Broker’s call: United Spirits (Reduce)
AI Summary
United Spirits reported a 3.4% YoY decline in Q1-FY27 volumes, largely due to the impact of Maharashtra Made Liquor on lower segments, though premium segments saw a 10.1% revenue increase. While volume growth is expected to improve in Karnataka following price reductions, overall growth may be hindered by competition and rising costs. The target price has been raised to ₹1,330, but the stock maintains a 'Reduce' rating due to ongoing challenges.
Q1-FY27 volumes remained under pressure, declining 3.4% YoY, primarily due to the continued impact of Maharashtra Made Liquor (MML) on the Popular and Lower Prestige segments. Karnataka (6–7 per cent of P&A net revenue) is expected to show volume expansion in the next few quarters as prices were reduced by an average of 15%. Although premiumisation remains intact with Prestige and Above (P&A) revenues growing 10.1 per cent YOY despite a 1.3 per cent volume decline, margin recovery is forecast to remain gradual driven by elevated glass and PET packaging cost offset benefits.
We now factor in a volume CAGR of 4.4 per cent (vs.5 per cent earlier) over FY26–FY29E, while improved realisation driven by premiumisation support a revenue CAGR of 11.0% over the same period. We expect EBITDA margin to remain broadly stable in FY27E before improving gradually as Supply Agility Program benefits accrue.
Although United Spirit’s supply agility program, India-UK FTA implementation and price reduction in Karnataka offer growth levers, we expect headwinds from increased competition intensity, elevated packaging cost and adverse MML policy to subdue growth in the medium-term. We have raised our TP to ₹1,330 (vs.₹1,230) using DCF, factoring in fresh drivers. We cut our FY28E net income estimate by about 3 per cent and maintain our Reduce rating on the stock.
Original Article
Published on Hindu BusinessLine