UB Group poised to realise higher value

Strategic divestment in flagship company in the offing

The Rs 4,500 crore UB Group is on its way to realise the full value of its beer business and that too in a style which is best known only to Vijay Mallya, chairman of UB Group.

After gaining a stronghold on the beer market in India, the group is going all out to take the breath away from the competition which is rearing its head and assuming significance in the marketplace.

The company's board over the last week authorised Vijay Mallya to look into various offers from international brewers for a strategic partnership with UB. The group has two beer companies "" the flagship United Breweries Limited and McDowell Alcobev which is a joint venture with Scottish & Newcastle of UK.

Market indications are that these two companies will be merged and around 26 per cent of this equity will be offloaded to a strategic investor.

The stock markets are abuzz that SABMiller is the front runner in the race and is expected to pay around Rs 325 per share. The UB stock over the last week rose 27 per cent to settle at Rs 324 (52-week high) on Friday, having started at Rs 220 last Monday.

Said an analyst at a leading brokerage firm: "The markets have already discounted the pricing of UB stock and we expect the deal to be at this level of around Rs 325 per share."

Said Ravi Nedungadi, president & chief financial officer, UB Group: "The strategic alliance as and when it happens will strengthen our presence in the marketplace to expand out capacities, repay our debts and also to offer a slew of international brands in the Indian marketplace."

Conversely, UB's home grown brands too will have an expanded global footprint if an alliance takes shape.

United Breweries Limited posted a topline of Rs 571 crore with net margins of just below Rs 3 crore for the fiscal 2003-04 in spite of its dominant 45 per cent share of the beer market.

Said the analyst: "The major stumbling block for this company's growth is the taxation and pricing regime for the alcohol industry in India. These companies do not have a free market regime and this is one of the reasons for this pathetic returns. A strategic equity partnership with a global major will give all stakeholders a decent return on their investments and a further growth option for the company."

Currently 29 per cent of the company is held by overseas shareholders with foreign Institutional Investors controlling the majority of them.