Fundamental analysis is most important before any investment. In this blog, we break down the fundamentals of United Breweries Ltd, their market position, growth potential, and stock performance. With a PE ratio that’s brewing high, we explore whether UBL stock is the right drink for your portfolio.
Table of Contents
Introduction: The Kingfisher of Beverages is Soaring High!
When you think of beer in India, Kingfisher immediately comes to mind, and behind that legendary brand is United Breweries Ltd (UBL), the giant in the Indian beer market. Holding a strong 54% market share, UBL is the market leader in India and continues to grow both domestically and internationally. Known for brands like Kingfisher Premium, Kingfisher Ultra, and the globally famous Heineken, the company has expanded its presence across 50 countries and added markets in Africa, such as Kenya, Uganda, and Tanzania.
UBL’s success isn’t just about brewing beer. It’s about smart marketing, strong brand loyalty, and savvy financial management. But does this beer powerhouse have what it takes to deliver strong returns in the stock market? Let’s crack open the numbers!
Financial Analysis of United Breweries Ltd
Take a glance at the balance sheet dashboard of the company and let’s understand step by step.
Sales and Profit Trends
The chart displays consistent sales growth from ₹5,619 crores in March 2018 to a projected ₹9,283 crores by March 2025. UBL’s revenue took a hit during the pandemic years (2020-2021), but the recovery is strong, with net profits bouncing back to ₹366 crores in March 2022 and projected to hit ₹469.72 crores by March 2025.
Operating Profit Margins (OPM)
UBL’s OPM is another key indicator of its improving financial health. In 2020, UBL had an OPM of 13.46%, but the pandemic dragged this down to 8.21% by March 2022. However, with the ongoing recovery, the margins are expected to climb to 9.61% by 2025. This recovery in margins indicates improving operational efficiency, despite macroeconomic headwinds like inflation.
Earnings Per Share (EPS)
Earnings Per Share (EPS) dropped dramatically during the pandemic, falling to ₹4.28 in March 2021. However, with recovery in sales and profit, the EPS is set to rise to ₹17.73 by March 2025, providing attractive returns for long-term investors.
Return on Equity (ROE)
Another significant metric for investors is ROE. UBL’s ROE reached a low of 3.18% in 2021, but it is projected to recover to 11.62% by March 2025. Though lower than the glory days of 2019 (17.69%), the upward trajectory offers hope for steady returns.
Asset Distribution
UBL’s assets are largely spread between Fixed Assets (₹1,776 crores) and Other assets (₹5,097 crores), showing a well-diversified asset base. The company’s investment (₹8 crores) and Capital Work in Progress (₹173 crores) indicate ongoing expansion plans.
Liability Distribution
UBL’s financials indicate controlled borrowing, with only ₹102 crores in borrowings, compared to hefty reserves of ₹4,152 crores. The company is comfortably positioned to finance future growth without relying too heavily on debt.
Market Position and Potential
With 20 owned facilities and 10 contract manufacturing arrangements in India, UBL operates in 28 states, 8 union territories, and markets in over 50 countries. UBL’s international presence in Africa, where beer consumption is rising, adds growth potential to an already strong domestic base.
UBL continues to expand its brand portfolio with the introduction of premium brands like Kingfisher Ultra Witbier and Amstel, appealing to India’s growing middle-class consumer base looking for premium beverages.
Marketing and Expansion
The company’s unique marketing strategies, such as its association with IPL (Divided by Teams, United by Kingfisher campaign) and partnerships with festivals like Sunburn, have cemented Kingfisher’s iconic status in India.
UBL is also focusing on geographical expansion in India with Kingfisher Storm entering Delhi and Rajasthan, and Amstel Beer expanding to Maharashtra, Telangana, and Haryana.
United Breweries Stock Analysis: PE Ratio and Valuation
At a current price of ₹2,155 as on 24/09/2024 and a PE ratio of 127, UBL stock is trading at a premium compared to its peers. High PE ratios often reflect strong growth expectations, but in UBL’s case, it is much higher than the industry average. Is it justified? Let’s find out:
Short-Term Target (3 Months):
- Target Price: ₹2,300
- Stop Loss: ₹2,000
Long-Term Target (1 Year):
- Target Price: ₹2,700
- Stop Loss: ₹1,950
While the PE ratio indicates that the stock is expensive, UBL’s strong recovery, global expansion, and leading market position provide growth opportunities that could justify these valuations. Investors should be cautious, as a PE this high does come with risks, particularly if growth does not meet expectations.
FAQs about United Breweries Ltd Stock
Why is UBL’s PE ratio so high?
Is United Breweries a good long-term investment?
What are the risks of investing in UBL?
What is UBL’s market share in India?
What brands does United Breweries offer?
How has the company’s performance been post-pandemic?
What is UBL’s future growth strategy?
Conclusion: Is UBL Stock the Right Brew for Your Portfolio?
United Breweries is undoubtedly a market leader with a solid track record and excellent brand equity in the Indian beer market. Its recovery post-pandemic has been impressive, and future projections for growth remain strong, both domestically and internationally. However, the stock’s current PE ratio of 127 may raise eyebrows, as it trades at a premium compared to its peers.
For those looking for long-term growth, UBL could be a strong addition to your portfolio, especially with its focus on premium brands and geographical expansion. But short-term investors might want to tread cautiously, given the high valuation and possible volatility.
In conclusion, UBL’s stock could be the perfect brew for investors who are willing to hold for long-term gains but should be sipped with care!
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