Accumulate United Breweries; target of Rs 1476: Dolat Capital

Dolat Capital's research report on United Breweries

United Breweries (UBL’s) Q3FY20 was ahead of expectations. Earnings print (EBITDA -10.9%, APAT -2.6%) was impressive in backdrop of ~8% volume decline largely on account of AP. Disruption in AP is a potential dampener in near-term. Yet, the impact on earnings were limited. Albeit, UBL surprised positively on EBITDA/PAT. FY20 was expected to be soft with elections, high base and RM pressure. AP disruption has added pressure to the weak near-term performance. Steep excise increases by state governments (TN and Goa have indicated) may lead to additional pressure on volumes. That said, peak RM inflation seems behind. Base too would be favorable from 4QFY20. UBL reported robust FY18 and FY19 viz. PAT growth of 72/42% YoY respectively. Though FY18 partly reflects rebound from low base led by highway ban impact, FY19 is a fair reflection of what a well-run brewer is capable of provided externalities are stable-to-marginally positive. 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

Reiterate our ACCUMULATE rating with TP of ` 1,476 @ 45x FY22E EPS (earlier ` 1,420 @ 50x Sep-21E EPS). Historically, UBL has traded at ~60x 1-yr forward earnings in trailing xx years. We have reduced our target multiple to factor the regulatory uncertainties and weak short term prognosis.

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