United Spirits hits 5-month high; stock rises 6%

Shares of United Spirits (USL) hit a five-month high of Rs 675, up 6% on BSE in an otherwise range-bound market, on the expectations of higher volume growth in the current quarter. The stock was trading at its highest level since June 28, 2018.

In past five-weeks, USL outperformed the market by surging 33% after the company posted a strong 69% year-on-year jump in net profit at Rs 2.59 billion in September quarter (Q2FY19), on the back of robust sales of its premium brands. In comparison, the S&P BSE Sensex was up 5% during the same period. 

Diageo Plc-owned USL’s standalone operational revenue grew 14.7% to Rs 71.28 billion from the same quarter a year ago. The healthy sales were driven by strong growth in both the Prestige and Above and Popular segments, also benefitting from a relatively lower base last year.

The company’s reported Ebitda (earnings before interest, tax, depreciation and amortization) margin improved 313 basis points (bps) at 19.4% during the quarter. This improvement was primarily driven by productivity initiatives and pricing that offset the adverse impact of inflation.

“The management expects the election period to spring volumes surprise (by either being explosive or reduced sales) for the company. However, it feels that such instances do not have a lasting impact on the company,” according to analysts at ICICI Securities.

“The company is getting future ready by cutting down on inefficient manufacturing plants (reduced to around 50 from 94 plants three years ago) and is planning a greater push towards building a stronger brand and digital outreach (acquisition of Hipbar). The premiumisation focus and maintaining leadership in popular brands with consecutive price hikes across states has led margins to trend higher. The strategy would position USL to achieve its guidance of achieving double-digit growth and high teen margins,” the brokerage firm said in result update with ‘buy’ rating on the stock and 12-month target price of Rs 700 per share.

At 02:28 pm, USL was trading 5% higher at Rs 669 on the BSE, as compared to a 0.17% decline in the S&P BSE Sensex. The trading volumes on the counter more than tripled with a combined 3.19 million equity shares changed hands on the BSE and NSE so far.

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