buy ‘walking’ in the right direction industry alco-bev (as ... spirits - 2qfy20 - hdfc se… ·...

RESULTS REVIEW 2QFY20 26 OCT 2019

United Spirits BUY

‘Walking’ in the right direction UNSP’s 2Q was weaker than expected. Liquor industry was impacted by slowdown, high base, flooding, liquidity stress in wholesale channel and stiff input costs. UNSP’s restructuring drive is visible, supporting margins despite several headwinds. We believe UNSP will continue to tighten the screws on overheads and benefit from premiumisation. We cut EPS estimates by 4-5% to factor miss in 2Q and value UNSP on Sep-21E EPS, arriving at a TP of Rs 737. Maintain BUY. HIGHLIGHTS OF THE QUARTER Net rev. grew by 3% (exp of 5%) aided by one-time bulk

sales of scotch (adj. growth was flat vs. 14% in 2QFY19). Pernod clocked 3% value growth. Volumes grew by 1% (P&A 3%, popular -1%) on a high base of 12%. Price/mix was negative owing to inferior mix, strategic pricing actions in Maharashtra (McDowells) and adverse state mix. Inferior mix was led by disruption in supply chain of BIO scotch portfolio.

Mgt. believes consumer sentiments have turned positive in Oct-19 but remains on a wait and watch mode before calling out a recovery. Amidst liquidity stress, co is providing additional credit to the trade in a calibrated way without compromising on quality sales. We believe premiumisation will resume in 3Q.

ENA inflation spiked in 2Q vs. 1Q which led to steep GM decline of 494bps (underlying) vs. exp of -300bps. UNSP has received price hikes from 16 states over the last 12 months. ENA costs have moderated in Oct-19 from its peak in 2Q. Management guides for further moderation

post upcoming harvest. Co is actively working with more states for price hikes.

Restructuring drive (employee/other expenses) and tight lid on A&P spend led to modest EBITDAM decline of -181bps to 18.1% margin (vs. exp of 20.3%). Employee/ASP/Other expenses grew by 3/-14/-18%. Margin expansion hereon is uphill (low-hanging fruits behind) but still on the cards. We model 360bps expansion over FY19-22E.

Near term outlook: Positive driven by uptick in consumption, moderation in ENA costs and restocking benefits of BIO scotch portfolio.

STANCE Diageo’s global market leadership (17/40% share in spirits/scotch) and its dominance in premium segment drives our confidence on UNSP. India is a critical market for Diageo, given the scale (largest Whisky market), leadership position and opportunity to premiumise. UNSP’s premiumisation journey is on track (P&A revenue mix up 800bps vs. FY17) supported by aggressive A&P spends and de-focus on popular brands (franchise model). Restructuring drive, richer product mix, WC efficiencies (80 days vs. 120 days in FY17) have led to strong FCF generation over the last 3 years (cumulative Rs 32bn). Thereby, co has been able to deleverage balance sheet (net debt is at Rs 25bn vs. 40bn in FY17). We expect more of the same over FY19-22E (Rs 33bn FCF generation and Rs 17bn debt repayment).

Financial Summary (Standalone) (Rs mn) 2QFY20 2QFY19 YoY (%) 1QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Sales 22,962 22,249 3.2 22,184 3.5 81,701 89,877 96,813 105,628 114,049 EBITDA 4,156 4,429 (6.2) 3,971 4.7 10,215 13,579 16,265 18,850 21,299 APAT 2,246 2,587 (13.2) 1,987 13.0 5,527 7,436 9,154 11,891 14,027 Diluted EPS (Rs) 3.1 3.6 (13.2) 2.7 13.0 7.6 10.2 12.6 16.4 19.3 P/E (x) 82.4 61.3 49.8 38.3 32.5 EV / EBITDA (x) 47.7 35.4 29.1 24.6 21.3 RoIC (%) 10.8 15.8 18.4 21.6 23.5

Source: Company, HDFC sec Inst Research

INDUSTRY ALCO-BEV CMP (as on 25 Oct 2019) Rs 627 Target Price Rs 737 Nifty 11,384

Sensex 39,058

KEY STOCK DATA

Bloomberg UNSP IN

No. of Shares (mn) 727

MCap (Rs bn) / ($ mn) 456/6,222

6m avg traded value (Rs mn) 1,007

STOCK PERFORMANCE (%)

