Batlivala & Karani B&K Securities

INITIATING COVERAGE United Breweries Market Performer

Share Data Brewing magic
Market Cap. Rs. 45.3 bn (US$ 1,018.5 mn)
United Breweries with its flagship brand Kingfisher is a market leader with close to
Price Rs. 209 50% market share in the 104 mn cases domestic beer market. The company having
Target Price Rs. 196 the largest brewing capacity in India with a network of 14 owned and 11 contract
breweries has embarked on an aggressive expansion plan in order to benefit from
BSE Sensex 14130
the strong double-digit growth in the domestic beer industry.
Reuters UBBW.BO
Year to March FY06 FY07E FY08E FY09E CAGR (%)
Bloomberg UBBL IN
P&L Data (Rs. mn) FY06-09E
6m avg. daily turnover (US$ mn) 0.6
Net Revenues 6,873 10,559 13,242 15,738 31.8
52-week High/Low Rs. 215/71 Operating Profit 1,187 2,051 2,597 3,090 37.6
Issued Shares 216 mn Adjusted Net Profit 406 1,182 1,409 1,695 61.1
Balance Sheet (Rs. mn)
Valuation Ratios
Total Assets 9,304 11,452 13,784 15,845 19.4
Year to 31 March 2007E 2008E
Shareholders’ Funds 5,072 6,156 7,442 9,013 21.1
EPS (Rs.) 5.5 6.5
Per Share Data (Rs.)
+/- (%) 191.4 19.2
Adjusted EPS 1.9 5.5 6.5 7.8 61.1
PER (x) 38.3 32.1 CEPS 2.8 6.6 8.2 9.8 51.2
Dividend/Yield (%) 0.2 0.2 Returns (%)
EV/Sales (x) 4.6 3.7 ROE 10.7 21.1 20.7 20.6 24.5

EV/EBITDA (x) 23.5 18.8 ROCE 17.7 23.3 23.7 23.8 10.4

Shareholding Pattern (%)  We expect the company’s revenues to post a CAGR of 32% during FY06-09E due
Promoters 75 to favourable demographic factors, increasing expenditure on personal consumption
and deregulation in the northern markets driving strong volume growth.
FIs/MFs 2
 The merger of its group companies and the acquisition of Karnataka Breweries
FIIs 15
will see an increase in owned capacity which will increase operational efficiencies
Public & Others 8 and meet the volume growth in the industry. We expect operating margins to
improve from 17.3% in FY06 to 19.4% in FY07.
Relative Performance
 We have valued the company at 30x FY08E EPS of Rs. 6.5 which gives us a
250
200
target price of Rs. 196. At the current price of Rs. 209, we feel the stock is richly
150 valued and fully captures the future growth prospects. We initiate coverage with
100 a Market Performer rating. However, we feel the company has a strong growth
50
potential and will continue to enjoy a significant premium due to its market
0
leadership and rich brand equity in the domestic market.
Dec-04

Jun-05

Sep-05

Jan-06

Jul-06

Oct-06

Jan-07
Apr-05

Apr-06

United Breweries Ltd (A ctual)

Ashit Desai
Sens ex ashit.desai@bksec.com
16th January 2007 Tel. No. +91-22-4007 6233

© B&K Securities 2007 Analyst Declaration: I, Ashit Desai, hereby certify that the views expressed in this report accurately reflect my
personal views about the subject securities and issuers I also certify that no part of my compensation was, is, or
All Rights Reserved
will be, directly or indirectly, related to the specific recommendation or view expressed in this report.
Attention is drawn to the disclaimer and
other information on Page 2 B&K Research is also available on Bloomberg <BNKI>, Thomson First Call & Investext.
 B&K RESEARCH JANUARY 2007

Index ...................................................................... Page No.

Investment arguments .................................................................................. 3
Investment concerns .................................................................................... 5
Valuations ..................................................................................................... 6
Industry outlook ........................................................................................... 8
Company background ................................................................................ 14
Business analysis ......................................................................................... 15
Financials .................................................................................................... 19
Detailed financials ....................................................................................... 21

B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd.

The information contained herein is confidential and is intended solely for the addressee(s). Any unauthorized access, use, reproduction, disclosure or
dissemination is prohibited. This information does not constitute or form part of and should not be construed as, any offer for sale or subscription of or any
invitation to offer to buy or subscribe for any securities. The information and opinions on which this communication is based have been complied or arrived at
from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, correctness and are
subject to change without notice. Batlivala & Karani Securities India P Ltd and/ or its clients may have positions in or options on the securities mentioned in this
report or any related investments, may effect transactions or may buy, sell or offer to buy or sell such securities or any related investments. Recipient/s should
consider this report only for secondary market investments and as only a single factor in making their investment decision. The information enclosed in the report
has not been whetted by the compliance department due to the time sensitivity of the information/document. Some investments discussed in this report have
a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when the investment is realized. Those
losses may equal your original investment. Some investments may not be readily realizable and it may be difficult to sell or realize those investments, similarly
it may prove difficult for you to obtain reliable information about the value, risks to which such an investment is exposed. Neither B&K Securities nor any of its
affiliates shall assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein.

UNITED BREWERIES 2
 B&K RESEARCH JANUARY 2007

Investment arguments
Dominant player in the industry
United Breweries, a market leader in the 104 mn cases domestic beer market commands 40%
market share and its 50:50 joint venture with Scottish and Newcastle (S&N), known as
Millennium Alcobev commands another 10% market share. The company has the largest
network of breweries across India which helps it to increases its presence in the highly regulated
domestic alcohol market. We believe the company with its leadership position in the domestic
market and the strong presence of its Kingfisher brand will be the largest beneficiary of the
current boom in the domestic beer market which saw a growth of 14% in FY06.

Strong brand presence

Key brands
Kingfisher, the company’s flagship brand enjoys a market share of more than 65% in the mild
FY06 Volumes Growth
beer segment and 27% in the strong beer segment. The company which sold more than 20 mn
(mn cases) (%) cases of Kingfisher Premium (mild beer) and close to 18 mn cases of Kingfisher Strong in
Kingfisher Premium 20 13 FY06 has seen strong beer as the major growth driver with sales of its strong beer increasing
Kingfisher Strong 18 36 at a CAGR of 34% since FY02. India where strong beer accounts for 65% of the total beer
market offers strong growth opportunity to the company which currently has only 27% market
UB Export 2 NA
share in this segment.
Kalyani Black Label 2 NA
Rising per capita income to drive consumption
Per capita income expected to The rapid growth in per capita income resulting from a growing Indian economy has led to
grow above 10% higher expenditure from the young middle-class population. With an increase in disposable
income we expect beer to become more affordable to a large set of consumers resulting in a
strong volume growth. We expect the increasing western influence to change the perception of
alcohol among the youth resulting in a significant change in the consumption of alcohol in the
country. With the stigma on alcohol slowly disappearing among the youth we see larger proportion
of youth beginning to consume alcohol. The per capita consumption of beer in India which is
extremely low at 0.7 litres per annum compared to 75 litres in North America and 22 litres in
China offers strong growth prospects. Beer being an entry level drink with the lowest alcohol
content is expected to grow rapidly due to these favourable factors.

