532478: Upcoming Auditor Changes And Portfolio Expansion Will Shape Outlook

Key Takeaways

• Expanding premium product portfolio, increased urbanization, and demographic trends are driving higher sales volumes, supporting long-term revenue and margin growth.
  
• Strategic investments in supply chain, policy reforms, and operational efficiencies are improving cost stability, boosting market share, and enhancing profitability.
  
• Regulatory and supply challenges, margin pressures, and rising competition threaten United Breweries' revenue growth, profitability, and long-term market position.

Catalysts

Engages in manufacture, purchase, and sale of beer and non-alcoholic beverages in India and internationally.

• United Breweries is set to benefit from a growing young population entering the legal drinking age and expanding urbanization, which is driving sustained volume growth (11% volume growth this quarter, with high single-digit expected going forward), underpinning long-term revenue expansion.
  
• The company's heavy investment and success in premium product offerings (Kingfisher Ultra, Amstel Grande, Heineken) and rapid premium segment growth (46% YoY in premium, now 10% portfolio share, targeting 15%) are increasing average selling prices and will support gross margin and revenue growth as scale builds.
  
• Policy reforms and regulatory changes in key states (e.g., favorable tax treatment in Maharashtra, retail expansion in Uttar Pradesh, and upcoming potential retail reforms in Jharkhand) are opening up distribution and expanding the retail footprint, creating opportunities for market share gains and accelerating top-line growth.
  
• Substantial investments in cold chain (cooler placement) and supply chain localization (increased local production and brewery network optimization) are poised to improve cost efficiencies and gradually expand operating margins as premium and overall volumes scale up.
  
• Enhanced operational execution under Heineken's global stewardship, including bottle returns management and localized production, is driving steady improvements in input cost stability and market share gains (over 300 bps QoQ), positioning the company for sustainable earnings and net margin improvement.

United Breweries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming United Breweries's revenue will grow by 11.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 8.1% in 3 years time.
• Analysts expect earnings to reach ₹10.3 billion (and earnings per share of ₹39.41) by about September 2028, up from ₹4.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹12.8 billion in earnings, and the most bearish expecting ₹8.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 73.7x on those 2028 earnings, down from 107.1x today. This future PE is greater than the current PE for the IN Beverage industry at 37.4x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.73%, as per the Simply Wall St company report.

United Breweries Future Earnings Per Share Growth

Risks

• Persistent double-digit category declines in key high-margin states like Karnataka and West Bengal due to regulatory changes and taxation could significantly impact United Breweries' revenue growth and compress overall net margins.
  
• Ongoing can shortages, heightened by new import standards and limited domestic supply, have resulted in stockouts and lost sales, posing a structural constraint on volume growth in key markets and risking future revenue and earnings.
  
• Despite strong premium segment growth, gross margins remain under pressure as premium products deliver only about two-thirds the margin of mainstream beers until scale and bottle-return efficiencies are achieved, delaying meaningful margin expansion and affecting long-term profitability.
  
• Intensifying competition, particularly from rivals focusing on economy brands and aggressive share capture in price-sensitive segments, may erode market share gains and put downward pressure on pricing power, squeezing both revenue and margins.
  
• Heavy dependence on state-level policy stability, excise structures, government infrastructure, and timely receivables-especially in major states like Telangana and Uttar Pradesh-exposes the company to uncertain regulatory and operational risks, which can impact working capital, revenue recognition, and overall earnings quality.

Valuation

• The analysts have a consensus price target of ₹2007.0 for United Breweries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2420.0, and the most bearish reporting a price target of just ₹1650.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹127.1 billion, earnings will come to ₹10.3 billion, and it would be trading on a PE ratio of 73.7x, assuming you use a discount rate of 12.7%.
• Given the current share price of ₹1830.4, the analyst price target of ₹2007.0 is 8.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.