Motilal Oswal's research report on United Spirits
Management remains clear that the recently concluded sale of popular brands was essential as the company did not have a right to win in this sub-segment. UNSP has retained McDowell’s No.1 and Director’s Special (DSP) in the popular segment. While McDowell’s No.1 can be premiumized to the P&A category. The management aims to capitalize DSP, which commands great brand equity, in several parts of India. Material cost outlook remains challenging in the near term. Neither glass costs nor ENA are showing signs of abating in the near term but FY24 outlook is likely to be better. Natural gas costs are rising, which would hurt glass costsfor now. Soda Ash costs are double of last year at the same time. However, non-glass packaging costs are gradually coming down. Raw material volatility and rollback of Delhi excise policy are likely to hit topline and earnings for the next few quarters.
Outlook
While we appreciate the potential for growth led by various measures undertaken by the new CEO over the past year, fair near-term valuations lead us to maintain our Neutral rating and TP of INR880, premised on 50x Sep'24E EPS.
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