MOSL: UNITED BREWERIES (Upgrade to Buy)-Clouds of gloom appear to be dispersing-cheers to growth
​UNITED BREWERIES: Clouds of gloom appear to be dispersing; cheers to growth; Upgrading to Buy
(UBBL IN, Mkt Cap USD3.3b, CMP INR802, TP INR980, 22% Upside, Upgrade to Buy)
We are upgrading our rating on United Breweries (UBBL) back to Buy with the following rationale:
- ​The impact of the highway alcohol sale ban, GST, and alcohol prohibition in a few states has been nowhere as bad as feared.
- The company performed well in 1QFY18 despite the highway ban becoming effective, with sales, EBITDA and PAT all increasing in the range of 7-10%. While Maharashtra and Kerala had a severe impact on sales (had less time to prepare for the highway ban; deadline was 1st April 2017), other key states like Karnataka, Telangana and Andhra Pradesh saw much less impact (had more time to prepare; were granted an extended deadline). Besides, the recent Supreme Court judgments have offered some relief.
- The GST impact on margins was expected to be ~200bp in FY18. Encouragingly, it is now likely to be less than half of that.
- Demand appears to be on the cusp of revival. Kingfisher Storm (launched in 1QFY18) has been witnessing good response. The company has also launched a spate of brands from the Heineken stable in FY18, which is expected to support growth of the premium and super-premium segments, boosting gross margin potential. The company has also gained market share in both FY17 and 1QFY18.
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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