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Muted revenue due to seasonality: United Spirits’ net revenue from operations declined by 1% YoY/12.9% QoQ to Rs 2,172 Cr. Within divisions, its premium category Prestige & Above (P&A) segment revenue stood at Rs 1,876, up by 21.2% YoY while it declined by 13.7% sequentially on the account of high base of previous quarter. Its Popular and Other segment declined significantly by 54.3% YoY and 7.5% sequentially to Rs 296 Cr.

Robust margin expansion: Its Gross profit was reported at Rs 947 Cr, up by 5.6% while it declined by 16.3% sequentially with a margin of 43.6%. Its EBITDA for the quarter came in at Rs 385 Cr with an increase of 42.4% YoY/13.9% QoQ, consequently saw a significant EBITDA margin expansion by 541bps YoY/ 418bps to 17.7% one of the highest margins in last 9 quarters. The expansion in margin was due to decline in key raw material prices while ASP and other expenses too declined as a proportion to sales.

Higher proportion of P&A aid segmental realization: Its P&A segment volumes stood at 10.98 Mn cases, increased by 10.3% while it declined by 8.5% YoY with average realizations at Rs 1,709/case up by 9.9% YoY whereas it declined by 5.7% sequentially, Consequently, its contribution to the overall volumes rose by ~340bps YoY to 82.9%. Its Popular segment volumes declined by 11.9% YoY/26.2 QoQ to 2.26 Mn with average realizations at Rs 1,308/case, as company continues to focus on its premium segment.

Concall & other key Highlights: 1) Management maintained the guidance of double -digit growth for FY24. 2) Southern states accounts for less premium products while others states witnessing strong premiumization. 3) Renewed Antiquity brand witnessing strong response from the customers. 4) JW Blonde launched in 9 states with a view to scale it in states rapidly. 5) Management indicated; 20% duty increase in Karnataka to attract 14-17% increase in prices of products. 6) The company anticipates healthy demand in Q2FY24 and Q3FY24 which will be backed by ICC World Cup at peak festive season.

Outlook & Valuations: United Spirits is one of the leading spirits company in India with strong parentage of global leader Diageo. Since the arrival of Diageo, it has successfully transformed its product portfolio with more focus towards premium range category P&A. Besides, it has strategically sold its non-core brands while has also undergone licensing of brands to focus on its core segments. With growing population and increasing consumption pattern, we expect United Spirits to continue to lead the spirits industry in the coming years. Financially, it’s a debt free company with healthy cash on books allowing company to distribute dividends while also make strategic acquisitions. We estimate its revenue/EBITDA/PAT to grow at 18%/26.2%/21.3% CAGR over FY23-25E. We recommend a Buy on the stock with a revised target price of Rs. 1,205.

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