Home-delivery of alcohol will take time to build scale – United Breweries
Update on the Indian Equity Market:
On Wednesday, Nifty ended 0.2%, higher than the previous close at 11,408. The top gainers for Nifty 50 were Zee (+14.1%), GAIL (+5.0%), and Tech M (+2.2%) while the losing stocks were Bajaj Auto (-1.2%), ONGC (-1.2%), and Nestle (-1.0%). The sectoral gainers for the day were Media (+5.4%), PSU Bank (+2.4%) and Realty (+1.3%) while the losers were FMCG (-0.4%), Pharma (-0.4%), and IT (-0.3%).
Edited excerpts of an interview with Mr Rishi Pardal, MD & CEO, and Mr Debabrata Mukherjee, CMO, United Breweries Ltd; dated 17th August 2020 from Mint:
• The quarter that went by (April-June) was very unusual, impacted by the pandemic and lockdowns. For more than 50% of the quarter, the Company was physically shut. At the beginning of the pandemic, large increases in taxation also impacted demand.
• In quarter two, the story is mirroring the progression of the pandemic. As governments are easing restrictions they are starting to see a similar thing come into the business. But it’s a long road ahead. There are a lot of starts and stops. A sudden spike in local cases can shut the market for a few days, so it’s too early to talk of recovery right now, as per Mr Pardal.
• The Company’s focus is on managing costs. All discretionary expenses that can be avoided such marketing spends, which may be specifically driven towards either particular innovations or events that are not happening, are avoided. At the same time, they are a consumer products company, so they need to make sure that they cannot be silent or absent in the mind of the consumer.
• Beer is seeing a latent demand for United Breweries. If there is a physical fulfilment opportunity where a consumer can access the outlets, or the Company can encourage online order and home delivery, or look at reviving consumption in bars – the latent demand is there. The problem is more of a supply-side issue.
• Alcohol is a highly restricted category, with a lot of stringent rules. So the fact that a few state governments are now beginning to sort of consider the online sales and home delivery is really positive development for the Company.
• United Breweries is partnering with the online aggregators, with delivery services and people engaged in the space. But this will take time. This is a nascent opportunity. Over a period of time, more states will follow suit and the channel will build scale.
• 60% of channels have opened up.
• The Company is working with IPL teams to figure out how best they can leverage the change in venue opportunity. It will be using a sporting event of this nature to connect with their consumer. So the money outlay is based on that brand strategy requirement.
Consensus Estimate: (Source: market screener website)
• The closing price of United Breweries India was ₹ 1,016/- as of 19-August-2020. It traded at 423x/42x/37x the consensus EPS estimates of ₹ 2/24/28 for FY21E/FY22E/23E respectively.
• The consensus target price of ₹ 1,056/- implies a PE multiple of 38x on FY23E EPS of ₹ 27.7/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”