United Breweries hits 52-week low; dips 17% in 3 months on margin concerns

The company said it continues to remain optimistic on the long-term growth of the industry, driven by rising prosperity, youthful population and evolving consumer trends driving premiumization.

Shares of United Breweries (UBL) hit a 52-week low of Rs 1,388.30 after they fell 1 per cent on the BSE in Monday's intra-day trade. In the past three months, the stock of the breweries & distilleries company has dipped 17 per cent on margin concerns. In comparison, the S&P BSE Sensex was down 1.5 per cent during the same period.

In the October-December quarter (Q3FY23), UBL's Ebitda (earnings before interest, taxes, depreciation, and amortization) was at 4.5 per cent, dragged down by steep rise in material costs, the impact of weak state mix, route to market change in Tamil Nadu (TN), and the impact of a change in excise policy in Delhi.

While the beer major's sales in the quarter saw a growth of 2 per cent year-on-year (YoY), it was down 4 per cent on a sequential basis. The growth over Q3FY22 was led by a 4 per cent volume increase which was partly negated by a weak product mix. Volume growth, however, would have been in high single digits had it not been for the change in the route-to-market in TN.

While the inflationary pressure on costs is likely to continue in the near term, the company continues to remain optimistic on the long-term growth of the industry, driven by rising prosperity, youthful population and evolving consumer trends driving premiumization, UBL said.

"Q3 has lowered the strength seen in H1 in both topline and Ebitda. While the trend is expected to continue in the near-term, Q1FY24 is expected to provide a respite to UBL on margins front (higher quality domestic barley). Reversal in TN volumes in the medium term would be a key monitorable," analysts at ICICI Securities had said in a result update.

Quick reversion to mean volumes, in spite of losing share to liquor companies for the past three years, points to the inherent strength in the beer segment, its appeal with young customers and an association with social occasions are among key triggers for future price performance the brokerage firm said.

Meanwhile, Motilal Oswal Financial Services (MOFSL) has reduced its FY23 and FY24 earnings estimates sharply as the brokerage firm believes pressure of barley costs is likely to persist till 1QFY24. 1Q (summer season), usually, contributes ~35 per cent of full-year Ebitda. Moreover, MOFSL expects incremental pressure on glass bottle costs over the next couple of quarters.

"Although, unlike other discretionary categories, the demand trend for alcholic beverage companies has not worsened much, the 3-year sales CAGR of 3.5 per cent at the end of Q3FY23 is still weak, and our earnings forecasts could fall further if demand slows," MOFSL said. The brokerage firm maintains a 'SELL' rating on the stock with a target price of Rs 1,250 (targeting 22xFY25 EV/EBITDA).