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United Spirits (UNSP)
Consumer products
No surprises. UNSP’s like-to-like revenue growth of 22% for 1QFY12 was ahead of
estimates (19%). Highlights (1) volume growth of 15% partially aided by a low base
(+6% in 1QFY11), (2) gross margin pressure seen; however, EBITDA margin decline
curtailed through savings in promotional spends and (3) increase in net debt position
versus March 31, 2011. Key risks (1) potential impact of increasing interest rates, (3)
increase in net debt yoy and qoq and (4) continuing losses in other subsidiaries (other
than W&M). We will review our estimates post a meeting with the management.
Good volume growth albeit on a low base
UNSP reported net sales of Rs19.4 bn (+32%, KIE Rs17.3 bn), EBITDA of Rs3.3 bn (+17%, KIE
Rs2.9 bn) and PAT of Rs1.4 bn (+12%, KIE Rs1.2 bn).
1QFY12 includes the impact of the merger of Balaji Distilleries, hence the reported financials are
not comparable on a yoy basis and with our estimates.
Adjusting for the impact of Balaji Distilleries, the company reported sales growth of 22%.
Volume during the quarter was 15% and has partially benefited due to a low base (destocking
in Andhra Pradesh because of fresh tendering process for retail licenses in 1QFY11 impacted
volume growth). Segment wise, volume growth was driven by 22% growth in premium brands
and 12% growth in regular brands. The IMFL segment consisting of whisky and brandy may
have largely contributed to the growth.
Price hikes (managed through a mix of retail price increase and reduction in promotional
spends) and mix improvement helped curtail EBITDA margin decline despite significant gross
margin pressure due to inflationary glass and paper price. Partial withdrawal of promotional
spends led to decline in advertising spends to 7.8% of sales. Average adspends in FY2011 is
10.5% of sales.
The company guides for higher adpro spends in the subsequent quarters to support its new
launches – Signature Premier, Vladivar Vodka and White Mischief Vodka. We model adspends
at 10.8% of sales for FY2012E.
The average ENA cost per case at Rs147 for 1QFY12 was marginally down by 3% on a yoy
basis, and 2% on a qoq basis. Average cost for FY2011 was Rs143 against Rs151 for FY2010.
Whyte and Mackay (W&M) financials are not comparable as the base likely includes bulk sales.
Net debt position as of June 30, 2011 was Rs65 bn versus Rs57 bn as of March 31, 2011
– loan on account of capex was up by Rs626 mn, working capital loan by Rs4.5 bn,
unsecured loan was up by Rs1.5 bn. Term loan for acquisition of W&M was Rs12.5 bn as
of June 30, 2011. In July 2011, the company announced GBP370 mn refinance of the
debt taken for acquiring W&M. the total hedged cost of the new debt is 45 bps lower
than the earlier debt. The new loan has a 7-year repayment period.
The implied losses in ‘other subsidiaries’ continue to be high. We calculate this as the
difference between consolidated PBT and W&M PBT + standalone PBT. The losses were
estimated at Rs229 mn for 1QFY12 (Rs1.1 bn and Rs2.9 bn in FY2011 and FY2010,
respectively).
Outlook for FY2012E
Sales growth will likely be led primarily through price hikes.
Margin management is key. Glass (forms about 30% of input cost) has been inflationary.
While there may be some respite due to lower ENA cost (~35% of distillation constitutes
primary distillation versus 10% earlier which will likely result in a benefit of Rs3-4/litre),
the company will likely focus on managing margins by passing off any pressure on input
costs with commensurate price hikes. As guided by management, adspends will likely
remain at elevated levels over the next few quarters.
Excise hike in state budgets does not portend well. In addition to input cost inflation, hike
in excise duty on liquor products in key state budgets such as Maharashtra, Punjab,
Karnataka does not portend well.
Net debt position will likely move in line with capex requirements over the next couple of
years. The company has guided for a capex of Rs11 bn for the period FY2010-13E.
Retain ADD
We retain ADD with TP of Rs1,300 (valued at 12X FY2013E EBITDA for India business and
9X EBITDA for W&M). We will review our estimates post a meeting with the management.
