Chapter 1

Pernod Ricard: a spirits leader marked down 70%

Pernod Ricard, the world's second-largest spirits group — Absolut, Jameson, Martell, Chivas Regal, Havana Club, Ricard — trades at €63.88, roughly 70% below its April 2023 all-time high near €218 [1]. It was one of the CAC 40's worst performers in 2025 while the index rose. The fall is deep and forced enough to fit the setup Ruchir hunts. The report's spine is whether it prices a temporary external shock — China's cognac tariffs, US destocking, currency — or a structural decline in spirits demand. It clears the size floor; leverage and a sub-10% cash yield temper the fit.

What Pernod Ricard is

Created by the 1975 merger of Pernod and Ricard, the group sells premium spirits, plus Champagne, ready-to-drink and rosé wine, through a portfolio of 200-plus brands in more than 160 countries; spirits are about 90% of net sales [2]. FY2025 (year ended 30 June 2025) consolidated net sales were €10,959 million [3]. The business is a "grain-to-glass" model: owned distilleries and long-aged inventories (cognac, whisky, tequila) feed a global distribution network, and value is created by brand pricing power and premiumisation rather than volume growth.

Revenue peaked in FY2023 and has fallen for two years since; group net profit and earnings per share fell with it.

Source: FY2025 Universal Registration Document, key figures from the consolidated financial statements [4]; prior years as reported.

Reported diluted EPS moved from €8.81 in FY2023 to €5.83 in FY2024 and €6.45 in FY2025 [5]. Sales are weighted toward Asia and the rest of the world, which makes the group's largest region also its most disrupted.

Source: FY25 Full-Year Sales and Results press release, net sales by region [6].

The dislocation

The trajectory is a slow-motion collapse rather than a single-day crash. From an April 2023 all-time high near €218, the shares lost about a quarter of their value by autumn 2023, kept falling through 2024 and 2025 — a decline of roughly a third in calendar 2025 alone, against a CAC 40 that gained about 10% — and reached the low €70s by the start of 2026. A relief rally to €86.84 in February 2026 gave way to a fresh low of €59.94 in March; the shares closed at €63.88 on 3 July 2026.

Source: 2023–early 2026 levels as reported by financial media; February–July 2026 levels from the daily price feed, as reported.

Source: price and share count as reported (252.0 million shares); dividend of €4.70 per share from the FY25 results release [7].

The trigger is not a fraud or a broken balance sheet but a stack of external shocks landing on the two most profitable ends of the portfolio. FY2025 organic net sales fell 3.0% (5.5% reported), with a €277 million currency drag from the Turkish lira, Argentine peso and Indian rupee [8]. China sales fell 21% and the United States fell 6%, while India grew 6% [9]. China's decline compounds a specific policy shock: an anti-dumping investigation prompted the suspension of duty-free cognac imports from December 2024 and provisional duties reported at about 30.6% on Martell, the group's flagship cognac, so its most premium brand was hit by both weak demand and a tariff. Management frames FY2026 as a transition year, with a first-quarter decline on US distributor destocking, continued Chinese inventory adjustment, Indian excise changes in Maharashtra, and duty-free cognac in China resuming only from the second quarter [10].

Alongside those cyclical and policy shocks sits a slower fear that is harder to dismiss: moderation. Western consumers, and Gen Z in particular, are drinking less, and GLP-1 weight-loss drugs are associated with lower alcohol intake in early studies. The company's own filing argues the opposite for its segment — that international spirits are still taking value share from beer and wine, that premium-and-above spirits have grown mid-single digits a year for a decade, and that spirits penetration among Gen Z is rising [11]. Which read is right is the pivot of the whole case, and later chapters test it against the data.

What the price implies

At €63.88 the equity is worth about €16.1 billion. Net financial debt was €10,727 million at 30 June 2025, so enterprise value is roughly €27 billion [12]. Against trailing reported earnings that is under ten times profit and about eight times EBITDA — undemanding for a premium-spirits franchise, though the number depends on where earnings settle: consensus has FY2026 EPS near €5.77, another step down, which lifts the forward multiple.

Source: derived from reported financials — market cap at €63.88; net debt and free cash flow from the FY2025 net-debt statement [13]; net debt / EBITDA of 3.3x per the results release [14].

Two of Ruchir's reference lines land on the soft side. Reported free cash flow of €1,133 million against the market value is a 7.0% yield; on the group's recurring free-cash-flow measure of €1,348 million it is about 8.4% [15]. Both sit below his roughly-10% marker, though a further price fall or an earnings recovery would close the gap. And this is not the debt-light balance sheet he prizes: net debt of about €11 billion is 3.3x EBITDA, a leverage multiple up on the year largely on currency [16]. The dividend deserves an early flag: at €4.70 per share the cash cost was €1,201 million in FY2025, more than the €1,133 million of reported free cash flow that year and covered only on the recurring measure [17]. The 7%-plus yield is real; whether it is safe is a question for its own chapter.

The universe and exclusion screen

Source: listing status as reported (Pernod Ricard deregistered from the SEC in 2007 and trades in the US over-the-counter); market cap derived from the €63.88 price; regional and demand facts per the FY2025 filings cited above.

The screen is mostly clean, with two things to state plainly on the first page. First, this is a European large-cap, not a US-listed stock: American investors reach it through an over-the-counter Level I ADR, not an exchange listing, which narrows the instruments available and puts it at the edge of Ruchir's stated universe. Second, China is a real dependency — the group's largest region carried its steepest decline — and the moderation debate is unresolved. Neither is a disqualifier by itself; both are exactly the facts he would rather hear on page one than page ten. On the family-controlled management, the founding Ricard family's continued control is prima facie alignment rather than the promotional, next-quarter-EPS pattern he excludes, but that is for the governance chapter to test against the record.

The question this report answers

The setup is genuine. A high-quality, cash-generative global brand owner has fallen about 70% on a run of external shocks, with holders who bought it as a defensive compounder now selling a name that no longer behaves like one. That is the kind of forced, price-anchored selling that can leave intrinsic value largely intact. The report exists to test that directly: whether the value of the business has fallen anywhere near as far as the price, or whether the shocks — above all the demand question — mark a permanent step down in earning power. The balance sheet's leverage and a cash yield still short of Ruchir's line are the features that keep this from being a textbook fit, and they run through everything that follows.