United Breweries
BSE SENSEX
34,757
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg. Val (INR M)
Free float (%)
S&P CNX
10,667
UBBL IN
264.4
313.1/4.8
1243 / 716
1/35/21
318.0
26.7
5 February 2018
Q3FY18 Results Update | Sector: Consumer
CMP: INR1,184 TP: INR1,380(+16%)
Buy
Financials & Valuations (INR b)
FY18E FY19E FY20E
Y/E Mar
Net Sales
55.2
63.5
73.0
EBITDA
8.7
10.5
13.0
NP
3.7
4.6
6.0
EPS (INR)
14.1
17.4
22.9
EPS Growth (%)
62.0
23.9
31.2
BV/Sh. (INR)
100.3 115.4 135.2
RoE (%)
14.9
16.2
18.3
RoCE (%)
13.1
14.5
16.3
P/E (x)
84.2
67.9
51.8
P/BV (x)
11.8
10.3
8.8
EV/EBITDA (x)
36.5
30.5
24.6
Estimate change
TP change
Rating change
Volume, market share growth remains strong, margins below expectations
UBBL’s sales increased 17.1% YoY to INR12b
(est. of INR11.9b) in 3QFY18.
Volumes grew 12% YoY v/s 6% growth for the industry. Growth was achieved
despite the lack of supply for a large part of 3QFY18 in the state of
Maharashtra due to pricing issue (was resolved subsequently) and the route-
to-market change in West Bengal.
Gross margin shrunk 140bp YoY to 52.4%
(due to impact of higher commodity
costs and GST). Staff costs fell by 30bp YoY and other expenses by 140bp YoY,
possibly due to operating leverage led by healthy sales growth. EBITDA was up
by a healthy 19.3% YoY to INR1.5b, but missed our estimate of INR1.8b due to
lower-than-expected margins growth. Due to a higher-than-expected tax rate,
PAT fell 2.3% YoY to INR474m (est. of INR674m), despite healthy EBITDA
growth.
9MFY18 performance:
Net sales were up 14.5% YoY to INR41.5b. EBITDA rose
28.3% YoY to INR 6.9b, with the margin expanding 180bp YoY to 16.7%. PAT
increased 36.2% YoY to INR3b.
Management call takeaways:
(1) Market share increased 200bp YoY. (2)
Route-to-market change impact already witnessed in West Bengal, and will
come through in 4QFY18 for Punjab and Haryana (1-2% of sales). (3) The
recently introduced corporation model in UP could have positive implications
for leading brands; would also help reduce receivables risk. (4) Management
highlighted an improving business environment.
Valuation view:
Long-term volume and earnings growth opportunity (FY17 PAT
at USD 36m) is immense for India’s largest beer player, with strong barriers to
entry in the form of distribution, brewery reach, scale and brands. Operating
environment appears to be improving at a healthy pace, indicating strong pace
of earnings growth going forward. Valuing the company at 30x Dec’19E
EV/EBITDA (10% premium to peer average), we derive a TP of INR1,380.
Maintain
Buy
.
4Q
11,127
-8.4
10,116
1,011
-21.3
9.1
833
144
43
76
0
76
9
11.7
0
67
-87.1
0.6
1Q
16,742
7.0
13,559
3,184
9.4
19.0
649
142
63
2,456
0
2,456
837
34.1
0
1,619
10.1
9.7
FY18
2Q
3Q
12,764 11,971
23.1
17.1
10,545 10,445
2,219
1,526
83.1
19.3
17.4
12.7
650
650
127
93
12
8
1,454
791
0
0
1,454
791
515
317
35.4
40.1
0
0
938
474
246.9
-2.3
7.4
4.0
4QE
13,742
23.5
11,945
1,796
77.6
13.1
769
146
62
943
0
943
249
26.5
0
693
930.3
5.0
FY17
47,359
-2.1
40,947
6,412
-7.3
13.5
2,870
587
516
3,472
0
3,472
1,178
33.9
0
2,293
-23.0
4.8
FY18E
55,219
16.6
46,494
8,725
36.1
15.8
2,718
508
144
5,643
0
5,643
1,918
34.0
4
3,721
62.2
6.7
FY18
3QE
11,890
16.0
10,068
1,822
39
15.3
690
180
50
1,002
0
1,002
328
33
0.0
674
31.4
5.7
Variance
0.7%
-16.2%
Standalone - Quarterly Earning Model
Y/E March
Net Sales
YoY Cha nge (%)
Tota l Expendi ture
EBITDA
YoY Cha nge (%)
Ma rgi ns (%)
Depreci a ti on
Interes t
Other Income
PBT before EO expense
Extra -Ord expens e
PBT
Ta x
Ra te (%)
MI & P/L of As s o. Cos .
Adj PAT
YoY Cha nge (%)
Ma rgi ns (%)
E: MOSL Es ti ma tes
1Q
15,642
7.5
12,733
2,909
17.1
18.6
637
148
136
2,260
0
2,260
790
34.9
0
1,471
20.4
9.4
FY17
2Q
3Q
10,368 10,222
-3.3
-6.8
9,156
8,942
1,212
1,280
-10.3
-28.9
11.7
12.5
702
698
141
153
8
330
376
759
0
0
376
759
106
274
28.1
36.1
0
0
271
485
-31.9
-48.1
2.6
4.7
-21.0%
-29.7%
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya – Research analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
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.

