Stocks

Broker's call: United Breweries (Buy)

| Updated on January 13, 2021 Published on January 13, 2021

Emkay Global

United Breweries (Buy)

Target: ₹1,420

CMP: ₹1293.50

We raise FY22/23 earnings forecasts by 10-13 per cent on account of positive changes in regulatory environment and better recovery trends in key markets. We reiterate conviction Buy with a revised target price of ₹1,420 (earlier ₹1,225), based on 27.5x Mar'23 EV/EBITDA (implied P/E of 49x)

After the tax reversals in Delhi, Odisha, J&K and West Bengal, excise duty reduction in Uttar Pradesh on beer and a 7 per cent price hike in Kerala come in as additional positives. Historical trends indicate that the category enjoys a substantial growth pick-up after such tax cuts, as they result in lower consumer prices and therefore higher relative affordability.

After a slow recovery in H1 due to the shift to IMFL and trade restrictions, beer recovery is improving, and we expect a marked improvement in Q3 performance with volume recovery of close to 90 per cent vs. 52 per cent in Q2 (67 per cent in Sep’20).

Q3 performance should see a marked improvement in comparison with H1, with sales and EBITDA recovering to near 90 per cent of the Q3FY20 level. Volume data from state corporations and channel checks continue to indicate m-o-m recovery and market share gains for UBBL. Despite recent run up, UBBL's valuations at 24x FY23E EV/EVITDA and 43x FY23E EPS appear reasonable vs. peers.

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Published on January 13, 2021
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