United Breweries to raise 15 bn for expansion

By siliconindia   |   Tuesday, 19 September 2006, 07:00 Hrs
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Bangalore: India's largest beer firm United Breweries Ltd plans to raise 15 billion ($325 million) in Indian and foreign currencies to fund its consolidation and expansion plans in the coming years.

An enabling resolution to this effect, moved by UB group chairman Vijay Mallya, was approved by the company's shareholders at its seventh annual general meeting (AGM) here Tuesday.

"The resolution will enable us to raise funds required to consolidate and expand our operations to maintain our leadership in the growing beer market. The approval allows the company to double the borrowing limit to 15 billion in excess of the paid-up capital (2.69 billion) and free reserves (2.39 billion)," Mallya told reporters on the sidelines of the AGM.

Of the proposed funds, 4 billion has been earmarked for expanding the manufacturing network over the next three years.

"We are looking at investing in Rajasthan, Uttar Pradesh, Orissa and Andhra Pradesh to expand our manufacturing network by about 50 percent in a phased manner. The capacity expansion could also take place through acquisitions of breweries that fit strategically to strengthen our market presence," Mallya said.

In view of the company's high growth rate, which is currently at 22 percent as against the industry's growth of 14-16 percent, two greenfield breweries with the capacity of six million cases and 1.25 million cases will be commissioned in Orissa and Rajasthan by early 2007.

Though the per capita consumption of beer in India continues to be among the lowest in the world at 0.7 litres, about seven hectolitres of beer was sold in the last fiscal of 2005-06.

The market is projected to grow by 10 percent annually, thanks to high growth of the gross domestic product (GDP), higher disposable income, changing lifestyles and a growing young population.

"The primary reason for such low consumption of beer is excessive government regulation. Over-regulation in licensing, retail and wholesale distribution and price fixation are preventing the Indian beer industry from tapping the huge potential to expand the market size," Mallya pointed out.

"To promote and hard-sell the company's flagship products in the overseas markets, especially Europe, North America and the Gulf region, we are in final discussions with Scottish & Newcastle (S&N) for distributing Kingfisher from next year, as it has a strong presence in the global markets," Mallya said.

S&N, a Britain-based beer maker, holds 37.5 percent stake in UB's equity.

Meanwhile, the company's sales volume increased to 43.4 million cases in 2005-06 from 36.4 million cases in the previous fiscal. The strong beer segment grew by 36 percent, while mild beer sales grew by 13 percent.

The company posted a net turnover of 6.87 billion in 2005-06 as against 5.15 billion in the previous fiscal, registering a 34 percent growth. The net profit, however, rose by 39 percent to 194 million from 140 million a year ago.

The company has declared a total dividend of 22.5 percent, including 15 percent interim, for 2005-06.

The company's stock with a face value of 10 per share was split into 10 shares with a face value of Re.1 to ensure wider distribution of shares and increase the shareholder base.

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