Margin contraction and competitive pressure may keep spirits low at USL

Investors should await signs of margin improvement and volume uptick, especially in the Prestige-and-above segment before considering investment in USL

Investors in United Spirits (USL) did not make any money in 2019. The stock, which has underperformed the broader indices, ended marginally lower than the year-ago levels. From its September levels when it had peaked, the stock has shed about 11 per cent.

Pegged back by a consumption slowdown and high base, the company recorded muted volume in the September quarter. What hampered sales further were the liquidity challenges for trade in certain states and a temporary supply-chain disruption. The company faces some headwinds on account of margin contraction and competitive pressures.

The hike in key raw material prices is