Are you seeing by any chance upgradation from popular to lower prestige or lower prestige to mid-prestige in Maharashtra given that you've absorbed a larger part of tax increase in mid-prestige? And how big is the popular market? Could this be opportunity in some form in terms of relative market share for United Spirits?
So, Jay, first, good question on how the segment -- it's very early days. I don't think we have any reads on premiumization, as you call it, or we all call it, where people are getting laddered from popular to lower prestige to mid-prestige. And look, the price difference between popular and lower prestige has significantly reduced. So, you're bound to see some upgradation, okay? The price difference between lower prestige and mid-prestige remains the same. But I think typically, there are some price points which seem a lot higher than they really are. And as and when MML comes in, we will really read the market as to what is the laddering, what is the premiumization and therefore, what is the upgrade and where will the volumes start aggregating. But this is a wait and watch, and we are carefully seeing the market.
You still maintain an aspiration for double-digit growth in P&A. But when I look at the recent quarter numbers ex of AP, and AP will start anniversarizing from December quarter. So, I feel that ex of AP and ex of Maharashtra, the growth trajectory was not yet strong. And with some headwinds in Maharashtra and AP anniversarizing, am I missing something?
Does Maharashtra government roll back? I think I need to go to an astrologer really. I'm not sure at all, okay, why they would roll back. The only reason they roll back is if they see drop in their duty collection over a consistent period of time, as I see. And that, in my mind, sounds not. As I say and as I see the consumer spend growth, I don't see that happening. Look, as I said, my important thing is India is the portfolio of states, the markets which don't do well. And we went through the same phase a couple of years back when Delhi hit us. okay? Yes, there are sometimes headwinds, sometimes tailwinds. But even in that scenario, you overall managed to deliver double-digit P&A. Now as I see, if I look at UP, it's been a very progressive policy, okay? Our outlets have doubled. And just giving you -- there are lots of things which have happened, which give us the clear opportunity to unlock category momentum. MP, same way. Jharkhand is going to go through a new go-to-market in the next 30 days.
Just wanted a question on the broader competitive market environment. Some of your listed peers have seen fairly sharp acceleration in growth rates over the last 2 quarters, while Andhra is obviously a factor for them as well. But just wanted to get your sense on this acceleration in growth. And at the same time, the market demand environment at an overall level not being so conducive.
First, don't really feel a quarter here and there, you'll always see some acceleration and deacceleration. But overall, we look at India growth by state, total rolling up and industry reports on an ongoing basis, on a regular basis. And I can say with reasonable confidence as even I have started seeing them consistently, we are in the top tier of performance. That's the first thing I'd say. Also, one of the things, and I think Pradeep alluded to it in great detail, is that you need to keep our current quarter performance in context of a high base of the prior year and some other things which he mentioned. So therefore, normalizing. And if I were to see our growth rates now and if you were to look at it first half of the year, you will realize that we should be on the right side at the top tier of the performance.
Are you seeing that uptick going through the quarter, going through Q1 and into Q2 also that on-ground demand sentiments for the sector or for yourself, in particular, have seen some improvements?
Look, I genuinely believe there are early signs of recovery. I wouldn't say moving in from, as I said, Q1 to Q2. I think there are early signs of recovery in urban. Where we have seen things improve further is rural, okay? And I believe the monsoons -- pretty healthy monsoons will help it further. So that I feel a lot. Urban, we've seen early signs of recovery. It shows up in all the other FMCG businesses. And I believe this -- I think momentum will continue. It will continue to improve. Festive will be the true test in my mind for all other categories and certainly for our category.
This relates to the top end of the P&A where you mentioned that the growth trends are still very tepid. Now that it's continued for a long time, I was wondering what do you think you need to do to get the growth back there? Any changes in price laddering, marketing? Anything happening on the competitive side?
I'm going to, PJ build on that. But even last year, if we were to say, before I get into talking about how our brands are doing, even in the last year, the first quarter and quarter and half was very, very muted at the top end. The top end accelerates typically during the festive time. Before and right up to January, it really accelerates, and that's when consumption bunches and spikes up. So that's the first thing. So, we saw the same behavior last year. We believe we will see the same behavior this year. And therefore, festive is an important part of that. Second, if you look at our brands, our brands are doing extremely well. We look at our brand scores on a monthly basis. And each of our top end trademarks, especially Johnnie is across its lines is looking extremely strong and is growing equity, growing differentiation.
First is on your comments on Maharashtra. So, you did mention that the MML kind of strategy, Maharashtra Made Liquor, those equivalents have been tried earlier in other states. So, if you could clarify a bit more on generally near term and long term, how does it pan out? Because we don't see that as a concern in most states. So, it does mean that initially maybe it's introduced and then does get sidelined. So, if you could clarify on that. Second related question is, you did mention that you are absorbing substantially in some cases. So, I wanted to understand the 30% to 40% tax hike. The absorption is sporadic, or it is a bit more substantial?
