2002-03

Volume Growth:

 The fiscal year 2002-03 has witnessed a return to fast track growth by McDowell. With sales of 21.2 million cases during the year, your company has recorded a growth of 17% in volumes against a backdrop of the industry that grew approximately by 8%.

Acquisition:

 Additionally, the year witnessed the acquisition by McDowell of the business of Gilbey’s range of whiskies and allied products from United Distillers and Vintners. This acquisition, which included the popular Gilbey’s Green Label brand, adds another millionaire to your company’s portfolio, with sales exceeding 2 million cases.

Brand Performance:

 Overall growth during the year has been embellished by a record-breaking performance by various individual brands. I will highlight the signal achievement of selling over 10 million cases under McDowell’s No.1 umbrella comprised of whisky, brandy, and rum during the year.  The repositioning of Signature has been another significant success and this brand today has captured a market share of 21%, challenging the long-standing monopoly of Shaw Wallace’s Royal Challenge in this category.  McDowell now manufactures its products from nearly 40 distilleries spread across the country. The owned units are ISO certified and your company is in the process of ensuring quality and process certification for contract bottling units as well. Recent investments into manufacturing and effluent treatment facilities have totaled nearly Rs 55 crores.  State Regulations: 65% of the industry is directly controlled by State Governments in as much as the entire off-take of the industry is canalized through parastatal Corporations who are the sole intermediaries.  An even more pernicious system of private monopolies encouraged by the State exists in certain parts of north India, notably Rajasthan, Haryana, Punjab, etc. In these areas, the Government auctions territorial monopolies to individuals or cartels who then engage in ruthless profiteering at the cost of denying the consumers any choice at all.

Glass Bottle Industry:

 There has been dramatic consolidation in the glass bottle industry in India, consequent to which one player now dominates the industry with over 50% market share. It is understood that this company is engaged in discussions to further adding to its capacity and consequently enhance its dominance. This near-monopoly has resulted in a severe shortage of glass bottles and consequentially a steep increase in input costs for the industry as a whole.

VAT Imposition:

 The uncertainties caused by the announcement of a VAT regime, combined with differing stands taken by various states concerning the inclusion of the Alcohol Beverage Industry in the scheme of VAT, had led to a near paralysis of the industry in the early period of the current fiscal year. Although the imposition of the VAT has been postponed for the time being

Performance:

 The year 2002-03 saw your Company extending its leadership position in the country’s IMFL market with volumes of 21.22 million, recording a growth of 17% over the previous year. The industry, on a comparable basis, grew by around 8% enabling your Company to enhance its market share to 26%.  Sales in the initial period of the current year were disrupted by certain regulatory changes primarily the anticipated introduction of VAT and the imposition of a new Tax Collection at Source. Despite these, sales of your Company’s products during the first quarter were higher than the corresponding period of the previous year.  McDowell’s No. 1 range comprising of whisky, rum, and brandy achieved a significant milestone crossing 10 million cases with a combined growth of 14%. McDowell’s No.1 Whisky with anindividual record of 4.24 million cases remains the flagship brand of the Company. McDowell’s No. 1 Celebration Rum which grew by 21% to 3.53 million cases has been recognized as among the fastest-growing regional brands in the world. Packaging Change:

 As part of its ongoing process of focusing on key brands, your Company conducted an internal exercise in brand transformation. This has seen the revamping in the packaging of some of the major brands and identification of key brands such as McDowell’s No.1 Whisky and McDowell’s Signature with unique and prestigious events such as the music concerts featuring Sir Elton John and the Rolling Stones and the Signature Golf Club Championship.

Manufacturing Facilities:

 The company has expanded total manufacturing facilities under its control to 38 spread across all consuming states. All the owned manufacturing units are ISO certified.

Technology/ENTERPRISE RESOURCE PLANNING (ERP):

 The company has gone live with SAP R/3 at all locations in South India. Implementation for the entire organization is scheduled to be completed by December 2003. Once fully implemented, the system will help in managing costs, increasing transparency and consistency of information for the benefit of both the Management and the Shareholders.

2003-04

 A record sales performance of over 38 million cases by UB Group’s spirits business, to which Mcdowell alone has contributed over a 25million cases, has positioned us as the 4th largest spirits maker in the world.  McDowell’s No. 1 range comprising of whisky, rum, and brandy have clocked a stellar performance with sales crossing 13.5 million cases which compares total sales of just 14 million cases by our nearest national competitor.

Heavy Taxation:

 The beverage alcohol industry has been characterized by continuous down trading by consumers in the face of inexorably rising prices driven by increasing levels of tax.  For every Rs 100 that the consumer pays at a retail outlet, over Rs 60 goes to the state Exchequer in the form of some tax or levy.  In this backdrop, McDowell’s achievement of a growth of 22% in its more expensive first-line products is particularly significant.  Taking the industry as a whole, McDowell has a dominant 31% in the first line segment which is reflective not only of management effort but also of consumers’ willingness to pay for a superior product by the century-old McDowell’s name.

Glass bottle industry:

 McDowell is also investing in new and innovative packaging options, which has become important because of the near monopoly situation in the glass container industry in India. Glass bottles comprise one of the largest components of costs of your company. Consolidation in the industry has led to unprecedented increases in the cost of glass bottles.

Brand Building:

 International Artists were brought for the first time in India. The international design firm, Classens of London, is retained by McDowell to constantly refurbish and revitalize the packaging of your company’s offerings In keeping with McDowell’s international standing in the beverage alcohol industry.

Performance of the company:

 FY 04 has been a year of historic milestones for your Company. In recording sales of over 25 million cases, McDowell has clocked a growth of 18% in comparison with 14% by the industry as a whole.  In an environment characterized by a pronounced downshift to cheaper products, largely due to the impact of ever-increasing taxation on end-consumer prices, McDowell has succeeded in growing the volumes of its 1st line products by as much as 22%.  The flagship range of products under the umbrella branding of McDowell’s No. 1 comprising of Whisky, Brandy, and Rum has achieved the unique distinction of clocking sales of over 13 million cases. Other core brands like Black Dog Premium Scotch Whisky, Signature Rare Whisky, Old Cask Rum, and the Blue Riband series of products have all contributed to the year’s success.  Your Company’s manufacturing establishment has kept pace with the fast pace of growth in sales. It caters to 32 States/ Union Territories across 39 manufacturing locations both owned and contracted.

IMFL Industry:

 Shortage of molasses caused by a failure of the sugarcane crop in several parts of the country has led to steep increases in the price of the principal raw material, Rectified Spirit and ENA. McDowell has been able to hedge part of the impact by having built up inventories in anticipation of this situation. Nevertheless, from the second quarter onwards, your Company too will face the impact of the cost pushes on this account.  The Indian alcoholic beverages industry is classified into Beer, Wine, Country Liquor, Indian Made Foreign Liquor (‘IMFL’), and the Imported Spirits segments.  The IMFL Industry grew by about 14%. Imported brands account for about 1.5% of total consumption, while country liquor is estimated to be about 1-1/2 times the IMFL market.  Consumption is predominately whisky, which accounts for nearly 60% of the market. High end- consumer prices, due to increasing taxation, have caused a downward shift towards cheaper products in many categories.  Low per-capita consumption, the high volume in the unorganized segment of the business with its likely transition into the organized sector, the changing consumer perception of alcohol, and progressive regulatory changes are key drivers to the growth of the IMFL industry.

Business Analysis:

 McDowell, the Indian industry leader set new records during FY04, with a growth of 18% overall, taking its sales to over 25 million cases.  Not only has the overall growth of 18% been well over industry growth, but, more significantly, in an environment where consumers are down trading, McDowell has notched up growth of 22% in its 1st line range of products.  McDowell is the flagship company of the UB Group Spirits business, having a market share of 26%. The Spirits Business sold an unprecedented 38.2 million cases during FY04, including over 2.7 million cases through Triumph Distillers & Vintners Pvt. Ltd., which manufactures and sells the popular Gilbey’s range of IMFL in India, and 9.7 million cases by Herbertsons Ltd.  This has catapulted the Group to the position of the 4th largest Distilled Spirits Marketer in the world. More importantly, the share of business in the profitable 1st line segment is a dominant 46%.  The Company today has the distinction of being the only spirit marketer in Asia to have 9 millionaire brands. It has a comprehensive portfolio of 55 brands and a large and well- positioned manufacturing base, which consists of 12 owned distilleries all of which are ISO 9001 compliant.  Additionally, the Company sources its brands from over 27 contract distilleries. This spread of manufacturing facilities is a source of competitive advantage because of the costs associated with interstate commerce in beverage alcohol.  UB Group Spirits business has become the leading suppliers to the Canteen Stores Department with sales of over 2.5 million cases.

Marketing Campaign:

 Products under McDowell’s No.1 umbrella, viz. Whisky, Brandy & Rum achieved a quantum jump in sales to 13.5 million cases. McDowell’s No.1 Whisky, true to its “Mera No.1” claim, crossed the 5.4 million cases mark becoming the first prestige whisky brand in India to achieve this distinction.  McDowell’s No.1 Celebration Rum closed the year with sales of 4.3 million cases, a significant achievement considering the stagnant rum market. McDowell’s Brandy captured an additional 6% market share by registering sales of 3.8 million cases.  The other significant sales drivers were Old Cask Rum, which sold 1.45 million cases, and the Blue Riband Series with sales of a million cases. Majestic XXX Rum, a south centric brand crossed the 1 million cases mark to become the latest addition to the Millionaire Brand portfolio of the Company.  McDowell’s Signature Rare Whisky increased its market share in the premium whisky segment to 20% this year clocking sales of 0.24 million cases.  Newmarket launches during the year included Scottish Crown Pure Scotch Whisky. McDowell’s also rolled out the Derby Special brand of whisky for the young and upwardly mobile consumers, following a soft opening in the previous year. The rollout has received a good response.

Manufacturing Facility:

 The Company has tied-up additional manufacturing facilities to keep pace with growing demand and today has a total of 39 units manufacturing its products. In keeping with the need to cater to the requirements of manufacturing Ready-To-Drink (RTD) low alcoholic beverages, the Company has created the capacity to produce 6 lakh cases per annum of RTD products.  Revenue From Operations: The Company has recorded revenue from operations of Rs.16,513 million, a jump of 13% over the previous year.  The brand franchise fees for the current year amounts to Rs. 875 million which would represent an estimated gross turnover of Rs. 7,242 million. If the turnover of all its sales could be consolidated, your Company would have an estimated gross turnover of Rs. 22,880 million. The operations of the Company resulted in a PBIDT ofRs. 924.65 million (previous year Rs. 683.60 million).

Outlook:

 The last quarter of fiscal 2003-04 has seen a rising trend in spirits prices brought about by a failed sugarcane crop and the legislation requiring increased dosage of ethanol in motor spirit. This trend has continued and prices have risen to unprecedented levels post the end of fiscal 2003-04.  In a situation of Government administered prices in major markets, price increases to offset the cost-push are difficult to come about, thereby impacting the Company’s profits.  McDowell has been able to partially offset the negative impact of higher raw material prices through enhanced inventories built up at the end of the previous year in anticipation of the situation.  Internal Control Systems: The Company has a robust system of internal controls which have been incorporated into their enterprise-wide SAP system.  Additionally, checks on the system are carried out throughout the year by a network of independent auditors at branches, the Company’s operations review team, and are also subject to review by the UB Group Internal Audit Department.