United Breweries
Conference call highlights
Industry sentiment improving, Market share up 200 bp
Improved underlying industry sentiment.
UBBL’ market share up 200bp YoY.
The company has already procured barley for flush season, so no further impact
of barley prices is likely in subsequent quarters. Sugar prices are on an uptrend.
State government policy changes
In West Bengal, route-to-market impact already witnessed.
Punjab and Haryana impact on route to market yet to be witnessed, but these
are very small markets for UBBL (1-2%).
Route-to-market changes increase receivables risk. The company has been
careful not to over extend.
On the other hand, the recently introduced corporation model in UP could have
positive implications for leading brands (most corporations order based on last
month sales except Tamil Nadu which procures as per capacity) and also
reduces receivables risk. In recent years, government (corporation) models are
generally fairer in terms of price increase.
West Bengal witnessed steep excise increase recently.
Andhra Pradesh government pays 45 days after secondary sales. Maharashtra
and Haryana pay a week after sales. So state government (corporation) policies
vary.
Other points/ clarifications
3QFY17: INR300m subsidy was received on Aurangabad brewery, so actual
EBITDA growth was higher.
For 9MFY18, UBBL’s volumes were up by 6%, while industry grew by 3%.
Debt at the end of December was ~INR4.4b.
Highlights from press release
Industry and the company reported volume growth in all regions except the
west in 3QFY18 – a trend which has continued for a few quarters now.
The company did not sell in Maharashtra from October to first half of December
following lack of clarity on the pricing structure following excise increases.
Impact of highway ban in Maharashtra is reportedly behind them.
Kerala was another market which saw industry volume decline YoY due to
lingering impact of highway ban.
UBL gained market share in important markets like Rajasthan, Karnataka, West
Bengal and Orissa. The erstwhile largest state now bifurcated to Telangana and
Andhra Pradesh; also witnessed healthy growth.
The company was absent in Tamil Nadu last year, and thus, reported market
share recovery YoY in 3QFY18.
The company has taken price increases in key states like Karnataka,
Maharashtra, Tamil Nadu, West Bengal and Kerala over the past year
.
5 February 2018
2

United Breweries
Valuation and view
Long term volume and earnings growth opportunity (FY17 PAT at USD36m) is
immense for India’s largest beer player, with strong barriers to entry in the form
of distribution, brewery reach, scale and brands.
Operating environment appears to be improving at a healthy pace, indicating
continuing strong pace of earnings growth, going forward. Valuing the company
at 30x Dec’19E EV/EBITDA (10% premium to peer average), we obtain a target
price of INR1,380. Maintain
Buy.
Exhibit 1: Changes in model have led to 4% and 3% reduction in FY18E/19E EPS
INR M
Total Income
EBITDA
Adjusted PAT
FY18E
55,219
8,725
3,720
New
FY19E
63,502
10,478
4,609
FY20E
73,027
12,999
6,046
FY18E
55,219
9,111
3,877
Old
FY19E
63,502
10,668
4,746
FY20E
73,027
12,780
5,895
FY18E
0.0%
-4.2%
-4.0%
% Change
FY19E
FY20E
0.0%
0.0%
-1.8%
1.7%
-2.9%
2.6%
Source: Company, MOSL
Exhibit 2: United Breweries P/E (x)
P/E (x)
Min (x)
200.0
150.0
100.0
50.0
0.0
Avg (x)
+1SD
Max (x)
-1SD
Exhibit 3: Consumer sector P/B (x)
P/B (x)
Min (x)
40.0
30.0
Avg (x)
+1SD
Max (x)
-1SD
146.0
69.5
92.3
46.7
23.8
31.0
18.6
10.2
1.0
1.8
64.2
20.0
10.0
0.0
12.7
Source: Company, MOSL
Source: Company, MOSL
5 February 2018
3

