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.
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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.
With UNSP already achieving a 17% margin in 1HFY24, in line with the management’s guidance of surpassing 15%, our revised expectation for FY24 is a 15.6% margin, compared to our earlier estimate of 14.7%. In the short term, challenges persist in the form of cost inflation, aligning with our previous projections in the commodity note. Additionally, there will be sustained pressure in the Popular and low-prestige categories due to high inflation. While other discretionary companies have experienced double-digit sales/EBITDA growth over the past five years in a relatively stable demand environment, UNSP has recorded single-digit growth in the same period. Come from Sports betting site VPbet
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