52 Week high / low Rs 680/497

3M 6M 12M

Absolute (%) 7.6 14.5 17.1

Relative (%) 4.4 13.7 1.2

SHAREHOLDING PATTERN (%)

Jun-19 Sep-19

Promoters 56.8 56.8 FIs & Local MFs 5.3 6.2 FPIs 22.3 22.4 Public & Others 15.6 14.6 Pledged Shares* 2.0 1.4 Source : BSE, * % of total

Siddhant Chhabria [email protected] +91-22-6171-7336

Naveen Trivedi [email protected] +91-22-6171-7324

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

mailto:[email protected]

UNITED SPIRITS : RESULTS REVIEW 2QFY20

Quarterly Financial Snapshot: Standalone Particulars (Rs mn) 2QFY20 2QFY19 YoY (%) 1QFY20 QoQ (%) FY19 FY18 YoY (%)

Gross Revenue 72,819 71,250 2.2% 70,778 2.9% 285,194 260,691 9.4%

(Less) Excise Duty 49,857 49,001 1.7% 48,594 2.6% 195,317 178,990 9.1% Net Revenue 22,962 22,249 3.2% 22,184 3.5% 89,877 81,701 10.0%

Material Expenses 12,637 10,798 17.0% 11,687 8.1% 45,676 41,980 8.8% Employee Expenses 1,461 1,414 3.3% 1,361 7.3% 6,393 6,601 -3.2% Advertisement and Publicity 1,734 2,005 -13.5% 1,708 1.5% 8,587 7,882 8.9% Other Operating Expenses 2,974 3,603 -17.5% 3,457 -14.0% 14,565 13,510 7.8%

EBITDA 4,156 4,429 -6.2% 3,971 4.7% 13,579 10,215 32.9%

Adj EBITDA (IND-AS 116) 4,056 4,429 -8.4% 3,871 4.8% 13,579 10,215 32.9%

Depreciation 573 350 63.7% 500 14.6% 1,445 1,351 7.0% EBIT 3,583 4,079 -12.2% 3,471 3.2% 12,134 8,864 36.9%

Other Income 137 167 -18.0% 101 35.6% 784 2,060 -61.9% Interest Cost 452 438 3.2% 520 -13.1% 2,154 2,611 -17.5%

PBT before exceptional 3,268 3,808 -14.2% 3,052 7.1% 10,764 8,313 29.5%

Exceptional - - na (20) na (850) 90 na PBT 3,268 3,808 -14.2% 3,032 7.8% 9,914 8,403 18.0%

Tax 1,022 1,221 -16.3% 1,058 -3.4% 3,328 2,786 19.5% PAT 2,246 2,587 -13.2% 1,974 13.8% 6,586 5,617 17.3%

Adjustment - - na 13 na 850 (90) na

APAT 2,246 2,587 -13.2% 1,987 13.0% 7,436 5,527 34.5% Source: Company, HDFC sec Inst Research

Margin Analysis Particulars (% of net sales) 2QFY20 2QFY19 YoY (bps) 1QFY20 QoQ (bps) FY19 FY18 YoY (bps) Material Expenses 55.0% 48.5% 650 52.7% 235 50.8% 51.4% (56) Employee Expenses 6.4% 6.4% 1 6.1% 23 7.1% 8.1% (97) ASP Expenses 7.6% 9.0% (146) 7.7% (15) 9.6% 9.6% (9) Other Operating Expenses 13.0% 16.2% (324) 15.6% (263) 16.2% 16.5% (33) EBITDA 18.1% 19.9% (181) 17.9% 20 15.1% 12.5% 261 Adj EBITDA (IND-AS 116) 17.7% 19.9% (224) 17.4% 21 15.1% 12.5% 261 Tax Rate 31.3% 32.1% (79) 34.9% (362) 33.6% 33.2% 41 Source: Company, HDFC sec Inst Research

Net rev. grew by 3% (exp of 5%) aided by one-time bulk sales of scotch (adj. growth was flat vs. 14% in 2QFY19). Pernod clocked 3% value growth in Sep-19 quarter on a high base of 34% ENA inflation spiked in 2Q vs. 1Q which led to steep GM decline of 494bps (underlying) vs. exp of -300bps Restructuring drive (employee/other expenses) and tight lid on A&P spend led to modest EBITDAM decline of -181bps to 18.1% margin (vs. exp of 20.3%). Employee/ASP/Other expenses grew by 3/-14/-18% IND-AS 116 positively impacted EBITDAM by ~40bps Tax rates were negatively impacted owing one-time write off in DTA APAT degrew by 13% vs. our exp of +7%

