The beer market dynamics in Russia is approaching zero, yet major brewers are divided into those who developed considerably in 2017 and those who considerably reduced their volumes. For instance, company Efes has managed to substantially extend their sales due to restrained pricing policy and activity in the modern trade. Heineken has also demonstrated an excellent performance promoted by significant increase of advertisement budgets launching a non-alcohol sort of the title brand and unusual activity in the economy market segment. Carlsberg and AB InBev have been focusing on margins and lost a market share of their inexpensive brands. Serious dependence on PET package and mass enthusiasm about Zhigulevskoe have negatively impacted the most of big regional brewers, that have been for the first time pressed by the leaders in the key sales channels, especially in Volga and Central regions. In the small business there has been a noticeable slowdown in appearing of new restaurant breweries, yet the number of craft breweries has been growing rapidly. In 2018, the beer market is likely to grow a little, while the share of AB InBev Efes may decrease due to the integration. ...
“Catalogue of Russian Beer Producers 2018” includes 1070 businesses ranging from large subsidiaries of international companies to rather small restaurant and craft microbreweries.The catalogue includes 32 large breweries, 75 regional breweries, 693 industrial mini- and microbreweries as well as 270 restaurant breweries. ...
Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies 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