United Breweries Ltd. share price target

Refer to important disclosures at the end of this report Steady growth despite headwinds UBL's recent underperformance despite steady volume growth and market share gains provides an attractive opportunity, in our view. Channel checks suggest steady volume trends after the election impact in April, which was temporary and restricted to few states. Margin pressures witnessed in 4Q should recede with pricing actions and better input sourcing (barley imports and old bottles). We expect lower gross margins in FY20, but...

FY19 sees continued momentum in volume growth In FY19, volumes grew 13% YoY (on a base of 10%), mainly due to growth across all key markets except West Bengal and UP. All southern markets saw double digit volume growth (except Karnataka, which grew in single digits), whereas all key markets in west grew in single digits (except rest of Maharashtra, which grew double digits). Other significant markets were mainly Odisha, Jharkhand (in East India), Rajasthan and Haryana (in North). The market share for UBL has remained stable at 51-52% of the beer...

FY19 sees continued momentum in volume growth In FY19, volumes grew 13% YoY (on a base of 10%), mainly due to growth across all key markets except West Bengal and UP. All southern markets saw double digit volume growth (except Karnataka, which grew in single digits), whereas all key markets in west grew in single digits (except rest of Maharashtra, which grew double digits). Other significant markets were mainly Odisha, Jharkhand (in East India), Rajasthan and Haryana (in North). The market share for UBL has remained stable at 51-52% of the beer...

Our interaction with United Breweries' (UBL) CEO, Shekhar Ramamurthy, provided a positive outlook for the company, with expectations of the beer industry growing in high single digits and UBL continuing to gain market share. Management, however, cautioned on its near-term growth that may be impacted due to election disruptions. UBL's focus on scaling up its premium products, which are growing at over 30%, and widening its manufacturing presence for these should drive further share gains and profitability. Input inflation is higher in FY20, but higher profitability from premium products, cost efficiencies and a recovery in high-margin markets (Maharashtra and West Bengal) should support modest...

Revenues for Q3FY19 grew 21% YoY to | 1451 crore (I-direct estimate: | 1346 crore). UBL recorded strong volume growth of 16% (I-direct estimate: 10%). UBL saw good growth in all key states except West Bengal, owing to high consumer prices, and UP, due to capacity constraints. UBL achieved revenues of | 3 crore for its non-alcoholic segment (commenced operations at Bihar plant in Q3FY19) EBITDA margins increased 433 bps YoY to 17.1% (I-direct estimate: 13.5%) mainly due to lower other expenditure to sales ratio (28.6% vs....

Revenues for Q2FY19 grew 19% YoY to | 1526 crore (I-direct estimate: | 1349 crore). UBL recorded strong volume growth of 17% vs. industry growth of 11% (I-direct estimate: 5%). The growth was also favourable due to continued channel filling in UP due to changes in route to market (RTM) in the state, which led to granting of large number of new wholesale licenses. UBL saw good growth in all key states except Mumbai and West Bengal owing to high consumer prices EBITDA margins increased 351 bps YoY o 20.9% (I-direct estimate:...

The beer industry is expected to grow by 7.6% CAGR in terms of volume overFY18-24, according to CISION. UBL expects to beat industry growth over this period. Management places growth at a premium. The premium segment grew at a rapid pace for UBL in FY18-with Heineken growing 30%, Kingfisher Ultra growing by 59%, and Kingfisher Ultra Maxgr owing by 80% YoY. With a slew of other brand launches at various levels in the premium segment over the past 16 months, UBL is poised for healthy profitability growth. Kingfisher Storm already has a 3-5% market share within a year of its launch in four states.

Revenues for Q1FY19 grew 12% YoY to | 1866 crore (I-direct estimate: | 1848 crore). UBL recorded volume growth of 12% vs. industry growth of 10% (I-direct estimate: 10%). Growth across industry was also favourable due to channel filling in UP due to changes in route to...

Strong Q1FY19 in the offing; recent correction an entry opportunity: Our channel checks indicate strong double-digit volume growth for UBL in Q1FY19, as key states of Telangana, Andhra Pradesh, Rajasthan, Kerala and UP (~40% of volume) have reported strong double-digit volume growth in April-May'18. Karnataka and Maharashtra (~20% of industry volume) volumes have been soft, but are recovering post Karnataka elections and lower comparables in Maharashtra. We expect UBL to report 12% volume growth in Q1FY19, driving Revenue/EBITDA/PAT growth of 20%/30%/39%. UBL extending market leadership in premium segment: With the premium segment...

Revenues for Q4FY18 grew 32% YoY to | 1469 crore (I-direct estimate: | 1241 crore). Volumes grew 24% compared to industry growth of 22%. This growth was partly on account of a low base as Q4FY17 already included the effects of the highway ban EBITDA margins increased 509 bps YoY to 14.2% (I-direct estimate: 12.7%) mainly due to higher gross margins (52.8% in Q4FY18 vs 51.3% in Q4FY17) and lower other expenses (31.2% in Q4FY18 vs. 34.2% in Q4FY17). Subsequently, resultant EBITDA grew 106% YoY to...