Beer Industry - Grand Finalle

7/31/2019 Beer Industry - Grand Finalle

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Nandkishore Mane

64Ronak Kabani92

Priyanka Rane 82

Omprakash103

Ruchita Gala-117

Lalita Mishra - 68

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The Indian Beer Industry

Produced by the brewing & fermentation of starches, mainly derived from cerealsthe most common being barley.

The Indian beer industry has been witnessing steady growth of 7-9% per year over the last ten years. Currently it is

growing at the rate of 17.8%

The rate of growth has remained steady in recent years, with volumes passing 155 million cases during 2008 from a mere

70 million cases in 2002.

The Indian beer market is dominated by strong beers (>5% alcohol by volume), which account for 70% of the total beer

industry The premium beer market is a mere 5% of the total but this segment is rapidly expanding, touching a growth rate

between 35-40%.

With the global market experiencing low/stagnating growth in recent years, the focus is now on the Asia-Pacific region

specially. For instance, the Chinese beer market : Total consumption of beer in China grew by 33.56% between 2000 and

2006 to reach a total market volume of 30.47 billion litres.

With per capital consumption of 22 litres, China has now overtaken US to become the largest national beer market in the

world

The brewing industry in China has been one of those quickest to modernize and Indian beer Industry should look to

model themselves on their neighbors.

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To determine the market position of beer produced by United

Breweries Ltd.

To determine the perception of consumer towards beer of UB.

To know the market share of UB, regarding to beer only.

To analyze the market expansion in future.

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6

Started and

expanded intobeer and

spirits

business

mainly through

acquisitions

Acquired

Shaw Wallace, Brought in

Scottish New

Castle in UBL

Acquired

100% stake inWhyte and

Mackay,

worlds 4th

largest scotch

company

Kept acquiring

smaller playersin beer and

liquor industry.

BUILT

BRANDS LIKE

KINGFISHER,

BAGPIPER,

BLACK DOG

Legal Merger of

Shaw Wallacecompleted;

UBL and

Heineken strike

a deal: brings

APB / Heineken

brands

Organised

Spirits

business

under USL and

Beer business

under UBL

Launched

Kingfisher

Airlines

Dr. Vijay

Mallya took

over the reins

of the Group at

a tender age of

28

Completed

merger of

Deccan and

Kingfisher to

form the

largest pvt.

airline

No. 1 Beer inIndia

No. 1 Spirits inIndia

No. 1 Airline inIndia

19832002 2003 200519501982 2007 2008 2009

Acquired

100% stake in

Whyte and

Mackay,

worlds 4th

largest scotch

company


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United Breweries Ltd.,

No. 1 Beer Company in India

Undisputed leader of the Indian beer industry with 49% market share

Key brands are Kingfisher Blue, Kingfisher Strong, Kingfisher

Premium, Kingfisher Ultra, Kingfisher Draught, London Pilsner, UB

Premium Ice, Kalyani Black Label Premium and Kalyani Black Label

Business Overview

Sold 101 MM cases during FY 2010

Kingfisher is the ubiquitous Indian beer, available as

Kingfisher Premium, Strong, Blue, Red and Ultra

UBL is uniquely positioned with manufacturing facilities in all

key markets

Ensuring freshness of beer

Leveraging Indias interstate tariff difference to economic

advantageUBLHeineken Deal

Heineken holds 37.5% stake in UBL and has a shareholders

agreement with UBL based on which Heineken will be active

in India solely through UBL. We are working towards creating

a unified structure, and realize synergies

Heineken will be produced in India by UBL. UBL will now

have an access to Heinekens distribution and manufacturing

facilities in the international markets, which UBL is currentlycatering through exports

Revenue

EBITDA

PAT


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in INR Crs

Q1

FY2011 Q1 FY2010

Growt

hRevenues 776 557 37%

Cost of

Sales 377 280 34%

Gross

profit 399 285 40%EBITDA 155 90 72%

PAT 76 35 114%

in INR Crs Q1 FY2011 Q1 FY2010

Net Debt 473 599

72% growth in EBITDA

PAT more than doubled

Net debt/LTM EBITDA comfortablybelow 2.5x

Debt profile

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1. Highly taxed

2. Most regulatory industry

3. Price restriction

4. Inadequate Market Infrastructure

5. Restriction of Movement

6. Young population7. Rising income levels

8. Dynamism in Beer market

9. Bottling shortage

10. Consumer choice and preferences

11. High Capital Barrier

12. Social acceptability and western influence

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Price Quanitity

80 68

85 68

90 67

95 68

100 67

105 66

110 63

120 59

y = -0.2115x + 86.506

R = 0.7803

58

60

62

64

66

68

70

72

0 20 40 60 80 100 120 140


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Consumption in India Vs World