2004-05

Acquisition:

 McDowell was able to complete its acquisition of majority shares in Shaw Wallace & Company which has, for long, been our traditional rival in the marketplace.  After 7 years of battles fought across many courts in the country, an arrangement was worked out with Mr. Kishore Chhabria for the purchase of his stake (including the disputed shares) in Herbertson's for a total cost of Rs 131.16 crores.  Your Company’s wholly-owned subsidiary, Phipson Distillery Ltd. acquired 4,672,791 shares from the Chhabria Group representing 49.07% of the paid-up capital of Herbertson's.  This gives the UB Group a combined holding of 85.14% in Herbertsons Ltd., of which 61.01% is owned by your Company along with its subsidiaries, while the balance is held by other UB Group companies.

Brands Performance:

 McDowell’s No.1 Whisky sold 5.5 million cases, McDowell’s No.1 Celebration Rum achieved 5.04 million cases, and McDowell’s No. 1 Brandy reached 4.8 million cases. McDowell’s Signature Rare Whisky increased its market share to 23% with volumes of over 0.35 million cases.  Additionally, Bagpiper Whisky – a brand of our subsidiary, Herbertsons sold a historic volume of 7.9 million cases making it 1st among the 4 UB Group brands on the list.

Performance of the Company:

 Proactive management activities during the year have helped more profitable first-line brands of your Company to record an increase of about 15%. A deliberate policy to exit non-profitable low-end product lines resulted in overall volume growth of only 1% whereas Turnover for the year recorded an increase of 10% over the previous year.  The combined Group including Shaw Wallace today accounts for nearly 33% of the output of India’s current glass container capacity and unified purchasing is expected to yield economies.

Industry Overview:

 The company currently operates only in the IMFL space. The IMFL industry is estimated to be in the region of 125 million cases of 9 Bulk Litres (BL) each. While the Civil Market accounts for about 112.5 million cases, the balance of 12.5 million cases is sold through the Canteen Stores Department (CSD) segment.  Contrary to international trends, brown spirits account for 95% of the Indian industry. Whisky dominates the industry at 54%, followed by rum at 25% and Brandy at 16%. White Spirits comprising Gin, White Rum, and Vodka account for the residual 5% of the industry.

Regulatory Environment:

 While licensing Greenfield units or sanctioning capacities for the production of alcohol is the Central Government’s domain, the authority to impose taxes, regulate distribution, storage, and marketing, lies with the States.

Business analysis:

 The fiscal year 2005 was a trying time for the Industry. The prices of its major raw material – Molasses/Rectified Spirit/Extra Neutral Alcohol reached unprecedented levels as a result of a failed sugarcane crop coupled with Government legislation necessitating increased dosage of alcohol in the fuel.  As a result of this cost-push, the profitability of brands at the lower end of the price spectrum was seriously eroded and therefore the management took a conscious decision to discontinue the production and sale of many such brands.  Consequently, while the growth in McDowell’s overall volumes was just above 1%, the growth in its mainline brands was 15%, well above the industry growth rate. Despite a 2.4 million cases drop in the volumes of its cheaper brands, McDowell’s volumes continued to remain above the milestone of 25 million cases achieved last year.  McDowell is the flagship company of the UB Group Spirits Business. This business sold an unprecedented 40.1 million cases during FY05 including 3 million cases through the Company’s ultimate subsidiary Triumph Distillers & Vintners Private Limited, which manufactures and sells the popular Gilbey’s range of IMFL in India and 11.3 million cases through Herbert sons Limited.  Post the acquisition of the Shaw Wallace distilled spirits business after the close of the fiscal year, the spirits business volumes have exceeded 56 million cases, catapulting the Group to the position of the Second largest Distilled Spirits Marketer in the world.  The Company has the advantage of a strong presence in every flavored segment through its portfolio of 60 Brands, sourced through a large and strategically located manufacturing network comprising 12 owned distilleries and 27 contracted sources of supply.  The UB Group’s spirits business is the leading supplier to the Canteen Stores Department with annual sales of over 3 million cases.

Marketing:

 McDowell’s No.1 continued its association with world-class music concerts by bringing the world’s No.1 Pop sensation, Enrique Iglesias, to two live concerts in the country. Similar events are lined-up for the future.

Manufacturing:

 In its bid to be able to minimize Total Delivered Cost, the Company is tying up additional manufacturing facilities in strategic locations. The Company today sources its products from a total of 39 manufacturing facilities spread across 26 states. Revenue from Operations:

 The Company’s revenues from operations stood at Rs. 17,204 million, an increase of 10% over the previous year.  The Company’s products are manufactured and sold by various associate and contract distilleries and the income arising therefrom is reflected as income arising from sales by manufacturers under “tie-up” agreements and income from the brand franchise.  The total amount under these heads is Rs. 636 million from a gross turnover of Rs. 7,725 million. In other words, if the turnover from the sale of all its products were to be consolidated, your company’s estimated gross turnover would have been overRs. 24,929 million.  The operations of the Company resulted in a PBIDT of Rs. 905.7 million (previous year Rs. 829.4 million).

Borrowings:

 In all the borrowings have gone up by Rs. 2,512 million as of March 31, 2005, including borrowing for working capital.

Risks and Concerns:

 A favorite of Governments, when they need to bridge their budgetary deficits, the Alcoholic Beverages Industry continues to suffer the twin impact of excessive taxation and over- regulation. As a result, increasing, and often unreasonable, levels of taxation impede profitability despite continued growth in demand.  Keeping with the commitment to the WTO, the Government of India has been consistently reducing the import tariff on spirits, although some measure of protection has been granted by the imposition of countervailing duties.

2005-06

 The change of name from McDowell to United Spirits consequent to the court approval for mergers.  Operationally, the financial year 2005-06 has seen sales volumes nudging 60 million cases, with strong double-digit Growths at the top-end range of our product offerings.

Acquisition:

 We have already completed the acquisition of a well-known winery in France. Bouvet Ladubay is a company with a provenance going back 150 years and produces sparkling wines of exceptional quality.

Industry Overview:

 The IMFL industry during 2005-06 is estimated to be marginally above 133 mn cases of 9 bulk liters (BL) each. This represents a growth of around 9% over the previous fiscal year. The year under review has seen a de-growth in the volume sold to the defense forces through the Canteen Stores Department (CSD) owing to a reduction in supply quotas and stringent supply control measures.  Brown spirits continue to dominate the IMFL Industry - Whisky at 56%, Brandy at 16% and Rum at 24% - aggregating to 96%; White Spirits – comprising the Gins, White Rums & Vodkas are a mere 4% of the Industry.  ‘Browns’ in India are also growing y-o-y which is in sharp contrast to global trends, where they are stagnant/de growing.

Business Analysis:

 During the period of high raw material prices in 2005, your Company had consciously decided to discontinue production and sale of brands whose profitability was seriously eroded on account of the cost-push.  This decision continued to remain in force in FY06, with the result that despite a 3.7 million cases drop in sales of its low-end products, and overall volumes have risen by 3.4 mn cases.  The growth in the Company’s mainline brands was 15% however with the deliberate de- emphasis of the lower end of the product range, overall growth was only 6%. As a result of the operational merger of the various Spirits Companies of the UB Group, the resultant Company United Spirits Limited (USL) sold an unprecedented 59.4 mn cases during FY06.

Brand Performance:

 Your Company’s Flagship brand McDowell’s No.1 offered in 4 flavors – Whisky, Brandy, Rum & White Rum – sold over 17 mn cases during the year, a 12% growth. Bagpiper Whisky became the world’s largest selling whisky in the calendar year 2005 – a fact certified by Impact International, the US-based publication that is viewed as the authentic databank of the alcoholic beverages industry worldwide. With a 38% growth in volumes during the fiscal year 2006, Bagpiper ended the year with sales of about 11 mn cases.

Revenue from Operations:

 The Company’s revenues from operations at Rs.33,409 mn reflect an increase of 94% over the previous year.  The income arising from such sale is reflected under the head ‘Income from tie-up manufacturing agreements’ and ‘Income from brand franchise’. The total amount under these heads stands at Rs.2,513 mn from a gross turnover of Rs. 19,948 mn.  Therefore, if the turnover from the sale of all its products were to be aggregated, your Company’s estimated gross turnover would be more than Rs. 53,357 mn.  The operations of the Company resulted in EBITDA of Rs. 2,588 mn, an increase of 186% over the previous year of Rs. 906 mn.

2006-07

Acquisition:  The strategically important acquisition on May 16, 2007, of Whyte and Mackay Limited, the 4th largest Scotch Distillers in the World. The acquisition of this Glasgow (UK) based Company for an enterprise value of GBP 595 Million was done through a wholly-owned subsidiary, United Spirits (Great Britain) Limited.  Consequent to the consolidation of the spirits business by amalgamation, inter alia, of Herbertsons Limited, Shaw Wallace Distilleries Limited, Baramati Grape Industries Limited, and Triumph Distillers & Vintners Private Limited with the Company, your Company has registered a milestone sale of more than 66 Million cases during the financial year 2006-07.

Industry Overview:

 In 2006-07, the IMFL industry grew over 16% to register sales of over 157 million cases of 9 Bulk Litres (BL) each. The industry was particularly buoyant with the opening up of the key Northern markets of Punjab, Haryana, and Chandigarh.  Changes in the alcohol policy in these States opened up the industry from one controlled by a few large syndicates to wide-spread ownership, thereby paving the way for reasonable prices and the free play of market forces.  However, post the year under review, Karnataka, a large and the only remaining bastion of country liquor in South India, decided to close down the country liquor market effective July 2007. This is expected to translate to a spurt in demand for IMFL, albeit at the bottom end of that market.  Despite an impressive 21% growth in White Spirits led by a phenomenal 44% growth in the Vodka segment, White Spirits, comprising Gins, White Rums and Vodkas continue to remain a mere 5% of the industry.  In sharp contrast to global trends, brown spirits continue to dominate the Indian IMFL space – Whisky at 57%, Brandy at 16%, and Rum at 22% - together aggregating 95% of this 157 mn c/s market.

Business Analysis:  When prices of the primary raw materials had escalated, your Company had consciously decided to de-emphasize both production and sale of the low-end brands whose profitability was under strain due to the rise in input costs.  In FY’07 too, this position continued to be the guiding principle for the business, with the result that the business took a drop of 2.95 million cases in sales of the low-end products.  Despite this, overall volumes rose by 6.99 million cases to a level of 66.4 million cases. The Company’s Key Premium Brands grew by 19%; deliberate de-emphasis of the low-end range, however, pulled down the average growth to 12%.

Brand Performance:

 McDowell’s No.1 is arguably the largest umbrella brand in the alcoholic beverages business. Offered in the flavors of Whisky, Brandy, Rum, and White Rum, the brand sold over 22 million cases during FY’07, a 32% growth over the previous fiscal. Bagpiper Whisky continued to remain the world’s largest selling non- Scotch whisky - with a 25% growth, its volumes were nearly 14 million cases.

