Murree Brewery Company Limited

Murree Brewery Company Limited (PSX: MUREB) was set up as a public limited company before the partition of the subcontinent, in 1861 under the repealed Indian Companies Act (now the Companies Act, 2017). It has three business divisions: Liquor, Tops and Glass that manufacture nonalcoholic beer, aerated water, juices, mineral water, glass bottle and jars, and food products.

Shareholding pattern

As at June 30, 2020, nearly 33 percent of the shares of the company are owned by the directors, CEO, their spouses and minor children. Within this, the CEO, Mr. Isphanyar M. Bhandara is a major shareholder. Close to 30 percent shares are held by the foreign companies; of this, majority are owned by Kingsway Fund-Frontier Consumer Franchises. About 18 percent shares are with the associated companies, undertakings and related parties, followed by almost 12 percent with the local general public. The remaining 7 percent shares are with the rest of the shareholder categories.

Historical operational performance

Murree Brewery has through out seen a growing topline since FY09, with the exception of FY20, when it contracted by 11 percent. Profit margins have been stable, witnessing a gradual decline after FY17.

During FY17, the company saw the slowest growth in revenue since FY10, at a little over 7 percent, whereas in value terms topline cross Rs 7 billion. While the liquor division continued to contribute the highest share to the total revenue pie, sales in the tops division saw a 14 percent growth; sales of the glass division more than doubled, but the latter’s share in revenue was the lowest. Cost of production increased to 70 percent of revenue, reducing gross margin to 30 percent, compared to 33.7 percent in FY16. Administrative and distribution expenses also made a larger share in revenue, while other income dropped due to lower return on deposit accounts. Cumulatively, this had an adverse impact on profitability, as reflected in the net margin recorded at 12.9 percent, compared to 17 percent in the previous year. lower profitability was also attributed to a two-month suspension on sale of liquor in Sindh which was the largest market.

Murree Brewery witnessed one of the highest growths in revenue in FY18, at 27 percent, crossing Rs 9 billion. Sales in liquor division grew by 33.6 percent, while sales in tops division grew by 15.7 percent, both divisions being major contributors to total revenue. Production cost reduced slightly to 68 percent, allowing gross margin to improve marginally to 31.7 percent. With most other factors remaining similar year on year as a share in revenue, net margin also improved to 14.3 percent. Net profit was recorded at its highest since FY09 at Rs 1.3 billion. Since FY17, additional support had also been coming through finance income- particularly, interest on PIBs and return on deposit accounts.

The company maintained its revenue growth momentum during FY19 as it grew by nearly 12 percent. While all three divisions witnessed a growth in sales, the liquor and glass division were profitable, whereas the tops divisions posted a higher operating loss year on year at Rs 117 million. The company attributed the losses to increase in cost of raw material, depreciation and distribution cost. Production cost cumulatively also made a larger share in revenue at 71.5 percent that caused gross margin to shrink to 28.5 percent. In addition to increase in raw material cost, the general inflationary pressure is also a plausible explanation for the rise in costs. With distribution cost escalating to nearly 11 percent of revenue, operating profit was also lower at 13.8 percent, while net margin, which reduced to 12 percent, was supported by finance income.

After growing for nine consecutive years, revenue contracted by over 11 percent in FY20. All three division saw a decline in sales, with topline falling below Rs 9 billion. While profitability reduced in liquor and glass divisions, tops division incurred a higher operating loss at Rs 218 million. On the other hand, production cost reached an all time high of over 74 percent, reducing gross margin to over 25 percent. With other expenses escalating and other income halving, net margin also fell to its lowest of 7.6 percent.

Quarterly results and future outlook

Revenue in the first quarter of FY21 was higher by 13 percent year on year, as business activities resumed after the lock down eased that was put in place in response to the Covid-19 pandemic. With higher cost of production as a share in revenue, and lower finance income that had been significantly supporting the bottomline previously, net margin was lower in 1QFY21 at 11.5 percent, compared to 13.7 percent in same period last year.

Revenue in the second quarter was higher year on year by almost 9 percent, while cost of production was above 70 percent, keeping gross margin lower. With similar trends seen as the first quarter of FY21, net margin was lower in 2QFY21 at 9.9 percent.

Revenue in third quarter neared Rs 3 billion, registering an increase of over 29 percent year on year. although production cost was lower than the previous quarter, in comparison to same period last year, it was higher, at over 70 percent. However, net margin at 12.7 percent, was better in 3QFY21 due to the containment of other expenses.

While the world has adopted to the new norm of operating, uncertainty remains on the economic and political front as well as due to the emergence of new variants of the pandemic.