Policy change, seasonal uptick to drive gains for United Spirits stock

The higher revenue is on account of changed policy in Andhra Pradesh, new launches and a higher share of the premium segment in the product mix

The stock of the country’s largest alcohol beverage maker United Spirits has been hitting its lifetime highs over the last few trading sessions.

 

United Spirits is up 10 per cent over the past month on expectations of a strong growth in Q3 led by the festival season, launches and improved outlook across segments.

 

The Nifty50, in comparison, is flat over this period. 

 

While there are multiple triggers for the Indian market leader in the spirits segment, in the near term, the Street will track the results of the December quarter (Q3FY25) and outlook/guidance, especially for the Prestige and Above (P&A) or the premium segment.

 

Most brokerages have pegged the volume growth for United Spirits at 9 per cent and sales growth at 14 per cent. 

 

The higher revenue is on account of changed policy in Andhra Pradesh, launches and a higher share of the premium segment in the product mix.

 

Elara Securities expects the P&A segment to grow by 13.4 per cent over the year-ago quarter which will be its highest in the past five quarters. 

 

Nuvama Research forecasts a high-single/double-digit sales growth and robust volume growth for liquor majors due to Andhra reforms, a strong wedding season and a soft base.

 

Say Abneesh Roy and Jainam Gosar of the brokerage, “Liquor companies are benefiting from a relatively softer base in the previous period, which should enable them to achieve stronger results as consumer demand picks up and market conditions stabilise.”

 

What has helped United Spirits is the increase in the number of weddings. This has boosted demand for premium spirits, a segment that the market leader is pivoting towards.

 

A key trigger for the sector and United Spirits is the change in the liquor policy in Andhra Pradesh.

 

Post the new policy, traction is strong in the state, with the share of national players rising to 35 per cent from 25 per cent prior to the change. 

 

The gains, according to Karan Taurani of Elara Securities, was on the back of improved quality as compared to local players, wider choices offered and introduction of upper prestige/luxury offerings.

 

With volumes of 35-40 million cases, Andhra Pradesh holds a 10 per cent market share in pan-Indian consumption. 

 

In addition to the premium segment, overall recovery in the alcoholic beverages sector is also expected to boost sales of the entry level ‘popular’ segment.

 

Nuvama Research expects net sales and volumes for this segment to increase by 2 per cent year-on-year (Y-o-Y).

 

This segment saw a fall of 6.9 per cent and 7.9 per cent in Q2FY25 and 12.4 per cent and 22.8 per cent in the year-ago quarter in sales and volume, respectively.

 

On the profitability front, gross margins would be marginally higher given the mixed price trends on the raw material front.

 

In Q3, while glass and packaging material remained stable, extra neutral alcohol prices continued to be inflationary, up 4-5 per cent on a sequential basis.

 

Brokerages expect its operating profit margins to be up by 26-70 basis points Y-o-Y while sequentially it would be down by 113 basis points. This is due to higher advertising and promotion costs related to new launches and higher employee costs.

 

United Spirits is a top pick of Nuvama Research in the consumer space while Elara Securities has a ‘reduce’ rating on it.

While prospects are sound, the stock is trading at a 30 per cent premium on the FY26 price-to-earnings metric compared to its five-year average.