2007-08

Performance:

 USL, as one of the bell-weather companies in the FMCG category, has got off to an explosive 17% growth in the first half of the current fiscal year, following an equally impressive 11% growth in the financial year under review.  Importantly, we are proud not merely to have sustained overall growth in volumes but also to have been able to continue with the trend of focussing towards the premium end of the product range, thus ensuring sustained profitability in the face of sharply increased input costs.  USL’s position as the third-largest distiller in the world was further consolidated by the acquisition, in May 2007, of Whyte & Mackay of Glasgow, which is the fourth largest distiller of Scotch whiskies.  Your Company’s basket of Millionaire brands has risen to 17 during the year, with the inclusion of Romanov vodka, which saw growth of over 12% during 2007–08. McDowell’s No. 1, which was created as an umbrella brand having whisky, rum, and brandy variants, has become the most valuable brand in USL’s portfolio.Its sales of 27.56 million cases contributed to 39% of USL’s overallcontribution.  "McDowell" is now India's largest single consumerbrand by retail value. Bagpiper remains the world’s largest non-Scotch whisky brand with sales of 14 million cases.

Acquisition:

 While the Company had made significant international investments having paid GBP 595 million for Whyte & Mackay on top of the acquisition and recent capacity enhancement of Bouvet Ladubay, a sophisticated winery in France, USL remains an India-focused entity.  The Whyte & Mackay acquisition provides the Company with two long term advantages: (a) It provides a perennial source for Scotch whisky, which is an important blending material for our core IMFL business. (b) The strong suite of brands of both blended as well as single malt whiskies owned by Whyte & Mackay gives us a firm foothold in this super-premium category.

Performance of the Company:

 Brand Sales were up 11% while Sales Income at Rs.31,731 million grew 17%. This is a reflection of the increase in sales at the upper end of the brand spectrum as a result of a concerted drive by the Company to ‘premiums its portfolio with the resultant increase in profits.  Operating profits at Rs.5,176 million were up 32% from Rs.3,898 million in the previous year.

Industry Overview:

 Your Company is the lead player in the IMFL space with a commanding presence in this 190 million case industry which is growing at a CAGR of 14%. Additionally, subsidiaries of your Company operate in the BIO space in Spirits as also in Wines.  In fiscal 2007-08, the IMFL industry grew 20%, albeit primarily in the cheaper price segment (at 14%); a large part of this growth is due to the suspension of activity on the Country Liquor front in Karnataka, hitherto a large consumer of the product.  The low-priced segment of the industry added on nearly 21 million cases in the current fiscal compared to about 11 million in the upper segment, referred to in industry parlance as ‘First Line’ products.  Vodka with a 28% growth led to a 25% growth in White Spirits. However, the salience of White Spirits (Vodka, Gin & White Rum) to the overall industry continues to be small – under 5%. India continues to be a ‘browns’ country contrary to global trends, with Whisky at 56%, Rum at 23%, and Brandy at 16% - aggregating 95% of the overall pie.

Business Analysis:

 Based on constant monitoring of brand-wise profitability, the sale of low-end products is undertaken on a very selective basis. As a result, while the main products grew by nearly 7 million cases, the low-end products added on less than half a million cases. However, with the salience of the mainline brands at around 95% of the total, it will be imperative for the Company to focus on profitable growth even at the lower end of the market.  The Company’s mainline brands grew 12% while overall growth was 11%, as a result of the decision to decelerate the growth of the low-end range.

Brand Performance:

 McDowell’s No.1 – the largest umbrella brand with a presence across the key flavors of Whisky, Brandy, and Rum continues its dream run, registering a phenomenal sale of 27.5 million cases which represents a robust 21% growth over the 22.7 million cases in the previous year. Bagpiper Whisky continues to be the largest Whisky outside the ‘Scotch’ space with overall sales of just under 14 million cases.  Romanov, the Company’s premium Vodka offering is the latest addition to ‘the millionaire club’ having crossed the landmark million cases in sales in the current fiscal with a 17% growth. With this addition, the USL portfolio of Millionaire brands has now increased to 17.  Sales of the Company’s other premium brands – Antiquity Blue Whisky, Signature Whisky, White Mischief Vodka, DSP Black Whisky, and Honey Bee Brandy continue to maintain comfortable double-digit growths.

Marketing:

 Your Company capitalized on a unique opportunity with the sponsorship of the Bangalore Team Royal Challengers in the Indian Premier League T-20 Cricket Tournament.  This franchise was acquired in perpetuity with a committed payment for the next 10 years by your Company’s subsidiary M/s. Royal Challengers Sports Private Limited. The association will be used as an effective platform to fuel the growth of your Company's premium offerings.

Taxation:

 The Alcoholic Beverages industry is the favorite whipping boy of the Governments, both Central & State when they need to balance their budgets. As a result, the industry suffers from the twin impact of over-regulation and excessive taxation. Nearly two-thirds of the street price of a bottle of alcohol goes to the State and Local Governments towards taxes and duties.

Regulations:

 With over half the volume sold to monopoly Government buying agencies, price increases in the Indian market are not easy to come by.  During the year under review, the monopoly buying agency in Tamil Nadu granted a not unreasonable price increase across the board thereby shoring up the viability of the industry considerably.  Another large market, Andhra Pradesh, on the other hand, continues to deny the industry even reasonable inflation-linked increases, while at the same time boosting its recoveries from this industry. Sustained efforts to convince the buying agencies to agree to a more rational policy however continue.  While the lack of such price increases to even cover inflation has a bearing on the Company’s profitability, your Company has judiciously used business strategy and cost control measures to improve profitability. International Operations:

 During fiscal 2008, United Spirits Limited acquired the entire capital of Whyte & Mackay, Glasgow, the 4th largest producer of Scotch in the world. This affords your Company a perennial source of Scotch for use in IMFL blends as also access to well-known products like Jura, Dalmore, and the eponymous Whyte & Mackay.  The Company’s management has been reinforced after the acquisition. Products from the Whyte & Mackay stable are now available in select Indian markets – it is also proposed to bottle some of these products in India.  After the acquisition of M/s Bouvet Ladubay, your Company has undertaken an expansion of its winery at Saumur in the Loire Valley of France–when completed, the winery will have an annual capacity of 8 million bottles.  While the Company’s products continue to grow in its traditional markets, its products have been introduced in select Indian metro markets on a BIO basis during the year. The technical expertise available within M/s Bouvet Ladubay is also being utilized for the establishment of the state-of-the-art winery in Maharashtra under your Company's subsidiary, Four Seasons Wines Limited.

2008-09

Performance:

 The Company has been able to record a 20% growth in volumes during the year with some key brands such as Signature Whisky recording a growth of 27% to enter the Millionaires Club. The umbrella McDowell’s brand continues its buoyant growth and has earned the distinction of being India’s largest consumer brand calculated by the retail value of sales.  The year, however, witnessed a steep rise in input costs. Reduced sugarcane output and a political standoff between state governments and sugarcane farmers in key producing states during the crushing season, resulted in an unprecedented spike in input costs.  Despite an impact of over Rs.3.5 billion on account of higher input prices during the year, the Company managed to show only a marginal reduction in profits for the year which stood at Rs.2.97 billion as against Rs.3.11 billion in the previous year.

Industry IMFL:

 For the year ended March 31, 2009, the total IMFL industry stood at 214 million cases and it is anticipated that double-digit growth will continue in the industry for several years to come. The IMFL industry has been growing at a fast pace of 13% and for the year ended March 31, 2009, stood at 214 mn cases.  Karnataka, where Country liquor was banned in July 2007 has particularly seen a spurt in volumes of the low-end brands.

Business Analysis:

 The Company’s main-line brands grew by 19%, while overall growth was 20%, despite the selective defocus of low-end brands in an era of high input costs.

Brand Performance:

 McDowell’s No.1, the largest umbrella spirits brand in the world, sold over 31.5 million cases in the fiscal year just ended which represents a 15% growth over the previous year. McDowell’s No.1 Celebration Rum at over 10 million cases is now the world’s 3rd largest Rum growing more than 24% at a time when other Rum brands in the top 100 have either regrown or at best registered only marginal single-digit growth.  The third flavor under McDowell’s No.1 umbrella – the Brandy - continues at its perch of the world’s largest selling brandy. Sales of the brandy flavor were hampered by the lack of adequate capacity in Tamil Nadu, one of the largest markets for the flavor.  The Company’s top brands have contributed significantly to the 20% sales volume growth recorded in fiscal 2009. Signature Whisky, the premium whisky offering entered the coveted ‘Millionaires Club’, having recorded a 27% growth to sell over a million cases this fiscal. Blue Riband – for long the touchstone for Gin in India – also entered the Millionaires Club this year.  At the end of the fiscal year, 19 brands in your Company’s portfolio are members of the spirits Millionaire's Club – a hallowed group of brands that sell over a million cases of 9 liters each annually.  During fiscal 2008 the Company had introduced the products from its overseas subsidiaries, Whyte & Mackay, Bouvet Ladubay, and Liquidity Inc. to the Indian market. This process continued in 2009 with a national roll-out of these products which have all been well received in the Indian market.

Red Flags:

 Rs. 11,093.202 Million (2008: Rs.14,987.889 Million) given as loan to the subsidiaries. The entire loan is non-interest bearing.

2009-10

 100 Million Cases in 2009-10. USL brands grew 14% - world’s top 100 spirits brands grew 1%* USL is one of the two companies in the world with more than 10 brands featuring in the Top 100 Brand Listing.  McDowell’s No.1 - the largest selling brandy in the world, Celebration Rum - the third largest selling rum in the world, Black Dog - the largest premium Scotch Whisky in India, Black Dog 12- Yr Old - fastest growing premium Scotch Whisky,DSP Black - fastest growing in the prestige whisky category, White Mischief - #1 in the regular vodka category, Old Cask - fastest-growing rum in the regular rum category, Honey Bee - fastest growing in the regular brandy category.

Wines Category:

 Recognizing the latent though still small demand for wines within India, USL has set up a state- of-the-art winery in Baramati with a capacity to bottle four million bottles per year. All the evidence points to this segment growing at a scorching pace, which can only be accelerated by USL’s distribution strengths. I do not doubt that over the next several years, wines will develop to be an important category for us. Performance:

 The Company has turned in a stellar performance despite a challenging operating environment. Achieving sales of over 100 Million cases is a major milestone, confirming the Company's place as the No. 2 Spirits Marketer in the World.

Industry Overview:

 The global spirits industry is estimated at over 2 billion cases - with the Indian industry accounting for about 12% at 236 million cases.  Your Company is by far, the lead player in India with sales of over 100 million cases and is currently ranked as the world’s Second largest distilled spirits marketer by volume. The Indian spirits industry has grown at a CAGR of 14% over the last 5 years, while USL has outperformed the market with a growth of 20% during the same period.  The Indian spirits industry is predominantly a ‘browns’ market with Whisky, Rum, and Brandy being the prominent flavors and White Spirits (Gin & Vodka) having only 5% share. This is contrary to international trends, where ‘Whites’ have a predominant presence.

