United Breweries

20 Aug

Home-delivery of alcohol will take time to build scale – United Breweries

Update on the Indian Equity Market:
On Wednesday, Nifty ended 0.2%, higher than the previous close at 11,408. The top gainers for Nifty 50 were Zee (+14.1%), GAIL (+5.0%), and Tech M (+2.2%) while the losing stocks were Bajaj Auto (-1.2%), ONGC (-1.2%), and Nestle (-1.0%). The sectoral gainers for the day were Media (+5.4%), PSU Bank (+2.4%) and Realty (+1.3%) while the losers were FMCG (-0.4%), Pharma (-0.4%), and IT (-0.3%).

Edited excerpts of an interview with Mr Rishi Pardal, MD & CEO, and Mr Debabrata Mukherjee, CMO, United Breweries Ltd; dated 17th August 2020 from Mint:

• The quarter that went by (April-June) was very unusual, impacted by the pandemic and lockdowns. For more than 50% of the quarter, the Company was physically shut. At the beginning of the pandemic, large increases in taxation also impacted demand.
• In quarter two, the story is mirroring the progression of the pandemic. As governments are easing restrictions they are starting to see a similar thing come into the business. But it’s a long road ahead. There are a lot of starts and stops. A sudden spike in local cases can shut the market for a few days, so it’s too early to talk of recovery right now, as per Mr Pardal.
• The Company’s focus is on managing costs. All discretionary expenses that can be avoided such marketing spends, which may be specifically driven towards either particular innovations or events that are not happening, are avoided. At the same time, they are a consumer products company, so they need to make sure that they cannot be silent or absent in the mind of the consumer.
• Beer is seeing a latent demand for United Breweries. If there is a physical fulfilment opportunity where a consumer can access the outlets, or the Company can encourage online order and home delivery, or look at reviving consumption in bars – the latent demand is there. The problem is more of a supply-side issue.
• Alcohol is a highly restricted category, with a lot of stringent rules. So the fact that a few state governments are now beginning to sort of consider the online sales and home delivery is really positive development for the Company.
• United Breweries is partnering with the online aggregators, with delivery services and people engaged in the space. But this will take time. This is a nascent opportunity. Over a period of time, more states will follow suit and the channel will build scale.
• 60% of channels have opened up.
• The Company is working with IPL teams to figure out how best they can leverage the change in venue opportunity. It will be using a sporting event of this nature to connect with their consumer. So the money outlay is based on that brand strategy requirement.

Consensus Estimate: (Source: market screener website)
• The closing price of United Breweries India was ₹ 1,016/- as of 19-August-2020. It traded at 423x/42x/37x the consensus EPS estimates of ₹ 2/24/28 for FY21E/FY22E/23E respectively.
• The consensus target price of ₹ 1,056/- implies a PE multiple of 38x on FY23E EPS of ₹ 27.7/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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17 Sep

United Breweries: Mid to higher single-digit growth rate expected for the beer industry

Update on the Indian market: On Friday, NIFTY went up 0.85% to 11,076. NIFTY traded in the positive on the back of favourable macro data. The Consumer Price Index (CPI) for August 2019 rose six basis points to 3.2 per cent YoY, within the range given by RBI. Core inflation for August 2019 remained broadly flat at 4.4 per cent MoM. The July Index of Industrial Production (IIP) data reported a 4.3 per cent YoY growth. In the Sectorial Nifty Indices, the Realty (+1.5%), Metal (+1.4%), Auto (+1.1%), Private Banks (+1.0%) and PSU Bank (+1.0%) were top gainers while Pharma (-0.9%) was the worst performer. Amongst the NSE 50, top gainers were BPCL (+6.4%), IOC (+4.8%), Titan (+3.5%) while the worst performers were Indiabulls HFC (-2.6%), Sun Pharma (-1.4%) and Dr Reddy’s (-1.4%).

Key takeaways from the interview of Mr Shekhar Ramamurthy, MD, United Breweries (UBL); dated 04 September 2019 with ET Now

  • 1Q tends to be a strong quarter of the year. 1QFY20 was impacted by closures of outlets, restrictions in hours of production and dispatch due to elections.  UBL reported decent performance with a secondary sales growth of ~7% in volumes.
  •  UBL expects a demand pickup in 2Q and 3Q, subject to the monsoon. Severe monsoons tend to impact the demand negatively. The beer industry is likely to grow at ~6-8% in the next 12-24 months.
  • FY19 reported higher growth on a lower base of FY18 which was impacted due to the highway ban, extreme duty hikes in several states.
  • The beer industry is facing margin pressures in the form of an increase in the price of glass bottles, barley, etc. ~65% of the industry supplies are to the state corporations, who control the prices. The state corporations are very reluctant to raise prices despite increases in the duties.
  • UBL is experiencing a revival in the Bengal and UP markets v/s the slump in FY19 in these states. In Bengal, it witnessed double-digit growth. In the UP market, UBL is working on its capacity constraint to meet the growing demand.
  • The market is very competitive but UBL is comfortably placed. The new launches cater to suit consumer preferences. UBL’s product portfolio include Heineken and Ultra (premium mild beers), Kingfisher Storm and Amstel (premium strong beers), Kingfisher Radler and Heineken Zero (non-alcoholic beers). It plans to add the imported portfolio brands from the Heineken portfolio. It will soon launch a version of wheat beer. The core brands, Kingfisher Premium and Kingfisher Strong continue to have a larger share of the revenues and allow UBL to introduce new brands.

Consensus Estimate (Source: market screener website)

  • The closing price of UBL was Rs 1,277/- as of 13-September-19. It traded at 53x / 43x / 38x the consensus EPS for FY20E/ FY21E/ FY22E of Rs 24.0 / 29.7 / 33.8 respectively.
  • Consensus target price of Rs 1,409/- implies a PE multiple of 42x on FY22E EPS of Rs 33.8/-
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