3QFY2013 Result Update | FMCG

February 7, 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
3QFY12 1,954 185 9.5 47 % yoy 11.3 33.0 185bp 71.2 2QFY13 2,221 253 11.4 39 % qoq (2.1) (2.8) (9)bp 105.1

`1,926 -

3QFY13 2,174 246 11.3 81

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 25,192 8,063 0.3 2149/479 744,544 10 19,580 5,939 UNSP.BO UNSP@IN

For 2QFY2013, United Spirits (USL) posted an impressive 71.2% yoy growth in its bottom-line to `81cr, aided by a strong operating performance. Key highlights for the quarter: USL posted an 11.3% yoy growth in its standalone top-line to `2,174cr. Overall volumes for the quarter rose by 7% yoy (vs industry growth of 4%) and stood at 32.58 million cases. The volume growth in the prestige and above segments (constituting 24% of overall volume) stood at 29% yoy, indicating the companys focus towards the premium segment. Volumes in the regular segment (constituting 65% of overall volume), de-grew by 2% yoy (vs 6% industry growth in the segment). Despite the increase in ENA (key raw material) prices, the gross margin for the company stood higher by 133bp yoy due to premiumization and price hikes undertaken by it. Advertisement expenses (as a % of sales) too fell by 86bp yoy, resulting in an 185bp yoy improvement in OPM to 11.3%. Interest costs rose by 6.4% yoy to `164cr. The bottom-line rose by 71.2% yoy to `81cr. Outlook and valuation: We expect USLs bottom-line to grow at a CAGR of 128% over FY2012-14 led by margin expansion and lower interest costs due to reduction in debts post the UBH-Diageo deal. At the CMP, the stock is expensive, trading at 33.9x FY2014E EPS; we maintain a 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)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 27.5 6.2 50.1 16.2

Abs. (%) Sensex UNSP

3m 3.6

1yr 11.1

3yr 23.0 52.3

48.1 174.2

FY2011 7,376 15.9 431 94.4 15.6 34.3 42.6 10.8 10.2 5.8 4.1 26.0

FY2012E 9,187 24.5 159 (63.1) 11.5 12.6 129.0 4.3 7.8 5.2 3.4 29.6

FY2013E 10,473 14.0 382 140.5 15.0 30.4 63.4 7.9 10.8 4.8 3.0 20.1

FY2014E 11,939 14.0 826 116.1 15.8 56.9 33.9 11.7 12.3 3.1 2.7 16.8

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

Please refer to important disclosures at the end of this report

United Spirits | 3QFY2013 Result Update

Exhibit 1: 3QFY2013 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

3QFY13 2,174 1,294 59.5 130 6.0 223 10.2 281 12.9 1,928 246 11.3 164 17 47 112 14 126 5.8 45 36.0 81 3.7 6.2

3QFY12 1,954 1,189 60.9 119 6.1 217 11.1 244 12.5 1,769 185 9.5 154 15 32 47 23 71 3.6 24 33.3 47 2.4 3.6

% yoy 11.3 8.8 9.1 2.7 15.3 9.0 33.0 6.4 11.8 49.4 137.6 78.3 92.4 71.2 71.2

2QFY13 2,221 1,418 63.8 116 5.2 172 7.7 262 11.8 1,968 253 11.4 170 19 29 93 (34) 59 2.7 20 34.0 39 1.8 3.0

% qoq (2.1) (8.7) (6.7) 12.3 14.7 29.3 32.1 7.3 9.6 (2.0) (2.8) (3.8) (7.9) 61.9 20.1 0.0 111.5 116.1 124.0 5.9 105.1 109.5 105.1

9MFY2013 6,452 3,921 60.8 355 5.5 566 8.8 776 12.0 5,618 834 12.9 499 52 102 385 14 399 6.2 134 33.7 265 4.1 20.2

9MFY2012 5,680 3,389 59.7 320 5.6 536 9.4 662 11.7 4,907 773 13.6 428 43 144 446 51 497 8.7 164 32.9 333 5.9 25.5

% chg 13.6 15.7 10.8 5.7 17.2 14.5 7.9 16.6 20.7 (28.9) (13.6) (19.6) (17.8) (20.5) (20.5)

Exhibit 2: 3QFY2013 Actual vs Angel estimates

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

Actual 2,174 246 11.3 81

Angel Est. 2,300 304 13.2 89

% Diff. (5.5) (19.2) (192)bp (9.1)

February 7, 201

United Spirits | 3QFY2013 Result Update

Top-line growth at 11.3% yoy

USL posted an 11.3% yoy growth in its standalone top-line to `2,174cr. Overall volumes for the quarter rose by 7% yoy and stood at 32.58 million cases. USLs volume growth was much higher than the 4% volume growth posted by the industry. The volume growth in the prestige and above segments stood at 29% yoy (Industry growth of 11%), indicating the companys focus towards the premium segment.

