IGI Logo

Improving supply chains to boost market penetration

We attended UBBL’s analyst meet and the following are the key takeaways.

* MD and CEO Mr. Vivek Gupta, who joined UBBL a year ago, emphasized the need to refocus on consumers, who have been overlooked due to excessive government intervention. He highlighted the importance of expanding supply chains and distribution points to address the low penetration of beer in India. Mr. Gupta also stressed the need for strategic risk management to balance both the risks and opportunities in the business environment.

* UBBL focuses on growing its premium portfolio, which currently contributes in high single digits to overall portfolio. It aims to increase the share of premium beer in its sales to 25% within three years. Its premium brands, Ultra and Ultra Max, are positioned to drive growth in the local premium segment. The company plans to introduce new premium products and innovations over the next 12-18 months to cater to evolving consumer demands.

* UBBL is working on the supply chain to ensure consistent availability of all SKUs (650ml, 330ml and cans) in all markets. It is focusing on expanding its distribution network to improve market penetration, as beer distribution in India remains relatively low. The lack of cold storage facilities in smaller cities limits product availability.

* UBBL anticipates steady volume growth of 6-7% over the next 5-6 years, targeting double-digit revenue growth and EBIT margin expansion to 10- 12% (from 6% in FY24) over the next 2-3 years. This improvement will be driven by an increase in bottle recovery rates along with a focus on premiumization. We estimate a CAGR of 12%/29%/35%, in sales/EBITDA/APAT over FY24-27E.

* The stock trades at 86x/64x for FY25/FY26E EPS. Due to expensive valuations and risk of margin recovery, we maintain our Sell rating on the stock with a TP of INR1,800 (50x Jun’26E EPS).

Valuation and view

* There are numerous challenges for the company, including stiff competition from both local and international brands in India, along with regulatory issues in the industry.

* The company’s premium portfolio has been growing strongly, although the pace of growth was slower than that of the other premium brands for the majority of FY24. Over FY24-27E, we estimate a CAGR of 12%/29%/35% in sales/EBITDA/adj. PAT.

* Despite factoring in healthy growth and margin recovery, the stock trades at 86x/64x FY25E/FY26E EPS. We expect EBITDA margin to recover in FY25 and FY26, and any delay in margin recovery can potentially lead to earning cuts. Due to expensive valuations and risk of muted margin recovery, we maintain our Sell rating on the stock with a TP of INR1,800 (50x Jun’26E EPS).

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412