United Breweries Q3 Results Review - Robust Sales Growth; Margins Disappoint: Nirmal Bang

Nirmal Bang Report

United Breweries Ltd.'s reported second consecutive quarter of strong volume and sales growth after a poor Q1 FY24. Volume growth in Q3 FY24 came in at 8% YoY (7% YoY in Q2 FY24) while corresponding sales growth stood at 13.1% YoY (12.4% YoY).

Four-year compound annual growth rate in sales (going back to pre-covid period) was at its healthiest level in the last six quarters. AlcoBev companies have been an outlier in an otherwise weak results season for staples and discretionaries.

Gross margin and Ebitda margin were however significantly lower than expectations because of an adverse state mix, higher proportion of new bottles amid a temporary shortage and 300 basis points higher marketing spends. This resulted in a big miss at the Ebitda level.

With initiatives underlined by the new Chief Executive Officer to grow the business, we believe that topline momentum could potentially be much stronger than historical levels even if some investments being made result in a delayed recovery in Ebitda margin.

With momentum in sales and volume picking up and commodity costs benign, we expect healthy earnings growth over the next two years. Maintain 'Buy'.

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