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Advertisements barrier

Age barrier

Beer Highly Taxed

Price Restrictions

Restriction of Movement of Beer

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Raw Materials

Other Mfg

Expenses

Indirect Taxes

SG&A

Depreciation

Profit Before TaxInterestFY 10-11


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United Spirits: Raw Material Cost

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Tax Quantity

150 1500

200 900

Tax Quantity

150 1500

200 1640

18

0

500

10001500

2000

0 50 100 150 200 250

1480150015201540156015801600162016401660

0 50 100 150 200 250


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In model the market leader UB group has moved to lower market share of 47% andSABMiller to 37%.

Two firms are making the profits that exceed those that earned under perfect competition

but less than those that would be earned by monopoly.

Thus the above analysis shows the duopoly market condition in Indian beer industry.

QUANTITY

UB SAB Miller Others

112 89 38

Mn Cases


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Two major playersUnited Breweries -47% and SABMiller India with a

38% .The remaining 15% -strong domestic players and someaspirational international Brands.

High Government Tax

Highly Regulated Market Infrastructure

Advertising barriers

Consumer tastes not aligned with the consumption of beer vis--vis other

beverages

Preference to promote to higher alcohol content drinks after starting with

Beer

High-Capital Barrier

Challenges faced in procuring raw materials like bottle & Barley

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TC Quantity( Kilo Ltrs) TFC AFC TVC AVC AC MC TVC

2565 58 1065 18.36207 1500 25.86207 44.22414 1500

2625 59 1065 18.05085 1575 26.69492 44.74576 60 1560

2665 60 1065 17.75 1625 27.08333 44.83333 40 1600

2715 61 1065 17.45902 1775 29.09836 46.55738 50 1650

2780 62 1065 17.17742 1900 30.64516 47.82258 65 1715

2850 63 1065 16.90476 2100 33.33333 50.2381 70 17852930 64 1065 16.64063 2450 38.28125 54.92188 80 1865

3000 65 1065 16.38462 2700 41.53846 57.92308 70 1935

3080 66 1065 16.13636 3100 46.9697 63.10606 80 2015

3175 67 1065 15.89552 3500 52.23881 68.13433 95 2110

23

0

10

20

30

40

50

60

70

80

90

100

0 2 4 6 8 10 12

AFC

AVC

AC

MC


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As discussed in the case UBL had signed a contract to supply all the breweries

consumed in IPL parties. There were total 54 parties which amounted to 270

hours of partying. Approximately 1.3 lakhs beer bottles were consumed.

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Stringent laws & plethora of duties & fees e.g. Excise duty, licence fee

Varying rates of duties/fees from State to State

Varying distribution pattern and controls in each state

State subject States/Undertakings : Own policies & taxation regime

Licence-permit Raj that constrain growth of a healthy domestic industry.

Restrictions on sale of imported wine without due permit & licence e.g.

Delhi, Rajasthan, Goa, and Chennai etc.

Abolition of quantitative restriction on the import of Bottled in Origin (BIO)

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Externalities

Social Cost

Social BenefitEffects & Causes

Increased Noise due to partying

Traffic Congestion( Drink & Drive)

Loss of Natural Beauty-Fights & ConflictsCrime pollution

Smoking Cigarettes & other addiction

Benefits

Increases EmploymentBeer tackles dandruff & brittleness of hair

Reduces bad cholesterol

Overdosage doesnt cause death

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Four areas of Corporate Social Responsibility: Water Management, Contract Farming, Primary health and welfare, and Primary

education.

WATER MANAGEMENT

Implementation of rain water harvesting in the breweries.

Usage of Waste water from the Brewery ,for irrigation

UBL has constructed underground pipelines and water storage facility in Srikakulam which serves almost 250 households

Provides clean drinking water (Communities and Schools)

CONTRACT FARMING

High-yield varieties of barley.

