9 November 2020
2QFY21 Results Update | Sector: Consumer
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
257.7 / 3.4
1356 / 759
TP: INR820 (-16% )
Weak results; recovery gradual, unlike peers
United Breweries (UBBL)’s 2Q results were weak – with 48%/42.9% YoY
volume/sales decline and 79%/96.5% YoY EBITDA/PAT decline – although
better than our expectations. These numbers are also starkly below the
~3%/6% volume/sales decline reported by Alcobev peer United Spirits
(UNSP) last week. This once again highlights that the more in-home
consumption dominates, spirits consumption would do better. This trend is
likely to continue over the next few quarters as well.
The stock has been a significant underperformer in the past six months (v/s
Consumer Staples and Discretionary peers) since our Alcobev category
in May’20. We had indicated in this report that FY20–22
could be ‘lost years’ for the industry from an earnings growth perspective.
We expect 15% CAGR decline in EPS over FY20–22.
Recovery in FY22 could be sharper for UBBL v/s UNSP. This is particularly
attributable to the company losing out on crucial summer season demand
in 1QFY21 and a far weaker performance in 2QFY21 as well. However, this
heavily relies on the premise that there may be no second wave of the
pandemic, which is by no means a certainty. Unprecedented sharp
increases in excise are already significantly affecting profitability.
Furthermore, another round of increases over the next few months cannot
be ruled out given weak state finances, in turn leading to weak cost
absorption. Despite underperformance over the last six months, valuations
appear rich on both P/E (84.1x FY22 EPS) and EV/EBITDA (32.2x FY22
EBITDA) basis. Maintain
Standalone net sales declined 42.9% YoY to INR9b
(est. INR8.7b). EBITDA
declined 79% YoY to INR404m (est. INR128m). PBT declined 95% YoY to
INR59m (est. –INR507m). Adj. PAT declined 96.5% YoY to INR40m (est. –
INR507m) in 2QFY20.
Gross margins expanded 20bp YoY to 52.3%
on the back of a better state
mix and price increases.
With higher employee costs (up 440bp YoY) and higher other expenses (up
350bp YoY) as a percentage of sales, standalone EBITDA margins contracted
770bp YoY to 4.5% in 2QFY21 (est. 1.5%).
Sep’20 saw volume decline of 33% YoY v/s 48% decline for the quarter.
October was better than September, albeit not quantified.
West Bengal has reduced excise on beer to pre-COVID levels. Orissa has
partly rolled back its erstwhile excise increase.
Barley costs are 10% lower v/s last year. The outlook for the rest of the year
is likely to be similar. Bottle costs are also not seeing any kind of inflationary
Financials & Valuations (INR b)
2020 2021E 2022E
65.1 43.0 59.3
Sales Gr. (%)
0.5 -34.0 38.0
Adj. EPS (INR)
EPS Gr. (%)
-24.0 -69.6 135.5
133.1 137.7 144.9
60.3 198.1 84.1
29.5 62.7 32.2
Shareholding pattern (%)
FII Includes depository receipts
Profitability better than expected
Highlights from management commentary
Krishnan Sambamoorthy – Research analyst
Research analyst: Dhairya Dhruv
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.