The stock of the Diageo-controlled breweries & distilleries company hit a 52-week high today. It was trading at its highest level since June 27, 2018. Thus far in the month of February, it has surged 11 per cent, against 1 per cent rise in the S&P BSE Sensex.
On consolidated basis, United Spirits' net profit rose 15.3 per cent year on year (YoY) to Rs 235 crore in Q3FY20, due to healthy growth in sales (8 per cent) of Prestige and Above (P&A) portfolio. Profit before tax (PBT) for Q3FY20 stood at Rs 314 crore, up by 8.2 per cent against Rs 290.30 crore in the year-ago quarter.
The company's earnings before interest, tax, depreciation, and amortisation(Ebitda) margin came in at 16.4 per cent, up 207 bps, primarily delivered through savings in operating costs and to a lesser extent by a lower marketing reinvestment rate.
With a positive momentum building up in the P&A category, the management remains cautiously optimistic on the performance ahead.
The management said the consolidated net sales grew 3 per cent; exhibiting an improving trend over the previous quarter, but still impacted by the broader consumption slowdown.
“We are particularly encouraged to see some momentum in Prestige and Above portfolio, a sharp improvement from the previous quarter, when the segment hadn’t grown, in part due to internal operational challenges. Additionally, during the quarter, we saw a return of premiumisation trend, with each sub-segment growing faster than the one beneath it, and especially with Scotch brands showing strong growth,” it said.
While in the short-term, events such as excise hike in Telangana (Rs 20/bottle) or license fee hike in Uttar Pradesh may impact growth, the longer-term growth aspiration and ongoing premiumisation trend remain positives for the liquor sector, according to analysts at ICICI Securities.
The management expects to deal with higher input price inflation by managing its A&P and other expenses. The management has guided at double digit revenue growth and mid to high teen margin over the medium term. However, concerns remain like the recent route-to-market (RTM) changes in Andhra Pradesh and policies related to liquor ban, it said. The brokerage firm has maintained ‘buy’ rating on the stock with target price of Rs 750 per share.