Amstel Grande Launch And Critical Expansion Promise Strong Growth In India's Premium Beer Market

Key Takeaways

• Strategic focus on premium brands and local production is expected to enhance margins through reduced logistics costs and improved supply chain efficiencies.
  
• Expansion in Andhra Pradesh and resolving regulatory challenges in affected markets could significantly boost sales volume and overall revenue growth.
  
• Increasing regulatory and operational challenges, along with competitive pressure, could hinder market share and revenue growth in premium segments.

Catalysts

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

• The launch of Amstel Grande, a premium strong beer designed specifically for India, is expected to significantly boost United Breweries' premium segment, potentially driving revenue and margin improvement as premium products typically offer higher margins than regular products.
  
• The strategic focus on enhancing local production capabilities for premium brands is anticipated to reduce logistics costs and improve supply chain efficiencies, contributing positively to gross margins and net earnings over time.
  
• The company is actively working on corporate affairs to address regulatory hurdles, such as the tax increase in West Bengal, which, if successfully mitigated, could restore growth in affected markets and positively impact overall revenue.
  
• United Breweries is planning to expand its presence in Andhra Pradesh as private retail opens up, potentially tripling its volume contribution from the state, a move that could significantly boost sales volume and revenue.
  
• The emphasis on holistic strategic execution across supply chain, portfolio gap filling, and consumer engagement is expected to drive long-term profitable growth, enhancing both top-line and bottom-line performance.

United Breweries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming United Breweries's revenue will grow by 10.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 8.8% in 3 years time.
• Analysts expect earnings to reach ₹10.2 billion (and earnings per share of ₹38.89) by about December 2027, up from ₹4.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹12.4 billion in earnings, and the most bearish expecting ₹8.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 72.5x on those 2027 earnings, down from 113.0x today. This future PE is greater than the current PE for the IN Beverage industry at 24.8x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.15%, as per the Simply Wall St company report.

United Breweries Future Earnings Per Share Growth

Risks

• The steep increase in beer duty in West Bengal has resulted in significant price hikes, impacting consumer demand and potentially affecting revenue growth in that region.
  
• Regulatory and operational challenges, such as the excise portal issues in Delhi and Jharkhand, can disrupt supply chains and lead to revenue instability in affected states.
  
• The premium segment's reliance on new bottle introductions might lead to increased costs and margin pressures, potentially impacting net margins if premium growth outpaces improvements in bottling efficiency.
  
• The state-level variance in gross margins indicates dependency on favorable state policies and pricing, which could affect profitability if adverse state changes occur.
  
• Competitive pressure from established players with international premium beer credentials (e.g., Budweiser Magnum) may hinder market share growth, impacting overall earnings in the premium segment.

Valuation

• The analysts have a consensus price target of ₹2000.64 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 ₹2365.0, and the most bearish reporting a price target of just ₹1289.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹116.2 billion, earnings will come to ₹10.2 billion, and it would be trading on a PE ratio of 72.5x, assuming you use a discount rate of 12.2%.
• Given the current share price of ₹2017.55, the analyst's price target of ₹2000.64 is 0.8% lower. 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.