United Breweries Limited Batlivala & Karani

Batlivala & Karani INITIATING COVERAGE Share Data Market Cap.

Rs. 45.3 bn (US$ 1,018.5 mn)

Price

Rs. 209

Target Price

Rs. 196

BSE Sensex

14130

Reuters

UBBW.BO

Bloomberg

UBBL IN

6m avg. daily turnover (US$ mn) 52-week High/Low

0.6 Rs. 215/71

Issued Shares

216 mn

B&K Securities

United Breweries Brewing magic

Market Performer

United Breweries with its flagship brand Kingfisher is a market leader with close to 50% market share in the 104 mn cases domestic beer market. The company having 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 the strong double-digit growth in the domestic beer industry. Year to March

FY06

FY07E

FY08E

FY09E

P&L Data (Rs. mn)

CAGR (%) FY06-09E

Net Revenues

6,873

10,559

13,242

15,738

31.8

Operating Profit

1,187

2,051

2,597

3,090

37.6

406

1,182

1,409

1,695

61.1

Total Assets

9,304

11,452

13,784

15,845

19.4

Shareholders’ Funds

5,072

6,156

7,442

9,013

21.1

Adjusted EPS

1.9

5.5

6.5

7.8

61.1

CEPS

2.8

6.6

8.2

9.8

51.2

Adjusted Net Profit Balance Sheet (Rs. mn)

Valuation Ratios Year to 31 March

2007E

2008E

5.5

6.5

+/- (%)

191.4

19.2

PER (x)

38.3

32.1

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

23.5

18.8

ROCE

17.7

23.3

23.7

23.8

10.4

EPS (Rs.)

EV/EBITDA (x)

Shareholding Pattern (%) Promoters

Per Share Data (Rs.)



We expect the company’s revenues to post a CAGR of 32% during FY06-09E due to favourable demographic factors, increasing expenditure on personal consumption and deregulation in the northern markets driving strong volume growth.



The merger of its group companies and the acquisition of Karnataka Breweries will see an increase in owned capacity which will increase operational efficiencies and meet the volume growth in the industry. We expect operating margins to improve from 17.3% in FY06 to 19.4% in FY07.



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 the stock is richly valued and fully captures the future growth prospects. We initiate coverage with a Market Performer rating. However, we feel the company 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.

75

FIs/MFs

2

FIIs

15

Public & Others

8

Relative Performance

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Sep-05

Jun-05

Apr-05

Dec-04

250 200 150 100 50 0

United Breweries Ltd (A ctual) Sens ex

16th January 2007 © B&K Securities 2007 All Rights Reserved Attention is drawn to the disclaimer and other information on Page 2

Ashit Desai [email protected] Tel. No. +91-22-4007 6233

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 will be, directly or indirectly, related to the specific recommendation or view expressed in this report.

B&K Research is also available on Bloomberg , 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 FY06

Kingfisher, the company’s flagship brand enjoys a market share of more than 65% in the mild

Volumes Growth (mn cases)

beer segment and 27% in the strong beer segment. The company which sold more than 20 mn

(%)

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

UB Export

2

NA

Kalyani Black Label

2

NA

market offers strong growth opportunity to the company which currently has only 27% market share in this segment.

Rising per capita income to drive consumption Per capita income expected to grow above 10%

The rapid growth in per capita income resulting from a growing Indian economy has led to 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%

30000

10% 8%

20000

6%

15000

4%

10000 5000

Per-Capita Income (Rs.)

Mar-07 (E)

Mar-06

Mar-05

Mar-04

Mar-03

Mar-02

Mar-01

0

Growth %

14%

25,000

12% 10%

20,000 (Rs. Bn)

(Rs.)

25000

30,000

8%

15,000

2%

10,000

0%

5,000

6% 4% 2%

0

0% Mar-01

Mar-02

Mar-03

Mar-04

Personal disposable income (Rs. bn)

Mar-05 Growth %

Source: CMIE

UNITED BREWERIES

3

B&K RESEARCH

JANUARY 2007

High entry barriers to benefit established players Restrictions on advertising, licences and inter-state movement of alcohol 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 63

900,000 Population (Age 15-59) ( in '000) Proportion (%)

800,000

62

700,000

(in '000)

500,000

60

400,000

59

300,000

(%)

61

600,000

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 Volume growth of above 300% in Punjab and Haryana due to change in licencing system

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.

