Volume, margin concerns likely to weigh on beer maker United Breweries

In the September quarter, the company's gross margins shrunk 104 basis points year-on-year to 42.8 per cent on account of an adverse product mix and inter-state transfer

The stock of the country’s largest beer maker, United Breweries (UBBL), is trading at 25-month lows given multiple headwinds related to volumes, regulatory issues, and margin trajectory. After a muted second quarter (July-September) of 2025-26 (Q2FY26), brokerages also expect the company’s Q3FY26 performance to be underwhelming. At the current price, the stock is trading at 71 times its FY27 earnings estimates. 

Kotak Research expects near-term growth and margin outlook to remain challenging, with volumes expected to fall in Q3FY26 for the alcoholic beverage major. The other negatives for the company are regulatory pressures and adverse operating leverage, an unfavourable state mix, and continued growth-oriented investment. Affordability issues on the back of regulatory headwinds are also weighing on growth, it adds. The brokerage has a “Sell” rating, with a target price of ₹1,500. 

The company, however, expects the sector to normalise in the second half of 2025-26 (H2FY26) led by festive season recovery and on-trade (in-venue) momentum. It expects a pricing growth of 4-5 per cent and volume growth of 5-6 per cent, with the possibility of rising to high single digits if reforms and supply of cans improve. The company expects capex to move to high single digits as percentage of sales with ongoing premiumisation spends and productivity efforts set to sustain growth and margins. 

In Q2FY26, the company’s net revenue fell by 3 per cent year-on-year (Y-o-Y) on the back of a flattish growth in realisation while volumes declined by 3.4 per cent Y-o-Y to 46.7 million cases. The revenue show was on the back of a higher base of last year due to increased channel stocking after June 2024 on election-led supply chain disruptions.

 

What added to the woes on the revenue front was above-average rainfall in the northern belt, continued growth pressure in Karnataka due to exercise duty hike, and shortage of cans because of planned shutdown in factories by suppliers.

 

While UBBL grew in Maharashtra (led by price hike in spirits and better distribution), in Andhra Pradesh and Assam it was offset by weak show in other operating geographies. Growth in premium volumes came down to 17 per cent Y-o-Y (versus average 34 per cent Y-o-Y in the past three quarters). The premium segment growth was driven by Kingfisher Ultra, Kingfisher Ultra Max, and Heineken Silver.

 

In the September quarter, the company’s gross margins shrunk 104 basis points (bps) Y-o-Y to 42.8 per cent on account of adverse product mix and inter-state transfer. Moreover, operating de-leverage further hit operating profit margin at 6.3 per cent (down by 438 bps Y-o-Y) as the beer-maker continued to invest in premium brands.

 

After the Q2FY26 performance, brokerages had cut their earnings estimates. Amid a lower mix of the premium category, UBBL’s growth and margin performance are pegged to a growth-constrained value category, point out Karan Taurani and Harshad Gadekar of Elara Securities. Factoring in Q2FY26 show, the brokerage has cut its revenue estimates by 5-8 per cent in FY25-FY28 and earnings estimates by 14-26 per cent given lower operating profit margin estimates. It has a “Reduce” rating, with a target price of ₹1,800 per share.

 

YES Securities has a “Neutral” rating, with a target price of ₹1,855 per share. While volumes are expected to improve, near-term margin pressure will continue to restrict operating profit growth, point out Vishal Punmiya and Manas Rastogi of the brokerage.