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United Breweries Ltd>
  • CMP : 1,704.0 Chg : 32.0 (1.91%)
  • Target : 1,800.0 (16.88%)
  • Target Period : 12-18 Month

27 Apr 2022

Momentum builds up for peak Q1 season in challenging environment

Market leader in Indian Beer market

United Breweries (UBL) is the biggest beer player in the domestic market (~54% market share), a sector largely dominated by MNCs (~85% of market).

  • On-trade sales comprise ~25% of revenues (rest 75% off-trade)
  • Heineken, one of the world’s largest beer companies, holds 72.7% stake in United Breweries
Q4FY22 results : UBL’s performance was above I-direct estimates

UBL’s performance was above I-direct estimates on profitability.

  • Revenues grew 11% YoY to ₹ 1709 crore, led by volume growth of 7%
  • Absolute EBITDA stayed flat at ₹ 262 crore (EBITDA margins contracted 168 bps to 15.3%)
  • 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
strong fundamentals and Premiumisation play to provide long term investment opportunity

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 expects to lower the impact by taking price hikes in key states in the near term.

  • Due to long term growth story in the industry and a well-managed company with MNC parentage, we maintain our BUY rating on the stock
Target Price Valuation

We value the stock at ₹ 1800 i.e. 62x P/E on FY24E EPS.

Strong Fundamentals to help UBL consolidate market positioning

A ₹ 910 crore liquid balance together with nil debt, strong supply chain (has weathered pandemic better than other players and, hence, ~200 bps market share growth to 54-55%), strong return ratios (RoIC above 28% in FY24E) and a long premiumisation leg to play on

  • Newer excise regimes continue to stay stable. The management expects likely price hikes in UP, Rajasthan and Maharashtra in the near term
  • Strong fundamentals (b/s, cash flow), to help UBL further consolidate its leadership position
Alternate Stock Idea

Apart from UBL, we remain positive on United Spirits.

  • United Spirits (USL) manufactures, sells premium liquor brands such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff and Captain Morgan


  • We have a BUY rating on the stock, with a target price of ₹ 1050

Variance Analysis

| Crore Q4FY22 Q4FY22E Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 1,709.2 1,589.4 1,544.6 10.7 1,582.8 8.0   YoY volume growth at 7%, with favourable price mix
Consumption of Raw material 825.2 794.7 716.6 15.2 737.5 11.9   Lower gross margins (contracted 332 bps YoY to 48.9%) due to higher inflation in Barley and glass prices
Purchase of traded goods 48.5 0.0 21.7 123.7 51.6 -6.0    
Employee Cost 126.2 143.0 134.3 -6.0 147.7 -14.5    
Other Expenditure 447.8 476.8 409.7 9.3 471.9 -5.1    
Total Expense 1,447.7 1,414.6 1,282.3 12.9 1,408.6 2.8    
EBITDA 261.5 174.8 262.3 -0.3 174.2 50.1    
EBITDA Margin (%) 15.3 11.0 17.0 -168.3 11.0 429.4   EBITDA margin higher than estimates mainly due to lower employee and other expenses
Depreciation 53.2 54.3 62.3 -14.6 53.0 0.4    
Interest 2.5 4.1 4.2 -40.8 3.7 -32.2    
Other Income 13.1 5.5 11.7 11.9 6.1 112.9    
Exceptional item 0.0 0.0 -62.2 NA 0.0 NA    
PBT 218.8 122.0 145.2 50.7 123.6 77.0    
Total Tax 55.0 30.7 47.7 15.4 32.6 68.9    
Reported PAT 163.8 91.2 97.5 67.9 91.0 79.9    

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