21 November 2014
Update | Sector: Consumer
United Spirits
BSE Sensex
28,335
S&P CNX
8,477
CMP: INR2,704
TP: INR3,200
Buy
Changing gears!
Steps initiated to improve WC; non-core asset monetization on the anvil
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
UNSP IN
145.3
2,941/2,226
7/-19/-53
392.9
6.4
Following are the key takeaways from our interaction with UNSP’s CFO:
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Prestige Plus brands to grow in mid-to-high teens.
Higher RM prices and brand spends to weigh on near term EBITDA margin.
Plans to raise INR25b through asset monetization in three years.
Initiated steps to optimize working capital.
Financial Snapshot (INR Billion)
Y/E Mar
2015E 2016E 2017E
Net Sales
82.8 96.3 110. 5
EBITDA
Adj PAT
EPS (INR)
Growth (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
8.4
2.9
19.7
11.8
6.6
45.4
14.3
9.0
61.9
36.5
334.6
18.5
20.3
43.7
8.1
n
- 130.2
229.7 275.0
8.6
13.1
137.3
11.8
16.5
17.5
59.6
9.8
Shareholding pattern (%)
As on
Sep-14 Jun-14 Sep-13
Promoter
58.9
33.0
36.2
DII
3.9
0.1
5.0
FII
24.2
11.5
42.7
Others
13.1
55.4
16.1
FII Includes depository receipts
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Stock Performance (1-year)
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Premiumization to continue at brisk pace:
UNSP is driving the
premiumization agenda and expects Prestige Plus brands to grow in mid-to-
high teens. MNC players constitute 60% plus of the IMFL market and UNSP
intends to drive value growth even if it comes at the cost of volumes.
However, it will continue to operate its Regular portfolio, especially in
markets which are profitable – Maharashtra, Karnataka, Madhya Pradesh –
and is not looking for blanket exit of its lower-end portfolio. Industry
recently received a price hike in Tamil Nadu after almost seven years.
Adopting franchise model in complex and less profitable markets:
It is also
exiting from several unprofitable markets like Andhra Pradesh, Kerala and is
planning to implement franchisee operations in those states (akin to Tamil
Nadu). This can result in some decline in operating margins but drive
working capital savings. Management stated that the resources released
from such markets can be gainfully deployed in other geographies.
Operating margins to stay in 8.5-10% band; ad spends to accelerate:
Despite a strong growth in premium brands and decision to exit from
several unprofitable markets, UNSP expects margins to remain in the tight
band of 8.5-10% in the near term. Rising ENA prices, due to government’s
mandatory 10% ethanol blending norms, will pose a challenge. ENA price
inflation has hit 2QFY15 gross margin by ~200bp (reported gross margin was
down 90bp due to mix improvement). Management does not expect any
respite here. Also, it is finalizing the market-wise brand footprint and will be
looking at significantly enhancing brand investments in the Prestige
portfolio. Hence, it expects the operating margins to stay in the 8.5-10%
band in the near term.
Monetization of non-core assets likely to yield INR25b over three years:
UNSP has certain non-core assets such as treasury shares (3.46m shares in
USL Benefit Trust but locked in judicial dispute with IDBI, which is yet to
release the pledge), investment in United Breweries (3.2% stake – trying to
place shares with existing UBL shareholders), investment properties
(distilleries occupying premium land can be shifted to other locations and
value can be unlocked from the land). Company expects to monetize these
assets (~INR25b) over the next two to three years, which would aid in debt
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.