The present report is a unique effort to highlight the exuberance and performance of the United Breweries Ltd., a inimitable company, and the report, in a nutshell, has tried to give glimpse on the company position, the industry analysis, comparative status, products, its core competency, SWOT analysis, generic strategy, resource strength etc. UB Group started in 1915, with Thomson Leishman, a Scotsman. This Company was bought over by Late Vittal Mallya in 1947. The present chairman of the UB Group is Dr. Vijay Mallya.
Kingfisher, the Group's most visible and profitable brand, made a modest entry in the sixties. With currently into business of Spirits (United Spirits Ltd.), Wine, Beer (United breweries Ltd.), Engineering (UB Engineering Limited), Fertilizers (Mangalore Chemicals and Fertilizers) company has made its mark and presence in each sector it is in. United Breweries Limited (UBL) - has assumed undisputed market leadership with a national market share of 48% through a process of aggressive acquisition and market penetration. Company has upgraded most of its breweries with latest equipment to produce world class beer. Despite a recessionary trend prevailing in India, Company was able to maintain its market share and leadership position. Company achieved a milestone in the month of March 2009 by selling over 10 million cases in a single month, the highest ever sale recorded in a month. Company has undertaken market focused initiatives and internal measures to contain costs and improve margins.
The UB Group today controls 60% of the total manufacturing capacity for Beer in India. The flagship brand, Kingfisher is now sold in over 52 countries worldwide having received many accolades for its quality. As an economic force, India is believed to hold the potential to grow faster than any other BRIC country over the next thirty to fifty years. The sub-continent's Beer market has been equally dynamic, growing by almost 90% since the turn of the Century. Exceptionally high growth was generated in the northern states of Punjab, Haryana and Rajasthan which took full advantage of reduced taxes and improvements in the distribution policy. In contrast to Russia, consumers are displaying a distinct preference for Strong Beer which has gained market share steadily in recent years and now accounts for almost 70% of total volume. Kingfisher Strong replaced Kingfisher Premium as the leading Beer and the Kingfisher brand overall now holds a commanding position.
Valuation of UBL using time series analysis of its financial ratio's was performed. The firm maintained high level of liquidity. Owner's fund formed in major source of finance for its expanding activities. The firm is financially more stable which is good sign for its creditors. Efficient inventory management system been efficiently turning the inventory. However idle current assets, inefficient credit and collection performance and low proportion of debt in capital structure has been the concern for UBL.
The day is not far away when the UBL Company will fly its flag at number 1 position.
INDUSTRY ANALYSIS
Beer market in India is estimated to be around Rs. 3000 crores. The industry has been witnessing on an average , a steady growth of about 10% per year over the last 10 years. With a relatively younger population and income levels on the rise, India is seeing an increase in the popularity of beer. United Breweries Group and SABMiller are the major players in the industry. UBL claims the market leadership with 48% of the market share.
PORTER'S FIVE FORCE MODEL
The industry is characterized by low threat of new entrants, low determinants of supplier power, high rivalry among firms, high determinants of buyer power and low threat to substitute products.
Threat of new entrants (low)
Stringent govt. policies & taxes
High capital requirement
Less access to distribution channel
Threat to substitute products (low)
No close substitute but distant substitutes are available.
High brand loyalty
Determinants of buyer power (high)
No. of buyers are high
Buyer switching cost is low
Low buyer's threat to backward integration
Determinants of supplier power (low)
Suppliers are numerous
Products used to brew are inexpensive
Suppliers threat to forward integration is low
Buyer's threat of backward integration
Low suppliers product differentiation
Rivalry among existing firms (high)
Industry growth rate is high
Competitor less diversified
Relative size of competitor is large
GOVERNMENT POLICY
Local excise is paid when the company supplies its material to local dealers
Excise is Rs. 9/- per bluck liters i.e. 1 bluck liters is 7.8 liter. (12 x 650ml).
Library Tax: it is collected by govt. to build libraries in different talukas of Goa.
Health Surcharge: 2% on 1 bluck liters rate (Rs. 9/- on 7.8 liters 9 x 7.8 = 70 is excise duty)
VAT is charged 20% on total value and TCS is1% on total value
COMPANY ANALYSIS
The UB Group stands as a giant conglomerate company operating worldwide with 7 major lines of business, i.e. Beverage Alcohol, Pharmaceuticals, Media, International Trading, Fertilizer, Research & Development, Aviation and a turnover exceeding US$ One Billion (over Rs. 40 Billion).: The present chairman of the UB Group is Dr. Vijay Mallya.
