United Breweries' Q3FY19 results (Outperformer) - Strong performance continues...
Q3FY19 result highlights
- Net sales increased by 21.2% yoy to Rs14.5bn (est: Rs13.9bn), EBITDA increased by 62% yoy to Rs 2.5bn (est: Rs2.0bn), PAT increased by 130% yoy to Rs 1.09bn (est: Rs847mn).
- Adjusting for the IND AS 115 adjustment (sales are recognized from hereon at the time of reaching the depots as compared to leaving the factory) to sales in the current quarter, net sales growth was 19% yoy, EBITDA growth was 60.6% yoy and PAT growth was 127% yoy.
- Volumes increased by 16% yoy (est:14%) and remained ahead of industry growth. Volumes grew in all markets except West Bengal and Uttar Pradesh.
- Gross margins improved by 90bps yoy to 53.3% aided by favourable state mix and effective input cost management. Staff cost increased by 16% yoy, Other expenses increased by 9.6% yoy. Resultant EBITDA margins improved by 440bps yoy to 17.1%.
- Depreciation was up 2% yoy. Other income was up 173% while interest cost declined by 34% yoy led by reduction in debt.
Key positives: Strong volume growth and margin expansion
Key negatives: Weakness in UP & increase in glass prices
Impact on financials: Factoring strong performance, we have increased our FY19/20/21E earnings estimate by 7%/5%/3%
Valuations & view
UBL reported strong performance, aided by doube digit volume growth for sixth consecutive quarter coupled with strong margin expansion. Over the next 2 quarters, volume growth is likely to moderate considering high base and disruption on account of upcoming national elections. However, management’s commentary on higher capex to meet growing demand clearly highlights its confidence in the medium to long term drivers of the industry. Given UBBL’s execution ability, we believe, it is well placed to tap this opportunity and drive ahead of industry growth (factoring 8% volume CAGR over FY19-21E). Further, focus on cost efficiencies, will continue to drive margin expansion (factoring EBITDA CAGR of 14% with 80bps margin expansion over FY19-21E) & overall earnings. 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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