Reduce United Spirits Ltd For Target Rs. 1,454 By Elara Capital Ltd
Modest show, excluding Andhra Pradesh
Overall performance for United Spirits (UNITDSPR IN) was led by the Prestige and Above (P&A) segment (up 16.1% YoY in value). Excluding Andhra Pradesh, value growth stood at 9.2%, which is low, in our view. Pick-up was led by the festival season and the Regular segment grew 5.9% YoY. We continue to monitor the performance of P&A and strategy post the appointment of the new CEO. We cut our EPS estimates by 1.9%/3.6% for FY26E/27E due to muted show, excluding Andhra Pradesh. We roll over to FY27E and maintain Reduce with SoTP-TP unchanged at INR 1,454.
P&A growth led by AP state:
Despite a large base, UNSP’s 11.2% YoY volume growth in P&A was the highest in the past eight quarters, characterized by: 1) healthy festival season-led QoQ demand, 2) accelerated traction from Andhra Pradesh post the opening of the state in mid-Q3 (Nov ’24), and 3) increasing salience of luxury within P&A. Excluding the boost from Andhra Pradesh, P&A value growth was 9.2% YoY despite festival season, which is low. Expect partial positive impactof Andhra Pradesh inFY26. P&A performance has made some revival post muted H1 (up mere 0.7% YoY). Realization too grew 4.4% YoY to INR 2,053 led by a slight rise in salience of luxury brands in P&A, but has seen some moderation and may pick up again, per UNITDSPR. Expect 6.5%/4.5% volume growth in FY26E/27E.
\Regular segment sees respite after long:
Post volume drop in H1 (down 6.2% YoY), the regular segment has scripted a comeback, up 5.9% YoY, led by right pricing action and excise duty reduction in key operating states. Revenue from the segment rose 9.5% YoY due to 3.5% YoY growth in realization. The share of the regular segment to overall volumes/revenue is broadly same, at 3.2%/17.8% to total, respectively. Current momentum may continue. Expect 2.0% growth each in FY26E/27E on estimated low base of FY25E.
Expect EBITDA margins in narrow band:
Gross margins expanded by 131bps YoY, aided by pricing flow-through amid rising P&A share, and productivity measures by UNITDSPR. This has supported EBITDA margin (at 17.1%, up 69bp YoY). However, pared 70bps QoQ led by an uptick in A&P spend to support investment in key brand promotions. Key margin levers are: a) managing gross margin, b) increasing luxury salience and c) internal productivity measures. We expect EBITDA margin of 17.9% by FY27E from 16.0% in FY24.
Maintain Reduce;
TP retained at INR 1,454: Post the appointment of the new CEO, we monitor UNITDSPR’s strategy and expect some transitional period. Excluding Andhra Pradesh, P&A value growth was muted despite festival season. We expect some positive impact from Andhra Pradesh in FY26 (Channel feeding of inventory) and muted show post that. Investments in launches, sticky inflation and structurally elevated ENA price may cap EBITDA margin gain. So, we cut our EPS estimates by 1.9%/3.6% for FY26E/27E. UNITDSPR’s core alcobev business is trading at an elevated 60.3x FY26E P/E, offering low reward in the near-to-medium term. We maintain Reduce with SoTP-TP at INR 1,454, as we roll over to FY27E and value Alcobev at 53x P/E and IPL/WPL at 15/4x P/S.
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SEBI Registration number is INH00000093
