USL ends growth bender with a regulatory hangover, margin pressures loom

The buzz wears off in a sobering 2025-26 reset marked by excise shocks, soft volumes, and thinning margins

Shares of United Spirits (USL), the country’s largest listed liquor firm, have dropped 10 per cent over the past month, trailing sector peers. The slide follows a sharp excise duty hike in Maharashtra, a high base effect, and the absence of clear margin drivers — all of which have prompted brokerages to trim their 2025–26 (FY26) sales and earnings forecasts. This cautious turn comes after two years of strong operating and net profit growth. With multiple challenges in play, analysts expect the stock to remain under pressure in the near term.

 

Some of the warning signs may surface as early as the April–June quarter (Q1). While the broader liquor sector is grappling with regulatory setbacks, players like Radico Khaitan may still have an edge.

 

USL’s prestige and above portfolio — its higher-priced liquor segment — is likely to see muted growth, partly due to the high base from last year’s election-driven inventory build-up. Some analysts believe the recent policy shift in Maharashtra could hit sales in Q1 itself. USL is projected to report 6 per cent sales growth, which would drop to 3 per cent if Andhra Pradesh is excluded. In contrast, Radico is estimated to grow 21 per cent, led by a 17.5 per cent rise in volumes, driven by market share gains and innovation. 

 

USL’s operating margins are also likely to shrink, weighed down by higher advertising spends and weak cost leverage. Karan Taurani of Elara Securities says last year’s high base, combined with upfront promotional spending in Q1, could shave 300 basis points off margins, bringing them down to 16.5 per cent year-on-year.

 

A major overhang for investors is the steep increase in excise duties on spirits by the Maharashtra government. Retail prices for lower-prestige and mid-prestige segments have gone up by 30–45 per cent. These segments account for 13 per cent of USL’s volumes and 11 per cent of its value.

 

Analysts at Kotak Securities, led by Jaykumar Doshi, warn that the move sets a worrying precedent, with states using liquor taxation to bankroll populist electoral pledges and tilting policies in favour of state-produced liquor over Indian-made foreign brands. After a period of relative policy calm, this shift has renewed concerns over regulatory unpredictability. The brokerage has lowered its FY26 through 2027–28 earnings per share estimates by 3–6 per cent. 

 

Dolat Capital expects a three-way hit from the excise hike. According to analysts Himanshu Shah and Mohit Rajani, this includes volume loss due to higher retail prices, downtrading to cheaper segments, and a drop in ex-distillery prices to support channel margins.

 

The brokerage expects more pressure from the July–September quarter, with Maharashtra and Andhra Pradesh forming part of the base and earlier margin gains already absorbed. It has lowered FY26 operating profit estimates by 4 per cent and net earnings by 13 per cent, cutting the price-to-earnings multiple from 60x to 50x on 2026–27 estimates.

 

Most brokerages, however, point out multiple mitigating factors which could cushion the blow. These include the Delhi government’s revised excise policy, a reopening of the Bihar liquor market after elections, and possible benefits from the India–UK free trade agreement, which may lower input costs.

 

Still, given the regulatory fog and uncertain growth path, most brokerages have stuck to a ‘neutral’ or ‘sell’ rating on the stock.