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Neutral United Spirits; target of Rs 585: Motilal Oswal

Motilal Oswal recommended Neutral rating on United Spirits with a target price of Rs 585 in its research report dated July 28, 2020.

July 30, 2020 / 05:36 PM IST
 
 
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Motilal Oswal 's research report on United Spirits


United Spirits (UNSP) declared dismal 1QFY21 EBITDA/net loss (albeit lower than our expectations). Importantly, the recovery outlook remains cloudy, especially with on-trade – restaurants, bars and pubs, which contribute ~25% of sales – expected to remain closed for the next few months. Further, Premium & Above segment (P&A) is likely to underperform (unlike previous years) leading to mix deterioration. Also, the full impact of the sharp excise hikes by various states would be felt 2QFY21 onwards. All these factors lead to weak earnings expectations though we do not expect EBITDA losses 2QFY21 onwards. Our DCF-based calculations and P/E multiples of 47x FY22E EPS indicate that valuations seem currently lofty given the uncertainty prevailing over earnings growth in the sector. We had downgraded the UNSP stock to Neutral in May’20 (link to note) due to rising concerns on the Alcobev sector’s earnings growth in the COVID and immediate post-COVID era.



Outlook


Our DCF-based target price corresponds to lofty valuations at 47x FY22E EPS. Maintain Neutral.





For all recommendations report, click here

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first published: Jul 30, 2020 05:36 pm

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