United Spirits Ltd Management Discussions

Indian Alcoholic Beverage Market

Over the past decade, Indias alcoholic beverages industry has experienced steady expansion, supported by rising disposable incomes, rapid urbanisation and shifting consumer lifestyles. Greater alignment with global consumption trends, rising participation of women consumers and a growing LDA population have further supported the gradual evolution of the market.

India TBA and spirits market continues to significantly outperform global growth trends. India remains fundamentally a spirits market, with spirits accounting for ~71% of TBA value, making it substantially larger than beer. While whisky continues to be the largest category and the primary driver of value, emerging categories such as whites are growing at a much faster pace, reflecting an expanding consumer repertoire and increasing experimentation among consumers. Indias outperformance relative to TBA is expected to continue.

Single malts, premium malts and craft spirits are witnessing rising demand, particularly among urban and affluent consumers seeking higher quality and distinctive drinking experiences. Spirits - especially Indian Made Foreign Liquor (IMLL) whisky, rum, vodka, gin and brandy - continue to account for a substantial share of alcohol consumption in the country due to established consumer preferences and strong distribution networks.

The category is witnessing strong momentum driven by expanding consumer repertoires and continuous innovation across segments. Consumers are increasingly exploring new tastes, flavours, categories and experiences, driving demand for greater variety and premium offerings. This has led to a proliferation of new brands, flavour innovations, formats and pack sizes across the market. While global brands are introducing diverse propositions tailored to evolving consumer preferences, Indian brands are also driving innovation through differentiated local offerings.

Distribution channels also play an important role in the structure of the Indian alcohol market. Retail outlets, including government-licensed liquor stores, supermarkets and other organised retail formats, account for a significant portion of total alcohol sales. The growth of modern retail infrastructure has improved product visibility and accessibility for consumers. At the same time, on-premise consumption through bars, restaurants, hotels and entertainment venues continues to contribute significantly to overall demand, particularly in metropolitan cities and tourist destinations.

Looking ahead, the Indian alcoholic beverages market is expected to maintain steady long-term growth through 2035, supported by favourable demographic and socio-economic trends, rising consumption capacity driven by younger population, rising incomes, normalisation of alcohol, premiumisation, and fast-growing repertoire, and the desire for experimentation, supported by continued innovation across product categories. However, the market continues to operate within a complex regulatory environment characterised by state-level variations in taxation, licensing and retail policies, which will also remain a key factor influencing industry structure and future growth.

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Regulatory Scenario in the Indian Market

Indias alcoholic beverage industry operates within a highly decentralised regulatory framework, in which state governments have authority over licensing, taxation, the legal drinking age and retail distribution. This system creates a fragmented environment, as compliance requirements, fees and procedures differ across regions, posing operational challenges for companies that operate nationwide.

In August 2025, the state of Maharashtra announced a revised liquor policy introducing a new low-tax category for grain-based spirits manufactured within the state under the Maharashtra Made Liquor (MML) framework. Eligibility for the category is linked to local manufacturing and ownership criteria, limiting participation by several national and foreign-invested spirits manufacturers operating outside Maharashtra, despite competing in similar consumer segments across the country.

The newly created category operates at highly attractive consumer price points, creating a significant market distortion for national players. The policy has disrupted competitive parity, narrowed consumer choice, and added complexity to production and supply-chain planning for manufacturers with interstate operating models. Over time, such structural asymmetries could also discourage broader industry investment and undermine the principle of a level playing field within the Indian aIcobev sector.

In April 2026, the southern state of Karnataka introduced a landmark excise policy reform. As part of the overhaul, the state transitioned to an Alcohol-in-Beverage (AIB) based taxation structure, levying duties on actual alcohol content rather than total volume. The policy further removed state-administered retail price controls, enabling producers to determine pricing based on market considerations. The state also reduced excise slabs from 16 to 8 for alcobev products, thereby providing greater pricing flexibility to manufacturers. Notably, taxes at the higher end of the spectrum were rationalised, making premium products more accessible to consumers and creating a meaningful segway for premiumisation in one of Indias largest alcobev markets. This structural simplification of the excise framework has the potential to expedite premiumisation trends in the state, auguring well for the industrys long-term growth trajectory.

Taxation remains a major component of the sectors regulatory landscape, with excise duties, value-added tax and additional surcharges contributing to relatively high retail prices. Further restrictions on accessibility, advertising and consumption, including dry days and state-specific prohibitions, create additional variation in market access. In addition, every year several states revise the regulatory framework for alcoholic beverages.

The India-UK Free Trade Agreement, expected to come into force soon, presents a significant opportunity for premiumisation within the Indian alcoholic beverages industry. The agreement reduces import duties on Scotch whisky and gin from 150% to 75%, with a phased reduction to 40% over the next decade. Given Indias position as one of the worlds largest whisky markets, the trade pact is expected to improve accessibility of Scotch for Indian consumers, accelerate premiumisation trends and support growth across the alcobev and hospitality sectors.

1. Favourable Demographics

Indias alcoholic beverages market is expected to exhibit robust growth as the rising number of young adults enter the legal drinking age. The addition of this large group of young adult consumers, coupled with increasing disposable incomes and evolving lifestyle preferences, is likely to boost demand across product categories. As more young adults of legal drinking age enter the market, their preferences are expected to influence consumption patterns, particularly in premium and aspirational segments.

2. Premiumisation

Rising affluence and aspiration are accelerating the shift towards premium and super-premium alcoholic beverages, thereby creating opportunities for capturing the consumer opportunity through high-value product portfolio accretive to margins.

3. Emergence of Craft and Niche Segments

The rise of craft distilleries and small-batch producers is transforming the industry landscape. Innovative beverage formats, including flavoured spirits, artisanal cocktails and experimental blends, are gaining popularity among urban consumers. Emerging categories, including craft spirits, flavoured products and RTDs, are expanding consumption occasions and attracting new consumers.

