Decent Q4 recovery amid the constraints: Revenue /EBITDA/PAT had been up 12% / 52% / 125%, respectively two-year income CAGR was down .6%. Underlying sales (ex-bulk Scotch sale in base) was up 16%. Volume development of 8% (2-year CAGR nonetheless down 3%) was on the back of resilience in off-trade with on-trade continuing to see weakness.
However, contraction of Andhra Pradesh organization continued to effect volumes. Prestige & Above volumes had been up 19% (2-year CAGR: -2%) and Popular was down 2% (2-year CAGR of -4%). Recovery in the Scotch portfolio benefitted the P&A segment although well-known portfolio was impacted by weak efficiency especially in West Bengal (larger taxes).
Ebitda margin expands to 18.5%: Gross margin expanded 180bps to 43.9% on the back of (1) superior solution and state mix, (2) benign commodity rates, and (3) all round productivity focus. Reported ebitda margin expanded 490 bps to 18.5%. This was driven by operating leverage advantage (other opex -170bps and largely flat employees expenses as % of revenues) reduce of 15% in ad-spends also aided margin expansion. Ad-spends in the prior two quarters had been higher to assistance renovation of McDowell’s No. 1 and Royal Challenge Whisky.
Other highlights: Cash generation enhanced driven by improve in other liabilities and reduced capex intensity (down 33% YoY). OCF /FCF grew 2.6x / 3.5x to Rs 17.3billion / Rs 16.2billion. Cash was utilised towards repayment of quick-term borrowings (net debt is down to only Rs 5billion).
Valuation and dangers: We largely keep our earnings estimate modelling income / ebitda/ PAT CAGR of 16% / 39% / 65% more than FY21-23E. Maintain ‘add’ with a DCF-based revised target price tag of Rs 650. At our target price tag, the stock will trade at 41x P/E various Mar-23E. Key downside dangers are substantial downtrading due to tax hikes, continued weakness in on-trade due to operating restrictions and a possible ban of spirits in states.