United Spirits Limited (UNITDSPR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the United Spirits Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations for United Spirits. Thank you, and over to you.

Thank you. Good afternoon, everyone, and welcome to United Spirits Third Quarter and 9 Months Ended December 24 Earnings Call. I wish you and your loved ones a very happy, healthy and successful 2025. Today on the call, we have with us our Managing Director and CEO, Ms. Hina Nagarajan; who is joined by our CFO and Executive Director, Mr. Pradeep Jain. As always, we will kick off today's call with Hina sharing her thoughts on operating environment and business performance. This will be followed by Pradeep taking you through the financial highlights of the quarter, post which we will open the forum for Q&A. I request all of you to see refer to the financial releases available on the stock exchange and on the company's website. With that, I now request Hina to comment today's call. Thank you, and over to you, Hina.

Thanks, Shweta. Good afternoon, ladies and gentlemen. A very Happy New Year to all of you. Thank you for joining us on the Q3 FY '25 earnings call of United Spirits Limited. To start with, I would like to give a brief update on the demand environment with specific focus on our industry and capital. While food inflation remains sticky, consumer social locations have risen and there is a sequential improvement in overall sentiment of celebration in the festive October, December quarter. This has helped improved demand for alcobev, which is emerging to be a little more resilient than other CPG categories. It's also encouraging to see continuity of the long-term premiumization trend, even though the top end might take a few more quarters to regain its historical momentum. There are no major signs of down-trading observed in the portfolio. And with this, we hope for some more consumption revival going forward, albeit slowly and steadily. On performance of the quarter, our overall net sales value grew 14.8% over prior year same quarter, with precede and above net sales value growth of 16.1% year-on-year. The price/mix for premium was at 4.9%. While the demand has picked up sequentially, as mentioned about, there is still relative moderation at the top end of the market. We did witness some buoyancy in the seasonal demand going to festive weddings and winter season with our brand remaining salient with the consumer. In the overall growth, the state of Andhra Pradesh has contributed 6.1% of growth points in the third quarter. And on a YTD basis, it will translate to 2.4% growth points. With this quarter coming in line with our expectations, we are on track on our year-to-date aspirations, and our focus remains on full year objective of double-digit growth on PMA. On EBITDA growth, I'm pleased that we are delivering ahead of NSV growth. This is driven by a combination of both internal and external factors. Overall, commodity inflation is relatively muted and our ongoing COGS productivity interventions as well as key levers of revenue growth management that is headline pricing, mix management and trade spend productivity continue to deliver well. A brief update on our portfolio, touching upon, first, the recent innovations and renovations. Starting with the new X Series, the non-whiskey portfolio offering from the house of McDowell's. The X Series has now been rolled out to 5 markets, Maharashtra, Goa, UP, Rajasthan and MP. While it is still early days, we are particularly delighted with the enthusiastic response it has received and hope to replicate that level of quick success in more geographies as we move forward. On tequila, Don Julio 4 variants are now available in over 20 cities. Festive season was strong for Don Julio. The activation of day of the debt followed by Don Julio leading year-end and New Year celebrations, generated high visibility and profitability across the country with elevated social engagement and generating an earned media reach of approximately 15 million. The initial response to our newly launched Monarch Vodka flavor inspired by the Indian pallet is very encouraging. There were quick tertiaries on Mirchi Mango and Minty Jamun in the first launch market. Over the next few months, we aim to quickly expand to other salient markets and focus will be on generating trials and repeats effectively. Coming now to our Prestige portfolio. On McDowell's #1, we focused on scaling the Yaaron Waali Baat campaign on MakMedia with a strong presence on television and cinema. We also activated the New Year season with a digital activation on MoJ, which crossed the landmark of 1 billion views mark. On Royal Challenge, we are doing several activations across media, TV, digital, print, cinema on ground, along with innovative platform association with sports CRE. The brand also steps into influencer marketing during the India, South Africa bilateral cricket series in November. We are scaling our new choose board campaign and going deeper into Boomtown with cinema, boosting presence in single screens in Tier 2 and 3 towns in key markets. The newly introduced 180 milliliter pocket pack on Royal Challenge is launched in Assam, Rajasthan and Maharashtra. This pack innovation is what we call a triple benefit intervention, driving consumer penetration through convenience, significantly improving carbon footprint relative to glass and driving comp value chain productivity. On Royal Challenge and American Pride, it was an eventful season where Royal Challenge American Pride sponsored 20-plus large events, including Karan Aujla, Indian leg of Peter Cat recording companies global tour, Indian Ocean, Thaipusam Bridge, along with topical events for Halloween and New Year. In addition to this, there were off-trade activations for this festive season as well. Antiquity Blue hosted beyond the barrack, a unique initiative designed for the armed forces. This platform celebrates self-discovery and showcases the wide range of talent within the armed forces community. Coming now to our Bottled in Origin and Bottled in India portfolio. We launched the new Johnnie Walker trademark campaign featuring global icon Priyanka Chopra Jonas, with omnichannel activation. The response to the campaign has been extremely positive. Johnnie Walker trademark has also been very active in the music space this quarter, partnering with some of the biggest events including Dua Lipa, Dil Luminati with Diljit Dosanjh, Pratik Kohar and more. During this period, Singleton trademark also launched a campaign featuring Sobhita Dhulipala on media, which was the first for the brand. On Black & White, we continue to be active on media and partner with some of the marquee events such as Maroon 5 and others. We also activated and amplified stable for everyone in select geographies, helping us drive talkability and excitements around the brand. On Baileys, very pleased to say we've launched a brand extension with Smore to amplify daily position in the category. Smore, as many of you will know, is a large chain, almost 80 stores around the country of -- it's a dessert and chocolate offering chain. So fixed perfectly with Bailey's positioning. We've introduced a delectable range of SKUs that showcase the indulgence and versatility of Bailey's and craftsmanship of Smore chocolates. Now these results are already available in Mumbai, Pune and Bangalore. Overall, the festive season has driven strong growth for the alcobev category, reestablishing its integral role as part of social celebration. Wedding, as always, also had a key role to play during the peak season. Touching briefly on our awards and recognitions in the quarter. Godawan continues to win accolades for Diageo India, a global platform. We have won 3 Prestige Pentawards for Godawan 100 purpose and design. It is a testament of Godawan's craftmanship that reflects in its winning proposition and story. With this, Godawan awards tally now stands at 75 plus. In addition, Royal Challenge was recognized at Mary's 2024 Awards and has won 1 gold and 2 silvers. Looking ahead, we maintain cautious optimism on the demand environment in the short term. Our activation plans for the festive season and beyond are delivering desired results as we maintain our steadfast focus on productivity across the value chain. We also are endeavoring to continue to scale up our business in the newly opened state of Andhra Pradesh. Overall, we remain optimistic on the mid- to long-term potential of the India consumer story and we'll continue to invest in our brands to sustain the long-term competitiveness of our portfolio. With this, I hand over the call to Pradeep for an update on the quarter's financial performance.