UNITED BREWERIES

4

B&K RESEARCH

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 Alcohol being a state subject faces risk from state 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 Entry of Carlsberg, Heineken and Tiger to increase competition

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.

UNITED BREWERIES

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

PER (x)

Mean

+1 s td dev

Jan-07

Oct-06

Aug-06

May-06

Mar-06

Dec-05

Sep-05

Mar-04

Jan-07

Oct-06

Aug-06

May-06

Mar-06

Dec-05

Sep-05

Jul-05

Apr-05

Feb-05

Nov-04

Sep-04

Jun-04

Mar-04

0

Jul-05

12.6x

50

Apr-05

19.9x

100

Feb-05

27.3x

150

Nov-04

34.7x

200

Sep-04

250

Jun-04

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

42.1x

-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)

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

EV/EBITDA (x)

ROE (%)

CY06/FY07 CY07/FY08 CY05/FY06

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 400000

50

(hl 000)

(Litres)

60 40 30

200000

20

100000

10 0

300000

0

India

China

South Africa

Russia

North America

India

Europe

China

South Africa

Russia

North America

Europe

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) Growth%

100

14.0% 12.0%

(mn cases)

80

10.0%

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%.

Regional break-up South

South continues to lead the market with a 47% market share

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

JANUARY 2007

Regulatory environment Alcohol – a state subject with high restrictions

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.

Majority of states follow the government distribution model

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.

UNITED BREWERIES

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

UB Export

Haywards 5000

Kalyani Black Label Sandpiper* Zingaro*

Golden Peacock

Knock Out Royal Challenge 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

and Acquisitions

Stake (%)

(Rs. mn)

Share (%)

August 2006

SAB Miller – Fosters

100

5,400

2.3

May 2005

SAB Miller –

50

1,580

~30

Key Brands

Fosters, Amberro Haywards 2000, Haywards 5000,

Shaw Wallace May 2005

Knock Out, Royal Challenge Premium

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.

WPI of barley (Base: 1993-94)

180 170 160 Jul-06

Jan-06

Apr-06

Oct-05

Jul-05

Apr-05

Jan-05

Jul-04

Oct-04

Apr-04

Jan-04

150 Oct-03

Production (in '000 tonnes) Area under cultivation (in '000 hectares)

190

Jul-03

0

200

Jan-03

1200

210

Apr-03

200

220

(x)

1300

230

('000 hectares)

400

2003-04

1400

2002-03

600

2001-02

1500

2000-01

800

1999-00

1600

1998-99

1000

1997-98

1700

1996-97

1200

1995-96

1800

1990-91

('000 tonnes)

Barley production in India

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

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.

Carlsberg, Cobra, Heineken and Tiger to enter India by 2008

•

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.

UNITED BREWERIES

13

B&K RESEARCH

JANUARY 2007

Company background Kingfisher – the largest selling beer in India

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 United Breweries Scottish & Newcastle (S&N)

UNITED BREWERIES

Stake: 37.5%

Stake: 50%

Millennium Alcobev Ltd. (MAPL)

Stake: 50%

14

B&K RESEARCH

JANUARY 2007

Business analysis Break-up of revenue (FY06) – Rs. 9,246 mn 11%

2% Sales Income from Services Other Income 87%

Source: Company

A network of 14 owned and 11 contract breweries across India

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

UNITED BREWERIES

15

B&K RESEARCH

The company will continue to outperform industry

JANUARY 2007 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.

mn cases

Growth in UB vs. Industry 120

25%

100

20%

80

15%

60 10%

40

5%

20 0

0% FY02 UB

FY03 Industry

FY04

FY05

Growth % - UB

FY06 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 (%)

Mild

<6

Kingfisher Strong

Strong

6-8

UB Export Lager

Mild

<6

Strong

6-8

Kalyani Black Label

Mild

<6

UB Premium Ice

Mild

<6

Mild

<6

Zingaro

Strong

6-8

Kalyani Black Label Strong

Strong

6-8

UB Kingfisher Premium

London Pilsner

Millennium Alcobev Sandpiper

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.

