United Breweries' Q1FY20 results (Outperformer) - Supply side constraints impacts performance...
Q1FY20 result highlights
- Net sales grew by 9.8% yoy to Rs20.5bn (est: Rs20.8bn), EBITDA fell by 18% yoy to Rs3.3bn (est: Rs4.3bn), PAT decreased by 26% yoy to Rs1.6m (est: Rs2.3bn).
- Volumes grew by by ~5% yoy (on 12% in 1QFY19; est: 7%). Volume growth was impacted by capacity constraints & election led disruption in key markets (fewer production shifts allowed).
- Gross margins declined by 380bps yoy to 50.3% impacted by higher input costs (barley/glass) and weaker state mix (due to lower growth in Karnataka & Maharashtra). Staff cost & Other expenses increased by 15% yoy. Resultant EBITDA margins fell by 540bps yoy to 16.1%.
- Segment profit (EBITDA+other income) declined by 1.4% yoy to Rs3.3bn. Adj for losses in Non-alcoholic segment (of Rs202m) which was not there in base, segment profit grew by 5% yoy to Rs3.5bn.
- Depreciation was up 9% yoy. Other income was down 80% (base quarter had reversal of provisions for Haryana). Interest cost decreased by 17% yoy aided by better working capital control.
Key positives: Healthy volumes in Strong beer.
Key negatives: Weak margins.
Impact on financials: Factoring weak 1Q, we have cut our FY20/21E earnings estimate by ~10%/4%.
Valuations & view
UBL started FY20 on a weak note as election led disruption & capacity constraint impacted volumes which coupled with higher input costs & investments in non-alcoholic segment impacted the overall earnings for the quarter. Going forward, given the high volume & margins in base quarters, the near term earnings trajectory is likely to remain weak. However, likely recovery in Karnataka & price hikes, should keep realisations growth healthy which coupled with improvement in premium brands share and focus on cost efficiencies will aid in curtailing some of the impact. We are factoring 12% sales CAGR over FY19-21E (8% volume CAGR). Overall the quarter was weak due to one-off supply side issues & considering the market opportunity, UBLs execution capabilities and healthy improvement in return profile, we maintain Outperformer rating on the stock. Any correction in the stock should be used to add positions.
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.