Reduce United Sprits Ltd for the Target Rs.1,230 by Choice Institutional Equities
Weak Volume Growth Lowers Net Revenue Forecast
For Q4FY26, total volumes declined 5.6% YoY to 15.7 Mn cases, impacted by the full-quarter effect of Maharashtra Made Liquor (MML), affecting the Popular and Lower Prestige segments in the state. While the Karnataka policy revamp is expected to act as a tailwind, increased competition intensity is slowing down growth and eroding market share. We, therefore, cut our volume growth forecast to 4.9% (vs. 7.6%) CAGR over FY26–FY29E. However, given the inflationary environment, we improve the realisation forecast, leading to a net revenue CAGR of 10.7% over FY26–FY29E (vs. 11.3%). The company’s supply agility program is a silver lining amid the growth slowdown. EBITDA margin is forecast to improve by 190 bps despite near-term volatility due to high packaging cost, for both, PET and glass.
View and Valuation
We expect a Revenue / EBITDA / PAT CAGR of 10.7% / 16.2% / 15.3% over FY26–FY29E, respectively, driven majorly by volume headwinds and margin expansion. However, we expect the massive payout (~INR 166 Bn) from the sale of RCB franchise to be distributed as dividend, raising dividend yield to at least 10.2% for FY27E. We, therefore, assign a ‘REDUCE’ rating using the DCF approach, reducing our target price to INR 1,230. This leads to a total return of 3.4% (-6% share price +10.2% div. yield) in the medium term. Our target price implies a PE of 40x on FY28E EPS of INR 42.6.
FY26: Muted Volume Performance due to a Weak H2
* Overall volumes grew by 1.5%, while revenue registered a growth of 7.2%
* Prestige & Above (P&A) segment grew by 2.6% YoY, Popular segment saw a decline in volume by 4.4% YoY
* EBIDTA came in at INR 22.9 Bn, an increase of 11% YoY. EBITDA Margin for the year stood at 18.3% (missing CIE est. by 140 bps)
* PAT (incl. profit/loss from discontinued operations) came in at INR 18.4 Bn
* UNITDSPR has declared a final dividend of INR 11/share, bringing the total dividend yield to 1.3% for the full year
Pricing And Productivity Drive Margin Expansion Amid Volume Headwinds
Gross margin expanded 291 bps YoY to 47.4% in Q4FY26, supported by pricing realisation flow-through, revenue growth management initiatives, productivity benefits and relatively stable commodity cost. However, overall volumes were affected by the continued MML disruption, particularly in the Popular and Lower Prestige segments. A&P spend was maintained at 9.8% of revenue to support key trademarks and premiumisation initiatives. In this quarter, UNITDSPR also approved the sale of Royal Challengers Sports Private Limited (RCSPL) for INR 166.6 Bn, in line with its strategy to sharpen focus on the core business.
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SEBI Registration no.: INZ 000160131
