United Spirits Ltd. share price target

UNSP's standalone net sales fell 3.7% YoY to INR19.5b, with a 15.9% YoY decline (est. of -7%) in overall volumes. Management attributed the decline in sales to the highway ban and the one-off impact of operating model changes. Management expects the highway ban impact to normalize by end-3QFY18. Prestige & Above (63% of net sales) volumes rose 2.2% YoY (sales up 10%), while Popular volumes declined 28.2% YoY (sales down 22%). Performance excluding the one-off impact of operating model changes: Underlying net sales increased 4% YoY. Prestige & Above sales were up 12%...

In view of the longer term challenges, UNSP's currently rich valuations (43x FY20E EPS) offer a decent EXIT point. This is a great business, but we suspect the hangover is persistent. SELL, with a TP of Rs 2,060 (40x Sep-19E EPS). United Spirits (UNSP) is the undisputed liquor leader in India. Long term investors in Indias consumption story have been motivated by the transformation of UNSP under Diageo. Mgt has pushed for premiumisation, cost control, de-leveraging and has franchised out low-end brands. This has fuelled investor aspirations of sustainably better margins and falling debt.

Gross revenues de-grew 1% YoY (down 10% QoQ) to | 5817 crore (Idirect estimate: | 5526 crore). Higher excise duty (69% vs. 65% in Q1FY17) continued to impact net revenues, which de-grew 13% YoY (down 12% QoQ) to | 1782 crore (I-direct estimate: | 1945 crore). Highway ban coupled with internal operating model changes of franchising some brands resulted in a decline in revenues and...

Total volume for the quarter de-grew 8% YoY (down 13% QoQ) to 21.4 million cases. The company is successfully executing its premiumisation strategy following which volumes for prestige & above (P&A;) continued to grow 5% YoY (down 17% QoQ) to 8.5 million cases. However, volumes for regular (popular) segment de-grew 15% YoY (down 10% QoQ) to 12.9 million cases. Prestige and above contributed 40% of total volumes with popular contributing the remaining 60%. The renovation strategy across brands (Signature,...

In 4QFY17, United Spirits (UNSP) demonstrated strong operating performance. Net sales were almost flat YoY at Rs 20.3 bn (lower than estimates), owing to a run up to the highway ban, liquor prohibition in Bihar and franchising of regular brands. Excluding these one-offs, net sales grew by 7% YoY. EBITDA improved by 129% YoY to Rs 2.6 bn (13.1% margin vs. 5.7% YoY).

United Spirits (UNSP) is the leader in the Indian spirits market, with ~35% volume share. It has an established portfolio of ~140 brands across the price spectrum, with 15 millionaire (million cases sold per annum) brands. It has a pan-India manufacturing and distribution footprint, and a sticky franchise. This is crucial, as the category is both stringently regulated and `media dark?.

Revenue grew by 21.93% to Rs. 2484.49 Cr in Q3FY17 when compared to the previous quarter. Also, it increased by 3.07% when compared with Q3FY16

Gross revenues grew 6% YoY (up 17% QoQ) to | 7072.4 crore vs. estimated | 6238 crore. Higher excise duty led net revenues to grow 3% YoY (up 22% QoQ) to | 2494 crore vs. estimated | 2254 crore Volumes for the quarter de-grew 5% YoY to 24.5 million cases vs. our estimate of 23.1 million cases. Volumes for prestige & above (P&A;) segment grew 5% YoY to 10.1 million cases. The overall contribution of the same grew 400 bps to 41% vs. 37% in Q3FY16. Volumes for regular (popular) segment de-grew 11% YoY to 14.4 million cases and...

USL's gross revenues for Q2FY17 grew 7% YoY (up 2% QoQ) to | 6028 crore (vs. estimated | 5918 crore). Post excise duty, net revenues grew 7% YoY to | 2048 crore (vs. estimated | 2087 crore) Total volumes continue to maintain their quarterly run rate of 22 million cases (Prestige & above/popular segment - 9 million/13 million cases). Prestige and above grew 10% YoY contributing 41% of overall volumes vs. 37% in Q2FY16. The growth was completely negated by de-growth of 5% in the popular segment, which now contributed 59%...

ICICI Securities Ltd | Retail Equity Research USL's Q1FY17 gross revenues (as per IND AS) grew 7% YoY to | 5840 crore (IGAAP gross revenues | 5641 crore vs. estimated | 5635 crore). Post excise duty, net revenues grew 9% YoY (down 4% QoQ) to | 2041 crore (IGAAP net revenues | 2291 crore vs. estimated | 2269 crore). Revenues for the quarter from Diageo distribution agreement were at | 163 crore compared to | 237 crore in Q4FY16 and | 44 crore in Q1FY16 (integration quarter)...