United Spirits' Premium Strategy Counters Regulatory Pressures
The management of United Spirits Ltd anticipates margins to remain broadly stable, even as emerging bulk Scotch inflation presents challenges. This stability is expected to be supported by the company's ongoing premiumization efforts and sustained investments in its brand portfolio.
Premium Brands Outperform Amid Volume Decline
In the December quarter of FY26, United Spirits experienced an overall volume decline of approximately 3% year-on-year. This decrease was primarily driven by regulatory changes in Maharashtra and a high base effect in Andhra Pradesh, where previous one-time retail pipeline fill had artificially boosted volumes.
The popular segment, accounting for roughly 9% of revenue, faced the most significant impact with a 9% volume drop. However, the prestige & above segment, which contributes 89.4% of Q3 revenue, demonstrated remarkable resilience with only a 2% volume decline while delivering around 8% value growth.
Maharashtra's Structural Reset Challenges
The company's performance in the coming quarters will be heavily influenced by its ability to navigate Maharashtra's structural reset without compromising profitability. Higher excise duties and the introduction of Maharashtra-made liquor have altered consumption patterns, weakening demand for Indian-made foreign liquor.
United Spirits' lack of exposure to Maharashtra-made liquor has proven problematic in this market, which represents one of its crucial operational regions. The regulatory changes have created significant headwinds that the company must address strategically.
Premiumization Drives Financial Performance
The divergence between volume and value performance reflects a longer-term strategic shift where United Spirits' premium and luxury brands continue to outpace category growth. Signature, Johnnie Walker, Godawan, and Don Julio have led this trend, effectively compensating for weakness at the lower end of the market.
This favorable mix shift has positively impacted profitability metrics. Gross margin increased by 219 basis points year-on-year to reach 46.9%, supported by higher realizations, improved product mix, and relatively stable input costs.
Future Outlook and Market Expectations
Despite near-term volume pressures, United Spirits continues to guide for double-digit revenue growth in the prestige & above segment over the medium term. The company expects the India-UK free trade agreement to provide annual benefits of approximately ₹110-120 crore from reduced bulk Scotch duties, though implementation isn't anticipated before Q2FY27.
Market analysts note that policy uncertainty remains elevated, with potential tax revisions in upcoming state budgets following recent GST rate changes. The stock currently trades at around 48 times estimated FY27 earnings, indicating market confidence that premiumization can offset policy-driven volume pressures.
However, questions persist about how long this premiumization strategy can sustain growth while regulatory uncertainty continues. Investors will closely monitor volume growth recovery as the company navigates these complex market dynamics.
