United Breweries looks fairly valued, can deliver excellent set of returns: Akash Jain

At current market price, United Breweries looks fairly valued. We believe this company can deliver excellent set of returns for long term as it’s a structural sound story. There are huge long- term growth prospects in beer with minimal competition.

Our conviction stems from the fact that it has launched new products; The company enjoys strong moats on brewery reach, distribution and brand strength.

India’s largest beer maker United Breweries Ltd (UBL) will enter the craft beer market by the end of 2018 to tap into a growing base of consumers willing to pay a premium for the brew, a top company executive said. UBL is also placing on hold plans to expand Kingfisher Buzz to newer markets as response to the ready-to-drink (RTD) flavoured beer has not been as strong as it expected.

The company will continue to sell Buzz in markets where it had initially launched it—mostly the top metros—and will take a call on what to do with it in some time, the executive said. The entry into craft beer will put the Kingfisher maker in direct competition with smaller firms such as B9 Beverages Pvt. Ltd, which is at the helm of the craft beer movement in India with its Bira91 brand.

Craft beer is a new category in India but is growing at around 20 percent per year according to the All India Brewers’ Association. UBL’s managing director Shekhar Ramamurthy has often been asked questions about the company’s absence in the space.

“By definition a craft beer company is a small company and for a big company which has market leading brands, it takes time to reorient our business and create structures to come out with a craft beer,” UBL’s managing director Shekhar Ramamurthy said.

Kingfisher Storm (launched in Q1FY18) has been witnessing good response. The company has also launched a spate of brands from the Heineken stable in FY18, which is expected to support growth of the premium and super- premium segments, boosting gross margin potential.

Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.moneycontrol