Nomura says United Spirits is at the cusp of a developing upcycle; initiates with Buy rating. 3 reasons why

United Spirits, one of India’s leading alcoholic beverage makers, is at the cusp of a developing upcycle, says international brokerage Nomura after it initiated coverage with a Buy rating on the counter.

With a target price of Rs 1,650, the brokerage implies an upside potential of 23.5% from current market levels. The stock has had a rough start to the year, down 7% already in the first month. Here’s why analysts see a turnaround.

Premiumisation tailwinds ahead

Shifting consumer demographics and preferences towards Prestige & Above (P&A) brands have strengthened United Spirits’ growth profile. Over FY22–25, the company delivered a robust 15% revenue CAGR while lifting the P&A share of its portfolio from 73% to 90% following the rationalisation of lower-end brands. With its portfolio now heavily skewed towards high-growth premium labels, USL is well placed to address gaps in the mid-segment, where its presence remains limited.

Backed by Diageo’s parentage, strong brand equity and higher-than-peer marketing investments, the company has ample headroom to capture white spaces in its portfolio, upgrade consumers and drive margin expansion. EBITDA margins have already improved meaningfully, with further scope for gains.

Regulatory winds turning

Recent regulatory easing across key states such as Andhra Pradesh, Uttar Pradesh and Karnataka, alongside the India–UK trade agreement and a steady cadence of innovation, are expected to support volume growth over the medium term. While sharp duty hikes in Maharashtra could trigger some near-term downtrading, the impact is likely to be offset by these broader tailwinds.

Importantly, USL’s premium-heavy mix offers resilience against regulatory volatility, insulating the business from adverse shifts. Factoring in near-term pressures and medium-term benefits, the outlook remains constructive, with healthy growth anticipated in both sales and operating profit.

Innovation-led expansion

United Spirits has steadily reshaped its portfolio through new launches, relaunches and brand extensions aligned with evolving consumer tastes. The company’s strong parentage provides scope to expand beyond whisky into faster-growing categories such as other white spirits.

At the same time, a sharper focus on Prestige & Above brands aligns well with on-trade and premium retail formats, where consumers are more experimental but USL remains under-represented. Enhancing presence across these channels offers a meaningful opportunity to lift brand visibility and unlock the next phase of growth.

Nomura values United Spirits’ core business at 50x March 28F earnings, applying a 10% discount to its five-year average multiple to factor in recent headwinds, and ascribes a value of Rs 150 per share to Royal Challengers Sports. On this basis, and assuming an EPS CAGR of 13% over FY26–28F, the stock trades at one standard deviation below its 10-year average valuation multiple, offering comfort on the downside. The key risk to the thesis remains a slower-than-expected scale-up of Prestige & Above brands.

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(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)