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UBS Investment Research
United Spirits Ltd
V olume, upgrading key positive
Revenues +32% YoY, Volumes +15% YoY
United Spirits (USL) grew revenues 32% YoY, while underlying volumes grew
15% YoY. Excluding sales from Balaji Distilleries, effective revenue growth was
+22%. COGS were higher at 59.7% to sales compared to 54.6% to sales in
Q1FY11; driven by higher glass costs. Ad/sales reduced to 7.8% of sales compared
to 9.5% in Q1FY11. EBITDA growth +17% and PAT growth +14%.
Non operational issues still weigh heavily on the stock
Operationally USL’s performance looks good (except the higher interest cost
+27% YoY) but non-operational issues still weigh down on the stock. As we have
discussed previously, these include cash flow issues at Kingfisher Airlines, the
share pledging issue, and the negative corporate governance perception which has
intensified in the current high debt cost environment.
Reiterate Buy as all negatives are priced in
We reiterate our Buy rating as: 1) USL should remain a beneficiary of India’s
growing young population and rising discretionary spend; and 2) USL should
benefit from investments made in primary capacities, which are expected to help in
raw material (RM) cost reduction, 3) a good set of numbers has been posted by the
company in Q1FY12.
Valuation: Recommend a Buy with a PT of Rs 1,250.00
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%. At our price target, USL would trade at 29x FY12E and 24x FY13E PE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
United Spirits Ltd
V olume, upgrading key positive
Revenues +32% YoY, Volumes +15% YoY
United Spirits (USL) grew revenues 32% YoY, while underlying volumes grew
15% YoY. Excluding sales from Balaji Distilleries, effective revenue growth was
+22%. COGS were higher at 59.7% to sales compared to 54.6% to sales in
Q1FY11; driven by higher glass costs. Ad/sales reduced to 7.8% of sales compared
to 9.5% in Q1FY11. EBITDA growth +17% and PAT growth +14%.
Non operational issues still weigh heavily on the stock
Operationally USL’s performance looks good (except the higher interest cost
+27% YoY) but non-operational issues still weigh down on the stock. As we have
discussed previously, these include cash flow issues at Kingfisher Airlines, the
share pledging issue, and the negative corporate governance perception which has
intensified in the current high debt cost environment.
Reiterate Buy as all negatives are priced in
We reiterate our Buy rating as: 1) USL should remain a beneficiary of India’s
growing young population and rising discretionary spend; and 2) USL should
benefit from investments made in primary capacities, which are expected to help in
raw material (RM) cost reduction, 3) a good set of numbers has been posted by the
company in Q1FY12.
Valuation: Recommend a Buy with a PT of Rs 1,250.00
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%. At our price target, USL would trade at 29x FY12E and 24x FY13E PE.
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