United Spirits extends rally post Q4 results; up 22% in one week

The stock moved higher by 5.4% to Rs 2,470, extending its over 16% rally in past four trading days.

United Spirits has moved higher by 5.4% to Rs 2,470, extending its over 16% rally in past four trading sessions, after the company reported a good set of number at operating level for the quarter ended March 2017 (Q4FY17). The stock is trading at its highest level since October 19, 2016 on BSE.

United Spirits said its Ebitda (earnings before interest, tax, depreciation and amortization) margin improved by 739 bps to 13.1% in March quarter (Q4FY17). The margin improvement driven by increased gross profit margin, lower operating expenses and provision made in the same period last year.

The country’s largest liquor manufacturer United Spirits posted a net loss of Rs 104 crore in Q4FY17, on account of an “exceptional charge” of Rs 291 crore towards a customer claim arising out “legacy commercial terms. The company had reported a profit of Rs 1.4 crore in year ago quarter.

“United Spirits expects the highway ban to affect sales over the next two quarters, as South India did not see a material impact in Q4. However, with the government and retailers better prepared, we expect the impact to be transient. Further, the Goods and Service Tax (GST) implementation remains a margin headwind for FY18, albeit lower than earlier expected,” analysts at IIFL Institutional Equities in result update.

According analysts at ICICI Securities, United Spirits’ volumes/revenues for FY18 would remain impacted by a prolonged ban on liquor shops operating within 500 metre of highways. However, the situation is improving each passing month as most outlets shift to the prescribed limit.

“Furthermore, GST, which has mandated molasses based alcohol taxed at 28% would have a minor impact on USL’s prestige & above segment as the blend is completely grain based. We believe that despite near term disruptions in the near term, USL’s franchisee has a strong moat, which would enable it to grow faster than the industry average in the business as usual scenario,” the brokerage firm said in a results update.