United Breweries
Exhibit 4: Valuation Matrix
CMP
Company
Reco
(INR)
Consumer
Asian Paints
Britannia Inds.
Colgate-Palm.
Dabur India
Emami
Godrej Consumer
GlaxoSmith C H L
Hind. Unilever
ITC
Jyothy Lab.
Marico
Nestle India
P & G Hygiene
Page Industries
Parag Milk Foods
Pidilite Inds.
United Breweries
United Spirits
Retail
Jubilant Food.
PC Jeweller
Titan Company
Neutral
Buy
Buy
Buy
Buy
Neutral
Neutral
Buy
Neutral
Neutral
Neutral
Neutral
Neutral
Buy
Neutral
Buy
Buy
Neutral
Neutral
Buy
Buy
1,134
4,632
1,121
339
1,095
1,038
6,511
1,358
279
360
295
7,133
9,195
19,195
270
875
1,184
3,193
(INR)
1,270
6,098
1,365
415
1,505
1,065
5,785
1,585
278
380
355
8,173
9,461
28,650
314
1,050
1,380
3,515
Upside
(%)
12
32
22
23
37
3
-11
17
0
5
20
15
1
49
16
20
16
10
12
62
23
(INR B) (USD B) FY18E
1,092
568
303
607
250
714
277
2,970
3,344
66
392
688
300
224
23
442
300
462
132
144
730
17.0
8.9
4.7
9.5
3.9
11.2
4.3
46.4
52.2
1.0
6.1
10.7
4.7
3.5
0.4
6.9
4.7
7.2
2.1
2.2
11.4
2.7
14.7
12.9
4.5
-9.6
10.6
3.0
17.6
6.6
-27.7
-1.2
4.0
6.9
24.3
147.7
5.7
62.0
22.9
186.2
44.4
38.8
Target Price
Mkt Cap Mkt Cap
EPS
Growth
YoY (%)
FY19E
18.8
26.4
17.9
19.2
30.5
15.1
13.4
20.7
13.7
32.0
24.3
14.2
20.5
39.3
38.7
17.8
23.9
73.4
29.6
26.6
27.0
FY20E
20.2
25.2
19.7
16.2
19.1
14.2
13.2
18.1
12.4
24.2
20.2
20.9
17.3
31.8
35.6
15.5
31.2
38.1
31.3
27.6
24.1
FY18E
52.6
54.8
46.8
44.7
45.6
49.7
40.5
58.8
31.2
44.4
47.5
55.5
64.7
64.7
30.3
49.5
84.2
97.2
64.5
27.4
64.1
P/E (x)
FY19E
44.3
43.3
39.7
37.5
35.0
43.2
35.7
48.7
27.4
33.6
38.3
48.5
53.7
46.5
21.8
42.0
67.9
56.1
49.7
21.7
50.5
FY20E
36.8
34.6
33.1
32.3
29.4
37.8
31.5
41.2
24.4
27.1
31.8
40.1
45.8
35.3
16.1
36.4
51.8
40.6
RoE (%) Div. (%)
FY18E
26.9
34.0
48.8
25.4
29.0
23.6
20.7
76.5
22.8
13.8
32.3
39.1
61.2
39.8
10.8
25.2
14.9
17.3
FY17
0.8
0.0
0.9
0.7
0.8
0.6
1.1
1.2
2.0
1.7
1.0
0.9
1.0
0.5
0.0
0.6
0.1
0.0
1,956 2,185
424
685
804
990
37.9
22.5
0.1
17.0
16.9
0.2
40.7
23.4
0.4
Source: Company, MOSL
5 February 2018
4

