MOSL: UNITED BREWERIES (Sell)- Results better than expected; path to normalcy to take longer
UNITED BREWERIES: Results better than expected; path to normalcy to take longer
(UBBL IN, Mkt Cap USD5.1b, CMP INR1420, TP INR1130, 20% Downside, Sell)
- The lockdown severely impacted 1QFY22 on-trade sales (usually around 25% of total sales) and home delivery was not permitted in some states throughout the quarter. Given these factors, results were better than expected, with sales 45% lower than 1QFY20 sales (up 121% YoY over the low base of 1QFY21). Nevertheless, in a capital-intensive business, EBITDA/PAT declined 71%/83% v/s 1QFY20 levels.
- Jun’21 volumes were 50% lower v/s Jun’19 levels and restrictions on on-trade sales (low working hours, weekend lockdowns, etc) have persisted in Jul’21 in many states. As a result, the path to normalcy would be gradual, unlike for other discretionary players.
- 1Q typically contributes 35–40% to full-year EBITDA, which was once again severely impacted by the lockdowns. Thus, normalcy is expected to return only in FY23. Consequently, EPS growth would remain flat over FY19–23E., The Alcobev segment has not benefitted from the various factors that have aided other discretionary categories. (1) No sharp recovery, owing to pent-up demand, has been observed (unlike in paint companies); recovery is likely to be gradual. (2) There are no gains from unorganized/smaller peers as the top three players control over 85% of the Beer market – this is unlike paint companies, Titan, Pidilite, and Page. (3) There has been no increase in the post-COVID opportunity v/s pre-COVID levels (unlike for QSRs). Consequently, valuations of 65.7x FY23E EPS and 33.2x FY23E EV/EBITDA appear extremely expensive for UBBL. Maintain Sell.a
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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