1QFY2014 Result Update | FMCG

August 14, 2013

United Spirits
Performance Highlights
Quarterly Highlights (Standalone)
Y/E March (` cr) Revenue EBITDA OPM (%) Reported PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
% yoy 6.6 (17.0) (359)bp (18.6) 4QFY13 2,058 199 9.7 56 % qoq 6.5 39.5 300bp 110.6 2,057 335 16.3 145 1QFY13

`2,368 -

1QFY14 2,192 278 12.7 118

Stock Info Sector Market Cap (` cr) Net Debt Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 34,416 7,073 1.0 2815/799 296,098 10 19,230 5,699 UNSP.BO UNSP@IN

For 1QFY2014, United Spirits (USL) standalone operating profit fell by 17.0% yoy to `278cr, impacted by increase in raw material costs, advertising costs as well as other expenses. Its Net profit fell by 18.6% yoy to `118cr. Key highlights for the quarter: For 1QFY2014 United Spirits posted a 6.0% yoy growth in its stand-alone net sales to `2,192cr, with volumes remaining flat at 31.34mn tonne. Thus, the top-line growth has been largely aided by superior product mix with the strategic brands of the company growing by 20% yoy with an addition of 1.34 million cases. The OPM stood at 12.7%, down 359bp yoy, impacted by a sharp increase in prices of Extra Neutral Alchohol (ENA) which is a major raw material consumed by the company. Similarly higher expenditure on the IPL franchise increased the advertising expenditure. However, interest costs for the quarter fell by 3.7% yoy to `159cr on account of repayment of debts of `1,600cr at the end of May 2013 out of the proceeds from the issue of preference capital to Diageo. Outlook and valuation: We expect USLs bottom-line to grow at a CAGR of 170% over FY2013-15 led by higher operating profits and lower interest costs due to reduction in debts post the UBH-Diageo deal. At the current market price, the stock is expensive, trading at 35.0x FY2015E EPS; we maintain our Neutral view on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) RoE (%) RoCE (%) P/BV(x) EV/Sales (x) EV/EBITDA (x) FY2012 9,187 24.5 159 (63.1) 11.5 12.6 187.4 4.3 7.8 6.4 4.0 34.9 FY2013 10,598 15.4 135 (14.9) 11.5 10.8 220.1 2.9 8.5 6.2 3.5 30.1 FY2014E 12,294 16.0 612 352.1 12.0 42.1 56.2 9.1 9.7 4.0 3.2 26.3 FY2015E 14,162 15.2 983 60.6 12.0 67.7 35.0 10.7 10.5 3.6 2.7 22.6

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 21.1 6.1 45.9 26.9

Abs. (%) Sensex UNSP

3m (2.3)

1yr 9.1

3yr 5.9 67.1

1.4 156.8

V Srinivasan
022-39357800 v.srinivasan@angelbroking.com

Source: Company, Angel Research; Note: CMP as of August 13, 2013

Please refer to important disclosures at the end of this report

United Spirits | 1QFY2014 Result Update

Exhibit 1: 1QFY2014 Performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM EPS (`)
Source: Company, Angel Research

1QFY14 2,192 1,300 59.3 129 5.9 211 9.6 275 12.5 1,914 278 12.7 159 19 41 140 37 177 8.1 59 33.4 118 5.4 8.1

1QFY13 2,057 1,209 58.8 109 5.3 171 8.3 233 11.3 1,722 335 16.3 166 16 26 179 34 214 10.4 69 32.2 145 7.0 11.1

% yoy 6.6 7.5 18.2 23.1 17.9 11.1 (17.0) (3.7) 19.9 55.4 (22.0) (17.2) (14.1) (18.6) (27.0)

4QFY13 2,058 1,242 60.4 122 5.9 212 10.3 282 13.7 1,858 199 9.7 157 19 75 97 (13) 85 4.1 29 34.0 56 2.7 4.3

% qoq 6.5 4.6 (1.8) 6.0 (0.5) (0.4) (6.6) (2.8) (8.8) 3.0 39.5 1.6 (0.1) (45.4) 43.7 0.0 108.8 96.0 105.4 (1.6) 110.6 97.6 88.3

FY2013 8,510 5,164 60.7 476 5.6 778 9.1 1,058 12.4 7,476 1,033 12.1 656 72 200 506 (22) 484 5.7 163 33.7 321 3.8 24.5

FY2012 7,543 4,524 60.0 421 5.6 745 9.9 904 12.0 6,593 949 12.6 594 61 221 515 (11) 504 6.7 161 32.0 343 4.5 26.2

% chg 12.8 14.1 13.2 4.5 17.1 13.4 8.9 10.4 18.0 (9.3) (1.8) (3.9) 1.3 (6.4) (6.4)

