United Breweries Ltd – Brewing excellence since inception

Date Published: February 16, 2021

Company Overview:

United Breweries (UBL) incorporated in 1999, is a flagship company of UB Group. The company is engaged in manufacturing and marketing of beer. UB Group’s business interests are in area of brewing, distilling, aviation, fertilizers, life sciences, engineering, research and development and information technology. UBL started its journey in 1915, when Thomas Leishman purchased 5 breweries to form United Breweries with its registered office located at Chennai. Today 6 bottles of Kingfisher are sold every second in India. 2001-02- The company acquired GMR Vasavi, MP Breweries. It also acquired 41% stake in Inertia Industries, 65% share of Associated Breweries & Distilleries and 97% share of Mangalore Breweries & Distilleries. 2002-UBL acquired Empee Breweries. UBL owns a flagship brand Kingfisher which synonymous with beer in India. Kingfisher is largest selling beer in India that commands 29% of market share. The company has presence in 52 countries. UBL possess two subsidiaries namely Maltex Malsters and Associated Breweries & Distilleries. The company has manufacturing units located in Andhra Pradesh, Maharashtra, Goa, Punjab, Kerala, Rajasthan, Karnataka, West Bengal and Orissa. It also undertakes contract manufacturing through its subsidiary/associate companies. Today, the company’s products are sold across 32,000 Beer outlets in India. Millennium Alcobev is joint venture between UBL and Scottish & Newcastle of the UK, in which both companies own 50% stake each. 2009 – United Breweries & Heineken Join Hands to Lead Indian Beer Market. 

Industry Overview:

The oldest brewery in India was set up in 1830 by Edward Dyer in Kasauli. Today, with over 30% of the Indian population consuming alcohol led mostly by the UTs and southern States, the industry, being the third largest and fastest growing market for alcoholic beverages with a US$5 billion market valued in beer alone growing at a CAGR of 7% over the past 4 years. The brewery and distillery industry is divided in to four major segments – Indian Made Foreign Liquor (IMFL), Foreign Liquor Bottled in India (BII), Country Liquor (CL) & Beer.

The dominant players of this industry are United Breweries Ltd. and Radico Khaitan. The beer market in India continues to be in its growth stage. The Industry has evolved from manufacturing standardbeers such as strong and lager beer to flavoredand variety beers in line with trends in other developed countries. Beerhas become one of the most popular alcoholic beverages in the country over the past two decades. There are more than140 beer brands available in India to address the palate of various consumer segments. Majority of beer market growthis driven by young consumers, who consider beer a trendy drink, compared to other traditional spirits.Strong beer which has an alcohol content between 6% and 8% dominates the beer market accounting for over 85%of the total beer consumed in India. Super Premium beer segment, within both the Strong and Mild beer categories hasbeen growing faster than the overall beer industry and has grown at a Compounded Annual Growth Rate (CAGR) ofalmost 30 per cent over the last three years. The Indian beer market continues to grow in line with expectations. Industryvolumes grew at a CAGR of 8% during the last five years. There has been a trend of emergence of brew pubs in largecities such as Bengaluru, Pune and Gurgaon over the last few years. These outlets have introduced consumers to newtypes of beers for e.g., wheat beer.The major growth drivers in the Indian beer market are growing consumption of alcohol owing to rapid urbanizationand favorable demographics in the country. However, increase in raw material prices, availability constraints(bottles, barley, etc.) and restrictions applied on advertising pose huge challenges for industry growth. UBL has howeverovercome these challenges and continues to make efforts to not only strengthen its market position, but also retain itsedge in this highly competitive market.

