Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.
United Spirits (Q4FY20 Results Review): P&A under pressure, cost focus continues. Maintain ADD
UNSP revenue contraction of 11% yoy (15% dip excluding onetime bulk scotch sale) was higher than expected. Lockdown impacted the last 10-12days of March along with dry-up in social occasions prior to national lockdown. Pressure on P&A was higher than Popular segment, taking away the premiumisation trend. P&A saw a val/vol decline of 16/20% yoy while Popular was down by 11/7%. Aggressive cost control (Employee/A&P/other expenses down by 35/33/18% yoy) expanded reported EBITDA margin by 101 bps to 13.6%. As normalcy returns, co will be able to capitalise on channel filling as trade inventory is low. Home delivery and premium liquor in malls can be structural changes for the industry. Ease in buying can be a key driver for adding consumer base along with higher share of premium segment. We cut EPS estimate by 19/13% to factor-in (1) Consistent extension of lockdown, (2) Sharp tax increase by states, (3) Impact of loss of duty free sales, (4) Downtrading possibility and (5) Weak consumer sentiments. However, we increase the P/E multiple to 40x (earlier 35x) owing to (1) Tax overhang being in the past, (2) Efficiently managed working capital (NWC days reduced to 60days vs 80days in FY19), (3) Collections in April/May were healthy. At 40x P/E on Mar-22E EPS, we derive a TP of Rs 586. Maintain ADD.
Weak P&A show: Net revenue declined by 11% yoy vs expectation of 3% dip (+4% in 4QFY19, +3% in 3QFY20). P&A val/vol decline was 16/20% yoy (+8/+7% in 4QFY19 and 8/3% in 3QFY20) vs expectation of -2/-5%. Popular segment val/vol decline was 11/7% yoy vs exp of 4/5% dip. UNSP's BIO portfolio was hit harder than its BII portfolio indicating a halt in the premiumisation trend. In FY20, UNSP posted P&A val/vol growth of +0.4/-2% yoy. Popular val/vol growth was -4/-3% yoy. Total vol achieved in FY20 was at 80mn cases out of which P&A/Popular vol was at 41/39mn cases.
Tight cost control: GM declined by 433bps yoy (-345 in 4QFY19, -421bps in 3QFY20) vs. expectation of -125bps. Lower P&A, high bulk scotch revenue and RM pressure impacted GM. Employee/A&P/Other expenses declined by sharp 35/33/18%. EBITDAM increased by 101bps to 13.6% vs exp of 13%. EBITDA declined by 4% yoy (+4% in 4QFY19 and +18% 3QFY20) vs. est of flat EBITDA. Excluding one-time bulk scotch sale, LFL EBITDA declined by 16% and LFL EBITDA margin was at 13.2%. Interest costs dipped by 21% YoY led by debt reduction. However, sharp increase in taxes due to a one-time tax charge resulted into 83% yoy dip in reported PAT. At normalised tax rate, APAT was down by 18% yoy to Rs 1.1bn (HSIE Rs 1.5bn).
Call & other takeaways: (1) 2/3rd of retail stores pan India are open, (2) Co is functioning at 60-70% of capacity, (3) ENA prices are expected to remain stable in the near future, (4) Cost control will continue, (5) Net Debt for UNSP has reduced by ~Rs 12bn in FY20.
Shares of UNITED SPIRITS LTD. was last trading in BSE at Rs.589.25 as compared to the previous close of Rs. 594.25. The total number of shares traded during the day was 210092 in over 5519 trades.
The stock hit an intraday high of Rs. 606.9 and intraday low of 584.3. The net turnover during the day was Rs. 124779519.