Recently, Government in the state of Maharashtra has increased the excise duties abnormally which had a cascading impact on the sale of liquor in the state. Further, declaration of General Election in April has also resulted in multiple challenges in terms of effective supply chain since timing of election coincide with annual excise licence renewal cycle in majority of states etc. (2019 AR)
Regulations
246 157 117276 314 393 435 467
605754
9081083 1117
16591882 2303 2382 2437
2714
34% 34% 34%
43% 41%39%
41% 42%48% 49% 52%
55%58%
64% 66% 68% 68% 68%70%
0
500
1000
1500
2000
2500
3000
0%
10%
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
Excise per Case (in Rs) Excise as a % of Gross Revenue
The government is continuously burdening the liquor industry, by increasing the excise duty. Currently it is the highest.
A favorite of Governments, when they need to bridge their budgetary deficits, they increase the excise.
Example of how fragmented the market is?
530600
900
778720
380
720
UP Rajasthan Kerala Karnataka Tamil Nadu Delhi West Bengal
Mc Dowells MRP
MRP of McDowell’s No 1 premium whisky ranges from Rs 380-Rs 900 for a 750ml bottle
Revenue from operations
1016 1172 12442148
2962
46285468
63627376
9244
10499 10615
93358495 8818 8591
9341 9325
5901
15%6%
73%
38%
56%
18% 16% 16%25%
14%
1%
-12% -9%
4%-3%
9%0%
-20%
-0.4
-0.2
0
0.2
0.4
0.6
0.8
0
2000
4000
6000
8000
10000
12000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9MFY21
Net Sales Growth Y-o-Y
Although the Revenue is flat over the last 5 years but realizations per case sold has increased.
There has been many regulatory roadblocks over the previous years which has hampered revenue growth.
The company’s main focus is on premiumisation of offerings.
Gross Profitability
44% 44%39%
47% 46%
55%51% 50%
48%45% 45% 45% 44% 44% 44%
50% 51%46% 46%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
Gross Margins
The raw material prices are very fluctuating which leads to unstable gross margins. The company cannot pass on the price increases to end customers because of different policy of sale in different
states. For e.g. Andhra Pradesh government during one instance denied the industry even reasonable inflation-linked
increases.
Major costs
7% 7% 7% 8%7% 7%
12%
8%6%
8% 7% 8% 8% 8% 8% 8% 7%6%
7%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
Employee Cost as a % of Sales
11%
12%
10%11%
10% 10%10%
11%12%
11%10%
12%11%
7% 8%
9% 9%
8% 8%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
Advertisement and Sales Promotion as a % of SalesThe new management has made the advertisement
spend more effective
Operating Profitability
56 70 72192
436
1062
389
7171144 1118 1091
-138
33
965 989
1207
13941517
656
26%
2%
169%
127%
144%
-63%
84%
60%
-2%
-2%
-113%
-124%
0%
3%22% 15%
9%
-50%
-2
-1
-1
0
1
1
2
2
-400
-200
0
200
400
600
800
1000
1200
1400
1600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
EBITDA Growth Y-o-Y
5% 6% 6%
9%
15%
23%
7%
11%
16%
12%10%
-1%0%
11% 11%
14% 15%16%
11%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
EBITDA Margins Increase in EBITDA margins is because of increased share of prestige and above category
Net profitability
12 24 6 45
611301
-408-23
568187
-105
-4489
-1687
143 93
652 685 624160
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
PAT
1% 2% 1% 2%
21%
7%
-7%
0%
8%2%
-1%
-42%
-18%
2% 1%
8% 7% 7%3%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9M FY21
PAT Margins
Return ratios
12%14%
6% 13%32%
20%
5%
8%
13%10% 8%
-24% -11%
14% 9%20% 21% 23%
5%9%
2% 8%56%
18%
-19%
-1%
14%4%
-2%
-117% -91%
13% 5%31% 25% 18%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
ROCE % ROE %
Efficient manufacturing
1.8 2.01.5 1.6 1.4
1.1 0.9 1.0 1.2 1.3 1.3 1.52.0
3.0 3.1 3.0 3.1 2.9
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fixed Asset Turnover
28 27
19 19
15
2016 2017 2018 2019 2020
Number of Own Manufacturing Plants
The reduction in the number of owned manufacturing plants and moving towards outsourcing/franchisee has
led to significant jump in the asset turnover.
