Teji Mandi: United Spirits remains the best play on India’s liquor industry

Relaunch of McDowells No1 and Royal Challenge has seen positive feedback

United Spirits has relaunched two of its largest Prestige brands McDowells No1 and Royal Challenge in the past few months. The initial feedback has been positive.

Opening up home delivery and online ordering a significant long-term positive

One of the positives coming out of COVID-19 is that many states have opened up home delivery of spirits and online ordering of spirits. This is a big long-term positive. There are only ~70,000 liquor shops in India compared to ~10 million grocery shops, and distribution has been a bottleneck for growth. Online ordering can eliminate this bottleneck.

Downward factor

High tax increase

Hit to on-premises sale

General economic slowdown

Teji or Mandi?

While sales were impacted by COVID related disruption, the margin performance was healthy. In the last few quarters, a sharp focus on cost optimization has led to robust margin performance and in the near term, while sales growth will be challenging for the industry and the company, operating performance should be better, supported by relatively benign COGS environment and cost optimization measures.

Thus our take is Teji for United Spirits as it remains the best play on India’s liquor industry (in the listed space) by robust market share and benefits ensuing from management control of Diageo.

Teji Mandi is a proactive investment manager for everyone. To read more of our research, please visit https://tejimandi.com/research

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