BackQ2 results review: Experts turn cautiously positive on USL, Radico Khaitan, United Breweries on margin improvement
Q2 Results Review- The margin recovery trend in the liquor industry picked up pace since Q1FY24. Mix improvement, price hikes and some deflation in RM costs led this. The worst is likely behind, but ENA remains a concern, as per Nuvama Institutional Equities.
PremiumLiquor manufacturers like United Spirits share price, Radico Khaitan share price and United Breweries share price have gained 12-28% in the last six months. The tide is turning favorably as analysts now maintain a positive view on margins. The volume growth though has remained a mixed bag in first half, however analysts are positive on demand in the near term to be driven by wedding season, festive season and events during the ongoing quarter.
Analysts at Nuvama Institutional equities said that “Total 3.5 million weddings are slated to take place between November 23 and December 15. Demand at events and marriages is back to pre-covid levels and shall drive a spike in alcohol consumption. World cup cricket should also have helped, especially beer.
Meanwhile the margin improvement is being witnessed by companies and which remain encouraging.
In terms of Q2FY24 gross margin, United Breweries, Radico saw good gross margins of 44.7% and 44.1%, with United Spirits close behind at 43.4%
Analysts at Motilal Oswal Financial Services have increased their FY24 and FY25 earnings per share estimates by 8.7% and 10% respectively for United spirits, anticipating EBITDA margin gains. With United Spirits already achieving a 17% margin in first half FY24, aligning with the management's guidance of surpassing 15%, They now expect a 15.6% margin in FY24 versus their earlier estimate of 14.7%
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For Radico Khaitan also Ebitda growth was at 35% during the quarter with Ebitda margins at 13% better than 12.5% in the previous quarter and 11.5% in the year-ago quarter. The Premium and above segments are doing well though regular and others see a decline in volumes. However margin improvement is a silver lining.
Analysts at Nuvama said that “The margin recovery trend in the liquor industry picked up pace since Q1FY24. Mix improvement, price hikes and some deflation in raw material costs led this. The worst is likely behind, but ENA remains a concern. Glass, on the other hand, is stable/on a slight reversal trend.
For United Breweries, despite some inflationary softening seen in Q2FY24, volatility is likely to persist. Nuvama analysts however remain optimistic on the long-term growth potential of the beer industry and continue to maintain positive ratings ‘
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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