Reduce United Breweries; target of Rs 1033: Dolat Capital

Dolat Capital's research report on United Breweries

United Breweries (UBL’s) Q4FY20 was in-line but weak with revenue/EBITDA/APAT declining by -12.6/-22.8/-39.4% YoY. Gross margin improved YoY by 40bps to 50.9% led by low-base of Q4FY19. The decline in EBITDA/APAT would have been even more severe but for favorable base. Q4FY19 EBITDA/APAT were -17.8/-25.3% YoY. After healthy operating performance over FY17-19, for second consecutive year UBLs performance is expected to be subdued due to loss of key season on account of Covid and steep excise increases by state government. Q1/H1 accounts for ~40/65% of its PAT. We like UBL owing to (a) strong volume growth potential of beer in India and (b) its superior execution. India is one of the few markets where beer and spirits consumptions are broadly equal vs. ~65:35 mix globally.

Outlook

Maintain Reduce rating with revised TP of Rs 1,035 @ 40x (earlier Rs 910 @ 35x). Increase in target multiple is on account of broader market re-rating and on account of likely costs benefits from suspension of discretionary spends, stepped up costs management and reduced capex. We expect UBL to go through a time and/or price correction led by weak short-term prognosis. Historically, UBL has traded at ~60x 1-yr forward earnings in trailing four years.

United Breweries 26062020-dolat