Alcoholic Beverages

India I Equities
Company Update
Change in Estimates Target Reco 

28 July 2022

United Spirits Rating: Hold

Target Price: Rs.900
Inflationary pressures darken near-term outlook; retaining a Hold Share Price: Rs.793
Contrary to Street expectations, with only a 4% CAGR over 4-year in
P&A, United Spirits’ Q1 FY23 was underwhelming. Also, its medium- Key data UNSP IN / UNSP.BO
term volume-growth aspirations of just 3-4% appear conservative given 52-week high / low Rs.1020 / 629
Sensex / Nifty 55816 / 16642
India’s vast market. Its thrust on innovation, favourable pricing in a few
3-m average volume $12.9m
states and non-core popular brand divestments have been positive. Market cap Rs.576bn / $7210.9m
Rising input cost and rich valuations, however, contain the potential. We Shares outstanding 727m
reduce our FY23e/FY24e earnings 10%/6% to factor in the margin
pressure. We maintain a Hold, with a lower TP of Rs900 (Rs962 earlier),
Shareholding pattern (%) Jun'22 Mar'22 Dec'21
valuing it at 50x FY24e. Promoters 56.7 56.7 56.7
Prestige-&-Above - of which, Pledged 1.2 1.2 1.2
Leading player in sales val stay strong. On 17% y/y volume growth, adj. sales Free Float 43.4 43.2 43.2
rose 34% y/y, driven by better realisations per case (on a better product mix).
- Foreign Institutions 16.8 17.7 17.9
Sales of the Prestige-and-Above category rose 44% y/y (14% y/y by volume).
- Domestic Institutions 10.9 10.4 10.4
The growth had been curbed by higher input costs and supply constraints in - Public 15.7 15.1 14.9
Scotch whisky (trimming P&A growth 6%). On a four-year CAGR, United
Spirits’ sales in this category rose 4% (a muted 1.6% volume CAGR).
Estimates revision (%) FY23e FY24e
Operating leverage boosts EBITDA. The consolidated gross margin slid Sales 0 1
130bps y/y, squeezed by higher input costs. Ad-spends were up 80bps y/y (as EBITDA -6 -5
percent of sales). However, lower staff costs (down 10% y/y) and lower growth PAT -10 -6
in other expenses (up 23% y/y) on account of operating leverage and cost
efficiencies resulted in a 440bp y/y EBITDA margin expansion to 15.4%. Relative price performance
1,050
Concall highlights. a) Adjusted for the Andhra business, the three-year 1,000
revenue CAGR had been 7-7.5%. b) Deal with Inbrew to close by Sep. After 950
900
the deal, 85% of the company’s portfolio would be in the P&A category. c) The 850
`
double-digit rise in prices of glass and extra-neutral alcohol (65% of inputs) 800
750
would weigh on margins in the next two quarters. d) Supply constraints and 700
650
high prices of Scotch compressed revenues (6% of P&A growth) and margins 600
(70bps in Q1). e) Looking at double-digit revenue growth in the medium term,
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22

Jul-22
Feb-22
Mar-22
Mar-22
Apr-22
May-22
Jun-22

powered by 7-8% pricing growth & sales mix and 3-4% volume growth. UNSP Sensex
Key risk: Keener competition and adverse regulations in states Source: Bloomberg

Key financials (YE Mar) FY20 FY21 FY22 FY23e FY24e

Sales (Rs m) 89,092 77,922 92,763 106,739 118,294
Net profit (Rs m) 6,589 3,836 8,286 10,257 13,188
EPS (Rs) 9.1 5.3 11.4 14.1 18.2
P/E (x) 87.4 150.2 69.5 56.2 43.7
EV / EBITDA (x) 39.5 55.5 36.1 34.6 28.6
P/BV (x) 15.5 14.0 11.6 9.6 7.9 Ajay Thakur
RoE (%) 17.7 9.3 16.7 17.0 18.0 Research Analyst
+9122 6626 6728
RoCE (%) 11.5 10.5 21.1 19.6 20.4
ajaythakur@rathi.com
Dividend yield (%) - - - - -
Net debt / equity (x) 0.6 0.2 0.1 -0.0 -0.1
Source: Company, Anand Rathi Research

Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in the Appendix.

