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UBS Investment Research
First Read: USL
R oyal Challenge repositions itself
Event: United Spirits cuts the price of Royal Challenge by 17%
Media reports that United Spirits has cut the price of its brand, Royal Challenge by
17%. This was effective ~3months ago as Royal Challenge price point was moved
from premium priced whiskey to a slightly lower priced position. The reason for
the repositioning was to try to capture higher volume growth at a lower price point,
and to have a strong legacy brand competing with Royal Stag (Pernod’s brand).
Impact: Repositioning for growth; competitive reasons
United Spirits had Royal Challenge and Signature (ex-Shaw Wallace brand) at the
same price point. While Signature appeals to the youth, Royal Challenge has
appeals with people who are upgrading from cheaper whiskey variants and legacy
consumers. Post repositioning, Royal Challenge will be pitched against Royal Stag
and will earn higher share in the prestige (lower than premium whiskey) segment.
Action: Higher volume growth
Royal Stag (Pernod) now faces strong competition in Royal Challenge and USL’s
is now gaining share in the prestige segment. Royal Challenge is growing at ~40%
volume growth post this repositioning. We believe there could be upsides to United
Spirits’ volume growth estimates for FY12-13E given share gains from this move.
Valuation: Reiterate our Buy rating
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
10.4%, an intermediate growth rate of 8%, and a terminal growth rate of 5%. At
our price target, USL will trade at 29x FY12E and 24x FY13E PE.
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
First Read: USL
R oyal Challenge repositions itself
Event: United Spirits cuts the price of Royal Challenge by 17%
Media reports that United Spirits has cut the price of its brand, Royal Challenge by
17%. This was effective ~3months ago as Royal Challenge price point was moved
from premium priced whiskey to a slightly lower priced position. The reason for
the repositioning was to try to capture higher volume growth at a lower price point,
and to have a strong legacy brand competing with Royal Stag (Pernod’s brand).
Impact: Repositioning for growth; competitive reasons
United Spirits had Royal Challenge and Signature (ex-Shaw Wallace brand) at the
same price point. While Signature appeals to the youth, Royal Challenge has
appeals with people who are upgrading from cheaper whiskey variants and legacy
consumers. Post repositioning, Royal Challenge will be pitched against Royal Stag
and will earn higher share in the prestige (lower than premium whiskey) segment.
Action: Higher volume growth
Royal Stag (Pernod) now faces strong competition in Royal Challenge and USL’s
is now gaining share in the prestige segment. Royal Challenge is growing at ~40%
volume growth post this repositioning. We believe there could be upsides to United
Spirits’ volume growth estimates for FY12-13E given share gains from this move.
Valuation: Reiterate our Buy rating
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
10.4%, an intermediate growth rate of 8%, and a terminal growth rate of 5%. At
our price target, USL will trade at 29x FY12E and 24x FY13E PE.
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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