UB’s Ebitda rose by 50.8%, even after accounting for increases in expenses on salaries, promotions and other expenses.
Beer guzzlers went on a binge in the December quarter. What prompted this is not really known, but the industry is not complaining. Sure, there was a low base effect, but not enough to explain the 13% increase from a year ago in the beer industry’s growth.
United Breweries Ltd’s (UB’s) earnings release called this growth extraordinary. In the year-ago quarter, volumes had risen by 1%. In the first half of FY16, volumes fell by 1%. The December quarter marks a sharp deviation in trend. If it reverses in March, it will go down as an aberration.
The growth in industry volumes obviously benefited UB too, whose net sales rose by 15.1% over a year ago. A Kotak Institutional Equities note had estimated sales growth at 9% and Ebitda (earnings before interest, taxes, depreciation and amortization) growth at 19%. UB also benefited from soft input prices, with its material costs rising by only 10.2%. The company attributed this to product mix, that is, due to selling more of higher margin products.
UB’s Ebitda, therefore, rose by 50.8%, even after accounting for increases in expenses on salaries, promotions and other expenses. Its profit after tax rose by 80.6% over a year ago. The company’s results were announced post-market close on Tuesday. Since January, its share has declined by 14.9%. These results may help the share get back on its feet.
Investors will want to know what is driving the recovery in volumes and if it is sustainable. Fortunately for the company, the low base effect will continue all the way till mid-FY17. Even if the December quarter’s level of growth is not fully sustained, even if some part of this growth is repeated, it is better than a decline and should mean a healthy performance from UB in the near-to-medium term.