Shares of United Spirits, a dominant player in India's liquor industry, traded 6% lower on Friday, following disappointing September quarter earnings that showed a 1.4% decrease in revenue and a 13.6% decline in Profit After Tax (PAT). The stock was trading at ₹1,031.80 on the National Stock Exchange as of 11:28 a.m. IST.
The company's performance this year has been robust, with the stock rising by 29%, outperforming the benchmark Nifty 50. This growth trend is expected to continue based on the company's strategic initiatives and market position. Diageo (LON:DGE), which manages United Spirits, is implementing changes designed to enhance efficiency and profitability. These include altering brand promotion strategies, enhancing supply chain efficiency, focusing on a lean portfolio, engaging with government, and improving work culture.
Motilal Oswal Financial Services has increased its FY24/FY25 Earnings Per Share (EPS) estimates for United Spirits by 8.7% and 10%, respectively, predicting EBITDA margin gains. The firm's strategy of relaunching key brands and franchising popular segments is seen as beneficial.
However, the company faces challenges from cost inflation and high inflation, which are expected to pressure popular and low-prestige categories. Despite these hurdles, United Spirits has managed to record single-digit growth over the past five years.
HDFC Securities has placed United Spirits among its top Diwali stock picks due to its focus on profitability led by double-digit top-line growth, sustained advertising & promotional spend, improved pricing, premium mix, and productivity gains. Investors are advised to buy the stock in the ₹915-₹1,040 band for a target of ₹1,195.
Despite recent setbacks in quarterly earnings, United Spirits remains a strong contender in India's liquor industry due to its market share and the strategic benefits it receives from Diageo's management. Key factors influencing its performance include raw material prices and India-UK Free Trade Agreement timelines.
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