Notes from recent meet with the management of United Spirits: (Source MOFSL) 🧵

Market cap: 61,300 crores
Revenues: 8821 crores
P/E: 88.4
P/S: 6.82
P/B: 14.2
ROE: 9.49%
ROCE: 13.3%

@dmuthuk

1/n

📈Demand recovery on track:

👉Around 70% of outlets were operational till mid- Aug’21.

👉While the recovery in on-trade channels has been good, night/weekend curfews and restricted timings are affecting sales, with last orders being accepted at 8-9pm in select geographies.

2/n
👉Muted global travel has acted as a tailwind rather than a headwind as it led to duty-free demand converting to duty paid. The management is focusing on the modern off-trade channel to cater to this demand. It activated 2,000 outlets for Scotch over the last one year.

3/n
📈Focus on the margin accretive Scotch portfolio:

👉Black Dog is now available in 3-5 markets.

👉The relaunched Signature, which was present only in West Bengal, Haryana, and Telangana, will be present in 70% of the country over the next 2-3 months.

4/n
👉The Scotch portfolio is hugely gross profit accretive. The cash conversion cycle is also better at 75-90 days v/s 120-130 days for the overall portfolio.

👉RoCE is highly accretive for bottled in origin (BIO) Scotch.

5/n
👉At present, Scotch contributes 5-6% of overall sales by volume.

📈Granted price hikes to partially offset commodity inflation:

👉Price hikes were granted to a few players towards the end of 1QFY22 as prices for glass bottles experienced inflation.

6/n
👉Cost savings/productivity and price increases would be the key levers used to combat RM and overhead cost inflation. The two other levers – operating leverage and premiumization – will be used to expand margin.

7/n
👉The management is on track to meet its 1.5% cost savings target.

👉A&P spends will remain in the 8-10% range of net sales.

👉Working capital was 35-38% of net sales 5 years ago. With focus on improving productivity, it is now stands at 23-24% of sales.

8/n
📈Likely to start paying dividends:

👉The management said it has no major Capex planned.

👉It has plans to reward shareholders through dividends starting FY22 or FY23 as the company is now almost net debt free.

9/n
👉There are no exciting M&A opportunities, but the management is open to the same if something were to come up.

📈Other Key takeaways:

👉Details of the strategic refresh will be unveiled by the new CEO in its 2QFY22 conference call.

10/n
👉While topline growth has always been a key focus area for the management, a multiplicity of priorities may have led to lower topline growth in the past, which is not expected to be the case going forward.

11/n
👉The management would like to bolster its third-party colocation manufacturing and bottling network, which is currently at 50% v/s 25% three years ago. The aim is to move this closer to 70% over the next 2-3 years.

12/n
This arrangement helps save on freight, ensure a steady flow of ENA to manufacturing plants, and also saves on certain levies such as VAT to some extent.

End of thread🧵

13/n

More from Vishnu Kapadia

You May Also Like

I just finished Eric Adler's The Battle of the Classics, and wanted to say something about Joel Christiansen's review linked below. I am not sure what motivates the review (I speculate a bit below), but it gives a very misleading impression of the book. 1/x


The meat of the criticism is that the history Adler gives is insufficiently critical. Adler describes a few figures who had a great influence on how the modern US university was formed. It's certainly critical: it focuses on the social Darwinism of these figures. 2/x

Other insinuations and suggestions in the review seem wildly off the mark, distorted, or inappropriate-- for example, that the book is clickbaity (it is scholarly) or conservative (hardly) or connected to the events at the Capitol (give me a break). 3/x

The core question: in what sense is classics inherently racist? Classics is old. On Adler's account, it begins in ancient Rome and is revived in the Renaissance. Slavery (Christiansen's primary concern) is also very old. Let's say classics is an education for slaveowners. 4/x

It's worth remembering that literacy itself is elite throughout most of this history. Literacy is, then, also the education of slaveowners. We can honor oral and musical traditions without denying that literacy is, generally, good. 5/x