Weak volumes, rising input costs to weigh on United Spirits

After a surge in the past few months, the stock of United Spirits fell by over 10% within a week. Dwindling volumes of the regular whisky brands, which form the bulk of its business and higher cost of raw materials have prompted investors to book profits.

The company's performance in the quarter to September continued to show pressure on the topline and operating profitability due to higher input costs and rising brand promotion expenses amidst steep competition.

This is likely to exert further pressure on its stock price in the near term. United Spirits is the nation’s largest publicly listed spirits manufacturer, which owns brands such as Bagpiper, Black Dog, McDowell’s No 1, Royal Challenge, and White Mischief.

In the coming months, the company will have to address the challenge of rising expenses at a time when the top line is unable to grow at a faster pace due to sluggishness in the regular category of its spirits.

During the September quarter, the volumes in this category fell by 7% from the year ago to 20.3 million cases. Each case consists of nine litres of alcoholic beverage.



Though the volume in the premium category, which includes scotch and grain-based spirits, rose sharply by 21% to 7.8 million cases, it failed to buoy overall volume, which dropped by 1.1% compared with the year ago level.

The slack in the volume of regular category is largely on account of a slump in the business in Tamil Nadu which, according to the company, is due to unfavourable state government policies.

This is not likely to reverse any time soon. There is no respite on the costs front either. Extra neutral alcohol, a major raw material, is becoming costlier quarter after quarter. At a quarterly average price of 179.6 per case, it was the highest in the past 14 quarters.


Advertising and promotion costs are also escalating amidst severe competition and the company's efforts to focus on premiere brands.