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United Spirits Ltd
2QF11: Product Mix
Improvement Drives Strong
Operating Performance
Quick Comment - Reiterate OW: USL reported strong
2QF11 results with adjusted revenue, EBITDA and
adjusted PAT growth of 26%, 22% and 7% yoy,
respectively, compared with our expectations of 17%,
26% and 25%. According to management, the quarter
under review saw the launch of McDowell’s No.1
Platinum Whiskey, 18 year variant of Black Dog, its
premium scotch whiskey and McDowell’s VSOP Brandy,
a premium offering launched in Southern Indian states.
The launch and initial expenses of these brands of
Rs250mn has been expended during the quarter.
Adjusting for this investment, EBITDA grew by 35%. The
Q2F11 results continue to point towards structural
factors driving consumption of alcohol in India; along
with rapid premiumization and improving product mix, in
our view. We reiterate our OW rating.
Key Positives: (1) Strong underlying volume growth of
16%. (2) Adjusting for brand building expenses,
operating profits margins expanded by 130bps driven by
lower input costs, product mix improvement and price
hikes in various markets. According to management, the
brands at the top end of the spectrum grew by 20%. (3)
W&M reported operating profit growth of 16% in 1HF11
compared with our expectation of a decline of 39% for
the full year ending Mar-11. (4) According to
management, consolidated interest costs fell to Rs2.5bn
in H1F11 from Rs2.8bn in the corresponding quarter last
year. (5) Even the wine-making subsidiary Bouvet
Ladubay reported a strong 23% growth in revenues for
1HF11.
Key Negatives: (1) Standalone Loans and advances
are up 8% over F2010. (2) Reported ad-spend to sales
ratio up 370bps yoy. (3) USL is likely to spend an
additional Rs150-200mn in Q3F11 behind its brands.
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