United Spirits Ltd. share price target

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.

Net revenues for Q2FY19 grew 14% YoY to | 2228 crore due to strong performance in the Popular and Prestige & Above segment as well as the benefit from low base due to the highway ban. P&A; segment reported volume growth of 15% YoY to 10.5 million cases while Popular segment reported volume growth of 5% to 9.9 million cases EBITDA margins increased 313 bps YoY to 19.4% mainly due to higher gross margins, lower employee costs and lower other expenses. The resultant EBITDA grew 36% YoY to | 432 crore...

Downgrade to Neutral with revised TP of Rs 627 (40x Sep-20E standalone EPS, plus Rs 30 for other businesses). UNSP after three consecutive weak quarters, reported robust 2QFY19 especially on margin viz. highest ever at 19.4%. Volumes grew by 10% YoY, revenue 14%, EBITDA 36% and PAT 69%. Healthy growth was led by stable operating environment, low base due to highway ban and cost optimization.

One-offs mar quarter; long term story intact Net revenues for Q1FY19 grew 13% YoY to | 2012 crore (I-direct estimate: | 2080 crore) due to the strong performance in the Prestige and Above segment as well as the benefit from lapping up the impact of the highway ban. Prestige & above segment reported volume growth of 13% YoY to 9.5 million cases while the popular segment reported volume decline of 4% to 8.7 million cases EBITDA margins increased 72 bps YoY to 9.6% (I-direct estimate:...

Reiterate SELL with a revised TP of Rs 530 @ 40x Jun-20E EPS (vs. Rs 570 earlier). We reduce our FY19-21 EBITDA estimate by 5-6% and EPS 7-9%. UNSP after blockbuster 2QFY18 reported third consecutive weak quarter especially on margin front (reported margin 9.6%, adjusted 11.3%). Revenue grew by 13% YoY, EBITDA 22% owing to low base of 1QFY18 led by highway ban. Despite management guidance of low-teen revenue growth and mid-teens margin in medium term, margin continues to struggle.

24 July 2018 to INR20.1b, with volumes growing 1% YoY (our estimate was 18.5%) on a base of 18.9% decline. while Popular volumes declined 9.4% YoY (underlying* Popular volumes down 4% YoY). EBITDA grew 34% YoY to INR2.3b (our estimate was INR3b). Adjusted PAT grew 45.6% YoY to INR1b (our estimate was INR1.6b). and productivity initiatives offset the adverse impact of inflation and GST. Underlying* gross margin expanded 266bp YoY but EBITDA margin expansion at 180bp YoY to 11.3% was restricted by high advertising expenses (+140bp YoY to 10.5%; +30% YoY on absolute basis) and other expenses (+20bp YoY to 18.

We believe increased A&P; spends is a positive and is required to drive better volume and gain shares. Normalization in ad spends and cost efficiencies can drive gradual improvement in margins in future. We reduce estimates by 5-8%. Competitive and regulatory risks prevail but post a 20% correction, valuation at 45x FY20E EPS are now in line with peers. Hence, we upgrade...

We like United Spirits' (UNSP) business given its notable position in the regulated domestic alcohol market, established brands (100+), entrenched manufacturing footprint, premiumisation focus, and potential monetisation of non-core assets (not factored in estimates). But at current valuations of 61x/ 48x FY19E/FY20E EPS, the risk-reward looks unfavourable. Also, any negative change in regulations remains a key monitorable. Maintain REDUCE with a Mar'19 target price of Rs 690 (adj. for stock split), set at 50x FY20E EPS....