Murree Brewery Company Limited

Murree Brewery Company Limited (PSX: MUREB) was incorporated as a public limited company in 1861. The principal activity of the company is the manufacturing and sale of alcoholic beer, non-alcoholic beer, Pakistan made foreign liquor (PMFL), aerated water, mineral water, juice, food products as well as glass bottles and jars. The company has three divisions – liquor, tops and glass.

Pattern of Shareholding

As of June 30, 2022, MUREB has a total of 27.663 million shares outstanding which are held by 1226 shareholders. Associated companies, undertakings and related parties, with a stake of 33.79 percent shares, form the largest shareholding category of MUREB.This is followed by foreign companies which account for 24.96 percent shares of the company. Directors, CEO, their spouse and minor children hold 21.51 percent shares while local general public have 4.61 percent shares of MUREB. Insurance companies have a representation of 3.71 percent in the outstanding share volume of the company. The remaining shares are held by other categories of shareholders, each having less than 1 percent stake in the company.

Historical Performance (2018-22)

Among all the years under consideration, MUREB has been showing a steady topline growth with an exception of 2020. Conversely, the bottomline only showed a growth in 2021 followed by invariance in 2022. The gross margin of the company has been descending over the course of five years while operating and net margins which had been declining until 2020 posted a rebound in 2021 and then tumbled in the subsequent year. The detailed performance review of each of the years under consideration is given below.

In 2019, MUREB’s net revenue posted a reasonable year-on-year growth of 12 percent to clock in at Rs.10121.28 million. PMFL continued to be the top contributor in MUREB’s sales mix with around 39.5 percent share in 2019. This is followed by non-alcoholic beverages and products with approximately 26 percent share in the sales mix. Beer grabs the next spot with 18 percent share. Tetra pack juices have a contribution of 9 percent in the overall sales pie of MUREB in 2019. The remaining revenue comes from Juices NR, bottled water, glass products and other finished goods. Except for glass products and miscellaneous finished products, all other categories touted a growth in sales. In terms of geographical markets, 42 percent of MUREB’s sales come from Punjab, followed by Sindh which have a say of 39 percent in the sales revenue of the company. Balochistan and KPK have 9 percent and 7 percent share in the total sales of MUREB. The remaining 3 percent sales come from the federal capital and other territories. The cost of sales magnified by 17 percent year-on-year in 2019 mainly on account of depreciation in Pak Rupee. Gross profit rose by 1 percent in 2019, however, GP margin fell to 29 percent from 32 percent in 2018. Distribution expense grew by 42 percent year-on-year in 2019 due to a significant rise in advertising and publicity budget coupled with service charges paid to a related party and sales commission.

Administrative expenses slumped by 5 percent year-on-year mainly because the company booked reversals on slow moving inventories in 2019 as against a provision in the previous year. Other expenses also shrank by 4 percent year-on-year in 2019 due to a slump in provisioning against WWF. Other income grew by 19 percent year-on-year as the company booked massive gain on re-measurement of investment property at fair value. Operating profit slid by 15 percent year-on-year in 2019 while OP margin also plunged to 14 percent in 2019 from 18 percent in 2018.MUREB has a debt-to-equity ratio of 17 percent in 2019 as against 15 percent in 2018. Hence, its finance cost stays under 0.5 percent of its topline in all the years under consideration.

Moreover, the company makes finance income from its investments, which offsets the finance cost by a huge margin resulting in net finance income in all the years. The net finance income of MUREB posted a year-on-year growth of 52 percent in 2019 and stood at 3 percent of its topline as against 2 percent in 2018. The net profit slid by 6 percent year-on-year in 2019 to clock in at Rs.1222.94 million in 2019 with an NP margin of 12 percent versus 14 percent in 2019. EPS inched down to Rs.44.21 in 2019 as against Rs.46.86 in 2018.

In 2020, MUREB’s topline plunged by 11 percent year-on-year. Except for an increase in the sales revenue of Tetra pack juices, bottled drinking water and glass products, all other categories posted a decline in sales in 2020. It is to be noted that while the sales revenue from the two major geographical territories i.e. Punjab and Sindh as well as Islamabad posted a drop in 2020, the sales from Balochistan, KPK and other territories inched up during the year. Cost of sales also declined by 7 percent year-on-year owing to curtailed production. Gross profit fell by 20 percent year-on-year in 2020 with GP margin nose-diving to 26 percent in 2020. Distribution expense plummeted by 19 percent year-on-year in 2020 due to considerable reduction in advertising and promotion expense during the year combined with lesser sales commission, freight charges and service charges paid to a related party. Administrative expenses, on the back of increased salaries and wages grew by 28 percent year-on-year in 2020. Other expense posted a considerable 138 percent year-on-year rise in 2020 due to the imposition of GIDC on all industrial and commercial entities which use gas for their business activities. Other income didn’t support either as it dwindled by 35 percent year-on-year in 2020. The result was a 49 percent year-on-year plunge in operating profit in 2020 with OP margin sliding down to 8 percent. The net finance income of MUREB grew by 23 percent year-on-year in 2020, yet couldn’t impede the bottomline from making a 44 percent freefall in 2020 to clock in at Rs.681.73 million. NP margin dropped to 7.6 percent in 2020 while EPS dived to Rs.24.64.