Anand Rathi Research India Equities

28 July 2022 United Spirits – Inflationary pressures darken near-term outlook; retaining a Hold

Quick Glance – Financials and Valuations

Fig 1 – Income statement (Rs m) Fig 2 – Balance sheet (Rs m)
Year-end: Mar FY20 FY21 FY22 FY23e FY24e Year-end: Mar FY20 FY21 FY22 FY23e FY24e
Net revenues 89,092 77,922 92,763 106,739 118,294 Share capital 1,453 1,453 1,453 1,453 1,453
Growth (%) -0 -13 19 15 11 Net worth 37,280 41,198 49,537 60,178 73,366
Direct costs 50,289 44,556 52,915 62,816 68,315 Total debt 23,737 8,790 3,417 2,417 1,417
Minority interest -413 -609 -789 -989 -1,214
Gross profit 42,965 36,757 44,209 48,833 55,302
TL / (Assets) -1,514 -1,450 -995 -3,066 -3,066
Gross margins % 48.2 47.2 47.7 45.8 46.8
Lease liabilities - - - - -
Other expenses 27,793 26,230 28,257 32,342 35,636
Capital employed 59,090 47,929 51,170 58,540 70,503
EBITDA 15,172 10,527 15,952 16,491 19,666 Net tangible assets 15,513 14,890 14,758 12,882 11,111
EBITDA margins (%) 17.0 13.5 17.2 15.5 16.6 Net intangible assets 3,836 3,756 3,580 3,580 3,580
- Depreciation 2,853 2,991 3,038 3,176 3,271 Goodwill 210 210 210 210 210
Other income 771 396 484 522 580
Interest expenses 2,120 1,876 880 408 249 CWIP (tang. & intang.) 1,211 967 957 800 900
PBT 10,970 6,056 12,518 13,429 16,726 Investments (strategic) 219 75 - - -
Effective tax rates (%) 49.2 29.4 22.0 22.3 22.5 Investments (financial) - - 2,221 3,000 3,500
+ Exceptional items -350 -202 -180 -200 -225 Current assets (excl. cash) 65,199 73,193 78,743 88,422 97,675
Net Income 6,589 3,836 8,286 10,257 13,188 Cash 735 839 603 4,131 11,940
WANS 727 727 727 727 727 Current liabilities 27,833 46,001 49,902 54,485 58,413
Working capital 37,366 27,192 28,841 33,937 39,262
FDEPS (Rs / sh) 9.1 5.3 11.4 14.1 18.2
Capital deployed 59,090 47,929 51,170 58,540 70,503
Contingent liabilities - - - - -

Fig 3 – Cash-flow statement (Rs m)

Fig 4 – Ratio analysis
Year-end: Mar FY20 FY21 FY22 FY23e FY24e
Year-end: Mar FY20 FY21 FY22 FY23e FY24e
PBT 11,603 5,400 10,866 13,429 16,726
P/E (x) 87.4 150.2 69.5 56.2 43.7
+ Non-cash items -3,753 -5,810 -5,531 -3,062 -2,940
EV / EBITDA (x) 39.5 55.5 36.1 34.6 28.6
Oper. prof. before WC 15,356 11,210 16,397 16,491 19,666
EV / Sales (x) 6.7 7.5 6.2 5.4 4.8
- Incr. / (decr.) in WC -1,696 8,035 -2,053 -5,096 -5,325
P/B (x) 15.5 14.0 11.6 9.6 7.9
Others incl. taxes 5,828 1,068 4,570 2,988 3,763
RoE (%) 17.7 9.3 16.7 17.0 18.0
Operating cash-flow 7,832 18,177 9,774 8,407 10,578
RoCE (%) - after tax 11.5 10.5 21.1 19.6 20.4
- Capex (tang. + intang.) -1,998 -1,383 -956 -1,143 -1,600
RoIC (%) - after tax 11.8 10.6 21.9 21.6 24.7
Free cash-flow 5,834 16,794 8,818 7,264 8,978
DPS (Rs per share) - - - - -
Acquisitions
Dividend yield (%) - - - - -
- Div. (incl. buyback & taxes) - - - - -
Dividend payout (%) - incl. DDT - - - - -
+ Equity raised - - - - -
Net debt / equity (x) 0.6 0.2 0.1 -0.0 -0.1
+ Debt raised -4,943 -14,815 -5,357 -1,000 -1,000
Receivables (days) 93.6 102.5 93.4 88.3 88.4
- Fin investments - 20 2,135 779 500
Inventory (days) 79.0 96.1 84.9 83.0 81.5
- Misc. (CFI + CFF) 2,394 1,842 1,559 1,957 -331
Payables (days) 49.1 66.4 62.3 63.6 61.2
Net cash-flow -1,503 117 -233 3,528 7,809
CFO : PAT % 118.9 473.9 118.0 82.0 80.2
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research

