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Premiumisation Drives Growth; Higher A&P Spend Weighs on Margin

Q2FY27 performance remained mixed, with net revenue growing 2.9% YoY to INR 32.6 Bn, supported by 7.9% growth in Prestige & Above (P&A) revenue, driven by Smirnoff local flavour innovations, J&B Scotch relaunch and growth in the luxury portfolio. P&A continued to strengthen its contribution, accounting for 94.1% of net revenue, up 457 bps YoY, reflecting a sustained premiumisation. Gross margin expanded 92 bps to 48.0% on favourable mix and productivity gains, partly offset by West Asia-related cost pressure. EBITDA declined 2.6% YoY to INR 6.4 Bn, with margin contracting 110 bps to 19.7%, as higher advertising and promotion (A&P) spend ahead of the festive season weighed on profitability. We expect premiumisation and revenue management initiatives to support growth, while margin improvement will depend on the realisation of productivity benefits and moderation in input cost pressure.

YoY Volume Growth Flat; Stable Margin

* Overall volumes declined by 5.0% YoY to 15.8 Mn cases; P&A volumes saw 2.0% YoY increase

* The revenue from Prestige and Above (P&A) category stood at INR 30.6 Bn, improving by 7.9% YoY, majorly due to Smirnoff local flavour innovation, J&B scotch relaunch and growth in the luxury portfolio

* EBITDA margin declined by 110 bps YoY to 19.7% with 2.6% YoY de-growth coming in at INR 6.4 Bn

* Reported PAT came in flat YoY at INR 4.6 Bn with PAT margin at 14.1%

New Launches Offer Incremental Growth Opportunities

UNITDSPR relaunched J&B Scotch, leveraging the India-UK FTA to strengthen its Scotch portfolio and improve consumer access to imported whisky. The company also entered the ready-to-drink (RTD) segment with Smirnoff Ice, expanding its presence in convenient, consumption-led formats. Additionally, Smirnoff’s local flavour innovation and continued growth in luxury portfolio are strengthening premiumisation and broadening the company’s growth avenues. While new launches and premium portfolio expansion provide incremental growth avenues, their sustainability will be key monitorable.

View and Valuation

UNITDSPR posted muted volume growth YoY in the quarter driven majorly by increased competition intensity and slower offtake in key states, such as, Maharastra. However, we believe the risks are evenly balanced owing to UK-FTA benefit flows through, possible dividend on sale of RCB, price rationalisation in BIO and Karnataka tailwinds. We reduce our FY28E EPS forecast by ~2% and cut our target price to INR 1,260 (vs. INR 1,330) using DCF. However, a probable dividend of INR 170/share from the sale of RCB franchise upgrades the stock to ‘ADD’, with a total potential upside of 11.0%.

Key Risks

Delay in closure of RCB deal beyond FY27E, regulatory and policy changes and probable inflation in ENA, grain and malt.

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