Update on United Breweries Ltd by Motilal Oswal
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Big beat overall
Gross margin pressure offset by decline in staff costs
4QFY22 performance
UBBL’s standalone net sales grew 10.6% YoY to INR17.1b (est. INR15.6b). EBITDA remained flat YoY at INR2.6b. PBT/adjusted PAT grew 5.5%/2.5% YoY to INR2.2b/INR1.6b (est. INR1.3b/INR1.1b), respectively.
Volumes in 4QFY22 grew 7% YoY, while FY22 volumes rose 33% YoY.
Gross margin contracted 330bp YoY to 48.7% due to inflationary pressures witnessed in malt, packaging materials and crude oil. As a percentage of sales, lower other expenses (-30bp YoY) and employee expenses (-130bp YoY) led to standalone EBITDA margin contracting 170bp YoY to 15.3% (estimated 12.3%).
Absolute staff costs declined 6.1% YoY, partly offsetting EBITDA margin decline compared with the sharp 330 bp decline in gross margin.
FY22 sales/EBITDA/Adj. PAT grew 37.6%/94.2%/229.9% YoY, respectively.
The company recommended a dividend of INR10.5/share representing a ~75% payout ratio, significantly higher than historical levels
Balance sheet highlights
The company had a cash balance of INR8.5b after repayment of all term debt.
Inventory levels are the lowest in four years which does not augur well for gross margin in FY23 especially given ‘challenging material cost outlook’ as pointed out by the management. In fact, barley spot prices are 23% higher v/s Mar’22 average prices in a period where UBBL typically procures its Barley requirements for the entire year.
Other key highlights
UBBL gained share during the quarter as well as the full year.
Jan’22 was muted due to the impact of the Omicron variant, while Mar’22 has shown a promising start of the peak season.
Regional performance: North grew 26% YoY driven by UP, Rajasthan and Haryana. South market grew 8% YoY due to strong performance in Telangana. The East market grew 2% YoY comprising healthy growth in all states except for a decline in West Bengal because of the change in the route to market. West declined 8% YoY.
Capex plans continued to be subdued with a focus on the completion of key ongoing projects, safety and sustainability with annual spend limited to INR1.7b.
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