Exhibit 2: 1QFY2014 Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

Actual 2,192 278 12.7 118

Angel Est. 2,314 282 12.2 102

% Diff. (5.3) (1.5) 49bp 15.6

August 14, 2013

United Spirits | 1QFY2014 Result Update

Top-line growth at 6.6% yoy

For 1QFY2014 United Spirits posted a 6.0% yoy growth in its stand-alone net sales to `2,192cr, with volumes remaining flat at 31.34mn tonne. Thus, the top-line growth has largely been aided by a superior product mix with the strategic brands of the company (prestige and above segments) growing by 20% yoy with the addition of 1.34 million cases.

Exhibit 3: Top-line performance

2,300 2,200 2,100 (` cr) 2,000 2,221 2,057 2,058 1,900 1,863 1,800 1,700 1,600 4QFY12 1QFY13 2QFY13 Topline Source: Company, Angel Research 3QFY13 4QFY13 1QFY14 yoy growth (RHS) 2,174 2,192 25 35

15

(5)

OPM down by 359bp yoy

USLs gross margin fell by 52bp yoy during the quarter due to the sharp increase in prices of Extra Neutral Alchohol (ENA) which is a major raw material consumed by the company. Similarly higher expenditure on the IPL franchise increased the advertising expenditure. Other expenses as a percentage of sales too rose by 120bp yoy during the quarter. Thus, the OPM stood at 12.7%, down 359bp yoy. However, interest costs for the quarter fell by 3.7% yoy to `159cr on account of repayment of debts of `1,600cr at the end of May 2013 out of the proceeds from the issue of preference capital to Diageo.

Exhibit 4: Gross Margin and OPM

45 40 35 30 (%) 25 20 15 10 5 0 4QFY12 1QFY13 2QFY13 OPM 3QFY13 4QFY13 1QFY14 Gross Margin 10 16 11 11 10 13 39 36 41 41 40 41

Exhibit 5: Bottom-line performance

160 140 120 100 (` cr) 145 80 60 40 10 39 20 0 4QFY12 1QFY13 2QFY13 Bottomline 3QFY13 4QFY13 1QFY14 yoy growth (RHS) 118 300 200 100 0 (100) (%) 500 400

81

Source: Company, Angel Research

Source: Company, Angel Research

August 14, 2013

56

(%)

United Spirits | 1QFY2014 Result Update

Investment Rationale
Dominant player with strong brands under its kitty: The Indian branded spirit industry sold nearly 290mn cases in FY2012 of which USL sold around 120mn cases, giving it a market share of around 41%, and making it one of the most dominant players in the industry. The company has a market share of around 59% for its first line brands in India. It is the largest spirit company in the world by volumes and has presence in scotch, whiskey, brandy, rum, vodka, gin and wine. It has strong brands under its kitty, such as McDowells, Bagpiper, Royal Challenge, Antiquity, Signature, Black Dog, White Mischief, Vladivar, Whyte & Mackay etc and all of these have a high recall. USL has four brands in the top 25 worldwide spirits brands. The McDowell No 1 family is the largest spirits brand in the world with sales of 44mn cases in FY2012. Diageo deal, a game changer: The recently concluded deal between UBH and Diageo is positive for USL as it brings multiple benefits to the company. On the financial front, Diageo has infused ~`3,300cr into USL for the subscription of preferential allotment and towards the purchase of treasury shares. USL would use these funds to repay debts. Lowering of debts would result in reducing the interest costs and thereby boost the companys earnings The deal would provide synergistic benefits as USL can leverage the potential of Diageos premium brands with its strong distribution strengths, which would result in expansion of overall business and also result in better operating margins. Post this deal, UBH will lose control over USLs board of directorship and Diageo will nominate majority of the directors. The new board is expected to be more focused in decision making considering that the UBH group is currently present in diverse businesses in India and its aviation arm - Kingfisher is currently facing a huge financial crisis.

August 14, 2013

United Spirits | 1QFY2014 Result Update

Outlook and Valuation

We expect USLs bottom-line to grow at a CAGR of 170% over FY2013-15 led by higher operating profits and lower interest costs due to reduction in debts post the UBH-Diageo deal. At the current market price, the stock is expensive, trading at 35.0x FY2015E EPS; we maintain our Neutral view on the stock.

