United Breweries' Q4FY19 results (Outperformer) - Stable volumes, operationally weak performance...
Q4FY19 result highlights
- Net sales increased by 10.7% yoy to Rs16.3bn (est: Rs16.6bn), EBITDA decreased by 18% yoy to Rs1.7bn (est: Rs2.76bn), PAT decreased by 25% yoy to Rs679m (est: Rs1.37mn).
- 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 12% yoy, EBITDA decline was 16% yoy and PAT de-growth was 23% yoy.
- Volumes increased by ~7% yoy, despite high base (24% in 4QFY18). Volumes for the quarter grew in all markets except West Bengal (impacted by excise duty hike), Uttar Pradesh and Maharashtra.
- Gross margins declined by 220bps yoy (280bps qoq) to 50.5% impacted by higher input costs (barley/glass) and weaker state mix (lower growth in Karnataka & Maharashtra). Staff cost increased by 12.6% yoy, other expenses increased by 15.3% yoy. Resultant EBITDA margins declined by 360bps yoy to 10.5%.
- Depreciation was down 1% yoy. Other income was up 124% while interest cost increased by 3% yoy.
Key positives: Healthy volume growth despite high base.
Key negatives: Weak margins.
Impact on financials: Factoring lower gross margins, we have decreased our FY20/21E earnings estimate by ~8%.
Valuations & view
UBL reported healthy volume growth despite a high base, however, higher input costs & adverse mix impacted the overall earnings for the quarter. While 1QFY19 volume growth is likely to remain moderate due to high base and disruption on account of national elections, management’s expects mid-to-high single digit growth for the industry and remains confident to outperform the same in FY20E. Further the recent increase in capex to meet growing demand clearly highlights its confidence in the medium to long term drivers of the industry. Despite near term headwinds, UBBL’s volume growth outlook (factoring 8% volume CAGR over FY19-21E) and earnings visibility over FY19-21E is relatively better compared to the other alcoholic beverage peers. Hence, we maintain Outperformer with a target price of Rs1,528 (27x FY21E EV/EBITDA).
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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