United Spirits Ltd. share price forecast

Colgate Palmolive: Colgate reported a miss on our net revenue and EBITDA estimates. Net revenue grew by 3% YoY (HSIE 5%), at a 3% three-year CAGR. Volume declined ~3% YoY, a three-year CAGR of -1% vs. HUL's 2%. The deceleration was largely industry led rather than market share loss. Toothpaste was the most impacted as compared to toothbrush and personal care. Rural demand was sluggish; a trend we expect would continue in the near term. GM contracted 283/51bps YoY/QoQ to 66.3%, in line with our estimates. EBITDA margin, at 27.2%, saw a higher contraction of 325bps YoY due to continued investment in brand building, while A&P spends were at ~14% of revenue. The current inflationary and rural pressures are impacting the already slow-growing oral care category. Demand trend would sustain a similar trajectory in the near term, while margin recovery is expected. We value Colgate at 36x P/E on Jun-24E EPS to arrive at a TP of INR 1,600. Maintain ADD. Relaxo Footwears: Relaxo reported an underwhelming print in Q1FY23. Revenue grew 34.2% YoY to INR6.67bn in Q1 (three-year CAGR: 1%; HSIE: INR6.84bn). Three-year volume/net realisation CAGRs are estimated at -9/+11% a function of (1) increasing skew of closed footwear in the mix and (2) impact of H2FY22 price hikes hitting the P&L. Profitability remains below expectation courtesy (1) INR15.9mn inventory loss impact due to a fire outbreak at its Haryana warehouse and (2) general inflation in other overheads. We've cut our FY24/25 EPS estimates by ~5/4% to account for lower profitability. Our DCF-based TP stands...

TTK Prestige: TTK Prestige's Q4FY22 revenue was a beat while EBITDA margin was a miss. Standalone revenue was up 17% YoY (HSIE 7%) and delivered a three-year CAGR of 13%. The revenue growth was driven by a strong performance in cookers, which were up 26% YoY (17% three-year CAGR). Gross margin contracted 501bps YoY to 40.6% (HSIE 43%). The company had taken some price hikes in Q4-end, the impact for which will be visible in the coming quarters. Tight cost control restricted the fall in EBITDA margin, which was at 16.3% (HSIE 16.9%), down 213bps YoY. EBITDA was up 3% YoY to 1,058mn (HSIE 1,002mn). The company has managed to protect its EBITDA margin in FY22 (consolidated margin at 15.6%); however, we expect the margin to trend downwards in FY23. We model single digit growth for cooker on sustainable basis, given this product is highly penetrated (90% urban penetration). We model 10% revenue CAGR between FY19-24E at company level. We project FY23/24 EBITDA margin at 14.7/15.1% (14.9/15.6% for FY21/FY22). We maintain our FY23/24 EPS estimates and value the stock at 38x P/E (40x earlier) on FY24E EPS to derive a TP of INR 1,000. Maintain ADD. Radico Khaitan: Radico reported a beat on revenue, but EBITDA margin/growth was a miss. Net revenue growth was at 18%, a beat on our estimate of 12%, led by strong performance in P&A and Popular. The three-year revenue CAGR was at 17% vs. 3% posted by UNSP. P&A volume grew 28% (HSIE 23%) to 2.27mn cases, with the three-year CAGR...

