Dolat Capital Market's research report on United Spirits
UNSP's Q3FY21 was ahead of our subdued expectations. Revenue trends in Q2FY21 (-3.4% YoY) and Q3FY21 (-3.6% YoY) were similar - a key disappointment. UNSP revenue/EBITDA/APAT declined by -3.6/-9.5/-11.2%. In 9MFY21, UNSP's revenue/EBITDA/APAT were -18.2/-46.5/-59.7% YoY vs. Radico's -6.4/+6.3/+11.1% YoY. Despite benign RM prices, modest gross margin expansion of 24bps YoY (230bps for Radico) was another area of regret. UNSP's strategy of premiumisation and cost rationalization is precise in our view but with limited visible tangible benefits over past several quarters/years. Volume/revenue growth and gross margin sustenance/improvement had been a key challenge. With management change on the card and post-covid resurgence, we pin our hope on revival in revenue growth. Price increase in Karnataka (UNSP's largest market with ~1/3rd volumes) is a potential trigger.
UNSP's valuations are alluring at 46/37x FY22/23E EPS but for above challenges. Despite today's price decline of 8%, UNSP's stock has appreciated by ~16% in trailing three months. We reiterate our positive bias, but downgrade a notch post the run-up in trailing 3M from BUY to Accumulate. We maintain our FY22/23E EPS. Our revised target is Rs 631 @ 40x Dec-22E EPS (earlier Rs 603 @ 40x Sep-22E EPS).
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