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Revenue Analysis Particulars 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 Prestige & Above 12,640 14,290 13,400 13,090 15,060 16,510 14,430 14,230 15,020 Popular 6,580 7,980 7,780 6,290 7,110 7,760 7,650 6,430 7,010 Net Revenue 19,220 22,270 21,180 19,380 22,170 24,270 22,080 20,660 22,030 Other operating revenue 293 363 557 739 79 739 420 1,524 932 Total 19,513 22,633 21,737 20,119 22,249 25,009 22,500 22,184 22,962

Revenue Mix (%) Prestige & Above 65.8% 64.2% 63.3% 67.5% 67.9% 68.0% 65.4% 68.9% 68.2% Popular 34.2% 35.8% 36.7% 32.5% 32.1% 32.0% 34.6% 31.1% 31.8% Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

Revenue Growth (YoY %) Prestige & Above 10.4 (2.8) 12.7 19.5 19.1 15.5 7.7 8.7 (0.3) Popular (22.0) (15.8) (5.8) (3.1) 8.1 (2.8) (1.7) 2.2 (1.4) Other operating revenue (22.5) (2.7) (0.5) 95.5 (73.0) 103.6 (24.6) 106.2 1,079.7 Total (3.7) (7.8) 5.0 12.9 14.0 10.5 3.5 10.3 (0.6)

Underlying Rev Growth (YoY %) Prestige & Above 12.0 (1.0) 14.0 19.5 19.0 15.5 8.0 9.0 - Popular (9.0) (2.0) 2.0 - 10.0 (2.0) (1.0) 3.0 (1.0) Total 4.0 (2.0) 9.0 14.0 15.0 9.0 4.0 6.0 - Source: Company, HDFC sec Inst Research

P&A rev growth was flat on a high base of 19% Popular degrew by 1% (underlying) on a high base of 10% P&A revenue mix expanded to 68.2% in 2QFY20 vs. 65.8% in 2QFY18.

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Volume and Realisation Analysis Particulars 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 Volumes (Mn Cases) Prestige & Above 9.1 9.9 9.8 9.5 10.5 11.1 10.5 10.3 10.8 Popular 9.4 11.2 11.1 8.7 9.9 10.8 10.6 9.0 9.8 Total 18.5 21.1 20.9 18.2 20.4 21.9 21.1 19.3 20.6

Volume Mix (%) Prestige & Above 49.2% 46.9% 46.9% 52.2% 51.5% 50.7% 49.8% 53.4% 52.4% Popular 50.8% 53.1% 53.1% 47.8% 48.5% 49.3% 50.2% 46.6% 47.6% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Volume Growth (%) Prestige & Above 2.2 (2.0) 15.3 13.1 15.4 12.1 7.1 8.4 2.9 Popular (28.2) (22.2) (14.0) (9.4) 5.3 (3.6) (4.5) 3.4 (1.0) Total (15.9) (13.9) (2.3) 1.1 10.3 3.8 1.0 6.0 1.0

Underlying Volume Growth (%) Prestige & Above na na 16.0 13.0 15.0 12.0 7.0 8.0 3.0 Popular (11.0) (8.0) (2.0) (4.0) 8.0 (2.0) (3.0) 5.0 (1.0) Total (4.0) (2.0) 8.0 4.0 12.0 4.0 2.0 7.0 1.0

Unit Realization/Case (Rs) Prestige & Above 1,389 1,443 1,367 1,378 1,434 1,487 1,374 1,382 1,391 Popular 700 713 701 723 718 719 722 714 715 Total 1,039 1,055 1,013 1,065 1,087 1,108 1,046 1,070 1,069

Gross Profit/Case (Rs) 512 522 519 556 561 556 496 544 501 EBITDA/Case (Rs) 172 129 131 125 217 184 134 206 202 Source: Company, HDFC sec Inst Research

Price/mix was negative owing to inferior mix, strategic pricing actions in Maharashtra (McDowells) and adverse state mix. Inferior mix was led by disruption in supply chain of BIO scotch portfolio. Co is strategically holding prices for a few brands in Maharashtra (growth and margin accretive to UNSP) to remain competitive GP/case declined YoY owing to higher RM prices

