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Healthy revenue growth trends likely to be sustained: UNSP is likely to
maintain ~12% volume growth in FY12 with premium brands growing at a faster
clip. In view of this, coupled with price/mix growth of 5-6%, we expect domestic
sales growth to remain healthy at 17-18% in FY12.
2Q FY12 to be tough on RM front; backward integration benefits to start
accruing in 2H FY12: ENA prices rose sequentially in 2Q FY12 which, coupled
with higher glass prices y/y, will weigh on gross margins. However, starting in
2H FY12, management expects the integration benefits of Pioneer and Sovereign
Distilleries to contribute Rs7-8/liter in savings for ENA sourced via these
distilleries. Commencement of sugar crushing season would further help ease
ENA costs in 2H. The company is also focusing on efficient sourcing
mechanisms (e.g. broadening supplier base) and increased share of market bottles
and non-glass packaging materials to mitigate input cost pressures. Glass prices
should also remain stable, in our view, after the two increases seen in FY11.
Competitive battle with Pernod Ricard still on: Recent price cuts of ~15% for
Royal Challenge brand by UNSP in select markets has helped it to register strong
growth and take share from Pernod’s Royal Stag and Blenders Pride brands in
these markets. Pernod expects India to shortly be its fourth-largest market and its
FY11 India sales grew 33%. We don't expect competitive challenges to ease any
time soon and expect UNSP’s domestic A&P/Sales to remain at ~10% in FY12.
Annual Report highlights: 1) Consolidated Net Debt/Equity increased to1.4x
(vs 1.3x in FY10) and Net Debt/EBITDA to 5.4x (vs 4.3x in FY10). We expect
debt levels to remain high in FY12 considering higher capex (Rs13B over the
next three years excluding glass plant capex) and working capital needs. 2) A
sharp increase in loans and advances largely on account of Pioneer/Sovereign
acquisition and advances to UBHL (since received back in full). 3) Increased
investments in the IPL subsidiary and a 50% y/y decline in income from IPL in
FY11 due to the high base effect. More details inside.
Earnings estimate and PT revision: We lower our EPS estimates for FY12-13
by 13-15% due to lower margins (due to higher input costs), and higher interest
and depreciation charges, and extend our PT timeframe to Sep’12. Consequently
we reduce our SOTP-based PT to Rs995. After the significant share price
correction (23% decline over the past three months), valuations appear
reasonable. While we remain positive on the liquor business prospects, near-term
stock performance is likely to remain volatile and influenced by news flow on
promoter group companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Healthy revenue growth trends likely to be sustained: UNSP is likely to
maintain ~12% volume growth in FY12 with premium brands growing at a faster
clip. In view of this, coupled with price/mix growth of 5-6%, we expect domestic
sales growth to remain healthy at 17-18% in FY12.
2Q FY12 to be tough on RM front; backward integration benefits to start
accruing in 2H FY12: ENA prices rose sequentially in 2Q FY12 which, coupled
with higher glass prices y/y, will weigh on gross margins. However, starting in
2H FY12, management expects the integration benefits of Pioneer and Sovereign
Distilleries to contribute Rs7-8/liter in savings for ENA sourced via these
distilleries. Commencement of sugar crushing season would further help ease
ENA costs in 2H. The company is also focusing on efficient sourcing
mechanisms (e.g. broadening supplier base) and increased share of market bottles
and non-glass packaging materials to mitigate input cost pressures. Glass prices
should also remain stable, in our view, after the two increases seen in FY11.
Competitive battle with Pernod Ricard still on: Recent price cuts of ~15% for
Royal Challenge brand by UNSP in select markets has helped it to register strong
growth and take share from Pernod’s Royal Stag and Blenders Pride brands in
these markets. Pernod expects India to shortly be its fourth-largest market and its
FY11 India sales grew 33%. We don't expect competitive challenges to ease any
time soon and expect UNSP’s domestic A&P/Sales to remain at ~10% in FY12.
Annual Report highlights: 1) Consolidated Net Debt/Equity increased to1.4x
(vs 1.3x in FY10) and Net Debt/EBITDA to 5.4x (vs 4.3x in FY10). We expect
debt levels to remain high in FY12 considering higher capex (Rs13B over the
next three years excluding glass plant capex) and working capital needs. 2) A
sharp increase in loans and advances largely on account of Pioneer/Sovereign
acquisition and advances to UBHL (since received back in full). 3) Increased
investments in the IPL subsidiary and a 50% y/y decline in income from IPL in
FY11 due to the high base effect. More details inside.
Earnings estimate and PT revision: We lower our EPS estimates for FY12-13
by 13-15% due to lower margins (due to higher input costs), and higher interest
and depreciation charges, and extend our PT timeframe to Sep’12. Consequently
we reduce our SOTP-based PT to Rs995. After the significant share price
correction (23% decline over the past three months), valuations appear
reasonable. While we remain positive on the liquor business prospects, near-term
stock performance is likely to remain volatile and influenced by news flow on
promoter group companies.
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