Growth in per capita income Growth in personal disposable income

35000 12% 30,000 14%
30000 10%
25,000 12%
25000
8% 10%
20000 20,000
(Rs.)

6%
(Rs. Bn)

8%
15000 15,000
4% 6%
10000
2% 10,000
5000 4%
0 0% 5,000 2%
Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

0 0%
(E)

Mar-01 Mar-02 Mar-03 Mar-04 Mar-05

Per-Capita Income (Rs.) Growth % Personal disposable income (Rs. bn) Growth %

Source: CMIE

UNITED BREWERIES 3
 B&K RESEARCH
Restrictions on advertising,
licences and inter-state
movement of alcohol to
benefit established players
Volume growth of above 300%
in Punjab and Haryana due to
change in licencing system
UNITED BREWERIES
JANUARY 2007
High entry barriers to benefit established players
A highly regulatory environment with high taxation, restrictions on inter-state movement of
alcohol, ban on advertising and difficulty in acquiring licences for greenfield breweries make it
extremely difficult for new players to enter and establish their presence in India. Such
circumstances offer an advantage to the existing established players who have a significant
nationwide presence. We believe that these entry barriers will continue to benefit United
Breweries which enjoys the leadership position in the domestic beer industry.
Demographics favouring the industry
Beer, a low alcohol content drink largely finds favour among the young population in a country.
India having more than 60% of its population in the age group of 15-59 years offers a favourable
environment for the growth in beer consumption. Currently, beer consumption in India is
extremely low at 0.7 litres per annum. With the population in this age group expected to
increase we believe India offers a strong growth opportunity in this industry which is still at a
very nascent stage.
Population aged 15-59
900,000 63
Population (Age 15-59) ( in '000)
800,000
Proportion (%) 62
700,000
61
600,000
60
(in '000)
500,000
(%)
400,000 59
300,000
58
200,000
57
100,000
0 56
2000 2005 2010 2015
Source: UNPD
Recent consolidation to benefit large players
The recent consolidation in the industry has seen the major players gaining some pricing
power over the distributors, bottle and raw material suppliers. Since raw materials such as
barley, hops and yeast constitute close to 20% of the operating expenses and bottle costs
another 40% of the operating expenses we expect the increased economies of scale and
better bargaining power with the large players such as United Breweries will help improve its
margins from 17.3% in FY06 to 19.6% in FY08E.
Possibility of further deregulation to drive volume growth
The recent deregulation in the northern markets of Punjab and Haryana saw a change in
licencing system from auction to free market system. This deregulation along with a further
reduction in taxes on beer led to a drastic fall in beer prices resulting in volume growth of
above 300% in both states. The change in licencing system was beneficial to the industry as
well as the state governments whose revenues increased in spite of low taxes. Further
deregulation in other states resulting in lower prices of beer could see significant growth in
volumes as beer becomes more affordable than other spirits.
4
 B&K RESEARCH
Alcohol being a state subject
faces risk from state policies
Entry of Carlsberg, Heineken
and Tiger to increase
competition
UNITED BREWERIES
JANUARY 2007
Investment concerns
High tax incidence
The average tax incidence on beer in the domestic market which is imposed at state level is
extremely high at 42% compared to other international markets. Since the taxes on alcohol are
one of the largest contributors to state revenue the segment continues to remain highly taxed
by the state governments.
Change in government policies
The industry is highly regulated with each state having it own taxation, pricing and distribution
policies. Alcohol being a state subject, any change in the government policy regarding pricing,
taxation and distribution resulting in an increase in the price of beer would shift consumer
preference towards other alcohol products thereby reducing the demand for beer.
Increasing raw material prices
With increasing consumption of beer, we expect the demand for barley to rise substantially.
The increased demand and the continuous reduction of land under cultivation for barley will
lead to a further hardening of prices of the commodity. The company also a buyer of large
number glass bottles could face an increase in bottle prices resulting from an increase in crude
prices. Bottle costs constitute more than 40% of its total operating expenses, whereas barley
constitutes close to 12% of its operating expenses. The company could face margin pressure
due to increasing raw material prices against static selling prices.
Entry of new international players in the domestic market
Currently, SAB Miller with close to 33% market share is the only closest competitor of the
company in the domestic beer market. With the entry of Carlsberg, Cobra and Asia Pacific
Breweries with its Tiger brand we see competition increasing in the domestic market resulting
in increased pressure on the company’s market share.
5
 B&K RESEARCH JANUARY 2007

Valuations
The beer industry in India is expected to benefit from favourable demographic factors, rise in
per capita income leading to an increase in expenditure on personal consumption and western
influences bringing about a change in lifestyle. The per capita consumption of beer in India
which currently is extremely low at 0.7 litres per annum is expected to see rapid growth due to
these favourable factors.
United Breweries, the largest player in domestic beer market with a 50% market share (including
MAPL) continues to remain the prime beneficiary of the strong consumption growth in the
domestic beer industry. With further capacity expansions across India, acquisition of a key
contract brewery in Karnataka (KBDL) and the expected turnaround of MAPL we see
significant growth in the companies’ revenues and profits.

PER Band 1-year forward EV/EBITDA Band

300 40.0
42.1x 35.0
250
30.0
34.7x 25.0
200
27.3x 20.0
150 15.0
19.9x
10.0
100
12.6x 5.0
50 0.0 Mar-04

Sep-05
Jun-04
Sep-04
Nov-04

Feb-05

Jul-05

Dec-05

Mar-06
May-06

Oct-06
Jan-07
Apr-05

Aug-06
0
Mar-04

Sep-04
Jun-04

Nov-04
Feb-05

Jul-05
Sep-05

Dec-05
Mar-06
May-06

Oct-06
Jan-07
Apr-05

Aug-06

PER (x) Mean +1 s td dev -1 s td dev

We expect the company to register a CAGR of 32% in net sales and 61% in adjusted net profit
during FY06-09E. The company has been re-rated post FY04 and currently enjoys a significant
premium due to its leadership position in the domestic market which promises strong growth
prospects. We have valued the company at 30x FY08E EPS of Rs. 6.5 which gives us a target price
of Rs. 196. At the current price of Rs. 209, we feel that the stock is richly valued and fully captures
the future growth prospects. We initiate coverage with a Market Performer rating on the stock.
However, we feel that the company with a 50% market share in the domestic market where
entry barriers are high and per capita consumption is extremely low at 0.7 litres per annum has
a strong growth potential and will continue to enjoy a significant premium due to its market
leadership and rich brand equity in the domestic market.