Thank you, Hina. And a very warm welcome and happy new year to everyone. As always, it's a delight to interact with all of you and wishing all of you a Happy New Year again. Before calling out the quarterly financial performance highlights, we'll request everyone to please refer to the results press release posted last evening. As Hina mentioned, it was a resilient quarter amidst a still moderate but sequentially improving demand environment, buoyed by a vertical scale up in the state of Andhra Pradesh, our portfolio NSV for the quarter grew 14.8% year-on-year, within which the Prestige & Above segment grew 16.1%. The quarterly growth numbers, excluding Andhra Pradesh, stood at 8.7% for the total portfolio and 9.2% for the Prestige & Above segment. These numbers validate our sentiment of a sequentially improving demand environment. Price mix for the quarter was 4.6%. And if we exclude Andhra, it is at 5.2%. This is an improvement sequentially, but still below our aspirations for a festive quarter. This is stemming from the relative moderation in the demand at the top end of the portfolio that Hina has already referred to. This aside, the premiumization ladder is holding absolutely intact. I've already called out in the top line growth breakup, this quarter includes the ramp-up of the business in the state of Andhra. That includes retail pipeline filling as we transition from government to private during the quarter. On a lighter note, please do remember this when we lap this quarter next year. The true quarterly run rate, as we have mentioned earlier, for Andhra, will get determined in another couple of quarters. All taken together, we are now back on track on our year-to-date aspiration for the overall business, inclusive of Andhra. Gross profit for the quarter was INR 1,535 crores with a gross margin of 44.7%. This is 131 basis points improvement over the prior year same quarter. Our marketing reinvestment rate during the quarter was 11% of net sales. The step-up is in line with investments behind our brands during the peak festive season. This was also to drive consumer engagement on innovations and renovations and to keep our overall virtuous growth cycle intact. EBITDA for the quarter stands at INR 588 crores, a growth of 19.7% over the prior year same quarter and EBITDA margin is at 17.1%. Overall, our PAT for the quarter is INR 473 crores with a PAT margin of 13.8%. In conclusion, I would say that we are happy to have put the runs on the board in the critical October-December quarter and look forward to closing out fiscal year '24, '25 with exactly the same intensity. With this, we can now open the floor for Q&A.

[Operator Instructions] The first question comes from the line of Abneesh Roy from Nuvama.

