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Q2FY24 Review: United Spirits: A strong performance

10 Nov 2023 , 12:18 PM

UNSP reported a strong quarter with a top-line growth of 12% (6% above analysts of IIFL Securities estimate) driven by premiumization tailwinds, improved footprint & saliency in innovation/renovation offerings despite a subdued demand environment. The demand environment was lacklustre due to a festive mismatch vs Q2FY23 and inflationary headwinds affecting the medium and low income consumer cohort. However, with the upcoming long festive and wedding season as well as moderating food inflation, analysts of IIFL Securities expect the demand environment to improve. Analysts of IIFL Securities upgrade their EPS estimate for FY24/25/26 by ~5%. Maintain ADD; TP Rs.1190. 

Beat on estimates:

Sales grew by 12.2% and was 6% above our estimate. Top-line for P&A segment grew 12.8% (3.3% above IIFLe) with a 3.8% volume growth whereas the net sales for popular segment grew 1%. The gross margin (GM) expanded by 276bps on account of better realisation and COGS productivity initiatives. EBITDA margins at 16.4% expanded by ~120bps on account of better gross margin however the benefit was partly set off by higher Ad & sales promotion expenses. 

Margin outlook uncertain: 

The prices of glass have moderated due to consolidation in the market, however the management expects inflationary pressure in the prices of ENA due to headwinds related to elections and geo-political uncertainty. Further, the company had taken price hikes in its key portfolio which will start to anniversarise from the coming quarter. 

EPS upgrade for FY24/25/26 by ~5%: 

Analysts of IIFL Securities expect the demand environment to improve and build in a gradual recovery. With beat on their estimates for Q2FY24, they upgrade their net sales estimate for FY24/25/26 by ~2% and expect the Ebitda margin for FY24 to be ~16%. Analysts of IIFL Securities forecast EPS Cagr of ~22% over FY23-26.

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