Fig 5 – Price movement Fig 6 – Volume-growth trend

(Rs)
20%
1,200
15%
15%
1,000 12% 12%
10%
8%
800
5% 4%
1%
600
0%

400 -3% -2%-2%

-5%

200 -10% -9%

-11%
-15% -13%
0
FY17

FY18

FY19

FY20

FY21

FY22
Jan-21
Jan-18

Apr-20

Apr-21

Jan-22
Jul-17
Oct-17

Apr-18

Jan-19
Apr-19
Jul-18
Oct-18

Jul-19
Oct-19
Jan-20

Jul-20
Oct-20

Jul-21
Oct-21

Apr-22
Jul-22

Overall volume growth P&A volume growth

Source: Bloomberg Source: Company

Anand Rathi Research 2

28 July 2022 United Spirits – Inflationary pressures darken near-term outlook; retaining a Hold

Result highlights
Fig 7 – Quarterly results
(Rs m) Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20 Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23
Volumes (m cases) 19.3 20.6 21.5 18.3 9.8 19.9 21.3 19.7 15.8 20.5 22.1 20.7 18.5
Y/Y (%) 6.0 1.0 -1.8 -13.3 -49.2 -3.4 -0.7 7.7 61.2 3.3 3.7 5.1 17.4
P&A volumes 10.3 10.8 11.4 8.4 5.0 10.8 11.4 10.0 8.0 11.4 12.3 10.9 10.0
Y/Y (%) 8.4 2.9 2.7 -20.0 -51.5 0.0 0.3 19.0 60.0 5.7 7.9 9.0 24.4
Popular volumes 9.0 9.8 10.1 9.9 4.8 9.1 9.9 9.7 7.8 9.1 9.8 9.8 8.6
Y/Y (%) 3.4 -1.0 -6.5 -6.6 -46.7 -7.1 -2.0 -2.0 62.5 0.3 -1.1 1.0 10.2
Net sales 22,184.0 22,962.0 25,825.0 19,938.0 10,319.0 21,960.0 26,730.0 22,304.0 17,217.0 25,076.0 29,474.0 25,357.0 24,191.0
Y/Y (%) 10.4 3.2 3.4 -11.4 -53.5 -4.4 3.5 11.9 66.8 14.2 10.3 13.7 40.5
Gross profit 10,497.0 10,325.0 11,459.0 8,408.0 4,333.0 9,567.0 12,965.0 9,892.0 8,222.0 11,448.0 13,312.0 11,227.0 11,238.0
Gross margins % 47.3 45.0 44.4 42.2 42.0 43.6 48.5 44.4 47.8 45.7 45.2 44.3 46.5
Staff costs 1,381.0 1,461.0 1,266.0 1,106.0 1,240.0 1,433.0 1,602.0 1,289.0 1,915.0 1,711.0 1,481.0 1,424.0 1,723.0
A&P 1,708.0 1,734.0 2,511.0 1,200.0 525.0 1,763.0 2,244.0 1,030.0 861.0 1,756.0 3,000.0 1,332.0 1,408.0
Other expenses 3,457.0 2,974.0 3,442.0 3,388.0 3,487.0 3,464.0 4,543.0 3,610.0 3,561.0 3,290.0 3,644.0 4,153.0 4,384.0
EBITDA 3,951.0 4,156.0 4,240.0 2,714.0 (919.0) 2,907.0 4,576.0 3,963.0 1,885.0 4,691.0 5,187.0 4,318.0 3,723.0
Y/Y (%) 94.9 -6.2 18.4 -4.3 -123.3 -30.1 7.9 46.0 -305.1 61.4 13.4 9.0 97.5
EBITDA margins % 17.8 18.1 16.4 13.6 -8.9 13.2 17.1 17.8 10.9 18.7 17.6 17.0 15.4
PBT 3,032.0 3,268.0 3,437.0 1,597.0 (2,161.0) 1,766.0 3,546.0 2,905.0 966.0 3,897.0 4,038.0 3,617.0 2,929.0
Y/Y (%) 144.7 -14.2 7.9 -18.1 -171.3 -46.0 3.2 81.9 -144.7 120.7 13.9 24.5 203.2
PAT 1,974.0 2,246.0 2,588.0 239.0 (2,415.0) 1,294.0 2,870.0 2,087.0 555.0 2,918.0 2,996.0 1,817.0 2,662.0
Y/Y (%) 142.8 -13.2 34.5 -81.1 -222.3 -42.4 10.9 773.2 -123.0 125.5 4.4 -12.9 379.6

