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Soft quarter as expected; positive guidance for 2HFY27

* Revenue grew 6% YoY to INR27.0b (in line) in 1QFY27, while volumes declined 3% YoY (est. -3%; 4QFY26: -6%). Prestige & Above (P&A) volumes declined 1% YoY, but value grew 10% YoY, supported by a favorable mix and strong traction in new variants of Smirnoff (Minty Jamun and Mango Mirchi). It delivered INR2.5b NSV in 1QFY27 vs INR3.5b in FY25. Reported price/mix was strong at 9.4% (P&A: 11.4%), aided by the Maharashtra impact. Ex-Maharashtra, normalized price/mix stood at 5.4% overall and 8.4% for P&A. The Popular segment reported 14% and 18% volume and revenue contraction YoY due to the Maharashtra MML and Karnataka policy changes.

* Gross margin expanded 210bp YoY to 46.1% (down QoQ by ~80bp), driven by premiumization, better product mix, and productivity gains. It was partly offset by a ~INR300m cost impact from the West Asia crisis (inflation in glass, energy, packaging, and logistics). A&P spends rose 31% YoY (brand innovation, IPL, and FIFA campaigns). Consequently, EBITDA margin contracted by 30bp YoY to 16.0% (in line). Management expects cost pressures to persist in 2QFY27. The India-UK FTA is expected to lower consumer prices for the imported portfolio (BIO/IMFL) by 7–9% while also reducing imported RM costs. We model EBITDA margins of 18.6%/19.2% for FY27/FY28.

* Management highlighted early signs of demand recovery and maintains double-digit growth in the P&A portfolio in FY27. Management expects 2HFY27 to outperform 1HFY27, supported by normalization of the Maharashtra base, benefits from Karnataka policy changes (6–7% of revenue), gradual gains from the India-UK FTA, and continued momentum in the P&A portfolio. The company is on track to complete the RCB transaction, pending BCCI approval. We model revenue and EBITDA CAGR of 10%/12% over FY26–28E and reiterate our Neutral rating with a TP of INR1,525.

In-line quarter; higher ad spends drag operating margins

* Muted volume growth - Standalone net sales rose 6% YoY to INR27.0b (est. INR26.6b) in 1QFY27. P&A revenue (92% revenue mix) rose 10% YoY, while popular revenue declined 18% YoY. Total volume declined 3% (est. -4% YoY, 1.5% in FY26). P&A volume declined 1% YoY (est. -1% YoY, 2.6% in FY26) to 12.4m cases. Popular volume contracted 14% YoY (est. - 18% YoY, -4% in FY26) to 2.1m cases. The Popular segment was impacted by MML in Maharashtra and policy change in Karnatak

* GM expansion sustains in 1QFY27 - Gross margin expanded 210bp YoY to 46.1% (est. 45.5%, 47.3% in 4Q). It is supported by sustained revenue growth, product mix, management initiatives, and productivity gains, partially offset by the impact of the West Asia crisis. A&P spends rose 31%, other expenses increased 11%, and employee expenses declined marginally 2% YoY. EBITDA margin contracted 30bp YoY to 16% (est. 16.3%, 19.4% in 4QFY26). EBITDA rose 4% YoY to INR4.3b (est. INR4.3b).

* Double-digit growth in profitability: Other income was INR2,220m, which included INR1,500m for dividend income from RCB. We considered normalized other income of INR720m for PBT calculation. PBT grew 12.5% YoY at INR4.0b (est. INR4.0b). APAT grew 14.5% YoY to INR3.4b (est. INR3.0b), owing to lower taxes.

Highlights from the management commentary

* The company reiterated its long-term growth guidance and continues to target 5-6% volume growth and 6-7% price/mix growth in the P&A portfolio, which should support double-digit revenue growth.

* Management maintained its full-year A&P guidance of 10.5–11% of net sales.

* Karnataka contributes 6-7% of the company’s P&A portfolio in value terms. Following the policy changes, prices of P&A products have reduced by 10–15%, while prices in the Popular segment have increased.

* The MML category is currently witnessing stable monthly volumes of around 0.8-1.0m cases, with management noting that volumes have remained broadly unchanged over the past 4-5 months.

* The renovated McDowell's blend has been launched in Uttar Pradesh, Rajasthan, and Haryana. Initial consumer feedback has been encouraging, and the company plans to roll out the new blend across ~85% of key markets before the festive season.

Valuation and view

* We broadly maintain our estimates for FY26-FY28E.

* Management highlighted early signs of demand recovery and maintains doubledigit growth in P&A portfolio in FY27. Management expects 2HFY27 to outperform 1HFY27, supported by normalization of the Maharashtra base, benefits from Karnataka policy changes (6–7% of revenue), gradual gains from the India-UK FTA, and continued momentum in the P&A portfolio. The company is on track to complete the RCB transaction, pending BCCI approval. We model revenue and EBITDA CAGR of 10%/12% over FY26–28E and reiterate our Neutral rating with a TP of INR1,525.

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