United Spirits Ltd Research ReportQ3FY21

P&A volumes continue to strengthen… United Spirits continued its strong momentum in Q3, reporting 7% QoQ improvement in volumes, led by resilience in the off-trade channels and slow pick-up in on-trade channels. The recovery is also to be seen in the context of a strong YoY comparable quarter (reported flat volumes YoY). USL also improved its gross margins during the quarter (better than both estimates and comparable QoQ, YoY), led by benign commodity costs and higher productivity. A&P expenses remained at higher levels due to continued marketing for greater on-home premises consumption and renovating core brands. Despite the rebound in performance, the management remains cautiously optimistic due to continued uncertainty in the medium term. Uptick in volumes in spite of continued operational challenges Social events during Q3 (marriages, festive season) saw impact of social distancing norms and limits placed on guest’s allowance. Also, on-trade channels saw slower uptick in footfalls. In spite of headwinds (also includes RTM changes in AP and higher Covid led taxation), USL reported flat volume growth YoY, mainly due to its brand resilience, which led to greater consumption in off-trade channels. P&A segment grew 6% QoQ and flat YoY, indicating the larger trends of premiumisation (even without support of on-trade channels). Popular segment also saw 9% QoQ rebound in volumes (-2% YoY).