United Breweries' market share gains to continue unabated: Analysts

Expected debt-free status by FY19 provides further relief

Following strong June quarter (Q1) numbers announced on August 10, the stock of United Breweries (UBL) has surged  15 per cent. While net sales grew 11.2 per cent year on year (yoy) to Rs18.7 billion in Q1, net profit surge of 37.1 per cent to Rs 2.2 billion surprised investors. 

A healthy 12 per cent volume growth and a 249-basis point yoy expansion in the operating profit margin to 21.5 per cent drove the Q1 performance. The volume growth was also positive, ahead of the industry’s growth of 9 per cent, indicating market share gains. 

Analysts expect UBL’s market share gains to continue unabated, and earnings to grow at a brisk pace.

According to ICICI Securities’ Q1 update report, the worst appears to be over on the regulatory front, with the fading of liquor ban near highways and stable state excise policies. Moreover, favourable demographics and macro factors such as low per capita beer consumption would assist overall growth in the industry volumes and create a conducive consumer pricing scenario. With United Breweries’ management confident of registering higher-than-industry volume growth going ahead too, (around 10 per cent for 2018-19), the Street has started pencilling in further market share expansion. 

Over two years, the management is targeting 50 per cent market share in super-premium brands, which along with premium brands are expected to grow faster, aided by the company’s strong distribution network of 31 breweries across the country. 

UBL’s premium segment clocked healthy double-digit sales in Q1, say analysts. And, its super-premium segment, too, grew well. In fact, over the past three years, the super-premium segment has grown annually by 30 per cent — about four times the industry’s growth. These, along with realisation improvement and cost efficiency, would propel profitability.

Operating environment appears to be improving at a healthy pace, market share gains continue, and profitability is on an uptrend, indicating continued strong pace of earnings growth, observe analysts at Motilal Oswal Securities. 

Moreover, the management expects the company to be debt-free by 2018-19, which will provide another strong push to the earnings and return on equity. 
 

Overall, many analysts are positive on the stock, though some are sceptical of near-term upsides, given the rich valuation (60 times FY20 consolidated earnings). They believe, any sharp correction would provide a good entry for long-term investors.