Analyst's Pick : Indiabulls Securites puts 'Sell' on United Breweries
Indiabulls Securities maintains `Sell’ rating on United Breweries (UBL) with a target price of Rs. 70. UBL’s net sales in Q309 grew substantially by 24% yo-y to Rs. 370 crore.
By ET Bureau |
UNITED BREWERIES
RESEARCH: INDIABULLS SECURITIES
RATING: SELL
CMP: RS 90
Indiabulls Securities maintains `Sell��� rating on United Breweries (UBL) with a target price of Rs. 70. UBL���s net sales in Q309 grew substantially by 24% yo-y to Rs. 370 crore. The EBITDA margin advanced 200 bps y-o-y to 9.4% in the quarter, from 7.4% for the same period in FY08, on the back of a 243 bps y-o-y fall in advertisement and sales promotion costs (as a percentage of sales).
Indiabulls sees significant downside in the stock due to high financial leverage and limited expected improvement in margin performance. Moreover, Indiabulls��� valuation gives a fair value of Rs 70, suggesting a ~10% downside from the current market price. UBL has a highly leveraged capital structure with a debt-to-EBITDA ratio of around 4x, largely attributed to its expansion activities and acquisitions in the recent times.
The company has raised Rs. 425 crore through a rights issue; however, this money is to largely meet the CAPEX requirements for FY09 and FY10. Subsequently , UBL���s financial leverage is to remain at least 3x for FY09E. As a result , it will continue to bear a substantial interest burden, which will drag its net margins.
RESEARCH: INDIABULLS SECURITIES
RATING: SELL
CMP: RS 90
Indiabulls Securities maintains `Sell��� rating on United Breweries (UBL) with a target price of Rs. 70. UBL���s net sales in Q309 grew substantially by 24% yo-y to Rs. 370 crore. The EBITDA margin advanced 200 bps y-o-y to 9.4% in the quarter, from 7.4% for the same period in FY08, on the back of a 243 bps y-o-y fall in advertisement and sales promotion costs (as a percentage of sales).
Indiabulls sees significant downside in the stock due to high financial leverage and limited expected improvement in margin performance. Moreover, Indiabulls��� valuation gives a fair value of Rs 70, suggesting a ~10% downside from the current market price. UBL has a highly leveraged capital structure with a debt-to-EBITDA ratio of around 4x, largely attributed to its expansion activities and acquisitions in the recent times.
The company has raised Rs. 425 crore through a rights issue; however, this money is to largely meet the CAPEX requirements for FY09 and FY10. Subsequently , UBL���s financial leverage is to remain at least 3x for FY09E. As a result , it will continue to bear a substantial interest burden, which will drag its net margins.
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We expect the EBITDA margin to improve by ~80 bps in FY10 to 11.3% as raw material prices have fallen recently. Moreover, the company should benefit from economies of scale and better realisations on the back of a strong brand equity. Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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