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Performance in charts

Cash Conversion Cycle FCF Generation

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Net Debt RoIC

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

UNSP has successfully improved their WC cycle led by better trade collections, lower inventory days and higher payable days Robust FCF generation over FY19-22E will be deployed to reduce debt (Rs 33bn FCF generation and Rs 17bn debt repayment)

93 105

127 120

104

80 80 80 80

-

20

40

60

80

100

120

140

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

(Days)

(11.0)

3.4

(0.4)

8.1

12.8 11.0

9.2 11.1

12.9

(16.0)

(8.0)

-

8.0

16.0

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

(Rs bn)

40.4 46.4

41.9 39.8

31.5 25.3

18.2

8.8

(2.8)

(20.0)

-

20.0

40.0

60.0

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

Expect UNSP to be net cash by FY22E(Rs bn)

5 6

9

12 11

16 18

22 24

-

6

12

18

24

FY14

FY15

FY16

FY17

FY18

FY19

FY20

E

FY21

E

FY22

E

(%)

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Global Alcohol Market Top 10 Fastest Growing Alcohol Markets

Countries Alcohol Volume (9mn ltr. cases) (% of Global Volume)

2018 2020 2023 CAGR 2018 2020 2023 India 662 755 941 7.3% 2.4% 2.7% 3.3% Mexico 1,021 1,118 1,283 4.7% 3.7% 4.0% 4.5% Vietnam 469 475 542 2.9% 1.7% 1.7% 1.9% Philippines 304 335 399 5.6% 1.1% 1.2% 1.4% Nigeria 221 252 257 3.0% 0.8% 0.9% 0.9% Poland 469 475 513 1.8% 1.7% 1.7% 1.8% Ethiopia 110 112 114 0.6% 0.4% 0.4% 0.4% Myanmar 55 56 86 9.1% 0.2% 0.2% 0.3% Sri Lanka 28 28 29 0.6% 0.1% 0.1% 0.1% Turkey 138 112 114 -3.7% 0.5% 0.4% 0.4% Total Leading Markets 3,478 3,718 4,275 4.2% 12.6% 13.5% 15.1% Global Total 27,600 27,957 28,500 0.6% 100% 100% 100% Source: IWSR, Company, HDFC sec Inst Research Alcohol Consumption vs. Per Capita Income Premiumization in spirits in India: Premium is

growing ~2x of Prestige

Source: David Turtle Model, Company, HDFC sec Inst Research Source: IWSR, Company, HDFC sec Inst Research

India is the fastest growing alcohol market in terms of volume growth (7% CAGR over 2018-2023). Premium segment is expected to outpace popular segment India is the largest Whisky market in the world (volume terms), still we rank low in terms of per capita consumption of alcohol UNSP is riding on the premiumization theme in alcobev with disproportionate A&P spends on P&A and de-focus on popular (franchised in 13 states)

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Key Model Assumptions Particulars (Rs mn) FY17 FY18 FY19 FY20E FY21E FY22E Revenues (Rs mn) - P&A 49,960 51,280 59,090 63,628 71,217 78,870 - Popular 34,330 28,830 28,810 29,512 30,554 31,168 Total 84,290 80,110 87,900 93,140 101,771 110,038 Revenues Mix (%) - P&A 59 64 67 68 70 72 - Popular 41 36 33 32 30 28 Total 100 100 100 100 100 100 Underlying Rev Growth (%) - P&A 14.0 4.0 15.0 7.7 11.9 10.7 - Popular (2.0) (4.0) 1.0 2.4 3.5 2.0 Total 8.0 1.0 10.0 6.0 9.3 8.1 Volumes (Mn Cases) - P&A 37 37 42 45 48 52 - Popular 53 41 40 41 42 42 Total 90 79 82 85 90 94 Volume mix (%) - P&A 41 47 51 52 54 55 - Popular 59 53 49 48 46 45 Total 100 100 100 100 100 100 Underlying Vol Growth (%) - P&A 7.6 3.0 12.0 7.3 8.1 7.0 - Popular (3.0) (7.0) (1.0) 2.0 2.0 1.0 Total 1.0 (2.0) 5.0 4.7 5.2 4.2 Unit Realisation/Case (Rs) - P&A 1,358 1,378 1,420 1,425 1,475 1,527 - Popular 644 698 720 724 734 742 Average (Rs) 936 1,021 1,077 1,090 1,132 1,175 Gross Margin Employee Expenses 43.2 48.6 49.2 46.6 47.7 48.2 ASP Expenses 7.77 8.08 7.11 6.42 6.31 6.25 Other Expenses 7.8 9.6 9.6 8.5 8.8 8.8 EBITDA Margin 15.8 16.5 16.2 14.7 14.7 14.4 NPM 11.8 12.5 15.1 16.8 17.8 18.7 Gross Profit/Case (Rs) 412 506 542 528 561 587 EBITDA/Case (Rs) 113 130 166 190 210 228 Source: Company, HDFC Sec Inst Research

