IGI Logo

Raising growth targets

* UNSP posted a strong performance in Q2, with sales/underlying EBITDA growing by 14%/ 30% to Rs24.4bn/Rs4bn, beating estimates by 3%/13%. P&A growth was robust at 20%, led by strong 14% realization gains. Operating margins were higher on mix and lower ad spends.

* Management presented its new growth strategy to achieve double-digit sales growth, led by much higher P&A growth vs. historic 9-10% rates. While execution remains key, commentary highlights increased aggression and higher growth focus, which is positive in our view.

* The margin outlook appears stable. Management aims for profitable growth and has retained earlier margin guidance. While inflationary pressures are rising, particularly in glass, mix gains and cost reductions are likely to offset the impact in the near term.

* Growth outlook is improving with increased aggression, recovering volume trends post reopening and regulatory easing. Retain Buy with a revised TP of Rs1,015 (from Rs970), valuing the standalone business at 50x Dec’23E EPS (Sep’23E earlier) and IPL franchise/treasury stock at Rs55/share.

Performance above estimates led by strong mix improvement in P&A: Sales grew 14% (3% beat), led by improved trade environment and strong mix gains. P&A sales grew 21%, with 6% growth in volumes and a 14% increase in realization, led by high double-digit growth in Scotch whiskey and a favorable brand mix. Popular sales were flat. Volume trends continue to improve with re-opening and management is hopeful of positive outcomes from the policy changes in Delhi/WB.

New strategy targets faster growth: Management targets double-digit topline growth with breakout growth of 9-10%+ in P&A, led by higher scotch salience (low double digits currently), step-up in the global portfolio, dialing up innovations in the luxury segment, strengthening core brands and targeting emerging segments. A strategic review of popular brands is on track and is expected to conclude by Dec’21. While execution remains key, commentary highlights an increased level of aggression and higher growth focus.

Cost efficiencies to support margin gains: Underlying gross margin expanded by 300bps, led by improved sales mix and benefits from lapping a one-off inventory provision. Underlying EBITDA grew 30% to Rs4bn with 190bps margin gains, driven by gross margin improvement and lapping one-off expenses; reported EBITDA grew 58%. Other overhead costs/ad spends were down; 13%/7% vs. 15%/9% of sales last year. Interest costs stand at Rs210mn, excluding one-off reversal (down 60% yoy).

Increasing aggression on growth; retain Buy: Growth outlook is improving with increased aggression, recovering volume trends post re-opening and regulatory easing. We retain Buy with a revised TP of Rs1,015 (from Rs970), valuing the standalone business at 50x Dec’23E EPS (Sep’23E earlier) and IPL franchise/treasury stock at Rs55 /share.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer