United Breweries stock rallies 6% on resumption of beer supply to TGBCL

Shares of United Breweries (UBL) rallied 6 per cent to Rs 2,072 on the BSE in Monday’s intra-day trade after the company informed that it has decided to resume the supply of its beer to Telangana Beverages Corporation Limited (TGBCL) with immediate effect.

 

UBL, in an exchange filing, said it has been in talks with TGBCL, and these discussions have been constructive. TGBCL has assured the company to address its issues on pricing and outstanding payments in a time bound manner, UBL said.

 

“Until we get more information, basis assurances, we have decided to restart our supplies to TGBCL for the time being. This is an interim decision in the interest of consumers, workers and stakeholders,” UBL said, adding that the company will continue to engage with TGBCL during this period.

 

At 11:22 AM, UBL shares were trading 4 per cent higher at Rs 2,025.85, as compared to the 0.6 per cent rise in the BSE Sensex. The stock had hit a 52-week high of Rs 2,202.90 on September 27, 2024.

 

Meanwhile, in the July to September (Q2FY25) quarter, UBL delivered revenue growth of 12 per cent year-on-year (YoY). Volume growth was at 5 per cent YoY, partially impacted by unfavorable weather conditions across several states. The company's Premium portfolio continued to deliver strong performance, posting a 27 per cent YoY growth (44 per cent in Q1FY25).

 

The company remains focused on volume-led growth along with share gain in the premium portfolio. It has introduced Amstel Bier in India to further improve its footprint in the premium segment. The initial launch will be in Maharashtra.

 

According to Motilal Oswal Financial Services, UBL is facing numerous challenges, including stiff competition from both local and international brands in India and regulatory issues in the industry. Though the company’s premium portfolio has been growing strongly, the pace of growth was slower than that of other premium brands for the majority of FY24. The brokerage has modelled Ebitda (Earnings before interest, tax, depreciation and amortisation) margin recovery in FY25 and FY26; any delay in margin recovery can potentially lead to some earnings cuts, it said in the company's Q2FY25 results update.

 

With less than 20 per cent share of the alcoholic beverage market (50-80 per cent for most nations), the beer market is still underpenetrated in India. Despite 75 per cent consumers starting with beer, most shift to whiskey.

 

According to analysts at Anand Rathi Share and Stock Brokers, UBL is a strong proponent of state governments reducing taxes and making beer affordable. It has engaged with 80 per cent of the key state regulators to push for separate beer policies, emphasising the economic and agricultural benefits of the product. 

 

Beer is underpenetrated in tier-2 cities and tier-3 towns, with 26 per cent penetration in Maharashtra and similar lower levels in UP and Punjab (but growing strongly). The company’s key priorities are more outlets, ensuring visi-cooler availability for cold beer, increasing shelf-space for its brands and making beer a more social drink through its communications, the brokerage firm said in a company update.

 

The brokerage firm remains upbeat after its interaction with management. Analyst said it continues to see steady demand growth for UBL as it recoups margins partially to low teens over the next 2-3 years. Analysts believe the new management’s consumer-centricity, along with growth and capacity focus would yield steady revenue growth and margin gains.

 

“We believe major concerns regarding volume decline, market-share loss and weaker margins are largely behind and, ahead, the company should see steady volumes/earnings,” the brokerage firm said in a report dated September 23, 2024.