Peer comparison
Company EPS (US$) PE (x) Mcap Mcap/Sales (x) EV/EBITDA (x) ROE (%)

CY05/FY06 CY06/FY07 CY07/FY08 CY05/FY06 CY06/FY07 CY07/FY08 US$ mn CY05/FY06 CY06/FY07 CY07/FY08 CY05/FY06

United Breweries 0.04 0.12 0.15 110.2 38.1 32.2 1,018 6.6 23.5 18.8 10.7

SAB Miller 1.0 1.2 1.3 21.9 19.6 17.2 34,824 2.3 10.5 9.4 13.6

Inbev 1.9 3.1 3.6 33.8 20.1 17.4 38,124 2.6 8.7 7.9 9.1

Anheuser Busch 2.4 2.5 2.8 20.8 19.3 17.2 39,082 2.6 11.9 11.3 61.2

S&N 0.5 0.7 0.7 21.5 15.6 14.7 9,867 1.7 12.6 12.0 8.3
Source: Bloomberg, Company Reports

UNITED BREWERIES 6
 B&K RESEARCH JANUARY 2007

Probable triggers for upside

Possibility of further deregulation
The recent deregulation in the northern markets with a change in licencing system in Punjab
and Haryana and a reduction of taxes on beer resulted in significant fall in beer prices which
saw volumes increasing by more than 300%. This was beneficial to the industry as well as the
state governments whose revenues increased in spite of low taxes. We believe further
deregulation in other states would benefit the industry and the state governments resulting in
lower retail prices of beer driving strong growth in volumes which is currently not factored in
our estimates.
Delinking of beer from other spirits
The industry has been pushing the government to delink taxes on beer from those on other
spirits as the alcohol content in beer is extremely low (less than 6% in mild beer and 6-8% in
strong beer) compared to other spirits (alcohol content 35-42%). Such a policy has been
followed in most international countries in order to encourage consumption of low alcohol
drinks. The policy if adopted in India would see a significant decline in beer prices resulting in
high volume growth.
Turnaround of Millennium Alcobev (MAPL)
Millennium Alcobev (MAPL), a 50:50 joint venture between United Breweries and Scottish
and Newcastle (S&N) operates 4 breweries with brands including Sandpiper, Zingaro and
Kalyani Black Label Strong which enjoy a significant 10% market share in the domestic beer
market. The company due to high debt and low operational efficiency has substantial
accumulated losses. With savings from the recent debt restructuring expected to accrue from
3QFY07 and an improvement in operational efficiencies, the company could turnaround by
FY09. A faster turnaround of the company would see better contribution from MAPL to the
bottomline of United Breweries which is currently not factored in our estimates.

UNITED BREWERIES 7
 B&K RESEARCH JANUARY 2007

Industry outlook
The potable alcohol market in India is segmented into beer, Indian Made Foreign Liquor (IMFL)
and country liquor. The country has the existence of a large unorganised sector i.e. the country
liquor market which is estimated to be more than 60% of the total alcohol market in India. Currently,
India has one of the lowest per capita consumption of alcohol in the world with beer at an abysmal
low level compared to other countries at 0.7 litres per annum and IMFL at 0.82 litres per annum.

Per capita beer consumption per annum Total size of beer market

80 600000

70 500000
60
400000
50

(hl 000)
(Litres)

40 300000

30 200000
20
100000
10
0 0
India China South Russia North Europe India China South Russia North Europe
Africa America Africa America

Source: Industry, B&K Research

The 104 mn cases Indian beer market which saw a CAGR of 8% since FY01 recorded a strong
growth of 14% in FY06. Beer sales have picked up post FY04 with a rapid growth in the Indian
economy resulting in higher disposable incomes among the youth, western influences resulting
in a change in perception of alcohol, and favourable demographics in the domestic market
which have improved the prospects of this industry promising strong growth in future. Beer
which is considered to be the preferred entry level drink among the youth is expected to
benefit the most from these favourable factors.

Beer sales in India

120 16.0%
Sales (mn cases)
14.0%
100 Growth%
12.0%
80
10.0%
(mn cases)

60 8.0%

6.0%
40
4.0%
20
2.0%

0 0.0%
FY01 FY02 FY03 FY04 FY05 FY06

Source: Industry, B&K Research

The domestic beer market is largely dominated by United Breweries which holds almost 50%
market share along with MAPL and SAB Miller with close to 33% after the acquisition of
Fosters brand in India.

UNITED BREWERIES 8
 B&K RESEARCH JANUARY 2007

Consumption pattern in India

The consumption of beer in the domestic market is highly skewed towards strong beer (alcohol
content 6-8%) than mild beer (alcohol content less than 6%) as against the international markets
where mild beer enjoys significant presence. The share of strong beer in total sales which was
62% in FY03 has increased to 65% in FY06. This high consumption of strong beer in India is
attributed to the consumer’s preference towards high alcohol content drinks and the possibility
that the high price of beer compared to other hard alcohol drinks makes strong beer a better
value proposition. The domestic beer market which recorded a growth of 14% in FY06 saw
strong beer sales increasing by 16% whereas that of mild beer increasing by 9.4%.

South continues to lead the
market with a 47% market
share
Regional break-up
South
The southern region records the highest consumption of beer in India where the extremely hot
climate is favourable for the consumption of beer. The region consisting of Andhra Pradesh,
Karnataka, Tamil Nadu and Kerala constitute 47% of the total beer sales in the country. Andhra
Pradesh records the highest consumption followed by Tamil Nadu, Karnataka and Kerala.
West
The west which constitutes 27% of the total sales records high consumption in Maharashtra.
While Gujarat continues to remain a dry area where alcohol consumption is prohibited, Madhya
Pradesh and Goa contribute very little to the volumes in the region. However, the per capita
consumption in Goa is among the highest in India.
North
The northern region which faces extremely cold weather during the winter season traditionally
prefers spirits to beer with the demand for beer coming mainly during the summer months. The
region which currently constitutes around 20% of the volume sales is expected to grow rapidly
due to change in reforms in Punjab, Haryana and Chandigarh which are seeing growth in excess
of 300%. Rajasthan and Uttar Pradesh remain the largest consumers in the northern region.
East
The eastern region currently constitutes only 6-7% of the total beer sales and is expected to
see moderate growth in future mainly due to the poor socio-economic condition of the states.
While other cheap spirits are the preferred drink in the region, the strong beer leads the beer
segment with more than 80% of the total demand for beer in the region.