Exhibit 6: One year forward (P/E) band

3,000 2,500 2,000 1,500 1,000 500 0 Oct-09 Oct-10 Oct-11 Oct-12 Apr-13 55x Apr-10 Apr-11 Apr-12 25x 40x

Price (`) Source: Company, Angel Research

10x

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL USL Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
42,229 8,921 18,396 29,996 30,452 16,903 134,356 264,078 13,659 49,045 9,060 30,975

CMP (`)
440 746 1,353 172 895 4,019 621 334 212 5,087 147 2,368

TP (`)
-

Upside (%)
-

P/E (x) FY14E

31.7 35.1 32.8 32.2 35.6 32.9 37.3 29.6 29.2 41.3 19.4 56.2

EV/Sales (x) FY15E

27.4 29.3 28.0 27.4 30.2 27.0 34.2 25.0 24.5 34.0 17.6 35.0

RoE (%) FY14E

35.6 35.7 100.0 39.2 24.8 34.1 113.4 36.1 21.4 56.4 9.3 9.1

CAGR # Sales
15.4 16.1 15.7 16.2 18.8 17.6 12.6 16.2 14.8 14.4 11.0 15.6

FY14E
3.3 1.3 5.0 4.2 4.0 4.2 4.6 7.3 2.6 5.2 1.1 3.2

FY15E
2.7 1.1 4.3 3.6 3.4 3.5 4.0 6.1 2.2 4.3 1.0 2.7

FY15E
32.7 34.6 91.0 36.7 24.2 33.7 87.0 34.9 21.0 50.3 9.5 10.7

EPS
17.5 15.3 15.0 19.5 18.9 19.6 11.1 19.2 24.0 14.5 13.2 169.5

Source: Company, Angel Research; Note: #Denotes CAGR over FY2012-14E, *December Year Ending.

Company Background
USL is a leading alcoholic beverages producer and distributor in India with a volume market share of 41%. The company has strong brands under its kitty such as McDowells, Bagpiper, Royal Challenge, Antiquity, Signature, Black Dog, White Mischief, Vladivar, Whyte & Mackay etc. It has the largest manufacturing presence in the country with 40 owned plants and 42 contract plants and has a capacity to service 64,000 outlets.

August 14, 2013

United Spirits | 1QFY2014 Result Update

Profit and Loss statement (Consolidated)

Y/E March (` cr) Total operating income % chg Total Expenditure Materials Manufacturing and Other Exp. EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Adj.Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) % chg Prior period items PAT after MI (reported) Extraordinary Income/Exp. ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Adjusted EPS (`) % chg FY10 6,362 16.4 5,331 3,178 2,153 1,032 33.9 16.2 95 937 38.2 14.7 607 85 20.5 414 547.2 (245) 170 193 113.6 (23) (0) (1) 94.3 (23) (245) 222 907.2 3.5 (1.9) 18.4 770.0 FY11 7,376 15.9 6,224 3,853 2,371 1,152 11.7 15.6 102 1,050 12.1 14.2 498 144 20.7 695 67.7 138 834 265 31.8 568 (1) (3) 2,550.4 570 138 431 94.4 5.8 45.2 34.3 86.4 FY12 9,187 24.5 8,126 5,132 2,995 1,060 (8.0) 11.5 147 913 (13.1) 9.9 876 269 87.9 306 (55.9) 29 335 148 44.2 187 (1) (1) (67.1) 188 29 159 (63.1) 1.7 14.9 12.6 (63.1) FY13 10,598 15.4 9,378 5,952 3,426 1,220 15.0 11.5 178 1,041 14.1 9.8 985 253 81.8 310 1.1 (237) 73 178 244.6 (105) (4) (156.2) (101) (237) 135 (14.9) 1.3 (8.1) 10.8 (14.9) FY14E 12,294 16.0 10,818 6,823 3,995 1,475 21.0 12.0 213 1,262 21.2 10.3 754 420 45.3 927 199.5 927 315 34.0 612 (681.6) 612 612 352.1 5.0 42.1 42.1 291.6 FY15E 14,162 15.2 12,463 7,860 4,603 1,699 15.2 12.0 235 1,465 16.1 10.3 570 595 39.9 1,490 60.6 1,490 507 34.0 983 60.6 983 983 60.6 6.9 67.7 67.7 60.6