So, I'll start with the first question and your whole question on which other state they did introduce state-made liquor. I'm told Rajasthan had it some years back. Much before that, UP experimented with it. And in both cases, they realized over a period of time that it didn't make any substantial impact, and it just impacted the taxes and duties, and they completely changed it over the next few years in their yearly policy updates. So too early to say what will happen in Maharashtra and how it will work out. But clearly, it shows in the past that it didn't work. On absorbing some -- not passing on the complete pricing. Look, I don't think there was a one-size-fit-all. It was different brands priced differently, and it was nicely laddered. In the upper -- if you see the middle Prestige level, we have absorbed significant sums of money. At lower Prestige, we've been marginal absorption and not -- that's not very big absorption in terms of absolute duties. At Popular, at below lower Prestige, we've passed on everything because that's what -- there was a minimum price requirement also, and therefore, we had to pass on.
Given your focus on premiumization, would you look to play the MML once full policy clarity comes? And second, a small bit on the pass on to customer. Is the -- are the other large players also behaving fairly similar because it's an industry-wide issue. So is there some irrational competition here that some small player or big player is trying to become extra aggressive?
We've seen a very balanced approach. I wouldn't see aggression from anyone till now. It's early days. It's just been 30 days effectively, it's gone to market, but we've seen a balance in the play. On -- MML rules have just come out. We're all studying. What I'm told early read of it is we cannot participate. So, there's -- it's not about we can -- we want to or can't, we cannot participate, but we will go through it in great detail and see what the opportunity is.
On the 3 cost items. First, on the glass, you mentioned interesting and very useful comment that some planned maintenance is going to happen. Generally, planned maintenance is well thought through. So, do you see this as a substantial impact or more of just a small and temporary impact on your costing on the glass? And second is, Q1, your other costs and A&P costs rose sharply. On a full year basis, is there some thought that on a full year basis also these 2 line items should go up a bit versus last year, as a percentage of sales?
For glass, there are -- you're right, there are these planned furnaces, et cetera. So, there is a little bit of cross regional sourcing that happens, et cetera, which leads to a little bit of an uptick of freight cost, et cetera, but otherwise, nothing structural. It will be temporary, exactly the way you have said. And the second thing is, we've already covered that in our opening script. We don't expect the A&P investment to go up versus our full year guidance, right? So, this is more a quarter-on-quarter phasing issue, right, and therefore, not a full year impact. Other costs, all I can attribute that it is due to a bunching up of some of our old cases and legal issues, et cetera, but again, nothing structural.
My first question was more on how to look at Maharashtra from a company level basis. Now given the salience of Maharashtra and your initial read on how demand behavior is, do you see that FY'26 Prestige growth may be lower than the double-digit growth that we typically aim for?
I think I made that point very clear in the opening statement itself. In balance, I think we are cautiously optimistic. Our mid-range, midterm guidance is very simple, which is double-digit growth in P&A. I think we are completely committed towards it. And we don't see any of this changing it in the short term at all.
Even though you're looking to use productivity to offset some of the tax hikes in the year, would it be fair to say you remain confident of EBIT growth being higher than sales growth?
It will moderate, as I've always mentioned, right? I mean, if you see that we've been fairly ahead of what we have committed over the last 2 to 3 years. And as one had mentioned last time, it is going to moderate now, right? But like any forward-looking organization, we always try and extract the EBIT growth a little ahead of our revenue growth, right? So that's a fair expectation. Keep us honest on that, and that's what we strive for.
Could you just explain what this indirect tax actually about? And why -- and what is this related to?
First of all, I just want to dimensionalize the amount, right? While the ₹40 crores number looks large for a single quarter, it's almost a 5-year catch-up, right? And that's our ongoing risk assessment of our plethora of our dispute resolution book is large, as you are aware, because of legacy issues, right. So, we keep assessing that depending on developments. On this one, we felt that it is better to kind of cover ourselves for us based on some trigger events that have happened, right? There is a much more detailed disclosure on the issue in our annual report. Broadly, what I'm saying is the annualized number will be in the range of about ₹6 crores to ₹8 crores. On that also, we are driving productivity interventions. Our intent will be to ideally completely neutralize, but there might be some spillover cost that comes into our algorithm.
Because of the change of Maharashtra excise duty, was there any kind of sort of early buying by the trade, which sort of you would like to call out in terms of benefit on the volume growth?
Actually, not at all. We didn't get -- we actually cleaned our pipeline because we were very, very clear that we will move into it. At that point of time, there was not enough clarity on various things. So, we didn't clog the pipeline.
The gross margin expansion, 100 basis points Y-o-Y, especially in light of the fact that your price plus mix in the P&A segment is zero this quarter. So generally, we struggle to even deliver 100 basis points even with a pricing plus mix. And this time, that lever is completely zero. So, can you throw some light on this?
