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Sharper recovery reflects pre-Covid performance…

United Breweries’ (UBL) net revenues showed a sharp recovery and grew 8% YoY to | 1544 crore. Volumes grew 9% YoY, due to good growth in all key markets except Telangana, Delhi and Odisha. Gross margins grew 110 bps YoY to 52% due to a better state mix and price hikes, which along with control on operational costs led to EBITDA margin of 16.9% (up 760 bps YoY).

Subsequently, absolute EBITDA was at | 261 crore (up 98% YoY). The company reported exceptional expense of | 62 crore due to recognition of impairment loss of | 44.5 crore at Bihar plant and impairment loss of | 17.8 crore on investment in subsidiary company. Subsequently, PAT came in at | 97 crore (unadjusted), as the operational performance was negated by exceptional expense.

Affordability to assist beer gain higher market share over liquor

Q4 volume growth showed a normalised trend of premium volumes growing at double of popular portfolio. The sharp jump over pre-Covid levels, was mainly due to strong performance in the off-trade channels, reflecting strength of UBL brand portfolio, while on-trade channel moved closer to normalcy. The market is also witnessing beer prices getting affordable in few key states such as West Bengal, UP (from Q1FY22), Rajasthan (from Q1FY22), which is expected to help the entire beer sector to recover swiftly (further upside if such policies are adapted by other states) and also drive greater in-home consumption. Going forward, the management remains cautious in Q1FY22 as volume impact would depend on the extent of lockdown (both duration and magnitude).

Strong balance sheet to help UBL tide over current volatility

UBL shored up its balance sheet by raising its liquidity position (~| 470 crore cash) and improved its WC position (H2 onwards) to stay afloat during uncertain times, as its newer competitors (microbreweries, PE funded premium craft players) continue to remain more impacted than the bigger rivals. UBL on the other hand, with its wide array of portfolio, comfortable b/s and distribution reach, can capture the potential void in the sector. Also, increased technology in the delivery sphere of alcohol is expected to shift consumer behaviour (more acquisition of new customers and lowering the social stigma attached to alcohol), driving beer penetration.

Valuation & Outlook

Facing multiple headwinds in FY21, Q4 results reflected the inherent strength in the UBL brand portfolio and beer sector, in general, to spring back to growth (capture lost market share from liquor), when situation normalises. It stays an underpenetrated segment (12% market share in alcohol consumed), a preferred choice of ready to drink product for the youth and, thus, has long term growth potential (in a landscape historically dominated by liquor). We maintain BUY rating on the stock with a revised target price of | 1450 (earlier | 1490).

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