United Breweries Ltd, the market leader in India’s beer industry, is planning to increase its area under cultivation of barley — the main agri-commodity in brewing beer.
The Vijay Mallya-owned company is in talks with the Uttar Pradesh government to secure land tracts to cultivate barley. Currently, the company cultivates barley in around 23,000 acres of land in states like Bihar and Uttar Pradesh. This area, used by the company and its associates, meets around 15 per cent of the company’s total barley requirements.
The remaining 85 per cent is sourced through open market operations. The company, in the financial year 2009-1010, sold a little more than 100 million cases of beer and aims to sell 130 million cases in the current financial year. “Presently, we are doing some trial farming in Uttar Pradesh, which is the largest producer of the commodity in the country. If this succeeds and we are able to get favourable disposition from the state government, captive sourcing will see a quantum leap,” said United Breweries Managing Director Kalyan Ganguly.
He also said that the company was hopeful of increasing its captive sourcing by around 30 per cent in the next two years. Key raw materials like barley, sugar and malt constitute 30 per cent of a beer’s total production cost. According to industry experts, captive sourcing of barley is expected to slash this cost by around 15-20 per cent, along with a possibility of a significant revenue rise in the near future. Rising commodity prices have, of late, become a matter of concern for most agri-based manufacturers in the country.
“The major concern of the company is the unabated inflation, which has its impact in increase in the price of our key ingredients — sugar, malt and barley, among others. There will be pressure on the cost side due to such price rise,” Ganguly said.
He added that such backward integration would help the company in managing cost pressures due to inflation.
However, Ganguly said that barley for Heineken beer, which UB is preparing to brew in India, would be imported from other countries. “The quality of barley required for Heineken beer is not produced in India. So, we have to import barley from European nations for maintaining the quality standards of that beer,” he added.
United Breweries had entered into a joint venture with Heineken in 2009 to launch Heineken beer in India. The company is expected to launch Heineken’s products in the country by the end of this year.
UBL had posted a 40.26 per cent rise in its net profit at Rs 29.82 crore in the third quarter ended December, owing to sound growth in sales numbers. The total income of the company rose by 38 per cent to Rs 609.62 crore, compared with Rs 442.11 crore in the same period last year.
The United Breweries scrip closed at Rs 425.15 on the Bombay Stock Exchange on Wednesday, down 1.07 per cent over its previous close.