We value UNSP at 50x P/E on Mar-24E EPS (standalone) to arrive at a TP of INR 900 (including INR 48/share of non-core assets). Maintain ADD. UNSP's net revenue was slightly below our estimate at 9.5% YoY (HSIE 13%), with three-year CAGR at 3%. P&A revenue sustained a healthy trend and clocked 15% YoY growth (7% 3-year CAGR) while Popular remained soft and reported 1% YoY growth (-5% 3-Yr CAGR). Consumer demand remained resilient in the off-trade and on-trade continued to gradually recover. GM contracted by 220/237bps YoY/QoQ to 41.7%. EBITDA growth of 4% was a slight miss on our estimate of 6% growth. EBITDA margin was in line at 17.5%, down 99bps YoY. The key highlight of the quarter was on signing sale & franchise agreement with Inbrew for its select popular brands (reviewing it since Feb-2021). The company has executed definitive agreements for sale of its 32 brands (iconic brands like Haywards, White-Mischief, etc.) for a total cash consideration of ~INR 8,200mn. It also entered into a five-year fixed-term franchise agreement with Inbrew for 11 other brands, including Bagpiper. The reviewed portfolio combined contributed net revenue of ~INR 13,500mn, with 14% operating margin in FY22, impacting UNSP's net revenue by 14% and EBITDA by 13%. The strategic rationale for the agreement is incrementally more focus on scaling up P&A portfolio as India will eventually consume more premium products (like many global markets). However, we believe the deal value (1.6x on revenue and 11x on EBITDA FY22) is below expectation, considering a healthy margin of...

UNSP’s two transactions of brand sales (slump sale + franchising (for now)) is an attempt to free organisation’s resources on what can add more value in the longterm. Classic case of: “What not to do is more important than what to do?” given resources are constrained in real life. In our opinion, (select) part of the street getting concerned on no immediate (optical) benefit, is too myopic.

Nippon Life India Asset Management: NAM printed core revenue, in line with our estimates. However, revenue yields, in line with industry trends, continued to shrink. Market share in the high-margin equity segment moderated further (-13bps QoQ) and continues to remain a concern in medium- to long-term. We expect NAM to focus on improving its performance to recoup its lost market share. We trim our FY22E/23E/24E revenue estimates by 1.4/2.8/3.3% to build in the impact of a sharp correction in capital markets and lower admin expenses in FY22E. Driven by cost optimisation, we expect NAM to deliver FY21-24E revenue/NOPLAT CAGRs of 15%/25%. We maintain our ADD rating on the stock with a revised target price of INR425 (33x Sep-23E EV/NOPLAT + Sep-22E cash and investments). The stock is currently trading at FY23E/24E EV/NOPLAT of 26.6/21.6x and PE of 24.9/21.3x. RBL Bank: Despite a healthy NIM (4.3%) and a return to loan growth (+3% YoY), RBL Bank (RBK) missed estimates, with PAT at INR1.6bn. Opex for the quarter was significantly higher due to new card issuances (+0.6mn), spend-related reward expenses, and continuing investments in branches, people, and tech. Although slippages were elevated at 5.4% (annualised), predominantly from the MFI and cards businesses, these have tapered off >300bps sequentially, resulting in a multi-quarter low provisioning at 3% of loans. The management commentary around stability of deposits since end-Dec 2021 is particularly reassuring. While the ongoing investments in distribution channels and tech are understandable, we argue that the guidance around continued investments in the CC business calling for higher opex...

We remain positive on the long term growth prospects of the stock and maintain our BUY recommendation Target Price and Valuation: We value USL at | 1050 i.e. 52x P/E on FY24E EPS...

UNSP's 3QFY22 performance came in below our estimates. Unlike other Discretionaries, its weak two-year average sales, EBITDA, and PAT (6-8% range) was despite a near normal quarter. This is especially disappointing given the context of relatively softer input cost inflation, a highly favorable tax environment (no excise increases in the FY22 state budgets), and higher than usual realization led sales growth. It is fairly certain that these factors may not be as favorable going ahead. It is also important to note that any steep material cost increases cannot be...

At an inflection point of decadal...

