Why UBS Upgraded United Spirits To ‘Buy’

Shares of United Spirits Ltd. gained ahead of its quarterly results after UBS upgraded the alcoholic beverage maker.

The global research firm revised its investment recommendation on the stock to ‘buy’ from ‘sell’, raising its price target to Rs 800 apiece from Rs 480. That implies a potential upside of 26% from Monday’s closing levels.

“We expect sales momentum [for United Spirits] to continue in 2021, driven by overall improvement in economic environment, reduction/rollback of excise duty increases in more states and improving regulatory outlook,” UBS said in a note. The impact of its new products, UBS said, has not been fully captured yet as they have not been introduced throughout the nation.

United Spirits in an analyst call after the second quarter had said recovery in the premium and above segment was aided by new products and positive trends in the bottled-in-origin portfolio.

At current valuations, the cost benefit for the stock, according to UBS, is tilted towards the upside. It expects a bull case price target of Rs 1,100 if there is a strong pick-up in volume growth for the premium and above segment.

Still, the research firm cut its FY21 EPS estimates for United Spirits by 38% due to the Covid-19-led disruption.

The company is set to report its quarterly results on Wednesday.

Shares of United Spirits gained as much as 2.2% in noon trade on Wednesday to Rs 649 apiece. Of the 22 analysts tracking the stock, 14 have a ‘buy’ rating, five suggest a ‘hold’ and three recommend a ‘sell’. The scrip crossed its Bloomberg consensus 12-month price target of Rs 637.25 apiece today.