United Spirits results lift liquor stocks TOP 10 STOCKS OF BREWERIES Sensex posts biggestweekly gain since March
Shares of all liquor makers rose on Friday after United Spirits (USL) reported higher than expected growth in profit and margins.
The strong showing by the Diageo-owned company indicated the sector was able to weather the storm created by the ban on sale of liquor on highways and the new goods and services tax (GST).
USL shares rose 23 per cent at one point, the highest in a day over four years, after it reported an 84 per cent increase in net profit, a 57 per cent jump in earnings before interest taxes, depreciation and amortisation (Ebitda) and a 631 basis points increase in Ebitda margins for the quarter ended September. The stock ended with a 17.6 per cent gain, at ~3,029.
Shares of Globus Spirits gained 16 per cent, while Pioneer Distilleries and GM Breweries gained 10 per cent each.
“Liquor companies in India were faced with tumultuous headwinds - demonetisation, highway liquor ban and implementation of GST. Ripple effects of demonetisation and highway liquor ban are now clearly behind as evident from current results management commentary. Ambiguity around GST and implementation of it has also been largely cleared out. With all regulatory headwinds largely behind, we expect a smooth journey ahead for the liquor stocks from here,” said Abneesh Roy, senior vice-president of Edelweiss Financial Services.
“In spite of the GST and Price on BSE in ~ United Spirits Globus Spirits Pioneer Distilleries GM Breweries Assoc Alco & Brew Empee Distilleries United Breweries Radico Khaitan Tilaknagar Industries Som Distilleries Breweries 3,029 highway ban issues, United Spirits delivered an impressive 14 per cent year-on-year Ebitda 101 206 770 183 17.6 16.0 10.0 10.0 2.7 The benchmark Sensex posted its biggest weekly advance since March 19. The index of 30 blue-chip stocks gained 767 points, or 2.4 per cent during the week after the government announced a stimulus package, which included a ~2.11-lakhcrore plan to recapitalise state-owned banks and a ~7-lakhcrore plan to build new roads. On Friday, the Sensex gained for a fifth straight day, led by health care and industrial stocks, while traders raised bullish bets in November derivatives series, which began Friday. The rollover rate in the Nifty October futures which expired Thursday was 73 per cent, compared with a three-month average of 65 per cent on expiry, data compiled by Bloomberg show. Adani Ports and Sun Pharma gained 4.3 per cent and 3.7 per cent respectively, the most among Sensex components. “Market celebrations continued post Diwali with government promising to fill up the ammunitions in the war chest of PSU banks’ balance sheets so that they can restart aggressive lending to accelerate the economic growth further in the country,” said Jimeet Modi, founder & chief executive officer, Samco Securities. growth in the financial year's first half. Further, improving cash flows and a reducing cost of debt is driving interest cost reduction-led earnings growth. With continued mix improvement, waning impact of the highway ban, price increases in states and seemingly negligible impact of GST-led cost pressures, we believe there is greater certainty of operating margin delivery from the company,” went a note from IDFC Securities.
Last December, the Supreme Court had ordered that all outlets selling alcohol within 500 metres of a highway be shut from April. In August, the court added that the ban would not apply to outlets within city limits.
USL said shoes started to re-open in September after the SC's amendment. “We expect the impact of the highway ban to continue to decrease and the business to normalise by the end of the third quarter. Based on our current expectations, through our continued focus on productivity initiatives, coupled with price increase in select states, we expect the net adverse impact of GST on our margins to be moderate in this financial year,” said Anand Kripalu, chief executive officer.
While GST doesn’t apply on liquor sales, distillers and brewers have to bear additional levies on input material and services. In the past year, liquor shares have been under pressure due to the highway ban, prohibition in certain states and GST. Analysts say the worst for the sector might be over and shares could gain by 10-15 per cent from current levels. Shares of YES Bank slumped 7.4 per cent after investors took fright at revised bad loan figures which were four times higher than those previously reported by the Mumbaibased lender.
Earlier this week, the Reserve Bank of India (RBI) had fined YES Bank, controlled by billionaire Rana Kapoor, for under-reporting its bad loans in audited results for the year to March 31. The bank also underestimated its soured loans in the preceding two fiscal years, according to previous filings.
“The level of divergence between asset-quality figures that the bank has been reporting for the last three years and what the regulator found in its assessments has been scary,” said Diksha Gera, a Bloomberg Intelligence analyst in Singapore.
Gross non-performing assets (NPAs) were ~8,370 crore in the year to March 31, compared with the bank’s previously reported figure of ~2,020 crore.
YES Bank doesn’t expect any further divergence between its reported bad loan ratios and the central bank’s assessment, Kapoor had said. Net income rose 25 per cent to ~1,000 crore in the September quarter, according to an exchange filing.
Bank of America Merrill Lynch cut its earnings estimates by five per cent and price target to ~475, from ~500 previously.
“We run a stress scenario assuming doubling of new NPLs (slippages) from here on and credit costs rising to 1.1 per cent. With this, we still believe the bank, with its superior operating performance delivery, can absorb such a scenario, if it plays out and yet deliver about 25 per cent net profit growth in FY18/19. Such a scenario should still bring in 18-19 per cent return on equity in FY18/19 (versus 20 per cent estimated earlier),” said the brokerage in a note.