Congrats on the good set of numbers. My first question is on Andhra market. So in terms of the supply side, in terms of the market share, also, if you could talk about, is it reflecting your Pan India market share? Is it now similar, say, in Andhra? And in terms of the profitability in Andhra, again, how good is it? And any teething troubles, if you could highlight because this was the first quarter, any teething troubles for you or for the industry? And any discussion with the government, if that's needed?

Abneesh, I'll start. Good to hear you, and then Pradeep can add to that. So I would say, yes, in Andhra, we have got our fair share. It does reflect what we are doing nationally. And basically, there were teething issues. I mean we had to stand up a full team in a very short period of time and ramp up our supplies. And obviously, with retail pipelining and the market starting up, it was quite difficult to forecast, but I think the teams have worked really hard together to sort of put it together, and we are very satisfied with where we've reached, I think the scale up, we are quite pleased with. And there are no further teething issues to really discuss. I think over the next 2, 3 quarters, we should see business as usual stable sort of demand situation emerging. And our team is equipped to handle the same. And in terms of...

Yes. So maybe, Abneesh, you had mentioned about the profitability. If you look at Andhra, the prices are very similar to Telangana, right? But we are obviously -- our core footprint is much superior to Telangana. So it's slightly better than Telangana, right? That's all that I can say at this stage.

And in terms of supply side, again, everything is local? Or are you importing from...

Yes. Very much.

No, no. It is local. We have ramped up local production.

Right. My second question is on the leadership change. So, Hina, 4-year tenure, billion job in terms of innovation, in terms of margin improvement, wanted to understand more from the background of the new person who will be joining in March, essentially non-alcohol industry background, media background and Pepsi background. I wanted to understand the thought process behind this. And in terms of strategic initiatives, anything big change you would expect from the new management because you would be new leadership -- because you will be definitely ensuring 1 month of the handover also. But in terms of why HT Media kind of a background was there? And does it help in terms of a relationship with the political decision-makers or say the bureaucrats, was that something which can help?

Thank you very much for your wishes, first of all, and your kind words. Look, I think this was a well-planned succession plan for fully executed. Praveen, we are delighted to have him join Diageo. He brings very strong understanding of the consumer and India. He got an excellent track record and managed many international markets as well as many roles in India. So he brings a lot of understanding. What I'd like to say is that, look, there are 2 things. One is that I have nearly 6 weeks of overlap with Praveen. And I will obviously be spending all that time inducting Praveen into the business. But I think what you should get the biggest reassurance from is the fact that we have a very talented executive team and the team below the executive team, which handles each functional vertical independently has deep knowledge of our industry, right? Also, our strategy is working. So the incoming CEO will have a fully functional machinery supporting him and setting him up for success. I don't think the decision was based on, can this bring particularly some strong relationship with the political sort of bureaucratic system? I think it is on the basis of consumer. We are a consumer of first company, and Praveen brings excellent credentials in that sense.

Last question on the demand side. So one of the few companies highlighting sequential improvement in demand. Now, when I see -- before the December quarter, your prior 4 quarters was weak, and you had highlighted that well in advance. Now, the only change in December quarter is essentially marriage season was very strong. And next 2 quarters also marriage gets again, very strong. Would you say that this is a very significant reason for the sentiment improvement, your number improvement? And on Karnataka, again, there was a tax reduction at the mid and top end. If you could talk about that, how the business benefit from there?

So I would say, Abneesh, I wouldn't say the whole improvement in sentiment has come because of weddings. I think the whole improvement has come because of a much better effective demand overall, right? And wedding is always a key part of this season. Every year, we have thousands of marriages in India. So this was also strong, but not the only reason. I think that if demand did pick up. We saw very good secondaries on gifting on consumption. So -- and we are hoping that this will as the overall consumer environment sort of becomes better over the next 12, 18 months, we are hoping that this will translate to even better consumption and demand for our alcobev. I'll hand over to Pradeep to talk about Karnataka.

So Karnataka, Abneesh, is not a very large salience, right? I mean once we divested the popular brands, right, but as you would have seen already in our numbers, the popular business has grown well during the quarter. And that is more an outcome of the prior year comparatives. If all of you will remember, in this quarter last year, popular volume shrunk almost like 20% to 22%, if I'm not wrong, right? And the total value shrinkage was close to about 12%. And post that, we have done some value rating interventions, right? So a part of that is playing out also a part of the duty reduction that the state had done about 4 to 5 months ago, that is playing out, right? So that's what. Otherwise, there is no dramatic difference in the Karnataka numbers.

One clarification on Karnataka essentially, and that's my last question. So Karnataka, if I see demographics price per capita income-wise, a very attractive market. And we are seeing the Heineken put up their premium beer factory also there. So in terms of P&A for Karnataka, what are the medium long-term plans? It's a very attractive market from a consumption perspective, any yardstick you see in one of the most attractive markets. I do understand in states, the taxation is extremely relevant. But ex of taxation, is there something you can do for the P&A there?

