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