Karnataka, which is estimated to contribute about 15% to United Spirits Ltd’s sales volumes, is shifting from a government-controlled model to a market-driven alcohol pricing model. This should improve the pricing power of liquor companies and support margins. Companies can now adjust product prices depending on inflation and raw material costs.
The state will also adopt alcohol-in-beverage (AIB) based taxation effective April, in a phased manner to avoid pricing disruption. The AIB system links liquor taxation to alcohol content. This means the mass and popular segments with the same alcohol content as Indian made foreign liquor (IMFL) may see tax hikes, leading to increased premiumization.
This type of taxation will result in a lower tax burden on beer (5% alcohol content), making it more affordable relative to spirits/IMFL with alcohol content over 40%, said a Nomura Research report on 8 March. The higher tax burden on spirits can pressure volumes in the price-sensitive popular and below segments and improve the affordability for the prestige & above (P&A) segment, given same alcohol content.
P&A contributed 89.4% of United Spirits’s 9MFY26 net sales value. After a strategic review of select popular segment brands in May 2022, the company has reduced exposure to popular and economy brands by divesting several brands and shifting some to franchise operations.
The fine print on the new tax structure is still awaited. Until then, company-specific developments are crucial.
Sales growth could remain under pressure in Q4FY26 mainly due to regulatory headwinds in Maharashtra (full impact of excise duty hike) and normalization of Andhra Pradesh benefit in base, cautions JM Financial Institutional Securities. Q3FY26 total volumes were down 3.2% year-on-year. The management expects potential volume growth recovery of around 200 basis points once distortions due to Maharashtra duty changes normalize.
A review of its investment in Royal Challengers Sports is expected to conclude this month. The highest bid is estimated at $1.8 billion, as per a media report. “This is much higher than our and Street’s estimated value of $1.2 billion/$1-1.1 billion,” reckons Nomura.
Benefits from the India-UK FTA should start in FY27; the management estimates an annual benefit of ₹110-120 crore from lower bulk scotch duties.
United Spirits’s shares trade at about 48x FY27 estimated earnings, showed Bloomberg data, suggesting a large part of the optimism may have been priced in, for now.