United Spirits Sees Improvement In Operations But Outlook Uncertain

India's largest spirits maker said it's witnessing a gradual improvement in its operations even as it expects reduced earnings visibility in the near term.

United Spirits Ltd. said at a post-earnings call to investors on Tuesday that volumes fell by nearly 13.3 percent in the quarter ended March on the back of a national lockdown that was imposed in the last week of March to contain the Covid-19 outbreak.

The company, however, said its manufacturing operations are improving and liquor outlets across the country are opening up in a phased manner. Here are some key takeaways from the earnings call:

• The company is currently operating at a utilisation level of 60-70% of total capacity.
• Two-thirds of the retail liquor outlets across India it supplies to are now operational.
• The company sees pressure in the near term on account of general economic slowdown and consumers preferring to buy smaller quantities and cheaper brands.
• Besides an adverse product mix, where there's higher sales of products with lower margin, the company continues to see pressure on gross margin.
• High input costs which includes expensive extra-neutral alcohol, a key input, diluted operating margin.
• Its largest segment, prestige and above—which contributes nearly two-thirds of revenue—witnessed a decline of 15.6% on account of lack of social occasions and closure of bars and restaurants.
• The tax increase in several states by 7-75% on alcoholic beverages, according to Credit Suisse, has forced price hikes, leading to consumers opting for cheaper brands.
• The company said it can tackle downtrading as its products are present in most price points.
• Company will work on managing costs and has working capital under control.
• It finds an opportunity in home delivery of liquor but said it needs to work out an operating model.