The words you are searching are inside this book. To get more targeted content, please make full-text search by clicking here.
Discover the best professional documents and content resources in AnyFlip Document Base.
Search
Published by Omkara Capital Private Ltd, 2022-07-05 05:56:48

USL - One Pager

USL - One Pager

USL One Pager

Diageo India incorporated in India as United Spirits Ltd.(USL) is the country’s leading beverage alcohol company and a subsidiary
(55.94% stake) of global leader Diageo PLC. The company sold 79 mn cases in FY22 as compared to 71 mn cases in FY21. USL categorizes
its brands under two segment – Prestige & Above (P&A) and Popular. Of the 79 mn cases sold in FY22, 43 mn were for P&A and 36 mn
for the popular segment. P&A is the key focus area and as a part of this strategy, the company during Q4FY22 announced slump sale
of 32 popular brands to Inbrew Beverage Ltd for a consideration of Rs820 Cr along with 5-year franchise agreement for 11 other
popular brands which had revenues of Rs590 Cr in FY22. Post this transaction, the number of popular brands in the portfolio will
decrease from 47 to 15. Excluding sales from these popular brands from FY22 would increase sale contribution from P&A from 74% to
85%.

The growth levers for USL going ahead should be the following:

• Focus on P&A brands: The rising popularity of premium whisky offerings in India and UNSP’s strategy to focus on high-value
P&A segment & franchising off popular segment would aid in a high single-digit revenue CAGR. % share of P&A has increased
from 56% in FY16 to 74% in FY22 and would further go up post sale of these popular brands.

• Strong parent brand name with India being a key focus market: With Diageo having outlined its key growth levers to be
Scotch, US, and India, we believe the parent is fully tuned into driving considerable growth from the Indian subsidiary over
the medium- to long-term. Appointment of new CEO (Ms. Hina Nagarajan) from the existing global management bandwidth
can be viewed in that context. The outcome of the strategic review of select Popular brands and vision to achieve sustained
double-digit top-line growth with mid-to-high teens margin over the medium-term are encouraging.

• Structural changes within the company: Several changes have been made to the business modus operandi of UNSP such as
product rationalization, supply chain efficiencies, selling and distribution competencies, higher accountability and investing
back into the business ever since the Diageo’s takeover. These changes made the organization leaner and better equipped to
tap the long-term growth levers.

• Recent Sale of popular brand will be margin accretive: The outcome of the much-awaited strategic review of Popular
segment was largely in line with expectations with UNSP management selling/franchising most Popular brands. Overall, we
believe this transaction would be margin accretive on a like-for-like basis and would broadly aid in a) de-chocking & freeing
up management bandwidth & working capital requirements, and b) delivering its stated objective of double-digit growth &
mid-to-high teen operating margins over the near to medium-term.

Financial and Valuations:

Revenues/EBITDA/ PAT CAGR between FY22-24 is expected to be 6%/9%/21% respectively. With focus on P&A brands, margins are
expected to improve to 18% in FY25 from 16% in FY22 while a decline in interest cost should lead to higher PAT growth. The company
became net debt free in FY22 while ROCE should remain 20%+. The stock at CMP trades at 42x FY25 P/E compared to 55x historical
average. FY25 EV/ EBITDA stands at 28x while Mcap to Sales is at 5x.

(In Crs.) Financials Valuations

Particulars FY20 FY21 FY22 FY23e FY24e FY25e Particulars FY20 FY21 FY22 FY23e FY24e FY25e

Revenue 9,091 7,889 9,382 9,187 10,135 11,091 O/s Shares 73 73 73 73 73 73

EBITDA 1,454 988 1,511 1,556 1,765 1,983 CMP 485 556 799 799 799 799

EBITDA % 16% 13% 16% 17% 17% 18% Mkt Cap 35,239 40,422 58,087 58,087 58,087 58,087

PAT 705 310 770 1,003 1,193 1,372 EV 37277 40923 58011 57062 56199 55133

EPS 9.7 4.3 10.6 13.8 16.4 18.9 PE 50 130 75 58 49 42

Networth 3,810 4,127 4,902 5,548 6,740 8,112 PB 9 10 12 10 9 7

Net Debt 2,039 500 -76 -1,025 -1,888 -2,954 EV/EBITDA 24 40 38 37 32 28

ROCE % 23% 12% 26% 24% 23% 21% Mcap/Sales 3.9 5.1 6.2 6.3 5.7 5.2

ROE % 20% 8% 17% 19% 19% 18% OCF/EBITDA 46% 175% 59% 81% 64% 64%

OCF 667 1,728 889 1,268 1,124 1,277 FCF Yield 1% 4% 1% 2% 1% 2%


Click to View FlipBook Version