United Spirits Limited (UNITDSPR) Earnings Call Transcript & Summary

Thank you very much, and very good evening, everyone, and thank you for joining this call at such short notice. I don't know, but I think some of you may have already picked up that we have sent an intimation to the stock exchange earlier in the day today, stating that USL is initiating a strategic review of select popular brands. This evaluation is in continuation of the strategy towards long-term profitable growth through premiumization of the company's portfolio. Now our popular portfolio comprises around 30 brands, and the strategic review will focus on approximately half of this portfolio by volume. This review will not include the McDowell's or the director's special trademarks and any variants that come within those. The review is expected to be completed by the end of 2021 calendar year. Several outcomes are possible, including, but not limited to, extension of the franchise model that we started some years ago, accelerating select brands via additional investment, potential divestment and an organizational review of our operating model. The strategic review will assess all options, considering the potential impact of each approach. This review reinforces USL and Diageo's commitment to deliver sustainable long-term growth and improve profitability through a sharpened focus on core popular and Prestige & Above brands, including our international brands. Since its acquisition by Diageo in 2013, USL has been focused on delivering long-term profitable growth through premiumization of the portfolio. USL has made significant progress on multiple fronts, including rationalization of the portfolio with focus on select brands and renovation of some specific brands in the P&A segment, which include McDowell's No. 1 and Royal Challenge, to name a few. We've increased the faster-growing P&A segment from 1/3 of our business to over 2/3 of our business now. We've improved operating margins in single digits to mid-teens, with a medium-term goal of mid to high teens. And I think critically, we have transformed governance of the business and played our role in changing the reputation of the industry and how business is done in this sector. Given the called out focus on the P&A segment over the years, we have been -- put in place a fit-for-purpose model to manage our popular portfolio. So the current operating model allows us to extract value from our popular portfolio, while at the same time, releasing resources, the most important of which is management time, which can be redeployed towards P&A. Now Popular is largely managed separately with several large states operating on a franchise model, where our franchise partners manufacture and sell the popular brand. In a few select large states, we do manage the popular business ourselves. Earlier this year, we set up a separate popular SBU to enable a most focused joint-up business planning process, along with our franchise business partners, while enhancing emphasis on some of the retail space. In continuation of this strategy, we are now carrying out a strategic review of select brands in our popular portfolio to evaluate our next-stage strategic choices so that we continue to maximize value for all our stakeholders. This review, as you would agree, is a logical next step in our journey towards sustained long-term profitable growth. So to put it simply, many of you know that over these years, we have focused on growing P&A aggressively while extracting value from the popular portfolio. And that's why P&A as a share of the mix has only been increasing. So sitting where we're sitting today, we're looking ahead and saying, what should our future strategy be? And that is the purpose of this strategic review. This review, importantly, is supported by Diageo plc and as you know, Diageo have always been clear that the acquisition of a controlling stake in USL was a long-term investment. India remains a highly attractive market for Diageo, and Diageo believes that USL will be a significant source of value over time. So net-net, in conclusion, I just want to reiterate that the goal of this strategic review is to ensure we have the right platform in place to build on USL's transformation to date and go further in delivering long-term profitable growth. The purpose of this call is to make sure that as we embark on this journey, we share this information in all transparency with all critical stakeholders like you. Today, we are not opening this call for Q&A because, I mean, honestly, we have nothing more to say at this stage because we do not know what the outcome of the strategic review is going to be. The review has obviously not been completed, and therefore, no decisions have yet been made. Please be rest assured that when and if there are relevant updates, we will communicate these to you in as timely a manner as possible. Thank you again for joining this call at short notice. And I thank you for your interest in United Spirits. Thank you, and have a good evening.

Thank you very much. Ladies and gentlemen, thank you for your participation. On behalf of United Spirits Limited, that concludes this call. Thank you for joining.