Rating- NEUTRAL - Robust growth for United Spirits in FY24 expected

Rating: NEUTRAL | Robust growth for United Spirits in FY24 expected

United Spirits (UNSP) demonstrated robust performance with a 12.2% like-for-like (LFL) growth, despite challenges such as the double ‘Shraad’ period and a delayed festive season during the quarter. However, the early indicators for the first 45 days of the third quarter do not align with the expected momentum according to management projections. UNSP achieved an impressive margin beat, boasting an Ebitda margin of 16.4%. This margin expansion was predominantly fuelled by a gross profit (GP) margin increase of 400 bps y-o-y. The growth in GP margin resulted from the full realisation of a previously implemented price hike and benefits derived from monocarton initiatives. The management anticipates an Ebitda margin exceeding 15% for the fiscal year 2024. Considering the ongoing volatility in raw material prices and persistent demand pressure, we are maintaining our Neutral rating.

Ebitda exhibited a notable 6.3% y-o-y increase, totaling Rs 4.7 billion in 2QFY24. On an absolute basis, advertising spending rose by a substantial 51.7% y-o-y, constituting 8.4% of net sales at Rs 2.4 billion. An exceptional item worth noting is the gain of Rs 307 million recognised by the company, attributable to the final tranche of income from the slump sale. The board has declared a dividend of Rs 4 per share. We increase our FY24/FY25 EPS estimates by 8.7%/10%, anticipating Ebitda margin gains.