Break-up of beer market by beer strength State-wise consumption of beer (FY06)

20%
27%
35%

65% 6%

47%

Strong beer Mild beer North South East West

Source: Company, B&K Research

UNITED BREWERIES 9
 B&K RESEARCH
Alcohol – a state subject with
high restrictions
Majority of states follow the
government distribution model
UNITED BREWERIES
JANUARY 2007
Regulatory environment
The Indian alcohol market is highly regulated and highly taxed by state governments. Alcohol
policy in India remains a state subject with each state having full control of alcohol legislation,
state excise rates and the organisation of production and sale of alcohol. There are restrictions
on inter-state movement of alcohol which has resulted in the presence of small inefficient units
in each state reducing operational efficiencies. In fact, the restriction on movement of alcohol
between states has resulted in the domestic alcohol industry to function like 28 different countries.
There are also restrictions on brand entry, advertising, pricing and acquiring licences for
greenfield breweries which result into further entry barriers for players planning to enter the
Indian beer market. These restrictions help the existing players as these entry barriers make it
extremely difficult for new players to establish their presence and compete with the current
well established brands in the domestic market.
Distribution structure
The distribution of alcohol in the country is also a matter of state policy and follows one of the
three models listed below.
Government distribution – In this market the state government undertakes the pricing and
distribution under its territory. Around 65% of the domestic alcohol market (in volume terms)
follows this model of distribution. In this model a representative body of the state government
(e.g. TASMAC in Tamil Nadu) purchases alcohol from the manufacturer and distributes it
through its own retail network.
The states of Delhi, Andhra Pradesh, Karnataka, Tamil Nadu and Kerala follow the government
distribution model.
Auction market system – Under this system, the state government auctions licences for the
sale of alcohol in a particular geographical territory. The highest bidder (contractor) then
becomes the sole distributor of alcohol in that territory and distributes the products through
its own retail network. Around 15% of the domestic alcohol market (in volume terms) follows
this model of distribution.
Auction markets are present in Rajasthan, Bihar and Himachal Pradesh. These auctions however
lead to monopolies and cartels which results in high prices of beer driving down its consumption.
Free market system – This system is beneficial for both the alcohol companies and the end
consumers as the pricing is market determined. Under this system the government sells licenses
to applicants for a fee which entitles them to sell beer in the market. It represents more than
20% of the domestic alcohol market (in volume terms). The states of Maharashtra, Uttar
Pradesh, Goa and Madhya Pradesh follow this distribution model. Recently, the change in
policy in Punjab and Haryana has seen the government changing the licencing system from
auction system to the free market system driving strong demand for beer in these regions.
10
 B&K RESEARCH JANUARY 2007

Key players – Market share

10.6%

5.4%
UB Group
3.6%
SAB Miller
47.5% Mt. Shivalik

Mohan Meakin

Others
32.9%

Source: Company

United Breweries and SAB
Miller control 80% of the
domestic market
The Indian beer market is highly dominated by United Breweries controlling close to 50%
market share (including MAPL) and SAB Miller with around 33% market share after the
takeover of Shaw Wallace brewing business and Fosters India operations. These two players
dominate the domestic market with more than 80% of the market share.
United Breweries currently owns 14 breweries across India with a brewing capacity of close to
3.5 mn hectolitres compared o SAB Millers 11 breweries (including Fosters Aurangabad facility)
with a total capacity of ~2.6 mn hectolitres. The other players such as Mohan Meakins and
Mt. Shivalik have regional presence in the domestic market.

Key brands
UB SAB Miller Mohan Meakins Mt. Shivalik
Kingfisher Mild Castle Lager Golden Eagle Thunderbolt
Kingfisher Strong Haywards 2000 Golden Peacock
UB Export Haywards 5000
Kalyani Black Label Knock Out
Sandpiper* Royal Challenge
Zingaro* Fosters
*Brands of MAPL – joint venture of UB and S&N

United Breweries with its flagship brand Kingfisher holds 67% market share in the mild beer
segment and 27% in the strong beer segment. The company has managed to garner a 27%
market share in the strong beer segment within just five years of the launch of its strong beer
“Kingfisher Strong”. On the other hand, SAB Miller the company’s closest competitor enjoys
a significant presence in the strong beer segment with its Haywards and Knock Out brands.

Recent consolidation to benefit market leaders

Acquisitions at a significant
premium
United Breweries acquisition of Karnataka Breweries and Distilleries (KBDL) and its merger
of the brewing division of Associated Breweries and Distilleries (ABDL) and Mangalore
Breweries and Distilleries (MBDL) with itself and further increasing its stake to 50% in MAPL
– a joint venture with S&N has seen the company consolidating its position in the Indian
market. Further, the second biggest brewing company in India – SAB Miller’s acquisition of

UNITED BREWERIES 11
 B&K RESEARCH JANUARY 2007

the brewing business of Shaw Wallace and its recent acquisition of the Indian operations of
Fosters has led to the beer market being dominated by these two players. The recent acquisitions
in the domestic market have been at a significant premium which indicates the underlying
potential of the domestic market. We expect this consolidation to benefit the big players in
terms of improved bargaining power with the distributors and bottle manufacturers.
Recent acquisition details
Year Mergers Equity Amount Market Key Brands
and Acquisitions Stake (%) (Rs. mn) Share (%)
August 2006 SAB Miller – Fosters 100 5,400 2.3 Fosters, Amberro
May 2005 SAB Miller – 50 1,580 ~30 Haywards 2000, Haywards 5000,
Shaw Wallace Knock Out, Royal Challenge Premium
May 2005 S&N – 17.5 2,173 40 Kingfisher Premium, Kingfisher Strong,
United Breweries UB Export

Increase in raw material and bottling costs

Barley, a key raw material for the manufacture of beer constitutes around 12% of the raw
material expenses of the company. A reduction in cultivable land for barley and the increasing
demand for malt has created a shortage of barley resulting in an increase in prices. Going
forward, we expect barley/malt price to increase further due to the increasing demand for
malt against a stagnant production of barley.

