United Spirits Ltd’s shares zoomed nearly 14% on Tuesday, the highest single-day gain in more than two years, after the company reported 23.5% growth in adjusted pre-tax profit for the December quarter.

While investors are in high spirits, this had nothing to do with the consumption pattern of alcoholic beverages produced by the company. United Spirits’ Q3 revenue grew only 3.4% from the year-ago quarter, largely driven by its premium and active segment. Volumes grew by only about 3% in Q3.

A year-on-year decline in the popular segment’s volume and sales by about 6% and 5%, respectively, could be attributed to the consumption slowdown and adverse state policies.

However, this didn’t quite pull down the company’s operating parameters.

On the contrary, United Spirits also absorbed higher raw material costs quite well. While material costs surged to 57% of revenue in Q3, against 51% in Q3 FY19, the costs were offset by lower employee, and advertising and sales promotion expenses.

In fact, United Spirits also managed to control other costs, thereby lifting its Ebitda margins to 16.4% in Q3, an increase of about 210 basis points over the year-ago quarter. Ebitda is earnings before interest, tax, depreciation and amortization.

“Although the increase in spends to boost volumes would be more encouraging, we believe the cost savings, particularly in staff and other overheads (down 20% and 12%, respectively), have been impressive and more than expected, thereby providing upsides to our margin forecasts," noted analysts at Emkay Global Financial Services Ltd in a note to clients.

The fact that raw material prices are now softer is an advantage. The firm’s success at cutting costs this quarter was positive for its stock price.

“The impact of the tax increase in Telangana and competition in Maharashtra are yet to play out, but unlikely to result in significant downside risk," added Emkay analysts in the note.

Nevertheless, United Spirits’ stock price is a bit difficult to digest, what with the price-earnings valuation at 51 times estimated FY20 earnings. Investors, it seems, are banking on a stronger recovery in volumes backed by price hikes in some key states.