Business Analysis:

 The reduction in Central excise duties introduced as a fiscal relief measure by the Govt. during 2009-10 has brought about some savings in the cost of packaging materials.  Consequently, while main-line products added on 10.2 million cases during fiscal 2010, the low- end products added on only 1.7 million cases in sales. However, with the sales of the mainline brands at 91% of the total sales, it will be imperative for your Company to focus on profitable growth even if it is at the lower end of the market.  Sales of your Company’s brands grew to 100.2 Million cases, an increase of 14% over the 88.3 million cases of the previous fiscal. Together with the brands of the international subsidiaries, the sales volume crossed 102 Million cases. Brand Performance:

 The McDowell’s No.1 range of alcoholic beverages, comprising whisky, brandy, and rum, ended fiscal 2010 with sales of 35.7 million cases, up 13% from the 31.5 million cases of the previous fiscal, thereby retaining its pride of place as the largest umbrella brand in alcoholic beverages.  No.1 McDowell’s Whisky occupies the 3rd spot internationally in the whisky rankings. McDowell’s No.1 Brandy continues to be the largest selling brandy in the world with sales of 9.8 Mio cases. McDowell’s No.1 Celebration Rum has far out-sold its competition in India with sales of 12.2 Mio cases and is currently ranked as the 3rd largest rum in the world.  Bagpiper Whisky ended the year in the numero uno position as the largest whisky in the world, with sales of over 16 Mio cases.  During the year your Company added on its 20th Millionaire (a brand that sells more than a million cases in a fiscal year) in Bagpiper Rum. Your Company has now 3 brands that sell over 10 Mio cases each in addition to two that sell between 5 and 10 Mio cases every fiscal year.

Outlook:

 During fiscal 2010, the buying agency in the state of Andhra Pradesh granted a price increase after a long gap of 7 years. This has improved profitability in this large market. USL's leadership status across all States helps in securing price increases in some or other states.

International Operations:

 The acquisition of Whyte & Mackay, the 4th largest producer of Scotch in the world, in fiscal 2008 has provided your Company with a perennial use of Scotch for use in the blends of its IMFL brands. Additionally, it has provided your Company with access to a large stable of well- known brands to cater to the demand of the constantly up-trading Indian consumer. Local bottling of these brands is also being undertaken according to a carefully calibrated plan.

2010-11  United Spirits Limited (USL), the flagship alcohol company of the USD 3.75 billion UB Group, achieved global leadership of the alcoholic spirits industry by volume, selling over 113 million cases in FY 11 - a 13% leap over the last fiscal. The Company’s tally of ‘millionaire’ brands (brands that annually sell over a million cases) rose to 21 including its premium grain-based whisky from the McDowell’s No. 1 portfolio - McDowell’s No.1 Platinum which achieved this landmark in its year of launch.

Business Highlights:

 In FY11, USL brands grew more than 12%, while the world’s top 100 spirits brands grew 4.3%*. 17 of the top 25 global premium spirits brands either lost ground or grew less than 5% each in the same period.

Brand Performance:

 Bagpiper Whisky continues to be the world’s largest selling whisky. McDowell’s No.1 with sales of over 40 million cases and a growth of over 14% is the world’s largest umbrella brand in the domain of the alcoholic spirit.  McDowell’s No.1 Brandy continues to be the world’s largest selling brandy with sales of over 12 million cases.  McDowell’s No.1 Celebration Rum is the world’s 3rd largest (and India’s largest) rum with sales of over 14 million cases.

Performance:

 During the year under review, the Company has achieved a sales volume of over 112 million cases, representing a growth of 12% over the previous year, thus making it the largest distilled spirits marketeer in the world in terms of volume. Profit from operations at Rs. 5,925.149 million registered a growth of 16% over the previous year.

Acquisition:  The company acquired 7,322,280 Equity shares constituting 54.69% of the paid-up capital of PDL. Further, 977,212 Equity shares, constituting 7.30% and 2,677,640 Equity shares, constituting 20.00% of the paid-up capital of PDL were acquired from the open market. Consequently, PDL has become a subsidiary of the Company.  PDL is in the business of manufacture and sale of Extra Neutral Alcohol (“ENA”), which is the primary ingredient for the manufacture of IMFL.  The company proposes to acquire 100% of the paid-up capital of SDL and has so far acquired 35,954,280 equity shares constituting 61.53% of the paid-up capital of SDL. Consequently, SDL has become a subsidiary of the Company. SDL is engaged in the business of manufacturing, sale, and/or marketing of Extra Neutral Alcohol ("ENA"), IMFL.

Integrating Raw Material Operations:

 Your Company presently procures the majority of its ENA requirement from external suppliers, some of whom are also competitors in the finished product arena. To reduce the dependence on such suppliers, your Company has acquired two entities having primary distillation units, during the year, namely Pioneer Distilleries Limited and Sovereign Distilleries Limited, having plants in Maharashtra and Karnataka respectively.  These also will go a long way to help the Company to gain arbitrage over ENA costs. These two units together have a distillation capacity of 340 Kilo Litres Per Day (“KLPD”) representing 25% of the requirement and should go a long way to reduce dependency on external suppliers.  The company is evaluating plans to set up a glass manufacturing unit in South India for captive consumption.

Change in Auditors:

 Proposed to appoint M/s. Walker, Chandiok & Co., Chartered Accountants, as the Statutory Auditors to hold office from the conclusion of this AGM.

Industry Overview:  The Indian Branded Spirits Industry was around 270 million cases in the Fiscal year 2010-11 or 12.3% of the international industry. Contrary to international trends, India continues to remain a ‘Browns’ market with Whisky, Rum, and Brandy being the dominant flavors.  Including the sales of its international subsidiaries, the volume figure stands at just under 114 million cases. Your Company pipped long-time industry leader Diageo to the number one spot. The high point of this achievement is that almost all of your Company's volume has been sold in a single geography, viz India, in contrast to the worldwide spread of other international players.  Growths in the Indian Spirits market have been way above that of other geographies. Your Company's brands grew over 12% in the last Fiscal, the world’s top 100 Spirits brands grew just 4.3%.  17 of the top 25 global premium Spirits brands either lost ground or grew less than 5%. Well- known names like Smirnoff, Bacardi, Johnnie Walker, and Absolut, collectively added less than 3 million cases during the year, while your Company's brands added over 12 million cases.  The Indian Spirits market has grown at a CAGR of 15% over the last 5 years while your Company has outperformedthe Industry during the same period with a growth of just under 17%.

Brand Performance:

 Bagpiper Whisky continues to be the world’s largest whisky with sales of over 16 million cases while McDowell’s No. 1 Whisky is the third-largest whisky in the world.  The umbrella, ‘McDowell’s No. 1’ brand, which has a presence across three flavors – Whisky, Brandy, and Rum, registered sales of over 40 million cases in FY 11, an increase of 16% over the 35 million cases of the previous Fiscal. This sharp increase has helped it retain its number one position as the world’s largest beverage alcohol umbrella brand.  McDowell’s No. 1 Brandy continues to remain the world’s largest selling Brandy with sales above 12 million cases and a growth of 22%. This is despite it being hampered by a change of ordering process in Tamilnadu, its largest market.  McDowell’s No. 1 Celebration Rum with a sale of 14.5 million cases and a growth of 19% is far and away from India’s largest Rum and the world’s third-largest seller in this flavor category.  During the year, your Company added yet another ‘millionaire’ in McDowell’s No. 1 Platinum Whisky – a 100% grain offering launched less than 12 months ago.  In Fiscal 2011, the Company introduced a niche extension of its Black Dog range through the launch of Black Dog 18-Year-Old Whisky – this outstanding offering has been very well received by the market and has significantly upped the image of the Black Dog brand.  Of the increase of 12 million cases in the current Fiscal, the key brands of the Company contributed 90%. This is in keeping with your Company’s deliberate premiumization strategy to move its consumers up the value chain.

Outlook:

 Over two-thirds of the Company’s sales are made to large parastatal organizations controlled by the State Governments. Requests for price increases are often a tedious process and take considerable time to materialize.

International Operations:

 The Winery at Bouvet Ladubay had been shifted over a year ago to swanky new premises while simultaneously expanding its capacity to about 8 million bottles per annum. The policies of some of the State Governments concerning imported spirits have hampered the sales of Bouvet Ladubay products in India to an extent.  As part of a well-crafted strategy, Whyte and Mackay have de-emphasized the sale of bulk spirit and instead decided to focus on brand-building. Re-organization of selling arrangements in North America and the planned integration into the emerging markets for market development in Africa, Asia, and the Far East will go a long way in making Whyte and Mackay a force to reckon with in single malt and blended whiskeys.

2011-12 Performance:

 During the year under review, your Company has achieved a sales volume of over 120 million cases (Previous year 112 Million cases), representing a growth of 7% over the previous year, thus continuing to maintain its position as the largest distilled spirits marketer in the world in terms of volume.  Profit from operations stood at Rs.5,755 million (previous year Rs.5,925.148 million) registering a marginal decrease over the previous year mainly on account of an increase in input costs.

Industry Overview:

 India is currently the 3rd largest market for branded alcoholic beverages in the world by volume, and the Indian Spirits Industry accounted for an estimated 13% of the global spirits volumes in the calendar year 2011 according to Euromonitor International.  In our estimates, for fiscal 2011-12, the Indian branded spirits industry was around 295 million cases (1 case = 9 Bulk Litres). Contrary to international trends, India continues to remain a ‘browns’ market with Whisky, Rum, and Brandy being a dominant 95% of the market.  The Indian Spirits market grew approximately 8% in FY12 which translates to about 22.5 million cases. The sales of the Company grew by 7% during the same period and added on 8 million cases. In contrast, the world’s top 100 spirits brands grew under 3%*. In 2011, 16 of the top 25 global premium brands either lost ground or grew under 3%*.  The Indian Spirits market has grown at a CAGR of 12% over the last 5 years – your Company which has grown at 13% during the same period, thereby outperformed the industry.

Company’s Business:

 In 2010, your Company had become the largest distilled spirits marketer in the world by volume with worldwide sales of over 114 million cases. While the latest figures for other key players for the calendar year 2011 are still unavailable, we believe that having added on over 8 million cases in fiscal 2012, we would remain at the numero uno position. The worldwide sales of the Company during fiscal 2012 were over 122 million cases, of this 119 million cases have been sold in a single geography, viz. India.

Brand Performance:

 As part of the Company’s continued focus on premiumization, sales volumes in the "Prestige and above" segments grew 15% to 26.8 million cases, as a result, favorably impacting the growth in sales value and EBIDTA.  McDowell’s No.1 Whisky is India’s largest selling spirits brand with sales of 16.9 million cases during fiscal 2012. The McDowell’s No.1 franchise which has a presence across the Whisky, Brandy, and Rum flavors sold over 44.5 million cases, an increase of 9% over the 40 million cases it sold in the previous fiscal.  McDowell’s No.1 Brandy continues to remain the world’s largest selling brandy with sales of over 11.5 million cases.  McDowell’s No.1 Celebration Rum with sales of over 16 million cases grew at 11% to become the world’s 2nd largest Rum and by far, India’s largest.  Your Company ended fiscal 2012 with 22 ‘Millionaire’ brands – brands that sell over a million cases in a fiscal year.

New Markets:

 The Emerging Markets Division created early this fiscal has identified 4 key markets – 2 each in Africa and South East Asia as focus markets to start their foray into international emerging markets.