UBL-GOA
UBL-Goa, a unit of United Breweries Ltd., located at Bethoda, Ponda, Goa, started its commercial production of beer on 17th October 1972 with the capacity of 27,000 doz. Per month. From 1989 onwards, expansion was at regular intervals. At present the bottling plant can produce 5,500,00- cases per annum and is maintaining a highly motivated workforce of 140 employees and 30 staff members.
UB VISION STATEMENT
TO BECOME NO.1 BREWERY IN WORLD.
ORGANISATION STRUCTURE
PRODUCT PROFILE
The only company in the business with a comprehensive brand portfolio, with mix of strong national and regional brands that carter to different need states of the customer.
Kingfisher Lager
Kingfisher Light Lager
Kingfisher Strong Lager
Kingfisher Super Strong Lager
Flying Horse Royal Lager
Kalyani Black Label Strong Lager
Premium Ice Beer
Raj Cobra
Taj Mahal Premium Lager
WORK FLOW MODEL
Brew House
Mesh Kettle
Lautar Turn
Process dept.
Wort kettle
Holding kettle
Whirl pool
Fermentation
Fermentation dept.
Cold Storage
Filtration
Filtration
Filling
Capping
Production dept.
Pasteurization
Labeling
Packing
Sealing
Dispatch
FINANCE DEPARTMENT
Manage cash and fund in an effective and efficient manner.
Keep all records of expenditure.
Effective Management of working capital.
Liasioning with govt. authorities, bankers and auditors
Statutory compliances .
Preparation of projections and estimates of financial statements and cash flows
MANAGEMENT INFORMATION SYSTEM
NAVISION is the Management Information System used by UBL. Each department of UBL exhibits Navision Software which helps Departmental head to communicate with. It also helps to file day to day report to the Divisional Head of UB. The information is updated daily at Divisional level and then closings of each department are done at Head office. This software helps the Head Office to know the day to day working of each Divisional office and based on the information, each and every office can be controlled.
RESOURCE STRENGTH
DISTINCTIVE CAPABILITY OF THE FIRM
Management team
Professionally Managed
Seasoned Professionals with Significant Industry Experience
Segment market presence
Least Vulnerable to Policy Volatility due to Large Spread
Manufacturing technology
Largest Manufacturing Space
Maximum Capital Utilization
Branding
Strongest Brand
Significant Up gradation
Value Chain Ownership
Initiatives Planned for Integrating into Retailing
CORE COMPETENCY
Strong brand image with continuous innovation and technology along with good marketing and distribution channel.
GENERIC STRATEGY
UBL follows:-
Differentiated strategy by
marketing their product by associating their brand with major events
Focused strategy by
introducing region specific products
COMPETITOR ANALYSIS
SABMiller India, a wholly owned subsidiary of SABMiller plc, one of the world`s leading brewers, with its innovative measures in packaging, pricing, occasion and product gaps, has cornered nearly 38% of the Indian beer market.
Asia Pacific Breweries Limited, Carlsberg and Crown Beers India forms the remaining 14% of the market share.
COMPANY'S FUTURE GROWTH AND PROSPECTS
United Breweries limited and Heineken join hands to lead Indian beer market.
The company is planning of new product development by extending its product line which would provide its customers' more enriched flavors.
The beer-drinkers in the country are much younger than the average beer-drinker elsewhere in the world. This makes them more likely to carry the brand with them for a lifetime.
SWOT ANALYSIS
UBL holds the strongest position in the market with immense opportunities to explore.
STRENGTHS
Strong Brand name.
Technology
Finest Quality & innovative
Market share of the company
Reverse Integration
Economic price of the product
Global presence of the brand
Aggressive advertising
Financial backing of the UB
Acquisition strategy
WEAKNESSES
Expensive brand management
Static market growth rate
OPPORTUNITIES
Growing beer market
New product development.
Entering into government venture to improve penetration
Expansion and acquisition plan
THREATS
Entry of global beer companies
Increase in raw material prices
High Taxes & Regulations
Advertising and market restriction
Cloning of successful brands
Growth in substitutes
Economic downturn
Negative perceptions about beer
PROJECT UNDERTAKEN
TITLE : ANALYSIS OF FINANCIAL PERFORMANCE OF UBL
OBJECTIVE : To evaluate the financial performance of UBL from the year 2006 to 2008, using time series analysis of its financial ratios.
METHODOLOGY :
Compare the ratio's from the year 2006 to 2008.
Determine the direction of change.
Analyze the reason for the change.
Remark whether the firm's financial performance has improved, deteriorated or remained constant over time.
