Q3FY24 Review: United Spirits: Premiumisation drives growth

25 Jan 2024 , 01:57 PM

United Spirits (UNSP) reported 7.5% revenue growth (in-line with IIFLe) and 33.9% Ebitda growth, 9.7% ahead of analysts of IIFL Capital Services estimates. Prestige & Above (P&A) segment revenue grew 10 % YoY on the back of continued premiumisation and resilient consumer demand, which in turn drove the overall growth. The company maintained its 15% Ebitda margin target in FY24 with some upside but not dramatically higher as ENA prices continue to remain high, although there is some moderation in glass prices. Analysts of IIFL Capital Services have cut their EPS estimates by 3-5% for FY24- 26 considering the above. 

Beat on Ebitda: 

Revenue grew by 7.5% in Q3 (in-line with IIFLe) led by 10% YoY growth in P&A segment (1.6% above IIFLe) with a 4.6% volume growth. Revenue for popular segment declined 12.4% YoY (4.9% below estimates) due to muted demand and duty increase in a salient state. The gross margin expanded by ~280bps YoY (flat sequentially) on account of improved value chain productivity initiatives. EBITDA margins at 16.4% expanded by ~320bps on account of better gross margin however the benefit was partly set off by higher Ad & sales promotion expenses 

Inflationary pressures likely to continue in near term: 

While ENA prices continue to remain high, management in their Q3 call mentioned they don’t expect any relief in ENA prices for the next couple of years, however deflation in prices of glass has offset some ENA inflation. The management expects to neutralise the overall inflation through some increased productivity and balance through some price increases. 

EPS downgrade by ~3-5%: 

Analysts of IIFL Capital Services have downgraded their revenue estimates by ~1-2% for FY24/25/26 and estimate Ebitda margins at 15.9% in FY24, moving to 16.3/16.8% in FY25-26 as they believe gross margins would see some pressure owing to inflation in ENA prices. Analysts of IIFL Capital Services build in EPS Cagr of 18% over FY24-26. Valuations at 57x FY25 PE are elevated and analysts of IIFL Capital Services see limited upside from these levels. Maintain ADD, TP of Rs.1230.