Neutral United Spirits Ltd for the Target Rs. 1,650 by Motilal Oswal Financial Services Ltd
Cost control leadsto beat on margins; rich valuation limits upside
* United Spirits (UNSP) reported revenue growth of 11% YoY (est. 12%) in 4QFY25, with a total volume growth of 7% (in line), supported by its reentry into AP (since Sep’24). The Prestige & Above (P&A) segment clocked volume and value growth of 9% and 13%, respectively. The Popular segment posted a 2% volume decline, while revenue grew marginally by 1%.
* The company delivered 10% P&A revenue growth in FY25, similar to its sixyear CAGR over FY19-25. It remains focused on sustaining double-digit growth. We model a 10% P&A revenue CAGR over FY25-27, driven by continued new product innovations.
* Gross margin expanded 110bp YoY to 44.5% (est. 44.4%). EBITDA margins expanded 360bp YoY to 17.1% (est. 15.1%), led by cost control efficiencies. The company anticipates that its EBITDA margin will remain within the highteens range. We model 18-18.5% EBITDA margin in FY26 and FY27 (17.8% in FY25).
* UNSP reported revenue and volume growth of 8% and 4% in FY25, also supported by its re-entry into AP. Ex-AP, revenue growth was modest at 5%. Despite assuming double-digit revenue growth and margin expansion over FY25-27, the stock is currently trading at 70x/63x FY26/FY27 EPS. Given the rich valuations, we maintain our Neutral rating with a TP of INR 1,650, based on a 55x Mar’27E standalone EPS and an additional INR250/share for its RCB and other non-core assets.
In-line sales and GM; sharp cost control leads to beat on margins
* Volume up 7%: Standalone net sales were up 11% YoY to INR29.5b (est. INR29.9b) in 4QFY25. P&A revenue (90% revenue mix) was up 13% YoY and popular revenue grew marginally by 1% YoY. Sales growth was supported by a favorable base effect, driven by the commencement of operations in AP from Sep’24. Total volume was up 7%, with P&A’s volume rising 9% YoY (11% in 3Q) to 13.6m cases (est. 13.5m cases) and Popular’s volume declining 2% YoY to 3.1m cases (est. 3.2m cases).
* Beat on margins: Gross margin expanded 110bp YoY to 44.5% (est. 44.4%) on the back of sustained revenue growth management and productivity. A&P spends were down 3% YoY, employee costs were up 2% YoY, and other expenses were up 5% YoY. EBITDA margin expanded 360bp YoY to 17.1% (est. 15.1%), driven by gross profit growth and cost control efficiencies.
* Double-digit profit growth: EBITDA grew 40% YoY to INR5.1b (est. INR4.5b). PBT grew 62% YoY to INR4.9b (est. INR4.4b). APAT grew 62% YoY to INR3.8b (est. INR3.3b). In other income, there was an exceptional gain of INR900- 1,000m on the sale of non-core assets.
* In FY25, total volume grew 4% YoY, with P&A’s volume rising 5% YoY to 52.9m cases and Popular’s volume declining 2% YoY to 11m cases. ? In FY25, net sales, EBITDA, and APAT increased 8%, 21%, and 26%.
Highlights from the management commentary
* With the implementation of the UK-FTA, the accessibility of Scotch whisky in India is set to improve, paving the way for new premium offerings for Indian consumers. The reduction in import duties—from 150% to 75%—is expected to translate into high single-digit reductions in consumer prices and drive additional volumes in the high single-digit range.
* McDowell’s remains a strong whisky brand, with sales of 13m cases in FY25.
* Innovation currently contributes a high single-digit to low double-digit share to the business. The company aims to double the contribution from innovative products over the next 3-5 years.
* The company focuses on sustaining double-digit growth in the P&A segment while maintaining EBITDA margins in high teens.
Valuation and view
* We raise our EPS estimates by 4% each for FY26 and FY27, primarily driven by margin expansion. The improvement in margins is supported by a favorable shift toward premium products and effective cost-control measures. The company anticipates that its EBITDA margin will remain within the high-teens range. We model 18-18.5% EBITDA margin in FY26 and FY27 (17.8% in FY25).
* UNSP sold a large part of its Popular portfolio to focus on its global strategy for the premium portfolio. The liquor industry is currently experiencing an upgrading trend, which aligns well with the company’s renewed emphasis on P&A, supporting the long-term liquor upgrading narrative in India.
* Liquor policies in many states are becoming more favorable, driving consumer upgrades and increased frequency. UNSP is well-positioned to capitalize on this large opportunity.
* UNSP reported revenue and volume growth of 8% and 4% in FY25, supported by its re-entry into AP. Ex-AP, revenue growth was modest at 5%. Despite assuming double-digit revenue growth and margin expansion over FY25-27, the stock is currently trading at 70x/63x FY26/FY27 EPS. Given the rich valuations, we maintain our Neutral rating with a TP of INR 1,650, based on a 55x Mar’27E standalone EPS and an additional INR 250/share for its RCB and other non-core assets.
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