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United Breweries shares slide on CCI penalty but global brokerages retain 'buy'

Citi has maintained a 'buy' rating on the stock with the target at Rs 1,605 a share. Goldman Sachs, too, has retained the 'buy' call but with the target at Rs 1,501

September 27, 2021 / 11:13 AM IST
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United Breweries share price slipped more than 3 percent in the morning session after the Competition Commission of India (CCI) penalised the company and rival Carlsberg India for carterlisation.

The anti-trust watchdog on September 24 imposed penalties of around Rs 900 crore on three beer-making companies and trade association All India Brewers’ Association (AIBA) for cartelisation.

The CCI said SABMiller India, the makers of Foster beer, United Breweries, who make Kingfisher, and Carlsberg India resorted to cartelisation in the sale and supply of beer to various states and union territories between 2009 and at least October 2018.

While the CCI has directed United Breweries and Carlsberg India to pay Rs 750 crore and Rs 120 crore, respectively, it has given SABMiller India a 100 percent reduction in penalty for cooperating in the investigation.

The three companies engaged in price coordination in Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, Delhi and Puducherry, it said.


CCI also found coordination among United Breweries and Anheuser Busch InBev India with respect to purchasing second-hand bottles.

Four individuals of United Breweries, four of Anheuser Busch InBev India, six of Carlsberg India and the Director-General of AIBA were held to be liable for the anti-competitive conduct of their respective companies and association.

United Breweries still a ‘buy’

Global brokerage firm Citi has maintained a buy rating on United Breweries, with the target at Rs 1,605 a share. The Rs 750-crore penalty seems fairly large in context of its cash/reserves.

Any weakness can be a buying opportunity with this overhang now going away. Its long-term story of category growth and premiumisation remains solid, CNBC-TV18 reported Citi as saying.

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Goldman Sachs, too, retained the “buy” call, with target at Rs 1,501 a share. The CCI announcement should remove valuation overhang and focus should shift to performance of new launches as restaurants and bars reopen. Strong performance from Q3 should shift the focus back on volume growth, it said.

Motilal Oswal not convinced

Domestic brokerage firm Motilal Oswal, however, has a “sell” on the stock with the target at Rs 1,170. The forecast remains unchanged, awaiting clarity on the timeline for penalty payment as well as the management’s decision on whether to appeal the penalty, it said.

UBL had Rs 4.7 billion in cash at the end of FY21. It may have a net cash to pay the penalty of Rs 7.52 billion by the end of FY22 (assuming that is the timeline) or else it may have to raise debt, the brokerage said.

The recent increase in Heineken’s stake to 62 percent from around 47 percent does not alter the firm’s medium-to-long term growth prospects.

The historical pre-COVID PBT CAGR in the five years ended FY20 was around 8.5 percent. Even after return to normal, earnings are unlikely to witness strong growth.

Return ratios even in the best year (FY19) were at 18-19 percent levels, much lower than the average of its consumer peers of over 30 percent, it said.

“We maintain our sell rating with a target of Rs 1,170 per share, implying a 27% downside (targeting 25x Dec’23E EV/EBITDA),” the brokerage said.

The stock was trading at Rs 1,549.70, down Rs 56.80, or 3.54 percent. It has touched an intraday high of Rs 1,593.60 and an intraday low of Rs 1,536.75.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Sep 27, 2021 11:13 am
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