FREE

MOSL: UNITED SPIRITS (Neutral)-Good results on stable regulatory environment; Outlook uncertain

United Spirits: Good results on stable regulatory environment; Outlook uncertain

(UNSP IN, Mkt Cap USD5.8b, CMP INR3251, TP INR3435, 6% Upside, Neutral)

 

• UNSP's standalone net sales grew 7.3% YoY to INR21.7b (est. of INR20.1b), with a 2% YoY decline in volumes (est. of -9%) on a base of an 8.2% decline.
• Prestige & Above volumes grew 15.3% YoY, while Popular volumes declined 13.3% YoY. Underlying* net sales grew 9% YoY. Underlying* net sales of Prestige & Above were up 14% and of Popular rose 2% YoY in 4QFY18.
• Gross margin expanded 460bp YoY (+140bp QoQ) to 48.8%, led by price increases, productivity initiatives, a favorable mix and operating model changes, offsetting the adverse impact of GST. Underlying* gross margin expanded 260bp YoY. High operating costs as % of sales - advertising expenses up 200bp YoY to 10.2%, staff costs up 250bp YoY to 8.5% and other expenses up 30bp YoY to 17.5% - led to EBITDA margin contraction of 30bp YoY. Underlying* EBITDA margin shrank 280bp YoY.
• EBITDA grew 5.1% YoY to INR2.7b (in-line). Adj. PAT rose 83.6% YoY to INR1.9b (est. of INR1.3b).
• Concall highlights: (1) Capex will be INR2b every year going forward. (2) Tax rate in FY19 is likely to be around 33-34%.