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Friday, February 3, 2023
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United Spirits 4QFY21 result and investor call takeaways – Not Rated – YES Securities


Overall performance – Revenue grew 11.6% YoY in Q4FY21 and 16.1% adjusted for prior year one-off sale of bulk scotch. Gross margin up by 178bps to 43.9% helped by benign commodities, superior mix and improved productivity. EBITDA margin up by robust 491bps driven by gross margin, lower A&P spends. PAT escalated from Rs239mn to Rs1,673mn on account of lower interest and tax expenses. Revenue de-grew by 13.2% YoY and 10.8% adjusted for one-off sale of bulk scotch with 11% plunge in volume, EBITDA margin declined 405bps owing to negative operating leverage while PAT stood at Rs3,103mn in FY21.

Prestige & Above segment – Revenue up by 25.8% led by robust 19.4% increase in volume, accounted for ~70% of the total revenue in Q4FY21 vs 65.3% in Q1FY20. The strong performance was driven by healthy double-digit growth in Scotch segment. While for FY21, volume/revenue de-grew 9%/7.2% as Q1 and Q2 were severely impacted.

Popular segment – Revenue down by 3.1% owing to 1.5% drop in volume, accounted for ~29% of the total revenue in Q4FY21 marginally down 1.6% over Q4FY20. While for FY21, volume/revenue de-grew 13.8%/17.7% primarily due to lower franchise income, fall in consumption owing to high consumer prices and change in mix, priority sales declined 15.9% in FY21.

Other highlights – A&P spend as % of sales declined from 1.9% in Q4FY20 to 1.3% in Q4FY21, while other expenses were down from 5.5% to 4.5% in Q4FY21.

Management con call takeaways

– Management Update – Hina Nagarajan will take charge as New MD & CEO from 1st July 2021 succeeding Mr. Anand Kripalu. Prior to this, she was MD at Africa regional markets at Diageo, 30 years of experience in CPG businesses and worked with various organizations like Nestle, ICI paints, RB, Mary Kay India.

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– Prestige & Above segment – Adjusting for Rs2.5bn revenue of Scotch in Q4FY20, revenue grew ~31% implying strong resiliency of the brands. Scotch segment grew double digit, fastest growing business in the portfolio, offset by contraction of owned business in Andhra Pradesh, unwinding of franchise business there.

– Brands portfolio – Several initiatives were taken to uplift the visibility and brand saliency through new commercial advertisements for Johnnie Walker, Black and White and other brands; available across all country platforms, association with RCB helped enhance visibility of the brands, will be rolling out new packs of Black Dog.

– Alcohol industry – behaved as semi essential category and recovered better than non-essential categories.

– Productivity – revenue management through premiumization led better mix, price hikes, cost optimization and debt reduction helped optimize cash management.

– Gross margin outlook – may decline in coming quarters from the current levels due to inflation in input costs and lower demand for the products led by Covid-led lockdown and higher taxes.

– Update on A&P spends and Other expenses – A&P spend 90bps lower in FY21, expect 8-9% as % of sales in FY22 at par with FY20. Other expenses stood at 4.5% in Q4FY21 and expect it to be 5-6% as % of sales going forward. Andhra Pradesh impact on account of lower gross margin on account of higher inventory and unwinding cost impacting other expenses

– Net working capital efficiency – improved to 26% from 30% as % of sales in FY20 driven by improvement in receivables and marginally higher inventory.

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– Debt Repayment – Significant debt reduction in FY21 of ~Rs1500cr to Rs556cr driven by healthy FCF generated in the business and improvement in working capital. D/E stood at 0.13 vs 0.35 in FY20.

– Franchise update – South India business is the biggest part of franchise income, AP is the big component of that, been stable in FY21 except Q1FY21 as there was no business due to complete lockdown

– Ethanol blending policy – don’t know when new ethanol blending policy will be announced but company is increasing its own distillation capacity to hedge against uncertainty around the policy

– Excise tax update – there is no adverse impacts on operations due to excise taxes, company will be discussing on prices with Karnataka govt. in July 2021

– Corporate update – will be reducing the hierarchy levels from 16 to 9 levels, highest level of employee engagement through digital platforms during the crisis

– Outlook – Many states are completely shut like Maharashtra creating consumption barrier; barring some supply challenges, company is well positioned to capture the recovery cycle on the back of strong resiliency of the brands.

Shares of UNITED SPIRITS LTD. was last trading in BSE at Rs.572.7 as compared to the previous close of Rs. 572. The total number of shares traded during the day was 747340 in over 18900 trades.

The stock hit an intraday high of Rs. 599.5 and intraday low of 570.7. The net turnover during the day was Rs. 437297694.





The above news was originally posted on www.equitybulls.com

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