Higher input costs likely to hit near-term margins of United Spirits

United Spirits' revenue grew in the June quarter, driven by volume growth, but margins were hit by higher advertising and promotional costs. Brokerages see price correction as a potential opportunity.

The country’s largest listed alcoholic beverage maker, United Spirits, reported a mixed bag of results for the first quarter of the financial year 2026 (Q1FY26).

 

While the topline was boosted by a better than expected volume growth in the quarter, margins were weighed down by higher spends on advertising and promotions. Although there are near term headwinds especially on the growth front, some brokerages believe that price correction of 18.5 per cent since its highs in June has made valuations attractive.

 

Revenues in the quarter saw a growth of 8.4 per cent on the back of a 9.4 per cent growth in volumes. Sales growth was led by re-entry into the Andhra Pradesh market along with innovative products across its portfolio.

 

Higher priced prestige & above (P&A) segment registered a volume and value growth of 9 per cent each. The company is targeting a double-digit growth in the segment despite the headwinds in Maharashtra which hiked excise duties and a higher base from the re-entry into Andhra Pradesh.

 

In addition to this, progressive policy changes in Uttar Pradesh, Madhya Pradesh and Jharkhand are expected to act as tailwinds in coming quarters.  

 

The popular segment posted 11.6 per cent volume growth and 13.6 per cent revenue growth. Given the weaker demand at the higher segment and seasonality, the price mix was flattish. Analysts led by Abhijeet Kundu of Antique Stock Broking expect popular segment growth to continue to be in the low single-digits. Over the long term, they expect the company’s performance to be driven by the premiumisation of its portfolio through the makeover of existing brands and the launch of brands from Diageo’s global portfolio.

 

The company’s gross margins in the quarter contracted by 50 basis points year-on-year (Y-o-Y) to 44 per cent and was in line with estimates. Excluding the ₹40 crore one-off impact, gross margin expanded by 110 basis points Y-o-Y, led by stable raw material prices and efficiency gains. Operating profit declined by 9.4 per cent Y-o-Y on account of an elevated base in the prior year and investments in key brands. The operating profit margins fell by 320 basis points to 16.3 per cent.

 

There could be near-term headwinds on the gross margin front given supply related temporary disruption in glass prices. The company also expects the prices of extra neutral alcohol or ENA prices to inch up due to the new ethanol policy.

 

Though Nirmal Bang Research believes that the Maharashtra excise increase will have an impact in the remainder of the year and hence its assumptions of volume decline and flattish sales, it is positive on the

outlook for the company.

 

Krishnan Sambamoorthy and Sunny Bhadra of the brokerage believe overall demand across the country for alcoholic beverages remains strong, material cost outlook is benign and there will be benefits on both sales and margins in FY27 because of the India-UK free trade agreement. The analysts believe that the price correction of 20 per cent after the Maharashtra excise increase announcement in mid-June provides an attractive investment opportunity. The brokerage has a target price of ₹1,650.

 

Commenting on the results, Motilal Oswal Research believes that the company’s re-entry into Andhra Pradesh contributed to its incremental volumes. It estimates a 9 per cent revenue growth over FY25-28. However, given the rich valuations, analysts led by Naveen Trivedi of the brokerage maintain its neutral rating with a target price of ₹1,500.