% to sales
Staff cost 6.2 6.4 4.9 5.5 12.0 6.5 6.0 5.8 11.1 6.8 5.0 5.6 7.1
A&P 7.7 7.6 9.7 6.0 5.1 8.0 8.4 4.6 5.0 7.0 10.2 5.3 5.8
Other expenses 15.6 13.0 13.3 17.0 33.8 15.8 17.0 16.2 20.7 13.1 12.4 16.4 18.1

Segment-wise
performance
P&A sales (Rs m) 14,230 15,020 17,880 12,180 6,800 15,180 17,740 15,320 10,770 18,330 21,290 17,660 15,480
Y/Y (%) 8.7 -0.3 8.3 -15.6 -52.2 1.1 -0.8 25.8 58.4 20.8 20.0 15.3 43.7
Popular sales (Rs m) 6,430 7,010 7,370 6,780 3,140 6,140 6,880 6,570 5,030 6,140 6,760 6,640 5,690
Y/Y (%) 2.2 -1.4 -5.0 -11.4 -51.2 -12.4 -6.6 -3.1 60.2 0.0 -1.7 1.1 13.1
Realisation (Rs / case) 1,070 1,069 1,174 1,036 1,014 1,071 1,154 1,111 1,000 1,191 1,267 1,174 1,141
Y/Y (%) 0.5 -1.6 6.0 -1.0 -5.2 0.2 -1.8 7.2 -1.4 11.2 9.8 5.6 14.1
P&A realisation (Rs / case) 1,382 1,391 1,568 1,450 1,360 1,406 1,551 1,532 1,346 1,605 1,724 1,617 1,556
Y/Y (%) 0.3 -3.0 5.4 5.5 -1.6 1.1 -1.1 5.7 -1.0 14.2 11.2 5.5 15.6
Source: Company

Anand Rathi Research 3

28 July 2022 United Spirits – Inflationary pressures darken near-term outlook; retaining a Hold

Valuation
Contrary to Street expectations, with only a 4% CAGR over last 4 years in
P&A, United Spirits’ Q1 FY23 was underwhelming. Its medium-term
volume-growth aspirations of just 3-4% appear conservative given India’s
vast market.
Its thrust on innovation, favourable pricing in a few states and non-core
popular brand divestments have been positive. Rising input costs and rich
valuations, however, contain the potential.
We reduce our FY23e/FY24e earnings 10%/6% to factor in the margin
pressure. We maintain our Hold rating on the stock, with a lower TP of
Rs900 (Rs962 earlier), valuing it at 50x FY24e.

Fig 8 – Change in estimates

Old Revised Change (%)
(Rs m) FY23e FY24e FY23e FY24e FY23 FY24
Sales 106,739 118,294 106,246 117,555 0 1
EBITDA 16,491 19,666 17,567 20,805 -6 -5
PAT 10,257 13,188 11,349 13,986 -10 -6
Source: Anand Rathi Research

Fig 9 – One-year-forward EV / EBITDA

60

+1SD
50

40
Mean

30

20 -1SD

10

0
Nov-21
Nov-17

Feb-19

Sep-19

Aug-20

Dec-20

Aug-21
Jul-17

Mar-18

Jun-18

Oct-18

Jun-19

Jan-20

May-20

Apr-21

Mar-22

Jul-22

Source: BSE, Anand Rathi Research

Risks
Keener competition and potential adverse regulations in states

Anand Rathi Research 4

Appendix
Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s)
in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of
India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing
whatsoever on any recommendation that they have given in the Research Report.

Important Disclosures on subject companies

Rating and Target Price History (as of 28 July 2022)
TP Share
1200 UNSP Date Rating (Rs) Price (Rs)
1 5-Mar-21 Buy 653 561
1000 2 24-May-21 Buy 659 574
4
3 26-Jul-21 Hold 702 657
800 5 4 28-Oct-21 Hold 995 894
2 5 27-Jan-22 Hold 962 842
1
600
3
400

200

0
Nov-20

Nov-21
Jul-20

Jul-21

Jul-22
Jan-20

Mar-20

Jan-22

Mar-22
May-20

Jan-21

Mar-21
Sep-20

May-21

Sep-21

Anand Rathi Ratings Definitions May-22

Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide (12 months)
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%

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