August 14, 2013

United Spirits | 1QFY2014 Result Update

Balance Sheet (consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Other long term liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current Assets Debtors Inventory Current liabilities Net Current Assets Deferred Tax Assets Foreign curr. Mon item Mis. Exp. not written off Total Assets 2,374 649 1,725 94 4,244 127 4,949 769 772 322 1,340 1,746 1,764 3,185 71 141 45 9,632 2,697 757 1,940 129 4,432 154 6,184 637 1,627 321 1,483 2,117 2,010 4,174 33 45 10,907 3,726 905 2,821 5,167 236 7,573 363 2,203 279 1,973 2,755 3,426 4,147 59 12,431 3,879 1,083 2,796 5,205 218 7,331 244 2,676 260 1,640 2,511 3,492 3,839 59 12,116 4,267 1,296 2,970 5,205 236 10,033 750 2,676 279 2,640 3,687 4,540 5,493 59 13,963 4,693 1,531 3,162 5,205 236 10,386 142 2,676 279 3,042 4,247 5,187 5,199 59 13,861 121 3,653 3,774 8 5,506 344 9,632 126 4,053 4,179 18 6,381 330 10,907 126 4,536 4,662 15 7,523 231 12,431 126 4,661 4,787 11 7,133 184 12,116 145 8,536 8,681 11 5,133 137 13,963 145 9,481 9,626 11 4,133 90 13,861 FY10 FY11 FY12 FY13 FY14E FY15E

August 14, 2013

United Spirits | 1QFY2014 Result Update

Cash flow (consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments (Inc.)/ Dec. in loans and adv. Other income Cash Flow from Investing Issue/(Buy Back) of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY10 170 95 (474) 193 (402) (148) 824 676 14,487 (1,854) 37 (12,623) 46 320 449 769 FY11 834 102 (1,121) 265 (450) (358) (28) (385) (794) 875 38 585 704 (132) 769 637 FY12 335 147 (247) 148 88 (900) (81) (981) 1,142 38 (561) 619 (274) 637 363 (390) 38 106 (246) (119) 363 244 FY13 73 178 189 178 262 (153) 18 (135) FY14E 927 213 (1,148) 315 (322) (388) (18) (406) 3,319 (2,000) 38 (123) 1,234 506 244 750 (1,000) 38 (123) (1,085) (608) 750 142 FY15E 1,490 235 (315) 507 903 (427) (427)

August 14, 2013

United Spirits | 1QFY2014 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/E (on basic, reported EPS) P/CEPS P/BV Dividend yield (%) Market cap. / Sales EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Asset Turnover (Net Block) Asset Turnover (Total Assets) Operating Inc. / Inv. Cap. Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Gross debt to equity Net debt to equity Net debt to EBITDA Int. Coverage (EBIT / Int.) 1.5 1.2 4.5 1.5 1.5 1.3 4.9 2.1 1.6 1.5 6.5 1.0 1.5 1.4 5.5 1.1 0.6 0.5 2.8 1.7 0.4 0.4 2.2 2.6 2.7 3.8 0.6 0.7 100 64 98 125 2.9 4.0 0.7 0.8 96 70 93 147 2.9 3.9 0.8 0.8 97 69 108 145 2.8 3.8 0.9 0.9 91 62 119 127 3.0 4.3 0.9 1.0 92 64 119 124 3.2 4.6 1.0 1.1 102 73 125 126 9.4 21.5 7.2 10.2 21.1 10.8 7.8 14.9 4.3 8.5 15.9 2.9 9.7 17.7 9.1 10.5 18.3 10.7 14.7 (13.6) 0.7 (1.5) (1.3) 1.4 (1.7) 14.2 68.2 0.8 7.6 5.7 1.2 9.9 9.9 55.8 0.8 4.6 7.0 1.3 1.4 9.8 (144.6) 0.9 (12.8) (19.4) 1.4 (3.4) 10.3 66.0 1.0 6.8 8.1 0.6 5.9 10.3 66.0 1.1 7.3 8.1 0.4 7.0 18.4 18.4 26.3 2.6 313 34.3 34.3 42.4 2.6 332 12.6 12.6 24.3 2.6 370 10.8 10.8 24.9 2.6 380 42.1 42.1 56.8 2.2 597 67.7 67.7 83.8 2.2 663 128.8 128.8 90.2 7.6 0.1 4.5 5.2 32.3 3.5 69.1 69.1 55.9 7.1 0.1 4.0 4.8 30.8 3.3 187.4 187.4 97.3 6.4 0.1 3.2 4.0 34.9 3.0 220.1 220.1 95.0 6.2 0.1 2.8 3.5 30.1 3.0 56.2 56.2 41.7 4.0 0.1 2.8 3.2 26.3 2.8 35.0 35.0 28.3 3.6 0.1 2.4 2.7 22.6 2.8 FY10 FY11 FY12 FY13 FY14E FY15E

August 14, 2013

United Spirits | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

United Spirits No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 14, 2013

10