Reduce United Sprites Ltd For Target Rs.1,330 by Choice Institutional Equities Ltd
Karnataka Tailwind Offset by Overall Competition Intensity
Q1FY27 volumes remained under pressure, declining 3.4% YoY, primarily due to the continued impact of Maharashtra Made Liquor (MML) on the Popular and Lower Prestige segments. Karnataka (6–7% of P&A net revenue) is expected to show volume expansion in the next few quarters as prices were reduced by an average of 15%. Although premiumisation remains intact with Prestige and Above (P&A) revenues growing 10.1% YoY despite a 1.3% volume decline, margin recovery is forecast to remain gradual driven by elevated glass and PET packaging cost offset benefits. We now factor in a volume CAGR of 4.4% (vs. 5.0% earlier) over FY26–FY29E, while improved realisation driven by premiumisation support a revenue CAGR of 11.0% over the same period. We expect EBITDA margin to remain broadly stable in FY27E before improving gradually as Supply Agility Program benefits accrue.
View and Valuation
Although UNITDSPR’s supply agility program, India-UK FTA implementation and price reduction in Karnataka offer growth levers, we expect headwinds from increased competition intensity, elevated packaging cost and adverse MML policy to subdue growth in the medium-term. We have raised our TP to INR 1,330 (vs. INR 1,230) using DCF, factoring in fresh drivers. We cut our FY28E net income estimate by ~3% and maintain our ‘REDUCE’ rating on the stock.
New Scotch Products May Lead to Growth as FTA Comes into Effect
Lower-duty Scotch shipments are already under way, while consumer benefits are expected from October 2026 after channel inventory de-stocking. The agreement is anticipated to improve Scotch affordability and accelerate premiumisation in the medium term. Additionally, UNITDSPR acquired a 10.08% stake in Nuvolo Spirits, expanding its presence in the premium craft spirits segment and strengthening its innovation-led portfolio. The investment also provides an entry into fast-growing craft liqueurs through brands, such as Mikiamo and Seoulmate, while offering optionality for portfolio expansion.
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