United Breweries
Financials and valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
Raw Materials
% of Sales
Employees Cost
% of Sales
Other Expenses
% of Sales
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Less: Mionrity Interest
Adjusted PAT
Change (%)
Margin (%)
FY15
46,990
11.1
18,937
40.3
3,010
6.4
18,717
39.8
40,664
86.5
6,326
13.5
2,075
4,251
651
190
3,790
0
3,790
1,188
31.3
4
2,598
15.0
5.5
0.0
FY15
264
18,587
18,851
23
676
9,490
29,040
30,936
12,820
18,116
242
902
1
21,569
6,101
9,318
132
6,018
11,789
3,799
7,991
9,779
29,040
FY16
48,408
3.0
21,209
43.8
3,386
7.0
16,807
34.7
41,402
85.5
7,006
14.5
2,436
4,569
787
764
4,547
0
4,547
1,560
34.3
4
2,983
14.8
6.2
2,983.0
FY16
264
21,207
21,471
25
634
8,062
30,193
33,084
15,104
17,980
242
608
1
24,827
6,881
11,189
140
6,618
13,466
4,176
9,291
11,361
30,193
FY17
47,603
-1.7
21,779
45.8
3,563
7.5
15,529
32.6
40,871
85.9
6,732
14.1
2,871
3,861
560
180
3,481
0
3,481
1,182
34.0
4
2,296
-23.0
4.8
2,295.7
FY17
264
23,078
23,342
28
470
5,940
29,780
35,089
17,827
17,262
242
1,372
1
25,911
7,508
12,954
243
5,205
15,007
4,596
10,412
10,903
29,780
FY18E
55,219
16.0
26,135
47.3
3,848
7.0
16,511
29.9
46,494
84.2
8,725
15.8
2,718
6,007
508
144
5,643
0
5,643
1,918
34.0
4
3,720
62.0
6.7
3,876.9
FY18E
264
26,265
26,530
28
470
5,940
32,967
37,389
20,545
16,844
242
964
1
29,524
7,620
16,093
346
5,466
14,608
5,087
9,521
14,916
32,967
FY19E
63,502
15.0
29,794
46.9
4,387
6.9
18,843
29.7
53,024
83.5
10,478
16.5
2,967
7,511
673
151
6,989
0
6,989
2,376
34.0
4
4,609
23.9
7.3
4,745.7
FY19E
264
30,238
30,503
28
470
6,940
37,940
40,689
23,512
17,177
242
1,183
1
33,816
9,778
18,007
292
5,739
14,478
6,048
8,430
19,338
37,940
(INR Million)
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Minority Interest
Deferred Tax Liabilities
Total Loans
Capital Employed
(INR Million)
FY20E
73,027
15.0
33,816
46.3
4,935
6.8
21,277
29.1
60,028
82.2
12,999
17.8
3,275
9,724
739
182
9,167
0
9,167
3,117
34.0
4
6,046
31.2
8.3
0.2
FY20E
264
35,482
35,747
28
470
6,940
43,184
45,489
26,787
18,702
242
1,677
1
37,621
10,230
21,208
158
6,026
15,059
6,757
8,302
22,563
43,184
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
5 February 2018
5

United Breweries
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Debt/Equity
FY15
9.8
17.7
71.3
1.0
10.2
112.0
62.3
15.4
6.4
47.5
0.1
16.4
14.5
10.6
10.6
1.6
45
73
23
0.5
FY16
11.3
20.5
81.2
1.2
10.2
97.6
53.7
13.6
6.2
42.7
0.1
12.8
14.8
12.1
10.5
1.6
49
77
30
0.4
FY17
8.7
19.5
88.3
1.2
13.2
126.8
56.3
12.5
6.2
44.1
0.1
11.7
10.2
9.1
8.9
1.6
55
93
34
0.3
FY18E
14.1
24.3
100.3
1.4
10.0
84.2
48.6
11.8
5.8
36.5
0.1
4.3
14.9
13.1
13.3
1.7
50
96
32
0.2
FY19E
17.4
28.7
115.4
1.7
10.0
67.9
41.3
10.3
5.0
30.5
0.1
1.0
16.2
14.5
14.6
1.7
50
98
32
0.2
FY20E
22.9
35.3
135.2
2.3
10.0
51.8
33.6
8.8
4.4
24.6
0.2
5.3
18.3
16.3
16.5
1.7
50
98
32
0.2
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
Others
CF from Investments
Inc/(Dec) in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Cash eqv
FY15
3,790
2,075
718
-1,423
3,381
8,541
-132
8,408
-4,069
4,339
774
-3,295
-4,699
-715
-303
0
-5,717
-604
665
70
FY16
4,547
2,436
755
-1,595
-777
5,365
441
5,806
-2,430
3,376
-24
-2,455
-1,857
-794
-317
0
-2,968
383
62
-305
FY17
3,481
2,871
581
-1,435
22
5,519
-78
5,441
-2,355
3,086
15
-2,340
-2,122
-583
-307
0
-3,012
89
34
120
FY18E
5,643
2,718
508
-1,439
-4,002
3,428
0
3,428
-2,280
1,148
0
-2,280
0
-508
-537
1
-1,044
104
126
116
(INR Million)
FY19E
6,989
2,967
673
-1,782
-5,306
3,541
0
3,541
-3,280
261
0
-3,280
1,000
-673
-641
3
-311
-51
229
114
FY20E
9,167
3,275
739
-2,338
-4,649
6,194
0
6,194
-4,780
1,414
0
-4,780
0
-739
-809
2
-1,546
-132
175
115
5 February 2018
6

United Breweries
NOTES
5 February 2018
7

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
United Breweries
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United Breweries
No
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5 February 2018
8