United Spirits 4QFY21 result and investor call to go – Not rated – YES Securities

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Overall Performance – Revenue increased 11.6% year-on-year in Q4FY21 and 16.1% adjusted for the one-time sale of bulk scotch the previous year. Gross margin up 178 basis points to 43.9%, helped by benign raw materials, a superior mix and improved productivity. EBITDA margin up 491 basis points, driven by gross margin and lower A&P expenses. PAT fell from Rs 239 million to Rs 1,673 million due to lower interest and tax charges. Revenue decreased 13.2% year-on-year and 10.8% adjusted for the one-off sale of bulk scotch with an 11% drop in volume, EBITDA margin decreased 405 percentage points base due to negative operating leverage while the PAT stood at Rs 3,103 million in FY21.

Prestige & Above Segment – Revenue up 25.8% thanks to a strong volume increase of 19.4%, representing ~ 70% of total revenue in Q4FY21 versus 65.3% in Q1FY20. The strong performance was driven by healthy double-digit growth in the Scotch segment. While for FY21 the volume / revenue decreased 9% / 7.2% with both Q1 and Q2 having been badly affected.

Popular segment – Revenue down 3.1% due to a 1.5% drop in volume, accounting for ~ 29% of total revenue in Q4FY21 down slightly 1.6% from at T4FY20. While for FY 21 volume / revenue decreased by 13.8% / 17.7% mainly due to lower franchise income, lower consumption due to retail prices high consumption and the change in mix, priority sales fell by 15.9% in fiscal year 21.

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

Management against take-out

– Management update – Hina Nagarajan will take up her duties as new Managing Director and CEO from July 1, 2021, succeeding Mr. Anand Kripalu. Previously she was Managing Director of African Regional Markets at Diageo, 30 years experience in CPG companies and worked with various organizations such as Nestlé, ICI Paintts, RB, Mary Kay India.

– Prestige & Above Segment – Adjusting Scotch Rs 2.5 billion revenue to T4FY20, revenue increased by around 31% implying strong brand resilience. The Scotch segment experienced double-digit growth, the fastest growing portfolio business, offset by the contraction of business held in Andhra Pradesh, the unwinding of franchise business there.

– Brand portfolio – Several initiatives have been taken to increase the visibility and salience of the brand through new commercial advertisements for Johnnie Walker, Black and White and other brands; available on all platforms in the country, the association with RCB has contributed to improving the visibility of the brands, will deploy new packs of Black Dog.

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

– Productivity – the management of revenues through premiumization led to a better mix, price increases, cost optimization and debt reduction made it possible to optimize cash management.

– Gross margin outlook – could decline over the next few quarters from current levels due to inflation in input costs and lower demand for products, driven by the Covid lockdown and higher taxes .

– Update on A&P and other expenses – A&P is spending 90bp less in FY21, expect 8-9%% of sales of FY22 at par with FY20. Other expenses were 4.5% in Q4FY21 and are expected to be 5-6% as a% of future sales. Andhra Pradesh impact due to lower gross margin due to increased inventory and unwinding costs impacting other expenses

– Net working capital efficiency – improved to 26% from 30% as a% of sales in FY20, thanks to improved receivables and slightly higher inventories.

– Debt repayment – Significant reduction in debt in FY21 from ~ Rs1500cr to Rs556cr thanks to healthy FCF generated in the company and improved working capital. The D / E stood at 0.13 versus 0.35 in FY20.

– Franchise Update – South India business accounts for the largest portion of franchise revenue, PA is the major component, was stable in FY21 except Q1 of exercise21 because there was no activity due to a full lockout

– Ethanol blending policy – I’m not sure when a new ethanol blending policy will be announced, but the company is increasing its own distillation capacity to protect against the uncertainty surrounding the policy

– Excise tax update – there is no negative impact on operations due to excise taxes, the company will discuss prices with the government of Karnataka. in July 2021

– Company Update – will reduce hierarchy levels from 16 to 9 levels, the highest level of employee engagement through digital platforms during the crisis

– Outlook – Many states are completely closed, such as Maharashtra, creating a barrier to consumption; Barring supply issues, the company is well positioned to capture the recovery cycle thanks to the strong resilience of brands.

UNITED SPIRITS LTD. was the last BSE trade at Rs.572.7 from the previous close of Rs. 572. The total number of shares traded during the day was 747,340 in addition to 18,900 trades.

The stock hit an intraday high of Rs. 599.5 and an intraday low of 570.7. The net turnover during the day was Rs. 437 297 694.

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