Barley production in India WPI of barley (Base: 1993-94)

230
1800 1200
220
1700 1000
('000 hectares)

210
('000 tonnes)

1600 800
1500 600 200
190
(x)

1400 400
1300 200 180
1200 0 170
1990-91

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

160
150
Jan-03

Jan-04

Jan-05

Jan-06
Apr-03
Jul-03
Oct-03

Apr-04
Jul-04
Oct-04

Apr-05
Jul-05
Oct-05

Apr-06
Jul-06
Production (in '000 tonnes)
Area under cultivation (in '000 hectares)

Source: CSO, Ministry of Commerce and Industry

Glass bottles, another important raw material for the company constitutes more than 40% of
its operating expenses. Since the process used to manufacture glass bottles is highly energy
consuming an increase in crude prices could result in an increase in the bottle prices. We
believe the industry would continue to face margin pressure due increasing raw material
prices. However, large players which enjoy flexible sourcing arrangements and bargaining
power over distributors and raw material suppliers would continue to maintain their margins.

UNITED BREWERIES 12
 B&K RESEARCH
Carlsberg, Cobra, Heineken
and Tiger to enter India by 2008
UNITED BREWERIES
JANUARY 2007
Entry of new players to increase competition
• Danish brewer Carlsberg has planed to build a brewery in the state of Rajasthan in a joint
venture with a group of investors. The brewery expected to be operational by the first
quarter of 2008 would have an annual capacity of 450,000 hectolitres. Carlsberg will hold
45%; Denmark’s Industrialisation Fund for developing countries would hold 10%, while
the remaining 45% will be owned by a group of investors, led by Carlsberg’s partner in Sri
Lanka, The Lion Brewery Ceylon Ltd.
• Asia Pacific Breweries (APB) has acquired an initial 76% stake in Aurangabad Breweries
Limited (AUBL) which owns 2 breweries in Maharashtra and Goa, for about US$ 18 mn.
The deal includes an entitlement for APB to increase its stake in AUBL to 100% by the end
of 2008. Tiger and Heineken are its flagship brands.
• APB has further invested in India’s largest beer consuming state, Andhra Pradesh, through
a joint venture partnership with Jaipuria Beverages & Food Industries Private Limited.
APB hold 67% in the joint venture called Pearl Breweries Private Limited (PBPL) and will
build a greenfield brewery with an initial brewing capacity of 250,000 hectolitres just
outside Hyderabad. The brewery is expected to commence operation by end 2007. The
initial investment in PBPL is estimated to be US$ 15 mn (approximately S$ 24 mn) out of
which the equity contribution is estimated not to exceed US$ 10 mn (approximately S$ 16
mn), which will be contributed by APB and Jaipuria in proportion to their respective
shareholdings. APB’s contribution will be funded through a combination of internal
resources and external borrowings.
• Cobra beer another new entrant will be setting up a greenfield facility at Hyderabad and
has planned an investment of US$ 10 mn for promoting its brand and distribution network
in India. Cobra beer started by Karan Billimoria is one of UK’s fastest growing beer
brands.
The entry of major international players will see global beer brands such as Carlsberg, Heineken
and Cobra being launched in the country. However, the high regulations in the domestic
market would remain a challenge for the new players to establish their presence in India.
Fosters, which entered the Indian market in 1998 was able to achieve only 2.3% market share
by 2006.
13
 B&K RESEARCH JANUARY 2007

Kingfisher – the largest selling
beer in India
Company background
United Breweries came into existence upon de-merger of the beer business from the erstwhile
United Breweries Ltd. The resulting United Breweries became the main brewing company of
the UB Group while the latter was renamed as United Breweries (Holdings) Limited. The
company has been associated with brewing for over five decades and commands a market
share of around 40% in the domestic market. Its flagship brand Kingfisher continues to
remain the largest selling beer in the mild and strong segments.
The company is a part of the US$ 2 bn UB Group which is the leader in the domestic alcohol
market through its flagship companies “United Breweries” in the beer segment and “United
Spirits” in the IMFL segment. The group headed by Mr. Vijay Mallya has diversified interests
in aviation, pharmaceuticals, fertilisers, media and infrastructure. With aggressive acquisitions
and expansions in the domestic market, the UB Group currently holds the largest number of
breweries in India.

Strategic alliance with Scottish and Newcastle (S&N)

The company has tied up with Scottish and Newcastle which hold 37.5% equity stake in the
company. This alliance has helped both the companies to benefit from significant management,
technical and marketing benefits. The tie-up with S&N has also brought in substantial funds
which have helped the company repay its debt. S&N is one of the leading beer companies
which owns or has an interest in over 50 breweries internationally, producing more than 50
million hectolitres (mhl) per annum. The company enjoys market leading positions in 15
countries across Europe and Asia.

Joint venture with S&N – Millennium Alcobev Ltd. (MAPL)

The company also has a 50:50 joint venture with S&N known as Millennium Alcobev Pvt. Ltd.
The company manufactures brands such as Sandpiper, Zingaro and Kalyani Black Label which
together account for a 10% market share in the domestic beer market. MAPL having 4 breweries,
1 each in Tamil Nadu, Maharashtra, Haryana and Andhra Pradesh meets almost 33% of the
capacity requirements of United Breweries. United Breweries along with MAPL together
accounts for almost 50% market share in the domestic brewing industry.
Company structure

Stake: 37.5%
UB Group

Stake: 50% Millennium Alcobev Ltd.

United Breweries
(MAPL)

Scottish & Newcastle Stake: 37.5%

Stake: 50%
(S&N)

UNITED BREWERIES 14
 B&K RESEARCH
A network of 14 owned and
11 contract breweries across
India
UNITED BREWERIES
JANUARY 2007
Business analysis
Break-up of revenue (FY06) – Rs. 9,246 mn
11% 2%
Sales
Income from Services
Other Income
87%
Source: Company
The company recorded a 33% increase in net sales to Rs. 6.87 bn in FY06 on the back of
strong growth of Kingfisher Strong which registered a 36% growth in FY06. The company
receives 87% of its revenues from the sale of beer from its owned breweries whereas close to
11% of its revenue is received from contract breweries which manufactures and sell beer in
the name of UB brands in regions where UB does not have a brewery or adequate capacity.
The company has 14 owned breweries and has another 11 contract breweries which account
for more than 20% of its volume sales.
A large network of breweries
Source: Company
15
 B&K RESEARCH JANUARY 2007

The company will continue to
outperform industry
The company has clearly outperformed the industry in the last five years with volumes growing
at a CAGR of 14% since FY02 against the industry average of 8%. The last year has seen a
pick-up in the consumption of beer due to increasing disposable income resulting from a
growing economy making beer more affordable and due to some policy changes in the north
resulting in low price of beer driving such growth. The company recorded strong growth in
volumes at 19.2% in FY06, whereas the domestic beer industry grew at 13%. We expect the
company to outpace the industry growth in the coming years mainly due to the strong growth
expected in the strong beer segment through its Kingfisher Strong brand.
Growth in UB vs. Industry

120 25%

100 20%
80
15%
mn cases

60
10%
40

20 5%

0 0%
FY02 FY03 FY04 FY05 FY06

UB Industry Growth % - UB Growth % - Industry

Source: Company, B&K Research

Strong brand portfolio

The company has a strong brand portfolio in both the mild and strong beer segments. Though,
Kingfisher continues to be the highest selling brand in India, its other brands such as UB
Export and Kalyani Black Label have significant share selling around 2 mn cases per year. The
other brands have regional presence and are expected to grow in line with the industry. The
company also manufactures three other brands namely Taj Mahal, Maharaja and Flying Horse
which are mainly exported to other countries. However, the volume sale of these brands is
very negligible.

