F

United Breweries Ltd BUY

I
C.M.P: Target Price:
Rs.436.50 Rs.502.00
Sept 15, 2010 R
1 Year Comparative Graph SYNOPSIS S
• United Breweries (UBL) is a flagship
company of UB Group. Company is engaged
T
in manufacture, purchase and sale of beer
including licensing of brands which C
constitutes a single business segment.

United Breweries Ltd BSE SENSEX • United Breweries (UBL) has approved the
A
merger of Millennium Alcobev and its
Stock Data subsidiary companies into UBL. L
Breweries &
Sector Distilleries • During the quarter ended, the robust
Face Value Rs. 1.00 growth of revenue is increased by 39.39%
L
Rs.7756.30 million.
52 wk. High/Low (Rs.) 479.95/122.00

Volume (2 wk. Avg.) 337000 • United Breweries Ltd has recommended

BSE Code 532478 payment of Dividend of Re. 0.36 per equity
Market Cap (Rs.In mn) 104760.0 share of Re. 1/-. R
Share Holding Pattern
• Company’s products Kingfisher beer is
currently available in 52 countries
E
worldwide.
S
• Net Sales and PAT of the company are
expected to grow at a CAGR of 18% and
42% over 2009 to 2012E respectively.
E
A
Financials
V.S.R. Sastry
(Rs.in.mn) FY10 FY11E FY12E R
Equity Research Desk Net Sales 19972.3 23966.7 27322.1
vsrsastry@firstcallindiaequity.com EBIDTA 2968.6 3953.0 4527.5 C
Dr. V.V.L.N. Sastry Ph.D. PAT 945.9 1497.2 1776.1
Chief Research Officer
drsastry@firstcallindia.com
EPS 3.94 6.24 7.40
H
P/E 110.75 69.97 58.78

1
Peer Group Comparison
Market
Name of the company CMP(Rs.) Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

United Breweries Ltd 436.50 104760.0 5.63 77.53 11.48 36.00

United Spirits Ltd 1616.00 202985.6 27.42 58.94 4.24 25.00

Tilaknagar Industries
Ltd 228.00 7369.9 10.80 21.11 3.56 25.00

Radico Khaitan Ltd 172.00 22759.3 3.55 48.45 8.51 15.00

Investment Highlights

Q1 FY11 Results Update

United Breweries disclosed a phenomenal rise in standalone net profit for the
quarter ended June 2010. During the quarter, the profit of the company rose 2.14
times to Rs 761.30 million from Rs 355.00 million in the same quarter previous
year. Net sales for the quarter for the quarter rose 39.39% to Rs 7,756.30 million,
while total income for the quarter rose 37.98% to Rs 7,938.60 million, when
compared with the prior year period. It posted earnings of Rs 3.08 a share during
the quarter, registering 2.22 times growth over previous year period.

Quarterly Results - standalone (Rs in mn)

As At Jun-10 Jun-09 %change

Net sales 7756.30 5564.50 39.39

PAT 761.30 355.00 114.45

Basic EPS 3.17 1.48 114.45

2
Break of Expenditure

Recommendation of dividend

United Breweries Ltd has recommended payment of Dividend of Re. 0.36 per equity
share of Re. 1/-.

Merger of Millennium Alcobev arm

United Breweries (UBL) has approved the merger of Millennium Alcobev and its
subsidiary companies into UBL. The merger will be effective from Apr. 1, 2010,
subject to the requisite approvals from the relevant statutory authorities and
stakeholders.

3
Company Profile

United Breweries (UNITEDBREW), incorporated on May 13, 1999, is engaged in

manufacture, purchase and sale of beer including licensing of brands which
constitutes a single business segment. Earlier known as UB Beer, it got its present
name on Aug. 7, 2002. The company forms the beer division of the UB group, a
diverse company with business interests in beverage alcohol, aviation, fertilizers,
international trading and infrastructure. Aventis Pharma, Herbertsons, Mangalore
Chemicals & Fertilizers, UB Engineering, United Breweries (Holdings), Mangalore
Breweries and Distilleries, United Racing & Bloodstock Breeders, and UB Electronic
Instruments are some of the other group companies.