Commodities have been kind this quarter, Percy, right? I mean neutral alcohol spirit was kind and even glass, right, because we're migrating to PET. So mostly, the entire commodity portfolio was kind, right? But like I said in my opening script, neutral alcohol spirit structurally remains inflationary, as you are aware, right, because of ethanol blending, the policy has been updated for 2 years. So that will come in. So, it's more wait and watch as the policy comes in sometime in October, November. As of now, it's been kind, right? So that's the one that has given us the kicker.
In your initial comments, you said the revenue salience for the state is about mid- to high teens. I would assume the BIO and parts of BII portfolio have not been affected by the tax changes. So, if you adjust for this piece, would you say the impacted portfolio is a low double-digit kind of salience on aggregate revenue basis for you?
Yes. So, Latika, the BIO, BII portfolio is not a very large salience in Maharashtra. It's largely a lower prestige and mid-prestige market, right? So therefore, yes, I mean, it could reduce by a percentage point. But by and large, it will stay in the same range of whatever Praveen mentioned in his opening comments.
Basis the prior episodes of sharp price increases, what kind of consumer behavior have you seen? There are also updates on how liquor from the neighboring states could come in. There is consumer down trading. But any specific episodes or examples on the quantum of volume or value impact that you would want to share?
First, a very interesting question. As I said, alcobev usually shows a lot more resilience, okay, unlike some other categories. Whole FMCG category is a lot more sensitive to pricing. I believe alcobev is a lot less sensitive to pricing. Also, if I -- I don't know if I said it, but I know I've done the market, done Maharashtra over the last 1 month. And as we look at data, what we are seeing is that consumer spends are showing a strong double-digit growth, overall consumer spends. If you look -- went to the retail outlet and looked at what they actually saw in terms of retail sales in the month of April, May or -- and what they see after mid-July when the impact of the price increase, we are seeing a strong double-digit growth, which tells me -- that talks to the resilience of the category. However, as I said, we took a 30%-35% price increase. That's something we need to keep in mind, and it's very early days.
On this import duty reduction benefits timeline. Any updated thoughts here on when we start to see some of that effect flowing through?
We believe it will -- it should happen in the April-June quarter, right, which is the first quarter of next fiscal. Because these products also have a long pipeline, right? At any point of time between the high seas and the stocks that we have for across the country, et cetera. There's a long inventory pipeline. So, we believe that will happen sometime between April and June.
You mentioned UP. What's your view on the developments that have happened on the ground in the last 5 or 6 months? How much have you seen the IMFL demand go up in the states because of practical, as you said, doubling of the number of outlets? And a follow-up to that, would there be a need to relook at your capacities in the state and make substantial investments?
First, we have a lot of capacity. So, I don't see capacity being an area of concern at all in that state. The rollout happened in pretty much end April to end May, and that's why -- so that's why I said it's -- the policy happened in March. The rollout happened in April and May. So, the outlets are starting to come into play, and you're starting to see that build out. So, we've seen very healthy growth. So very, very healthy growth in June and July in UP. That gives us the confidence that, that market is going in the right direction. So overall, UP policy is progressive, and we see that looking very good.
Given larger states like Karnataka, Maharashtra are seeing uncertainty disruptions due to policy changes, due to excise duty hikes far higher. And these at least historically were far more larger states for us. So, is the offset by the newer geographies so high, we don't see a major impact on sales for the balance of the year? And Delhi, how is the trajectory? Have things stabilized post the new policy?
First, Delhi, the new policy is still not in place. The new government has come in and they are working on it. They've just continued with the old policy, and we are hopeful sooner than later, we'll see the new policy. That's the first thing. And as and when the newer policy could happen, that could be an opportunity. As I said, on the first part, India is a portfolio of states, and we've learned over the last 3, 4 years that we just need to be consistent and focused. And there are going to be some headwinds and for every headwind, there's a tailwind. And how do you balance that consistently and double down on the opportunity while mitigate the risk.
How do you see the white spirit space as between gin and Vodka? Do you see like gin outgrowing Vodka over the next 4, 5 years? Nao has also been performing really well. And how do you see UP becoming a tailwind in the future with a more modern policy and increasing number of retail outlets?
Look, there are cycles in white spirits. Some years back, gin was the most high-performing space, and it grew rapidly. Over the last few years, if I may say so, vodka has seen a resurgence. So, these cycles for us, it's a portfolio. And we look at laddering and segmenting within the portfolio and build that out very, very consistently. We are committed and invested both in gin and in vodka. So, I don't know what will grow faster or slower, but I can say as the category grows, we are very well positioned to unlock potential. On UP -- it's just coming into play as Maharashtra is just coming into play. UP is just coming into play, but absolutely, it is a tailwind.