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United Spirits (UNSP)
Consumer products
In-line results; mixed outlook. UNSP delivered good volume growth of 14% in 3Q. It
reported adjusted net sales of Rs15.7 bn (+17%, KIE Rs15.7 bn), EBITDA of Rs2.7 bn
(KIE Rs2.7 bn, +24%) and PAT of Rs1.13 bn (KIE Rs1.18 bn, +13%). While the stock
has underperformed BSE-30 index by 25% over the last six months, there are few
incremental worries, (1) increase in net debt (Rs9 bn yoy to Rs62 bn), (2) it is in the
process of refinancing the debt in W&M books which entails a new repayment schedule
with a longer tenor, (3) it plans to invest in further backward integration (for the key
packing material glass as well) and (4) other subsidiaries (difference between standalone
+ W&M and consolidated) loss of Rs1.3 bn in 9MFY11.
Highlights of the quarter
Net debt has increased by Rs2 bn qoq and Rs9 bn (Rs2.5 bn due to acquisition of Pioneer
Distilleries, Rs5 bn due to higher working capital requirements, Rs0.5 bn due to exchange
difference and the balance due to capex) yoy to Rs62 bn.
It is in the process of refinancing the debt in W&M books which entails a new repayment
schedule with a longer tenor (a seven year loan with a 3 year moratorium). This is in light of
likely lower cash flows in W&M in near-term due to defocus on bulk sales. This could result in
interest costs going up by 50-100 bps for this loan and also a refinancing cost.
Whyte & Mackay (W&M) delivered an EBITDA of GBP23 mn in 9MFY2011 (GBP53 mn in base).
The lower EBITDA is due to the defocus on bulk scotch sales. W&M is having a scotch inventory
of 104 mn liters valued at GBP 430 mn as of December 31, 2010 (value has remained flat over
2QFY11).
Company expects cost of wet goods to decline ~5% in 1HCY2011E (over 3QFY11) as the full
impact of a good sugarcane crop will be seen in molasses prices in 1HCY2011E.
Company plans to invest in further backward integration (for the key packing material glass as
well).
Other subsidiaries (difference between standalone + W&M and consolidated) loss of Rs1.3 bn in
9MFY11.
3QFY11: Good volume growth of 14%
UNSP reported adjusted net sales of Rs15.7 bn (+17%, KIE Rs15.7 bn), EBITDA of Rs2.74 bn
(KIE Rs2.71 bn, +24%) and PAT of Rs1.13 bn (KIE Rs1.18 bn, +13%).
The company had merged Balaji Distilleries (a tie-up unit in Tamilnadu) with itself during the
quarter and the full impact of 9MFY2011 financials is considered in 3QFY2011 (and hence
the reported numbers are not comparable). 3QFY2011 reported financials are sales Rs19.6
bn (+45%), EBITDA Rs2.8 (+25%) and PAT Rs1.1 bn (+7%).
Like-to-like sales growth for 3Q was 21% driven by 14% volume growth (to 30.3 mn cases),
3% mix improvement and 4% due to price increases.
The cost of wet goods per case declined 6% yoy to Rs143/case. EBITDA margin expanded
100 bps to 17.4% despite 29% increase in adspends during the quarter (launch expenses of
McDowell’s Platinum Whisky and McDowell’s VSOP brandy of Rs200 mn).
Recommend ADD
The underperformance of the UNSP stock (25% versus BSE-30 index over the past six
months) provides an entry point into the stock, in our view. We believe that UNSP operates
in an industry with large potential (though lower than Street perception) with opportunity
for secular consumer uptrading. Entry barriers are real and it is increasing. We will revisit our
estimates after a meeting with management. Key risk is lower-than-expected benefit of
input cost correction and potential impact of higher interest rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Spirits (UNSP)
Consumer products
In-line results; mixed outlook. UNSP delivered good volume growth of 14% in 3Q. It
reported adjusted net sales of Rs15.7 bn (+17%, KIE Rs15.7 bn), EBITDA of Rs2.7 bn
(KIE Rs2.7 bn, +24%) and PAT of Rs1.13 bn (KIE Rs1.18 bn, +13%). While the stock
has underperformed BSE-30 index by 25% over the last six months, there are few
incremental worries, (1) increase in net debt (Rs9 bn yoy to Rs62 bn), (2) it is in the
process of refinancing the debt in W&M books which entails a new repayment schedule
with a longer tenor, (3) it plans to invest in further backward integration (for the key
packing material glass as well) and (4) other subsidiaries (difference between standalone
+ W&M and consolidated) loss of Rs1.3 bn in 9MFY11.
Highlights of the quarter
Net debt has increased by Rs2 bn qoq and Rs9 bn (Rs2.5 bn due to acquisition of Pioneer
Distilleries, Rs5 bn due to higher working capital requirements, Rs0.5 bn due to exchange
difference and the balance due to capex) yoy to Rs62 bn.
It is in the process of refinancing the debt in W&M books which entails a new repayment
schedule with a longer tenor (a seven year loan with a 3 year moratorium). This is in light of
likely lower cash flows in W&M in near-term due to defocus on bulk sales. This could result in
interest costs going up by 50-100 bps for this loan and also a refinancing cost.
Whyte & Mackay (W&M) delivered an EBITDA of GBP23 mn in 9MFY2011 (GBP53 mn in base).
The lower EBITDA is due to the defocus on bulk scotch sales. W&M is having a scotch inventory
of 104 mn liters valued at GBP 430 mn as of December 31, 2010 (value has remained flat over
2QFY11).
Company expects cost of wet goods to decline ~5% in 1HCY2011E (over 3QFY11) as the full
impact of a good sugarcane crop will be seen in molasses prices in 1HCY2011E.
Company plans to invest in further backward integration (for the key packing material glass as
well).
Other subsidiaries (difference between standalone + W&M and consolidated) loss of Rs1.3 bn in
9MFY11.
3QFY11: Good volume growth of 14%
UNSP reported adjusted net sales of Rs15.7 bn (+17%, KIE Rs15.7 bn), EBITDA of Rs2.74 bn
(KIE Rs2.71 bn, +24%) and PAT of Rs1.13 bn (KIE Rs1.18 bn, +13%).
The company had merged Balaji Distilleries (a tie-up unit in Tamilnadu) with itself during the
quarter and the full impact of 9MFY2011 financials is considered in 3QFY2011 (and hence
the reported numbers are not comparable). 3QFY2011 reported financials are sales Rs19.6
bn (+45%), EBITDA Rs2.8 (+25%) and PAT Rs1.1 bn (+7%).
Like-to-like sales growth for 3Q was 21% driven by 14% volume growth (to 30.3 mn cases),
3% mix improvement and 4% due to price increases.
The cost of wet goods per case declined 6% yoy to Rs143/case. EBITDA margin expanded
100 bps to 17.4% despite 29% increase in adspends during the quarter (launch expenses of
McDowell’s Platinum Whisky and McDowell’s VSOP brandy of Rs200 mn).
Recommend ADD
The underperformance of the UNSP stock (25% versus BSE-30 index over the past six
months) provides an entry point into the stock, in our view. We believe that UNSP operates
in an industry with large potential (though lower than Street perception) with opportunity
for secular consumer uptrading. Entry barriers are real and it is increasing. We will revisit our
estimates after a meeting with management. Key risk is lower-than-expected benefit of
input cost correction and potential impact of higher interest rates.
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