- Revenue up 7% YoY, but volume down 3% – a warning sign.
- Policy crackdown in Maharashtra is eroding the core market.
- Prestige & Above segment contracts while value brands surge 8%.
- Peers such as Tata and Pernod Ricard are gaining share in premium space.
- Motilal Oswal’s 45x Dec‑27 EPS multiple implies a INR 1,500 target – is it justified?
Most investors celebrated United Spirits’ 7% top‑line growth without seeing the hidden volume bleed.
Why United Spirits' Revenue Growth Masks a Volume Contraction
United Spirits (UNSP) reported a 7% year‑on‑year revenue increase for 3Q FY26, matching consensus. However, the same period saw a 3% decline in total volume, diverging sharply from analysts’ expectation of a 2% rise and a robust 8% jump in the preceding quarter. Revenue can climb despite falling volume when the product mix shifts toward higher‑priced SKUs, but this also signals a fragile demand base that can reverse quickly if premium pricing pressure intensifies.
Policy Shock in Maharashtra: The Hidden Drag on Sales
Maharashtra, India’s largest whisky market, recently tightened excise duties and introduced stricter licensing for on‑premise consumption. The policy change has directly hit United Spirits’ sales funnel, compressing both volume and margin. The state accounts for roughly 30% of the company’s domestic revenue, so a 5‑6% dip in Maharashtra can translate into a 2‑3% overall volume slide, exactly what the numbers reveal. Investors should monitor any further regulatory tweaks, as a broader rollout could amplify the headwind.
Segment Breakdown: Prestige & Above vs Value vs Popular
The company’s portfolio is split into three logical tiers:
- Prestige & Above (P&A) – volume fell 2% YoY, missing the projected 2.5% rise. The premium segment is especially sensitive to policy and price elasticity, and a slowdown here erodes the brand equity gains United Spirits built over the past decade.
- Value – grew 8% YoY, driven by aggressive price promotions and rural expansion. This growth partly offsets the premium slump but carries lower margin contribution.
- Popular – the mass‑market segment recorded a 9% volume drop and a 5% revenue dip, indicating that even price‑sensitive consumers are tightening their belts amid higher disposable‑income pressures.
Understanding the mix shift is crucial: a higher share of low‑margin value sales can cushion revenue, yet it also dilutes earnings quality.
How Competitors Tata and Pernod Ricard Are Positioning
Tata Consumer Products, a rising challenger, has accelerated its premium whisky rollout, leveraging its extensive distribution network to capture the Maharashtra shortfall. Meanwhile, Pernod Ricard’s Indian subsidiary (owner of United Brands) is deepening its partnership with on‑premise venues, betting on the eventual easing of policy restrictions. Both peers are gaining incremental market share in the premium and super‑premium brackets, putting additional pressure on United Spirits’ P&A recovery.
Historical Parallel: 2020 Volume Dip and the Recovery Playbook
In FY20, United Spirits faced a 4% volume contraction after the Indian government announced a nationwide increase in excise duties. The company responded by accelerating its value‑brand rollout and renegotiating supply contracts, which helped recover volume by FY22. However, that recovery came at the cost of a 12% margin compression. The current scenario mirrors that past shock, suggesting that a similar trade‑off may re‑emerge if the company leans heavily on value brands to offset premium weakness.
Valuation Deep Dive: 45x Dec’27 EPS and the RCB Premium
Motilal Oswal applies a 45‑times forward earnings‑per‑share (EPS) multiple to United Spirits’ projected Dec 2027 standalone EPS, plus an additional INR 250 per share for its Right‑Corner‑Banking (RCB) and other non‑core assets. This yields a target price of INR 1,500, a modest upside from current levels. For context:
- EPS measures net profit allocated to each share; a higher multiple reflects growth expectations.
- RCB refers to cash‑rich assets that can be monetized or redeployed, adding a premium to valuation.
The 45x multiple is aggressive compared to the sector average of 30‑35x, implying the analyst expects a strong rebound in premium margins. If volume continues to slip, the multiple may be unsustainable, forcing the price target lower.
Investor Playbook: Bull and Bear Cases for United Spirits
Bull Case
- Policy environment stabilises, allowing premium pricing to recover.
- Value‑brand expansion improves cash flow without eroding margins excessively.
- Successful monetisation of RCB assets adds INR 250 per share upside.
- Competitive lag by Tata and Pernod Ricard gives United Spirits a chance to reclaim lost premium share.
Bear Case
- Further excise hikes or licensing curbs in Maharashtra and other states.
- Margin pressure from a heavier value‑brand mix reduces earnings quality.
- Peers accelerate premium rollouts, widening the gap in the high‑margin segment.
- Valuation multiple contracts to sector average, collapsing the INR 1,500 target.
Given the mixed signals, a neutral rating with a watch‑list status seems prudent until the policy outlook clarifies and the volume‑to‑revenue dynamics stabilise.