Buy United Spirits -Motilal Oswal

Motilal Oswal in its January 25, 2010 research report has recommended a buy rating on the stock United Spirits.

Motilal Oswal says that United Spirit’s volume growth was impacted by supply disruptions in Telengana (Andhra Pradesh) and change in procurement policy by the state corporation in Tamil Nadu. We believe the secular volume  growth story in United Spirits is intact. We estimate volume growth of 14.6% in FY10 and 15% in FY11. We estimate 170 bps EBITDA margin expansion in FY11 due to higher realizations and lower input costs. The Whyte and Mackay acquisition will contribute Rs 1 billion to consolidated PAT in FY11. The stock trades at 25.2x FY11E EPS of Rs 51.1 and 20.8x FY12E EPS of Rs 61.9. Maintain Buy.  United Spirits 3QFY10 net sales were up 30.8% YoY at Rs 13.5 billion and adjusted PAT increased 216% YoY to Rs 968 million. Volume growth was 12.3% and realizations increased 7.7%.