Revise United Breweries fair value to Rs 1,365

Exceptional loss stood at Rs 6.2 bn for Rs 4.5 bn impairment loss on Bihar brewery, and Rs 1.8 bn loss on investment in subsidiary.

UBBL reported good sequential recovery in volumes with EBITDA margin at 16.9% aided by a tight leash on operating costs. OCF generation in FY2021 was robust despite a sharp decline in operating profit. Covid-led externalities and rising input costs (barley) drove a sharp cut in FY2022E estimates. We reduce FY2022-23E EPS estimates by 44%/5%; revise FV to Rs 1,365 (Rs 1,375 earlier).

UBBL reported 8% yoy growth in revenues to Rs 15.4 bn (3% above estimate) and 9% growth in volumes. On a 2-yr CAGR basis, volumes declined 7% (versus 11% decline in 3Q), and revenues declined 3% (versus 6% decline in 3Q). Management highlighted that most markets witnessed good volume growth except Telangana, Odisha and Delhi, North (+13% yoy): Rajasthan, Punjab, Haryana and Himachal Pradesh saw growth whereas UP was flat, West (+3% yoy): healthy double-digit growth in all markets except Chhattisgarh, South (+3% yoy): broad-based double-digit growth except Telangana (Covid-cess led) and Pondicherry, East (+26% yoy): all markets except Odisha reported double-digit growth with West Bengal seeing 100%+ growth (slightly favourable taxation relative to spirits).

GM stood at 52% (KIE: 53.3%) expanding 110 bps yoy and down 190 bps qoq. EBITDA stood at Rs2.6 bn (KIE: 2.4 bn). EBITDA margin stood at 16.9% (KIE 15.7%) up 765 bps yoy. EBITDA margin beat was largely on account of lower-than expected other expenses. Staff costs/other expense were down 1%/5% yoy and increased 13%/24% qoq.

Depreciation expense was lower than our expectation (linked to production volumes). PBT and PAT came in at Rs 2.1 bn and Rs 0.97 bn, respectively. Exceptional loss stood at Rs 6.2 bn for Rs 4.5 bn impairment loss on Bihar brewery, and Rs 1.8 bn loss on investment in subsidiary.