The company offers leading brands such as Kingfisher, UB Export, London Pilsner,
Premium Ice and Kalyani Black Label. Innovation with the introduction of 5-liter kegs
of Kingfisher draught beer and a four-pack of London Pilsner has already gained the
company a domestic market share of over 50%. With 11 own and more than 15
contract manufacturing facilities, the company has no capacity constraints for
increasing production. A joint venture company Millennium Alcobev (MABL) with
Scottish & Newcastle Plc. (S&N) having manufacturing locations in critical markets,
the company has increased capacity considerably. In August 2007, the UB group
planned to pump in INR 12 billion in capacity expansion of its breweries across the
country, which will consist of setting up Greenfield projects in Andhra Pradesh, Uttar
Pradesh, Madhya Pradesh and Tamil Nadu. After expansion, the group`s beer
manufacturing capacity will increase to 130 million cases from the current 100 million
by 2010.

4
Subsidiaries

• Associated Breweries & Distilleries Limited (ABDL)

• Maltex Malsters Limited (MML)

Associate:

• United East Bengal Football Team Private Limited (UEBFTPL)

Joint Venture:

• Millennium Alcobev Private Limited (MAPL)

Subsidiaries of the Joint Venture:

• Empee Breweries Limited (EBL)

• United Millennium Breweries Limited (UMBL)

• Millennium Beer Industries Limited (MBIL)

The company’s leading brands

• Kingfisher

• UB Export

• London Pilsner

• Premium Ice

• Kalyani Black Label

5
Financials Results
12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 16725.30 19972.30 23966.76 27322.11

Other Income 493.00 775.30 837.32 921.06

Total Income 17218.30 20747.60 24804.08 28243.16

Expenditure -14543.00 -17779.00 -20851.08 -23715.59

Operating Profit 2675.30 2968.60 3953.00 4527.57

Interest -896.40 -554.50 -582.23 -611.34

Gross profit 1778.90 2414.10 3370.78 3916.24

Deprecation -762.10 -885.10 -955.91 -1051.50

Profit Before Tax 1016.80 1529.00 2414.87 2864.74

Tax -391.80 -583.10 -917.65 -1088.60

Profit After Tax 625.00 945.90 1497.22 1776.14

Equity capital 240.00 240.00 240.00 240.00

Reserves 8106.40 8965.70 10462.92 12239.06

Face value(Rs.) 1.00 1.00 1.00 1.00

EPS 2.60 3.94 6.24 7.40

6
Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-09 31-Mar-10 30-Jun-10 30-Sep-10E

