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Improving realization and premiumization to drive growth

Premium products to drive growth: USL reported its Q2 revenue at Rs 2,880 Cr registering a robust growth of 17.7% YoY and it sold 22.3 Mn cases which was up by 8.3% YoY. Amongst segments, Prestige & Above which is its premium segment accounts for 78.4% of the total revenue saw a growth of 23.1% YoY, led by initiatives such as premiumization and innovation taken in preceding quarters as well as strong brand value. Meanwhile, its popular segment grew at a slow pace at 1.7% YoY.

Improving realization but Margins impacted: USL’s average realization was at Rs 1,295/case up by 8.7% YoY. The company reported its gross profit at Rs 1,138 Cr registering a growth of 5.2% YoY and a gross margin of 39.5% which contracted by 470bps YoY. Its EBITDA came in at Rs 446 Cr with a growth of 4.8% YoY and EBITDA margin of 15.5% with a contraction of 191bps YoY. Despite posting good growth in terms of volumes and revenue the margins impacted due to inflation in the input cost.

Key Concall Highlights: 1) Gross margin to remain impacted in the near future. However, going ahead the company plans to shift its focus on premiumization, reforming of product portfolio and cost management. 2) Company posted an exceptional profit of 372 Cr due to sale of its 32 popular brands.

Valuations: USL is under the process of remodeling of its product portfolio led by constant focus on premiumization, renovation and introduction of international brands. We expect USPL Revenue and PAT to grow at 9% and 31.4% CAGR over FY22-24E. We maintain a Buy on the stock with a target price of Rs. 1,093.

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SEBI Registration number is INZ000174330

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