Online BusinessUnited Breweries: A win-win deal
United Breweries (UBL), the owner of Kingfisher beer, yesterday reached a major milestone by signing a deal with Heineken NV, which like the Vijay Mallya group owns a 37.5 per cent stake in UBL. The company concluded a licensing agreement to distribute Heineken, the largest global beer brand, in India.
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Currently, Heineken sales in India are negligible and take place largely through duty-free zones. The deal will allow UBL to harness the opportunities in the premium-beer market in the country and earn additional income. Although other international competitors haven’t seen major success in the Indian markets, the UBL management believes it will emerge successful due to its extensive distribution network. Analysts believe that the move to have a big global premium brand in the portfolio is positive. However, the benefits will only start flowing after Heineken is commercially rolled out in India, which is expected by mid-2010.
Importantly, the deal will enable UBL to significantly expand sales of its Kingfisher beer globally. Although the beer brand is already sold in some 55 countries, the company has lagged due to lack of a significant distribution network. It believes Heineken’s international network will fill the gap and help Kingfisher emerge as a truly global brand.
Meanwhile, UBL is growing faster than the industry, and gaining market share, which currently stands at around 50 per cent. Analysts expect UBL to report a revenue growth of 15-17 per cent and a net profit growth of over 40 per cent, led by improvement in margins, in 2009-10. Recently, UBL raised Rs 420 crore through a rights issue to fund its working capital and capital expenditure needs. Its new capacity of 12 million cases will be operational in January 2010 and will take the total to 130 million cases per year. The stock, which has risen almost 43 per cent in the last one month and is trading at 38 times 2010-11 estimated earnings, looks expensive at current levels.