The Murree Brewery Company Limited was incorporated in February 1861 and that is now in Pakistan as a public limited company. Currently the oldest continuing enterprise in Pakistan, the brewery was established during the early colonial period to respond to the growing beer demand by the officers of the British Raj at the time. Having its registered office in Rawalpindi, the company is listed on the Pakistan Stock Exchange under the symbol MUREB. Its latest pattern of shareholding is reproduced below:
The company's operations include manufacture of alcoholic beer, non-alcoholic beer, fruit juices, mineral water, glass bottles and jars. Manufacturing at MUREB is organised under three divisions. One is the liquor division, which has been the traditional business of the firm. Second is Tops Foods division. Under the brand of Tops Food and Beverages, MUREB processes fruits and markets fruit juices and food products such as jams, marmalade, sauces, vinegar, etc. This division's two manufacturing facilities are located in Rawalpindi and Hattar. The firm also has a Tetra Pak packaging facility. The Glass division is located in Hattar. The company also owns the Sparkletts mineral water brand.
Recent financial performance MUREB has more than doubled its bottom-line between FY11 and FY16. On average, the firm has achieved healthy double-digit growth of 15 percent per annum in its net revenues during this period. A breakdown of the FY16 gross revenues (third-party sales) shows that among the three divisions, it is the liquor division that brought in the bulk (74%) of gross sales for MUREB. Tops division contributed 24 percent to the revenue mix, whereas the Glass division chipped in 2 percent. These revenue proportions have remained largely consistent in the last six years.
The liquor division has grown consistently in recent years and due to its large base, it has provided a robust fillip to the top line. Average annum growth for the liquor division stood at 17 percent between FY11 and FY16. This growth has come despite a continued ban on liquor exports and taxation-related hurdles in getting the alcoholic beverages to domestic markets in Sindh and Balochistan.
Growth has also been strong at the firm's food and non-alcoholic beverages division, Tops Foods. This division also grew at an average of 17 percent p.a. between FY11 and FY16. This growth is in line with the revenue expansion seen among other listed firms that manufacture and market food and beverages in Pakistan. Third-party sales of glass division have been patchy at best, presumably due to the division giving priority to inter-divisional demands for glass bottles and jars.
Over on the spending side, MUREB has consistently spent roughly two-thirds of its net revenues on cost of sales during the six-year period under review. That's why the gross margin has remained steady around mid-thirties over recent years. Consistency is also observed on distribution costs and administrative costs, whereby, respectively 7 percent and 4 percent of net sales were exhausted on the two operating expense heads. Average per annum growth in these expenses has matched the top line growth, so the operating margins in recent years have been in a steady range of 22-25 percent. The firm has a lean capital structure, finance costs are minimal, and so the firm's cash position is stable.
There was slight erosion in the firm's gross and operating profit margins in FY16 compared to previous year as cost of sales and distribution costs grew at a higher rate compared to net revenues. In fact, the operating profits declined by one percent year-on-year in FY16. Breaking down, the liquor division's operating profits went down in this period by 11.4 percent on account of proportionally higher cost of sales. The glass division increased its operating profits by 19 percent, whereas Tops division almost doubled its operating profits in the year.
However, MUREB still achieved a 16 percent expansion in its net profits and improved its net margin by 77 basis points to 17.3 percent. In terms of operating margin, glass division came on top (35%), followed by liquor division (19%), and Tops division (4%).
Latest financials Thus far in FY17, MUREB seems to be deviating from the script of profitable growth (see illustration). During nine months ended March 31, 2017, the firm saw its top line growth slow down to single digits. There was a drop in third-party gross sales at the liquor division, which is a heavyweight in the revenue mix. However, Tops division and glass division both showed year-on-year growth in gross sales.
But due to a proportionally higher manufacturing cost of goods sold and an up tick in operating expenditures, the brewery closed the period with a double-digit drop in its bottom-line.
Stock performance In the year to date, the stock has seen both highs and low. MUREB reached a high of Rs 1334 per share on September 2, 2016 and a low of Rs 600 on June 14, 2016. It closed at Rs 776 on May 15, 2017. It is a low-volume stock - highest daily trade in the period was 216,550 shares on September 2, 2016 - with the average daily trade standing around 14,000 shares between May 2016 and May 2017. MUREB has underperformed the broader index, except for the period between mid-August and late-December last year.
Outlook Going forward, it will be critical for the firm to grow its sales, especially from the liquor business. With the external market outlawed and regulatory and fiscal issues on local alcoholic beverages' sale, such a pursuit will be a difficult one. Consistent growth in Tops division is welcome, but the firm must do more to improve its operational efficiencies in the margin-diluting division. A healthy prospect lingers in growth of Glass division, as third-party sales of that division have been on the rise this fiscal.
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MUREB: Pattern of shareholding (as at June 30, 2016) No of Shares % of total
shareholder held shares
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Directors, CEO, and their spouse and minor children 14 7,741,130 33.58%
Associated companies, undertakings and related parties 2 3,368,592 14.61%
Executive 1 10 0.00%
Public sector companies and corporations 2 738 0.00%
Banks, DFIs, NBFCs, Insurance co's, and Pension funds 9 739,354 3.21%
Mutual funds 5 214,317 0.93%
General public-foreign 30 1,090,891 4.73%
General public-local 770 2,746,823 11.92%
Foreign companies 10 7,095,253 30.78%
of which: Kingsway Fund-Frontier Consumer Franchises 5,317,731 23.07%
Kingsway Fund-Frontier Consumer Franchises Extoba 560,000 2.43%
Others 22 55,917 0.24%
Total 865 23,053,025 100%
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Source: Company accounts
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MUREB: Financial snapshot
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Rs (mn) FY16 FY15 FY14 FY13 FY12 FY11
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Operating results
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Net sales 6,657 6,029 5,163 4,335 3,629 3,350
Gross profit 2,243 2,142 1,823 1,474 1,133 1,133
Operating profit 1,454 1,475 1,266 1,007 730 750
Profit after tax 1,151 996 963 718 525 520
Earnings per share (Rs) 49.90 43.20 41.80 31.20 25.10 30.00
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Financial position
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Property, plant and equipment 3,943 3,899 3,708 3,670 3,650 3,075
Stock in trade 1,477 995 891 864 812 799
Cash and bank balances 1,702 3,014 2,525 1,655 1,105 696
Share capital 231 231 231 210 191 173
Unappropriated profit 5,190 4,194 3,290 2,463 1,785 1,348
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Financial ratios
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Cash dividend (%) 200 65 60 60 50 50
Return on equity 21.7% 22.9% 27.8% 26.6% 24.7% 31.2%
Gross margin 33.7% 35.5% 35.3% 34.0% 31.2% 33.8%
Operating margin 21.8% 24.5% 24.5% 23.2% 20.1% 22.4%
Net margin 17.3% 16.5% 18.6% 16.6% 14.5% 15.5%
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Source: Company accounts
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MUREB: Latest financials
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(Rs mn) 9MFY17 9MFY16 Yoy chg
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Net sales 4838 4435 9%
Cost of sales 3336 2816 18%
Gross profit 1502 1619 -7%
Operating expenses 617 554 11%
Operating profit 885 1064 -17%
Financial charges 3 1 223%
Other charges 79 76 4%
Other income 178 162 10%
Profit before taxation 981 1150 -15%
Taxation 319 297 7%
Profit for the year 662 852 -22%
EPS-Rs 28.72 36.97 -22%
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PSX announcement (April 27, 2017)
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