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United Spirits Ltd, majority owned by Diageo plans to revamp 15 'power' brands including McDowell's No 1, Antiquity and Signature as it increasingly focuses on selling premium products to consumers.
The firm also plans to shift from volumes sales to reaching out with the higher margin products directly to customers, according to brokerage firm Motilal Oswal.
USL will make strategic investments for the 15 power brands of thetotal 150, aiming to replicate the success of Royal Challenge, which iscompeting effectively with Royal Stage, a competing product from global rival Pernod Ricard's stable.
"Most of the brands have remained massively under-invested in the erstwhile management's regime as the focus was achieving primary sales volumes and not long-term brand building. UNSP will now be renovating each of the selected power brands progressively," Motilal Oswal analysts said in a note on August 4, after an interaction with USL managing director Anand Kripalu, Vinod Rao, finance director Asia Pacificof Diageo and Catherine James, Head investor relations of Diageo.
It expects the regular segment of the industry to grow 5% in valueterms, while Prestige, Premium and Luxury segments should achieve 15%, 20% and 25% growth respectively, the note said USL will continue to retain its low value high volume popular brands in specific states and will see only tactical investments on below theline marketing efforts.
A Diageo spokesperson was not reachable for comment.The most premium product of USL, Antiquity Blue is priced at Rs 920per 750 ml bottle, lower than the cheapest product of Diageo, VAT 69, which is priced at Rs 1,300.
USL, in which Vijay Mallya continues to be chairman, last monthreported first quarter profits of Rs 19.92 croreas against losses of Rs 61.8 crore in the same period last year.
The firm'sincome operations grew by 11.8 % to Rs 2005.54 crore from Rs 1779.83crore over the corresponding period last year. Motilal Oswal analysts said USL had prioritized five areas; whichinclude power brands, brand renovation, cost leadership, compliance and futureready organisation.
USL has Rs 4,600 crore in debts. The firm plans to raise Rs 1,000 crore by selling off distilleries over the next two to three years. It however would not sell Royal Challengers, the cricket team it owns, but used as anadvertising and brand building vehicle.
"Changes and strategic priorities initiated by Mr Kripalu will bear fruit gradually, in our view. However, the opportunity for improvement in its underlying business is immenseand in our view, UNSP is now pressing the right buttons to derive the same. Even as we expect near term earnings volatility to continue, we believe UNSPoffers a compelling play on attractive long term IMFL growth opportunity," it said.
