United Breweries: Results better than feared, margin pressures likely due to GST
(UBBL IN, Mkt Cap USD3.2b, CMP INR786, TP INR875, 11% Upside, Neutral)
- Net sales rose 7.0% YoY (est. of -8%) to INR16.7b in the quarter. Despite the highway ban in 1QFY18, volumes were flat YoY, and importantly, UBBL expanded its market share by 150bp YoY. Quarterly sales growth was commendable, given that April sales were down in double-digits YoY. EBITDA grew by 9.4% YoY to INR3.18b (est. of INR2.25b) and PAT by 10.1% YoY to INR1.62b (est. of INR1.17b).
- Gross margin shrunk 210bp YoY to 52.7% due to an increase in barley and sugar prices YoY. However, EBITDA margin improved 40bp YoY to 19.0% (est. of -300bp to 15.6%) due to a decline in other expenses (-210bp YoY) and staff costs (-40bp YoY).
- Management call takeaways: (1) From 83,000 outlets selling beer on 1 April, the number of outlets open at end-June was 59,000 (currently 62,000). There was thus higher throughput from existing outlets in 1QFY18. (2) Maharashtra witnessed a 20% decline in volumes in 1QFY18, while Kerala saw 40% impact. The situation is gradually improving MoM. Karnataka, which had more time to prepare for the highway ban, saw much lesser impact than these two states.