United Breweries Ltd. share price target

United Breweries (UBBL) delivered revenue growth of 10% YoY (est. 12%), aided by policy changes in Andhra Pradesh (AP). Volume growth was 8% YoY (est. 6%).

Telangana (15% of UB’s revenue) announced a 15% price hike for beer, marking the first hike since FY20. This and strong seasonal demand (on a lower base), cost-saving steps and consistent capability building efforts augur well for the future.

We attended United Breweries’ first analyst meet and plant visit on Thursday. The former involved a panel discussion and Q&As with senior management, incl. Vivek Gupta (CEO & MD), Vikram Bahl (CMO), Wiggert Deelen (head, supply chain) and Jorn Kirsten (CFO).

MD and CEO Mr. Vivek Gupta, who joined UBBL a year ago, emphasized the need to refocus on consumers, who have been overlooked due to excessive government intervention.

United Breweries (UBBL) delivered a revenue growth of 9% YoY (est. 15%). Volume growth was slow at 5% YoY (est. 11%) despite season benefits.

Subsequently, the company reported a PAT of |164 crore (vs PAT before exceptional items of |160 crore in Q4FY21) and came above I-direct estimate of | 91 crore. PAT after exceptional item stood at | 98 crore What should investors do? The company saw highest ever volume in March, 2022 and expects the momentum to continue in Q1FY23 (peak season for breweries). Also, UBL is expected to see normalised peak quarter after a span of three years. Although near term challenges remain (barley prices which make up for 15% input costs for UBL, is up 70% YoY, high single digit inflation in glass), the management...

However, PAT grew 39% to | 100 crore, as EBITDA was supported by lower depreciation, interest expense and higher other income What should investors do? UBL's market share has grown from 51-52% prepandemic to 53-54% currently. An | 800 crore bank balance, strong supply chain (has weathered pandemic better than other players and, hence, ~200 bps market share growth), strong return ratios (RoIC above 25% in FY24E) and a long premiumisation leg to play on (currently premiumisation at mere high single digit),...

estimates; however, sales were lower than expectations because of a higher-than-anticipated impact of restrictions in key cities towards the end of the quarter as well as a sequentially weaker mix. Commodity costs are on a rising trend and on-trade being impacted in 4Q...

With the recent run-up in the stock and revival in the beer sector still a few quarters away, we maintain our HOLD stance Target Price & Valuation: We value the stock at | 1700 i.e. 64x P/E on FY23E EPS....

UBL and the beer industry in general, has been facing unfavourable macro-climate since 3 years (Q1 disruption). With still stressed beer sales, UBL would have to shore up further debt (|115 cr LTD in FY21) to deposit the penalty. The scenario if undertaken, is expected to create near and medium term challenges for the company. UBL can however, appeal to the Supreme Court of India within 60 days...

The penalty comes on the back of a detailed probe ordered four years ago with regard to alleged cartelization and price fixing by all the three major Beer players that came to light when AB InBev (after its global acquisition of SABMiller) came to acquire the business of SABMiller India. The period of cartelization is considered to be from CY07 to at least 10th Oct'18, with CIPL joining in from CY12, and the All India Brewers Association (AIBA) serving as a platform facilitating such cartelization since CY13. The companies were found to have exchanged commercially sensitive...

Facing multiple headwinds in FY21, Q4 results reflected the inherent strength in the UBL brand portfolio and beer sector, in general, to spring back to growth (capture lost market share from liquor), when situation normalises. It stays an underpenetrated segment (12% market share in alcohol consumed), a preferred choice of ready to drink product for the youth and, thus, has long term growth potential (in a landscape historically dominated by liquor). We maintain BUY rating on the stock with a revised...

Global trends catching on faster in emerging markets: Technology is accelerating global trends in the developing markets. The management believes global trends toward lower/no alcohol products could be at play in India as well....

UBL continues to have a robust balance sheet with virtually debt free position (net cash of | 97 crore) by building up a stronger WC position, cost control measures and lowered capex requirement. It also has dominant 5253% market share in the beer sector. The management has also displayed discipline and prudence when dealing with evolving customer needs via broad portfolio and wide reach. Being an underpenetrated segment (per capita ~2 litre consumption) and a youth centric status of ready to drink social drink, enables the sector to have long term growth potential. We...