Detailed rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable/Crisil A1+’ ratings on the bank facilities of United Spirits Limited (USL).

 

The ratings reflect the strong financial risk profile of USL, minimal debt, accruals of ~Rs 1,500 crore and modest capital expenditure (capex) plans of ~Rs 280-300 crore. The rating also factors the leadership position of USL in the domestic Indian-made foreign liquor (IMFL) segment along with strong operating efficiency.

 

USL registered a 7% revenue growth in fiscal 2025 and touched Rs 12,069 crore, compared to Rs 11,321 crores in fiscal 2024, driven by a 4% improvement in realisation across segments and a 4% volume growth mainly driven from the Prestige and Above (P&A) segment. Crisil Ratings expects revenue growth to remain healthy at 5-8% over the medium term. The company's focus on productivity improvement over the past few years, through reductions in overheads and a shift towards premiumisation, has resulted in operating margin expansion in fiscal 2025 to 18.6% (17.7% in fiscal 2024) as compared to 13.5% in fiscal 2023. Operating margin is expected to sustain at the current levels of 17-18%, over the medium term, driven by the increasing share of the high-margin P&A segment, which accounted for over 88% of the revenue in fiscal 2025.

 

The ratings continue to reflect the leadership position of the company in the spirits industry in India, strong and diversified product portfolio, and operational and technical support it receives from its parent, Diageo Plc (rated 'A-/Stable/A2' by S&P Global Ratings [S&P]). These strengths are partially offset by exposure to the regulated nature of the industry.

Analytical approach

Crisil Ratings has combined the business and financial risk profiles of USL and its subsidiaries as they are in the same line of business and have a common management. The ratings also factor in the support USL receives from its ultimate parent, Diageo Plc, which holds 55.88% stake in the company.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

Leadership position in the spirits industry in India: USL is one of the top players in the Indian spirits industry, driven by its strong brand equity, wide product portfolio across categories as well as price points and pan India presence. USL's focus remains on launching existing global brands in India, innovating products by introducing new flavors to increase product penetration, and increasing sales of fast-growing products, such as craft whiskey and white spirits. The company has a strong distribution network and point-of-sale coverage; it operates via over 70,000 outlets across India. It has 9 own operational manufacturing facilities across eight states in the country. These are in addition to many third-party facilities producing alcoholic beverages for USL.

 

Strong and diversified product portfolio with established brands: USL benefits from strong brand awareness with a diverse range of products across various price points operating in all segments of popular, prestige, premium and luxury. The company has seven brands that sell more than a million cases each year, of which one sells more than 50 million cases annually. Its portfolio also includes several global brands such as Johnnie Walker, Baileys and Smirnoff as well as a solid portfolio of local brands and premium products. USL has also entered the craft segment under brands such as Godawan.

 

Operational and technical support received from the parent, Diageo Plc: USL shares strong linkages with the Diageo group (holding 55.88% stake), which has complete management control over the entity. There are strong business synergies with the implementation of global best practices across functions. USL also has access to some of the premium brands of Diageo (Johnnie Walker, Smirnoff, Baileys) and receives strong management and operational support from the parent.

 

Weakness:

Exposure to the regulated nature of the industry: USL remains exposed to the regulated nature of the industry due to restrictions by state governments on the production, movement and sale of spirits. The distribution remains highly controlled by government in most of the states while in some, pricing is also controlled. The company remains exposed to the changing regulatory environment. In the past, fiscal 2018 was a disruptive year for the industry owing to implementation of the Goods and Services Tax and the Supreme Court ruling to ban liquor vendors within 500 metre of the national and state highways impacting 30,000 stores (30-40% of total liquor vendors). Similarly, the industry has also seen a complete ban on liquor sale by some of the states in the past. However, this is partly offset by the pan-India presence of USL and the regulations largely driven by the respective states.

Liquidity: Superior

Liquidity is likely to remain healthy. In the absence of any repayment obligation, net cash accrual of ~Rs 1500 crore in fiscal 2025 will further strengthen the financial flexibility. Cash and equivalents continue to remain healthy at Rs 2,903 crores as on March 31, 2025. capex of Rs 280-300 crore annually is expected to be incurred in the medium term to be funded by internal accrual. The average utilisation of non-fund based limits was 26% against the sanctioned limits of Rs 1,350 crore for the 12 months ended January 2025.

 

ESG profile:

Crisil Ratings believes that the Environment, Social, and Governance (ESG) profile of USL supports its strong credit risk profile.

 

The alcohol sector has a moderate environmental impact, driven by its raw material sourcing strategies and water intensive processes. It also has a moderate social impact due to aspect related to alcohol abuse, underage consumption as well as risk of government intervention including restriction on sales, regulation of marketing practices and higher tax. USL’s strong focus on addressing these risks supports the already strong credit risk profile.

 

Key ESG highlights:

• USL aims to use 40% less water than it does today for every drink it makes by 2030 and replenish more water than it uses in all its water-stressed areas by 2026. It reported a 48% improvement in water efficiency in distilleries and a 31% improvement in packaging in fiscal 2024, against a target of 40% by 2030.
• USL aims to have its operations powered by 100% renewable electricity by 2030. To date, USL has already achieved 98.6% renewable electricity through in-house steam turbines, bio-gas engines, and solar plants.
• USL has reduced greenhouse gas emissions by 87% in fiscal 2024 and eliminated the use of coal across distillery operations.
• USL aims to make 100% of its packaging recyclable by 2030 and increase its recyclable content in packaging to 60% by 2030. In fiscal 2024, 99% of packaging material was recyclable, and 50% of purchased packaging material was made of recycled content.
• As part of its Society 2030 targets, USL is working to increase the representation of women to 33% within the organisation and 50% in USL’s leadership team
• To address the issues of alcohol abuse and underage drinking, USL has consistently undertaken corporate actions, including offering educational programmes and upholding a marketing code of conduct—to address these social concerns.
• USL's governance structure is characterised by 50% independent directors on the board, the presence of a chairman, who is also an independent director a split between the chairman and CEO positions, and extensive disclosures. 

 

ESG is gaining importance among investors and lenders. USL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given the shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

USL will continue to benefit from its leading market position and healthy operating efficiency along with ongoing support from the parent.

Rating sensitivity factors

Downward factors

• Downgrade in the rating of the parent by S&P or change in stance of support from the parent
• Operating performance adversely affected, with operating margin below 10% on a sustained basis
• Debt-funded capex/acquisition, leading to net debt to Ebitda ratio over 1.5 times on a sustained basis

About the company

USL is the largest Indian spirits company that manufactures, sells and distributes beverage alcohol, producing and selling around 60 million cases of scotch whisky, IMFL whisky, brandy, rum, vodka, gin and wine. Its portfolio of over 15 brands includes McDowell's No.1, Royal Challenge, Signature, and Antiquity as well as Diageo’s iconic brands such as Johnnie Walker, VAT 69, Black & White, Smirnoff and Ciroc.

Key financial indicators (consolidated)*

As on/for the period ended March 31		2025	2024
Operating income	Rs crore	12,069	11,321
Profit after tax (PAT)	Rs crore	1,582	1,408
PAT margin	%	13.2	12.4
Adjusted debt/adjusted networth	Times	0	0
Adjusted interest coverage	Times	29.0	29.0

*As per analytical adjustments made by Crisil Ratings