Volume growth and price/mix improvement is key for UNSP In FY20E, we expect gross margin pressure owing to limited price hikes to pass on hardening of ENA costs We believe in the longer run UNSP has the opportunity to reduce A&P spends (extract higher ROI) as well as other expenses We expect EBITDA margins to expand over FY19-22E driven by restructuring drive and premiumization NPM is expected to expand over FY19-22E driven by deleveraging

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Revision In Estimates

New Old Change FY20E FY21E FY20E FY21E FY20E FY21E

Volumes (Mn Cases) 85.4 89.9 85.9 90.8 (0.5) (1.0) - P&A 44.6 48.3 45.0 49.0 (0.7) (1.5) - Popular 40.8 41.6 40.9 41.7 (0.3) (0.3) Realization/Case (Rs) 1,090 1,132 1,106 1,150 (1.4) (1.6) - P&A 1,425 1,475 1,453 1,504 (1.9) (1.9) - Popular 724 734 724 735 (0.1) (0.1) Standalone (Rs Mn) Revenue 96,813 105,628 97,830 107,392 (1.0) (1.6) - P&A 63,628 71,217 65,336 73,709 (2.6) (3.4) - Popular 29,512 30,554 29,636 30,682 (0.4) (0.4) - Other operating income 3,673 3,857 2,858 3,000 28.5 28.5 EBITDA 16,265 18,850 16,644 19,250 (2.3) (2.1) EBITDA Margin % 16.8 17.8 17.0 17.9 -21 bps -8 bps PAT 9,154 11,891 9,706 12,382 (5.7) (4.0) EPS 12.6 16.4 13.4 17.0 (5.7) (4.0) Source: Company, HDFC sec Inst Research

Peer Set Comparison

Companies MCap

(Rs bn)

CMP (Rs) Reco. TP

(Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

HUL 4,569 2,145 NEU 2,017 28.1 34.3 42.2 76.2 62.5 50.9 51.5 46.5 35.9 248.6 38.7 28.0 ITC 2,790 249 BUY 368 10.4 12.9 14.0 23.9 19.2 17.8 15.1 13.7 12.2 39.2 46.3 49.1 Nestle 1,427 14,803 NR 13,640 167.1 233.6 278.1 88.6 63.4 53.2 51.3 44.0 37.7 82.1 114.7 137.3 Dabur 828 470 BUY 490 8.2 9.5 11.4 57.3 49.3 41.2 46.1 39.6 34.2 50.1 52.9 58.3 Britannia 788 3,283 BUY 3,594 48.1 58.6 71.9 68.3 56.0 45.7 44.7 40.5 33.1 39.2 43.1 49.8 Marico 510 395 NEU 390 7.2 8.5 10.1 54.8 46.6 39.0 39.7 32.0 28.4 48.8 46.4 52.3 Colgate 413 1,519 NEU 1,400 27.6 32.3 37.2 55.1 47.1 40.8 33.1 30.7 26.9 67.2 74.4 83.3 Emami 152 326 BUY 468 11.0 13.0 14.7 29.6 25.2 22.2 20.0 17.6 15.4 21.5 26.5 32.0 Jub. Food 201 1,523 BUY 2,134 24.1 33.2 42.1 63.2 45.9 36.1 32.4 28.5 22.1 45.8 35.5 25.8 United Spirits 456 627 BUY 737 10.2 12.6 16.4 61.3 49.8 38.3 35.4 29.1 24.6 15.8 18.4 21.6 Radico Khaitan 42 312 BUY 496 14.1 17.8 21.5 22.1 17.5 14.5 12.8 11.3 9.5 11.5 13.8 15.3 Source: HDFC sec Inst Research

Miss in 2QFY20 owing to muted vol growth, steep GM pressure and one-time write off in DTA results in earnings cut.

