United Breweries, a prominent player in the beer industry, is attracting considerable attention following a 19.8% increase in its profits for the fourth quarter. However, the company faced a margin compression of 103 basis points compared to the previous quarter, primarily due to rising staff costs. On a positive note, the strength of its premium brands is helping to offset these challenges, and anticipated price hikes in Karnataka could bolster performance in FY26.
Revenue Trends and Market Position
Despite a dip in revenue, United Breweries continues to hold a dominant position in the beer market. The company boasts a portfolio of premium brands, including Kingfisher Ultra, Kingfisher Ultra Max, and Heineken Silver. As a result, Nuvama has maintained a “Buy” rating on the stock, setting a target price of ₹2,505 per share.
Strategic Investments and Growth Plans
Nuvama highlights the company’s capital expenditure (capex) strategy as a critical element to monitor. In the last quarter, United Breweries invested over ₹100 crore into commercial and supply chain initiatives. Additionally, the company announced a significant ₹750 crore investment in a new brewery in Uttar Pradesh, expected to come online by Q4 FY27. This facility aims to produce both mainstream and premium products, including Heineken, with capabilities for can and bottle production.
Operational Challenges in Telangana and Karnataka
United Breweries also faces operational hurdles in Telangana and Karnataka. On January 8, the company halted its supply in Telangana due to a dispute with the state-owned Telangana Beverages Corporation regarding price revisions that hadn’t occurred since 2019 and overdue payments. After reaching an agreement, operations resumed on January 20, but the 12-day supply halt significantly impacted the company’s revenues. With a 70% market share in Telangana, the state represents 15-20% of United Breweries’ total beer sales and 10-12% of its overall revenue.
Simultaneously, the Karnataka government raised beer duties from ₹10 to ₹20 per bulk litre. In a strategic move, the company chose not to pass this cost onto consumers, opting to absorb the increase instead. Unfortunately, this decision directly impacted the company’s margins in the fourth quarter.
Future Outlook for United Breweries
Looking ahead, despite the challenges faced in Q4, United Breweries experienced a 5% year-on-year volume growth in FY25. Moreover, Telangana’s recent decision to increase beer prices by 15% is expected to enhance the company’s margins going forward. This combination of strategic investments and market adjustments positions United Breweries for potential growth as it navigates the evolving landscape of the beer industry.
In conclusion, while obstacles remain, the company’s strong brand portfolio and proactive strategies could pave the way for a successful future.
