Buy This Spirits Stock For 20% Upside, In Near Term: Emkay Global Suggests

Brokerage firm Emkay Global recommends buying the stocks of United Spirits (UNSP), for a 20% growth. The firm mentioned, "Despite inflationary pressures, gross margin fell only 30bps (ex bulk scotch) as mix improvement and productivity gains offset the increase in input costs."

Target Price

The Current Market Price (CMP) of United Spirits (UNSP) is Rs. 875. Emkay Global has estimated a Target Price for the stock at Rs. 1050. The company is expected to offer a 20% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 875
Target Price	Rs. 1050
1 year return	20.00%

Company performance

UNSP delivered a strong performance in Q3, driven by 20% growth in the P&A segment. Sales grew 16% to Rs. 29bn (14% ex bulk scotch), 5% above the firm's expectation. EBITDA/PAT grew 28%/27%. P&A growth at 20% was impressive led by strong realization gains from growth in scotch. P&A volumes grew 8% on a low base and were likely to be marginally impacted by restrictions in Dec'21-end. Favorable regulations and a step-up in product innovations and spending offer a stronger volume growth outlook. Emkay Global informed UNSP reached debt-free status as of Dec 31, 2022. The interest cost of Rs338mn in Q3 included a one-off non-debt-related charge. The underlying interest cost fell 57% to Rs160mn.

Comments by Emkay Global

Emkay Global said, "Excluding bulk scotch sales of Rs400mn, sales growth was stronger at 14%, led by 20% growth in the P&A portfolio (74% of sales). P&A volumes grew 8% with realization gains of 12%, driven by strong growth in the scotch portfolio. Restrictions in Dec'21-end would have marginally impacted volumes, in our view. P&A growth indicates share gains on the back of a step-up in product innovation and spending. UNSP expanded distribution of renovated Black Dog, Signature and RC American Pride, and launched the second limited edition of Epitome Reserve craft Whisky."

About the company

Diageo India is the country's leading beverage alcohol company with an outstanding collection of premium brands - a business built on the foundation and principles laid down by the giants of the industry. Diageo is incorporated in India as United Spirits Limited. A subsidiary of global leader, Diageo, their world-class portfolio includes premium brands such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Singelton, Royal Challenge, McDowell's No 1, Smirnoff, Ketel One, Tanqueray, and Captain Morgan.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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