4. Sustainability and Eco-friendly Packaging

Growing consumer and business environmental awareness is driving the adoption of sustainable practices across the alcoholic beverages industry. Manufacturers are increasingly focusing on eco-friendly packaging solutions, such as recyclable glass bottles, lightweight materials and environmentally responsible production processes, to reduce their environmental footprint.

5. Modem Retail and Digital Growth

The growth of organised retail and modern trade channels has improved the accessibility of products and market reach for alcoholic beverage brands. Premium retail outlets and specialised liquor stores are playing an increasingly important role in distribution. In addition, digital engagement and direct- to-consumer communication platforms are helping companies strengthen customer relationships and enhance brand visibility.

6. Hospitality and Tourism-driven Consumption

The growth of the hospitality and tourism sectors is expected to further support demand for alcoholic beverages. Premium bars, restaurants, hotels and nightlife venues are increasingly offering curated beverage experiences, encouraging consumers to explore premium and innovative alcoholic products. Tourism- driven destinations are also contributing to the nationwide growth of on-premise consumption.

7. Evolving Social Norms driving Cultural Shift

The gradual decline in social stigma surrounding alcohol consumption, especially among younger adults and women, offers a substantial opportunity for brands to broaden their target audience. This shift in cultural attitudes allows companies to develop and introduce products that align with changing social norms and evolving lifestyle preferences, catering to a more diverse and inclusive consumer base.

1. Fragmented and Complex Regulatory Environment:

The highly decentralised regulatory framework - where each state governs its own excise, licensing and retail policies - remains a major challenge. This fragmentation increases compliance costs, complicates pan-India distribution strategies and raises barriers for scaling. Adverse policy movements are an ongoing risk for any alcobev business in India.

2. High Taxation and Pricing Pressure:

Multiple layers of excise duties, VAT and state surcharges significantly inflate retail prices, which can constrain consumption growth, especially in price-sensitive segments. High taxation also makes premium and imported products less affordable for broad consumer groups.

3. Advertising Restrictions:

Strict regulations on direct advertising - through mainstream media channels - limit brands ability to build awareness and engage consumers. This necessitates alternative marketing approaches, which are less effective and often resource-intensive.

4. Illicit Alcohol

Unregulated alcohol continues to impact legitimate industry growth and consumer safety.

Company Overview

Diageo India, also known as United Spirits Ltd. (hereafter referred to as USL or the Company), is one of Indias leading beverage alcohol manufacturers, recognised for its premium and diversified product portfolio. The Company operates as a subsidiary of Diageo pic, with majority Relay B.V. holding a majority ownership stake of approximately 55.88% of the equity shareholding. USL, headquartered in Bengaluru, has established one of the largest manufacturing networks in the Indian alcoholic beverages industry, operating 34 production facilities across the country. The Company also maintains a robust distribution

ecosystem covering more than 75,000 outlets, supporting wide product availability and efficient market penetration.

USL places sustainability, responsible consumption and community development at the core of its operating philosophy. The Company integrates these principles into its business practices to ensure longterm environmental stewardship, promote safe and responsible drinking and contribute positively to the communities in which it operates. The Company continues to prioritise continuous innovation, portfolio premiumisation and enhanced consumer engagement as central elements of its strategy to drive long-term growth.

USL completed the acquisition of NAO Spirits on 26th June 2025, acquiring a controlling 97.07% stake. NAO Spirits, recognised for its award-winning gin brands Greater Than and Hapusa, will now operate as a subsidiary of USL. During FY 2025-26, USL increased its stake in V9 Beverages Private Limited (Sober), a producer of non-alcoholic spirit alternatives, raising its holding from 15% to 25% on a fully diluted basis.

Product Portfolio

The Companys product portfolio is organised into three primary segments: Prestige & Above (P&A), Popular and Other. USLs product portfolio comprises more than 50 brands across categories such as Scotch whisky, Indian-made foreign liquor (IMFL) whisky, malt, tequila, brandy, rum, vodka and gin. Key brands in the portfolio include Godawan, McDowells No. 1, Royal Challenge, Signature, Antiquity, Black Dog, Directors Special Black, McDowells Rum, McDowells Brandy and McDowells X-Series. USL also distributes several international brands in India under licensing arrangements, including Don Julio, Singleton, Tanqueray, Captain Morgan, Johnnie Walker, J&B, Baileys, Lagavulin, Talisker, VAT 69, Black & White, Smirnoff and Ciroc. During FY 2025-26, the Company achieved sales volumes of approximately 65 million cases, representing a 1.5% increase over the previous year.

Operational and Financial Highlights

In FY 2025-26, USL commenced a strategic review of its investment in Royal Challengers Sports Pvt Ltd (RCSPL), the company that owns the Indian Premier League (IPL) and Womens Premier League teams, including the Royal Challengers Bengaluru franchise. Pursuant to the announcement dated March 24, 2026, RCSPL has been classified as discontinued operations. The transaction remains subject to approval from the Board of Control for Cricket in India, the Competition Commission of India (CCI) and other applicable regulatory authorities. Consequently, consolidated numbers do not include RCSPL, and prior year numbers have also been restated accordingly.

Prestige & Above: During FY 2025-26, the Prestige & Above (P&A) segment contributed 89.6% of the Companys net sales value, reflecting an increase of 1.1% compared to the same period in the previous year. Net sales in the P&A segment grew by 8.6% during this period.

Popular: Meanwhile, the Popular segment accounted for 9.0% of net sales in FY 2025-26, a slight 0.7% decline from the prior year. Net sales in the Popular segment declined by 0.3% over the same period.