21 September 2017
Upgrading to Buy
Upgrade to Buy
Clouds of gloom appear to be dispersing; cheers to growth
We are upgrading our rating on United Breweries (UBBL) back to Buy with the following
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INRm)/Vol m
Free float (%)
976 / 716
Financials Snapshot (INR b)
2017 2018E 2019E
EPS Gr. (%)
Shareholding pattern (%)
Jun-17 Mar-17 Jun-16
The impact of the highway alcohol sale ban, GST, and alcohol prohibition in a few
states has been nowhere as bad as feared.
The company performed well in 1QFY18 despite the highway ban becoming effective,
with sales, EBITDA and PAT all increasing in the range of 7-10%. While Maharashtra
and Kerala had a severe impact on sales (had less time to prepare for the highway
ban; deadline was 1 April 2017), other key states like Karnataka, Telangana and
Andhra Pradesh saw much less impact (had more time to prepare; were granted an
extended deadline). Besides, the recent Supreme Court judgments have offered
The GST impact on margins was expected to be ~200bp in FY18. Encouragingly, it is
now likely to be less than half of that.
Demand appears to be on the cusp of revival. Kingfisher Storm (launched in 1QFY18)
has been witnessing good response. The company has also launched a spate of
brands from the Heineken stable in FY18, which is expected to support growth of the
premium and super-premium segments, boosting gross margin potential. The
company has also gained market share in both FY17 and 1QFY18.
The stock has been the worst performer within our coverage universe since the
month post demonetization. While there has been a sharp rally in alcohol peer
UNSP’s share price (led by better news flow in recent months), UBBL has remained at
the same price level since we downgraded it to Hold after 4QFY17 results.
With receding fears, improving prospects and
(brewery in every state,
distribution across outlets selling beer, brand strength, scale benefits, efforts on
water sustainability), the medium- to long-term earnings growth prospects appear
promising. PAT of USD37m in FY17 for India’s largest beer company is miniscule, in
our view, and can potentially be several times higher over the medium to long term.
We thus upgrade our rating to Buy.
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
The dark clouds that were gathering earlier…
Post November last year, the sector appeared to have come under pressure
(November 2016) and its lingering impact for a few
months leading to a weak demand scenario.
(announced in December 2016), which was implemented in
phases across various states (from Apr’17 in Maharashtra and Kerala,
July’17 in Karnataka and Andhra Pradesh, and Oct’17 in Telangana).
Announcement of prohibition
in Madhya Pradesh and Chhattisgarh (was
implemented already in Kerala, Tamil Nadu and Bihar over the preceding
two years), and fears that other states would follow suit.
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.