United Breweries Limited

United Breweries delivered a robust Q4 FY25 with a 5% volume growth and a 9% increase in net sales, contributing to a 10% net sales growth for the full year. This performance was achieved despite significant market challenges^🌐, including temporary suspensions in Telangana and duty structure changes in Karnataka. The company's EBIT grew by 24% to INR 137 crores, reflecting improved operational efficiency.

The premium segment continues to be a key growth driver, expanding by 24% in Q4 and an impressive 32% for the full financial year. This growth was led by brands such as Kingfisher Ultra, Ultra Max, and Heineken Silver. UBL aims to further accelerate this trend, with a strategic plan to increase the premium segment's share to 35% from the current 17-18%.

Growth in Q4 was predominantly driven by Andhra Pradesh, Uttar Pradesh, Maharashtra, and Assam. However, states like Telangana and Karnataka faced significant headwinds. Telangana saw a 20% consumer price increase and ongoing issues with overdue payments, while Karnataka experienced a double-digit category decline due to duty increases, although UBL managed to grow its share without taking price increases on Kingfisher.

UBL is undertaking a comprehensive redesign of its distribution network, starting with Maharashtra, where it aims to improve next-day delivery from 62% to 95% across over 20,000 outlets. This initiative, focused on enhancing service to retailers, will be rolled out in at least four states this year, with the goal of creating a pan-India playbook. The company also plans to increase cooler placements in Maharashtra to approximately 50% in the next couple of years from the current 8-15%.

The company is significantly increasing its capital expenditure, which is expected to grow in multiples compared to previous years. A major investment includes a new Greenfield brewery in Uttar Pradesh, which is projected to take a minimum of two years to build and will have a modular capacity ranging from 1.5 million to 3.5 million hectolitres. Additionally, UBL is setting up a can line in Maharashtra and investing in coolers to support future volume growth.

Gross margins improved to 42.1% in Q4 and 43% for the full year, despite some short-term pressures. The company noted that reliance on contracted buying parties during capacity expansion phases can negatively impact margins from an accounting perspective. While bottle injection percentages have improved, UBL remains cautious about the outlook due to the challenge of translating cost price increases into consumer pricing in India.

Management highlighted affordability as the biggest threat to category growth, citing recent price and duty increases in states like Telangana and Karnataka. UBL is actively engaging with government regulators to provide data and advocate for more sustainable industry policies, including reducing the gap between periods of taxation and overall beer taxation.