Liquor major United Spirits Ltd (USL) reported a rise of 69 percent in second-quarter profit on Wednesday, boosted by robust growth in its premium portfolio.

The company's standalone net profit jumped to Rs 258.7 crore for the quarter ended September 2018, the Diageo-controlled firm said in a regulatory filing.

USL had posted a net profit of Rs 153.1 crore in the July-September quarter a-year-ago. Its revenue from operations during the quarter under review was at Rs 7,128.2 crore, up 14.70 percent compared to Rs 6,214.6 crore in the corresponding quarter of the previous fiscal.

Overall, the good set of numbers for USL shows consumption of liquor is now the new fashion. The company's year on year (YoY) numbers are still on a low base even though it reported a rise in this quarter.

Street also took the growth in a positive way as the stock is up almost 8 percent on Thursday's trade. The stock has hit a 52-week low in October 2018 at Rs 439 but gained almost 40 percent in the last few trading session.

Technically, the stock is near to its 200-day moving average, but strong quarterly performance can drive its high valuations. Currently, the stock is trading at price to earnings of 38x FY20e.

At operational levels, revenue was up 14 percent at Rs. 2,228 crore on YoY basis, beats the street estimate of Rs 2,147 crore. Cheaper raw material cost led to an improvement in gross by 100 basis point (bps) taking it to 49 percent.

One basis point is a hundredth of a percentage point.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was up 36 percent at Rs 432 crore, while operating margins improved to 19.4 percent on YoY basis. The company managed to lower down its employee cost by 11 percent and other expenses by 16 percent.

USL upped the growth spend by increasing advertisement expenses by 38 percent to drive performance growth. The company has also managed to lower down their net debt by 20 percent at Rs 2,628 crore against Rs 3,265 crore.

The company's revenue growth was largely driven by volume growth and realisation. Prestige and above segment contributed 66 percent to topline during the H1 (first half) and reported 15 percent volume growth during the quarter. The street estimated a flat volume growth for the popular segment, but the company reported 8 percent rise and it contributed 32 percent to topline in H1.

The net sales from its Prestige and above segment, which includes premium scotch brands such as Johnnie Walker and Black & White, jumped 19 percent at Rs 1,506 crore, while popular segment net sales up 10 percent at Rs 711 crore. In the Prestige segment, key whiskey brands such as Signature and Royal Challenge continued to deliver strong performance.

"Net sales increased 14 percent delivered through the continued strong performance of the Prestige and above segment, an improved performance in the popular segment as well as benefiting from lapping the impact of the highway ban in the same period last year," USL said in a statement.

Prestige and above segment volume trend

Brokerages remain positive on the company as Morgan Stanley upgraded the company to overweight and raised the target to Rs 700 from Rs 650 per share. Cost rationalisation and improved efficiency can drive earnings and see signs of volume growth acceleration, said Morgan Stanley.

But another brokerage firm Macquarie still maintains underperform call with a target price of Rs 443 per share.

Industry

Recently, the government raised prices of ethanol, which is one of the key input for the liquor companies. Upcoming assembly elections in five states is also an important event, which always have an impact on the liquor industry.

The states which are going to polls are also expected to increase the excise duty that will help the liquor companies. Fluctuation in molasses prices also play an important role in input pricing.

During the Q2FY19 earnings call, the USL management was positive on the growth and reiterate the growth guidance for the medium term.

Excise duty hike is always on the plate and do not see any big impact of the same on the margins, the management said. The company increased prices in few states and also now in a position to hike in some states as well. Going ahead, USL is focusing on reducing debt and improve working capital efficiency.

With inputs from PTI.

First Published:Nov 1, 2018 5:11 PM IST