The stock reveal
United Breweries (UB) Limited [NSE: UBL] is an India-based beer company. The Company’s segments include Beer and Non-alcoholic beverages. The company owns the brand – Kingfisher. Needless to mention that this is one of the strongest liquor brands in India and offers a wide gamut of products. It also sells a few other international brands like Heineken. The Company’s beer business is the undisputed king of the Indian beer market with ~54% of the market share.
However, the story of United Breweries is not an overnight success. The foundations of the company were laid by Thomas Leishman, a Scotsman, in 1915. The Indian flavour got added to this company, when in 1947, Mr. Vittal Mallya was elected as the UB Group’s first Indian director. Later on the company reigns were handed over to Mr. Vijay Mallya, in 1983. UBL kept making new highs, until Mallya’s Kingfisher airlines saga began to unfold around 2005. Due to financial distress, Mallya had to sell his stake in the company which led to Heineken taking a controlling stake of ~60% in UBL. Though there were short-term headwinds, the company has weathered out the tough times and is standing strong, as we speak.
How the company caught Windmill Capital’s eye
The company got onto our radar in 2019 and got included in the Brand Value smallcase in the March ‘20 rebalance. When markets crashed due to the COVID-19 crisis, we saw it as an opportunity to include the company as it corrected by ~30%. The risk-reward seemed favourable. Their distinctive brand, strong cash position, and business acumen made us believe in the story. The stock was trading at ₹890/share when we included it and is now trading at ₹1,585/share.
Why is it a part of the Brand Value smallcase?
Since its inclusion in the smallcase, the stock has managed to deliver compounded returns of 22% for our investors. UBL is a strong free cash flow generator, as it generated ₹726 crores worth of free cash flow in the FY22. It has a negligible amount of long term debt on its books. As alluded to earlier, the company has had a strong business showing. Year to date (Jun ‘22 & Sep’22 quarters), the company has reported strong revenues of ~₹4000 crores and ~₹300 crores of profit, which is a whopping jump of 56% and 177% from the previous 2 years respectively.
How is United Breweries performing now?
This was as far as the rear-view mirror is concerned. Now, let’s talk about the future prospects. Listed below are few pointers that make this company an interesting bet going further –
- Demographic Dividend – India has the maximum percentage of her population lying between the 25-40 years of age bracket, which is the prime consumer of beer.
- Rapid Urbanization – Beers usually get associated with urban life and since a huge chunk of our population is moving to cities, drinkers might tend towards beers.
- In-home consumption – The option for people to consume alcohol at home will provide a huge thrust to the entire liquor industry, including beers.
Lastly, it must also be noted that consumption of beer is perpetually on the rise and the hope is that this trend will continue. India provides a market opportunity like no other. As a percentage of total alcohol sales, beers contribute only 20% in India. However, that number is 87% in the rest of the world. The beer market is wide open and it’s there for the taking.
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Windmill Capital Team
Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. For more information and disclosures, visit our disclosures page here –https://windmillcapital.smallcase.com/#disclosures