UBS has maintained its underperform rating on United Spirits with a target price of ₹1,350 per share, citing concerns around volume sustainability despite a mix-led margin improvement in the recent quarter.
The brokerage noted that gross margins came in ahead of expectations, aided by a favourable product mix, even as advertising and promotional spending rose to 14% of sales, higher than UBS had anticipated. Despite this, EBITDA remained broadly in line with estimates, reflecting effective cost absorption.
Prestige segment sales grew 8% YoY, largely driven by realisation gains, as volumes declined 2% YoY, which UBS flagged as weaker than expected. The pressure was more pronounced in the popular segment, where sales declined 4.8% YoY, with underlying volumes down 9% YoY, highlighting demand softness at the mass end of the portfolio.
On the positive side, UBS highlighted healthy growth momentum in the ex-Maharashtra business, continued traction at the premium end of the portfolio, and the margin beat driven by mix improvement. However, the brokerage remains cautious due to the decline in prestige volumes, which raises questions on the durability of prestige-led growth, and weaker-than-expected other income, which led to a consolidated PAT miss versus estimates.
Overall, UBS believes that while margins remain supported in the near term, volume trends, particularly in the prestige segment, will be a key monitorable for the stock.
Disclaimer: The views and recommendations above are those of UBS. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.
