United Spirits, the outlier at a time when everyone on D-St is in a tense huddle
The Diageo-controlled liquor maker yesterday posted its Q2 results, with its consolidated net profit coming in at Rs 286.4 crore against a profit of Rs 125.5 cr in the same period a year ago, a gain of nearly 130%. United Spirits’ Q2 sales growth & margin comfortably beat Motilal Oswal’s forecasts. Its standalone net sales grew 14% year-on-year to Rs 2,447 cr. The company’s reported sales volume grew by 3.5% ahead of Motilal Oswal’s expectation of a 2% contraction.
“This double-digit topline growth reflects improvement in trade conditions, improved mix, excellent execution in the off-trade channel and gradual on-trade recovery,” United Spirits said in a statement. “The initial restrictions on on-premise establishments and consumer behavioural shifts impacted the balance between the on- and off-premise occasion in the first half of this fiscal,” it added.
Highlighting the encouraging commentary of the CEO on the double-digit long-term topline growth, Motilal Oswal has maintained its ‘buy’ call on the breweries & distilleries company with a target of Rs 1,025/sh.
On the debt front, the company’s net debt stood at Rs 443 cr. It repaid its short-term borrowings of around Rs 110 cr in the first half of the fiscal. This debt reduction coupled with a favourable mix has helped reduce its total interest cost by around 41%.
“Our portfolio, with recent innovations and renovations, is well-positioned to capitalize on the rapidly growing premiumization in the category and we remain committed to profitable growth and long-term value to all our stakeholders,” Nagarajan said.
Motilal Oswal believes the company’s recovery in the second wave of Covid-19 has been faster than the recovery it posted in FY21 and this recovery is continuing to improve. Easing Covid restrictions have led to better mobility along with a fast progressing vaccination drive. Motilal had adopted a cautious stance on the prospects of the industry in CY20 but it upgraded United Spirits to a ‘buy’ call in January this year.
On the valuations front, Motilal notes that United Spirits’ valuations are not cheap but that they are at a sharp discount to its discretionary peer range.
On the outlook, Nagarajan said:”We are focused on sustaining the growth momentum while working on Revenue Management and productivity initiatives across the value chain to counter the rising inflation trend being experienced while exiting the quarter.”
Some of the reasons why Motilal Oswal feels that the outlook for the company is promising include returing of normalcy of the on-trade channel, strong focus on double-digit topline growth under the new CEO & faster-than-expected deleveraging.