United Spirits reported lower-than-expected Q2 earnings. Standalone adjusted PAT of Rs 89.9 crore (up 46% y-o-y) was ~10% below consensus estimate. Overall, sales volume declined 1.1% and Ebitda declined 17% y-o-y. At the consolidated level, UNSP reported adjusted PAT of R33.2 crore (-72% y-o-y) and Ebitda declined 49% y-o-y. Consolidated net debt increased by R430 crore q-o-q. We maintain our contrarian underperform rating.
Net sales declined 8% y-o-y, while volumes declined 1.1% y-o-y. Adjusted for the bulk alcohol sales in the second quarter of FY13, net sales grew 7% y-o-y. The volume decline of 1.1% in the second quarter of FY14 came on a benign base (1% decline in Q2 FY13). Regular and below segment declined 7% y-o-y. Prestige and above segment brands (28% of total volumes, 42% of value) grew 21%. However, based on reported volumes, the growth in prestige and above segment was only ~5% (7.77 million vs 7.4 million in the Q2 FY13).
Gross margin expanded 410 bps y-o-y, off a favourable base, but declined 60 bps q-o-q. ENA cost increased by R20 per case y-o-y and R9 per case q-o-q, which affected gross margins. A&P spendings grew 23% y-o-y and other expenses increased 6.3% y-o-y. Adjusted profit increased 46% y-o-y to R89.9 crore due to a 20% decline in interest cost (R136 crore) and 387% increase in other non-operating income (R63.6 crore).