Company Operations:

UBL’s Flagship Brand ‘Kingfisher’ is a widely accepted brand and is one of the strongest players in the Indian Beer market,in terms of volumes and brand equity. UBL continues to satisfy its customers with a mammoth range of quality productsand innovative strategies with the ultimate aim of remaining at the fore-front of the highly competitive Indian beermarket.Kingfisher Strong is the largest brand in the country, with a volume of over 100 million cases. Kingfisher Premium isfirst choice of mild beer consumers across the country, with a sale of over 36 million cases. The super-premium brandsin portfolio viz., Kingfisher Ultra, Kingfisher Ultra Max and Heineken are amongst the fastest growing brands in theIndian market.UBL’s recent launch, ‘Kingfisher Storm’ has crossed 3 million cases in sale in its first full year in the market. KingfisherStorm has highly differentiated and disruptive packaging along with a smooth, refreshing taste profile.Catering to the growing demand for a premium International strong beer in the Indian Market, the Company launchedthe iconic Dutch beer brand Amstel. Amstel is a slow brewed and extra matured lager, internationally appreciated for itsquality and enjoyed in over 100 countries across the globe.Kingfisher Ultra and Kingfisher Ultra Max continues to gain traction with their association with various Fashion andStyle platforms. Ultra-Shorts, our in-house created web series has had several stories and web episodes released, with acombined viewership of over 30 million.Heineken, being one of the fastest growing brands in UBL’s portfolio, has established itself as one of India’s mostpremium brands. It is being promoted by leveraging its association with Global marketing platforms of Football (UEFAChampions League), James Bond and Music.The Company continues sustainable associations for Kingfisher in the fields of Sports, Food, Fashion and Music. TheCompany is proud to be associated with several teams competing in the Indian Premier League T20 Cricket Tournamentand also supports 2 of the major teams participating in the ISL football tournament. The Company’s association with restaurants/bars/pubs/clubs/star hotels/night clubscontinues to thrive. Through its large portfolio of brands, the Company has creatively worked on digital and televisioncommunication around the food platform.Capacity expansion has been done in our breweries in Telangana, Karnataka & Rajasthan. Manufacturing footprint forpremium brands has been expanded significantly in FY19 to cater to increasing demand and gain benefit of favorablesourcing options.

Recent News

  • Key premium brands such as Kingfisher Ultra and Kingfisher Storm reported double-digit volume growth, while Amstel grew five-fold to become a millionaire brand with the addition of new markets and volume gains in existing markets.
  • The company has launched Kingfisher Ultra Witbier, Kingfisher Ultra draught and UB export cans. Kingfisher Ultra Witbier was initially introduced in Karnataka and Goa and received very encouraging response from consumers. It will be spread to other markets in a phased manner. 
  • The company took price increases in key markets such as Karnataka, Maharashtra, Rajasthan and Goa. These price increases have helped offset part of the input cost increase impact, especially in new glass and barley.

Our View:

Alcohol has come out from the closet. It has become part of the new urban lifestyle, which says indulgence is OK. Alcohol is something that helps you open up, not as something devilish that will take control of you and destroy you. The whole conversation around alcohol has changed & that’s good. Today, attitudes towards alcohol have changed dramatically, especially among the young, affluent city-dwellers, and bars exist in many cities. Through a reduction in the duty and statutory dues of the industry, the industry is well placed for future growth and higher profits. Consolidation in terms of the markets participants will also take place by 2025. Innovative campaigns will boost the usage and increase market depth. Moreover, introduction of a good product mix and corresponding marketing like Beer Cafes and Pint Room with innovative concepts to encourage beer consumption for their target markets would be a fresh penetration in to an already saturated market in terms of marketing efforts. Additionally, companies must turn their attention to microbreweries providing craft beers and non-commercially produced beers that are future market threats. High profile sponsorships and brand activations have ensured that its brands, especially Kingfisher, retain their iconicstatus. The Company has a strong route-to-market, combined with a portfolio of market leading brands. UBL alsocontinues to invest in both, capacities and brands.Even in a highly competitive market, Company has not only successfully overcome the challenges of the industry,but also outpaced several global beer brands that have entered India in the recent past and has constantly maintainedits leadership position.

As per the mean estimates of earnings projections made by brokers at Bloomberg, the estimated EPS for FY2021 and FY2022 stands at Rs.8.08 and Rs.22.26 respectively as compared to EPS of Rs. 16.15 for FY 2020. The stock is trading at a PE of 56.86 (FY 2020). Therefore, taking into consideration that this recommendation of United Breweries Ltd is being given for 1 year time horizon.

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