United Spirits Limited's Craft Beverage Gambit: A Play on Premiumization and Regulatory Tailwinds

The earnings call for United Spirits Limited (USL) in Q4 FY25 revealed a company pivoting decisively toward the future of beverage consumption. With profit after tax surging 74.75% YoY to ₹421 crores and EBITDA margins hitting the high teens, USL isn't just riding a wave of cost efficiencies—it's betting big on the next generation of drinkers. At the heart of this strategy: minority stakes in V9 Beverages (distilled non-alcoholic spirits) and Indie Brews & Spirits (cold brew coffee liqueur), two ventures that epitomize the premiumization and functional beverage trends reshaping the global alcohol industry.

The Craft Beverage Play: Why V9 and Indie Brews Matter

USL's investments—₹2.29 crore for a 15% stake in V9 and ₹5 crore for a 25% stake in Indie Brews—are far from whimsical. These bets tap into two seismic shifts:
1. The Rise of Zero-Proof Beverages: V9's “Sober Gin” and similar products cater to health-conscious consumers, a demographic that's 16% larger in India's beer market (per IWSR data) and growing. With global moderation trends fueled by regulatory pressures (e.g., alcohol taxes in the UK and China) and lifestyle shifts, non-alcoholic spirits are a $2.3Bn+ opportunity by 2030.
2. Premiumization Meets Niche Innovation: Indie Brews' Quaffine—a cold brew coffee liqueur—targets the $14Bn coffee liqueur market, where USL can leverage its distribution might to scale a niche product. This aligns with USL's FY25 focus on experiential marketing to boost brand equity in premium segments.

The investments are also strategically timed. USL's Prestige & Above (P&A) segment grew 9.9% YoY in FY25, but slowing growth in premium portfolios suggests saturation. V9 and Indie Brews offer a new revenue stream in categories where USL's traditional rivals (e.g., Diageo, Bacardi) are underweight.

Regulatory Tailwinds: FTA Gains and SEBI Compliance

While USL's Q4 results were boosted by cost savings (₹388 crores in FY25 productivity gains), the company is also capitalizing on regulatory shifts:
- India-UK Free Trade Agreement (FTA): The duty reduction on Scotch whisky from 150% to 75% could flood the market with cheaper imports. But USL is countering this by doubling down on premium Indian brands (e.g., Paul John, Bagpiper) and niche categories like non-alcoholic spirits, which face less direct competition.
- SEBI LODR Compliance: The July 2024 filings for V9 and Indie Brews highlight USL's strategic discipline. By structuring minority stakes, USL avoids overextending capital while gaining a foothold in emerging markets. This mirrors how tech giants like Amazon invest in startups to test trends—low risk, high upside.

The Financial Case: Margin Strength and Undervalued Upside

USL's Q4 performance underscores its operational resilience:
- Margin Expansion: EBITDA rose 37.7% YoY, driven by ₹70 crore in direct cost savings and ₹15-20 crore in working capital efficiencies.
- Dividend Power: A final dividend of ₹8 per share rewards investors while signaling confidence in cash flow.
- Share Price Lagging Fundamentals: Despite hitting an all-time high of ₹1,416.85 in early 2025, USL's shares dipped to ₹1,530.20 on May 21, creating a buy opportunity as the market underappreciates the long-term value of its craft bets.

Risks? Yes—but Manageable

Critics will cite state-level regulatory hurdles (e.g., Delhi's restrictive route-to-market policies) and competition from Scotch imports post-FTA. However, USL's re-entry into Andhra Pradesh—a market it exited in 2020—proves it can navigate bureaucracy. Meanwhile, its focus on premium, differentiated brands (non-alcoholic spirits, coffee liqueur) insulates it from price wars with cheaper imports.

Why Invest Now?

USL is underappreciated by the market, trading at a P/E of 35x versus its 5-year average of 40x. With P&A segment dominance (contributing 70% of FY25 growth) and strategic investments in emerging trends, the company is poised to outperform peers as moderation and premiumization trends accelerate.

The ₹1.02 lakh crore market cap is a starting point. The real story is USL's pivot to becoming a global leader in functional and craft beverages—a space where innovation, not scale, will win.

Action Item: USL shares are primed for a rebound. Pair the dip with its strong Q4 PAT growth and dividend yield of 2.2%—this is a buy at ₹1,500, with a 12-month target of ₹1,800.

The craft beverage revolution isn't a fad—it's the future. USL is already there.

Data as of May 23, 2025. Past performance is not indicative of future results. Consult a financial advisor before making investment decisions.