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United Spirits' improved business momentum boosts investor confidence

Despite only a gradual reopening of the on-trade channel, the company’s Q2FY22 sales were 7% higher than Q2FY20 levels. This is good news for United Spirits heading into the high margin and on-trade dependent third quarter, said analysts at Motilal Oswal Financial Services Ltd.Premium
Despite only a gradual reopening of the on-trade channel, the company’s Q2FY22 sales were 7% higher than Q2FY20 levels. This is good news for United Spirits heading into the high margin and on-trade dependent third quarter, said analysts at Motilal Oswal Financial Services Ltd.

  • The easing of covid-led restrictions is helping the company see a strong rebound in sales.

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NEW DELHI : United Spirits Ltd's strong performance for the quarter ending September instils further confidence in the company’s rebounding growth prospects. The easing of covid-led restrictions is helping the company see a strong rebound in sales.

Reported net sales increased 14%, reflecting a strong quarter. Off-trade gained momentum after the second wave of the covid-19 pandemic; on-trade continues to gradually recover with the easing of restrictions, said the company. On-trade channels refer to bars, restaurants, etc., while off-trade refers to independent retail, etc.

Despite only a gradual reopening of the on-trade channel, the company’s Q2FY22 sales were 7% higher than Q2FY20 levels. This is good news for United Spirits heading into the high margin and on-trade dependent third quarter, said analysts at Motilal Oswal Financial Services Ltd (MOFSL). Sales growth and margin were ahead of our expectation, leading to a comfortable beat on our Q2FY22 forecasts, they added.

The company’s reported volumes grew by 3.5% ahead of estimates during Q2. The super-premium portfolio continued to grow strongly. The net sales of Prestige & Above (P&A) segment grew 20.8%. The company delivered high double-digit Scotch whisky growth during the quarter.

P&A realization grew 14% to 1,605 per case as per analysts’ calculations. This helped the company’s operating margins, too.

The gross margin was 44.2%, up 207bps on a reported basis despite input cost pressure. Bps, or basis points, is the hundredth of a percentage point.

The company reported a 14% growth in revenues. Reported ebitda ( 426 crore) increased 57.9% and margins increased by 483 bps due to gross margin enhancement. Ebitda stands for earnings before interest, tax, depreciation, and amortization.

Improvement of ebitda margins was also helped by the operating leverage.

Analysts say the new CEO is aiming at a double-digit revenue growth on a sustainable basis through various initiatives for the P&A portfolio. It will also lead to better operating margin print in the coming years, said analysts at HDFC Securities Ltd who have raised their EPS estimates for FY22/FY23/FY24 by 5% each.

On valuations of about 58 times FY23 earnings, analysts at MOFSL say they are not cheap but they are at a sharp discount to its discretionary peer range of 70-80x FY23E EPS.

The stock, which is up more than 70% in the current fiscal year, also scaled fresh 52-week highs on Friday.

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