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Beer Industry - Grand Finalle
Beer Industry - Grand Finalle
Beer Industry - Grand Finalle
Produced by the brewing & fermentation of starches, mainly derived from cereals the 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.
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.
Acquired 100% stake in Whyte and Mackay, worlds 4th largest scotch company
Dr. Vijay Mallya took over the reins of the Group at a tender age of 28
Organised Spirits business under USL and Beer business under UBL Launched Kingfisher Airlines
Completed merger of Deccan and Kingfisher to form the largest pvt. airline
19501982
19832002
2003
2005
2007
2008
2009
Started and expanded into beer and spirits business mainly through acquisitions
Kept acquiring smaller players in beer and liquor industry. BUILT BRANDS LIKE KINGFISHER, BAGPIPER, BLACK DOG
Acquired 100% stake in Whyte and Mackay, worlds 4th largest scotch company
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 advantage UBL Heineken 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 currently catering through exports
Revenue
EBITDA
PAT
in INR Crs
Q1 FY2011
Growt Q1 FY2010 h
776
377 399 155 76
557
280 285 90 35
37%
34% 40% 72% 114%
72% growth in EBITDA PAT more than doubled Net debt/LTM EBITDA comfortably below 2.5x
in INR Crs
Net Debt
1. 2. 3.
4.
5. 6.
7.
8. 9.
10. Consumer choice and preferences 11. High Capital Barrier 12. Social acceptability and western influence
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Price
Quatntity
70
68
66
64
62
60
10
11
12
Advertisements barrier Age barrier Beer Highly Taxed Price Restrictions Restriction of Movement of Beer
13
To Discourage harmful behavior Not an essential (survival) product like rice or wheat To restrict the sale by making it expensive Consumption can develop the economy using this extra tax collected
14
15
FY 10-11
Interest
Depreciation
SG&A
17
Quatntity Thousand
2000 cases in Short Run 1500 1000 500 0 0 50 100 Tax Rate 150 200 250
Tax
Tax
1660 1640 1620 1600 1580 1560 1540 1520 1500 1480 0 50 100 Tax Rate 150 200 250
Run
18
19
20
QUANTITY
UB
112
SAB Miller
89 Mn Cases
Others
38
In model the market leader UB group has moved to lower market share of 47% and SABMiller 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.
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Two major players United Breweries -47% and SABMiller India with a 38% .The remaining 15% -strong domestic players and some aspirational 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 2565 58 2625 59 2665 60 2715 61 2780 62 2850 63 2930 64 3000 65 3080 66 3175 67
100 90 80 70 60 50 40 30 20 10 0 0
AFC 1065 1065 1065 1065 1065 1065 1065 1065 1065 1065 18.36207 18.05085 17.75 17.45902 17.17742 16.90476 16.64063 16.38462 16.13636 15.89552
TVC 1500 1575 1625 1775 1900 2100 2450 2700 3100 3500
AVC 25.86207 26.69492 27.08333 29.09836 30.64516 33.33333 38.28125 41.53846 46.9697 52.23881
AC 44.22414 44.74576 44.83333 46.55738 47.82258 50.2381 54.92188 57.92308 63.10606 68.13433
MC 60 40 50 65 70 80 70 80 95
TVC 1500 1560 1600 1650 1715 1785 1865 1935 2015 2110
AFC AVC AC MC
10
12 23
24
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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Social Cost
Externalities
Social Benefit
Effects & Causes Increased Noise due to partying Traffic Congestion( Drink & Drive) Loss of Natural Beauty-Fights & Conflicts Crime pollution Smoking Cigarettes & other addiction Benefits Increases Employment Beer 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
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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Different Brands under Same Company High Concentration on Strong Beer Market
30
Reduction in Taxes
Brand Extension Benefits
31
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
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 & High demand 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 seeks bigger mild-beer glug, Mar 2009 22 http://economictimes.indiatimes.com/news/news-by-industry/consproducts/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-bottlesipl.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/11-26569Beer%20prices%20skyrocket%20in%20IPL%20Season Costs Relationship - Principles of Microeconomics - Gregory Mankiw Page 260 4th edition Oligopolistic Market - Principles of Microeconomics - Gregory Mankiw Page 340 4th edition
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