Nandkishore Mane 64 Ronak Kabani 92 Priyanka Rane 82 Omprakash 103 Ruchita Gala-117 Lalita Mishra - 68

The Indian Beer Industry

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.

No. 1 Beer in India

No. 1 Spirits in India

No. 1 Airline in India

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 Shaw Wallace,

Brought in Scottish New Castle in UBL

Acquired 100% stake in Whyte and Mackay, worlds 4th largest scotch company

Legal Merger of Shaw Wallace completed;

UBL and Heineken strike a deal: brings APB / Heineken brands

 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 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

Revenues Cost of Sales Gross profit

EBITDA PAT
Debt profile

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

Q1 FY2011 Q1 FY2010 473 599

Net Debt

1. 2. 3.

Highly taxed Most regulatory industry Price restriction

4.
5. 6.

Inadequate Market Infrastructure

Restriction of Movement Young population

7.
8. 9.

Rising income levels

Dynamism in Beer market Bottling shortage

10. Consumer choice and preferences 11. High Capital Barrier 12. Social acceptability and western influence

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Price

Quatntity

Quanitity 80 68 85 68 90 67 95 68 100 67 105 66 110 63 120 59

70

68

66

64

62

y = -0.2115x + 86.506 R = 0.7803

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58 0 20 40 60 Price 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

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

Increasing Tax revenue for govt.

Good source of Indirect tax

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FY 10-11
Interest
Depreciation

Profit Before Tax

Indirect Taxes

SG&A

Other Mfg Expenses Raw Materials

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United Spirits: Raw Material Cost

17

Quatntity Thousand

2000 cases in Short Run 1500 1000 500 0 0 50 100 Tax Rate 150 200 250

Tax

Quantity 150 1500 200 900

Tax

Quantity 150 1500 200 1640

Quatntity Thousand cases in Long

1660 1640 1620 1600 1580 1560 1540 1520 1500 1480 0 50 100 Tax Rate 150 200 250

Run

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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

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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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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

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 SWOT Analysis

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Strongest Worldwide Distribution System.

Huge Finances backing from UB Group

Oldest & Largest Player In India Worldwide known Brand

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 & 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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Prof. Agnelo Menezes, JBIMS

Mr. Rakesh Saraf, President, Skol Breweries (100% owned subsidiary of SAB Miller) Mr. Tharun Loganathan, DGM- Commercial Ex-UB SSKI Securities for sharing the reports

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