United Spirits' Q4FY19 results (Neutral) - Weak quarter, near term earnings visibility bleak
Q4FY19 result highlights
- Standalone revenues grew by 3.5% yoy to Rs22.5bn (est: Rs22.9bn), EBITDA grew by 2.9% yoy to Rs2.8bn (est: Rs2.9bn). PBT (bei) decreased by 35% yoy to Rs1.9bn (est: Rs2.18bn). Reported PAT stood at Rs1.26bn, down by 40% yoy.
- Overall volumes increased by 1% yoy. Prestige and Above segment net sales increased by 8% yoy with a volume growth of 7.1% yoy. Popular segment sales declined by 2% yoy, with a volume decline of 4.5% yoy. Excluding one off impact, underlying net sales for popular segment declined by 1% yoy with a volume decline of 3% yoy.
- Gross margins declined by 340bps yoy/210 bps qoq to 46.5% (excluding one off impact gross margins were down 356bps yoy) impacted by higher input costs (glass/ENA) & part absorption of excise hike in Maharashtra.
- Staff cost decreased by 8% yoy. Advertising spends down 18% yoy (from 10.2% of sales in 4QFY18 to 8.0% of sales in 4QFY19). Other expenses were up 2% yoy. Resultant EBITDA increased by 3% yoy with a margin decline of 10bps yoy to 12.6%. Adjusting for one-off impacts, underlying EBITDA was up 8% yoy with margin improvement of 52bps yoy.
Key negatives: Muted volumes, decline in gross margins.
Impact on financials: We cut our standalone EBITDA by 6% for FY20/21E.
Valuations & view
UNSP’s ended FY19 on a weak note on the back of muted volume growth and higher input costs led contraction in gross margins. While management remains optimistic about its medium term ambition of double digit sales growth & mid-high teen margins, we believe near term earnings trajectory is likely to remain weak on account of a) election led volume disruption in Q1FY20E, b) higher input costs, c) low hanging productivity gain benefits now behind and d) high base for H1FY20E. We are factoring volume CAGR of ~7%, standalone EBITDA CAGR of 13% with margin expansion of 50bps resulting in 16% consolidated earnings CAGR for UNSP over FY19-21E. Valuations at 27x/24x FY20/21E EBITDA are lower than historical valuations, however, provides limited comfort, given the headwinds for the sector/company. Maintain Neutral.​
United Spirits Limited is a spirits company engaged in the business of manufacture, purchase and sale of alcoholic beverages. The Company operates through two segments: India and Outside India. The India segment is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines), including through Tie-up units/brand franchisees within India. The Outside India segment is engaged in the business of manufacture, purchase and sale of Beverage Alcohol (Spirits and Wines), including through Tie-up units/brand franchisees outside India. Its product portfolio includes whisky, vodka and rum segments, and caters to various consumers through luxury, premium, prestige and popular spirits categories. Its brand portfolio includes McDowell's No.1, Royal Challenge, Signature and Antiquity. It has over 80 (74 excluding Royalty and Franchise units) manufacturing facilities spread across approximately 20 states and over three union territories in India.
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