United spirits chart does not show too much strength after recent correction from highs of 950. On short term daily charts, there are still no signs of any reversal.
Fundamentally I hold the same views as before. In India, alcohol prohibition can be used as a convenient political tool in state elections. This can seriously affect the business prospects. (and even if it does not affect business, it does affect investor sentiment leading to lower PE being assigned to these kind of businesses.)
Operationally there does not seem to be any impact on numbers inspite of all the talks of clean up etc. Sales growth remains muted which is expected in view of the removal of tail end brands and premiumisation strategy. But margins which should have shown an uptick still remain stagnant to weak.
The only big plus for a business like United spirits is the longevity of the business. It is going to remain around for years to come. And threat of disruption is negligible. But if I were to pay high PE of more than 50 (we have to account for extraordinary income received in q2 fy 23 while calculating PE) I expect most boxes to be ticked. It is not so in United Spirits.
Another aspect to consider in current market is the “anti – fancy” for high PE stocks. Most of these high PE stocks be it Asian Paints, Page Inds, United spirits or many comparable such businesses, have been hit hard by the markets. This is a market where value is outperforming so called quality by a wide margin. If one is a momentum investor, one has to position accordingly.
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