Premium pour to lift United Breweries stock; Q2 might be a tepid sip

But expansion in Andhra, policy support in UP can catalyse full-bodied growth

From its highs at the end of July, the stock of alcoholic beverage (alcobev) maker United Breweries (UBL) is down 12 per cent. The weak sentiment for the stock is attributed to demand woes caused by higher rainfall in the July-September quarter of 2025-26 (FY26) and an elevated base. Brokerages, however, remain positive on the outlook, citing the focus on the premium segment, expansion, easing supply chain issues, and scope for margin improvement.

 

The alcobev major has expanded brewery capacity by a third in Andhra Pradesh, which, coupled with improving growth prospects in Maharashtra, is expected to offset the excise-related headwind (three tax hikes in three years) in Karnataka earlier this year.

 

Commenting on the Andhra Pradesh expansion, Nuvama Research notes that localised production is expected to prevent stockouts, enabling the company to meet rising consumer demand and potentially improve margins by avoiding interstate taxes.

 

Revenue growth is also expected to benefit from a favourable policy in Uttar Pradesh, which will lead to higher beer availability as the number of beer stores is projected to rise by two-thirds to 10,000 stores. In Telangana, where the market saw a lower-than-expected price hike of 15 per cent, the company is adding an additional can production line to manufacture premium Kingfisher and Heineken variants. 

 

Cans account for a fifth of the company’s overall sales, while in states such as Uttar Pradesh and Madhya Pradesh, they represent as much as 75–80 per cent of sales. Supply constraints had caused a 1–2 per cent drag on volume growth over the past six months, which should be addressed by the additional production.

 

Margin pressures persist due to a higher proportion of sales in Karnataka, brand investments, and interstate sales. In the April-June quarter of FY26, even as sales rose 16 per cent year-on-year, led by volume growth of 11 per cent and a 46 per cent rise in premium segment volumes, margins contracted 70 basis points (bps) to 10.9 per cent due to interstate taxes and soft performance in Karnataka.

 

However, the company’s efforts at localisation and its target to improve bottle return rates to 73 per cent from the current 70 per cent should help profitability gradually. JM Financial Research notes that UBL’s cost structure is leaner than Carlsberg India’s; however, the latter’s operating profit margin of 13–14 per cent is higher due to a better mix. The brokerage believes there is headroom for a 350-bp margin expansion over 2024-25 (FY25) through 2027-28 (FY28).

 

These measures are part of the company’s strategy to address policy gaps, enhance local manufacturing presence, accelerate premiumisation where it lags peers, and improve execution in trade outlets.

 

While growth prospects remain strong, the stock is trading at premium valuations of 45–60x its 2026-27 earnings, according to brokerages.

 

Analysts at JM Financial Research, led by Mehul Desai, are factoring in a higher earnings trajectory (29 per cent annually over FY25–28) compared to historical performance, which, along with an improving return profile and cash generation, is expected to sustain premium valuations.

 

The key risks, according to the brokerage, are faster growth by competitors and regulatory headwinds in Karnataka, which could slow the pace of margin expansion.