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United Spirits (UNSP) reported 9% YoY growth in P&A net sales and volumes in Q1FY26, while ex-Andhra growth was softer at 3%/1% YoY. Popular segment volumes rose 11.6% YoY with value growth of 13.6% YoY, aided by McDowell X and new product launches such as Smirnoff flavours. However, EBITDA declined 0.7% YoY on account of higher brand investments, ENA inflation and rising packaging/freight costs. Maharashtra's steep excise duty hike is expected to impact near-term volumes and could trigger downtrading. Management reiterated its double-digit P&A growth guidance in the medium term, supported by portfolio premiumisation and policy progress in certain states. We maintain our BUY rating, with a revised target price of Rs. 1,518 based on 55x FY27 PE(x).

Investment Rationale

Strong P&A and Popular segment growth despite challenges UNSP's P&A segment, contributing 88% of sales, registered 9% volume/value growth. The Popular segment also posted 11.6%/ 13.6% YoY growth, showing resilience across tiers. New initiatives like Royal Challenge Premium in mid-prestige, McDowell X gaining traction in East India, and Smirnoff flavours exceeding benchmarks underline sustained consumer demand. These drivers provide confidence in sustaining premiumisation-led growth despite tax overhangs.

Maharashtra duty hike impact mitigated by pricing strategy & competitive behaviour

United Spirits said that the recent 30-40% priceincrease in Maharashtra, caused by higher state taxes, is a short-term challenge. To manage the impact, they covered some of the cost themselves in the mid-range products but passed on the full increase in lower-end products. The state also launched Maharashtra Made Liquor (MML), which might affect customer choices. Even so, early signs show that people are still spending more, but spending needs to grow 30-35% to fully balance out the tax hike. The company pointed out that similar steps in other states like Rajasthan and UP didn't work well and were reversed. Overall, United Spirits remains cautiously hopeful, as strong sales in other states could help make up for the Maharashtra impact.

Cost headwinds manageable; long-term double-digit growth intact Gross margin improved 107 bps YoY to 45.5%, while EBITDA margin fell 162 bps to 17.9%, led by ENA inflation and rising packaging costs. Management highlighted glass supply disruptions in Q2 due to supplier shutdowns but has mitigated risks via alternative sourcing and long-term contracts. Freight cost escalation due to maintenance is transitory. Import duty cuts from Apr-Jun'26 are expected to benefit margins. Despite near-term pressure, UNSP reiterated its mid-to-long-term doubledigit P&A growth guidance, with EBIT growth expected slightly ahead of revenue growth.

Outlook and Valuation

While the Maharashtra duty hike poses a short-term overhang, UNSP continues to demonstrate strong volume resilience, portfolio innovation, and competitive discipline. Structural growth drivers in P&A, an improving mix, and gains from import duty cuts reinforce our BUY stance. We maintain our BUY rating, with a revised target price of Rs. 1,518 based on 55x FY27 PE(x).

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