(mn cases)

Kingfisher – Volume growth 25

50%

20

40% 30%

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

Kalyani Black Label

2

Others

1

selling around 2 mn cases. Due to its regional presence and low brand recognition we expect these brands to grow in line with the growth in the respective states.

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

Financials Growth in net sales Net sales to increase significantly due to acquisitions and capacity expansions

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 60%

18,000 Net Sales (Rs. mn) Growth %

16,000 14,000

50% 40%

(Rs. mn)

12,000 10,000

30%

8,000

20%

6,000 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 25%

3,500 EBITDA EBITDA margins %

3,000

20%

2,000

15%

1,500

10%

(%)

(Rs. mn)

2,500

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) Adjusted EPS (Rs.)

1,600

7

1,400

6 5

1,000

4

800

(Rs.)

(Rs. mn)

1,200

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

(x)

15.0 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

(4,200)

(4,834)

(5,686)

(8,508) (10,644)

(12,648)

(1,683)

(1,956)

(2,446)

(3,924)

(4,998)

(5,983)

(574)

(482)

(249)

(375)

(462)

(538)

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)

74

252

924

1,738

2,134

2,542

(32)

0

(305)

0

0

0

42

252

619

1,738

2,134

2,542

(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

0

0

(93)

(84)

(84)

(84)

28

140

101

1,182

1,409

1,695

Operating expenses Raw material consumed Purchase of finished goods Decrease/(Increase) in stocks

Pre-tax profit (before non-recurring items) Non-recurring items Pre-tax profit (after non-recurring items) Tax (current + deferred)

Preference dividend Net income

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

2,546

2,609

3,255

4,342

5,050

6,002

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

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

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

1,629

1,411

1,456

1,778

2,150

2,540

0

0

91

183

208

208

47

51

42

42

42

42

4,083

2,911

2,643

3,293

3,943

4,043

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

115

151

136

136

136

136

Deferred tax liabilities

75

108

109

109

109

109

Other deferred liabilities

40

43

27

27

27

27

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

6,124

6,893

9,304

11,452

13,784

15,845

Loans & advances Other current assets

Fixed assets (Net block)

Other non-current assets

Creditors Dividends payable Other provisions Non-current liabilities Total debt

Other non-current liabilities

Total liabilities

Total equity & liabilities

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

5

(255)

(303)

(630)

(394)

(438)

(71)

(93)

(251)

(437)

(312)

(289)

(1,562)

(63)

(646)

(1,086)

(709)

(952)

0

(0)

(1)

0

0

0

(246)

(218)

45

323

372

389

(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

(568)

(505)

(413)

(1,336)

(1,325)

(620)

(2,309)

(791)

(1,082)

(1,645)

(518)

297

0

2,059

2,506

0

0

0

2,351

(1,208)

(252)

650

650

100

0

(44)

(57)

(91)

(183)

(208)

2,351

807

2,196

559

467

(108)

42

16

1,115

(1,087)

(51)

190

Chg in debtors Chg in inventory Chg in loans & advances Chg in other current assets Chg in current liabilities Chg in provisions

Cash flow from investing (b) Free cash flow (a+b) Equity raised/(repaid) [incl. chg in share premium] Debt raised/(repaid) Dividend (incl. tax) Cash flow from financing (c) Net chg in cash (a+b+c)

UNITED BREWERIES

23

B&K RESEARCH

JANUARY 2007

Income Statement

Cash Flow Statement

Yr. ended 31 Mar. (Rs. m) FY06 Net sales Growth (%) Operating expenses Operating profit EBITDA

6,873

FY07E

FY08E

FY09E

10,559

13,242

15,738

33.4

53.6

25.4

18.9

(5,686)

