Quick note on Q2FY23 results:
USL achieved a growth of 16.1% in net sales in Q2 over the same period last year and 20.3% sequentially. Company’s EBITDA, excluding one off profit from sale of brands, came to 436.8 crores leading to a margin of 15%. This was marginally lower than Q1, which had also been impacted by costs incurred towards voluntary separation scheme. If we were to exclude those costs then Q1 margins would have been about 17% implying a greater decline in margins during Q2. Gross margin was 39.5%, primarily reflecting the adverse impact of double-digit inflation in cost of goods sold.
Excluding the profit from sale of brands the EPS for the quarter would have been much lower. Assuming an adjusted EPS of about 3.3 for Q2, the PE multiple basis trailing twelve-month EPS comes to 62.5, which burdens the future rise in stock price with high expectations of sales growth and better profitability margins. On both these counts, at least Q3, being the peak season, should be better.
Net sales during the quarter included 351 crores from brands that were part of slump sale and franchise arrangement transaction closed with Inbrew; this may lead to a dent in the numbers going forward.
Company has been in discussions with state governments to increase the prices. They had received hikes in Q1 in Madhya Pradesh, Rajasthan and Haryana. Their ability to negotiate with others and inflationary impact on cost of goods sold will determine the profitability in the next couple of quarters.
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