United Spirits (USL), India’s largest spirits company, is in discussions with state governments as well as the Centre for allowing it to increase prices of products to mitigate the impact of higher input cost amid rising inflation.
"We have increased our pricing advocacy with the state governments and the centre, to tell them how inflation is impacting us. And these conversations are being held by individual companies, by the industry association," said Hina Nagarajan, MD and CEO of Diageo India, the parent company of USL, in an interview with CNBC-TV18.
She added that the talks with states like Assam, Rajasthan and Madhya Pradesh have resulted in positive outcome as it has been allowed to raise product prices.
Nagarajan said the company hopes for price hikes similar to those seen in the past and is committed to the sustained double-digit top line growth.
Last week, United Spirits reported a 9.5 percent rise in net sales for the March quarter compared to Rs 2,435 crore during the same period last year. However, its net profit fell 19 percent to Rs 136 crore.
USL said it is working on a premiumisation strategy and will be focusing on strengthening its play in prestige and the upper segment. As a part for this strategy, the company has sold its 32 lower-priced brands to Inbrew Beverages for Rs 820 crore and franchised 12 others, including Bagpiper and Blue Riband.
The brands sold include iconic names such as Haywards, Old Tavern, White-Mischief, Honey Bee, Green Label and Romanov.
The company expects the deal to be closed in the next three to four months. "So by 30th, September 2022, is when we expect the money to come in for the sale," said Nagarajan.
The company aims to be the top-performing consumer products company in India with a double-digit topline growth with the new strategy in place.
The surplus in the short term will be invested appropriately and the company will continue to identify and assess opportunities for new engines of growth, she said.
USL will look at dividend distribution once the accumulated losses are wiped out. "This deal does accelerate our journey towards dividend distribution," said the MD.
Royalty payments for the franchised brands will accrue over the next five years and will be higher in the later years.
"All I can say is that the royalty is slightly lower in the initial years. So that gives the headroom to the buyer to invest back in the business and revive it and then it accelerates towards later years," Nagarajan said.
However, she added the company would have preferred a full slump sale of all brands with an upfront payment of amount.
The USL stock closed about a percent lower at Rs 803.65 per share on the BSE.