United Spirits is on a high after RCB's IPL win, JP Morgan upgrade and UK FTA. Can it keep buzzing?
United Spirits is riding high after its IPL team, Royal Challengers Bengaluru, clinched its first title, boosting brand visibility and revenues. With favourable trade agreements and stock upgrades, the stock looks exciting. Is this high here to stay, or will it fizzle out?
United Spirits Ltd has been on a roll lately. Backed by Britain-based Diageo, the world’s second-largest spirits manufacturer stands to benefit from India’s newly signed trade deal with the UK.
This week, the Bengaluru-headquartered company’s IPL team, Royal Challengers Bengaluru (RCB) clinched the title for the first time. The RCB-win isn’t just a brand-image amplifier for its Royal Challenge whisky. The team had earned ₹650 crore in revenue from sponsorship, royalty, licensing contracts, and Board of Control for Cricket in India (BCCI) central rights revenue in FY24.
Around 16% of the company’s bottom line during the year came from RCB. The latest IPL win promises to add more to the kitty.
Meanwhile, JP Morgan has also upgraded the stock this week, closely followed by Citi, reaffirming its ‘buy’ rating.
Cumulatively, the counter has appreciated by more than 5% in just a week. This has more than made up for the correction witnessed after its earnings announcement.
To be sure, the recent investor enthusiasm has followed several years of marked outperformance over the broader market. Is this high here to stay, or will it fizzle out?
Also Read: The T20 turf war: No one’s catching the IPL—but who comes next?
Tariff and FTA factors
Even as domestic alcohol consumption has remained largely stagnant, Indian brands have started gaining traction in export markets.
Exports have grown at a robust CAGR of 22% between FY23 and FY25. Consumption of alcohol in the US is expected to register an annualized growth of 5% until 2033. With scope for higher penetration of Indian alcohol in the US market, exports to the US are critical for topline growth of Indian manufacturers. So, the potential tariffs can play spoilsport.
But United Spirits earns a decent share of its revenues from premium brands. Considering that customers of premium segments are better placed to absorb higher prices, this insulates its business to an extent from the uncertainty of tariff policies. A favourable outcome from the ongoing trade negotiations with the US can also mellow the impact.
Furthermore, with the freshly minted India-UK FTA, spirits imported from the UK will see duties being slashed from 150% to 75% initially, and further to 40% in the next ten years.
The cost savings can support the company’s margins, and the pass-through of benefits to consumers can be expected to lift scotch consumption in India. This should help push along the company’s premiumization drive.
Also Read: Textiles to tech: Seven stocks that stand to gain from the India-UK FTA
Domestic regulations turning favorable
The market in Delhi has been plagued by policy uncertainty. After opening the market for private players in FY22, the government had to take a U-turn following corruption charges. Since 2022, liquor stores in Delhi have halved to 380. In Uttarakhand too, the state’s new excise policy plans to shut down liquor shops near religious places, and exercise more control on liquor sales.
But other markets show promise. The Andhra Pradesh government has opened up the state’s liquor market for private players through its new excise policy for 2024-26. Jharkhand followed suit last month. Uttar Pradesh's new excise policy will allow the expansion of liquor access points in the state. The management has also cited the excise slab rationalization in Karnataka and Madhya Pradesh as opportunities.
Diversified product-range
The company offers a wide range of products that cater to almost the entire spectrum of liquor consumers. Its products are categorized into five buckets, ranging from the affordable ‘Popular’ to the mid-tier ‘Lower Prestige’ and the aspirational ‘Luxury + Premium’ at the other end of the spectrum.
Lower Prestige includes the top-selling global whisky brand, McDowells, and accounts for 33% of the business. Another 33% is contributed by the ‘Luxury + Premium’ brands like Black & White, Johnny Walker Blonde, and Black Label.
Popular includes brands like the DSP Black whisky. Mid Prestige comprises the Royal Challenge brand, and Upper Prestige includes the likes of Signature and American Pride. Together, these account for the remaining 33% of revenues.
Premiumization driving growth
India is the world’s third-largest consumer of alcohol, and about a third of the demand is for spirits. Of course, the recent trend towards a healthy lifestyle has mellowed the growth in demand. Notwithstanding, continuing the post-pandemic release of pent-up demand, premium alcohol has retained its appeal.
This has benefited diversified players like United Spirits. While the alcoholic beverage industry in India grew at a CAGR of barely 2% between 2018 and 2023, United Spirits' topline has seen growth in the high single digits.
Its overall net sales value (NSV) grew at a CAGR of 10% between FY21 and FY24, while NSV growth of brands categorized as Prestige and Luxury + Premium saw a whopping 19% growth.
The trend has continued in FY25 as well. Overall NSV growth of 8% was led by 11-13% growth in Mid and Upper Prestige, and Luxury + Premium categories. This more than made up for the muted 1% growth seen in the Popular segment.
Well placed to capture industry tailwinds
Among the top 10 liquor-consuming countries in the world, India bucked the global trend of stagnant alcohol sales. According to an analysis by London-based spirits consultant IWSR, with 9% growth, India emerged as the fastest-growing alcohol market, almost touching the $40 billion milestone in sales.
With a rising LDA (legal drinking age) population and significant room for penetration, alcohol sales in India are set to cross $50 billion by 2031.
It is also important to note the premium tilt to Indian consumption. India ranks eighth in terms of volume of alcohol consumption, but fifth by value. Even the 9% growth in 2024 came on the back of premiumization, even as volume-growth was much mellower at 6%.
To capture a larger share of India’s premium consumption pie, United Spirits has doubled down on its high-end offerings. It has launched the X-series, the Double Oak Barrel variant, and pocket-packs in the market-leader, McDowells. It has also launched a ‘Taj’ edition of its Indian malt, Godawan.
To appeal to the growing alcohol appetite of the Indian consumer, Indian flavours like Mirchi Mango have been introduced for its Smirnoff vodka. From ₹1,350 in FY21, realization per case has increased to ₹1,810 in FY25. ROCE has expanded from 16% to 26% during the period.
Also read: India is the world's fastest-growing alcohol market when global demand cools
Promising outlook
FY25 saw muted revenue growth of 5%, primarily due to fewer matches played by RCB during the year. However, margin expansion led to 12% growth in its bottom line. Going forward, its sustained strategic spending on advertising and promotion should help strengthen its brand equity further.
The company has also commenced co-located plants with ENA distillation and optimized its manufacturing footprint through capacity integration. Backed by improving product mix and these cost-efficiency initiatives, JP Morgan revised the company’s Ebitda estimates upwards by 3% and 7% for FY26 and FY27.
The counter is trading at almost 75 times its earnings, sharply higher than the 45x multiple seen a couple of years back. However, driven by strong projections for growth and a positive turnaround in the regulatory environment, the target price of the stock has been pegged at Rs.1,800 per share. This reflects a 12% upside from current levels.
For more such analysis, read Profit Pulse.
Ananya Roy is the founder ofCredibull Capital, a SEBI-registered investment adviser.
Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
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