Sell United Breweries
United Breweries Limited (UBL)’s net sales in Q3’09 grew substantially by 24% yoy to Rs 3.7 billion. The EBITDA margin advanced 200 bps yoy to 9.4% in the quarter, from 7.4% for the same period in FY08, on the back of a 243-bps yoy fall in the advertisement and sales promotion costs (as a percentage of sales). We see significant downside in the stock due to high financial leverage and limited expected improvement in margin performance. Moreover, our DCF valuation gives a fair value of Rs 70, suggesting a 10% downside from the current market price (CMP).
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