The United Spirits Ltd stock is down 23% from its 52-week high of ₹1,700 seen on 3 January. Investors hoping for a quick turnaround may be disappointed, particularly as the recently announced June quarter (Q1FY26) results offered little excitement.
The company, which produces and sells alcoholic beverages such as McDowell’s No. 1 and Royal Challenge, is grappling with a policy setback. In June, excise duty on Indian Made Foreign Liquor (IMFL), country liquor, and imported alcohol was increased in Maharashtra. According to United Spirits’ management during the Q1 earnings call, the duty hike has translated into a 30-40% rise in maximum retail price (MRP). Maharashtra accounts for a mid-to-high-teens share of the company’s sales in value terms.
To mitigate the impact on earnings, United Spirits has implemented selective price adjustments. Duties were largely absorbed in the middle-prestige segment and partially in the lower-prestige segment. In the popular and below-prestige categories, however, the full duty increase was passed on to consumers to meet the minimum price requirement.
The management expressed cautious optimism on discretionary demand. Early indicators point to strong double-digit growth in consumer spending, but this may not be enough to keep revenue neutral, raising concerns that downtrading could hurt volume and profitability. ICICI Securities Ltd has accordingly cut its earnings estimates for FY26 and FY27 by 5% and 4%, respectively, reflecting near-term headwinds from the sharp Maharashtra duty hike.
Plus, Q1FY26 results were lacklustre with year-on-year revenue and volume growth of 8.4% and 9.4%, respectively, mainly aided by Andhra Pradesh resuming operations after five years and traction in prestige & above (P&A) portfolio. P&A formed 88.3% of Q1’s net sales, up 50 basis points (bps) year-on-year. P&A volume and value growth stood at 9% each in Q1FY26. The guidance of double-digit revenue growth in P&A over the medium-to-long term was retained. This is expected to be aided by premiumization-led innovations and scaling up exports.
In the upper-prestige category, the Signature brand saw robust growth last quarter and in the mid prestige category, pocket packs of Royal Challenge saw double-digit growth. Further, progressive policy changes in other states such as Uttar Pradesh, Madhya Pradesh and Jharkhand, are seen as tailwinds. The company has still not participated in the newly introduced category Maharashtra Made Liquor in the state.
While commodity inflation was under control in Q1FY26, the management cautioned of supply related temporary disruption in glass prices owing to planned shutdowns from key suppliers. Also, ENA (extra neutral alcohol) derived from ethanol remains inflationary. Here, ethanol blending targets for 2025-26 are crucial as the government has not revised the ethanol blending policy in the past two years. The next announcement on this is anticipated in October-November.
United Spirits saw a one-off indirect tax impact in Q1, excluding which, Ebitda margin dipped 162 bps year-on-year to 17.9%. Also, advertisement spends were elevated.
Yes Securities estimates Ebitda and earnings CAGR of 11.9% and 9.8%, respectively, over FY25-27 for the standalone business, however, it sees just 70 bps improvement in Ebitda margin as there will be aggressive spending on innovations over the next two years. “Premiumization and productivity initiatives should help drive margin improvement over FY25- FY27, but at a lower rate compared to earlier years,” it added.
Meanwhile, the stock trades at a FY27 price-to-earnings multiple of 46x, according to Bloomberg data, suggesting valuations are expensive in the current backdrop.