Description 3m 3m 3m 3m

Net sales 4466.00 5731.50 7756.30 6980.67

Other income 206.40 224.60 182.30 191.42

Total Income 4672.40 5956.10 7938.60 7172.09

Expenditure -4005.30 -5078.30 -6387.70 -6177.89

Operating profit 667.10 877.80 1550.90 994.19

Interest -133.60 -125.10 -135.50 -142.28

Gross profit 533.50 752.70 1415.40 851.92

Deprecation -216.30 -256.50 -235.10 -246.86

Profit Before Tax 317.20 496.20 1180.30 605.06

Tax -104.60 -234.70 -419.00 -229.92

Profit After Tax 212.60 261.50 761.30 375.14

Equity capital 240.00 240.00 240.00 240.00

Face value (Rs.) 1.00 1.00 1.00 1.00

EPS 0.89 1.09 3.17 1.56

7
Key Ratios

Particulars FY09 FY10 FY11E FY12E

No. of Shares(In Million) 240 240 240 240

EBITDA Margin (%) 16.00% 14.86% 16.49% 16.57%

PBT Margin (%) 6.08% 7.66% 10.08% 10.49%

PAT Margin (%) 3.74% 4.74% 6.25% 6.50%

P/E Ratio (x) 167.62 110.75 69.97 58.98

ROE (%) 7.49% 10.28% 13.99% 14.23%

ROCE (%) 23.69% 24.21% 27.65% 28.06%

Debt Equity Ratio 0.74 0.73 0.66 0.59

EV/EBITDA (x) 39.16 35.29 26.50 23.14

Book Value (Rs.) 34.78 38.36 44.60 52.00

P/BV 12.55 11.38 9.79 8.39

8
Charts:

9
10
Outlook and Conclusion

At the current market price of Rs.436.50, the stock is trading at 69.97 x FY11E
and 58.98 x FY12E respectively.
Price to Book Value of the stock is expected to be at 9.79 x and 8.39 x
respectively for FY11E and FY12E.
Earning per share (EPS) of the company for the earnings for FY11E and FY12E
is seen at Rs.6.24 and Rs.7.40 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 18% and
42% over 2009 to 2012E respectively.
On the basis of EV/EBITDA, the stock trades at 26.50 x for FY11E and 23.14 x
for FY12E.
We recommend ‘BUY’ in this particular scrip with a target price of Rs.502.00 for
Medium to Long term investment.

Industry Overview

Globally, over 133 billion litres of beer is sold each year. In comparison, the Indian
beer Industry contributes a meagre 1.28% of the global sales. The industry has been
witnessing on an average, a steady growth of about 10% per year over the last ten
years with volumes crossing 172 million cases in 2008-2009 from 70 million cases in
2002. With a relatively younger population and income levels on the rise, India is
seeing an increase in the popularity of beer.

Consumption of beer in India is also constrained by lack of adequate market

infrastructure. In China for instance, there is one outlet for every 300 persons. In
contrast, India has one outlet for every 21,000 persons hampering free availability of
beer. Total consumption of beer in China grew by 33.56% between the years 2000
and 2006 to reach a total market volume of 30.47 billion litres. With a per capita

11
consumption of 22 litres, China is one of the largest beer consuming nations in the
world.

Though beer is a milder form of alcohol, it is taxed by most states on the same basis
as Spirits. The charge is on absolute alcohol basis. Globally on a per unit of alcohol
basis, beer bears approximately 50% of levies imposed on Spirits whereas in India
taxation is regressive on beer.

India is predominantly a hard liquor market and beer has a minority preference
amongst those who consume alcohol. The per capita consumption of beer constitute
a meagre 3% of global average. Typically the size of beer volumes in most countries is
7 to 10 times larger than spirits, whereas in India, spirits is larger.

The alcoholic beverage industry in India operates under a very complex regulatory
environment which is the biggest challenge. In addition to restrictions on advertising,
distribution infrastructure and retailing, varied tax structures, controlled pricing and
licensing make operations more complex, consequently leading to higher costs,
though providing entry barriers for new entrants as well.

The Indian beer market is dominated by strong beer which accounts for 74% of the
total beer sale.

The market for alcoholic beverages has been growing consistently. 'The Future of
Wine', a report on the state of the wine industry over 50 years, suggests that the
market for wine in India was growing at over 25 per cent per year.

12
________________ ____ _________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.

13
Firstcall India Equity Research: Email – info@firstcallindia.com
B. Harikrishna Banking
B. Prathap IT
A. Rajesh Babu FMCG
C.V.S.L.Kameswari Pharma
U. Janaki Rao Capital Goods
E. Swethalatha Oil & Gas
D. Ashakirankumar Auto
Kavita Singh Diversified
Nimesh Gada Diversified
Priya Shetty Diversified
Neelam Dubey Diversified
Firstcall India also provides
Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover
Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds
Management Debt & Equity, Working Capital Limits, Equity & Debt
Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate
restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &
Execution, Project Financing, Venture capital, Private Equity and Financial
Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising
of capital through FCCBs, GDRs, ADRs and listing of the same on International
Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and
other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071
Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089
E-mail: info@firstcallindiaequity.com
www.firstcallindiaequity.com

14