Exhibit 3: Top-line performance

2,500 32.2 2,000 24 1,500 (` cr) 1,935 1,954 1,791 1,000 500 0.3 0 1QFY12 2QFY12 3QFY12 Topline 4QFY12 1QFY13 2QFY13 yoy growth (RHS) 3QFY13 (5) 1,863 17 2,057 25 35

2,221

2,174

15 11.3 5

6.3

6.3

Source: Company, Angel Research

OPM up by 180bp yoy

Despite the increase in ENA (key raw material) prices, the gross margin for the company stood higher by 133bp yoy due to the premiumization and price hikes undertaken by it. Advertisement expenses (as a % of sales) too fell by 86bp yoy resulting in an 185bp yoy improvement in OPM to 11.3%. Interest costs rose by 6.4% yoy to `164cr. The company reported a forex gain of `14cr during the quarter (vs a `23cr gain in 3QFY2012). The bottom-line rose by 71.2% yoy to `81cr.

Exhibit 4: Gross Margin and OPM

45 40 35 30 25 20 15 10 5 0 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 OPM Gross Margin 17 14 10 10 16 11 11 40 42 39 39 41 36 41

Exhibit 5: Bottom-line performance

160 140 120 100 (` cr) 148 138 145 80 60 40 10 39 20 0 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 Bottomline yoy growth (RHS) 47 125 105 85 65 45 25 5 (15) (35) (55) (75) (95)

(%)

Source: Company, Angel Research

Source: Company, Angel Research

February 7, 201

81

(%)

(%)

United Spirits | 3QFY2013 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 announced deal between UBH and Diageo is positive for USL as it brings multiple benefits to the company. On the financial front, Diageo would infuse funds of `3,300cr into USL for the subscription of preferential allotment and towards the purchase of treasury shares. USL would use these funds to repay its debts which stand at ~`8,000cr in its consolidated balance sheet. 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.

Outlook and Valuation

We expect USLs bottom-line to grow at a CAGR of 128% over FY2012-14 led by margin expansion and lower interest costs due to reduction in debts post the UBH-Diageo deal. At the CMP, the stock is expensive, trading at 33.9x FY2014E EPS; we maintain a Neutral view on the stock.

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

2,500 2,000 1,500 1,000 500 0 Jun-09 Jun-10 Jun-11 Dec-09 Dec-10 Dec-11 Jun-12 40x 55x

Price (`) Source: Company, Angel Research

10x

25x

February 7, 201

United Spirits | 3QFY2013 Result Update

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL USL Reco Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
44,144 5,565 18,436 22,973 25,221 15,884 98,716 237,718 14,119 45,345 8,945 25,193
#

CMP (`)
4,602 466 1,356 132 741 3,777 457 304 219 4,703 145 1,926

TP (`)
584 -

Upside (%)
25 -) -

P/E (x) FY13E

37.7 25.5 35.3 29.3 35.6 37.3 30.2 32.4 34.5 41.6 21.1 63.4

EV/Sales (x) FY13E

3.8 0.9 5.7 3.7 4.1 4.7 3.7 7.9 3.0 5.2 1.1 3.0

RoE (%) FY13E

36.4 39.1 104.6 43.4 23.7 36.3 84.5 35.1 26.0 71.2 8.9 7.9

CAGR # Sales
17.6 15.3 15.4 16.6 26.3 16.1 15.5 17.4 16.1 16.0 10.2 14.0

FY14E
31.3 18.9 30.1 24.1 27.3 31.9 26.9 27.4 28.0 33.0 17.8 33.9

FY14E
3.2 0.7 4.9 3.1 3.4 4.0 3.2 6.7 2.6 4.4 1.0 2.7

FY14E
35.0 42.7 97.0 44.0 26.3 31.9 75.8 35.1 22.6 60.3 9.8 11.7

EPS
19.4 25.6 17.1 21.6 29.9 18.3 19.3 18.7 25.7 16.1 18.8 128.0

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

Company Background
USL is the 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.

