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Aashish Tater

5.30 AM Jan 1st 1970

United Brewerie

BSE ID : 532478     NSE ID : UBL

RECOMMENDED PRICE 701.50

PEAK FROM RECO 1805.00 157.31%

CURRENT PRICE 1736.90 Resource id #18

UBL is promoted by Dr Vijay Mallya and now major promoter being Heineken. We believe the company has tremendous growth potential. We recommend to buy the stock at current level with a target price of Rs 980.

United Breweries Limited (UBL)

Mapping the Industry Potential:

If we compare the global consumption per capita of beer (in litres) India as a geography stands to a proportionate miniscule to other countries. Perhaps, that is the drive where the businesses are doubling the sales every 4th year. The proportionate profit rise is exponential in nature thus a business that is set to grow at a CAGR of ~20-23 percent. Profitability due to economies of scale is higher. Every single beer seller has realized increase in margin as the sales increases.

The trend is getting stronger as the disposable income in the hands of youth increases. To understand the basic triggers that will be key catalyst to growth we did a base level understanding and we could sense the difference.

The words of one of the suppliers narrated the potential of the business "Bachelor's party to dine in & in the name of sports, today the youth enjoys the company of friends over weekend and any reason they are ready to shell out 150-200 bucks on beer" - with a disclaimer we do not promote consumption of alcohol or beer but couldn't resist the potential of a thoughtful statement from business perspective that justifies "why the beer sales as projected by experts is said to double by 2016-17".

We pick trends and align with a niche player or Industry leader and ignore the basic understanding of profitability because we learnt one thing from past. Nestle was always expensive, still it generated returns higher than many in the sector. The growth potential undermining a stock is so high and visibility looks favorable than one thing that can be ignored is the current valuation. And is everything so expensive for UBL, let's take a closer look and something that we picked from United Spirits when we recommended it at 600 and in 2 years it touched 2500 though high was 3000. The margins of smaller companies were much higher than UNSPL margins. Similarly even for UBL the margins are muted compared to some other manufacturers. The inefficiency was seen by Diageo and that made them to buy out the company from previous promoters. We forecast similar things for UBL though the returns will not be 4 times but it will be rewarding.

To substantiate our point Heineken NV bought roughly 1.37 percent stake in UBL for 275 crore valuing775 appx. per share. It created the buzz that Heineken will take over the company as it becomes the largest player and we perhaps through our quant understanding believes this year there will be series of attempts by Heineken to increase stake and take majority control. This will reduce the float in the market and thus we believe the target of 1000 is likely achievable

Interestingly, the growth potential over next 4 years is so high that Market cap to sales ratio looks at very attractive levels in current context.

About UBL:

Promoted by Dr Vijay Mallya and now major promoter being Heineken we believe the company has tremendous growth potential. Kingfisher beer and London Pilsner, Kalyani Black label are flagship brands 

Key Trigger:

Government is focused on debt recovery for PSU banks and Heineken is interested in buying big blocks of the pledged holdings of the co-promoter. The stage is set for Vijay Mallya to become a small shareholder and as we have seen how stock price appreciates when the holding of Dr Mallya goes down classical example being Mc Dowell -Holdings and United Spirits and to an extent Mangalore Chemicals (as other players have been trying to buy out his companies) we expect similar performance by UBL with target price of 980

Risk-Return High-Moderate

Disclaimer: Aashish Tater is an equity analyst and investment adviser based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at query@fortunewizard.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

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