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United Spirits – Cheering the Economic Boom

November 23, 2009

Vijay Mallya's Kingfisher ModelsOne of the main beneficiaries of India Inclusive Growth Story is United Spirits as executives like to be cheerful and celebrating. It has retained margin above 17% save for a tough quarter in Q3 FY09 when OPM sank to 11.3%. Expect USL to sustain 15-17% OPM in its domestic business even as molasses price is likely to remain over Rs3,800/MT in sugar-rich UP.

A persistent focus on premiumisation and main line brands has not impacted USL volume growth which stood at a respectable 13.7% yoy in H1 FY10. The company is well placed to outpace industry growth (estimated at 10-11% pa) in IMFL volumes and is likely to witness a 15% volume CAGR.

USL has raised Rs16bn through a QIP in Oct 09 and would repay about US$285mn worth of acquisition debt resident in the downstream subsidiaries of the co. This could improve interest coverage to 2.1x in FY11 while net D/E could trend below 2x for the
first time since White & Mackay buyout.

United Spirits is likely to report an EPs of Rs 25 and Rs 40 for FY10 and FY11 respectively. HOLD it will be a market performer. ADD on Decline less than 1000.

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