Brand portfolio
Key brands Category Alcohol content (%)
UB
Kingfisher Premium Mild <6
Kingfisher Strong Strong 6-8
UB Export Lager Mild <6
London Pilsner Strong 6-8
Kalyani Black Label Mild <6
UB Premium Ice Mild <6
Millennium Alcobev
Sandpiper Mild <6
Zingaro Strong 6-8
Kalyani Black Label Strong Strong 6-8

UNITED BREWERIES 16
 B&K RESEARCH JANUARY 2007

Brand Kingfisher – A success story

65% market share in mild beer
segment
The company’s flagship brand Kingfisher contributes close to 90% of the total volume sales of
the company. It leads the domestic market in the mild beer segment with its Kingfisher Premium
brand which commands more than 65% market share. The mild beer industry in India has also
seen a pick-up in the last year which saw consumption increasing by 9.4% in FY06. The company
outperformed the industry with a 13% growth in the mild beer segment in FY06.

Kingfisher – Volume growth

25 50%

20 40%
30%
(mn cases) 15
20%
10
10%
5 0%
0 -10%
FY02 FY03 FY04 FY05 FY06

KF Mild KF Strong
Growth % - KF Mild Growth % - KF Strong

Source: Company, B&K Research

Kingfisher Strong to drive volume growth

Kingfisher Strong to be the
main driver of growth
The company continues to remain the dominant player in the mild beer segment with around
65% market share. Its entry into the strong beer category with the successful launch of the
Kingfisher Strong beer has helped it to garner 27% market share in FY06 since its launch in
1999. The company has outperformed the strong beer industry with its Kingfisher Strong
brand which has seen a 34% CAGR since FY02 and 36% in FY06 against an industry growth
of 16% in FY06. Its other strong beer brands include Kalyani Black Label Strong and Zingaro
from MAPL which are also seeing increasing volumes resultng in a turnaround of MAPL. The
deregulation in the northern regions of Punjab and Haryana which are more aligned to strong
beer will further drive growth in this segment. Overall India largely remains a strong beer
market with more than 65% of the consumption coming from this segment. We believe the
company which currently commands only 27% market share in this segment will see substantial
growth of Kingfisher Strong in the coming years.

Market share of UB in the Strong Beer segment

30%

25%

20%

15%

10%

5%

0%
FY03 FY04 FY05 FY06

Source: Company, B&K Research

UNITED BREWERIES 17
 B&K RESEARCH JANUARY 2007

Other brands
Other brands of UB The company’s other brands include UB Export Lager, London Pilsner, Kalyani Black Label
Brands Mn cases (FY06) Premium and UB Premium Ice which have regional presence and sell about 5 mn cases.
UB Export 2 Among these only Kalyani Black Label and UB Export have significant volumes with each
selling around 2 mn cases. Due to its regional presence and low brand recognition we expect
Kalyani Black Label 2
these brands to grow in line with the growth in the respective states.
Others 1
Millennium Alcobev Pvt. Ltd.
Millennium Alcobev Pvt. Ltd. (MAPL) is a 50:50 joint venture between United Breweries and
Scottish and Newcastle which operates 4 breweries, 1 each in Tamil Nadu, Maharashtra,
Haryana and Andhra Pradesh. The company’s brands include Sandpiper, Zingaro and Kalyani
Black Label Strong which enjoy a 10% market share in the domestic beer market. The company’s
products have regional preference and are priced lower compared to other brands resulting
into lower margins. It has been in losses since it was formed in FY04 and has a very high
proportion of debt. Though, the company has a negative net worth it accounts for a 10%
market share in the domestic market and meet almost 33% of the capacity requirements of
United Breweries. It has also recently undergone a debt restructuring and savings from this are
expected to accrue from 2HFY07. Though, the company is expected to turnaround by next
year, we do not see it contributing significantly to the bottomline of United Breweries.

Expansions and other developments

Total capacity to increase to
around 7 mn hectolitres post
expansions
The company has planned a capex of Rs. 4 bn (besides the acquisition of KBDL) in the next
three years in order to increase its capacity across India to meet the strong growth in demand.
• It has planned to set up two greenfield units in the state of Orissa and Rajasthan at a cost
of Rs. 920 mn. The Orissa brewery will have a capacity of 1.5 mn cases and the Rajasthan
brewery will have a capacity of 7.2 mn cases. These projects are expected to be completed
by 2007.
• It has also planned to increase capacity of its existing plants by 22% at an estimated cost of
Rs. 1,410 mn in order to meet the increase in demand particularly in North. The expansions
are expected to be completed before April 2007.
• The company’s recent acquisition of the brewing division of Karnataka Breweries and
Distilleries Ltd. (KBDL) for Rs. 1.86 bn has further increased its capacity by 1 mn hectolitre.
KBDL which was previously a contract brewer of United Breweries will be merged with
United Breweries and is expected to add significantly to its topline and bottomline.
• The company has planned to launch a new premium brand which will be branded as
Kingfisher Ultra to fight the competition from the entry of new international players in the
domestic market.

UNITED BREWERIES 18
 B&K RESEARCH JANUARY 2007

Net sales to increase
significantly due to
acquisitions and capacity
expansions
Financials
Growth in net sales
The company, a major beneficiary of the increasing consumption of beer in the domestic
market is expected to post a CAGR of 32% in net sales during FY06-09E. We expect realisations
to increase by 3% each year due to price increases across key states. The Indian beer market
where per capita beer consumption is extremely low at 0.7 litres per annum is set to benefit
from a growing economy and favourable demographic factors. Further, the company’s recent
acquisition of KBDL and the expansion of capacities across India will contribute significantly
to the growth in net sales.
Growth in net sales

18,000 60%
16,000 Net Sales (Rs. mn)
Growth % 50%
14,000
12,000 40%
(Rs. mn)

10,000
30%
8,000
6,000 20%
4,000
10%
2,000
0 0%
FY05 FY06 FY07E FY08E FY09E

Source: Company, B&K Research

Improving operating margins

Increase in owned capacity to
improve margins
With better operational efficiencies expected from the merger of ABDL and MBDL and price
increases across key states we see margins improving from 17.3% in FY06 to 19.6% in FY09E.
Though, margin pressure continues to remain due to increasing barley prices and bottle costs,
we expect the company with flexible sourcing arrangements and significant bargaining power
over distributors and raw material suppliers to be less impacted by the increase in barley prices
and bottle costs. Further, with an increase in owned capacity, we expect the increased economies
of scale to maintain operating expenses under control.

