Volume growth of 8% (2-year CAGR still down 3%) was on the back of resilience in off-trade with on-trade continuing to see weakness.
Key downside risks are significant downtrading due to tax hikes, continued weakness in on-trade due to operating restrictions and a potential ban of spirits in states.Decent Q4 recovery amid the constraints: Revenue /EBITDA/PAT were up 12% / 52% / 125%, respectively; two-year revenue CAGR was down 0.6%. Underlying sales (ex-bulk Scotch sale in base) was up 16%. Volume growth of 8% (2-year CAGR still down 3%) was on the back of resilience in off-trade with on-trade continuing to see weakness.
However, contraction of Andhra Pradesh business continued to impact volumes. Prestige & Above volumes were up 19% (2-year CAGR: -2%) and Popular was down 2% (2-year CAGR of -4%). Recovery in the Scotch portfolio benefitted the P&A segment while popular portfolio was impacted by weak performance particularly in West Bengal (higher taxes).
Ebitda margin expands to 18.5%: Gross margin expanded 180bps to 43.9% on the back of (1) superior product and state mix, (2) benign commodity prices, and (3) overall productivity focus. Reported ebitda margin expanded 490 bps to 18.5%. This was driven by operating leverage benefit (other opex -170bps and largely flat staff costs as % of revenues); cut of 15% in ad-spends also aided margin expansion. Ad-spends in the previous two quarters were high to support renovation of McDowell’s No. 1 and Royal Challenge Whisky.
Other highlights: Cash generation improved driven by increase in other liabilities and lower capex intensity (down 33% YoY). OCF /FCF grew 2.6x / 3.5x to Rs 17.3billion / Rs 16.2billion. Cash was utilised towards repayment of short-term borrowings (net debt is down to only Rs 5billion).
Valuation and risks: We largely maintain our earnings estimate; modelling revenue / ebitda/ PAT CAGR of 16% / 39% / 65% over FY21-23E. Maintain ‘add’ with a DCF-based revised target price of Rs 650. At our target price, the stock will trade at 41x P/E multiple Mar-23E. Key downside risks are significant downtrading due to tax hikes, continued weakness in on-trade due to operating restrictions and a potential ban of spirits in states.
Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.
Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.