Murree Brewery Company Limited (PSX: MEREB) was established much before the subcontinent partition in 1861 as a public limited company. The company has three business segments: liquor, tops and glass under which it manufactures nonalcoholic beer, juices, food products, mineral water, glass bottles and jars.

Shareholding pattern

As at June 30, 2021, about 33 percent shares are held under associated companies, undertakings and related parties. Within this category, close to 15 percent shares are held by D. P. EDULJI & Company (Pvt.) Limited. The directors, CEO, their spouses and minor children own 21.5 percent shares. Within this category, over 16 percent shares are owned by the CEO, Mr. Isphanyar M. Bhandara. Close to 26 percent shares are held under foreign companies followed by almost 10 percent owned by the local general public. The remaining about 10 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has largely seen a growing topline, with the exception of FY20 when it contracted by 11 percent. Profit margins in the last six years have declined between FY16 and FY20 before improving slightly in FY21.

At almost 27 percent, revenue growth in FY18 stood at the highest since FY12, reaching Rs 9 billion in value terms. The two major contributors to revenue, the liquor division and tops division witnessed a growth in sales by 33.6 percent and 15.7 percent, respectively. With a marginal reduction in production cost to over 68 percent of revenue from last year’s 69.6 percent, gross margin also improved slightly to 31.67 percent. As other elements remained more or less unchanged as a share in revenue, net margin also increased slightly to 14.3 percent. However, bottomline was recorded at an all-time high of Rs 1.3 billion.

Revenue continued to grow in FY19 by 11.7 percent to cross Rs 10 billion. Sales grew in all three divisions but only the liquor and glass division witnessed profits, while the tops division saw a higher operating loss at Rs 117 million. The latter was attributed to an increase in cost of raw material, depreciation and distribution cost. Overall, as well, production cost made a larger share in revenue at 71.5 percent, reducing gross margin to 28.5 percent. The decrease in net margin that was recorded at 12 percent was slightly curtailed as it received some support from finance income.

Topline contracted in FY20 for the first time since FY09 by 11 percent. All the three divisions saw reduced sales while operating loss in the tops division increased to Rs 218 million. With production cost also consuming a larger share in revenue at over 74 percent, gross margin fell to 25.6 percent. Net margin fell to its lowest of 7.6 percent as other expenses increased while other income almost halved in value terms.

In FY21, revenue growth stood at an all-time high of 29.9 percent, a level last seen in FY11. Topline was recorded at its highest of Rs 11.7 billion. This was a result of an increase in sales in all the three divisions of the company. Profitability also increased in the liquor and glass division, while the tops division, although incurred an operating loss of Rs 66 million, it was significantly lower than last year’s Rs 218 million. With production cost close to 74 percent, gross margin was also largely unchanged at around 25 percent. However, net margin was considerably better at 11 percent as operating expenses reduced as a share in revenue.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 21.4 percent year on year. The double-digit year on year is attributed to sales being affected in the same period last year due to the Covid-19 pandemic. While the higher cost of production at 74.5 percent of revenue in 1QFY22 affected gross margin adversely, it was offset by the higher finance income. Thus, net margin changed only marginally year on year from 11.8 percent in 1QFY22 to 11.7 percent in 1QFY21.

The second quarter saw revenue higher by over 35 percent year on year. Moreover, production cost also reduced to almost 71 percent of revenue compared to nearly 73 percent in 2QFY21. The impact of this also trickled to the bottomline that saw a notably higher net margin at 12.2 percent versus 9.9 percent in 2QFY21.

The third quarter also saw higher revenue year on year by almost 31 percent. Production cost, on the other hand, grew to 72 percent of revenue, the impact of which also reflected in the bottomline that saw a lower net margin at 11.6 percent compared to 12.7 percent in 3QFY21. While the company has depicted a fairly reasonable performance given the prevalent economic and political situation, however, the Ukraine-Russia conflict and the resultant increase in commodity and fuel prices has created uncertainty for the upcoming quarters.