United Breweries Q1 Results Review - Weak Performance In Four Out Of Five Peak Seasons: Dolat Capital

Dolat Capital Report

United Breweries Ltd.’s Q1 FY25 was significantly below our/street estimates despite favorable base (Q1 FY24 volumes were -12%) in a seasonally strong quarter. Volumes/revenues/Ebitda/adjusted profit after tax were +5 / 8.8 / 27.8 / 27.3% YoY. In Q1 FY25, five-year CAGR stands at tepid -0.6%/3.8%/-2.8%/1%.

United Breweries' outlook remains mixed due to multiple challenges like-

1. driving beer as a category,

2. lack of significant margin improvement due to persistent investments

3. low profitability with lack of price increases in key states and

4. increased competition.

We reduce our FY25-27E EPS estimates by 8-9% to factor lower growth/margin. Yet, we expect a healthy revenue/ gross profit/Ebitda/PAT CAGR of 10/13/32/37% over FY24-27E driven by low base and operating leverage. Rich valuations, high expectations, volatile growth and increased competition are key risks leaving limited room to err.

In view of that, we downgrade to ‘Sell’ rating with revised target price of Rs 1,940 at 55 times H1 FY27E EPS (versus Rs 2,150). Price increase in Telangana, opening of MP state or steep correction in bottle prices are risk to our Sell rating.

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