Margins to improve marginally

3,500 25%
EBITDA
3,000 EBITDA margins %
20%
2,500

2,000 15%
(Rs. mn)

(%)

1,500 10%
1,000
5%
500

0 0%
FY05 FY06 FY07E FY08E FY09E

Source: Company, B&K Research

UNITED BREWERIES 19
 B&K RESEARCH JANUARY 2007

Growth in net profit

Adjusted net profit to post a
CAGR of 61%
The high growth in beer sales resulting from an increase in consumption in the domestic
market, the rapid capacity expansion and a marginal improvement in margins will see a significant
growth in the company’s bottomline. We expect the company’s adjusted net profit to post a
CAGR of 61% from Rs. 406 mn to Rs. 1,695 mn during FY06-09E.
Growth in net profit

1,800 8
Adjusted Net Profit (Rs. mn)
1,600 7
Adjusted EPS (Rs.)
1,400 6
1,200
5
(Rs. mn) 1,000

(Rs.)
4
800
3
600
400 2

200 1
0 0
FY05 FY06 FY07E FY08E FY09E

Source: Company, B&K Research

Return ratios to see significant improvement

The ROE and ROCE of the company increased from 9.7% and 12.8% in FY05 to 10.7% and
12.8%, respectively, in FY06. With a rapid capacity expansion, higher capacity utilisation and
increasing profitability we expect the ROE and ROCE of the company to improve significantly
to 20.6% and 23.8% in FY09E.

Growth in ROE and ROCE

25.0

20.0

15.0
(x)

10.0

5.0
ROE % ROCE %
0.0
FY05 FY06 FY07E FY08E FY09E

Source: Company, B&K Research

UNITED BREWERIES 20
 B&K RESEARCH JANUARY 2007

Detailed financials
Income Statement
Yr. ending 31st Mar (Rs. mn) FY04 FY05 FY06 FY07E FY08E FY09E

Gross sales 5,584 6,319 9,061 13,893 17,423 20,708

Excise duty (1,047) (1,165) (2,188) (3,334) (4,182) (4,970)

Net sales 4,537 5,154 6,873 10,559 13,242 15,738

Operating expenses (4,200) (4,834) (5,686) (8,508) (10,644) (12,648)

Raw material consumed (1,683) (1,956) (2,446) (3,924) (4,998) (5,983)

Purchase of finished goods (574) (482) (249) (375) (462) (538)

Decrease/(Increase) in stocks 32 62 (11) 81 59 55

Power & fuel (185) (197) (291) (445) (549) (642)

Employee expenses (299) (338) (472) (637) (765) (918)

Selling & Distribution expenses (882) (1,102) (1,569) (2,390) (2,979) (3,541)

Administrative expenses (17) (153) (10) (11) (12) (13)

Other operating expenses (593) (668) (637) (807) (939) (1,068)

Operating profit 336 319 1,187 2,051 2,597 3,090

EBITDA 336 319 1,187 2,051 2,597 3,090

Depreciation (67) (106) (209) (254) (356) (428)

Other income 129 417 185 203 223 246

EBIT 399 631 1,163 2,000 2,465 2,908

Interest paid (325) (379) (239) (262) (331) (366)

Pre-tax profit 74 252 924 1,738 2,134 2,542

(before non-recurring items)

Non-recurring items (32) 0 (305) 0 0 0

Pre-tax profit 42 252 619 1,738 2,134 2,542

(after non-recurring items)

Tax (current + deferred) (14) (112) (425) (471) (640) (763)

Net profit 28 140 194 1,266 1,494 1,779

Adjusted net profit 60 140 406 1,182 1,409 1,695

Preference dividend 0 0 (93) (84) (84) (84)

Net income 28 140 101 1,182 1,409 1,695

UNITED BREWERIES 21
 B&K RESEARCH JANUARY 2007

Balance Sheet
Yr. ending 31st Mar (Rs. mn) FY04 FY05 FY06 FY07E FY08E FY09E

Current assets 3,836 4,263 6,579 7,646 9,009 10,878

Cash & bank 156 173 1,287 200 150 340

Debtors 742 997 1,300 1,930 2,323 2,761

Inventory 392 485 736 1,173 1,485 1,774

Loans & advances 2,546 2,609 3,255 4,342 5,050 6,002

Other current assets 0 0 1 1 1 1

Non-current assets 2,288 2,630 2,724 3,806 4,775 4,967

Investments 1,092 1,465 591 590 590 590

Fixed assets (Net block) 1,110 1,138 2,104 3,187 4,156 4,348

Gross block 1,084 1,357 2,597 3,727 4,852 5,322

Less: Depreciation (156) (259) (580) (835) (1,191) (1,618)

Add: Capital WIP 183 40 88 295 495 645

Other non-current assets 86 27 29 29 29 29

Total assets 6,124 6,893 9,304 11,452 13,784 15,845

Current liabilities 1,676 1,462 1,589 2,003 2,400 2,789

Creditors 1,629 1,411 1,456 1,778 2,150 2,540

Dividends payable 0 0 91 183 208 208

Other provisions 47 51 42 42 42 42

Non-current liabilities 4,083 2,911 2,643 3,293 3,943 4,043

Total debt 3,968 2,760 2,507 3,157 3,807 3,907

Short-term debt 777 950 3 3 3 3

Long-term debt 3,191 1,810 2,504 3,154 3,804 3,904

Other non-current liabilities 115 151 136 136 136 136

Deferred tax liabilities 75 108 109 109 109 109

Other deferred liabilities 40 43 27 27 27 27

Total liabilities 5,759 4,373 4,232 5,296 6,342 6,832

Total shareholders’ funds 365 2,521 5,072 6,156 7,442 9,013

Paid-up capital 178 2,315 2,685 2,685 2,685 2,685

Reserves & surplus 188 206 2,387 3,470 4,757 6,328

Share premium 240 161 2,297 2,297 2,297 2,297

Retained earnings (52) 45 90 1,174 2,460 4,031

Less: Misc. expenditure (1) (1) 0 0 0 0

Shareholders’ funds 365 2,521 5,072 6,156 7,442 9,013

Total equity & liabilities 6,124 6,893 9,304 11,452 13,784 15,845

UNITED BREWERIES 22
 B&K RESEARCH JANUARY 2007

Cash Flow Statement

Yr. ending 31st Mar (Rs. mn) FY04 FY05 FY06 FY07E FY08E FY09E

Pre-tax profit 42 252 619 1,738 2,134 2,542

Depreciation 66 103 321 254 356 428

Chg in debtors 5 (255) (303) (630) (394) (438)

