'Buy' United Spirits Shares Maintains Nirmal Bang; Says Price Correction Leads To Attractive Entry Points

In FY25, United Spirits expanded and diversified its portfolio with Royal Challenge American Pride and JW Blonde each contributing 7% to their respective trademarks by NSV, McDowell’s X Series entering multiple new spirit categories, Smirnoff launching Indian-inspired flavors, and a focus on the fast-growing white spirits segment (16% 3-year CAGR) across price points to capture the evolving consumer demand.

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Nirmal Bang Report

United Spirits Ltd. has done extremely well on operating parameters over the last decade with PAT CAGR of ~24% over this period and an extremely healthy PAT CAGR of ~15% over the last five years as well. A combination of factors like:

1. focus on the high growth and high margin prestige and above segment,

2. better execution on brand building compared to the past,

3. exiting commoditized popular business in most states,

4. significantly better operating efficiency,

5. relatively favorable operating environment in the last five years, and

6. significant deleveraging has meant not only robust earnings growth but phenomenal improvement in return ratios from mid-single digits at the end of FY15 to over 20% at the end of FY25.

Consequently, the stock has generated formidable returns of ~17% CAGR in the last five years. The sharp increase in excise in Maharashtra in Jun-25 has been a setback, and therefore, as part of our Q1 FY26 preview, we had assumed that EPS growth is likely to be flat in FY26 (we are assuming Ebitda from Maharashtra will halve over FY25 levels in the current year); the 20% stock price correction following the excise increase announcement provides as attractive entry point as:

1. the above factors which led to strong earnings growth over the last decade are still very much at play,

2. demand environment for alcobev outside Maharashtra remains strong,

3. recent policy changes in Andhra, Uttar Pradesh, and Karnataka are actually providing a tailwind for spirits category growth,

4. material cost outlook is favorable, and

5. benefits of India UK FTA on volume growth and raw material savings are likely in FY27.

Consequently, robust earnings growth trajectory should be back from FY27. We continue to value United Spirits at 55x Jun-27E standalone EPS (5-year average ~53 times, 10-year average ~65 times) and attribute Rs 170 per share value to its 100% stake in RCB giving us a target price of Rs 1,665, ~28% upside to the CMP.

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