Buy United Spirits Limited Ltd for the Target Rs. 1536 by ARETE Securities Ltd
United Spirits Limited (UNSP) reported a strong Q2 FY26 performance with revenue up 11.5% YoY and EBITDA up 32.5% YoY, led by premiumisation and innovation-led offerings. Despite Maharashtra headwinds, growth in Andhra Pradesh and Karnataka together with margin expansion to 21.2% (multi-quarter high) shows strong execution. Management expects healthy volumes ex-Maharashtra and steady Andhra/Karnataka performance, and believes benefits from the UK-FTA plus a stable RM outlook will more than offset Maharashtra headwinds (35% notional price hike; MML introduction). It has maintained double-digit P&A guidance and targets mid-to-high-teens EBITDA margins. We maintain our BUY rating, with a revised target price of 1,536 based on 60x FY27 PE(x).
Investment Rationale
Premiumisation Driving Sustained Growth
* The Prestige & Above (P&A) segment grew 12.4% YoY in value and 8% in volume, driven by strong momentum in Signature, Royal Challenge, Godawan, and Smirnoff. Premiumisation continues to anchor revenue and margin growth.
* The luxury portfolio led by Godawan and Johnnie Walker recorded a strong quarter with new limited editions and awards, reinforcing consumer trust and pricing power in high-end segments.
Andhra Pradesh & Karnataka Mitigate Maharashtra Weakness
* Andhra Pradesh remained a key growth driver, with steady QoQ improvement post-disruption and continued brand-led recovery. Distribution and premium positioning are tracking ahead of the industry.
* Karnataka delivered healthy double-digit growth, helping offset pressure from Maharashtra, supported by premium brand traction and favourable policy environment.
* Maharashtra saw volumes impacted by 35% price hike and excise policy change; however, UNSP's decline was lower than industry, showing agility in restructuring distribution and pricing.
* The launch of MML (Rs. 160/180ml) has added short-term uncertainty, but management expects normalization in H2 FY26 and views policy reset as structurally positive over the long term.
Operational Efficiency and Margin Expansion
* Gross margin rose 190 bps YoY to 47.1%, while EBITDA margin improved 337 bps to 21.2%, reflecting productivity gains and a favourable mix. Stable ENA and glass prices provided cost relief.
* McDowell's and Royal Challenge remain growth engines with pocket formats driving sampling and rural penetration. Signature continues to lead in upper prestige.
* Smirnoff flavors (Minty Jamun) and new launches such as Godawan 173 and Don Julio activations have strengthened on-trade visibility and consumer engagement.
Outlook and Valuation
Management aims to sustain mid-to-high teens EBITDA margin through better mix, productivity programs, and higher marketing investments of 9.5-10% of revenue in Q3 FY26. UNSP remains the strongest player in India's premium liquor segment, benefiting from premiumisation trends, operational efficiency, and Diageo's strategic focus.With volume recovery ex-Maharashtra, strong brand momentum, and healthy margins, earnings visibility remains strong. We value UNSP at 60x 2027E EPS, and maintain our BUY rating with a revised target price of Rs. 1,536 implying a 7% upside from current levels.
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