Angel Broking 'Neutral' on United Spirits, IVRCL

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26 Aug, 2025 12:21

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United Spirits

For 1QFY2014 United Spirits posted a 6.0 percent yoy growth in its stand-alone net sales to Rs 2,192cr, with volumes remaining flat at 31.34mn tonne. Thus, the top-line growth has been largely aided by superior product mix with the strategic brands of the company growing by 20 percent yoy with an addition of 1.34 million cases. The OPM stood at 12.7 percent, down 359bp yoy, impacted by a sharp increase in prices of Extra Neutral Alchohol (ENA) which is a major raw material consumed by the company. Similarly higher expenditure on the IPL franchise increased the advertising expenditure. However, interest costs for the quarter fell by 3.7 percent yoy to Rs 159cr on account of repayment of debts of Rs 1,600cr at the end of May 2013 out of the proceeds from the issue of preference capital to Diageo.

Outlook and valuation: We expect USL's bottom-line to grow at a CAGR of 170 percent over FY2013-15 led by higher operating profits and lower interest costs due to reduction in debts post the UBH-Diageo deal. At the current market price, the stock is expensive, trading at 35.0x FY2015E EPS; we maintain our Neutral view on the stock.

IVRCL

The company reported a revenue of Rs 1,007cr in 1QFY2014, registering a decline of 16.7 percent yoy, which is significantly below our estimate by 19.4 percent. This was mainly due to slower-than-expected execution from its EPC segment during the quarter. On the operating front, the company posted abysmal operating margin of 4.6 percent, a decline of 568bp/437bp on a yoy/qoq basis and was significantly below our estimate of 8.2 percent. This was mainly on account of (a) lower-than-expected execution and (b) one-time write off expense of ~Rs 15cr during the quarter. Interest cost came in at Rs 128cr for the quarter. On the earnings front, IVRCL reported a loss of Rs 88cr (our estimate was of a loss of Rs 3cr) against a loss of Rs 6cr in 5QFY2012. This was mainly on back of lower-than-expected operational performance and a high interest cost.

Outlook and valuation: IVRCL has a strong order book of ~Rs 21,692cr (4.6x trailing revenue), which provides comfortable revenue visibility. However, given the slower-than-expected execution and weak performance in 1QFY2014, we lower our EPS estimates for FY2014 and FY2015 to (Rs 1.7) and (Rs 2.0). Going forward, unless there is a significant improvement in execution, we do not foresee any significant improvement in operating performance. Thus, owing to a slow moving order book, stretched working capital and increased leverage on balance sheet, we have downgraded the stock to Neutral rating.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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