United Spirits posts flat earnings in Sept quarter amid muted demand

Diageo India (United Spirits Limited) has posted flat results for the second consecutive quarter amid a muted demand environment as well as higher advertising and promotion (A&P) and staff costs. Ahead of the Q2 earnings, shares of United Spirits ended 0.4% lower at ₹1,467.10 on the BSE, with a market capitalisation of ₹1.06 lakh crore.

For the second quarter ended September 30, 2024, United Spirits reported profit after tax (PAT) of ₹335 crore, down 1.75% from ₹341 crore in the same period last year.

The Diageo-controlled liquor maker saw its net sales dropping by 0.8% to ₹2,843 crore in Q2 FY25, compared to the same period in the last fiscal. As per the company, sales were marginally down due to the normalisation of higher-than-expected growth in the first quarter, higher base last year due to festive inventory build-up and overall, and relatively muted demand environment. 

The ‘prestige & above’ segment reported broadly flat sales, registering a 0.3% growth as compared to previous year. The net sales for the ‘Popular’ segment fell 6.9% YoY.

On the operating front, Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) stood at ₹507 crore, an increase of 7.9% over the same period last year. The margin improved by 142 basis points to 17.8% during the quarter under review. “This was largely driven by gross margin expansion and normalization in overheads, lapping a prior year high base, partly off-set by the higher A&P and staff costs,” the company says in the exchange filing.

“It’s a muted quarter amidst a softer than expected demand environment. We remain buoyant entering the festive season on the back of structural tailwinds including the reopening of the business in the state of Andhra Pradesh after a near 5-year gap,” says Hina Nagarajan, CEO & Managing Director.  

“Our key focus remains on executional excellence to deliver sustained profitable growth, while maintaining the long-term competitiveness of our portfolio,” adds Nagarajan.

For the first half of the current fiscal, United Spirits clocked a PAT of ₹634 crore, while net sales stood at ₹5,195 crore. The revenue grew 3.1% year-on-year, driven by renovation offerings. The prestige and above segment grew 4.4%, while the popular division reported a decline of 4.9%. 

For the period under review, EBITDA was at ₹965 crore, an increase of 12.8% over the previous year, while the margin rose by 160 bps to 18.6%. This was driven by gross margin expansion and continued productivity across the value chain. For H1 FY25, gross margin was 44.9%, up 137 bps versus last year, driven by a combination of headline pricing, revenue growth management initiatives and continued productivity offsetting commodity inflation, says the company.