Motilal Oswal has given Neutral recommendation for United Spirits with a target price of Rs. 880 in its research report issued on Oct 26, 2022
Motilal Oswal’s research report on United Spirits
UNSP’s 2QFY23 earnings delivered a significant beat over our expectations, led by a healthy sales beat and an unusually low ad-spends as well as staff costs as a percentage of sales (both among the lowest in the past 20 quarters), which offset the more severe than expected gross margin pressure. We had highlighted the immense gross margin pressure likely for AlcoBev companies in our note in Feb’22. As guided earlier, the management concluded the sale of part of the Popular business, amounting to 14% of sales in 1HFY23. The sale of this business will lead to a YoY decline in 2HFY23 sales, even as the margin outlook improves for the better, as the proportion of Prestige and above (P&A) increases to over 80%.
Outlook
We maintain our Neutral rating on the stock, which remains expensive at 52x FY24 EPS. We maintain our Neutral rating with a TP of INR880, valuing the stock at 50x Sep’24E EPS.