United Spirits - Decent show (context > print) - ICICI Securities

Revenue growth print was decent (broadly in-line with I-Sec est.) at +57% YoY and down 27% QoQ. Post third week of April, off-trade restrictions impacted demand in most parts of the country. Strong Popular segment and a resilient off-trade channel aided volume print of 61% in 1QFY22. Favourable gross margins, costs controls, controlled adspends and operating leverage helped deliver a superior margin performance (double-digit margin despite the disruption). New distribution model (online ordering and home delivery), if sustained, can be a structural positive for the industry. Hina Nagarajan has succeeded as CEO effective July 1 - some investors (and I-Sec analysts) view it as a potential stock re-rating event (See report Leadership matters). Stabilisation of RM to underpin margins. Results of strategic review could also lead to some excitement in the near term as focus will increase towards premiumisation. Retain ADD; TP Rs750.

- Decent performance amidst the constraints: UNSP reported a broadly in-line (slightly above consensus) revenue performance, up 57% YoY. On sequential basis, revenue was down 27%. Overall volume was up 61% with Popular segment growing slightly ahead at 62% versus Prestige & Above (60%); base was more favourable for Prestige & Above segment though. Adverse mix (both product and mix) impacted realisation growth for the quarter. The demand environment was resilient in the first three weeks of April with fresh round of operating restrictions (localised in nature) impacting the momentum post that. Similar to the previous quarters, off-trade channel continued to be resilient.

- Double-digit EBITDA margin despite the disruption: Gross margin expanded 296bps to 44.6% on the back of benign commodity prices and overall productivity focus. Reported EBITDA margin came in at 10.4% compared to a loss of Rs776mn in 1QFY21. The swing was largely drive by operating leverage benefit and strong overhead costs control. Ad-spends were rationalized with spends restrictions on (1) on-premise channel activation (due to regulated on-trade environment) and (2) limitation of marketing investments to activities which could give tangible results amidst the lockdown-like situation. Interest cost was down to Rs198mn versus Rs499mn / Rs275mn in 1QFY21/4QFY21 on the back of continued debt reduction. UNSP booked Rs364mn of exceptional charge this quarter of which Rs353mn was related to a claim provision.

- Valuation and risks: We largely maintain our earnings estimate; modelling revenue / EBITDA / PAT CAGR of 16% / 39% / 65% over FY21-23E. Maintain ADD with DCF-based revised target price of Rs 750. At our target price, the stock will trade at 43x P/E multiple Mar-23E. Key downside risks are significant downtrading due to tax hikes, continued weakness in on-trade due to operating restrictions and a potential ban of spirits in states.

Shares of UNITED SPIRITS LTD. was last trading in BSE at Rs. 644.45 as compared to the previous close of Rs. 657.65. The total number of shares traded during the day was 61328 in over 2457 trades.

The stock hit an intraday high of Rs. 662.55 and intraday low of 642.6. The net turnover during the day was Rs. 40082000.

Source : Equity Bulls

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