Working capital cycle
68 64 52 55 49 66 59 77 69 70 84 78 6899 122 115 99 8983 75 78 95 81
259 237201 201 198
158185
123150 143 165 153 140
610572
362
298 277316 293 286
253 216 267
202 190
116
144 202 195 149
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Debtors Days Inventory Days Payable Days
9% 11%
2% 5%8%
30% 28% 31% 28% 27% 29%32% 29%
38%41%
37%33% 32%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Working Capital as a % of Sales
Turning cash and FCF positive
-30
31 40 52
530267 235
1591
-116
756
1969
-552 -196
283647
925 948783
-85
70
-116
-1133
459
0
523
1723
-518-753
19801617
3583
317617
1050898
669
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CFO FCF
Operations back on track with consistent
CFO and FCF generation
Steadily converting operating profits into cash
37%67%
102%63% 67%
47%
121% 133%
16%
81%
198%
278%
-167%
49%86%
111%128%
90%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CFO/EBITDA
Prudent cash conversion post 2015, indicates that the operating profit is actually being converted into cash and is not getting stuck in working capital.
PEERS- Revenue from operations
1794 20122498 2953
715 704 818 936
6357 65237239
85728495 8818 85919341
1651 1679 1822 2096
2016 2017 2018 2019
Net Sales (in Rs Crores)
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
3007 3962
74118935
2712 2833 3396 3949
11975 1284915820
20271
2392125757 26556
28873
4271 48686270
8058
2016 2017 2018 2019
Gross Sales (in Rs Crores)
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
40%49%
66% 67%74% 75% 76% 76%
47% 49%54% 58%
64% 66% 68% 68%61% 66%
71% 74%
2016 2017 2018 2019
Excise duty as a % of Sales
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
PEERS - Margins
7%5%
3% 4%3% 3% 3% 3%
14%
12% 12%11%
11% 11%
14%15%
5% 5% 5% 5%
2016 2017 2018 2019
EBITDA Margin
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
2%
0% 0.2% 0.1%1% 1% 1%
0.4%
9%
7% 8%6%
2%1%
8% 7%
2% 2% 2% 2%
2016 2017 2018 2019
PAT Margin
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
56%
67%
37% 39%32%
35% 37%40%
49% 48%52% 51%
44% 44%50% 51%
46% 45% 48%52%
2016 2017 2018 2019
Gross Margins
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd. Pernod Ricard India Pvt. Ltd.
United Spirits Radico Khaitan
PEERS- Return ratios
2.8 2.8
3.84.2
1.4 1.31.0
1.2
0.0 0.1 0.0 0.0
2.62.3
1.40.91.0 0.8
0.50.3
2016 2017 2018 2019
D/E
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
25%
1% 4% 3%
26%31% 30%
11%
61%
45%
53% 52%
13%5%
31%25%
13%8%
11%15%
2016 2017 2018 2019
ROE %
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
20%11% 13% 15%16% 17% 20% 18%
95%
69%
81% 83%
14%9%
20% 21%13% 10% 14% 19%
2016 2017 2018 2019
ROCE %
Allied Blenders And Distillers Pvt Ltd. John Distilleries Pvt Ltd.
Pernod Ricard India Pvt. Ltd. United Spirits
Radico Khaitan
SWOT Analysis
STRENGTHS WEAKNESS
Strong Brand Portfolio.
Largest Alco Bev company in India.
Diageo Expertise helping United Spirits.
More than 10 millionaire brands.
Best Margins in the Industry.
P&A Category, the largest contributor to Revenue.
The company is susceptible to raw material price volatility, which leads to fluctuating Gross Margins.
No pricing power even if the raw material price increases.
Direct advertisement of alcobev products are not permitted in India.
SWOT Analysis
OPPORTUNITIESTHREATS
Transition from country liquor to IMFL presents a huge opportunity.
Per capita consumption of Liquor is among the lowest in India.
Excessive regulation risk from both Central and State Governments.
Rise in Competitive Intensity from PernordRicard.
Liquor Ban in any State (E.g. Ban in Bihar in 2017).
Lower than expected growth in P&A segment could delay margin expansion.
