United Spirits (Q1 FY14)

India Infoline News Service | Mumbai |

TN continues to be a dampener for USL volumes as ordering mechanism skewed against USL brands with the current USL share down to one out of six bottles from about ~33% share 3 years ago

CMP Rs2,399, Target Rs2,200, Downside 8.2%

  • United Spirits Q1 net sales growth of 6.5% yoy (gross revs +12% yoy, excise duty +209bps yoy) was driven by strong 19.5% increase in Prestige & Above category brands to ~8.2mn cases even as overall volumes remained flat yoy at 31.3mn cases; prestige and above brands now account for 26% of USL volumes up from 22% a year ago


  • TN continues to be a dampener for USL volumes as ordering mechanism skewed against USL brands with the current USL share down to one out of six bottles from about ~33% share 3 years ago 


  • A sharp 13% yoy rise in ENA costs (+Rs20/case to Rs170.5/case) translated in to Rs610mn impact on COGS; higher ad spend on IPL 6 during the quarter led to ~130bps yoy jump in advertising and sales promotion thereby leading to margin decline of 364bps yoy 


  • As expected, interest costs declined yoy as company repaid Rs16bn debt at end of May 13 out of pref allotment proceeds from Diageo and it expects further interest cost reduction during the fiscal; PAT at ~Rs1.2bn was down 18.5% yoy but supported by higher other income and FX gain 


  • Consolidated results: net revenues up 8.5% yoy but margins fell 313bps on higher staff (including pension provision) and other expenses while reported PAT of Rs365mn included FX gain of Rs305mn 


  • ENA costs are likely to remain elevated especially since Q2 is also off season for the sugar industry and hence margin pressure would be mitigated through continued portfolio premiumization. We cut our FY14/15 revenue and margin estimates on higher RM costs and retain Market Performer with revised 9-12 mth target of Rs2,200 (earlier Rs2,150) 

Results table (standalone)
(Rs m)
Q1 FY14
Q1 FY13
% yoy
Net sales
22,071
20,729
6.5
Material costs
(11,272)
(10,308)
9.3
Purchase of traded goods
(1,725)
(1,782)
(3.2)
Personnel costs
(1,289)
(1,090)
18.2
Other expenditure of which
(4,856)
(4,043)
20.1
  Advt & sales
(2,110)
(1,714)
23.1
  Others
(2,746)
(2,329)
17.9
Operating profit
2,929
3,506
(16.4)
OPM (%)
13.3
16.9
(364) bps
Depreciation
(195)
(162)
19.9
Interest
(1,595)
(1,656)
(3.7)
Other income
259
106
144.3
PBT
1,399
1,794
(22.0)
Tax
(592)
(689)
(14.1)
Effective tax rate (%)
33.4
32.2
116 bps
Adjusted PAT
807
1,105
(26.9)
Adj. PAT margin (%)
3.7
5.3
(167) bps
FX gain/(loss)
374
345
8.5
Reported PAT
1,181
1,450
(18.5)
Source: Company, India Infoline Research

Financial summary
Y/e 31 March  (Rs m)
FY12
FY13E
FY14E
FY15E
Revenues
91,865
107,487
116,487
126,236
yoy growth (%)
24.5
17.0
8.4
8.4
Operating profit
10,603
 

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