United Spirits (Q2 FY13)

India Infoline News Service | Mumbai |

United Spirits (Q2 FY13)

CMP Rs1,600, Target Rs1,815, Upside 13.4%
 
  • Adjusted for one time excess bulk spirit sale worth ~Rs3bn, Q2 revenues rose 3% yoy although volumes fell 1% yoy to 28.4mn cases

  • Encouragingly, the key focus brand segment of prestige and above grew 14%/16% yoy to 7.4mn/15.3mn cases in Q2/H1

  • Main markets of TN  & WB continue to dampen volume performance-TN saw USL output artificially restricted to 70% of its capacity while WB market is gradually coming to terms with sharp rise in duties at end of Q2 FY12 as volumes declined 3% for both USL and the industry

  • ENA cost rose ~Rs6/case to Rs159.3 which added Rs170mn to RM costs (+19% yoy) while adj RM costs were up ~54% yoy which led to 574bps yoy decline in EBIDTA margin though Q2 FY12 EBIDTA included Rs657mn in one time ENA levy write back

  • Interest costs jumped 18% yoy due to increased borrowings and higher interest rate which coupled with net nonrecurring loss of Rs340mn led to 73.5% decline in PAT.

  • Consolidated results: H1 revenues increased 20% yoy while PAT tripled yoy to ~Rs1.7bn, gross debt declined to ~Rs82bn vs ~Rs85bn in Q1 FY13. W&M H1 sales rose 33% yoy to GBP106mn, EBIDTA margin jumped 700bps to 20.4% and company posted PBT of GBP15mn vs pre tax loss of ~GBP1mn

  • Deal with Diageo (27.4% stake buy followed by open offer) would lead to ~Rs33bn cash inflow in to USL which is likely to be utilized for debt repayment; although the stock has ran up significantly in the past few weeks, given the improved outlook for margin and EPS upside from interest cost savings, we believe there is some steam left in the rally. Recommend BUY for 9-mth target of Rs1,815.

Results table (standalone)
(Rs m) Q2 FY13 Q2 FY12 % yoy
Net sales 22,368 18,663 19.8
Material costs (13,063) (8,495) 53.8
Purchase of traded goods (1,114) (1,947) (42.8)
Personnel costs (1,158) (1,046) 10.7
Other expenditure (4,341) (3,858) 12.5
Operating profit 2,692 3,317 (18.8)
OPM (%) 12.0 17.8 (574) bps
Depreciation (188) (152) 23.9
Interest (1,700) (1,442) 17.9
Other income 131 201 (34.9)
PBT 934 1,924 (51.4)
Tax (202) (729) (72.3)
Effective tax rate (%) 34.0 33.0 96bps
Adjusted PAT 732 1,195 (38.7)
Adj. PAT margin (%) 3.3 6.4 (313) bps
FX gain/(loss) (340) 285 -
Reported PAT 393 1,480 (73.5)
Source: Company, India Infoline Research
 
Financial summary
Y/e 31 March  (Rs m) FY11 FY12 FY13E FY14E
Revenues 73,762 91,865 103,675 113,351
yoy growth (%) 15.9 24.5 12.9 9.3
Operating profit 11,439 10,603 13,559 15,497
OPM (%) 15.5 11.5 13.1 13.7
Reported PAT 5,695 1,879 3,679 4,849
yoy growth (%) - (67.0) 95.8 31.8
         
EPS (Rs) 45.2 14.9 29.2 38.5
P/E (x) 30.1 91.1 46.5 35.3
P/BV (x) 4.1 3.7 3.4 3.1
EV/EBITDA (x) 20.0 23.5 18.6 16.3
Debt/Equity (x) 1.5 1.8 1.7 1.6
ROE (%) 8.8 1.6 7.6 9.3
ROCE (%) 10.8 8.3 9.6 10.5
Source: Company, India Infoline Research
Note: numbers do not reflect impact of Diageo deal
 

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