- United Spirits' premium segment grew 6.3% despite a 2% net profit decline in Q2 FY27
- Net sales rose 2.8% to Rs 3,258 crore, but EBITDA fell 4.3% due to higher ad spending
- Regulatory issues in Maharashtra and Karnataka hurt the popular segment's sales by 22.7%
United Spirits' premium portfolio continues to grow, but higher advertising spending and regulatory headwinds in Maharashtra and Karnataka are weighing on profitability. The company's Prestige & Above segment recorded 6.3% growth in net sales value in Q2 FY27, yet overall net profit fell 2% and EBITDA declined 4.3%, leaving brokerages divided on the stock's growth prospects.
Goldman Sachs remains bullish with a 'Buy' rating and a target price of Rs 1,575, while Jefferies and CLSA have maintained 'Hold' ratings. Choice Institutional Equities has retained its 'Reduce' rating, citing competition, packaging costs and adverse policy changes. The differing calls reflect the main question facing the liquor maker i.e. can premiumisation and new product launches offset pressure on its broader business?
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United Spirits Q2 Results: Premium Growth Fails To Lift Profit
United Spirits reported net sales value of Rs 3,258 crore in the September quarter, up 2.8% year-on-year from Rs 3,170 crore. Net profit declined to Rs 462 crore from Rs 472 crore, while EBITDA fell 4.3% to Rs 643 crore from Rs 672 crore.
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The EBITDA margin contracted to 19.7% from 21.2% a year earlier.
READ | United Spirits Q2 Results: Net Profit Declines 2%, Revenue Rises 3%
Gross profit, however, increased 4.7%, with gross margin expanding 88 basis points to 48%. Better product mix and productivity gains supported gross profitability, but the benefit was offset at the operating level by higher advertising and promotion expenditure.
The advertising and promotion reinvestment rate rose to 11.6% of net sales value from 7.6% in the year-ago quarter, reflecting investments behind brands and new launches ahead of the festive season.
Prestige Brands Grow, But The Popular Segment Remains Under Pressure
United Spirits' Prestige & Above portfolio continued to outperform its broader business. Net sales value in the segment rose 6.3% in Q2, supported by Smirnoff local-flavour innovations, the J&B Scotch relaunch and growth in the luxury portfolio.
The segment accounted for 94.1% of net sales value during the quarter, up 3.1 percentage points from a year earlier.
The Popular segment, however, remained a weak spot. Its net sales value fell 22.7% on a like-for-like basis to Rs 181 crore, reflecting the impact of Maharashtra's Made Liquor policy and recent excise slab changes in Karnataka, which affected realisations and growth.
The regulatory headwinds have made it harder for the company to translate premiumisation into stronger overall growth.
United Spirits Q2: What Brokerages Say
Goldman Sachs Maintains 'Buy' With Rs 1,575 Target
Goldman Sachs has maintained its 'Buy' rating and target price of Rs 1,575. The brokerage noted that revenue growth of 2.9% was below estimates, while Prestige & Above volumes declined 1.2%. EBITDA fell 5% year-on-year but came in above estimates, supported by better gross margins.
Higher advertising expenditure and Maharashtra tax changes remain key concerns.
Jefferies Retains 'Hold', Flags Underwhelming Growth
Jefferies has maintained its 'Hold' rating with a target price of Rs 1,560. It described Q2 growth as underwhelming, with Prestige & Above volumes declining 1%.
The brokerage acknowledged the 88-basis-point expansion in gross margin but said higher advertising expenditure continued to weigh on EBITDA margins. Persistent Maharashtra headwinds remain a concern, although strong cash-flow generation provides some comfort.
CLSA Maintains 'Hold' With Rs 1,303 Target
CLSA has retained its 'Hold' rating with a target price of Rs 1,303. It highlighted revenue growth below expectations and a 1.6% decline in Prestige & Above volumes.
While gross margin improved, higher advertising expenditure weighed on operating margins. Regulatory headwinds in Maharashtra and Karnataka continue to affect the growth outlook.
Choice Institutional Equities Retains 'Reduce'
Choice Institutional Equities has maintained its 'Reduce' rating while raising its target price to Rs 1,330 from Rs 1,230.
The brokerage expects premiumisation to support revenue growth, but sees competition, elevated glass and PET packaging costs and adverse Maharashtra policy changes weighing on the business in the medium term.
It expects revenue to grow at a compound annual growth rate of 11% over FY26 to FY29, supported by improved realisations, while forecasting a more gradual recovery in EBITDA margins as benefits from the Supply Agility Program accrue. Choice has also cut its FY28 net income estimate by around 3%.
Can Premiumisation And New Launches Revive Growth?
United Spirits is continuing to invest in its premium portfolio and expand into new categories. The relaunch of J&B Scotch, enabled by the India-UK free trade agreement, is intended to deepen Scotch penetration, while the company has entered the ready-to-drink segment with Smirnoff Ice.
Managing Director and CEO Praveen Someshwar said the company delivered a resilient quarter despite a strong prior-year base and regulatory headwinds, while continuing to invest in its brands for long-term growth. He also expressed confidence ahead of the festive quarter.
The first half of FY27 provides a broader view of the challenge. Net sales value rose 4.2% to Rs 5,961 crore, while Prestige & Above sales increased 7.8%. However, reported EBITDA declined 1.1% to Rs 1,075 crore, and the EBITDA margin contracted 97 basis points to 18%.
The main question for investors is whether premiumisation, new launches and productivity initiatives can offset regulatory disruption, competitive intensity and higher brand-building costs.
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