United Spirits shares give in to selling pressure after hitting record high; should you buy the dip?

Shares of United Spirits Ltd (UNITDSPR) retreated from an all-time high scaled earlier in the session on Wednesday, a day after the alcoholic beverages company reported a set of quarterly numbers that exceeded analysts’ estimates. At 1:30 pm, the stock traded flat for the day at Rs 1,107.3 apiece on BSE, having jumped by as much as Rs 40.8, or 3.7 per cent, to a record Rs 1,148.7 during the session earlier in the day.  

Is it a good opportunity for investors to adopt a ‘buy on dips’ strategy on the stock?  

After market hours on Tuesday, United Spirits reported a standalone net profit of Rs 348 crore for the October-December period, translating into a jump of more than three times from its net profit of Rs 111 crore for the corresponding period a year ago after adjusting for an exceptional item of Rs 151 crore.  

Its revenue grew 7.4 per cent on a year-on-year basis to Rs 2,989 crore, and earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 33.4 per cent to Rs 491 crore, according to a regulatory filing.  

The company’s margin, a key measure of profitability, improved by 320 basis points to 16.4 per cent, according to the filing.  

According to Zee Business research, United Spirits’ quarterly net profit was estimated at Rs 189 crore, revenue at Rs 2,997 crore, EBITDA at Rs 439 crore, and margin at 14.6 per cent.  

What brokerages make of United Spirits Ltd (USL)?

Foreign brokerage JPMorgan maintained its ‘neutral’ rating on United Spirits after the alcohol beverages maker’s earnings announcement, with a target price of Rs 1,150 for the stock.  

USL’s Q3 earnings were significantly ahead of the brokerage’s as well as consensus estimates, led by better-than-expected margin delivery.  USL’s revenue growth, however, fell short of its estimates, dragged down by a soft offtake for popular brands.  

JP Morgan highlighted that growth in USL’s ‘prestige and above’ (P&A) portfolio, at 10 per cent, was relatively robust and in-line with its estimates.  

Another foreign brokerage, Macquarie maintained an ‘underperform’ call on USL with a target of Rs 870, implying a downside of more than 21 per cent from the previous close.  

United Spirits’ quarterly standalone EBITDA was better than estimates on the back of higher other income, according to the brokerage, which added that the alcohol beverages maker’s gross margin suggests moderation in other inputs and improvement in its packaging mix.  

United Spirits shares: Past performance 

The USL stock has rewarded investors with a return of 34.4 per cent in the past year, sharply outperforming headline Nifty50 index’s 18 per cent rise.