ICICI Direct’s research report on United Spirit
Gross revenues for United Spirit’s (USL) Q2FY16 de-grew 5% YoY to Rs 5216 crore (vs. estimated Rs 5669 crore). However, lower excise duty (as percentage of sales) offset the impact of the decline on the net revenues. Net revenues de-grew 2% YoY to Rs 2145.5 crore
Total volumes for the quarter de-grew by 4% YoY to 28.6 million cases as compared to 29.7 million cases in Q2FY15 and 27.3 million cases in Q1FY16. As per the company’s strategy, prestige & above segment grew 7% YoY to 9.9 mn cases compared to 9.2 mn cases in Q2FY15 and 8.9 mn cases in Q1FY16. On the contrary, its regular volumes de-grew 8% YoY to 18.8 million cases
On the back of higher sale of prestige brands, EBITDA sequentially grew by 36% YoY to Rs 317.7 crore (vs. estimated Rs 268.7 crore). The EBITDA margins improved 400 bps YoY to 14.8% (vs. estimated 11.8%). The positive impact was on account of continued decline in RM cost as percentage to sales ratio, which stood at 16% as compared to 20% in Q2FY15.
PAT, excluding exceptional gains more than doubled to Rs 128 crore as compared Rs 48 crore in Q2FY15. However, accounting for gain of Rs 853.6 crore on profit on sale of UBL shares and provision for loans and advances to subsidiaries to the extent of Rs 54 crore, the reported PAT stood at Rs 929 crore
Growth traction in premium segment and better realisation key
With the prestige and above segment posting growth of nearly 7% YoY; USL with Diageo’s tutelage is poised to grow upon the premiumisation path. Further, distribution of Diageo’s premium brands through USL bodes well for USL, as the realisation from these iconic premium brands would derive higher realisations. The company along with Diageo’s management at the top brass has crafted a profitable growth strategy which affirms our revenue and growth estimates. Subsequently, we continue to maintain our target price of Rs 4170 and recommend BUY on the stock.
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