Our EPS estimates for FY2012E and FY2013E are Rs39.2 and Rs50.6, respectively and we
forecast an EPS CAGR of 28% over FY2011-14E. Key worries (1) higher-than-expected input
costs, (2) potential impact of increasing interest rates, (3) increase in net debt yoy and qoq
and (4) higher-than-expected losses in other subsidiaries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Spirits (UNSP)
Consumer products
No surprises. UNSP’s like-to-like revenue growth of 22% for 1QFY12 was ahead of
estimates (19%). Highlights (1) volume growth of 15% partially aided by a low base
(+6% in 1QFY11), (2) gross margin pressure seen; however, EBITDA margin decline
curtailed through savings in promotional spends and (3) increase in net debt position
versus March 31, 2011. Key risks (1) potential impact of increasing interest rates, (3)
increase in net debt yoy and qoq and (4) continuing losses in other subsidiaries (other
than W&M). We will review our estimates post a meeting with the management.
Good volume growth albeit on a low base
UNSP reported net sales of Rs19.4 bn (+32%, KIE Rs17.3 bn), EBITDA of Rs3.3 bn (+17%, KIE
Rs2.9 bn) and PAT of Rs1.4 bn (+12%, KIE Rs1.2 bn).
1QFY12 includes the impact of the merger of Balaji Distilleries, hence the reported financials are
not comparable on a yoy basis and with our estimates.
Adjusting for the impact of Balaji Distilleries, the company reported sales growth of 22%.
Volume during the quarter was 15% and has partially benefited due to a low base (destocking
in Andhra Pradesh because of fresh tendering process for retail licenses in 1QFY11 impacted
volume growth). Segment wise, volume growth was driven by 22% growth in premium brands
and 12% growth in regular brands. The IMFL segment consisting of whisky and brandy may
have largely contributed to the growth.
Price hikes (managed through a mix of retail price increase and reduction in promotional
spends) and mix improvement helped curtail EBITDA margin decline despite significant gross
margin pressure due to inflationary glass and paper price. Partial withdrawal of promotional
spends led to decline in advertising spends to 7.8% of sales. Average adspends in FY2011 is
10.5% of sales.
The company guides for higher adpro spends in the subsequent quarters to support its new
launches – Signature Premier, Vladivar Vodka and White Mischief Vodka. We model adspends
at 10.8% of sales for FY2012E.
The average ENA cost per case at Rs147 for 1QFY12 was marginally down by 3% on a yoy
basis, and 2% on a qoq basis. Average cost for FY2011 was Rs143 against Rs151 for FY2010.
Whyte and Mackay (W&M) financials are not comparable as the base likely includes bulk sales.
Net debt position as of June 30, 2011 was Rs65 bn versus Rs57 bn as of March 31, 2011
– loan on account of capex was up by Rs626 mn, working capital loan by Rs4.5 bn,
unsecured loan was up by Rs1.5 bn. Term loan for acquisition of W&M was Rs12.5 bn as
of June 30, 2011. In July 2011, the company announced GBP370 mn refinance of the
debt taken for acquiring W&M. the total hedged cost of the new debt is 45 bps lower
than the earlier debt. The new loan has a 7-year repayment period.
The implied losses in ‘other subsidiaries’ continue to be high. We calculate this as the
difference between consolidated PBT and W&M PBT + standalone PBT. The losses were
estimated at Rs229 mn for 1QFY12 (Rs1.1 bn and Rs2.9 bn in FY2011 and FY2010,
respectively).
Outlook for FY2012E
Sales growth will likely be led primarily through price hikes.
Margin management is key. Glass (forms about 30% of input cost) has been inflationary.
While there may be some respite due to lower ENA cost (~35% of distillation constitutes
primary distillation versus 10% earlier which will likely result in a benefit of Rs3-4/litre),
the company will likely focus on managing margins by passing off any pressure on input
costs with commensurate price hikes. As guided by management, adspends will likely
remain at elevated levels over the next few quarters.
Excise hike in state budgets does not portend well. In addition to input cost inflation, hike
in excise duty on liquor products in key state budgets such as Maharashtra, Punjab,
Karnataka does not portend well.
Net debt position will likely move in line with capex requirements over the next couple of
years. The company has guided for a capex of Rs11 bn for the period FY2010-13E.
Retain ADD
We retain ADD with TP of Rs1,300 (valued at 12X FY2013E EBITDA for India business and
9X EBITDA for W&M). We will review our estimates post a meeting with the management.
Our EPS estimates for FY2012E and FY2013E are Rs39.2 and Rs50.6, respectively and we
forecast an EPS CAGR of 28% over FY2011-14E. Key worries (1) higher-than-expected input
costs, (2) potential impact of increasing interest rates, (3) increase in net debt yoy and qoq
and (4) higher-than-expected losses in other subsidiaries.
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