UB has helped turn the tide for farmers - Experiment on 500 acres of land in 2003 has grown into 25,000 acres today,

Buys barley at prices higher than government prices, enhancing quality of life of 4500 farmers appx.

PRIMARY HEALTH

Mobile medical service & Free Check up in Srikakulam giving health benefits to 900 families

Camps for the visually challenged in Kalyani, free consultation & medication in Goa.

PRIMARY EDUCATION

Financial support to needy students and for maintenance of school premises, gender based literacy initiatives 2500 students

benefitted

Mid day meals for students

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Kingfishers SWOTAnalysis

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Worldwide known Brand

Oldest&LargestPlayer InIndia

Huge Finances backing from UB Group

StrongestWorldwide DistributionSystem.

Different Brands under Same Company

High Concentration on Strong Beer Market

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Beer consumption is increasing

Reduction in Taxes

Brand Extension Benefits

High Taxes & Regulations

Prohibition on Advertising

Indian Culture is a Major Hindrance

Many International Player Entering In India

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During our research we found out that the brands of United Breweries in the

Beer Segment specially Kingfisher Premium beer is performing well.

The demand of Kingfisher Premium beer in the market is good and the

demand for Kingfisher strong is growing.

Company has got good image among the general public.

UB has the largest footprint in India followed by SAB Miller

HAYWARDS 5000 of SAB Miller is the undisputed leader in the strong beer

segment.

Government Intervention can change the dynamics any time.

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Uniform Policy and Taxation

Free Pricing

Preferential Treatment to beer

Market driven Retail Sector

Better Beer selling practices

Formation of a Beer Board

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http://en.wikipedia.org/wiki/Beer_in_India

http://www.mindbranch.com/Beer-India-Forecasts-R587-51/

UBL Annual report 2009; SKOL Breweries Annual report 2008; Bloomberg

SABMiller Fights Indias Beer Rules in Court to Double Profit, Dec 2008,

TASMAC

All India Brewers Association report, Nov 2008

http://www.rediff.com/money/2007/dec/04bspec.htm

Financial Express Barley gains attention of beer industry, Jan 2008 & Highdemand from beer cos pushes barley prices up by 20%, May 2008

Company websites; Press articles; Business Line SABMiller looks to introduce

premium beer brands in India, May 2008

Elasticity Of Demand - Principles of Microeconomics - Gregory Mankiw Page 90 -

4th edition

Relationship Tax rate & Government Revenue - Principles of Microeconomics -

Gregory Mankiw Page 167 4th edition

Complements & Substitutes - Principles of Microeconomics - Gregory Mankiw

Page 65 4th edition

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Business Standard articles Indian beer market ready for new fizz, May 2008 &

Craft Beers set to challenge 'Lager' territory, Jun 2009

Company websites; Annual reports; Press articles; DNA article SABMiller seeksbigger mild-beer glug, Mar 2009 22

http://economictimes.indiatimes.com/news/news-by-industry/cons-

products/liquor/New-Article/articleshow/6159400.cms

Equity Research Reports from SSKI Secruties

http://www.euromonitor.com/Beer_in_India,

http://www.researchandmarkets.com/reportinfo.asp?report_id=450612&t=d&cat_i

d=

http://www.cinejosh.com/andhra-daily-telugu-news/7398/13-lakh-beer-bottles-

ipl.html

http://www.mybangalore.com/article/0410/the-art-of-chilling-with-cricket.html

http://www.oppapers.com/essays/Beer-Industry-Oligopoly/56059 http://andhralekha.com/news/11-26569-

Beer%20prices%20skyrocket%20in%20IPL%20Season

Costs Relationship - Principles of Microeconomics - Gregory Mankiw Page 260 4th

edition

Oligopolistic Market - Principles of Microeconomics - Gregory Mankiw Page 3404th edition 35
http://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Seasonhttp://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Seasonhttp://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Seasonhttp://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Seasonhttp://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Seasonhttp://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Seasonhttp://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Season


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Prof. Agnelo Menezes, JBIMS

Mr. Rakesh Saraf, President, Skol Breweries(100% owned subsidiary of SAB Miller)

Mr. Tharun Loganathan, DGM- CommercialEx-UB

SSKI Securities for sharing the reports

Documents

Beer Industry - Grand Finalle