vengabeats
Nilesh Nagdev
Broking house, CLSA is bullish on Mcdowell and Company and has recommended buy rating on the stock.
The CLSA report on Mcdowell:
"Buy Mcdowell and Company."
"McDowell, the world's third-largest spirits company, with a dominant 50%+ share of the Indian market, has entered a phase of accelerated earnings growth. Since McDowell's acquisition of Shaw Wallace in FY05, its margins have expanded by 700bps. Going forward, the company expects a further 300bps expansion by FY09 driven by lower raw material prices, synergistic cost savings, sales mix improvement and strong volume growth. Superior earnings growth will drive a sustained re-rating of the stock."
McDowell reports strong 1QFY07 results
"McDowell's 1QFY07 results were better than expected with standalone earnings growing by 234% YoY to Rs 347 million. Pro-forma consolidated ebitda for McDowell (United Spirits) was up 67% YoY to Rs 1.05 billion. PBT was up 168% YoY to Rs 731 million. These numbers are post the acquisition related cost of Rs 78m which have been written off during the quarter. We forecast McDowell to grow its FY06 Ebitda by 51% YoY to Rs 4.02 billion."
McDowell to United spirits : To drive margin expansion
"Transformation of McDowell into United spirits will be completed once various regulatory approvals are received by Sep'06. The consolidation has already driven up margins of the company from 7.4% in FY05 to 12.5% in FY06 to 14.4% in 1QFY07. The key drivers for this margin expansion has been synergistic cost savings arising from the acquisition of Shaw Wallace its erstwhile competitor, lowering of raw material prices and better product mix. Management has guided for the margins to further improve to 18% by FY09 driving accelerated earnings growth."
Balance sheet strengthened by GDR/FCCB issuances
"The consolidated net debt now stands at Rs 14 billion, which has come down from Rs 18 billion as it stood before the GDR issue in Mar'06. This includes Rs 4.4 billion of FCCB (Foreign Currency Convertible Bond) raised in Mar'06. Strong cash generation will drive down net debt to less than Rs 10 billion by FY08 driving down interest costs. Key risk to debt reduction is a potential large acquisition by the company. The company has recently made two small acquisitions worth approx. USD 20 million in wine and scotch segment in Europe."
Valuations at a discount to other FMCG players
"The stock trades at 21xFY07CL earnings and 15xFY08CL earnings or 26% discount to FMCG peers. Discount valuations coupled with above average earnings growth outlook makes this stock attractive. Superior earnings growth driven by margin expansion and robust underlying volume growth will drive sustained rerating for the stock
Source : CLSA
The CLSA report on Mcdowell:
"Buy Mcdowell and Company."
"McDowell, the world's third-largest spirits company, with a dominant 50%+ share of the Indian market, has entered a phase of accelerated earnings growth. Since McDowell's acquisition of Shaw Wallace in FY05, its margins have expanded by 700bps. Going forward, the company expects a further 300bps expansion by FY09 driven by lower raw material prices, synergistic cost savings, sales mix improvement and strong volume growth. Superior earnings growth will drive a sustained re-rating of the stock."
McDowell reports strong 1QFY07 results
"McDowell's 1QFY07 results were better than expected with standalone earnings growing by 234% YoY to Rs 347 million. Pro-forma consolidated ebitda for McDowell (United Spirits) was up 67% YoY to Rs 1.05 billion. PBT was up 168% YoY to Rs 731 million. These numbers are post the acquisition related cost of Rs 78m which have been written off during the quarter. We forecast McDowell to grow its FY06 Ebitda by 51% YoY to Rs 4.02 billion."
McDowell to United spirits : To drive margin expansion
"Transformation of McDowell into United spirits will be completed once various regulatory approvals are received by Sep'06. The consolidation has already driven up margins of the company from 7.4% in FY05 to 12.5% in FY06 to 14.4% in 1QFY07. The key drivers for this margin expansion has been synergistic cost savings arising from the acquisition of Shaw Wallace its erstwhile competitor, lowering of raw material prices and better product mix. Management has guided for the margins to further improve to 18% by FY09 driving accelerated earnings growth."
Balance sheet strengthened by GDR/FCCB issuances
"The consolidated net debt now stands at Rs 14 billion, which has come down from Rs 18 billion as it stood before the GDR issue in Mar'06. This includes Rs 4.4 billion of FCCB (Foreign Currency Convertible Bond) raised in Mar'06. Strong cash generation will drive down net debt to less than Rs 10 billion by FY08 driving down interest costs. Key risk to debt reduction is a potential large acquisition by the company. The company has recently made two small acquisitions worth approx. USD 20 million in wine and scotch segment in Europe."
Valuations at a discount to other FMCG players
"The stock trades at 21xFY07CL earnings and 15xFY08CL earnings or 26% discount to FMCG peers. Discount valuations coupled with above average earnings growth outlook makes this stock attractive. Superior earnings growth driven by margin expansion and robust underlying volume growth will drive sustained rerating for the stock
Source : CLSA