United Breweries shares fall 5% after warning of cost pressures; Here are key triggers

Shares of United Breweries Ltd. fell as much as 5% on Wednesday, May 6, after the company reported a subdued earnings performance for the March period on higher category investments and increased costs.

The company's reported revenue was lower from last year and below estimates as the volumes were led by markets where supplies are sourced from contract breweries.

United Breweries' margins were impacted due to a 27% jump in ad spends, an increase in fixed costs, higher new bottle infusion and source mix.

Increased Cost Pressures

The management said that the ongoing conflict in West Asia has disproportionately impacted the Indian beer industry and is leading to a significant cost increase in raw and packaging material costs, transports, and other operating costs.

That, coupled with the sustained competitive intensity, is likely to have an impact on the coming quarters, the management warned.

Key Triggers Ahead

A favourable policy in Karnataka and a continued traction in its premium portfolio are likely to be the key triggers for the stock going ahead.

Volumes during the quarter grew by 16% in the premium segment, compared to expectations of a 12% advance.

Buy Or Sell?

22 analysts have coverage on United Breweries, of which 10 have a "buy" rating, eight say "sell", and four have a "hold" recommendation. Equirus Securities downgraded the stock to "reduce" and has a price target of ₹1,424.

Shares of United Breweries are the worst performers on the Nifty 500 on Wednesday, trading 4.1% lower at ₹1,394.3.