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MOSL: UNITED SPIRITS (Neutral)-Disappointing quarter on all fronts

United Spirits: Disappointing quarter on all fronts; maintain Neutral

(UNSP IN,Mkt Cap USD6.1b, CMP INR583, TP INR615, 5% Upside, Neutral)

 

• UNSP’s standalone net sales grew 12.9% YoY to INR20.1b, with volumes growing 1% YoY (our estimate was 18.5%) on a base of 18.9% decline. Prestige & Above volumes grew 13.1% YoY while Popular volumes declined 9.4% YoY (underlying* Popular volumes down 4% YoY). EBITDA grew 34% YoY to INR2.3b (our estimate was INR3b). Adjusted PAT grew 45.6% YoY to INR1b (our estimate was INR1.6b).
• Gross margin expanded 310bp YoY (40bp QoQ) to 49.1%, as price increases and productivity initiatives offset the adverse impact of inflation and GST. Underlying* gross margin expanded 266bp YoY but EBITDA margin expansion at 180bp YoY to 11.3% was restricted by high advertising expenses (+140bp YoY to 10.5%; +30% YoY on absolute basis) and other expenses (+20bp YoY to 18.9%). Staff costs adjusted for one-off restructuring cost declined 20bp YoY to 8.4%. EBITDA margin adjusting for operating model changes expanded 130bp YoY.
• Concall highlights: (1) Input costs unlikely to be soft, going forward, but increases will be manageable or can even be mitigated. (2) Restructuring costs to continue in FY19, as UNSP is planning to reduce its high cost plant footprint.