Neutral United Breweries Ltd for the Target Rs 1,400 by Motilal Oswal Financial Services Ltd
Steady performance; focusing on margin recovery
* United Breweries (UBBL) reported 7% YoY revenue growth (est. +9%, -3% in 4QFY26), driven by 9% volume growth (est. +8%). Consumer sell-out growth remained stronger at 13%, in line with industry growth, while lower primary growth was due to a deliberate 20% reduction in channel inventory to improve working capital and ensure fresher beer in the market. Premium portfolio volume growth moderated to 7%, while Heineken Silver continued to outperform with 28% growth. The beer industry delivered 13% growth, supported by a favorable summer, premiumization and continued regulatory reforms across key states.
* GM contracted 160bp YoY to 41% (in line) due to high costs of packaging, logistics and forex amid geopolitical disruptions. EBITDA margin declined 160bp YoY to 9.2% (in line), although it improved sequentially from 6.2% in 4QFY26. Management highlighted that premium margins turned accretive for the first time, aided by localization, revenue management and network optimization, while cost-saving initiatives offset nearly half of the inflationary impact.
* Pricing actions have been implemented across 22 states (2.5-3.0%), while productivity initiatives and procurement savings are expected to support margin recovery over the coming quarters. Management has also lowered the estimated FY27 geopolitical cost impact to INR3.5-4.0b (earlier INR4-5b) and expects regulatory reforms across additional states to remain a key structural growth catalyst for the beer category.
* Management expects high-single-digit growth for the industry and doubledigit revenue growth for UBBL in FY27. Growth is expected to be supported by healthy industry demand, continued premiumization and favorable regulatory reforms across key states. While geopolitical disruptions continue to weigh on GM, procurement savings and productivity initiatives should support a gradual margin recovery. We model 9.3% EBITDA margin for FY27, but there can be a downside risk if cost inflation persists. Given rich valuations and lingering cost headwinds, we maintain our Neutral stance on the stock with a TP of INR1,400 (50x Mar’28E EPS).
Highlights from the management commentary
* Beer industry volumes grew ~13% YoY in 1QFY27, supported by a favorable summer and continued premiumization.
* Karnataka's ABV-based taxation reform continues to drive category growth (30- 35%, exceeding 50% in recent months).
* Several states are evaluating Karnataka-like reforms, although discussions remain at an early stage.
* Selling volumes grew 9% YoY, while consumer sell-out increased 13%, in line with industry growth. The gap between sell-in and sell-out was intentional, as the company reduced channel inventory by ~20% YoY to improve cash flow and ensure fresher beer.
* Premium contributes 10-11% of revenue, with management targeting ~20% over the longer term.
* The Middle East conflict created an estimated 300bp margin headwind through higher costs of packaging, logistics, forex and supply chain. Recovery initiatives contributed over INR500m, offsetting roughly half of the inflationary impact through pricing, procurement and productivity initiatives.
* The company expects high-single-digit volume growth in FY27, which will lead to double-digit revenue growth.
Valuation and view
* We broadly maintain our EPS estimates for FY27 and FY28.
* The beer industry is seeing a recovery, supported by favorable regulatory developments, improved affordability and stable demand conditions. Favorable policy environment remains a key growth driver, with no major tax hikes on beer across most recent state policies and relatively higher taxation on spirits improving beer affordability.
* Management expects high-single-digit growth for the industry and double-digit revenue growth for UBBL in FY27. Growth is expected to be supported by healthy industry demand, continued premiumization and favorable regulatory reforms across key states. While geopolitical disruptions continue to weigh on GM, procurement savings and productivity initiatives should support a gradual margin recovery. We model 9.3% EBITDA margin for FY27, but there can be a downside risk in margin if cost inflation persists. Given rich valuations and lingering cost headwinds, we maintain our Neutral stance on the stock with a TP of INR1,400 (50x Mar’28E EPS).
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