In 2021, MUREB’s topline posted the highest ever sales growth of 30 percent. During the year, MUREB also started exporting which buttressed the topline. Across the product categories, only juices NR posted a massive drop while other categories boasted impressive growth. Across the geographical markets, the sales from Sindh plunged in 2021, while other territories provided positive contribution to the topline. High cost of sales culminated into a slight downtick in GP margin to 25.5 percent in 2021. Distribution expense remained in check and grew by only 4 percent year-on-year in 2021 as the company reduced its advertising budget and selling expenses including sales commission.

Administrative expenses also declined by 7 percent year-on-year in 2021. Other expenses contracted by 12 percent year-on-year as the company booked the provision for GIDC in 2020. Other income also buttressed the bottomline as it grew by 17 percent year-on-year in 2021 due to gain on the re-measurement of investment property in 2021. Robust sales and contained expenses drove the operating profit up by 101 percent in 2021 with OP margin climbing up to 12.4 percent. Net finance income fell by 31 percent in 2021 primarily on the back of lower return on deposit accounts due to monetary easing during the year. Bottomline boasted a stunning 89 percent year-on-year rise in 2021 to clock in at Rs.1291.47 million with an NP margin of 11 percent. EPS also rebounded to Rs.46.68 in 2021.

MUREB’s topline grew by another 30 percent in 2022 backed by both local and export sales. While export sales constitute only 0.2 percent of MUREB’s total sales in 2022, it registered an encouraging growth during the year. Across the categories, glass products underperformed while the remaining categories showed a sales growth in 2022. Record high inflation, Pak Rupee depreciation as well as high energy and fuel charges pushed the cost of sales up by 34 percent year-on-year in 2022, culminating into a drop in GP margin to 23 percent. Distribution and administrative expenses also surged by 28 percent and 19 percent year-on-year in 2022 on the back of rising inflation. Other expense provided some respite due to a drop in provision for gas tariff differential in 2022. Other income also posted encouraging growth due t gain on re-measurement of investment property, gain on disposal of operating fixed assets as well as rental income. Operating profit grew by 27 percent year-on-year in 2022 with OP margin slightly inching down to 12 percent. Net finance income posted an immense rebound of 61 percent year-on-year in 2022. While profit before taxation was up by 32 percent year-on-year in 2022, the imposition of 10 percent super tax during the year almost nullified the bottomlinegrowth which grew by only 0.2 percent in 2022 to clock in at Rs.1294.108 million with an NP margin of 8.5 percent. EPS clocked in at Rs.46.78 in 2022.

Recent Performance (9MFY23)

2023 didn’t prove to be encouraging for MUREB. While its sales grew by 24 percent year-on-year in 9MFY23 due to increase in sales volume as well as prices, 36 percent higher cost of sales due to Pak Rupee depreciation, commodity super cycle in the global market and high fuel and power charges shove the gross profit down by 7 percent year-on-year in 9MFY23. GP margin also nosedived from 27 percent in 9MFY22 to 20 percent during 9MFY23. High operating expenses also played its due role in suppressing the bottomline. Selling and administrative expenses collectively grew by 22 percent in 9MFY23. Other expense gave some breather as it descended by 45 percent year-on-year in 9MFY23. Other income also went down by 10 percent year-on-year in 9MFY23. High operating expenses trimmed the operating profit by 26 percent year-on-year in 9MFY23 while OP margin inched down to 8.7 percent in 9MFY23 from 14.6 percent during the same period last year.

Despite the support provided by net finance income which magnified by 41 percent year-on-year in 9MFY23, bottomline slumped by 22 percent year-on-year to clock in at Rs.972.675 million in 9MFY23 with an NP margin of 7.4 percent as against 11.8 percent during the same period last year. EPS also climbed down from Rs.45.34 in 9MFY22 to Rs.35.16 in 9MFY23.

Future Outlook

High cost of sales owing to rising commodity prices, Pak Rupee depreciation, and unprecedented level of inflation will continue to be the areas of concern for MUREB in the coming times. Import restrictions will create supply chain impediments for the company. Imposition of GIDC, super tax, additional FED on beverages industry as well as taxation on water consumption is exerting additional pressure. While the company is raising the prices of its products to pass on the effect of cost hike to the consumers, the solution doesn’t seem sustainable amidst dwindling purchasing power of consumers. Informal juices industry which is undocumented and largely untaxed is taking the benefit of the situation by grabbing the share of the formal sector.