United Spirits, a subsidiary of Diageo, saw its shares surge by over 6% to reach an all-time high of ₹1,416.85 on the BSE. This impressive rise in share price comes on the back of strong first-quarter earnings that beat market expectations, despite the challenging economic environment.
Let’s break down the numbers and see what’s driving this growth.
Impressive Q1 earnings despite inflation headwinds
In Q1 FY25, United Spirits reported a consolidated net profit of ₹485 crore, up 1.7% from ₹476 crore in the same period last year. Revenue from operations grew by 7.4% year-on-year to ₹6,238 crore, compared to ₹5,808 crore previously.
This growth was achieved despite the ongoing inflationary pressures that have been impacting many sectors.
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Revenue breakdown and segment performance
On a standalone basis, net sales stood at ₹2,352 crore, an 8.3% increase year-on-year. The company’s Prestige & Above (P&A) segment performed particularly well, with volumes growing by 5.1% and sales increasing by 10.1%, accounting for 87.8% of total sales.
In contrast, the Popular segment saw a decline, with volumes dropping by 4.6% and sales falling by 2.4%, representing 9.4% of total sales. This drop is largely attributed to inflation affecting price-sensitive consumers.
Strategic acquisitions to drive future growth
In a move to strengthen its portfolio, United Spirits announced the acquisition of stakes in two companies: V9 Beverages and Indie Brews and Spirits.
The company acquired a 15% stake in V9 Beverages for ₹2.29 crore and a 25% stake in Indie Brews and Spirits for ₹5 crore.
V9 Beverages, known for its zero-proof alcohol products like Sober Gin, Sober Rum, and Sober Whiskey, aligns with the growing trend towards non-alcoholic beverages.
Indie Brews and Spirits, with its specialty cold-brew coffee liqueur, caters to the premium craft segment, which is gaining popularity.
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Market reaction and share performance
Following these announcements and the robust Q1 results, United Spirits’ shares jumped 6.5%, hitting a new high of ₹1,416.85. The market capitalisation of the company crossed the ₹1 lakh crore mark for the first time, reaching ₹1.02 lakh crore. Over the past year, the stock has risen by 45% from its 52-week low of ₹974.25, touched in July 2023.
Despite a weak broader market, the stock has gained over 9% in three sessions.
A closer look at financials
Quarterly comparison
Comparing the current quarter to the same period last year, total expenses increased from ₹5,173 crore to ₹5,619 crore. Despite this rise, the company managed to improve its profit margins. The consolidated EBITDA remained flat at ₹713 crore, indicating efficient cost management.
Annual performance and shareholder returns
Over the past year, United Spirits has delivered a 7.5% return to its shareholders, with a 7% increase over the last six months and an 8% rise in the past month alone. These figures highlight the company’s consistent performance and investor confidence.
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Analyst ratings and market outlook
As of July 24, 2024, analyst ratings reflect a mixed sentiment towards United Spirits. Out of 18 analysts, 4 rated the stock as Sell, 6 as Hold, 5 as Buy, and 3 as Strong Buy. The consensus recommendation is to Hold the stock.
Despite the varied opinions, the company’s steady performance and strategic acquisitions suggest potential for future growth.
What’s driving the growth?
Innovative product offerings
CEO & Managing Director Hina Nagarajan highlighted the company’s focus on innovation and renovation of its product offerings. The new launches have received encouraging responses, contributing to the positive market sentiment.
The company’s emphasis on long-term competitiveness and value creation for stakeholders is evident in its strategic initiatives and consistent performance.
Market trends and consumer preferences
The trend towards flavoured and non-alcoholic beverages is growing, with luxury consumers gravitating towards these options. United Spirits’ investment in V9 Beverages positions it well to capitalise on this shift.
Similarly, the popularity of speciality drinks like the cold brew coffee liqueur from Indie Brews and Spirits aligns with evolving consumer tastes.
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Bottomline
United Spirits’ strong Q1 results and strategic acquisitions have propelled its shares to new heights, reflecting investor confidence and a positive market outlook. The company’s focus on innovation, coupled with its ability to navigate inflationary pressures, positions it well for sustained growth.
For investors, United Spirits presents an attractive opportunity backed by solid financial performance and strategic initiatives that cater to emerging market trends.
