Neutral United Spirits Ltd For Target Rs. 780 - Motilal Oswal
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M cost pressure persists
* United Spirits (UNSP) reported a beat on all parameters. However, the management indicated that demand remains weak in the lower end of the prestige portfolio and popular. With socializing returning to normalcy and high tourist traffic, demand is expected to improve.
* Gross margin benefitted from the reversal of indirect tax provisions; adjusting for it, gross margin would be 42.6% (est. 42.1%).
* A&P spends increased significantly to 13.8% of sales due to high spending on the BIO portfolio. Management expects it to be in the range of 9-10% of sales. Maintain Neutral with a TP of INR780, based on 45x Mar’25E EPS.
Overall beat
Standalone net sales remained flat YoY at INR24.9b (est. 23.3b), with P&A contribution of 87% in 4QFY23. LFL sales grew 15.6% YoY.
* Total reported volumes are estimated to have declined ~27% (our est. of a 29% decline).
* Reported gross margin expanded 190bp YoY to 45.4%.
* EBITDA margin contracted 360bp to 13.6% (est. 12.8%), affected by higher advertising costs (+860bp YoY as a percentage of sales) due to high spending on the BIO portfolio, and lower other expenses (-240bp) and staff costs (-70bp YoY).
* EBITDA declined 21% YoY to INR3.4b (est. INR3b).
* On an absolute basis, ad spends increased 1.6x YoY to INR3.4b, and constituted 13.8% of net sales. ? PBT/adjusted PAT declined 28.7%/24.1% YoY to INR2.5b/INR2.1b (est. INR2.3b/ INR1.7b).
* In FY23, net sales grew 10.1% to INR103.7b, while EBITDA/adjusted PAT declined 6.1%/4.5% YoY to INR14.2b/INR9.2b.
*Exceptional Items include :-
* A provision of INR87m in 4QFY23/INR1.6b in FY23 toward an impairment loss on PPE covered under the supply agility program.
* Profit on sale of business undertaking: INR19m in 4QFY23/INR3.8b in FY23.
* An impairment of investment value in a subsidiary: INR6m in 4QFY23/ INR129m in FY23.
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