Target: ₹1,190
CMP: 1,395.95
The company’s Q4-FY23 results were disappointing across all metrics.
Volume growth was only 3 per cent; however, when adjusted for route-to-market changes, it was at 17 per cent. The management indicated that the demand has been adversely impacted in the northern region due to unseasonal rainfall.
Gross margin came at just 38.6 per cent, and is at its lowest level. It was adversely impacted by high barley and packaging costs and adverse state mix. The company has started procuring new barley but it is expected to face pricing pressure until Q1-FY24, due to the impact of the high-cost purchases made earlier.
Bottling cost pressure is expected to continue till Q2-FY24 on account of short supply.
Although, unlike other discretionary categories, the demand trend for alcobev companies has not worsened much, the 3/4-year sales CAGR of 7.4 per cent/2 per cent at the end of Q4-FY23 is still weak.
We have sharply reduced our FY23 estimates to account for gross margin pressure and FY24 earnings estimates is reduced by about 3 per cent.