ICICI Securities retains 'Add' on United Spirits despite Q3 volume pressure

ICICI Securities on United Spirits: Despite volume pressure, USL reported steady revenue growth, aided by premiumisation.

United Spirits’ (USL) December quarter (Q3FY26) performance came in slightly below expectations due to a 2 per cent year-on-year (Y-o-Y) decline in prestige-and-above (P&A) volumes, ICICI Securities said in a post-results note. The brokerage attributed the underperformance versus peers largely to the company’s higher exposure to Maharashtra, where adverse policy changes weighed on demand.

 

Despite volume pressure, USL reported steady revenue growth, aided by premiumisation. Revenue rose 7.3 per cent Y-o-Y, supported by a richer P&A mix and stable performance in the rest of India. Weakness in Regular brands and entry-level P&A was partly offset by strong growth in the premium portfolio, leading to a 10 per cent improvement in realisations and a 219 basis points expansion in gross margin.

 

 

On the bourses, meanwhile, United Spirits shares fell up to 2.95 per cent to an intraday low of ₹1,279.55 per share. At 9:32 AM, United Spirits share price was trading 2.30 per cent lower at ₹1,288.25. In comparison, BSE Sensex was trading 0.09 per cent lower at 82,107.04 levels.

Premium mix offsets weak volumes

ICICI Securities noted that value growth in the P&A segment stood at 8.3 per cent year-on-year, even as volumes declined around 2 per cent, indicating that growth was driven more by mix improvement than demand recovery. The Popular segment, however, remained under pressure, with volumes and value declining 9 per cent and 4.8 per cent, respectively, largely due to the impact of policy changes in Maharashtra.

 

Management commentary remained constructive, highlighting resilience in the premium end of the portfolio and continued investments in key brands to support long-term growth, the brokerage said.  ALSO READ | Brokerages bullish on ITC Hotels after Q3; see strong growth ahead

Margins: Investment-led trade-off

Gross margin expanded to 46.9 per cent in Q3FY26, supported by premiumisation, productivity initiatives and pricing benefits from earlier periods. Ebitda rose 5.1 per cent Y-o-Y to ₹620 crore. However, Ebitda margin contracted 35 basis points to 16.8 per cent, reflecting higher advertising and promotion (A&P) spends.

 

Brand investments increased to 14 per cent of sales, compared with 11 per cent in the same quarter last year, while other expenses remained largely stable. Lower interest costs helped cushion profitability, with profit after tax rising 11.8 per cent Y-o-Y.

 

ICICI Securities said the quarter reflected a conscious investment-led margin trade-off, with gross margin strength intact, but flagged volume recovery as a key monitorable going forward.  ALSO READ | SRF Q3 prompts cautious optimism from analysts; specialty chemicals weigh

Valuation and outlook

The brokerage marginally tweaked its FY26 and FY27 estimates and expects revenue, Ebitda and PAT to grow at a compounded annual rate of 10 per cent, 13 per cent and 12 per cent, respectively, over FY25-28, driven by premiumisation.

 

ICICI Securities maintained its ‘Add’ rating on the stock, with a DCF-based target price of ₹1,500. Key risks, analysts believe include changes in taxation, volatility in raw material prices and the inability to revive legacy brands.

 

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