Saturday, September 19, 2015

Say Cheers !!

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Vijay Mallya’s, and along with him of United Spirits (US), cup of woes seems to be brewing over. Recently, Indian govt.’s Serious Fraud Investigation Office (SFIO) started probing alleged fund diversions by the long-grounded Kingfisher Airlines and sought details from United Spirits in this regard.
US, now controlled by the global liquor giant Diageo, stands to lose quite a bit due to the on-going litigations, locally as well as globally, due to its participation as either a guarantor of loans given to Mallya-affiliated entities or adverse ruling on several winding up petitions filed against Mallya-led United Breweries Holdings Ltd (UBHL) from which it had bought the shares. In such a situation, it would not be surprising if Mallya turned to his other cash cow United Breweries to cash out some moolah to get creditors off his back.

Dutch brewer Heineken is the single-largest shareholder in United Breweries (UB), maker of Kingfisher beer, with a 42.07% stake. Heineken indirectly acquired a 37.5% stake in UB following its takeover of Scottish & Newcastle in January, 2008. It subsequently raised the stake by buying shares in the open market. From recent reports, it appears that it now has plans to take that holding beyond 50% by buying shares from the indebted Vijay Mallya. In recent times, it has already started buying the pledged shares of Mallya from the lenders by paying them off.

India's beer market is growing significantly faster than the world average, largely because it is still very small. Indians consume on average about 2 litres of beer a year, compared with 18 litres in Asia and 57 litres in western Europe, a note from rating agency Moody's said in July. India does not boast many significant local brewers, leaving space for global giants to covet a spot, including Danish brewer Carlsberg A/S and South African SABMiller Plc. On the other hand, Asia-Pacific, which accounts for almost a fifth of Heineken's operating profit, was the company's fastest growing market in the first half of this year So what better time to increase its stake in a growing market? And considering that Mallya is in dire need of funds, he certainly wouldn’t mind offloading his stake if the price is right.

Given this background, US seems to be a story which has played out while UB is the one next in line. Of course US would certainly grow over the long term, but its growth would be much more sedate than what it has been so far.

So it may be a wise option now to drown that peg of whiskey from US move on to sip a refreshing glass of beer from UB. From its highs of close to 1200 when the market was booming, it has now come down by more than 25% to levels below 900. Accumulating it now and at lower levels in the on-going market volatility would certainly pay dividends in the not-so-distant future.