MOSL: UNITED BREWERIES (Buy)-Volume, market share growth remains strong, margins below expectations
United Breweries: Volume, market share growth remains strong, margins below expectations
(UBBL IN, Mkt Cap USD4.8b, CMP INR1184, TP INR1380, 16% Upside, Buy)
- UBBL’s sales increased 17.1% YoY to INR12b (est. of INR11.9b) in 3QFY18. Volumes grew 12% YoY v/s 6% growth for the industry. Growth was achieved despite the lack of supply for a large part of 3QFY18 in the state of Maharashtra due to pricing issue (was resolved subsequently) and the route-to-market change in West Bengal.
- Gross margin shrunk 140bp YoY to 52.4% (due to impact of higher commodity costs and GST). Staff costs fell by 30bp YoY and other expenses by 140bp YoY, possibly due to operating leverage led by healthy sales growth. EBITDA was up by a healthy 19.3% YoY to INR1.5b, but missed our estimate of INR1.8b due to lower-than-expected margins growth. Due to a higher-than-expected tax rate, PAT fell 2.3% YoY to INR474m (est. of INR674m), despite healthy EBITDA growth.
- 9MFY18 performance: Net sales were up 14.5% YoY to INR41.5b. EBITDA rose 28.3% YoY to INR 6.9b, with the margin expanding 180bp YoY to 16.7%. PAT increased 36.2% YoY to INR3b.
- Management call takeaways: (1) Market share increased 200bp YoY. (2) Route-to-market change impact already witnessed in West Bengal, and will come through in 4QFY18 for Punjab and Haryana (1-2% of sales). (3) The recently introduced corporation model in UP could have positive implications for leading brands; would also help reduce receivables risk. (4) Management highlighted an improving business environment.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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