February 7, 201

United Spirits | 3QFY2013 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 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 5,468 18.2 4,698 2,691 2,007 770 (28.0) 14.1 93 678 (31.9) 12.4 718 104 162.1 64 (88.5) (381) (317) 92 (28.9) (408) (0) (0) (235.6) (408) (381) (27) (110.5) (0.5) (40.8) (2.7) (109.3) 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) (23) (245) 222 907.2 3.5 (1.9) 18.4 770.0 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) 570 138 431 94.4 5.8 45.2 34.3 86.4 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) 10,473 14.0 8,900 5,696 3,204 1,572 48.3 15.0 184 1,388 52.1 13.3 1,088 271 47.5 571 86.3 571 188 33.0 382 104.3 382 382 140.5 3.7 30.4 30.4 140.5 11,939 14.0 10,050 6,493 3,557 1,889 20.1 15.8 203 1,686 21.5 14.1 802 350 28.4 1,234 116.1 1,234 407 33.0 826 116.1 826 826 116.1 6.9 56.9 56.9 87.2

94.3 2,550.4

February 7, 201

United Spirits | 3QFY2013 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 2,292 665 1,627 29 4,474 950 4,037 449 740 215 888 1,746 1,646 2,391 92 560 73 10,196 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 4,192 1,089 3,103 5,167 236 8,534 663 2,203 279 2,249 3,140 3,871 4,663 59 13,228 4,611 1,292 3,319 5,167 236 9,887 1,260 2,203 279 2,564 3,580 4,379 5,508 59 14,289 100 3 2,283 2,386 6 7,360 443 10,196 121 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 4,880 5,006 15 8,023 184 13,228 145 8,969 9,114 15 5,023 137 14,289 FY09 FY10 FY11 FY12 FY13E FY14E

February 7, 201

United Spirits | 3QFY2013 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 FY2009 (317) 93 (354) 92 (670) (569) (738) (1,307) 756 25 1,882 (95) 544 449 FY2010 FY2011 FY2012 FY2013E FY2014E 170 95 (474) 193 (402) (148) 824 676 14,487 (1,854) 37 46 320 449 769 834 102 (1,121) 265 (450) (358) (28) (385) (794) 875 38 585 704 (132) 769 637 335 147 (247) 148 88 (900) (81) (981) 1,142 38 (561) 619 (274) 637 363 500 38 (122) 416 300 363 663 571 184 (217) 188 350 (466) (466) 1,234 203 (247) 407 782 (419) (419) 3,319 (3,000) 38 (123) 234 597 663 1,260

1,101 (12,623)

February 7, 201

United Spirits | 3QFY2013 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.) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

(47.2) (1,023.5) (47.2) (1,023.5) 296.3 8.1 0.1 3.5 4.8 34.0 2.6 (40.8) (40.8) 6.5 2.1 238 12.4 128.9 0.6 10.3 13.2 2.5 3.1 7.1 19.3 (1.2) 2.7 4.1 0.6 0.6 108 58 99 118 3.1 2.5 7.7 0.9 73.4 6.2 0.1 3.7 4.4 27.1 2.9 (1.9) (1.9) 26.3 2.6 313 14.7 (13.6) 0.7 (1.5) (1.3) 1.4 (1.7) 9.4 21.5 7.2 2.7 3.8 0.6 0.7 100 64 98 125 1.5 1.2 4.5 1.5

42.6 42.6 45.4 5.8 0.1 3.3 4.1 26.0 2.7 45.2 45.2 42.4 2.6 332 14.2 68.2 0.8 7.6 5.7 1.2 9.9 10.2 21.1 10.8 2.9 4.0 0.7 0.8 96 70 93 147 1.5 1.3 4.9 2.1

129.0 129.0 79.1 5.2 0.1 2.6 3.4 29.6 2.5 14.9 14.9 24.3 2.6 370 9.9 55.8 0.8 4.6 7.0 1.3 1.4 7.8 14.9 4.3 2.9 3.9 0.8 0.8 97 69 108 145 1.6 1.5 6.5 1.0

63.4 63.4 42.8 4.8 0.1 2.3 3.0 20.1 2.4 30.4 30.4 45.0 2.6 398 13.3 67.0 0.9 7.7 9.4 1.4 5.3 10.8 20.1 7.9 2.6 3.5 0.8 0.9 103 74 127 136 1.6 1.4 4.5 1.3

33.9 33.9 27.2 3.1 0.1 2.3 2.7 16.8 2.2 56.9 56.9 70.8 2.2 627 14.1 67.0 1.0 9.0 8.2 0.6 9.4 12.3 22.8 11.7 2.7 3.7 0.9 1.0 103 74 126 126 0.6 0.4 1.9 2.1

February 7, 201

United Spirits | 3QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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 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 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 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 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 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 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 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%)

February 7, 201

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