Chart Beat: United Spirits' margin at multi-quarter high, but may not sustain

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₹1,436 apiece on Thursday, backed by the robust June quarter (Q1FY25) earnings performance. A key highlight was its Ebitda margin which surged to a 23-quarter high of 19.5%. Ebitda, which stands for earnings before interest, tax, depreciation, and amortization, is a key profitability measure for companies.

The Ebitda margin expansion of the liquor maker was driven by a reduction in overheads and lower spending on advertising and promotions, both sequentially and year-on-year. But this was a one-off. Going ahead, the management expects Ebitda margin to normalize to 16%-17%.

However, the consistent improvement in margins has prompted some brokerages to marginally raise their earnings estimates for FY25 and FY26. That said, near-term demand environment remains weak, which could impact the performance of the company's key Prestige & Above segment in Q2FY25. The Popular segment, which typically serves price-sensitive customers, is also under pressure due to high inflation levels.

The second half of the fiscal year is expected to show better growth, supported by a favourable base effect and product innovations. According to Bloomberg data, the price-to-earnings multiple for United Spirits, based on FY26 earnings estimates, is about 60 times, which is high given the moderated premiumization trend. Additionally, the company faces regulatory risks due to state government control over pricing.

Also read | Chart Beat: India's economic policy uncertainty index spikes again in June “Nearly 50% of sales volumes are generated from regions where state governments control prices. This could affect profitability. Increase in taxes, changes in the distribution structure, prohibition of liquor in any state could hit United Spirits," said