United Spirits fall as Q2 profit, revenue decline

The United Spirits stock was trading lower on November 9 morning, a day after the company reported a negative set of earnings for the second quarter of the current financial year.

Though the spirits company’s revenue fell 1.4 percent and profit after tax declined 13.6 percent on-year, the numbers were above Street’s estimates. According to analysts, trends in raw material prices and timelines on India-UK FTA would be the key factors for investors to watch out for.

United Spirits‘ consolidated Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rose 21.4 percent YoY on rebased prior year comparators.

Key triggers

United Spirits is among HDFC Securities’ top Diwali stock picks. The company will continue to focus on driving profitable growth, led by double-digit topline growth, sustained advertising and promotional investments, improving pricing and premium mix and productivity gains, the brokerage said.

In line with its new strategy, Unite Spirits is working on reshaping the portfolio and improving value chain efficiency, it said.

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Socialising is back with a bang, with more consumers coming to upper segments. The company is also seeing a lot of tourist traffic. These factors will drive demand, analysts said.

If basic customs duty were to be reduced from 150 percent to 100 or 50 percent, there could be 6-7 percent or 12-13 percent price reduction, which can boost volumes, they added

There have been some green shoots in glass prices after a correction in natural gas prices, while Extra Neutral Alcohol (ENA) prices remain high.

Operating deleveraging on account of the sale of popular business will continue until September 2024. However, operating leverage from the P&A portfolio would reduce the impact, analysts said.

Downside risks

United Spirits wiped out all accumulated losses in Q1 FY24 and would now look at establishing a dividend payout policy.

“Regulatory changes in terms of taxes, distribution, marketing ban, interstate moves etc, rise in raw material and packing costs, slowdown in spend on drinking or downtrading are some key risks faced by the company,” the brokerage said.

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“Investors can buy the stock in the Rs 915-1,040 band for a target of Rs 1,195. We value UNSP at 56.5x P/E on FY25E EPS (standalone) to arrive at a target price (TP) of Rs 1,195,” HDFC Securities said.

At 9.19 am, the stock was trading a percent lower at Rs 1,087.55 on the National Stock Exchange. The stock has risen 24 percent in 2023, outperforming the benchmark Nifty.

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