United Spirits shares gained 4% after the company reported strong gross margins for the September quarter, which offset a decline in revenue and net profit. While improved product mix bolstered margins, investors are balancing this performance against a notable drop in sales volumes, particularly in the regular segment.
United Spirits shares rose over 4% to reach ₹1,278 on the NSE, as investors looked past the decline in top-line growth to focus on the company's margin performance. For the September quarter, United Spirits, which is backed by global liquor giant Diageo, reported a net profit of ₹428 crore, down 7.75% from the same period last year. Revenue from operations also slipped by 2.56% to ₹7,014 crore.
The primary driver for the positive stock reaction was the improvement in gross margins, which expanded by 88 basis points to 48%. The company achieved this through a better product mix and internal productivity gains, which helped absorb higher advertising and promotion costs. This margin expansion outperformed consensus estimates, providing some relief to investors concerned about the company's profitability.
However, the underlying demand remains a critical point for investors. The company reported a 1% decline in volume for the 'premium and above' category, impacted by specific market weakness in Maharashtra. The 'regular' segment experienced a much sharper volume drop of 30%. Furthermore, elevated marketing expenditure, which rose 57%, led to a 146 basis-point compression in EBITDA margins to 19.7%, highlighting the cost of attempting to maintain demand in a challenging market environment.
Brokerages have expressed varied views on the results. Jefferies remains optimistic with a 'buy' rating and a target price of ₹1,560, emphasizing the company’s resilient cash flow generation. The firm noted that operating cash flow for the first half of the year reached ₹1,100 crore. Conversely, CLSA has maintained a 'hold' rating with a target of ₹1,303. The firm pointed out that revenue growth fell short of consensus estimates and noted that the slowdown in premium volume growth is a concern that requires scrutiny.
Moving forward, investors will be closely watching whether the company can stabilize sales volumes in the premium segment and whether the current high marketing expenditure translates into meaningful market share gains or remains a drag on operating profitability.