United Spirits high on post-lockdown party

Its share price has risen 44% in 2021, against 21% rise in BSE FMCG index

United Spirits (USL) was one of the top gainers on the bourses on Thursday, with the country’s largest alcoholic beverage maker’s share price rising 7.2 per cent, against a 1.6 per cent rise in the benchmark BSE Sensex.

In fact, USL’S share price has risen 16 per cent so far in September, outperforming both the broader market and its FMCG peers by a big margin.

In comparison, the Sensex has risen 4.1 per cent this month, while BSE FMCG index is up 4.6 per cent.

The performance has been equally strong from the beginning of 2021, as USL’S share price has jumped 43.6 per cent, against a 25.4 per cent rally in the Sensex and 21 per cent rise in BSE FMCG Index.

The firm, however, has been an underperformer in the medium to long term. Its stock price has risen 71 per cent since the end of March 2020, against a 103 per cent rise in the Sensex, but it is still better than the 49 per cent rally in the BSE FMCG.

However, if one looks at a longer time horizon, the stock has increased just 26 per cent since the beginning of 2018, against a 66.5 per cent rise in the Sensex and 42.4 per cent rise in BSE FMCG Index.

Analysts attribute the recent rise in USL to an improvement in its financial performance after a sharp drop in revenues and earnings due to Covid-19.

The company’s net sales were up 11.3 per cent year-on-year (YOY) during the trailing 12-months (TTM) ending June, while net profit was up 216 per cent YOY.

It benefitted both from lower operating expenses and a sharp drop in its interest expenses as it continues to deleverage its balance sheet. The company’s gross debt was down 60 per cent in FY21 from ~2,750 crore at end of March 2020 to ~1,037 crore at the end of March 2021.

This has led to re-ratings by many brokerages.

“Despite the Covid-led disruption, a strong reduction in working capital led to a much higher debt repayment of nearly ~1,500 crore in FY21. With current low debt, USL should easily turn into net cash position in FY22,” Ashit Desai of Emkay Global Financial Services said in a note after USL reported FY21 results.

Analysts are also factoring in volume growth in the upcoming quarters in light of the revival in consumer demand and USL’S foray into home delivery of liquor in major states.

“USL remains one of the best bets (in the listed space) on India’s liquor industry by virtue of its robust market share and benefits from Diageo’s management control,” write Abneesh Roy and Tushar Sundrani of Edelweiss Securities in their recent report.

USL remains one the most expensive listed stocks with a price-toearnings multiple of 85X, but it is yet to deliver on earnings. Its net sales in FY21 were the lowest since FY12 and the industry’s growth continues to be hobbled by ever rising indirect taxes on alcoholic beverages.