Regulatory Concern:

 Two markets that adversely affected the performance of your Company during the fiscal year, are West Bengal & Tamil Nadu. West Bengal hiked the duties on alcoholic spirits sharply in Aug- Sept’11 which resulted in 48% de-growth during the 3 months immediately following the hike.  While the de-growth in Q4 of FY12 has come down to 19% both for the Company and the industry, the sharp drop in volumes in a very profitable market affected the Company's overall business growth.  In Tamil Nadu, another large market both for the industry and for your Company, there was a sustained attempt at favoring new, local players at the cost of established national players like your Company.  Additionally, new legislation viz.the Food Safety & Standards Act (FSSA) has now been extended to cover alcoholic beverages. Representations about the industry’s inability to serve two masters viz. the local Excise authorities and the FSSA Inspectors, both often working at cross purposes, having fallen on deaf ears. The industry has now taken legal recourse against its inclusion under FSSA.

Software:

 Additionally, during the year the Company introduced a new centralized Software ARIBA for price discovery and smoothening the procurement process. This is already yielding economies in procurement.

International Operations:

 Bouvet Ladubay’s wine operations grew 225 basis points in volume terms to 5.75 million bottles during fiscal 2012 while sales turnover was up 250 basis points approx. The Company’s products continue to do well in their traditional markets of Europe, notably France & Germany.

2012-13

Diageo Acquiring Stake:

 In the early ’90s, the UB Group through Mcdowell & Company had setup a 50:50 JV, with United Distilleries one of the companies that merged at the turn of the century to form what is today known as Diageo.  This JV for the first time in India started bottling Diageo Scotch Whiskey brands- Black& White and VAT 69 along with your company’s own Black Dog Scotch Whiskey. Diageo acquired a 25.02% stake in your company.

Performance:  The company has achieved a sales volume of over 123.70 Million cases (Previous year 120.18 Million cases), representing a growth of 3% over the previous year, thus continuing to maintain its position as the largest distilled spirits marketer in the world in terms of volume. Profit from operations stood at Rs.5,774.717 million (previous year Rs.5,755,508 million) registering a marginal increase over the previous year.

Sick Acquisitions:

 Pioneer Distilleries Limited (PDL), Sovereign Distilleries Limited (SDL), and Tern Distilleries Private Limited (TDPL) subsidiaries of the Company have made a reference to the Board for Industrial and Financial Reconstruction (BIFR) under Section 15 of Sick Industrial Companies (Special Provisions) Act, 1985, because of the erosion of the entire net worth of these companies.  However, your Company is considering various steps, inter alia, infusion of further share capital by way of conversion of existing loan into equity capital to make the net worth of its subsidiaries positive.  Four Seasons Wines Limited (FSWL), a subsidiary of the Company has referred to the Board for Industrial and Financial Reconstruction (BIFR) under Section 23 of Sick Industrial Companies (Special Provisions) Act, 1985 because of erosion of more than 50% of its peak net worth during the immediately preceding four financial years.

Promoters:

 With the completion of the acquisition of the shares under the SPA, the Shareholders' Agreement dated November 9, 2012, between Diageo plc, UBHL, KFIL, and Relay B.V., as amended from time to time (“Shareholders’ Agreement”) is effective from July 4, 2013, and accordingly Diageo plc and Relay B.V. will be considered ‘promoters’ of the Company and will be included as promoters in subsequent disclosures by the Company. UBHL and KFIL will also continue as promoters of the Company. Continues Change in Auditors:

 M/s Walker, Chandiok & Co., your Company’s Auditors are not seeking re-appointment at the forthcoming Annual General Meeting. M/s. B S R & Co., Chartered Accountants, have consented to be the Auditors of the Company if appointed by the Members at the Annual General Meeting.

Industry Overview:

 The Indian Spirits Industry is the second-largest market and accounted for approximately 11% of global volumes for the calendar year 2012 according to International Research Agency Euro monitor.  During fiscal 2012-13, the Indian branded spirits industry was around 305 million cases, each case equal to 9 Bulk Liters. Despite relatively high growth in the white spirits (vodka, gin & white rum), India continues to be ‘brown spirits’ territory with Whisky, Brandy & Rum hogging over 95% of the spirits market.  Internationally the world’s top 100 brands grew at about the same rate as the Indian market (3.5%). The top 25 brands, taken together, however, grew slightly better at 5.8% but 14 of the top 25 brands either lost ground or grew under 5%. It is a matter of pride for your Company that 5 of the top 25 brands belong to the USL stable.

Company’s Performance:

 Sales of the Company’s brands grew 3% to over 123.7 million cases (Previous Year 120.18 million); together with the sales of international subsidiaries, volumes were over 126.5 million cases (Previous Year 122 million).  As part of the Company’s continued focus on premiumization, sales volumes in the "Prestige and above" segments grew 21% to nearly 29 million cases, which favorably impacted the growth in sales value and EBIDTA.

Regulatory Concerns:

 The Tamil Nadu market continues to play spoilsport – consumers in Tamil Nadu are still deprived of their favorite brands from the USL portfolio because of the artificial restrictions placed on consumer choice by TASMAC – the parastatal wholesale and retail channel in Tamil Nadu.  Against a capacity of 1 million cases per month at our Poonamallee Unit and a much larger demand, USL’s monthly capacity is being artificially pegged at under 0.75 million cases with an additional compulsion to supply medium/cheap brands to the extent of 40% of such truncated capacity - both, to benefit new and other existing local players.

Brand Performance:

 McDowell’s No.1 Whisky is India’s largest selling spirits brand with sales of 19.5 million cases during fiscal 2013. The McDowell’s No.1 franchise which has a presence across the Whisky, Brandy, and Rum flavours sold over 47.9 million cases, an increase of 8% over the 44.5 million cases it sold in the previous fiscal.  McDowell’s No.1 Celebration Rum with sales above 18.2 million cases grew at 13.6% to become the world’s 2nd largest Rum and by far, India’s largest.  Your Company ended fiscal 2013 with 21 ‘Millionaire’ brands – brands that sell over a million cases in a fiscal year.

International Operations:

 Bouvet Ladubay’s Operating profit grew up during fiscal 2013 by 39% and the PAT grew by 40% when compared to the previous year. This is despite the reduction in wine operations by 2.3% in volume terms to 5.62 million bottles from 5.75 million bottles and sales turnover down by 1.49% The Company’s products continue to do well in their traditional markets of Europe, notably France & Germany.  In Whyte and Mackay (W&M), the branded goods turnover grew by 36% year on year and is now almost 45% of the company’s turnover (38% last year). W&M has improved its Gross Profit margin and Operating Profit margin by over 1%.

2013-14 Change in MD:

 Appointment of Mr. Anand Kripalu (Mr. Kripalu) as a Director and Managing Director and Chief Executive Officer.

Performance:

 During the year under review, your Company has achieved a sales volume of over 120.7 Million cases (Previous year 123.70 Million cases). Sales of the Company’s brands in the Prestige and above segment grew 15% in the fiscal year ended March 31, 2014, and stood at 33 million cases (Previous Year 28.7 million).  For reasons which have been highlighted above and in quarterly communication following the declaration of results, viz. rising cost of inputs, forced curtailment of capacity in Tamil Nadu, etc., your Company deliberately de-emphasized sales of its popular brands which recorded sales of 87.6 million cases, a drop of 8% from the previous year’s 95 million cases.  Imputed turnover, i.e. the price at which the Company’s brands were billed from its manufacturing facilities (own/leased/contracted) and its warehouses, stood at Rs. 97,990.63 Million net of duties and taxes (Previous Year Rs. 93,862.90 Million) a rise of 4%. The growth in imputed turnover of the Company’s brands in the Prestige and Above category during the year was Rs.42,570 Million, up by 17% from the Rs. 35,806 Million recorded in FY 2012-13.

Promoter Holding:

 Relay B.V. now holds 54.78% of the paid-up equity capital of your Company.

Industry Overview:

 India is the second-largest market for alcoholic spirits accounting for approximately 13% of global volumes for the calendar year 2013 according to the international research agency Euro monitor. The Indian branded alcoholic spirits industry, at around 309 million cases (each case equal to 9 Bulk Liters), was only marginally up from the 307 million cases of the previous fiscal.  The Indian spirits market has seen double-digit volume growth over many years, however, the last two fiscal years (2012-13 and 2013-14) have seen this drop sharply to low single digits with performance in the reported year virtually flat with growth under 1%.  The top 100 alcoholic spirits brands – grew only 0.1%. The introduction of anti-extravagance measures by the Chinese government along with challenging economic conditions in mature and other emerging markets impacted the global premium spirits market.  The top 25 brands, however, grew slightly better at 0.8%. 16 of the top 25 brands either lost ground or grew volumes under 5%. It is a matter of pride for your Company that 6 of the top 25 brands in volume terms belong to the United Spirits Limited (USL) stable while in value terms, the McDowell’s No.1 franchise (across the whisky, brandy, and rum flavors), at US$ 3.59 billion, internationally, is the second-largest alcoholic spirits brand by retail value.  Additionally, three other brands of your Company – Bagpiper, Old Tavern, and Director’s Special - are listed in the Value Top 100.

Brand Performance:

 Sales of the Company’s brands in the Prestige and above segment grew 15% in the fiscal year ended March 31, 2014, and stood at 33 million cases (Previous Year 28.7 million). For reasons which have been highlighted above and in quarterly communication following the declaration of results, viz. rising cost of inputs, forced curtailment of capacity in Tamil Nadu, etc., your Company deliberately de-emphasized sales of its popular brands which recorded sales of 87.6 million cases, a drop of 8% from the previous year’s 95 million cases.  Overall sales of USL stood at 120.7 million cases (Previous Year 123.7 million). Imputed turnover, i.e. the price at which the Company’s brands were billed from its manufacturing facilities (own/leased/contracted) and its warehouses, stood at Rs.9,799 Crore net of duties and taxes (Previous Year Rs.9,386 Crore) a rise of 4%. The imputed turnover of the Company’s brands in the Prestige and Above category during the year was Rs. 4,257 Crore, up by 19% from the Rs.3,581 Crore recorded in FY 2012-13.  McDowell’s No.1 Whisky is India’s largest alcoholic spirits brand in both volume and value terms with sales above 23.7 million cases that retailed at US$ 1.95 billion – this is per the data for the calendar year 2013 compiled by Impact Databank and published by Impact International, a leading Alcobev industry monitor.  Three of the six fastest-growing brands during the calendar year 2013 are from the USL stable – viz., Hayward’s Whisky, McDowell’s No. 1 Whisky, and McDowell’s VSOP Brandy.  Sales of McDowell’s No.1 Celebration Rum at 19 million cases grew 7% to become the world’s largest dark rum – it has for many years now been India’s largest rum by a wide margin.  The McDowell’s No.1 franchise with a presence across three flavors - Whisky, Brandy, and Rum sold over 52 million cases, an increase of 7.9% over the 48.2 million cases it sold in the previous fiscal.  Your Company ended fiscal 2013 with 19 ‘Millionaire’ brands - brands that sell over a million cases in a fiscal year.