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Valuation Snapshot: UNSP

Valuation of other businesses RCB (Rs mn) Non-core assets Pioneer Distilleries EBITDA 1,250

UNSP treasury shares (17.3mn @ Rs 627) 10,844 O/s shares (Mn) 13.4

Net Debt* - Flats/factories etc (Rs Mn) 6,000 CMP (Rs) 127 Interest - Non core assets value (Rs Mn) 16,844 Mcap (Rs Mn) 1,700

PBT 1,250 (-) discount owing to legal disputes and timing uncertainity 50% UNSP holding (%) 75%

PAT 813 Non core assets value (Rs Mn) 8,422 Implied value for UNSP (Rs Mn) 1,275 Tgt Multiple (x) 20 UNSP O/s shares (Mn) 727 (-) Holdco discount 50% RCB Value 16,250 Value per share (Rs) 12 Value considered for UNSP (Rs Mn) 850 (-) Hold Co discount 50% UNSP O/s shares (Mn) 727 RCB Value 8,125 Value per share (Rs) 1 UNSP O/s shares (Mn) 727 Value per share (Rs) 11 * Entire debt is from UNSP and thus not considered

Sep-21E EPS 17.8 Target Multiple 40x Target Price (Rs) (A) 714 Non-core assets (Rs) (B) 12 RCB (Rs) (C) 11 Pioneer Distillery (Rs) (D) 1 Target Price (Rs) (A+B+C+D) 737

No change in multiples. Value standalone business at 40x Sep-21E EPS

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Income Statement (Standalone) Year ending March (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Revenues 81,701 89,877 96,813 105,628 114,049 Growth (%) (4.9) 10.0 7.7 9.1 8.0 Raw Material Expenses 41,980 45,676 51,727 55,207 59,038 Employee Expenses 6,601 6,393 6,212 6,666 7,133 Other Operating Expenses 22,905 24,229 22,610 24,905 26,579 Total Operating Expenses 71,486 76,298 80,548 86,778 92,749 EBITDA 10,215 13,579 16,265 18,850 21,299 EBITDA Margin (%) 12.5 15.1 16.8 17.8 18.7 EBITDA Growth (%) 0.6 32.9 19.8 15.9 13.0 Depreciation 1,351 1,445 2,236 2,397 2,494 EBIT 8,864 12,134 14,028 16,453 18,805 Other Income (Including EO Items) 2,060 784 655 688 722 Interest 2,611 2,154 1,788 1,251 797 PBT 8,313 10,764 12,896 15,890 18,730 Tax (Incl Deferred) 2,786 3,328 3,735 4,000 4,718 APAT 5,617 6,586 9,141 11,891 14,027 EO (Loss) / Profit (Net Of Tax) 90 (850) 13 - - RPAT 5,527 7,436 9,154 11,891 14,027 APAT Growth (%) 25.1 34.5 23.1 29.9 18.0 Adjusted EPS (Rs) 7.6 10.2 12.6 16.4 19.3 EPS Growth (%) 25.1 34.5 23.1 29.9 18.0


Balance Sheet (Standalone) As at March (Rs mn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital 1,453 1,453 1,453 1,453 1,453 Reserves 23,585 29,862 39,003 50,893 64,921 Total Shareholders Funds 25,038 31,315 40,456 52,346 66,374 Long Term Debt 7,527 7,643 6,497 4,872 3,654 Short Term Debt 25,127 18,246 14,613 8,811 5,325 Total Debt 32,654 25,889 21,109 13,683 8,980 Other Non current liabilities 512 518 570 627 689 TOTAL SOURCES OF FUNDS 58,204 57,722 62,135 66,657 76,043 APPLICATION OF FUNDS Net Block 11,001 12,453 11,924 11,307 10,648 Investments in subsidiaries 2,775 2,984 2,835 2,693 2,558 Other non-current assets 18,589 22,114 23,241 24,534 26,008 Total Non-current Assets 32,365 37,551 37,999 38,534 39,215 Inventories 18,694 18,767 20,424 21,994 23,435 Debtors 26,998 25,181 27,124 29,594 31,871 Other Current Assets 5,738 4,536 4,886 5,331 5,854 Total Current Assets 51,430 48,484 52,434 56,919 61,160 Creditors 13,935 13,360 14,391 15,338 16,248 Other Current Liabilities 14,271 15,541 16,788 18,338 19,851 Total Current Liabilities 28,206 28,901 31,179 33,676 36,099 Net Current Assets 23,224 19,583 21,254 23,243 25,060 Cash & Equivalents 1,198 588 2,881 4,879 11,767 Assets classified as held for sale 1,417 - - - - TOTAL APPLICATION OF FUNDS 58,204 57,722 62,135 66,657 76,043


