United Breweries Q3 volume growth strong, margin recovery disappoints: Report

United Breweries in focus: Beverage company United Breweries displayed robust volume growth in the December quarter (Q3FY24), aligning with market expectations. However, the company's gross margin (GM) recovery fell short of analyst projections, indicating some operational challenges, a brokerage firm said in a note.

Despite challenges, the beverage company's revenue surged 13.1 per cent annually, fuelled primarily by 8 per cent increase in volume. Notably, the premium portfolio experienced a 14 per cent surge in volume. 

While certain regions like the North struggled with volume contraction, others such as the South, West, and East regions displayed healthy growth figures. The company implemented price hikes in strategic markets like Rajasthan, UP, and Karnataka, which contributed to revenue growth, Motilal Oswal said in a note.

However, the gross margin, standing at 44 per cent, did not meet expectations, primarily due to slower returns on glass bottle investments, the brokerage firm highlighted. Consequently, the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin, at 8 per cent, also fell short of predictions.

Additionally, the Bengaluru-based company faced challenges in the first nine months of financial year 2024 (9MFY24), with a slight volume dip attributed to weaker seasonal demand in the first quarter. Despite the strong growth trajectory of its premium portfolio, the company's pace of growth lagged behind other premium brands, analysts highlighted.

The management commentary said strong double-digit growth in certain premium products and acknowledged supply chain issues in Karnataka. Moreover, the company stressed upon its commitment to improving gross margins steadily in the coming years, notwithstanding slow returns on glass bottles.

Motilal Oswal analysts have revised down financial year 2024 earnings per share (FY24 EPS) estimates by 12 per cent due to the third quarter earnings before interest, taxes, depreciation and amortisation/profit after tax (EBITDA/PAT) miss and slower-than-anticipated gross margin recovery. 

However, the outlook for financial year 2025 (FY25) remains relatively stable, with a projected revenue compound annual growth rate (CAGR) of 11 per cent over financial year 2024-2026 (FY24-FY26), driven mainly by volume growth.

While the company expects margin recovery in the coming years, uncertainties persist, particularly regarding earnings and stock performance. Analysts maintain a cautious stance and recommend to sell the stock with a target price of Rs 1,500 per share.

As of 1:28 pm, shares of United Breweries were trading 1.40 per cent lower at Rs 1,745.90 per share.