Key factors impacting UBL after beer maker disappoints bulls with weak Q3 results

When United Breweries Limited (UBL) reported its December quarter results on Saturday (February 12, 2024), it failed to meet Zee Business research estimates on many parameters. While it slipped into losses in the third quarter, its revenue from operations was below estimates. After the company's third quarter results, the research team did a fundamental analysis of the company, highlighting the bullish and bearish factors. 
After United Brewery's December quarter results, brokerages such as JP Morgan and Citi also gave their calls on the stock of the company. 

Before we move ahead to go through the research team's findings and brokerage calls, let's go through the performance of the company in its December quarter result. 

United Breweries Q3 results

In its standalone Year-on-Year (YoY) results, United Breweries failed to beat analyst estimates on important parameters such as profit after tax (PAT), EBIDTA and margin. 

The company made a loss of Rs 2 crore in its third quarter. 

It was down from a PAT of Rs 85 crore in the third quarter last fiscal. 

The loss of Rs 2 crore was way below the research estimates of Rs 124 crore.

United Breweries' revenue from operations for the December quarter improved by 13.1 per cent to Rs 1823 crore compared to Rs 1611 crore YoY. 

It was slightly above research estimates of Rs 1814 crore.

The company's EBIDTA soared by 89.60 per cent to Rs 146 crore in the December quarter against Rs 77 crore in the corresponding period last year. 

It was quite lower than analyst estimates of Rs 213 crore.

Margin improved to 8 per cent in the quarter under review against 4.7 per cent in the year-ago period, below Street estimates of 11.7 per cent.

While there was 8 per cent growth YoY in total volume, the premium segment volume grew by 14 per cent (YoY).Gross margins also saw an increase of 215 bps.

After the results, let's see what the research team says about the potential of the company. 

United Breweries: Bull points

The research team says that the management of United Breweries is positive on the top line, and that high single-digit volume growth is possible.

Another positive aspect of the company is that UBL is the market leader in the beer industry, with a market share of 50 per cent.

The company has registered volume growth of 10 per cent, 9 per cent and 22 per cent in India's South, West, and East regions, respectively.

United Breweries: Bear points

In the third quarter results, margins were lower than expected, and the company's management has no further outlook on margins (pre-COVID-19 below).

No positive impact is expected on realisation from increasing taxes.

United Breweries' volume growth declined by 1 per cent (YoY) from Delhi and Haryana (North).

Apart from that, the company is also facing supply problems in Karnataka.

What JP Morgan and Citi say about United Breweries

JP Morgan on United Breweries

After the third quarter results, JP Morgan has maintained an 'overweight' rating, cutting the target to Rs 1950 from Rs 2075.

In its report, JP Morgan says that while UBL management was positive on top-line momentum during its earnings call, it refrained from providing specific guidance on the margin outlook.

The company targets mid- to high-single digit volume growth, factoring in potential supply disruptions/adverse taxes (in select states), even as underlying demand trends in most states stay robust.

The January demand is tracking as per expectations.

It expects 7-8 per cent lower EBITDA for FY24-26 on the back of moderation in margin forecasts.

Citi on United Breweries 

Citi has maintained its 'sell' call on the company's share, but raised the target to Rs 1600 from Rs 1500.