United Spirits stock hits new high, jumps 4% on hopes of healthy Q4 results

The premiumization trends in the liquor category (post COVID) continued to drive the Prestige & Above (P&A) portfolio.

Shares of United Spirits (USL) hit a record high of Rs 1,245.15, as they rallied 4 per cent on the BSE in Wednesday's intra-day trade on expectations of healthy earnings for the quarter ended March 2024 (Q4FY24), driven by improving realisations and higher focus on Prestige & Above (P&A) segment.

According to analysts, the margin is expected to sustain over 16 per cent during the medium term, aided by various measures undertaken over the past several years including premiumisation of products and leveraging of fixed overheads.

The board of directors of USL are scheduled to meet on May 24, 2024 to consider and approve the audited financial results of the company for the quarter and year ended March 31, 2024 and recommend final dividend, if any.

USL is the largest Indian spirits company that manufactures, sells and distributes beverage alcohol, producing and selling around 60 million cases of Scotch whisky, IMFL whisky, brandy, rum, vodka, gin and wine. Its portfolio of over 15 brands includes McDowell's No.1, Royal Challenge, Signature, and Antiquity as well as Diageo’s iconic brands such as Johnnie Walker, VAT 69, Black & White, Smirnoff and Ciroc.

USL's operating performance had improved in the first nine months of fiscal 2024 (9MFY24) with revenues increased by 5.3 per cent year-on-year (YoY), along with improvement in the operating margin by ~500 basis points to 19.5 per cent from 14.6 per cent driven by operational efficiencies, change in product mix (increasing contribution of higher margin products) and lower other expenses.

Sales volumes have declined in fiscal 2024 mainly due to few brands under popular segment. However, on like-to-like basis, volumes are expected to grow by 1-2 per cent, according to CRISIL. The rating agency expects revenue growth to remain healthy at ~10 per cent in fiscal 2024 driven by improving realisations and higher focus on Prestige & Above segment.

The premiumization trends in the liquor category (post COVID) continued to drive the P&A portfolio. Scotch continued to outpace within the P&A portfolio. Pricing strategies have also played a significant role in achieving better value growth, according to analysts at Motilal Oswal Financial Services (MOFSL).

With consistent improvement in gross and EBITDA margin, the brokerage firm increase their FY24/FY25 EPS estimates by 13 per cent/7 per cent. Analysts model EBITDA margin of 17 per cent for FY25/FY26E (9MFY24 EBITDA margin was at 16.8 per cent).

USL sold a large part of its popular portfolio to concentrate on its global strategy for the premium portfolio. The liquor industry is currently experiencing an upgrading trend, aligning well with USL’s renewed emphasis on P&A, which fits into the long-term liquor upgrading narrative in India, MOFSL said. The stock however, trading above target price of Rs 1,150 per share.

Meanwhile, USL is one of stock that appears to be breaking out of the current consolidation and is poised to see upward move, technical analysts at ICICI Securities said in April 12 report.

Leveraged positions in the stock have declined considerably in the last couple of months as stock prices remained largely in a narrow range. Despite the OI closure and market volatility, the stock has been able to hold its important support of Rs 1,080 indicating prevailing positive bias in the stock.  Analysts believe fresh addition in the stock will trigger another round of up move in it. It recommended ‘buy’ rating on USL with a target price of Rs 1,290 per share.