Regulatory Concerns:

 During the last couple of years however this growth has sharply dropped to low single digits – in fact, during the fiscal year 2013-14, the industry has been almost static with a sub – 1% growth. In our opinion this is primarily due to the interventions by State Governments increasing duties, taxes, and where applicable, the margins of the parastatal members of the trade chain range from 0.3% to nearly 50%.  Over 70% of the Indian Alcohol industry is in the hands of parastatal agencies either at the wholesale or the retail levels or both. Such agencies have become an avenue for increasing the Government’s share of the street price and are often loath to grant price increases even in line with inflation.  In such a scenario, margins will be under pressure and the Company can only look to achieving operational efficiencies to keep with rising costs and downward trending margins.

Software:

 The Company has a robust system of internal control which has been incorporated in the enterprise-wide SAP system. Additionally, during the year the Company introduced a new centralized Software ARIBA for optimizing commodity prices and smoothening the procurement process. This is already yielding economies in procurement.

International Operations:  Bouvet Ladubay’s operating profit grew during fiscal 2014 by 30% and the PAT grew by 31.50% when compared to the previous year. The Company’s revenue increased marginally in the financial year 2013-14 as compared to the previous year 2012-13 which is mainly a combination of an increase in volume and an increase in selling price.  The volumes increased marginally by 1.3% from 5.62 million bottles to 5.69 million bottles. The Company’s products continue to do well in their traditional markets of Europe, notably France & Germany. Around 50% of Bouvet’s volume sales are from Germany.  In Whyte and Mackay (W&M), the branded goods turnover grew by 12% year on year and is now almost 65% of the W&M’s turnover (45% last year). Both turnover and profits were lower in the current year due to a decrease in bulk sales.

2014-15

 Between 2013 and 2014, Diageo plc, the global leader in beverage alcohol, acquired a 54.8% shareholding in United Spirits, making the latter a subsidiary of Diageo plc.

Overview:

 We are the largest Indian spirits company by volume with sales of 117.06 million cases in Financial Year 2015 (FY15).

Transformation:

 The first brand renovation in several years - Royal Challenge whisky – was marked by stunning new packaging, liquid, and positioning backed by strong brand support and in-store execution. The consumer rewarded us with a significant jump in volumes.  We transformed 15,000 outlets into ‘Perfect Stores’ as we used the on and off-trade retail space to build imagery for our brands and catalyze growth.

Integrating with Diageo:

 We also recently integrated Diageo India’s business, brands, and people with that of USL’s – knitting together two different organizations into one single team in pursuit of a single ambition. Diageo has brought its many strengths to USL. It is premium and luxury brands such as Johnnie Walker, Singleton, and Ciroc, complement and complete our brand portfolio; its global expertise in marketing and brand innovation.  We reduced the number of subsidiaries from 73 initially to 22 thereby reducing costs and complexity, divested some overseas entities, pared debt from Rs 8500 cr to Rs 4700 cr, and lowered the average cost of debt by 127 bps saving over Rs. 60 cr on an annualized basis.

Performance of the Company:

 During the year under review, your Company has achieved a sales volume of over 117.06 million cases (previous year 120.70 million cases). Sales of the Company’s brands in the ‘Prestige and above’ segment grew 8% in the financial year ended March 31, 2015, and stood at 35 million cases (previous year 33 million cases).  Imputed turnover, i.e., the price at which the Company’s brands were billed from its manufacturing facilities (owned/ leased/ contracted) and its warehouses, stood at ` 98,733.30 million net of duties and taxes (previous year 97,990.63 million) constituting a rise of 1%.

Industry Overview:

 The Indian Total Beverage Alcohol (TBA) market has a total net sales value (NSV) pool of approximately 38,245 Crores. Of this, western-style spirits account for over 55%, and within this Indian-made “foreign liquor” (IMFL) accounts for 92%, or over 50% of the TBA NSV pool, with the balance primarily in beer and country liquor.  Indian branded alcoholic spirits industry, at around 312 million cases (each case equal to 9 bulk liters), was only marginally up from the 307 million cases of the previous fiscal.  The Indian spirits market, which witnessed double-digit volume growth for several years, has seen a pare back in growth to low single digits in the last two fiscal years (2013-2014 and 2014- 2015) with performance in the reported year virtually flat with less than 1% growth.  Higher consumer prices, following increases in duties and taxes, always impacts consumer demand for discretionary goods, and alcoholic spirits have been no exception. According to IWSR 2014 (a leading alcohol industry monitor), the top 100 global alcoholic spirits brands grew 1.06% by volume and 4.66% in terms of value. The overall whisky category in India grew by 4%, for the period 2014-2015. It is projected to grow from 175 million cases in 2013 to 270 million cases in 2023.  Alcohol penetration in India is 42% and for whisky, the penetration is around 23% - which gives your Company good headroom to grow.  Within whisky – the higher price tiers are growing the fastest. The Premium segment looks the most promising. Followed by Prestige and Luxury – showing CAGR (2011 – 2016) of approximately 18%, 15%, and 10% respectively; Popular is slowing, exhibiting a CAGR (2011 – 2016) of – 4 %. This ties in well with our “premiumization” approach and makes us better poised to leverage our full USL and Diageo brand portfolios.  The Indian beverages market has a market size of close to £5.3 billion and is expected to grow at 8-10% CAGR over the next five years. Growth is expected to be led by the higher-priced IMFL premium whiskey and premium scotch that are set to see sharp growth at 14% and 28% CAGR respectively.  The coming together of all these factors will drive the Indian spirits industry, which has for long under-performed global consumption rates and is now set to outperform global spirits consumption growth in the luxury and prestige categories.

Brand Performance:

 McDowell’s No.1 whisky is India’s largest alcoholic spirits brand in both volume and value terms, with sales of over 24.3 million cases (last year 22.4 million cases, i.e., +8% growth) that retailed at US$ 1.52 billion as per the data for the calendar year 2014 compiled by IWSR.  Three of the six fastest-growing brands during the calendar year 2014 are from the USL stable – i.e., Hayward’s Whisky, McDowell’s No. 1 Whisky, and Royal Challenge. Sales of McDowell’s No.1 Celebration Rum continue its leadership position as the world’s largest dark rum brand.  The McDowell’s No.1 franchise, with a presence across three flavors - whisky, brandy, and rum, continued its momentum during the year, selling over 52 million cases.  USL ended the year with 18 ‘Millionaire’ brands – brands that sell over a million cases in a fiscal year.  Royal Challenge Whisky has been re-launched with new packaging, a new liquid, and new communication. This re-launch met with considerable success in terms of both volumes and value – the brand has grown 36% in the last year and has resulted in a win-win for both the consumers and for USL.

2015-16

 93mn Cases produced annually, 15 brands with over 1mn cases in Sales, 3 brands with over 10 mn cases in sales.

Brand Transformation:

 In the past year, we have refurbished the power brands in the prestige portfolio - Royal Challenge, McDowell’s No.1, and Signature. The refurbishment consisted of (a) Improving our blends where relevant, (b) Dialling up markers of aspiration and craft in the packaging design while retaining the key brand assets, and (c) Delivering a communication platform that brings to life the brand purpose.  The successful renovation of our power brands is now proven to build both equity and deliver significant growth. For example, Royal Challenge has witnessed a 57% volume growth and was the fastest-growing spirits brand in 2015.

Performance:

 During the year under review, your company has achieved a sales volume of over 93 million cases and declined 1% compared to the prior period (previous year 94 million cases, excluding royalty/franchise markets).  Net sales/income from operations of the company’s brands grew 13% in the financial year ended March 31, 2016, and stood at 90,919 million net of duties and taxes (previous year ` 80,493 million).  Direct distribution of the Diageo brand portfolio drove 8 ppts of net sales growth. Sales volume of the company’s brands in the ‘Prestige and above’ segment grew 10% in the financial year ended March 31, 2016, and stood at 34 million cases (previous year 31 million cases). Net sales of the ’Prestige and above’ segment grew 26% and stood at 46,013 million net of duties and taxes (previous year 36,500 million).  Direct distribution of the Diageo brand portfolio contributed 19 ppts net sales growth to the Prestige and above segment. The ’Prestige and Above’ segment represents 37% of total sales volumes and 51% of total net sales, with 4 ppts and 5 ppts improvement respectively compared to the prior year.

Industry Overview:

 India is one of the fastest-growing alcohol markets in the world. Four out of the top 5 and 7 out of the top 25 highest selling whiskies are from India. As the world’s second-most populous nation and fastest-growing economy, the opportunity for growth in the Indian spirits market remains highly attractive.  Spirits, led by whisky, is the most popular alcohol, consumed by nearly 88% of alcohol consumers in India, with beer and wine contributing to the remaining 12% consumption.  The Indian spirits industry is one of the most regulated, with prohibition in force in a few states, sales being limited in certain states to government-approved stores, and drinking prohibited in public places.  Currently, available data estimates the Indian TBA market at circa ` 40k Crore, with spirits accounting for approximately 70% market share, beer circa 26%, and ready to drink, wine and others circa 4%. In recent years, the industry has witnessed realignment in terms of consolidation and margin pressure due to rising costs, thereby leading to tapered growth. Despite the slowdown, the country’s alcohol industry will still be the world’s second-fastest- growing industry.

Company’s Performance:  During the year under review, your company has achieved a sales volume of over 93 mn cases and declined 1% compared to the prior period (previous year 94 mn cases, excluding royalty and franchise markets).  Net sales of your company’s brands grew 13% in the financial year ended March 31, 2016, and stood at 90,919 million net of duties and taxes (previous year ` 80,493 million). Direct distribution of the Diageo brand portfolio drove 8 percentage points (ppts) of net sales growth.  Sales volume of your company’s brands in the ‘Prestige and Above’ segment grew 10% in the financial year ended March 31, 2016, and stood at 34 mn cases (previous year 31 mn cases). Net sales of the ’Prestige and above’ segment grew 26% and stood at 46,013 million net of duties and taxes (previous year ` 36,500 million).  Direct distribution of the Diageo brand portfolio contributed 19ppts net sales growth to the Prestige and above segment. The ’Prestige and above’ segment represents 37% of total sales volumes and 51% of total net sales, with 4ppts and 5ppts improvement respectively compared to the prior year.

Prohibition of Liquor:

 In April 2016, Bihar became the fourth state in India to implement a total liquor ban. This move is estimated to impact the IMFL industry, hotels, and the Bihar state government by approximately 4,000 cr, in the form of the taxes and duties earned from liquor sales.

Company Overview:

 During the year, overall volumes were down 1% with net sales up 13% on stronger performance of the Prestige and above segment. The integration of the Diageo brand portfolio also had a positive mix impact accounting for half of the overall positive mix.  The main contributors were Johnnie Walker, Black & White, VAT69, and Smirnoff. Good performance of Black Dog in the premium segment and the re-launch of Royal Challenge and McDowell’s No 1. whisky in the prestige segment also had favorable net sales mix impact.

