United Spirits Ltd. share price target

DART View: Premiumisation and margin expansion story continues UNSP's Q1FY20 revenue grew a weak 5.6% YoY (adjusted). The gross margin also fell 359bps to 46.6%. However, EBITDA/PAT (adjusted) rose 42/98% YoY, due to steep cost control. It is likely to achieve the guided...

Controlled expense management enables strong EBITDA growth USL's gross margin in Q1FY20 declined 290 bps to 47.2% due to increase in input cost. However, the company curtailed its marketing, employee and other expenses during the quarter. Owing to general elections, the company reduced its marketing & advertisement spend by ~280 bps to 7.7%....

Prestige & above segment contribution to revenues increased from 63% in FY18 to 66% in FY19. The management expects the P&A; segment to contribute ~ 85%, 90% by 2025, 2030, respectively. On the growth front, P&A; segment is expected to grow at mid teen while popular segment is expected to grow at low single digits in the medium term USL's Scotch grew 28% in FY19 with bottled in origin growing 48% and bottled in India growing 18%. The management highlighted that each higher segment was growing faster than the lower segment showing...

High barriers to entry, inelastic demand, and long-term consumption play; coupled with transformation of UNSP viz. premiumisation, cost control and de-leveraging attracts investors. We believe in this. UNSP is on track to deliver the guided low-teens revenue growth and mid-high teens EBITDA margin. United Spirits (UNSPs) 4QFY19 was in-line but weak. This is led by subdued revenue growth and increase in RM costs. Long-term industry opportunity is attractive. 20% price correction in trailing year makes the valuation attractive (45/34x FY20/21E). Maintain estimates and BUY with TP of Rs 650 (+20%) @ 40x FY21E EPS.

P&A; share in the product mix grew to 66% in FY19 from 58% in FY17. P&A; segment clocked volume growth of 12% compared to volume de-growth of 3% in the popular segment (comprises ~50% of total volumes). As per the management, growth has largely been higher in upper prestige, luxury and scotch segment (Johnnie Walker, Black & White growing at highest rates), supported by activations like commercials, branding, etc. USL would continue to invest in future while strengthening its investments in brand building (A&P;). Given the experience of working across distribution models coupled with...

Standalone net sales grew 3.5% YoY to INR22.5b (our est. INR22.6b), with reported volumes growing 1% YoY (our est. 2% decline); underlying volumes were up 2%. Prestige & above volumes grew 7.1% YoY while Popular volumes were down 4.5% YoY (underlying Popular volumes declined 3% YoY). EBITDA grew 2.9% to INR2.8b (our est. INR2.87b). Underlying* EBITDA grew 8% YoY. Adj. PAT declined 29.3% to INR1.31b (our est. INR1.47b). Concall highlights: (1) Management is seeing some recovery in sentiment post elections; it expects the improvement to continue; (2) 10 odd states saw price...

4QFY19 standalone net sales grew 10.7% YoY (off a strong base) to INR16.3b (our est. INR16.5b). EBITDA declined 17.8% YoY to INR1.7b (our est. INR2.5b), while Adj. PAT declined 25.3% YoY to INR679m (our est. INR1.1b). Volumes are estimated to have grown at 9% with likely market share gains as well. Standalone Gross margins declined 220bp YoY (our est. -60bp) to 50.5% likely due to higher barley costs. Employee costs were up 10bp YoY to 7.6% while other expenses were up 130bp to 32.4%. Consequently, standalone EBITDA margins were down 360bp YoY to 10.5% (our est. 15.0%)....

Net revenue for Q3FY19 grew 11% YoY to | 2501 crore due to the strong performance in the Prestige & Above segment. Prestige & Above segment reported volume growth of 12% YoY to 11.1 mn cases while Popular segment reported volume de-grew 4% to 10.8 mn cases EBITDA margins increased 188 bps YoY to 13.9%. Though gross margins remained flat 47.3%, lower employee costs and lower advertisement expenses enabled expansion in EBITDA margin. The resultant EBITDA grew 28% YoY to | 348 crore...

Reiterate Neutral with a TP of Rs 619 (40x Dec-20E standalone EPS, plus Rs 30 for other businesses). UNSPs 3QFY19 was marginally weak on the operating front viz. volume/revenue and gross margin. However, on high costs base, adjusted EBITDA growth was healthy. UNSPs 3QFY19 volumes grew by 3.8% YoY (P&A; 12.1%, Popular -3.6%), revenue 10.5%, adj. EBITDA 48% and APAT 60%.

24 January 2019 volumes growing 3.8% YoY (est. of +9%) on a base of 14.2% decline. while Popular volumes declined 3.6% YoY (underlying Popular volumes down 2% YoY). EBITDA grew 27.7% to INR3.5b (est. Adjusted PAT grew 44.3% to INR2.1b (est.