Gujarat Gas: Our BUY recommendation on Gujarat Gas (GGL) with a price target of INR 790 is premised on (1) volume growth at 15% CAGR over FY21-24E; (2) portfolio of mature, semi-mature, and new geographical areas (GAs); and (3) compelling valuations, given superior return ratios among the city gas distribution players. Q2FY22 EBITDA was 36% below our estimate and APAT was 42% below, owing to 46% below-than-expected per unit EBITDA margin due to higher spot gas cost, higher-than-expected operating expenses, offset by 17% higher volumes and lower-than-expected employee expenses and interest cost. Lupin: Lupin's Q2 results disappointed, primarily due to a subdued gross margin and higher other expenses. Revenue was in line, with the US showing signs of stabilising (+7% QoQ). However, EBITDA margin dipped to 13.5% (-330bps YoY, -70bps QoQ), the lowest in the past seven quarters. Lupin has again revised its EBITDA margin guidance downward, from 17-18% to 16%+ in H2FY22, despite reduction in R&D guidance (~50-100bps) and savings in specialty burn (~75bps, Solosec write-off). While there is reasonable progress in its pipeline and it has meaningful opportunities such as gSpiriva, gSuprep, gRevlimid, Peg-F (US) and gFostair (UK) to drive growth in near to medium term, its inability to improve cost efficiencies and sustain savings is proving to be a dampener. We cut our estimates by 20%/14% for FY22/23 to factor in the Solosec write-off and lower margins. We roll forward to Sep'23 EPS and revise our TP to INR915/sh, based on 21x Sep'23e (vs 23x earlier). REDUCE. Dalmia Bharat: We maintain ADD on...

Consequent PAT doubled to | 273 crore, which includes one-off reversal benefit in the interest expense What should investors do? With its broad portfolio and focus on placing existing brands in the upper prestige segment, along with introduction of its several iconic brands from Diageo stable, USL is well placed to capitalise on the rapidly growing...

Activation of the Scotch portfolio in ~2,000 outlets across India, resulted in better availability and wider range in these outlets. This could result in healthy demand for BIO and BII Scotch, when overseas travel and higher duty free sales (booked as part of Diageo global revenues) resume....

United Spirits Limited is the largest spirits company in the branded spirits market in India.

The Ramco Cements: Ramco Cements (TRCL) reported a strong 4QFY21 performance. Standalone net sales/EBITDA/APAT grew 22/13/7% QoQ (17/61/47% YoY) to INR 13.3/4.5/2.1bn respectively. Unitary EBITDA cooled off 6% QoQ to INR 1,417/MT due to surge in freight and fixed costs. Healthy cash generation met its ongoing capex requirements; hence net debt remained largely flat YoY. TRCL continues to focus on its large retail presence and superior cost controls, which continues to support its industry-leading margin. TRCL's ongoing expansions will bolster volume growth FY22 onwards. We retain our REDUCE rating (owing to expensive valuations) with a revised target price of INR 1,008/share (12x its Mar'23E standalone EBITDA). Multi Commodity Exchange: MCX delivered a weak quarter due to volume decline for the second consecutive quarter, primarily because of a change in margin regulations. Trading volume was down 4% QoQ due to bullion falling (-11% QoQ), but crude and metals volumes were stable. The trading volume will recover with (1) increase in Algo trading (currently at ~40%), (2) pick-up in crude volume (4Q volume ~50% of peak level), (3) increase in volatility of global commodities, (4) institutional participation, (5) increasing popularity of Index futures contract (cash-settled) and (6) higher retail participation (UCC is up 77% YoY). The company has also started to charge for Index contracts effective April-21. The new trading platform will become live in 2QFY23 and result in cost savings. We increase our EPS estimate for FY22/23E by +1.6/5.4%. We assign 30x P/E to FY23E core PAT and add net cash (ex-SGF) to arrive at a target...

USL continued to reinvest and renovate its biggest core brands i.e. McDowell's No. 1 and Royal Challenge with an innovative packaging and new blends, even during the pandemic. The management indicated that McDowell's No 1 renovation received a good response from customers. The management also focused its resources on capitalising newer trends such as consumption in home premises. Ad spends are expected to return to 89% of revenues as the situation normalises and the company will continue...

United Spirits (UNSP) reported in-line sales and significantly better-thanexpected EBITDA and PAT in 4QFY21. The key highlight of the result was the net debt declining to INR5.6b at end-FY21 (from INR20.7b at end-FY20) the net debt has halved even over Sep'20 levels. While deleveraging has historically been a key success area for UNSP, it was particularly laudable in FY21 given the weak operating environment. Therefore, ROCE dipped just 50bp to 16.8% despite a ~42% EPS reduction in FY21. This gives us confidence that ROCE, which had been improving steadily in recent years,...