India’s largest liquor maker, United Spirits may have posted an 86% rise in net profit in the September quarter, however, Dipen Sheth of HDFC Securities remains bearish on the scrip.
India’s largest liquor maker, United Spirits may have posted an 86% rise in net profit in the September quarter, however, Dipen Sheth of HDFC Securities remains bearish on the scrip. His preference– stocks of the smoking industry. “I’d much more prefer cigarettes, I’m happy to be a consumer in drinking and an investor in smoking,” Dipen Sheth, Head of Institutional Research at HDFC Securities told CNBC TV18. In the same interview, he explained HDFC Securities view on the shares of United Spirits. “We have a sell on United Spirits. The problem with United Spirits is not that it does not have a great promoter. You’ve got a fantastic multi-national company in charge of this. Everything is right, but the valuations appear out of whack to us,” the expert noted. He explained that good companies can command expensive valuations. “Good companies can trade at expensive valuations. More expensive than you and I might want to give them,” Dipen Sheth told the channel.
Then why does he have a sell on such a scrip? “ Our sell thesis on United Spirits is not premised on badness in the management or lack of profit growth. It’s premised on the fact that liquor is an industry which is largely under the control of state governments.It is viciously controlled. In states like Tamil Nadu, Karnataka and Kerala, the entire wholesale trade is controlled by the government, in Tamil Nadu the retail trade is too controlled by the state government. United Spirits is completely absent from Tamil Nadu. Such a vicious grip of the government prevents movement of goods from one state to another.”
United Spirits Ltd, India’s largest liquor maker, on Thursday said standalone net profit rose 86% in the quarter ended September, helped by a strong performance by its premium brands. “In the second quarter, we have delivered strong underlying net sales growth of 4% driven by 12% growth in the prestige and above segment, despite the impact of the highway ban,” chief executive officer Anand Kripalu said in a statement. The court’s decision to prohibit all liquor sales within 500 metres of state and national highways last year has hurt sales volumes across the alcoholic beverage industry.