United Breweries extended gains on September 8 to hit an eight-month high of Rs 1,680. 45 after the liquor manufacturer named Vivek Gupta as the managing director and chief executive. Analysts were also upbeat on the stock following a drop in input costs.
According to the analysts tracking the company, one of the reasons for the stock’s underperformance was the elevated prices for barley and glass, which weighed on operating profit margins.
“The barley they sourced was more expensive but with the recent harvest season, its price has decreased over the last three months,” said Ajay Thakur, senior research analyst at Anand Rathi Institutional Equities.
The cost of glass production too had come down slightly due to reduced prices of gas, which essential in glass-making.” These two factors should ease pressure on margins in the quarters ahead, he said.
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United Spirits and Radico Khaitan, leading players in the industry, outperformed UB in recent years, Thakur said.
“Rising food prices significantly impacted them, leading to a loss of market share in specific regions. They made strategic shifts in their distribution in states such as Andhra Pradesh, Tamil Nadu, and a few others,” he said.
In recent months, the stock has also risen largely due to the re-rating of discretionary items' valuation for the longer term, Karan Taurani, Senior Vice President, Elara Capital, told Moneycontrol.
“This has resulted in a brief rally. From a business perspective, while there's no significant change in volume growth or profitability for UBL, they are expected to show better growth than their competitors, given their lower baseline from the previous year's poor volume numbers.”
Profitability is set to improve sharply, with the EBIDTA margins expected to shift from single digits to low double digits in the second half of the year. Upcoming festive events and the World Cup would further benefit the company,” he said.
At 2.17 pm, United Breweries was quoting at Rs 1,680 NSE, up 1.06 percent over its previous close.
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