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United Spirits 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, United Spirits (USL) posted an impressive 71.2% yoy growth in its bottom-line to Rs.81cr, aided by a strong operating performance.

Key highlights for the quarter: USL posted an 11.3% yoy growth in its standalone top-line to Rs.2,174cr. Overall volumes for the quarter rose by 7% yoy (vs industry growth of 4%) and stood at 32.58 million cases. The volume growth in the prestige and above segments (constituting 24% of overall volume) stood at 29% yoy, indicating the company’s focus towards the premium segment. Volumes in the regular segment (constituting 65% of overall volume), de-grew by 2% yoy (vs 6% industry growth in the segment). Despite the increase in ENA (key raw material) prices, the gross margin for the company stood higher by 133bp yoy due to premiumization and price hikes undertaken by it. Advertisement expenses (as a % of sales) too fell by 86bp yoy, resulting in an 185bp yoy improvement in OPM to 11.3%. Interest costs rose by 6.4% yoy to Rs.164cr. The bottom-line rose by 71.2% yoy to Rs.81cr.

Outlook and valuation: We expect USL’s bottom-line to grow at a CAGR of 128% over FY2012-14 led by margin expansion and lower interest costs due to reduction in debts post the UBH-Diageo deal. At the CMP, the stock is expensive, trading at 33.9x FY2014E EPS; we maintain a Neutral view on the stock.