United Spirits Ltd. share price target

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...

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.

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,...

Consumer sentiment continues to improve month on month. After 49% YoY volume decline in 1QFY21, volumes had already recovered to flattish levels YoY by 3QFY21. Thus, further sequential improvement is encouraging. Innovation and renovation activity is also likely to pick up further. Mr Kripalu believes the ongoing Prestige and Above (P&A;) trend would only accelerate as high involvement categories such as alcohol would move toward premium products as they get more affordable for the population. An ongoing strategic review of the Popular segment (to be completed by Dec'21)...

Higher A&P; expense to support volume growth 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. A&P; expense continued at healthy 8-9% levels during Q2 and Q3, which supported the volume growth seen in the P&A; and popular segment. The management also focused its resources on capitalising newer trends such as consumption in the home premises and with family members. USL has 80 brands of Scotch, IMFL, brandy, rum,...

USL reported results with a faster than expected recovery QoQ in volumes (leading to mere 3.4% YoY decline in volumes), in spite of the continued closure of on-trade channels in various states, higher taxation post-Covid scenario and also contraction in the business in Andhra Pradesh. The recovery also saw higher growth in the P&A; segment (up 116% QoQ and flat YoY) compared to the popular segment (up 90% QoQ but down 7% YoY). The company also increased its A&P; expenses during the quarter, to launch its two renovated core brands (McDowell's No 1 and Royal Challenge)....