Q2 results review: Experts turn cautiously positive on USL, Radico Khaitan, United Breweries on margin improvement

Liquor manufacturers like United Spirits share price, Radico Khaitan share price and United Breweries share price have gained 12-28% in the last six months. The tide is turning favorably as analysts now have a positive outlook on margins. Although the volume growth is still a mixed bag in the first half, but analysts are positive on demand early in the short term which will be driven by the wedding season, the Christmas season and events during the ongoing quarter.

Analysts at Nuvama Institutional common shares said “A total of 3.5 million weddings are set to take place between November 23rd and December 15th. Demand for events and weddings is back to pre-covid levels and will drive a spike in alcohol consumption. World cup cricket should have helped too, especially beer.

In the meantime companies have seen the margin improvement and that is always encouraging.

In terms of Q2FY24 gross margin, United Breweries, Radico saw good gross margins of 44.7% and 44.1%, with United Spirits close behind at 43.4%

Analysts at Motilal Oswal Financial Services raised their FY24 and FY25 earnings per share by 8.7% and 10% respectively for United spirits, expecting EBITDA margin gains. With United Spirits already achieving a 17% margin in the first half of FY24, aligning with management’s guidance to exceed 15%, It now expects a 15.6% margin in FY24 compared to its earlier estimate of 14.7%

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For Radico Khaitan too Ebitda growth was 35% during the quarter with Ebitda margins at 13% better than 12.5% ​​in the previous quarter and 11.5% in the quarter a year ago. The Premium and above segments are doing well albeit regularly while others are seeing a decline in volumes. Margin improvement is a silver lining though.

Analysts at Nuvama said “The margin recovery trend in the liquor industry has been rising rapidly since Q1FY24. This was accompanied by improved mixes, price increases and some deflation in raw material costs. The worst is probably behind him, but ENA is still a concern. Glass, on the other hand, is stable/slightly regressive.

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For United Breweries, despite some reduction in inflation seen in Q2FY24, volatility is likely to continue. However, Nuvama analysts are optimistic about the beer industry’s long-term growth potential and continue to maintain positive ratings ‘

Disclaimer: The opinions and recommendations made above are the opinions of individual analysts or brokerage firms, and are not the opinions of Mint. We encourage investors to check with certified experts before making any investment decision

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Updated: 21 November 2023, 05:32 PM IST

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