I mean, Abneesh, we are doing what we can, right, with the current taxation structure, and we continue to have ongoing dialogue with the government to optimize and rationalize the tax structure to drive more premiumization. And as and when that happens, I think we will see the types of benefits we have seen in the other states, right? So within that, I mean, we are not leaving anything unturned in terms of the amount of activations or brand building that we do in the space. But the taxation does have a role to play.

The next question comes from the line of Percy from IIFL.

So my question is on the overall growth ex Andhra for P&A, it was about 9% in value terms. And this is basically a year in which the phasing of the sales was tilted towards the second half. So if our overall full year growth aspirations are double digit. And in this quarter, we are a little short of that despite the phasing benefit, would we sort of -- I mean, would you like to revise that guidance for FY '26 in light of the weak macro consumption sentiment?

Yes. So Percy, okay, let me just kind of remind everyone. I think very -- we were very, very emphatic in the last quarterly call that our aspirations for the full year are double-digit P&A growth, including Andhra. And I think we are well on track for that, and we would want to reemphasize, that we are not losing sight of that objective. In fact, after delivering the quarter that we have delivered, we only feel more confident that we should be able to get to P&A double digit for the full fiscal year. And on a full portfolio basis, I think we stand at about 7.5% on a YTD 9 months. While we'll obviously aspire to try and reach double digit, but we may fall a little short on that front. I think that's the only point that we would want to make to reemphasize it.

Understood. Understood. Also, Andhra, I mean, if I recall correctly, you had mentioned 1 or 2 calls ago that basically before the problem started and you exited, it was around 4% of your overall top line. And in the very first quarter, you have sort of achieved 6%. Now, obviously, there is a channel filling here in addition to the offtakes. So I just wanted to understand in this industry, normally, the total channel, whatever distributor plus retailer, the total channel is typically how many months of sales. Nothing to do specifically with this quarter or Andhra fill-in, but generally, I'm asking that in this industry, what is the total channel as a number of days?

Yes. So, Percy, I think you've answered the question yourself. The 6% reflects a lot of retail pipeline selling as well as the stocks at the corporation depot warehouses, I think there are 21 of them in Andhra. So that's the one which takes the 4, 4.5 range that I had given to the 6.1% for the quarter, right? And broadly, if you look, look, I don't think we have visibility into what kind of inventories the retailers hold. But very, very broadly, and I can take a guess, they'll probably hold about 30 to 35 days of inventory that retailers will hold and another 20 to 25 days with the cooperation depos. So that's about 60 days of inventory holding, yes.

Okay. And again, I'm sure you don't have the exact data, but you have a lot of intelligence feet on street, et cetera. So in your best estimation what is actually the offtake level sales in Andhra this quarter as a percentage of your total sales?

No, it's too difficult to call out now, right? Maybe in the next couple of years, whatever the primary sales was that a couple of quarters, right? The primary sales itself will reflect the trend of the replenishment, right? So that will be a reasonably good indicator.

Understood. Understood. And would it be fair to assume that this 6% contribution that you've seen this quarter, it will not be this high in the coming quarter in the March quarter because you will not have the channel fill-in and it will more or less reflect the secondary fill.

That's right. Absolutely. It should moderate.

The next question comes from the line of Avi Mehta from Macquarie.

Hina, wanted to just pick up on your comments on the weakness in the top end. Could you please share your thoughts on what in your view is driving it? And by when do you see this changing? It would be great to kind of get some thoughts on that.

Yes. I think we called this out a couple of quarters ago, 8 to 10 quarters ago, we had said that there is some moderation in the momentum of the market, but we were still seeing the premiumization ladder impact within our category. And then a couple of quarters ago, we called out that, yes, the top end is moderating. And are we -- I mean, it's clear. I think it's the overall inflationary pressure, right? And the overall sentiment of I think the flow of everything that's happening, there is a new budget, there is some uncertainty in front of you. So the consumer sentiment, though better than the rest of the world, also came down in India, and that was reflected at the top end, whereas we have actually seen very good growth in the middle bulk of our industry. And that's also evidenced in our price/mix during the last couple of quarters. But I would say that considering the overall macros around luxury consumption in India across multiple categories. As of now, we believe this is a temporary blip and not structural. And we are confident that the top end will gain momentum over the next few quarters. So I hope that over the next 3, 4, 5 quarters, we will see, again, that momentum that we saw a couple of years ago.

We could also be understanding to what Hina has said it could also be a little bit of normalization of the post-COVID revenge consumption, right? I mean that and a little bit of the tailwind we had from duty-free to the duty paid, right? So part of that would be normalizing, right? So I think those are the added factors in addition to the overall macros. So longer term, but we don't expect any concern on this front. It should rebound.

