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MOSL: UNITED BREWERIES (Buy)-Outperforms industry on volumes-cost containment helps

United Breweries: Outperforms industry on volumes; cost containment helps

(UBBL IN, Mkt Cap USD4.8b, CMP INR1311, TP INR1520, 16% Upside, Buy)

 

• Net sales grew 19.3% YoY off a high base to INR15.3b (our estimate: INR14.3b) in 2QFY19. Volumes grew by a healthy 17% YoY (industry grew 14%). EBITDA increased 43.4% YoY to INR3.2b (our estimate: INR2.5b). Adj. PAT grew by 74.5% YoY to INR1.6b (our estimate: INR1.1b).
• Gross margin expanded 160bp YoY to 55.6% in 2QFY19. Employee costs declined 120bp YoY to 6.7% of sales, while other expenses fell 70bp YoY to 28%. Consequently EBITDA margin expanded 350bp YoY to 20.9% (our estimate: 17.7%). We note that EBITDA margin was the highest for any 2Q and second highest for any quarter (barring 1QFY19) in UBBL’s history.
• Consequently, PAT increased 74.5%, significantly higher than our estimate of 18.0% YoY growth.
• 1HFY19 performance: Net sales increased by 14.7% YoY, EBITDA by 33% YoY and PAT by 50.8% YoY. Gross margin improved 160bp YoY to 54.8% and EBITDA margin by 290bp YoY to 21.2%. For 2HFY19, we expect sales/EBITDA/adj. PAT growth of 15.2%, 25% and 42.4%, respectively.
• Management call takeaways: (1) Underlying volume growth likely to remain healthy. (2) Input prices were soft in case of rice, sugar and barley for the quarter, but barley costs are now on the uptrend.