Growth was achieved despite the lack of supply for a large part of 3QFY18 in the state of Maharashtra due to pricing issue (was resolved subsequently) and the route to-market change in West Bengal. Staff costs fell by 30bp y-o-y and other expenses by 140bp y-o-y, possibly due to operating leverage led by healthy sales growth. EBITDA was up by a healthy 19.3% y-o-y to Rs 150 crore, but missed our estimate of Rs 180 crore due to lower-than-expected margins growth. Due to a higher-than-expected tax rate, PAT fell 2.3% y-o-y to Rs 47.4 crore (est of Rs 67.4 crore), despite healthy EBITDA growth.
Net sales were up 14.5% y-o-y to Rs 4,150 crore. EBITDA rose 28.3% y-o-y to R690 crore, with the margin expanding 180bp y-o-y to 16.7%. PAT increased 36.2% y-o-y to Rs 300 crore. Market share increased 200bp y-o-y. Route-to-market change impact already witnessed in West Bengal, and will come through in 4QFY18 for Punjab and Haryana (1-2% of sales). The recently introduced corporation model in UP could have positive implications for leading brands; would also help reduce receivables risk. Management highlighted an improving business environment. Long-term volume and earnings growth opportunity is immense for India’s largest beer player, with strong barriers to entry in the form of distribution, brewery reach, scale and brands. Operating environment appears to be improving at a healthy pace, indicating strong pace of earnings growth going forward. Valuing the company at 30x December’19E EV/EBITDA (10% premium to peer average), we derive a TP of Rs 1,380. Maintain ‘Buy’.
