Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
Beer market of Vietnam: “Young tiger”Vietnam is one of the few big beer markets that continue to grow steadily. The beer popularity results from its low price, street consumption culture, and social motives. The outlooks of beer market as well as the Vietnamese economy inspire optimism, though the country is heavily dependent on export of goods. The state regulation can be called liberal, but the key risk for brewers is harbored in intensive rising of excise. Within TOP-4 there are two leaders, Sabeco and Heineken that grow at the fastest rates. The first company effectively employs its capacities, the second one focuses on marketing technologies. Almost 80% of the market belongs to century-old brands, yet the middle class and the youth are shifting their interest toward international premium that is growing taking share from the mainstream.
Analysis of beer market in China (on Russian)
Beer market of Ukraine: big three losing weightIn 2016, fast increase of excises and resulting price spike stood in the way of the beer market stabilization. Most of competition (as well as mass sorts) moved to the economy segment of the market. The biggest losses were incurred by the leading three, especially Obolon, which again experienced pressure after reallocation of Efes market share. However, one should already speak of TOP-4. Group Oasis CIS (PPB) became a strong player and competitor to transnational companies. Besides the net sales of many regional medium breweries look rather good and 16-fold cost reduction wholesale trade license for craft brewers opens up a possibility of rapid growth in 2017.
India. United Breweries’ profitability may remain under pressure
With its flagship brandKingfisher, UBL accounts for over 52% of the domestic beer market of 20 crore cases annually. Traditionally, Indian beer consumers have a higher preference for strong beer, but a taste for mild varieties is gradually developing. UBL has expanded its key brand in both segments. According to analyst reports, for UBL, both strong and mild beer segments are growing at above industry average rates. UBL clocked a three-fold increase in strong beer volumes in the last four years, with a 27% increased. Its mild beer segment grew nearly two times faster than the industry growth rate, according to a recent brokerage report.
UBL's revenue grew at a compounded annual growth rate of over 25% in the five years ended March 2011. The company was also able to improve its profit margins during the period. This is reflected in a relatively faster compounded growth of 27% in operating profit and 38% jump in net profit during the said period. In FY11, the company's net profit shot up by 73.2%, helped by a 41% growth in sales at Rs 2,788 crore. Its operating margin (before accounting for depreciation) expanded by nearly 200 basis points to 12.9%.
GROWTH DRIVERS AND CONCERNS
Beer consumption forms less than one-fourth of the total organised alcohol beverages market in India. Hence, UBL may have limited scope for overall growth. However, on the positive side, the beer market has been growing in double digits over the last few years. The latest ruling by the Maharashtra government to restrict consumption of spirits to consumers above 25 years of age may impact the growth of this segment.
It includes vodka (which is growing at the fastest clip among other alcohol drinks), whisky ( a healthy double-digit growth), and rum (stable demand pattern). Such a move, if adopted by other states in the country (apart from Delhi, which also has similar restrictions on consumption of spirits) may result in higher consumption of mild beer. UBL has chalked out plans to increase brewing capacity from the FY10 level of 388 million litres. It has announced plans to add nearly 20 million litres of capacity according to data from CMIE's Prowess. The company has initiated expansion at its Karnataka brewery to add 10 million litres. The company plans to spend over `300 crore for expansion. The capacity additions will help UBL to tap more opportunities in the Indian market.
UBL faces steep competition from foreign brands. This may lead to higher advertising expenditure in the future thereby impacting margins. To counter competition, UBL has partnered with Netherlandsbased Heineken to distribute beer in India under the Heineken brand.
UBL is one of the few large liquor companies to grow at a faster pace than peers and to remain profitable over the years. It currently trades at a P/E of 73 which appears to be on the higher side. The stock price has doubled in the last one year and a further increase looks limited since the current valuations more than compensate for the company's future growth potential. Investors may reduce their exposure to the counter and consider fresh buying only at lower levels.
25 Jul. 2011