United Breweries' Q1FY19 results (Outperformer) - Strong start to FY19… margin surprise drives earnings beat!
Q1FY19 result highlights
- Net sales increased by 11.2% yoy to Rs18.65bn (est: Rs19.4bn), EBITDA increased by 26% yoy to Rs 4bn (est: Rs3.7bn), PAT increased by 37% yoy to Rs 2.2bn (est: Rs1.9bn).
- Adjusting for the IND AS 115 adjustment to sales in the current quarter, net sales growth was 13.6% yoy. Volumes increased by 12% yoy (est:12%) compared to industry growth of 9% yoy.
- Gross margins improved by 160bps yoy to 54.1% aided by favourable pricing and effective input cost management. Staff cost increased by 21% yoy, Other expenses increased by 5.7% yoy. Resultant EBITDA increased by 26% yoy to Rs4bn with a margin expansion of 250bps yoy to 21.5%.
- Other income increased by 144% yoy (one off provision write back of Rs115m), depreciation was down 2% yoy. Improved cash flow and better working capital management resulted in reduction in debt, hence interest cost declined by 35% yoy.
Key positives: Ahead of industry volume growth; strong margin expansion
Key negatives: Weaker mix
Impact on financials: Factoring strong performance we have increased our FY19/20E earnings estimate by 4%/6%. Introduce FY21E estimates.
Valuations & view
Given the strong salience of 1Q in full year profitability, UBL has started FY19 on strong note with ahead of industry volume growth (despite supply constraints) and better than expected EBITDA performance. With supply disruption issues now behind and improvement in demand trends, we expect UBL to maintain ahead of industry volume growth despite lean season in coming quarters. Further, benefit of price hikes and likely improvement in state mix as Karnataka performance normalises, will drive the overall revenue trajectory. With margin drivers remaining intact, improvement in cash flow & better working capital management will result in reduction in debt/interest cost despite higher capex for the year. We are factoring volume CAGR of 8% which coupled with 250bps EBITDA margin expansion and lower interest cost will drive 25% earnings CAGR over FY18-21E. Maintain Outperformer.
United Breweries is an alcoholic brewing company based in India. Co. is engaged in the manufacturing and marketing of beer made from malt and allied products. Co.'s brewery products include Kingfisher, UB Premium Ice Beer, Charger Extra Strong Beer, Kalyani Black Lable, Kalyani Export Special, Kalyani Black Label Strong, Bullet Super Strong Beer and UB Export. Co. is also engaged in manufacturing of liquors, beer, leather shoes, organic and inorganic petrochemicals, ciprofloxacin, amitriptylene, and ibuprofen. Co.'s other activities include publishing and printing newspaper and journals; selling and servicing of Hitech Medical equipment; operation of a cable television network and others.
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