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    Add United Spirits, target price Rs 620: ICICI Securities

    Synopsis

    At its target price, the stock will trade at 42 times P/E multiple Mar-22E.

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    ICICI Securities has given an add rating to United Spirits with a target price of Rs 620.

    According to the brokerage, although liquor demand has historically been inelastic, steep tax increases by states coupled with pressure on consumer incomes could drive downtrading. However, the brokerage believes that United Spirits (USL) could potentially benefit from (relative) easing of competitive intensity.

    A potential new distribution model (online ordering and home delivery), if sustained, can be a structural positive for the industry and improve accessibility, help premiumise and remove in-home consumption stigma. In addition to cost saving initiatives, the brokerage sees incremental levers of margin expansion – operating leverage (in the second half of FY21) and likely deflationary input cost environment. Sharp fall in crude prices potentially leads to lower prices for ENA.

    Investment Rationale

    The brokerage points out that although improvement in EBITDA margin has been the largest tailwind for USL, the management has cautioned against some near-term pressures given the current environment. Ad spends is one lever to drive savings though through potential to rationalise spends and use digital medium more efficiently.

    The brokerage has increased its earnings estimates by 3 per cent; modelling revenue / EBITDA / PAT CAGR of 2 per cent / 5 per cent / 17 per cent over FY20-22E. It maintains an add rating with a DCF-based revised target price of Rs 620 (earlier Rs 570). At its target price, the stock will trade at 42 times P/E multiple Mar-22E.

    Key downside risks are significant downtrading due to tax hikes and a potential ban of spirits in states.

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1990.50 crore, down -23.08 per cent from last quarter sales of Rs 2587.60 crore and down -14.11 per cent from last year's same quarter sales of Rs 2317.50 crore. The company has reported net profit after tax of Rs 50.30 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 56.76 per cent stake in the company as of March 31, 2020, while FIIs held 20.54 per cent, DIIs 9.19 per cent and public and others 13.51 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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