(8,508)

(10,644)

(12,648)

1,187

2,051

2,597

3,090

1,187

2,051

2,597

3,090

Yr. ended 31 Mar. (Rs. m)

FY06

FY07E

FY08E

FY09E

Pre-tax profit

619

1,738

2,134

2,542

Depreciation

321

254

356

428

(1,182)

(1,831)

(1,042)

(1,290)

(427)

(471)

(640)

(763)

Chg in working capital Total tax paid

Cash flow from oper. (a) (669)

Growth (%)

271.7

72.8

26.6

19.0

Capital expenditure

Depreciation

(209)

(254)

(356)

(428)

Chg in investments

Other income

185

203

223

246

EBIT

Cash flow from inv. (b) Free cash flow (a+b)

(310)

807

917

(1,287)

(1,337)

(1,325)

(620)

874

1

0

0

(413) (1,336)

(1,325)

(620)

(1,082) (1,645)

(518)

297

1,163

2,000

2,465

2,908

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

(57)

(91)

(183)

(208)

2,196

559

467

(108)

Net chg in cash (a+b+c) 1,115 (1,087)

(51)

190

FY08E

FY09E

(before non-recurring items)

Dividend (incl. tax)

Non-recurring items

Cash flow from fin. (c)

(305)

0

0

0

619

1,738

2,134

2,542

Tax (current + deferred)

(425)

(471)

(640)

(763)

Net profit

194

1,266

1,494

1,779

Adjusted net profit

406

1,182

1,409

1,695

Pre-tax profit (after non-recurring items)

Growth (%)

Key Ratios Yr. ended 31 Mar. (%) EPS (Rs.)

FY06

FY07E

1.9

5.5

6.5

7.8

138.3 23.5 13.7 17.3 16.9 17.7 24.1

191.4 28.5 8.3 19.4 18.9 23.3 48.0

19.2 34.4 8.7 19.6 18.6 23.7 49.1

20.3 41.7 7.3 19.6 18.5 23.8 39.6

Yr. ended 31 Mar. (x)

FY06

FY07E

FY08E

FY09E

EPS growth Book NAV/share (Rs.) Dividend payout ratio EBITDA margin EBIT margin ROCE Net debt/Equity

188.9

191.4

19.2

20.3

Preference dividend

(93)

(84)

(84)

(84)

Net income

101

1,182

1,409

1,695

Yr. ended 31 Mar. (Rs. m)

FY06

FY07E

FY08E

FY09E

Cash and Marketable sec.

1,287

200

150

340

Other current assets

5,292

7,445

8,859

10,538

591

590

590

590

2,104

3,187

4,156

4,348

PER

111.6

38.3

32.1

26.8

29

29

29

29

PCE

9,304 11,452

13,784

15,845

Balance Sheet

Investments Net fixed assets Other non-current assets Total assets

Valuations

73.7

31.5

25.6

21.3

Price/Book

8.9

7.4

6.1

5.0

Yield (%)

0.1

0.2

0.2

0.2

EV/Net sales

6.8

4.6

3.7

3.1

EV/EBITDA

39.1

23.5

18.8

15.8

FY06

FY07E

FY08E

FY09E

Net margin (%)

5.9

11.2

10.6

10.8

Asset turnover

0.8

1.0

1.0

1.1

2.1

1.8

1.9

1.8

10.7

21.1

20.7

20.6

Current liabilities

1,589

2,003

2,400

2,789

Total debt

2,507

3,157

3,807

3,907

136

136

136

136

4,232

5,296

6,342

6,832

Share capital

2,685

2,685

2,685

2,685

Reserves & surplus

2,387

3,470

4,757

6,328

Shareholders’ funds

5,072

6,156

7,442

9,013

Total equity & liabilities 9,304 11,452

13,784

15,845

Leverage factor

Capital employed

11,385

13,056

Return on equity (%)

Other non-current liabilities Total liabilities

7,715

9,448

Du Pont Analysis – ROE Yr. ended 31 Mar. (x)

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.