India: United Breweries is investing towards doubling sales capacity in the next 3-4 years

United Breweries, jointly owned by UB Chairman Vijay Mallya and the UK brewer Scottish & Newcastle (S&N), has lined up fresh investments of Rs 400 crore towards doubling sales capacity in the next 3-4 years to keep pace with the buoyant beer market, Ecomonic Times, The (India) (KRT) Via Thomson Dialog NewsEdge communicated on February 7.

The bulk of this investment will flow into a handful of core breweries that are strategic to the future, numbering anywhere between 6-8 depending on the medium-to-long term perspective and how the interstate tax harmonisation progresses.

These core breweries identified may include existing plants as well as a couple of greenfield projects in Rajasthan and Orissa expected to come up in the next few years.

The latest round of capacity addition, perhaps the biggest in UB's history, would see its annual sales output doubling from the existing 55m cases.

"We are in talks with banks to fund the capacity expansion by leveraging the balance sheet," Lesley Jackson, CFO of United Breweries Ltd, told ET. The company's current debt is estimated at Rs 188 crore, leaving room for raising funds from the institutions.

"We have been sweating our assets seriously, and we may have sweated our plants beyond capacity. These are interesting times from the beer-point of view. We have big aspirational growth targets. We need to make pretty serious investments into breweries if we are not to concede market share, which we don't want to," said Ms Jackson.

With the beer market growing at 10-15 percent, a capacity ramp-up "in the immediate 12 months is key" to UB. The country's largest brewer, with flagship Kingfisher brand, controls 50 percent of the domestic beer sales projected to cross 100m cases this year. Its main rival SABMiller is in the midst of a frenetic capacity ramp up as the industry settles down to double-digit growth.

Besides institutional lending, the company's internal accruals have shown a sharp rise on account of improved net sales realisation. "Our 19 percent volume growth in the first nine months came with just 3 percent increase in the fixed asset costs. It means 16 percent volume jump came on variable costs alone," explained Ms Jackson in her first media interview.

While the proposed expansion would result in doubling of capacity by annual sales output (in terms of million cases), the addition of capacity by volume litres will be 60-65 percent on the existing base of 3.85m hectolitres (HL).

"We are trying to anticipate how market develops in the next 5-7 years. The market here could move beyond the traditional 650 ml packs to lower aspirational and lifestyle packs of 330 ml or cans," added Ms Jackson, who came from S&N after the UK brewer picked up 37.5 percent stake in UB.

The 650 ml pack accounts for 90 percent of the overall domestic beer sales. However, the other segments like 330 ml, cans and draught beer have emerged strongly in recent times. "Some of these segments are witnessing 100 percent growth, like cans for instance," she added.

The domestic beer industry could see changing complexities in terms of liquids (like fruit flavoured beer to keep the consumer stimulated), packaging formats (multiple unit combinations) and new pack sizes, said Ms Jackson.

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