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United Spirits (UNSP IN, INR 623, BUY)
United Spirits’ (USL) posted a poor show in Q3FY12 due to sales being affected in major markets of
Tamil Nadu and West Bengal (net revenues remained flat YoY). Though volume growth slackened
to 1% YoY, premium brands grew at a faster clip. ENA cost pressure and one‐time promotional
spends impacted EBITDA. Interest expenses (up 34% YoY) continued to weigh heavily on profit
(declined 64% YoY). We believe FCCB issue approval to help address debt concerns. We believe in
USL’s stronghold and brand equity in the alcohol market and maintain ‘BUY’.
Volumes dip due to region specific issues
The company’s YoY volume surge was a mute 1% due to issues in states of Tamil Nadu (volume loss of
1.5mn cases in Q3FY12) and West Bengal (volume drop of 48% YoY for the industry). We expect
volume to return back to normalcy in coming quarters. Despite these issues 7% YoY volume growth
was recorded in premium brands, reflecting the company’s stronghold in the premium category.
Gross margin compressed 18bps YoY due to ENA pressure (prices up 15%). Adding to the margin pain
were ad spends (up 119bps YoY), staff costs (up 62bps YoY) and other expenses (up 87bps YoY) which
led to EBITDA margin contraction of whopping 452bps YoY to 9.6%.
Interest expense inches up as debt continues to mount
USL’s interest cost hurled by 34% YoY to INR1,392mn due to higher interest cost and increased debt
for capex and working capital requirements. Core profit (dipped by 76% YoY to mere INR494mn) felt
the pinch of the rising debt burden. FFCB approval of USD250mn (which includes green shoe option of
USD 50mn) is likely to provide some respite. Despite exceptional gain (forex gain of INR212mn)
reported profit dunked by 64% YoY to a measly INR471mn. Taxed rate surged by 964bps YoY to 47.6%
hurting profit margin which dipped to 1.3% (down 531bps YoY).
Outlook and valuations: Positive; maintain ‘BUY’
We believe in USL’s brand equity and stronghold in the alcohol industry but its high debt, rising cost of
debt, increased working capital, W&M overhang and higher raw material prices continue to remain
cause of concern. At CMP, the stock is trading at 16.9x FY12E and 13.4x FY13E. We maintain
‘BUY/Sector Performer’ recommendation/rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Spirits (UNSP IN, INR 623, BUY)
United Spirits’ (USL) posted a poor show in Q3FY12 due to sales being affected in major markets of
Tamil Nadu and West Bengal (net revenues remained flat YoY). Though volume growth slackened
to 1% YoY, premium brands grew at a faster clip. ENA cost pressure and one‐time promotional
spends impacted EBITDA. Interest expenses (up 34% YoY) continued to weigh heavily on profit
(declined 64% YoY). We believe FCCB issue approval to help address debt concerns. We believe in
USL’s stronghold and brand equity in the alcohol market and maintain ‘BUY’.
Volumes dip due to region specific issues
The company’s YoY volume surge was a mute 1% due to issues in states of Tamil Nadu (volume loss of
1.5mn cases in Q3FY12) and West Bengal (volume drop of 48% YoY for the industry). We expect
volume to return back to normalcy in coming quarters. Despite these issues 7% YoY volume growth
was recorded in premium brands, reflecting the company’s stronghold in the premium category.
Gross margin compressed 18bps YoY due to ENA pressure (prices up 15%). Adding to the margin pain
were ad spends (up 119bps YoY), staff costs (up 62bps YoY) and other expenses (up 87bps YoY) which
led to EBITDA margin contraction of whopping 452bps YoY to 9.6%.
Interest expense inches up as debt continues to mount
USL’s interest cost hurled by 34% YoY to INR1,392mn due to higher interest cost and increased debt
for capex and working capital requirements. Core profit (dipped by 76% YoY to mere INR494mn) felt
the pinch of the rising debt burden. FFCB approval of USD250mn (which includes green shoe option of
USD 50mn) is likely to provide some respite. Despite exceptional gain (forex gain of INR212mn)
reported profit dunked by 64% YoY to a measly INR471mn. Taxed rate surged by 964bps YoY to 47.6%
hurting profit margin which dipped to 1.3% (down 531bps YoY).
Outlook and valuations: Positive; maintain ‘BUY’
We believe in USL’s brand equity and stronghold in the alcohol industry but its high debt, rising cost of
debt, increased working capital, W&M overhang and higher raw material prices continue to remain
cause of concern. At CMP, the stock is trading at 16.9x FY12E and 13.4x FY13E. We maintain
‘BUY/Sector Performer’ recommendation/rating on the stock.
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