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Emkay Global
United Breweries (Buy)
Target: ₹1,225
CMP: ₹967.35
Following tax reversals by Delhi, Odisha and J&K, West Bengal has also reduced taxes by withdrawing the 30 per cent additional VAT on beer, resulting in a steep 24-30 per cent fall in consumer prices.
The steep reduction in prices is likely to increase the pace of volume recovery and growth in coming months. Beer volumes in West Bengal had declined sharply and were still down nearly 50 per cent in recent months due to the unfavorable pricing and shut-down of bars. West Bengal accounts for about 3 per cent of industry volumes and is a meaningful profitable market for the beer industry.
Recent announcements on the reopening of bars and restaurants and tax reversals in key states such as Maharashtra, Karnataka, Delhi and West Bengal are likely to improve volume recovery in beer, which was very slow compared to IMFL.
The stock has significantly underperformed over the last two years due to a steep increase in input prices in FY20 followed by the Covid-19-led disruption. However, with most states reversing steep taxes, regulatory environment is turning benign and further unlocking can drive a sharp recovery in industry volumes and profitability from Q3, in our view.
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