Accumulate United Spirits; target of Rs 1190: P Lilladher

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Accumulate United Spirits; target of Rs 1190: P Lilladher

Prabhudas Lilladher is bullish on United Spirits and has recommended accumulate rating on the stock with a target of Rs 1190 in its April 29, 2011 research report.

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Prabhudas Lilladher is bullish on United Spirits and has recommended accumulate rating on the stock with a target of Rs 1190 in its April 29, 2011 research report.

"United Spirits' (UNSP's) Q4FY11 results, adjusted for Balaji numbers, came in line at the top-line but were 10% ahead of our estimates at PAT level. Volume growth at 12% continued to remain robust. Q4 numbers also include Balaji financials to the tune of Rs 1.18 billion of sales. According to the management, incorporation of Balaji numbers impacted the reported EBITDA margins by 100bps. Excluding that, operating margins would have remained flat. UNSP recently acquired 41.5% stake Sovereign Distilleries with a view to secure the supply for key raw materials. This, coupled with earlier acqusitions (Tern Distilleries and Pioneer Distilleries), is expected to bring the self sufficiency of raw material to 35% of current requirements."

"Gross margins declined 260bps, primarily owing to 61% increase in packaging material cost to Rs 3.7 billion. UNSP has granted price increases to glass and paper cartons suppliers during the quarter as the input prices for these materials have witnessed sustained inflation. Raw material costs were up 5% sequentially and down 1.5% YoY. Management expects the raw material costs to come down in FY12e. Advertising expenses and SG&A costs improved 90bps and 30bps, respectively. Though standalone interest costs remained flat YoY, on consolidated basis, it is down 17% for FY11 to Rs 5.05 billion v/s Rs 6.06 billion in FY10."

"We are enthused by the sustained double-digit volume growth trajectory of UNSP even on higher base. However, rising competition from domestic as well as overseas players, higher ad spends and higher raw material costs will continue to act as margin spoilers. We maintain our SOTP based target price to Rs 1,190 and 'Accumulate' rating. Higher-than-anticipated decline in raw material costs pose upside risk to our estimates," says Prabhudas Lilladher research report.

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