MOSL: UNITED SPIRITS (Neutral)-Highway alcohol sale ban to impact volumes over coming quarters
​United Spirits: Highway alcohol sale ban to impact volumes over coming quarters
(UNSP IN, Mkt Cap USD4.7b, CMP INR2641, TP INR2525, 4% Downside, Neutral)
- UNSP's standalone revenue declined 12.7% YoY (est. flat) to INR17.8b in 1QFY18, with volumes down 18.9% YoY (est. of -9%). According to management, adjusted for operating model changes, sales were down 7% YoY. Trade down-stocking in anticipation of highway ban also impacted sales by 3-4%. Gross sales declined 0.6% YoY to INR58.2b, with excise duty as % of sales up 420bp YoY to 69.4%. Overall 1Q volumes fell 18.9% YoY to 18m cases. Popular volumes fell 25.6% YoY to 9.6m cases, while Prestige and above volumes declined 9.7% YoY to 8.4m cases.
- Gross margin expanded 270bp YoY to 46%, driven by price increases in some states (not disclosed), productivity initiatives, and a change in mix. EBITDA margin, however, shrunk 160bp YoY to 8.8% (est. of 9.0%), despite sharp gross margin improvement, as adspend, staff costs and other expenses increased 90bp, 50bp and 290bp YoY to 9.1%, 9.3% and 18.7% of sales, respectively. EBITDA declined 26.2% YoY to INR1.57b (est. of INR1.82b).
- Interest costs declined 31.7% YoY to INR703m, led by debt reduction and favorable rates. Tax rates were lower at 25.8% v/s expectation of 33%. Adjusted PAT declined 23.4% YoY to INR637m (est. of +13.1% to INR869m).
- Conference call highlights: 1) Management expects to recoup the margin loss (on account of GST) over a period of 2-3 years. 2) Company has taken price increases in certain states; Telangana yet to take hike.
United Spirits is engaged in the business of manufacture, purchase, sale and distribution of alcoholic beverages, mainly, whiskey, brandy and rum. Co. is the flagship company of the UB Group Spirits Business. Co. conducts its activities in the Indian Made Foreign Liquor (IMFL) industry segment through Tie-up manufacturing/brand franchise. Co. maintains a portfolio of 60 brands, sourced through its manufacturing network which comprises 12 owned distilleries and 27 contracted sources of supply. Co.'s brand names include, Black Dog, Single Malt, No. 1 McDowell's brandy, Caesar, Red Riband, White Mischief, Celebration XXX, Old Cask, etc.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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