United Spirits a market performer; target of Rs 1143: IIFL

"United Spirits, Q4 revenue growth up ~28% yoy which includes Rs1.1bn sales of the merged Balaji Distilleries (BDL); ex-BDL, effective revenue rose 19% driven by 12% volume increase and improved sales mix, reinforcing premiumization trend EBIDTA rise of 19% yoy trailed revenue growth on BDL incorporation (with EBIDTA margin of just 2%), higher packaging costs (+481bps yoy) as company granted price rise on staggered basis to glass and paper (cartons) suppliers to cover increase in their input costs USL to neutralize hike in packaging costs and has already initiated price hikes wef the April 2011."

"Spirits costs down 1.5% yoy to Rs 150/case but up 5% qoq; company expects some relief in ENA costs in the future Ad spends grew ~18% yoy, slower than overall revenue growth while McDowell’s No 1 Platinum whisky ended FY11 as a millionaire brand in its inaugural year While standalone interest cost remained stable in Q4, consolidated FY11 interest expense is down ~17% yoy to Rs 5.1 billion; Q4 reported PAT up 36% yoy UNSP continues to take steps to control supply of ENA with acquisition of a 41.5% stake in the unlisted Karnataka-based Sovereign Distilleries with a 180KLPD dual feed capacity; investment comes on the heels of acquisition of Tern Distilleries (AP) and Pioneer Distilleries (TN) and pushes ENA self-sufficiency to 35% of its current requirements."

"W&M FY11 sales/EBIDTA stood at ~GBP141million/30 million in-line with the revised guidance Announced changes in top mgmt with the appointment of Mr Ashok Capoor as MD & President, in place of Mr V K Rekhi whose 5-yr tenure as MD ended in April 2011 Glass price hikes weighed on Q4 but investment on owned glass bottle manufacturing units to mitigate pressure from volatile glass prices; on the volume front, recent excise hikes in Maharashtra could dampen volumes in the near term Based on FY11 actual figures and less-than-estimated relief on raw material costs, we cut our FY12/13 margin estimates but retain Market Performer with a revised 9-mth target price of Rs 1,143 (earlier Rs 1,570),” says IIFL research report.

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