Following financial ratios were calculated and analyzed:-
LIQUIDITY RATIOS
Liquidity ratios measure the ability of the firm to meet its current obligations.
RATIO
2006
2007
2008
2009
Current ratio
4.14
3.16
2.34
4.27
Quick ratio
3.67
2.62
1.85
3.55
Cash ratio
0.81
0.66
0.03
1.85
Interval measure (days)
344
335
130
183
UBL has been maintaining a high degree of liquidity, compared to the conventional value of 2:1, which is attributed to its high cash and bank balances, and loans and advances . This high value has deteriorated from 2006 to 2008. But liquidity again raised considerably in 2009, owing to substantial increase in quick assets.
LEVERAGE RATIOS
Leverage ratios judge the long term financial leverage and the risk of firm.
RATIO
2006
2007
2008
2009
Debt-ratio
0.34
0.46
0.46
0.36
Debt-equity ratio
0.51
0.86
0.87
0.58
Capital employed to net worth
1.51
1.86
1.87
1.58
Total liability to total assets ratio
0.48
0.58
0.60
0.49
Interest coverage ratio
4.46
5.77
4.6
2.98
UBL is very conservative in using debt and depends more on owner's funds to finance its expanding activities. Though the level of debt is not excessive, its proportion has increased from 2006 to 2008, with owner's again contributing more in 2009. Half of the company's assets are financed by outsider's money. The stake of owner's is quite high in the total capital employed. For creditors, the trend is satisfactory, while, for investors, this could mean disadvantageous.
ACTIVITY RATIOS
Activity ratio's reflect firm's efficiency in managing and utilizing its assets.
RATIO
2006
2007
2008
2009
Inventory turnover
12.16
13.45
16.37
15.46
Days of inventory holding
25.59
26.74
21.97
23.28
Debtor's turnover
6.96
6.89
6.14
5.23
Average collection period
51.65
52.19
58.61
68.76
Net asset turnover
1.28
1.51
1.90
2.11
Total asset turnover
1.04
1.24
1.54
1.40
Fixed asset turnover
4.30
2.81
2.75
3.13
Current asset turnover
1.37
2.22
3.50
2.55
Net current asset
1.81
3.25
6.11
3.33
UBL's efficiency in turning its inventory is improving, which in turn has decreased the yearly inventory holding. The average collection period has been increasing mainly due to liberal and inefficient credit and collection performance. UBL turns over its fixed assets faster than current assets. From 2006 to 2008 current asset turnover has increased while utilization of fixed assets declined. But, 2009 witnessed reversal of this trend, due to considerable decrease in capital WIP and increase in sundry debtors, loans and advances.
POFITABILITY RATIOS
Profitability ratio's measure's overall performance and effectiveness of the firm.
RATIO
2006
2007
2008
2009
Gross profit margin
0.30
0.26
0.25
0.26
Net profit margin
0.02
0.04
0.03
0.02
Operating expense ratio
0.65
0.64
0.63
0.63
Return on investment
0.06
0.06
0.07
0.07
Return on equity
0.03
0.11
0.10
0.05
Earnings per share
4.67
2.62
2.49
2.29
Dividends per share
2.51
1.09
0.45
1.04
Dividends payout ratio (%)
53.74
41.60
18.07
45.41
Dividend yield (%)
0.1678
0.4090
0.2412
1.1626
Earnings yield (%)
0.3123
0.9831
1.334
2.560
Price earnings ratio
320.2
101.7
74.96
39.06
Market value to book value ratio
63.70
10.32
6.59
1.94
Profit margin of UBL has been marginally deteriorating due to its high selling and promotion expenses, though there is decline in operating expense ratio. Over the years Return on investment has remained almost constant. Decrease in return on equity is attributed to the use of less debt over the years.
Company's EPS and DPS are decreasing. The proportionate decrease in DPS in more than that in the EPS and therefore dividend payout ratio is declining. However DPS has doubled in 2009. EPS is decreasing due to the minimal use of debt by the firm. As a result the market price of the share have come down, which in turn have decreased price earnings ratio. The market value to book value has also declined. Thus in terms of market performance the company is showing deterioration.
CONCLUSION :
Idle current assets, liberal and inefficient credit and collection performance, and low proportion of debt in capital structure, has raised the concerns of high liquidity, increasing credit collection period, decreasing current asset turnover, decreasing ROE, and low EPS. Thus UBL should reduce or employ idle current assets efficiently, revise credit collection policy, and raise debt proportion to strike a proper debt-equity mix.
THE END