And I must say that in the quarter gone by, we did see something rebound. We are optimistic about this.

Okay. Perfect. This is very clear. And second is on the EBITDA margin. Now, I just wanted to understand you pointed towards benign input costs. Clearly, you're confident on the double-digit expectations for Prestige growth. In that context, how should we see EBITDA margin expansion at whatever you've done is 9 months suggests is that the right trajectory in terms of expansion to take? If you could share your thoughts on that as well, please?

Yes. I mean I don't want to give a guidance. I think the good thing at the end of 9 months is we've expanded margin very, very handsomely, right? And you know our philosophy. The intent is always to expand a little bit of our margin, plow some part of that back into A&P to keep our growth flywheel absolutely intact and retain something in the P&L, right? So that's the overall philosophy. Inflation, I do want to call out upfront, right? So neutral as called Spirit remains high single digit to low double digit, right? That is not moderating at all. In fact, 4, 5 days ago, I did hear that the government is considering another price increase on ethanol, right? So therefore, could have a further headwind. Glass is what was neutralizing it. This is probably -- now the 3 quarters have passed where glass is deflating. So we will start lapping the low prices from probably February, March onwards. So therefore, sequentially, it may not change, but in terms of the benefit versus prior year, where loss of neutralizing the neutral alcohol spirit will go away. So those are the 2 big things that I wanted to share. But like I said, our productivity muscle is functioning well. Our revenue growth management is overall functioning well. So we will continue with churn along.

Okay, Pradeep, I get it. So you -- if I were to paraphrase it, would it be fair to say you are more confident on margins versus last quarter? Would that be a better takeaway to take instead of numbers?

When you say margins versus last quarter, I mean last...

2Q, what you shared on how you expect EBITDA margin expansion versus what you would see now...

That's fair. That's fair. Absolutely. I mean -- yes, I would agree completely. Because 9 months, whatever we've already landed, unlikely that will go away in 1 quarter. So be rest assured of that.

No, lastly, thanks a lot, Hina, for sharing your thoughts and driving such a strong performance in the company. It has been a pleasure interacting with you. And I wish you a lot of luck for your future endeavors.

Thanks so much, Avi, and thank you for your continued support to us.

The next question comes from the line of Jay Doshi from Kotak.

Sorry, I'm just repeating what Avi also. So it's been a pleasure tracking USL's progress under your direction, Hina, and congratulations and best wishes for the global role. I've got 2 questions. One is, there are some news articles the Delhi government is considering changing the ordering system, which may help the larger players and Parma is not operating in Delhi. So how should we think about this, if at all? And could you tell us a little bit about what your market share is in Delhi today and on an absolute basis, where it stands versus the peak volumes that you were doing in Delhi. That is one. Second is the exceptional charge of INR 65 crores pertaining to supply agility program, how should we think about your employee cost structure, quarterly employee cost run rate starting next quarter? This quarter, it's high. I'm assuming it could be related to incentives pertaining to the last year. But how do we sort of model the benefit of the agility program?

Okay. Jay, first of all, thank you so much for your kind words, and thank you for your continued support to Diageo India. [indiscernible] and then I'll hand over to Pradeep to explain the employee cost, et cetera. So on Delhi, Jay, I would say that we would not like to comment or speculate on the situation. We will operate as per the guidelines in the state. I mean, if you remember 2 years ago, when the route to market changed, and we have said since then that our business became very small, a very small component of what it used to be, largely on account of the way the route to market is. So it is a fraction of, Pradeep, where we used to be a couple of years ago. So I mean, in your mind, you believe that we're getting some extraordinary benefit out of Delhi, actually, we are not. It's quite small. So let's wait to see how the situation evolves. And we will -- should there ever be an opportunity, right? Like we have demonstrated many times, right? Whenever any route-to-market opportunity opens up, we are always very speedy and agile into getting into that opportunity and leveraging that opportunity. So we will keep ourselves ready as and when we see the need to be. And It's over to you for the supply agility.

Yes. Yes. So Jay, I mean, there were 2 questions in the second part, I thought, right? One is on the supply agility and the other is on the staff cost side. So let me take the staff cost first. Look, where I want to start is that I hope all of you will agree, we've been very, very disciplined over the years, right? I think after 5 to 7 years of holding an optimization. Now, we believe that we've reached a steady state. And if we try and do anything further, we'll start cutting into the muscles, right? So, therefore, we will need to invest in our organization for sustained growth, right? And during the quarter, a couple of things, right? One is Andhra, we have exited completely. So we have had to set up the supply organization. And more important than that, the demand organization, right? So the demand organization is a large team, because it's a very, very salient state. So that impact has fully come in. And also, you would have heard Hina and me talk historically that we do -- as we go ahead, we do want to increase the contribution of innovation to our overall growth algorithm. So, therefore, we are kind of strengthening the innovation commercialization team over the last 3 to 4 months as more and more innovation offerings come into the marketplace. So I think those are the 2 reasons where you will see a steady state of employee cost investments, which will be in line with normal growing organizations requirements. So that's a bit on the investment part, and also October, December, our annual cycle is first October, 30th September. So the full impact of the merit increases creates, which is absolutely in line with industry norms has come into play. So that's on the staff cost. Your point on supply agility, I mean, the 2 are not linked. I mean, very, very marginal part of that might be linked because in the Ind AS, the planned staff cost also goes into staff costs, right? So -- but no, that's as part of our normal manufacturing footprint optimization. We have shut 1 of the units operationally, which was part of our supply agility program. And we have kind of already activated our third-party manufacturing unit in that stage.

