Maintain ‘buy’ on United Spirits (USL) with a DCF-based target price of R4,250. Though early, we expect several signs emerging from the measures undertaken to re-stage the long-term business mix of USL. We believe the company is a multi-year consumer story, backed by superior management and dominant market share.
Our interaction with the management plus channel checks suggest major revamping of premium brands in the near term. USL’s key competitor in the premium space, Pernod Ricard, has outspent it by a wide margin in the marketplace. Thus, USL’s share of voice is <1x vs its share of market, while for Pernod Ricard, the share of voice is almost ~2x its share of market, in our view.
USL is changing the brand architecture — packaging of premium brand. We expect USL to enhance brand and ad-spends over the next two years as it revamps the premium brand portfolio. We believe the recalibration of brand spends is on the anvil.
Essentially, the composition of brand spends will be shifted in favour of above-the-line (ATL) spends versus earlier below-the-line (BTL) spends. In our view, it earlier used to spend 70-75% of the ad-spends on BTL activities.
We expect the balance to be restored to 50:50. Our channel checks suggest it has already begun — discounting being lowered. The broader objective behind this seems to buttress the brand equity of premium brands.