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UBS Investment Research
United Spirits Ltd
Solid underlying operations, Buy
�� Underlying numbers on track
Net of acquisitions of Balaji, USL’s volumes were +14% and revenues +18.2%.
COGS were higher than expected at 57% of sales (adj. for Balaji) UBS-e 53.3% as
1. Volumes were higher than budget, procurement costs were higher on spot, 2.
Glass prices were higher, benchmarked to crude and 3. Benefits from asset buys
haven’t flowed in. Net of Rs 12mn EBITDA from Balaji, USL's EBITDA margins
came in at 17% (in line) as BTL expenses were lower. PBT (noe) came in at
Rs1560mn and PAT (noe) came in at Rs910mn.
�� Strategy – reducing procurement cost, improving ASPs
USL is acquiring downstream convertors to save on service tax and gain on
conversion margins. The acquisition of Pioneer and Balaji are key steps in the
same direction. Capex on setting up distillation assets have been stepped up. Loans
on W&M have been refinanced (at a 50bpts higher cost) as repayments are
deferred given W&M will sell only branded scotch vs. part bulk sales.
�� Concerns addressed
Management provided a breakup of marketing expenses on strategic brands, as
premiumization of brands continues. RM costs should tend lower into Q4 and
benefits from acquisitions should flow through. Volumes are on track, while the
addressable opportunity continues to remain exciting.
�� Valuation
Maintain Buy with price target of Rs1,550, our PT from a DCF-based method and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool.
�� United Spirits Ltd
United Spirits is 38.7% owned by Vijay Mallaya and the amalgamated
company of the former McDowells, Shaw Wallace and other
companies. It holds about 48% of the IMFL (liquor) market by
volume and is the market leader. It is a driver of sector consolidation.
The company has 19 'millionaire' brands (each sells more than one
million cases per year) and has 64 manufacturing facilities across
India.
�� Statement of Risk
We believe the key risks that could affect the sector include continued
upward movement of higher agri-commodity based raw material costs
and the inability of branded consumer companies to pass on price
increases in an increasingly competitive market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
United Spirits Ltd
Solid underlying operations, Buy
�� Underlying numbers on track
Net of acquisitions of Balaji, USL’s volumes were +14% and revenues +18.2%.
COGS were higher than expected at 57% of sales (adj. for Balaji) UBS-e 53.3% as
1. Volumes were higher than budget, procurement costs were higher on spot, 2.
Glass prices were higher, benchmarked to crude and 3. Benefits from asset buys
haven’t flowed in. Net of Rs 12mn EBITDA from Balaji, USL's EBITDA margins
came in at 17% (in line) as BTL expenses were lower. PBT (noe) came in at
Rs1560mn and PAT (noe) came in at Rs910mn.
�� Strategy – reducing procurement cost, improving ASPs
USL is acquiring downstream convertors to save on service tax and gain on
conversion margins. The acquisition of Pioneer and Balaji are key steps in the
same direction. Capex on setting up distillation assets have been stepped up. Loans
on W&M have been refinanced (at a 50bpts higher cost) as repayments are
deferred given W&M will sell only branded scotch vs. part bulk sales.
�� Concerns addressed
Management provided a breakup of marketing expenses on strategic brands, as
premiumization of brands continues. RM costs should tend lower into Q4 and
benefits from acquisitions should flow through. Volumes are on track, while the
addressable opportunity continues to remain exciting.
�� Valuation
Maintain Buy with price target of Rs1,550, our PT from a DCF-based method and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool.
�� United Spirits Ltd
United Spirits is 38.7% owned by Vijay Mallaya and the amalgamated
company of the former McDowells, Shaw Wallace and other
companies. It holds about 48% of the IMFL (liquor) market by
volume and is the market leader. It is a driver of sector consolidation.
The company has 19 'millionaire' brands (each sells more than one
million cases per year) and has 64 manufacturing facilities across
India.
�� Statement of Risk
We believe the key risks that could affect the sector include continued
upward movement of higher agri-commodity based raw material costs
and the inability of branded consumer companies to pass on price
increases in an increasingly competitive market.
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