The next question comes from the line of Harit Kapoor from Investec.

So just once again, I just want to wish you all the best for future role. And just 1 question on -- just 1 point on that. You came in 4 years back and versus 4 years back versus now that you're exiting out of the country, do you feel like the regulatory environment versus what it was when you started off 4 years back has been increasingly conducive for the industry? I mean, just the near-term events of, say, Karnataka, Andhra Pradesh, most likely of Delhi, possibly, hopefully, something in Telangana from a receivable standpoint. Do you feel like our states are competing with each other for growth? It's actually -- you're exiting a much healthier, better industry. And also, has advocacy been a very large component of getting there?

Yes. I mean, firstly, thank you for your wishes. And I would say, yes, I feel so. I definitely feel that we have seen positive movement on the regulatory environment. The industry has valued together. We've also taken a leadership role in advocacy. And as stake has sort of -- I mean you would realize that Maharashtra rolled back taxes on the upper -- on the premium end a couple of years ago. So as sales have started taking these positive steps, we've been able to go back to other states and demonstrate that this becomes a win-win situation with the -- for the states. And we have seen positive traction. So I would say, Harit, I do go -- I do leave feeling that, yes, we are in a better place than we were when I came.

Great. Great. Second question was slightly more hypothetical. On the -- we are now in a quarter where you'll start to see certain excise policies starting to come through as well. From an advocacy perspective, and given that you did -- you guys did mention that the ENA prices are still inflationary. Is the advocacies also to drive states to consider more price increases from here? Is that something that will kind of go into your discussions? The context is overall inflation may not be as hard as it was probably 2, 3 years back. But I just wanted to get your thoughts on that from an industry perspective.

Harit, absolutely. I mean, I must say that 2 years ago, when we saw double digits, very high double-digit levels of inflation, even though we managed to secure pricing in that environment, it was hardly enough to cover even -- not even 50% of that inflation, right? It was like 25%, 30% of the inflation. So we are still lagging inflation. And therefore, every year, our advocacy will continue to focus on getting the right levels of pricing for this industry. So absolutely, my team is on it. And every time we have the excise cycle in any state, we are definitely going in with both as industry and as a company, we are definitely going in to ask for more prices.

Got it. Got it. And one last question was on the supply chain agility program. I remember a couple of years back in a discussion, I think there was a mention that colocation as a percentage of the total manufacturing would be -- the target at some point would be about 70%. So I just wanted to kind of get back on that and check where are we in that journey from going to 30% to 70% on the colocation side? That's my last question.

Yes. So, Harit, we in, anyway, share an update on the supply agility program in the May annual call, right? So hold your question till then. But I think I shared it last year also in the May call. The co-location part is already done and dusted. There is still a little more of sponsored capacity that needs to come in, in a couple of states. But yes, I think broadly, we are somewhere in the middle of the 2 ranges that you mentioned. So I think that should give you the answer to your question.

The next question comes from the line of Krishnan Sambamoorthy from Nirmal Bang Institutional Equities.

One of the northern states was a significant retractor to growth in the second quarter. And from what we are gathering, things are relatively better there. Could you -- would you be in a position to say that the worst is over in that particular state perspective?

Yes. I would say, yes, the problem in that state is by and large resolved, and we are happy with where we are now.

This quarter, absolutely comfortable. But in this category, you may never see anything. So with that -- that caveat will always stay.

And in case of the popular segment growth, you have called out and I'm assuming that is Karnataka where there's been an excise reduction. Would it be possible for you to quantify how much was the benefit from Karnataka on a Y-o-Y basis for the popular segment for the quarter?

No. So I mean, we don't do that, Krishnan, ever state-wide. But I think the overall look, popular is such a small percentage of our overall business salience. And we've called out that from what the last couple of quarters we were shrinking at flattish to low single digit, and that 9% growth is largely the impact of a prior year comparative factor. In terms of absolute, my sense is that the trajectory won't dramatically change. It will remain in that flattish to probably a low single-digit decline.

