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How Beluga copes with the crisis

Beluga Group is mainly engaged in the sale of its own products in the Russian market, but it also has an export, import and growth project – the retail network VinLab, which may suffer from the crisis and Western sanctions. Some Western alcohol producers have announced the cessation of supplies to Russia, and sanctions have been imposed on Russian alcohol in the US and EU.


In this post:


  • Sales of own products continue to grow, but there are risks associated with imports and exports;
  • Exports in 2022 may remain at the level of 80-90% of the previous year;
  • Imports may remain at the level of last year;
  • Beluga continues to develop the VinLab network, but may temporarily suspend the opening of new stores.


Sales of own products continue to grow, but there are risks associated with imports and exports


Some major producers of alcoholic beverages have stopped deliveries of products to Russia. For example, the world’s largest manufacturer Diageo, as well as Brown-Formann, Carlsberg, Heineken and other companies.


In addition, Western countries have banned the import of certain alcoholic beverages from Russia. The United States banned the import of Russian vodka, and the EU in the 6th package of sanctions introduced a ban on the import of Russian alcohol.


The bulk of Beluga’s revenue comes from the Russian market. About 75% of the company’s revenues come from sales of its own products in Russia. At present, the company manages to maintain imports and continue to develop the VinLab chain of stores. At the same time, the company has risks associated with a decrease in exports and imports.


In general, the Russian market of alcoholic beverages showed positive dynamics against the backdrop of purchases of alcohol for future use. In Russia, according to Interfax, in 1H 2022, alcohol sales grew by 3.9% yoy to 103.3 million decaliters (dl), while vodka sales grew by 7.5% yoy to 36.7 million deciliters (dl). Sales of alcohol with a strength of up to 9% grew the most – by 1.8 times yoy (7.04 mln deciliters). Consumption of cognac increased by 3.5% y/y (to 5.8 mln dl), champagne and sparkling wines – by 6.3% (to 8.1 mln dl), still wines – by 1.6% (to 25.7 mln dl).


In 1H 2022, Beluga Group’s total sales increased by 13.6% YoY to 7.4 mln dl. Sales of own brands grew by 10.9% yoy and amounted to 6.18 mln decl.


BELUGA GROUP Chairman of the Board Alexander Mechetin commented on the results for 1H 2022: “In the first half of the year, the group showed double-digit growth, driven by the desire of consumers to purchase products for future use in an environment of uncertainty.”


Exports in 2022 may remain at the level of 80-90% of the previous year


Last year, the share of exports in the total sales of Beluga Group products amounted to 10%. The share of deliveries to Europe and the USA is about 47% of all exports.



According to a press release for the 1st quarter. 2022, the company expects 2022 exports to remain at 80-90% of 2021 levels as it considers new countries for partnerships and sees sales growth in the Middle East, Asia and Latin America.


We expect exports in 2022 to be 80% of 2021 levels. At the same time, the volume by which exports will decrease will be redirected to the domestic market.


According to the results of 1 quarter. 2022 Export volume increased by 17.2%. Beluga did not disclose export volumes for 1H 2022.


Imports may remain at the level of last year


The share of sales of imported Beluga brands is 15% of alcohol sales in physical terms, in the retail segment (WinLab) – 46%. At the same time, most of the partner brands belong to Western companies, that is, they are at risk of stopping supplies. But according to the results of the 1st half of the year, there was no decrease in sales of imported brands.


In 1H 2022, shipments of partner (imported) Beluga brands grew by 29.4% YoY to 1.25 mln dl.


We expect that stocks of imported products in warehouses may be enough to maintain sales in the volumes of the previous year until the end of 2022. The company says that in a negative scenario it can replace imported drinks with products of its own production, and also creates stocks of imported products.


We expect that the volume of sales of imported products may decrease, but will be replaced by our own products. As a result, the total volume of sales of partner brands and their replacement products in 2022 will remain at the level of the previous year.


Beluga continues to develop the VinLab network, but may temporarily suspend the opening of stores


In the first half of 2022, the company maintained the pace of opening new VinLab stores. In 1H 2022, 234 stores were opened, the number of outlets was 1,234. Both traffic (+38.7% yoy) and average ticket (+12.7% yoy) increased.


The retail store segment accounts for about 18% of revenue. The development of the VinLab retail network is a company growth project. Beluga planned to increase the number of chain stores to 2.5 thousand in 2024. But the company may revise the plan for the development of the VinLab retail chain amid the crisis, but there have been no official statements about this yet.


Earlier, other Russian retailers announced the suspension of the opening of new stores (for example, Magnit, X5 Retail, Detsky Mir). But, according to our information, some of them have already started reopening.


If Beluga does not open anything until the end of the year, this will not significantly affect the target price on the horizon of the year. This is due to the fact that new stores reach full capacity only after 1.5 years (up to this point, new stores incur the same costs as mature stores, but bring less than 100% of the mature store’s revenue).


conclusions


Beluga Group is focused on the domestic market and mainly sells its own products. Thanks to this, the company’s business is stable.


According to the company’s expectations, in 2022, exports will remain at the level of 80-90% of the previous year. Also, the decline in exports can be compensated by selling these products on the domestic market.


We expect that the stock of imported products may be enough to maintain sales volumes at the level of 2021 until the end of 2022. The company may also replace imported products with its own, as a result, sales in 2022 will not decrease.


In 1H 2022, unlike other retailers, the company continued to open new stores, while the expansion plan may be revised. But there have been no official statements about this yet. Even if the company stops opening new stores until the end of the year, this will not significantly affect its fair price on the horizon of the year.


At the same time, there is a risk that the company’s profitability will decrease due to a decrease in exports and an increase in logistics costs. Beluga previously expected EBITDA margin to rise by 2-3 ppts. from 2021 to 2024 by increasing the share of exports, online sales and sales of premium drinks. We now expect profitability to remain at 2021 levels over the year horizon.


The expected increase in inflation is driving the growth of the average ticket and LFL sales, which may compensate for the decline in exports. According to the consensus forecast of analysts of the Central Bank, inflation in 2022 will be 15%.

About author

Oxford graduate with honors. He worked in large financial projects for well-known Wall Street corporations. After he earned his first capital and a reputation as a successful trader, he opened his own company. At the moment, the growth of the company's capital is 20% per year.
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