 "United Breweries kingfisher")
United Breweries (UBBL) recorded volume growth in the third quarter of financial year 2025 (Q3FY25) and gained market share but sales missed consensus. The operating profit margins at 7.1 per cent were below expectations. Management guided that investments made during the quarter, affected near-term profits but should lead to stronger sales this summer and beyond.
Other near term negatives for Q4FY25 include disruption in Karnataka due to excise duty and 15-day production stoppage in Telangana due to a dispute with the state government. FY26 could see operating profit jump year-on-year (Y-o-Y) due to the lower base.
UBBL delivered revenue growth of 10 per cent Y-o-Y while volume growth was 8 per cent higher Y-o-Y. The premium portfolio posted 33 per cent Y-o-Y growth (27 per cent in Q3FY25).
The gross margin contracted 90 basis points Y-o-Y and down 70 basis points Q-o-Q to 43.1 per cent. Operating profit margin contracted 90 basis points Y-o-Y to 7.1 per cent. The investments mentioned above could lead to long-term margin recovery with operating profit margin rising to over 11 per cent in FY26 and 13 per cent in FY27.
Employee expenses grew 6 per cent Y-o-Y, while other expenses rose 11 per cent Y-o-Y, led by investments in the supply chain ahead of peak season. Operating profit declined 3 per cent Y-o-Y to ₹140 crore. Higher depreciation (up 18 per cent) and lower other income (down 58 per cent) led to 25 per cent Y-o-Y fall in profit before tax. There was an exceptional item of ₹25.8 crore for severance pay.
Adjusted net profit fell 24 per cent Y-o-Y to ₹64 crore. Reported net profit declined 55 per cent Y-o-Y to ₹38.3 crore. In the first nine months of financial year 2025 (9MFY25), net sales, operating profit and net profit grew by 10 per cent, 18 per cent and 13 per cent Y-o-Y.
The company is planning to invest ₹750 crore in a greenfield brewery in UP, to produce mainstream and premium brands. The facility will add 1.0-2.0 million hectolitres capacity by Q4FY27. UBBL’s standalone net sales grew by 10 per cent Y-o-Y to ₹2,000 crore. UBBL has been investing in warehouses and maintenance capex to optimise its capacities.
Volume growth was 8 per cent Y-o-Y with premium volume growing 33 per cent Y-o-Y. The premium growth was led by Kingfisher Ultra, Kingfisher Ultra Max, and Heineken Silver. Management says premium growth will outpace overall growth.
UBBL saw 5 per cent improvement Y-o-Y in bottle recovery and targets 70 per cent bottle recovery rate in the long term. UBBL will also introduce a productivity program in H2FY26 to optimise efficiency and profitability.
The company faces challenges, including stiff competition and regulatory issues. UBBL has lost market share in West Bengal, Rajasthan and Tamil Nadu. A 15 per cent price hike in Telangana is not enough to cover the entire costs and UBBL is pushing for tax restructuring. UBBL also expects outstanding receivables to be paid soon by the Telangana government. In Karnataka, beer is becoming less affordable for consumers, and UBBL is absorbing price hikes in the premium category.
However, the new UP excise policy, effective April’25, allows stores to sell both beer and IMFL, and thus UBBL can now reach 17,000 stores vs 6,000 earlier. UBBL has introduced Kingfisher Flavours with two new variants, Lemon Masala and Mango Berry Twist, to target young customers.
Owing to the margin miss, analysts have cut earnings estimates. Although margin recovery is expected, it may take longer than expected since gross margin recovery is guided to be gradual.