[Operator Instructions] The next question comes from the line of Arnab Mitra from Goldman Sachs.

I had actually 1 main question on the top end moderation. And because this is quite contrary to what we've seen in every other consumer category where actually the top end is doing the best and everything else is struggling. So I was wondering whether there is any geographical-specific issue here. And are you growing competitively? Has the entire category slowed down or there is some kind of a competitive issue here also? So just wanted to check on geography and competition for top end.

I would say [indiscernible] geographical issue here, we have seen overall moderation, and I think it is linked more to the consumer sentiment and macro environment rather than anything else. And we performed very competitively in this segment, and we continue to do that.

Right. And any interventions that you think are needed from the side to get the growth rate back up here? I'm just wondering whether affordability or more marketing? Or do you think it's just a macro and you probably don't need to change much share and wait for the consumer demand to come back?

No, I mean, we continue to invest in our brand building and build the equity of our brand, right? And some of our brands do have the what we call the pocket pack, which is a smaller unit pack. So I mean for those who are sensitive to price points even in that category, I want to put in a smaller absolute amount. Pocket pack is actually doing quite well across the brands we have it. But other than that, I think we will have to just wait for the consumer sentiments to come back.

The next question comes from the line of Abneesh Roy from Nuvama.

Yes. Just 1 follow-up, essentially on Madhya Pradesh, the news of prohibition in the religious towns was there. I understand it's a small market. Would you be concerned if you could talk about any impact you see once the full list of the cities comes? How big are those cities versus Madhya Pradesh and how big is Madhya Pradesh for you from the pan-India's basis?

So, Abneesh, I would say that this kind of volatility is business as usual in our category. I mean, you've followed it for a long time. And you know that we handle our business as a portfolio of states. So there are pluses and minuses that happen in states every year.

Every quarter.

Every quarter actually. And what we do is where there is a minus, we go and expand our reach and efforts in other states, and we get the pluses from there to deliver our overall sales. So I would say the team is not worried. I think these things continue to happen in our industry. And even when it comes, we will deal with it, and we will find other avenues for growth.

And one last question. Last 2 years, particularly, innovation funnel has been very strong, and most of them have done well. And now the leadership change will happen in around 3 months. So now next 6 to 12 months, will the focus be more on ramp-up of the brands or the innovations, which have already been done because, always, there is a cycle where initially a lot of innovation happens and then consolidation happens. So would you go more into the consolidation phase next 6 to 12 months in terms of brand?

I would say it's an and game Abneesh. See, our innovation pipeline has defined 2 to 3 years previously. So whatever is in the pipeline will get launched. Equally, yes, we have very powerful innovations that have been launched. I mean, just to name Don Julio and X-series, I talked about them. Definitely, the commercial team will be focusing on scaling these, including Smirnoff flavors. So whatever is in the pipeline for launch will get launched, but equally, the commercial team will be sort of focusing on scaling these in the market, which are only still starting to roll out nationally.

The next question comes from the line of Sanjay Manyal from DAM Capital.

I just want to understand a few days back, FCI supply of rise has sort of been allowed and the prices have sort of come down from 28% to 22.5%. Shouldn't this sort of result into softening of ENA prices?

So right now, the new crop is anyway on its way, and typically, we get a handle of the new crop in about 30 to 45 days, once it's settled down in the market, et cetera. So we'll have a good sense of our neutral alcohol COGS going forward in the next 1.5 months, I would say. But we haven't picked up what you have just said about the FCI bid, but I'm sure we'll get a handle of that.

So not only that, I think, I mean, structurally, I think it's linked to the government's program of blending. So -- and that, I think, the government is actually enhancing the targets and pushing the agenda forward on that. And that is a key reason for driving the pricing of ethanol, and therefore, ENA. So I think in the balance, we still see structurally inflationary sort of environment for ENA.

Okay, perfect. And if you also can give some color on the Godawan basically and other innovations, which you have done, what kind of a success they've seen over the last, say, a year or so?

So I talked a little bit about them. I think the key innovations Don Julio, I would say, is doing extraordinarily well. It is growing from strength to strength. We are now in the top 20 cities odd and we will be rolling out further. But I think tequila has huge traction in the country, and Don Julio has global equity flowing through to India. So we are super excited about Don Julio. X-series, again, we are quite super excited. We launched in 1 market, and we saw a very good tertiary for the offering. The products are getting very well appreciated, very good response. And therefore, that's another, what I would say, a big bet innovation for us. Smirnoff flavors, again, very exciting consumer response. We've got the India salad flavors, Mirchi Mango, Minty Jamun and we've seen some really good response to these flavors. And then I want to miss out Royal Challenge the pocket packs. We were just talking about the environment being sort of moderate demand. The pocket packs are playing a huge role in penetration and overcoming the inflationary environment, and we have a very differentiated proposition in our pocket packs. So that's also doing really well for all the brands that we are having in pocket pack. So I would say our innovations are doing extraordinarily well. Godawan has made big strides. I mentioned it's probably not the most awarded Indian single malt. We launched in the U.K. in December. I was personally there to launch it and huge sort of appreciation for the purpose of the brand for the quality of the product. And we are focusing our energies on really rolling out the brand market by market in India. So we have sort of increased the distribution in the quarter gone by. We actually put it in Andhra as well last quarter. We've also launched a Duty Free version of it, which has just gone into Dubai Duty Free and now rolling out in India Duty Free. So that's also very exciting. And then we've done actually limited additions for some of the hotel chains like Taj. So it's getting very good equity and acceptance in the country and outside.