Brand Performance:  The Popular segment represents 63% of total volumes and 49% of total net sales, 4ppts and 5ppts respectively below last year. Popular segment volume declined 7% and net sales grew 2%.  The reduction in volume was largely driven by the specific temporary pricing challenge on Haywards in Karnataka which impacted volume growth by circa (4) ppts. Despite this, overall popular segment net sales grew 2% fueled by a good growth of our power brands which represent almost 80% of our net sales in the popular segment: McDowell’s Rum and Brandy; Bagpiper; Old Tavern, and Director’s Special whisky.  The Prestige and Above segment represent 37% of total volumes and 51% of total net sales, up 4ppts and 5ppts respectively when compared to the prior year. In this segment, volume increased 10% with net sales up 26%.  Excluding the Diageo brand portfolio, volume was up 6% and net sales up 8%. Robust growth of the segment was fueled by our renovation strategy with the re-launch of Royal Challenge and benefited from the recent new look of McDowell’s No.1 whisky.  The Royal Challenge re-launch was completed at the beginning of this fiscal year and we have seen exceptional growth in each quarter with volume growth of 61% and net sales growth of 50% in the full year.  The new-look McDowell’s No 1 whisky was launched in the third quarter and posted 18% volume and 23% net sales growth in the fourth quarter resulting in overall volume growth of 8% and net sales growth of 13% in the full year (main variant only).  The performance of Signature was muted with a volume decline of 2% and a negative price/mix of 7ppts. The re-launch of Signature started towards the end of Q4 and we expect to see positive momentum in the brand in the next fiscal year.  Antiquity volume was up 18% with net sales up 10%.  Black Dog performance was robust during the year and volume grew 23% with net sales up 24%.

Brands Integrated:  We have integrated the Diageo brand portfolio into USL in this fiscal year. The portfolio consists of over 20 brands, with the key brands being Smirnoff, VAT69, Johnnie Walker, and Black & White, all of which are positioned in the premium and luxury segment. The Diageo brand portfolio added 1.3 mn cases volume.

Perfect Stores:

 Carrying forward its Perfect Store program, the company continued to enhance customer experience, boosting in-store brand engagement and increasing the number of perfect stores to circa 20,000 by year-end.

Net Debt Reduction:

 Net debt reduction was driven by the divestment of non-core assets, mainly the sale of the United Breweries Limited Shares and the Bouvet Laudably subsidiary. These divestments together with the renegotiation of borrowings terms reduced the total interest cost.  Significant improvement in overall financial flexibility, corporate governance, and our compliance framework has resulted in our improved credit rating. During the year, ICRA Limited upgraded the Long Term Rating from BBB to A+, while the Short Term Rating improved from A3 to A1+.

2016-17

Performance:

 For the year, while overall net sales grew by a modest 4%, you will be happy to note that our Company improved gross margins by 156 bps to 42.9% and profit after tax grew 39%, both aided by improved productivity and operational efficiencies.  During the year under review, your Company has achieved a sales volume of over 90 million cases and this resulted in a decline of 3.2% compared to the prior period (previous year 93 million cases, excluding royalty/franchise markets).  Overall volume declined 3% and net sales were up 4% impacted primarily by Bihar prohibition and one-off impact of operating model changes. Excluding the one-off impact, volumes were up 1% with net sales up 8%sales volume of the Company’s brands in the ‘Prestige and above’ segment grew 7.7% in the financial year ended March 31, 2017, and stood at 37 million cases (previous year 34 million cases).  Net sales of the ’Prestige and above’ segment grew 13% and stood at 49,660 million net of duties and taxes (previous year 46,013 million). The ’Prestige and Above’ segment represents 41% of total sales volumes and 58% of total net sales with 4 basis points and 5 basis points improvement respectively compared to the previous year.  2nd Largest spirits Company in the world, No.1 Largest spirits Company in India, 12 Millionaire brands

Brands Performance:

 The Popular segment represents 59% of total volumes and 42% of total net sales, down 4ppts and 5ppts respectively compared to last year. The total popular segment witnessed a decline of 10% in volumes and 9% in revenue during the year, impacted by Bihar prohibition and the one- off impact of operating model changes.  Excluding the Bihar prohibition and the one-off impact of the operating model changes, the popular segment declined volume 3% and net sales 2% in the full year. Priority states volume was flat and net sales grew 1% in the full year driven by Hayward’s, Bagpiper, and Director’s Special.  Growth of our Prestige and above segment, which grew net sales 14% during the year. Our renovated brands, McDowell’s No. 1 whisky net sales grew 8%, Royal Challenge grew 16% and Signature grew by 29% in this year, gaining market share as well. Our Scotch category also grew net sales 32%, driven by Johnnie Walker, Black Dog, Black & White, and VAT 69.  Signature volume grew by 26% and grew net sales by 29% supported by successful renovation. McDowell’s No 1. whisky variants (excluding Platinum) volume grew by 7% and net sales grew by 8%.  Royal Challenge volume grew by 15% and net sales grew by 16%. The scotch portfolio in the premium and luxury segment grew volume by 29% and net sales by 32% driven mainly by Johnnie Walker, Black Dog, Black & White, and VAT 69.

Industry Overview:

 The Total Beverage Alcohol (TBA) market in India is pegged at Rs 378347 million, of this, Western-style spirits account for over 52%

Indian Spirits Market Overview:

 Consumption of Whisky was estimated to grow at 1.15% for FY17 while Spirits remained flat. Bihar, the fourth-largest state by population, went dry in April, impacting the overall growth for the year by ~1.5%.  The supply in Punjab was disrupted for a month due to procedural technical issues. A significant rise in tax had put the burden of overall cost on states like Andhra Pradesh, Telangana, Karnataka, and Maharashtra.  India is one of the largest markets for spirits globally. Approximately 6% of the global alcohol beverage growth is driven by our country. Going ahead, almost 11% of the growth of the global spirit is expected to come from India.

Regulations:

 The market has also been severely affected by the Apex Court’s ruling banning liquor vendors within 500 meters of a state or national highway, which has caused significant disruption as many license holders simply stopped buying stocks.  Due to this, some believe that up to 15% of retail outlets will be lost forever, although most expect that over time this supply will be replaced by alternatives.  Some of the recent regulatory changes in the industry include – 1) Reduction in distance limit for liquor vendors to 220 meters from 500 meters in areas with population up to 20,000;

2) Exemption to hill states of Sikkim and Meghalaya; and 3) Permission to liquor shops whose licenses had not expired by April 1, 2017, to continue until their permits expire or until September 30, 2017.

Company Overview:

 Your Company has 18 brands in its portfolio which sell more than a million cases every year, of which 4 brands sell more than 10 million cases each annually. The Company exports to over 37 countries across the globe.  Your Company is the market leader in terms of value (with a market share of 44%) and the market dynamics are highly attractive, given the foray of global players in the Indian market, and a visible shift to premiumization, as well as the shift to the franchisee model in some states.

Operating model changes through Franchising:

 During the year under review, in line with the Company’s approach to selectively participate in the popular segment, the Company has entered into agreements to franchise selected, mainly Popular segment brands in Andhra Pradesh, Goa and has moved to a complete franchise agreement for all your Company brands in Kerala effective 1 January 2017.  The individual agreements are for between 3 to 5 years. The franchisees will be responsible for manufacturing and distribution of the franchised brands in their respective states on payment of an agreed royalty fee which will be accounted as part of net sales.  Volume and net sales for these franchised brands accounted for 10.3 million cases and approximately 6,400 million net sales in the full year ended March 31, 2017.

Net Debt:

 During the year the company utilized its cash from operations to repay its loans which have led to a reduction in net debt. During the year, ICRA Limited upgraded the Long Term Rating from “A+” to “AA” with a positive outlook, while the Short Term Rating was reaffirmed at “A1+” which is the highest rating.

Risks and Concerns:  The Company operates in a scenario where there are regulatory barriers for offsetting cost inflation through pricing. The Company has to represent state governments to get price increase even to merely offset inflation, which may take several years in some cases.

Opportunities:

 Fixed fee-based franchise model in specific states is likely to aid in margin expansion as it may reduce your Company’s exposure in low-margin states.

2017-18

Premium Products:

 Our premiumization efforts have started yielding results, with the Prestige and Above segment accounting for 63% of our net sales by value, up 5 pts compared to last year.

Franchisee Model:

 Parallel, we made further progress on our ‘fit for purpose’ operating model in the Popular segment, where we franchised nine additional states in FY18, taking the total number of franchisee states to 13.  During the financial year ended March 31, 2018, your Company entered into agreements to franchise popular segment brands in eight states namely, Chandigarh, Rajasthan, Madhya Pradesh, Himachal Pradesh, Jammu and Kashmir, Delhi, Sikkim, and Uttar Pradesh. These additions took the total count of states wherein the franchise model is in practice to 13 states. Out of the retained popular segment business, the net sales in the priority states grew by 2% during the year ended March 31, 2018.

The year under Review:

 Despite the turbulent year, we increased our marketing investments by 18% to better engage with consumers and build brand equity.

Performance of the Company:  During the year under review, your Company has achieved a sales volume of about 78.5 million cases and this resulted in a decline of 13% compared to the prior period (90 million cases the previous year, that included volume from states where the Popular segment has been franchised).  After adjusting for the franchise model changes, underlying volume declined 2% compared to the prior period.  Net sales/ income from operations of your Company declined 4% in the financial year ended March 31, 2018, and stood at INR 81,701 million net of duties and taxes (INR 85,476 million previous years). This was as a result of franchising our popular segment in a few states. Adjusted for the operating model changes, net sales/income from operations grew 1% for the year.  Sales volume of the Company’s brands in the ‘Prestige and above’ segment grew 1% in the financial year ended March 31, 2018, and stood at 37.2 million cases (previous year 36.8 million cases). Net sales of the ’Prestige and above’ segment grew 3% and stood at INR 51,280 million net of duties and taxes (previous year INR 49,660 million).  The ’Prestige and above’ segment represented 63% of total net sales and 47% of total sale volume during the current year.

Industry Overview:

 India is one of the fastest-growing alcohol markets in the World, with an estimated 324.3 million cases sold in 2017. However, during 2017, the industry faced challenging times resulting in a 2.7% sales decline.  The decline in 2017 was partly due to the Supreme Court-order ban on the sale of alcohol near highways and distribution changes in some states like in West Bengal, Chhattisgarh, and Jharkhand.  The heavy import duty and taxes levied raised the prices of imported alcohol to a large extent. IMFL category accounts for almost 70% of the market.  IMFL value sales grew 2% in the financial year under review. With consumer demand picking up, the industry is expecting mid-single-digit growth in the coming financial year.  Andhra Pradesh, Telangana, Kerala, Karnataka, Sikkim, Haryana, and Himachal Pradesh are amongst the largest alcohol-consuming states in India. The most popular channel for the sale of alcohol products is through stores. As per the World Health Organization, close to 30% of Indians consume alcohol, out of which 4-13% are daily consumers.

Regulatory Environment:

 Recently, Governments in West Bengal, Chhattisgarh, and Jharkhand modified their state liquor sales policy, resulting in the sale of liquor only through government-owned corporations/ retail stores.  The Supreme Court restrictions imposed last year on the sale of alcohol near state and national highways led to the closure of about 30,000 liquor shops, causing a drop in demand. The court subsequently clarified its ruling, easing conditions for liquor sales and allowing most outlets to reopen. The impact of the highway ban has substantially subsided.  Prohibitively high inter-state duties compel national alcohol players to set-up owned or contract manufacturing setups in every state. Licenses are required to produce, bottle, store, distribute, or retail all alcohol products. Distribution is also highly controlled, both at the wholesale and retail levels. In states with government control on pricing, the price increase is based on government notifications. In states where retailing is controlled by the state government, there is a specified quota that each player can sell, capping potential to increase market share for our products. These regulations make operations restrictive for the industry players.

