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Accumulate United Breweries, target Rs 1,350: Emkay Global Financial Services

Emkay Global Financial Services has an accumulate call on Un..

Emkay Global Financial Services has an accumulate call on United Breweries with a target price of Rs 1,350.

The current market price of United Breweries is Rs 1,184.45.

Time period given by the brokerage firm is one year when United Breweries price can reach the defined target.

Investment rationale by Emkay Global:

Volume grows by 24 per cent; 9th consecutive quarter of market share gain: UBLs revenue grew by 32 per cent, 9 per cent ahead of our expectation. The outperformance was driven by strong volume growth of 24 per cent. The recovery in volume was on the back of a low base (decline of 9 per cent in Q4FY17 impacted by highway ban) and was further aided by restocking in Maharashtra (where supply was discontinued in Q3FY18). UBL has gained market share for 9 consecutive quarters and we expect share gains to continue, led by its strong franchise and continuing distribution issues faced by its competitor – SAB Miller.

Margins expand 260bps in FY18; can see further upside: Gross margin improved by 150bps due to cost savings and higher capacity utilization. EBITDA grew by 106 per cent, 13 per cent ahead of our expectation. EBITDA margin expanded by 510bps due to lower-than expected overheads. We believe that margin was also aided by positive state mix. Lower depreciation and interest burden led to APAT of Rs909mn, 25 per cent ahead of our expectation. We expect UBLs margin to expand by 170bps over FY18-20E on the back of higher capacity utilisation.

ROCE improves to 22 per cent: Driven by strong margin expansion, ROCE improved from 13.5 per cent in FY17 to 21.9 per cent in FY18. We expect it to improve further to 28 per cent by FY20E on the back of incremental margin improvement. Debt has also reduced, resulting in 29 per cent decline in interest cost.

Improved volume and earnings outlook; Maintain ACCUMULATE: Following Q4FY18 results, we have raised our FY19-21 earnings by 5-7 per cent. We forecast UBL to report 10 per cent volume CAGR and revenue/earnings CAGR of 15 per cent/28 per cent over FY19-21. We maintain our ACCUMULATE stance with a Target Price (TP) of Rs1,350, valuing it at 25x June20E EV/EBITDA.

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