Chg in inventory (71) (93) (251) (437) (312) (289)

Chg in loans & advances (1,562) (63) (646) (1,086) (709) (952)

Chg in other current assets 0 (0) (1) 0 0 0

Chg in current liabilities (246) (218) 45 323 372 389

Chg in provisions (11) 4 (9) 0 0 0

Chg in other deferred liabilities 40 3 (17) 0 0 0

Total tax paid (3) (20) (427) (471) (640) (763)

Cash flow from operations (a) (1,741) (286) (669) (310) 807 917

Capital expenditure (337) (131) (1,287) (1,337) (1,325) (620)

Chg in investments (231) (373) 874 1 0 0

Cash flow from investing (b) (568) (505) (413) (1,336) (1,325) (620)

Free cash flow (a+b) (2,309) (791) (1,082) (1,645) (518) 297

Equity raised/(repaid) 0 2,059 2,506 0 0 0

[incl. chg in share premium]

Debt raised/(repaid) 2,351 (1,208) (252) 650 650 100

Dividend (incl. tax) 0 (44) (57) (91) (183) (208)

Cash flow from financing (c) 2,351 807 2,196 559 467 (108)

Net chg in cash (a+b+c) 42 16 1,115 (1,087) (51) 190

UNITED BREWERIES 23
 B&K RESEARCH JANUARY 2007

Income Statement Cash Flow Statement

Yr. ended 31 Mar. (Rs. m) FY06 FY07E FY08E FY09E Yr. ended 31 Mar. (Rs. m) FY06 FY07E FY08E FY09E

Net sales 6,873 10,559 13,242 15,738 Pre-tax profit 619 1,738 2,134 2,542
Growth (%) 33.4 53.6 25.4 18.9 Depreciation 321 254 356 428
Operating expenses (5,686) (8,508) (10,644) (12,648) Chg in working capital (1,182) (1,831) (1,042) (1,290)
Operating profit 1,187 2,051 2,597 3,090 Total tax paid (427) (471) (640) (763)
EBITDA 1,187 2,051 2,597 3,090 Cash flow from oper. (a) (669) (310) 807 917
Growth (%) 271.7 72.8 26.6 19.0 Capital expenditure (1,287) (1,337) (1,325) (620)
Depreciation (209) (254) (356) (428) Chg in investments 874 1 0 0
Other income 185 203 223 246 Cash flow from inv. (b) (413) (1,336) (1,325) (620)
EBIT 1,163 2,000 2,465 2,908 Free cash flow (a+b) (1,082) (1,645) (518) 297
Interest paid (239) (262) (331) (366) Equity raised/(repaid) 2,506 0 0 0

Pre-tax profit 924 1,738 2,134 2,542 Debt raised/(repaid) (252) 650 650 100

(before non-recurring items) Dividend (incl. tax) (57) (91) (183) (208)

Non-recurring items (305) 0 0 0 Cash flow from fin. (c) 2,196 559 467 (108)

Pre-tax profit 619 1,738 2,134 2,542 Net chg in cash (a+b+c) 1,115 (1,087) (51) 190

(after non-recurring items)

Key Ratios
Tax (current + deferred) (425) (471) (640) (763)
Yr. ended 31 Mar. (%) FY06 FY07E FY08E FY09E
Net profit 194 1,266 1,494 1,779
Adjusted net profit 406 1,182 1,409 1,695 EPS (Rs.) 1.9 5.5 6.5 7.8
Growth (%) 188.9 191.4 19.2 20.3 EPS growth 138.3 191.4 19.2 20.3
Preference dividend (93) (84) (84) (84) Book NAV/share (Rs.) 23.5 28.5 34.4 41.7
Dividend payout ratio 13.7 8.3 8.7 7.3
Net income 101 1,182 1,409 1,695
EBITDA margin 17.3 19.4 19.6 19.6
EBIT margin 16.9 18.9 18.6 18.5
Balance Sheet ROCE 17.7 23.3 23.7 23.8
Yr. ended 31 Mar. (Rs. m) FY06 FY07E FY08E FY09E Net debt/Equity 24.1 48.0 49.1 39.6

Cash and Marketable sec. 1,287 200 150 340

Valuations
Other current assets 5,292 7,445 8,859 10,538
Yr. ended 31 Mar. (x) FY06 FY07E FY08E FY09E
Investments 591 590 590 590
Net fixed assets 2,104 3,187 4,156 4,348 PER 111.6 38.3 32.1 26.8

Other non-current assets 29 29 29 29 PCE 73.7 31.5 25.6 21.3

Price/Book 8.9 7.4 6.1 5.0
Total assets 9,304 11,452 13,784 15,845
Yield (%) 0.1 0.2 0.2 0.2
Current liabilities 1,589 2,003 2,400 2,789
EV/Net sales 6.8 4.6 3.7 3.1
Total debt 2,507 3,157 3,807 3,907
EV/EBITDA 39.1 23.5 18.8 15.8
Other non-current liabilities 136 136 136 136
Total liabilities 4,232 5,296 6,342 6,832 Du Pont Analysis – ROE
Share capital 2,685 2,685 2,685 2,685 Yr. ended 31 Mar. (x) FY06 FY07E FY08E FY09E
Reserves & surplus 2,387 3,470 4,757 6,328
Net margin (%) 5.9 11.2 10.6 10.8
Shareholders’ funds 5,072 6,156 7,442 9,013 Asset turnover 0.8 1.0 1.0 1.1
Total equity & liabilities 9,304 11,452 13,784 15,845 Leverage factor 2.1 1.8 1.9 1.8
Capital employed 7,715 9,448 11,385 13,056 Return on equity (%) 10.7 21.1 20.7 20.6

B & K SECURITIES INDIA PRIVATE LTD.

Equity Market Division: 12/14, Brady House, 2nd Floor, Veer Nariman Road, Fort, Mumbai-400 001, India. Tel.: 91-22-2289 4000, Fax: 91-22-2287 2767.
Registered Office: Room No. 3/4, 7 Lyons Range, Kolkata-700 001. Tel.: 91-033-2243 7902.