United Breweries is a key stock in focus after posting 19.8 percent growth in its Q4 profit but margins this quarter contracted 103 basis points compared to Q3FY25 due to higher staff cost. However, the company is better off with its premium brands to make up for the squeezed margins. Going forward, the price hikes in Karnataka are also expected to help FY26 performance.
Despite the fall in revenue, the company still has a leading position in the beer market. The company has a host of premium brands like Kingfisher Ultra, Kingfisher Ultra Max, and Heineken Silver under its umbrella. As a result, Nuvama has maintained a Buy on the share price with a target of Rs 2,505 per share
Nuvama on United Breweries
According to the brokerage, the company’s capex plan is a key factor to watch. During the quarter, the investment exceeded Rs 100 crore and focused on commercial and supply chain initiatives. To further unlock growth opportunities, UBBL announced a major investment of Rs 750 crore in a greenfield brewery in Uttar Pradesh, estimated to be added by Q4FY27. This facility will be designed to produce both mainstream and premium products, including Heineken, with provision for both cans and bottles.
Impact of Telangana and Karnataka issue on beer sales
The other major concern for United Breweries has been the operational issues in Telangana and Karnataka. On January 8, United Breweries suspended its supply in Telangana over disagreements with the state-owned Telangana Beverages Corporation. The two parties had a disagreement over the non-revision of prices since 2019 and payment overdues.
After an agreement with the state, the company resumed its operations on January 20, but the 12-day suspension has cost the company considerably. The company has a 70 percent share in the state’s beer market. Also, the state accounts for 15 – 20 percent of its total beer sales and 10 to 12 percent of the revenue.
Around the same time, the Karnataka government increased the duties on beer to Rs 20 per bulk litre from Rs 10. However, the company decided not to increase its beer prices and absorb the duties. The abortion of duties directly affected the margins of the United Breweries in the Q4.
The road ahead for United Breweries-
Despite the temporary suspension in the fourth quarter, the company saw a 5 percent yoy growth in its volume in FY25. Additionally, Telangana has also increased its beer prices by 15 percent, which will also increase the margins for the company.