The next question comes from the line of Vishal from Yes Securities.

Just wanted a small clarity on other income on the standalone basis. What is the reason for that? And is it because of improvement of dividend income or yes, then could it be lower in the fourth quarter?

Okay. Your voice was not very clear, but I think I get the question, you're seeking in the stand-alone, what is the driver of the other income, right?

Yes.

The big driver is the dividend from Royal Challengers Bangalore, right, our 100% subsidiary that how is the RCB cricket team and typically, right? I mean their entire cycle gets completed around September, October. And therefore, October, December is the right time for them to push out the surplus profits that they have through dividend to USL. So that's what it is and that's why if you will see the consolidated number, that gets eliminated.

Understood. So that would be around INR 1.25 billion or so?

It's about INR 120 crores. INR 120 crores.

INR 120 crore. So next quarter, obviously, we won't be seeing that number which was there last year.

That's right. That's right.

And thank you, Hina, for all the responses over the quarters. Thank you.

Thank you so much.

Ladies and gentlemen, we take the last question from the line of Senthil Manikandan from iThought PMS.

Just one question. So globally, we are seeing that the emergence of this weight loss drugs, GLP-1, things like that, its impact on the alcohol volume. So it's a very nascent stage, I think I understand, but I would like to hear your comments on this and how we are structured strategically?

Look, I would say at the moment, it is very small. I mean, globally, we are tracking the development of this category and we don't see today a structural impact on our category, and I would say even lesser so in India. So -- but we do keep our eye on consumer trends and we do keep an eye on trends that can impact our industry. So at the moment, I would say that there is nothing for us to do structurally on account of this. But it's a wait-and-watch.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Pradeep Jain for his closing comments.

Thanks. Okay. Before we close today's call, on behalf of the Diageo India family and the USL Board of Directors, and I suppose on behalf of all of you, I would like to thank Hina for her amazing 4 years in India. The performance in the numbers speak for themselves during the period. Hina became USL CEO and MD in July 2021, having joined Diageo in August 2018 as Managing Director of Africa Emerging Markets. Under her leadership, USL has combined strong top line growth and margin expansion with impactful strategic initiatives, reshaping and premiumizing our portfolio and positioning USL as an innovative leader in the alcobev industry. Under her leadership and the talented India team, we have achieved strong double-digit CAGR growth in NSV year after year while also improving profitability and performing competitively in the key segments in which we participate. The India business has rapidly transformed its portfolio in this period, disposing off the noncore brands and focusing on growth categories, while also accelerating premiumization and innovation. Launching Godawan, our award-winning new artisanal Indian Single Malt, Royal Challenge American Pride, McDowell's X-series and renovating all other core brands in the portfolio. During her tenure, India has become the third largest Diageo market for Johnnie Walker trademark and the largest market -- largest Diageo market for black and white scotch. We have improved our sustainability leadership in India achieving our water replenishment goals 3 years ahead of plan and exceeding our target for positive drinking programs so that we are well positioned to meet our broader 2030 spirit of progress goals. Hina leaves in place a stronger gender-diverse leadership team on the India Executive Committee. She has also strengthened engagement in the wider organization. We want to congratulate Hina on all these achievements. She leaves a solid record of success and a motivated dynamic and talented management team. The good thing is that she will be very much in Diageo, and we wish her good luck and the best for both her personal and professional journey ahead. With that, we close today's earnings call and look forward to the annual call in May of 2025. I will also have the privilege of introducing Praveen to all of you in that call. Thank you and be well till then.

Thank you, everyone. I really want to thank you for your continued support and belief in us these last 4 years. I know many of you had questions when I came in -- and there was even skepticism, I would say, on whether our strategy would work, but you stood by us, and you have encouraged us, supported us. And I would say, even kept attention on us, which I really appreciated. I hope that you will continue to provide continued support to our business and that you will support the new CEO as much as you supported me. Thank you once again. And of course, I'll be in touch whenever I'm in India.

Thank you, Hina, and thank you. Back to the Chorus team.

On behalf of United Spirits Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.