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Cash Flows (Standalone) Year ending March (Rs mn) FY18 FY19 FY20E FY21E FY22E PBT 8,313 10,764 12,896 15,890 18,730 Non-operating & EO Items (2,060) (784) (655) (688) (722) Interest 2,611 2,154 1,788 1,251 797 Depreciation 1,351 1,445 2,236 2,397 2,494 Working Capital Change 4,956 3,641 (1,671) (1,989) (1,817) Tax Paid (2,786) (3,328) (3,735) (4,000) (4,718) OPERATING CASH FLOW ( a ) 12,385 13,892 10,858 12,862 14,764 Capex 371 (2,897) (1,707) (1,780) (1,835) Free cash flow (FCF) 12,756 10,995 9,151 11,082 12,929 Investments (3,976) (2,311) (926) (1,095) (1,277) Non-operating Income 2,150 (66) 668 688 722 INVESTING CASH FLOW ( b ) (1,455) (5,274) (1,965) (2,187) (2,390) Debt Issuance/(Repaid) (7,687) (6,765) (4,780) (7,426) (4,704) Interest Expenses (2,611) (2,154) (1,788) (1,251) (797) FCFE (11,753) (14,193) (8,532) (10,864) (7,891) Share Capital Issuance - - - - - Dividend - - - - - Others 43 (309) - - - FINANCING CASH FLOW ( c ) (10,255) (9,228) (6,568) (8,677) (5,501) NET CASH FLOW (a+b+c) 675 (610) 2,326 1,998 6,873 Closing Cash 1,198 588 2,914 4,912 11,784 Source: Company, HDFC sec Inst Research

Key Ratios (Standalone) FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) Gross Profit Margin 48.6 49.2 46.6 47.7 48.2 EBITDA Margin 12.5 15.1 16.8 17.8 18.7 EBIT Margin 10.8 13.5 14.5 15.6 16.5 APAT Margin 6.8 8.3 9.5 11.3 12.3 RoE 24.9 26.4 25.5 25.6 23.6 RoIC (or Core RoCE) 10.8 15.8 18.4 21.6 23.5 RoCE 10.5 14.7 16.7 19.7 22.1 EFFICIENCY Tax Rate (%) 33.5 30.9 29.0 25.2 25.2 Fixed Asset Turnover (x) 7.4 7.2 8.1 9.3 10.7 Inventory (days) 84 76 77 76 75 Debtors (days) 121 102 102 102 102 Other current assets (days) 26 18 18 18 19 Payables (days) 62 54 54 53 52 Other current liabilities (days) 64 63 63 63 64 Cash Conversion Cycle (days) 104 80 80 80 80 Net Debt/EBITDA (x) 3.1 1.9 1.1 0.5 (0.1) Net D/E (x) 1.3 0.8 0.5 0.2 (0.0) Interest Coverage (x) 0.3 0.2 0.1 0.1 0.0 PER SHARE DATA (Rs) EPS 7.6 10.2 12.6 16.4 19.3 CEPS 9.5 12.2 15.7 19.7 22.7 Dividend - - - - - Book Value 34.5 43.1 55.7 72.1 91.4 VALUATION P/E (x) 82.4 61.3 49.8 38.3 32.5 P/BV (x) 18.2 14.5 11.3 8.7 6.9 EV/EBITDA (x) 47.7 35.4 29.1 24.6 21.3 EV/Revenues (x) 6.0 5.3 4.9 4.4 4.0 OCF/EV (%) 2.5 2.9 2.3 2.8 3.3 FCF/EV (%) 2.6 2.3 1.9 2.4 2.9 FCFE/Mkt Cap (%) (2.6) (3.1) (1.9) (2.4) (1.7) Dividend Yield (%) - - - - - Source: Company, HDFC sec Inst Research

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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 10-Oct-18 463 BUY 565 1-Nov-18 620 NEU 627 9-Jan-19 600 NEU 615

24-Jan-19 573 NEU 619 10-Apr-19 544 BUY 650 31-May-19 540 BUY 650

9-Jul-19 569 BUY 651 24-Jul-19 589 BUY 650 22-Sep-19 624 BUY 729 11-Oct-19 616 BUY 760 26-Oct-19 627 BUY 737

RECOMMENDATION HISTORY

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United Spirits TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171-7330 www.hdfcsec.com

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