Company Overview:

 Your Company produces and sells around 78 million cases. McDowell’s No.1, Royal Challenge, Signature, Antiquity, Director’s Special Black, McDowell’s VSOP, Romanov, Bagpiper, Old Tavern, Haywards are some of the marquee brands owned by your Company.  Also, your Company imports manufactures, distributes, and sells various iconic Diageo brands such as Haig Gold Label, Captain Morgan, Johnnie Walker, J&B, Baileys, Lagavulin, Talisker, VAT 69, Black & White, Smirnoff, and Ciroc in India under different licensing agreements.  Your Company has 15 brands in its portfolio which sell more than a million cases every year, of which 2 brands sell more than 10 million cases each annually.  The Company’s exports business is also growing. Your Company boasts of a pan-India manufacturing presence with 52 facilities and a robust distribution network of more than 85,000 outlets, which provide access to vendors, suppliers, and distributors.

Brand Performance:

 McDowell’s No1 Luxury variant (launched to tap into a distinct consumer taste preference) grew by 103% crossing the 2 million cases mark in just the 2nd year of launch and thus added about 6% growth to the McDowell’s No. 1 whisky franchise.  Prestige and above segment from 53% of net sales in the financial year ended March 31, 2016, to 63% of net sales in the financial year ended March 31, 2018.

A unique way of Advertising:

 The company is focusing on leveraging retail outlets to strengthen its brand equity in the Luxury, Premium, and Prestige categories. Your Company endeavors to capture consumer attention using preferential placements in outlets and better visual appeal and customer recall.  Your Company collaborated with start-ups, invested in the party and night-life content ecosystem, and increased spends on digital media to increase its consumer reach. Your Company continued to build extensive brand imagery using on-premise / off-premise channels like #jw paint the world black. Various other consumer winning activations were undertaken to connect better with the consumer.  Brand Performance: The Prestige & Above segment represented 47% of total volumes and 63% of total net sales during the financial year ended March 31, 2018, as against 41% and 58% respectively, in the previous year.  The Prestige and above segment’s net sales were up 3% with positive price/mix. Excluding the one-off impact of operating model changes, net sales grew by 4%.  The Popular segment represented 53% of total volumes and 37% of total net sales during the financial year ended March 31,2018, as against 59% and 42% volume and value contribution respectively, in the previous financial year.  The Popular segment’s net sales declined 16% and volume declined 22%, mainly due to the one-off impact of operating model changes. Excluding this one-off impact, net sales declined 4% while volume declined 7%. Net sales of the popular segment in priority states grew by 2%.

Net Debt:

 Your Company’s net debt stood at 32,650 million as of March 31, 2018. Your Company made its maiden issue of Non-Convertible Debentures amounting to 7,500 million to refinance the existing higher-cost debt of 5,000 million increasing long-term debt.  Your Company used the profit from operations, proceeds from the sale of non-core assets, and a reduction in working capital to repay its loans amounting to 10,560 million. This reduction in debt together with the renegotiation of borrowing rates and a favorable mix of debt reduced the total interest cost by 1,080 million during the financial year.  During the year, ICRA Limited upgraded the Long Term Rating from “A+” to “AA” with a positive outlook, while the Short Term Rating was reaffirmed at “A1+” which is the highest possible rating in that category.

2018-19

The year under Review:

 In FY19 we delivered a net sales growth of 10%, led by a 15% growth in the Prestige & Above (P&A) segment. Our premiumization strategy continues to yield results with the P&A segment now accounting for 66% of our business, up from 63% last year. Within that, our Scotch portfolio grew even faster. Our fit-for-purpose model for the popular segment also performed well.  We have delivered a 48.8% gross margin this year, despite significant raw material inflation by relentlessly focusing on productivity as well as business efficiency. We also reduced our net debt by 21%, partly as a result of better working capital management.  An improved operating performance sustained focus on reducing interest costs and further monetization of non-core assets resulted in a 17% increase in PAT for the year.

Performance of the Company:

 During the year under review, your Company has achieved a sales volume of about 81.6 million cases, and this resulted in a growth of 4.0% compared to the prior period. After adjusting for the franchise model changes in the popular segment, the underlying volume grew 5.4% compared to the prior period.  Net sales/income from operations of your Company grew 9.9% in the financial year ended March 31, 2019, and stood at INR 89,806 million net of duties and taxes (previous year INR 81,701 million). Adjusted for the franchise model changes, Net sales/income from operations grew 10.5% for the year.

Brand Performance:

 Sales volume of the Company’s brands in the ‘Prestige and above’ segment grew 11.8% in the financial year ended March 31, 2019, and stood at 41.6 million cases (previous year 37.2 million cases). Net sales of the ’Prestige and above’ segment grew 15.2% and stood at INR 59,095 million net of duties and taxes (previous year INR 51,276 million). The ’Prestige and above’ segment represented 71% of total net sales and 50.9% of total sale volume during the year.  Prestige and above segment from 53% of net sales in the financial year ended March 31, 2016, to 66% of net sales in the financial year ended March 31, 2019.  With continuous focused on premiumization, the overall Prestige & Above segment represented 51% of total volumes (Vs 47% last year) and 66% of total net sales ( Vs 63% last year) during the financial year ended March 31, 2019. The Prestige and above segment’s net sales were up 15% with a positive price/mix.  The Popular segment represented 49% (Vs 53% last year) of total volumes and 34% (Vs 37% last year) of total net sales during the financial year ended March 31, 2019. The Popular segment’s net sales remained flat during the financial year ended March 2019 Vs shrinkage by 16% last year.  Excellent growth in Luxury Segment provided great uplift to price mix. Sales growth in the segment was supported by the continued success of brand renovations including McDowell’s No. 1 whiskey Platinum, Royal Challenge and Signature.  The segment reported 12% (Vs 3% last year) volume growth. Power brands like McDowell’s No. 1. Whiskey, Royal Challenge, and Signature delivered robust net sales growth largely driven by purpose-led campaigns and bespoke consumer winning activations.

Industry Overview:

 The alcohol industry in India has been growing at more than 12% CAGR for the decade starting 2001 making it one of the fastest-growing markets in the World.  In 2018, the industry bounced back to about 3-4% growth after experiencing a sharp decline of about 2.7% in 2017 (some of the causes like Supreme Court-order banning sale of alcohol near highways and distribution changes in some states like in West Bengal, Chhattisgarh and Jharkhand contributed to this decline).  IMFL category accounts for almost 72% of the market. IMFL sales in value grew 6% in the financial year under review. With consumer demand picking up, the industry is expecting to grow in the mid-single-digit in the coming financial year as well.

Regulatory Concern:

 Recently, the Government in the state of Maharashtra has increased the excise duties abnormally which had a cascading impact on the sale of liquor in the state. Further, the declaration of the General Election in April has also resulted in multiple challenges in terms of the effective supply chain since the timing of the election coincides with the annual excise license renewal cycle in the majority of states, etc.

Pricing Challenge:  Pricing continues to remain a challenge for the category since with the continuous increase in excise duties, end-consumer prices continue to experience an upsurge with no benefit to your company.  During the year, in the state of Maharashtra, your company has decided to absorb a significant portion of the increase in excise duty to stay competitive in the market which had a direct impact on Gross Margin.  Net Debt: Your Company’s net debt stood at 25,890 million as of March 31, 2019. Your Company used the profit from operations, proceeds from the sale of non-core assets, and a reduction in working capital to repay its loans amounting to 6,760 million.

2019-20

The year under Review:

 Despite the muted economic environment, Diageo India grew its Prestige & Above (P&A) segment by 6% in the first nine months of the year, within a reported total net sales growth of 5.4%.  Net sales, however, declined by 11% in the last quarter, impacted by the closure of the on- premise channel and o-trade retail vends. For the full year, we clocked 1.2% revenue growth.  The company’s EBITDA grew by 17% with EBITDA margin expanding by over 220 bps. Overall, despite an unfavorable environment that impacted demand and cost, PAT for the year was up 7%.

Software:

 IT-enabled tool ‘TRAX’, uses real-time image recognition (such as recording images of product display on retail shelves, providing analysis of stock availability and share on the shelf) that helps track in-market execution and enhance service quality. Innovation in Packing:

 The Hipster- A contemporary and stylish portable format for scotch to suit millennials  Performance: During the year under review, your Company’s sales volume was about 79.7 million cases resulted in a volume decline of 2.3% compared to the prior period. After adjusting for the franchise model changes in the popular segment, the underlying volume declined 2.1% compared to the prior period.  Net sales/income from operations of your Company grew 1.2% in the financial year ended March 31, 2020, and stood at INR 90,909 million net of duties and taxes (previous year INR 89,806 million). Adjusted for the franchise model changes and one-o- sale of bulk Scotch, net sales/income from operations declined 1.5% for the year.  Brand Performance: Sales volume of the Company’s brands in the ‘Prestige and above’ segment declined 1.5% in the financial year ended March 31, 2020, and stood at 40.9 million cases (previous year 41.6 million cases). Net sales of the ’Prestige and above’ segment grew 0.4% and stood at INR 59,311 million net of duties and taxes (previous year INR 59,095 million). The ’Prestige and above’ segment represented 65.2% of total net sales and 51.3% of total sale volume during the year.  Prestige and above segment from 53% of net sales in the financial year ended March 31, 2016, to 67% of net sales in the financial year ended March 31, 2020.  The Popular segment represented 49% (Vs 49% the previous year) of total volumes and 30% (Vs 32% the previous year) of total net sales during the financial year ended March 31, 2020. The Popular segment’s net sales shrunk by 4.2% during the –financial year ended March 2020 Vs -vs. growth during last year.  Under the most stressed environment, marginal sales growth in the segment was supported by the continued success of brand renovations including McDowell’s No. 1 Whiskey Platinum and Black Dog. The segment reported 1.5% (Vs 12% the previous year) volume growth.

Industry Overview:  The alcohol industry in India has been growing at more than 12% CAGR for the decade starting 2001 making it one of the fastest-growing markets in the World. In 2019, the industry experience significant headwinds on back of the slower economic growth.  The impact of this slowdown has aggravated by the increasing raw material prices.  The heavy import duty and taxes levied raised the prices of imported alcohol to a large extent. IMFL category accounts for almost 72% of the market.

Regulatory Concern:

 Recently, the Government in the State of Andhra Pradesh has changed the route to market by setting up state-managed retail outlets and discontinuing private retailers.  In contrast, the State of Chhattisgarh has rolled back from Govt. controlled to private parties which are expected to flourish the industry.

Net Debt:

 Your Company’s net debt stood at20,730 million as of March 31, 2020. Your Company used prot from operations proceeds from the sale of non-core assets and reduction in working capital to repay its loans amounting to 4920 million. This reduction in debt together with a renegotiation of borrowing rates and a favorable mix of debt reduced external borrowing cost by 540 million during the financial year.