

Elara Securities in its latest note said the India-UK FTA should aid United Spirits (USL), a subsidiary of Diageo, in gaining market share in the upper prestige and luxury segments. The development, it said, should lead to a volume growth of 33 per cent compounded annually over FY25-28 for USL's Scotch portfolio (Bottled in Origin).
The Bottled in India (BII) segment may not see significant impact due to favorable agreement related to bulk alcohol with the parent, Elara said.
Johnnie Walker Red Label Scotch Whisky
Elara Securities said the entry-level Scotch (1 litre Red Label) is sold in various states at a premium of 31 per cent over the corresponding duty-free price.
As per latest development, the duty is expected to be cut to 75 per cent from 150 per cent earlier, which shall narrow down the price gap and push demand for BIO in India.
"In Maharashtra (a free market state), the price of Red Label may fall 8 per cent versus the current price – Custom duty would be levied on cost, insurance and freight (CIF) price if 150 per cent custom duty were to come off to 75 per cent. This would be only a 20 per cent premium (31 per cent premium currently) versus the duty-free price in case brands pass on the entire custom duty benefit," Elara said.
The brokerage said this cur in premium should boost Scotch BIO volume as it expects 33 per cent volume CAGR till FY28E. This price gap convergence could be more for states with higher VAT/excise duty, Elara noted.
"Domestic players focused on upper prestige and above may see short-term aberration in growth, due to shift to scotch given lower prices. Given the distinct brand recall led by innovations and unique tastes, we believe domestic brands will continue to rise with growth prospects being intact, in the medium-to-long term and may even make pricing competitive to help mitigate the negative impact from scotch (BIO)," Elara said.
India-UK FTA impact
Net-net, the India-UK FTA is seen aiding USL's market share in the Upper Prestige and luxury segments that has a total volume market of 15 million cases, 5-7 per cent of IMFL whiskey cases.
"BII may not see significant impact due to favorable agreement related to bulk alcohol with the parent. These changes shall boost P&A volume CAGR to 7.5 per cent in FY25-28E versus 5.3 per cent at present. Realization per case may rise 80-110bps, but given the capped Ebitda margin for Scotch BIO at 10 per cent, higher volume growth could weigh on Ebitda margin, paring it by 40-70 bps in FY27E-28E," Elara said.
The growth is likely to come at the cost of profitability, it said.
"However, this shall aid near term P&A volume growth to 7.5 per cent from middle single-digit at present, resulting in an increase in P&A revenue salience and support premium valuation (58x PER on core alcobev segment-FY27E)," Elara said.