United Spirits (UNSP:BO): 1QFY27 First Take: Ahead of expectations; Buy

Research evidence excerpt

United Spirits (UNSP:BO): 1QFY27 First Take: Ahead of expectations; Buy

Goldman Sachs United Spirits (UNSP.BO)

Investment Thesis — United Spirits

United Spirits is well positioned to ride the overarching trend of premiumisation in the

Indian spirits market, especially in Whisky. United Spirits’ (USL) portfolio is well-placed to

ride this premiumisation trend, as the company has ~50% share in the Scotch segment,

which is the fastest growing segment of the market. USL’s share of revenue from luxury

and premium brands within the company’s Prestige and above segment has increased

from 26% in FY18 to 37% in FY23. USL is also making concerted efforts to scale up

premium variants within each trademark that the company sells. This will largely be

driven by a productivity enhancement program as well as operating leverage on fixed

costs. We are Buy rated. The key risks to our Buy rating are regulatory changes which

might restrict alcohol consumption in specific states and an increase in input costs which

might impact EBITDA margins.

Price Target Risks and Methodology — United Spirits

Valuation Methodology: We value USL’s consolidated business using a price to earnings

ratio, which is the metric we use for most of our India Consumer coverage. We value USL

based on a 55x multiple on Q5 to Q8 consolidated earnings, which is in line with the

3-year average P/E for USL, and in line with the average 1-year forward P/E of our India

Consumer coverage. Our 12-m target price is Rs1,460.

Key downside risks: 1) regulatory restrictions on alcohol consumption in certain states,

2) margin decline from sharp increase in input costs, 3) increase in competitive intensity

in Spirits, and 4) sharp rise in ENA prices due to government’s ethanol blending policy in

fuel.