New Delhi United Spirits Ltd’s strong performance for the quarter ended September has instilled further confidence in the company’s revival prospects. The easing of Covid-led restrictions is helping the company see a strong return in sales.
Reported net sales increased 14%, reflecting a strong quarter. Off-trade picks up pace after the second wave of the Covid-19 pandemic; The company said that with the easing of restrictions, on-trade is gradually recovering. On-trade channel refers to bars, restaurants etc., while off-trade refers to independent retail etc.
Despite the gradual reopening of the on-trade channel, the company’s Q2FY22 sales were up 7% as compared to Q2FY20 levels. Analysts at Motilal Oswal Financial Services Ltd (MoFSL) said this is good news for United Spirits going into a higher margin and on-trade dependent third quarter. He said sales growth and margins were ahead of our expectation, providing a comfortable beat on our Q2FY22 forecasts.
The company’s reported volumes during Q2 grew 3.5% ahead of estimates. The super-premium portfolio continued to grow strongly. Prestige & Above (P&A) segment net sales grew 20.8%. The company reported high double-digit Scotch whiskey growth during the quarter.
P&A receipts rose 14%. happened ₹1,605 per case as per analysts’ calculations. This also helped the company’s operating margin.
Reported gross margin was 44.2%, up 207 bps, despite input cost pressures. BPS, or basis score, is one hundredth of a percentage point.
The company registered a growth of 14% in revenue. Reported Ebitda ( ₹426 crore) grew by 57.9% and margins increased by 483 bps due to gross margin growth. Ebitda means earnings before interest, tax, depreciation and amortization.
The improvement in EBITDA margin was also helped by operating leverage.
Analysts say the new CEO is targeting double-digit revenue growth on a sustainable basis through various initiatives for the P&A portfolio. This will also lead to better operating margin print in the coming years, said analysts at HDFC Securities Ltd, who have raised their EPS estimates by 5% for FY22/FY23/FY24.
At valuations of around 58 times FY23 earnings, analysts at MOFSL say they are not cheap, but they are at a steep discount to the discretionary peer range of 70-80x FY23E EPS.
The stock, which is up over 70% in the current fiscal, also hit a 52-week high on Friday.
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