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United Breweries

BSE: 532478|NSE: UBL|ISIN: INE686F01025|SECTOR: Breweries & Distilleries
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Chairman's Speech (United Breweries) Year : Mar '15
 Dear Shareholders,
 
 Since we last met a year ago, the global economic environment has
 changed in many different ways, several of which have had a positive
 rub-off on the Indian economy while yet others have added to a sense of
 uncertainty. Softening of commodity prices, in particular that of oil
 and minerals including gold has, in substantial measure, helped to
 improve the cost structures and deficits, on one hand, while easing
 core inflation on the other. This has opened up the possibility of the
 country moving to an extended period of low inflationary pressures
 which taken together with productivity improvements can result in
 sustained growth. The slowing down of the Chinese economy and the slow
 rate of growth experienced by most European economies, with the
 exception of Germany, has meant a more affordable energy basket which
 has a positive rub- off effect across the board for India which is
 largely still dependent on imported hydrocarbons.  The recent
 re-approachment between the United States and Iran should auger further
 increase in oil supplies with resultant softening of prices.
 
 Simultaneously, the softening in the prices of gold, taken together
 with measures being initiated by the Government for monetization of the
 yellow metal, has also greatly helped in reducing the fiscal deficit.
 
 The monsoon this year which was expected to be very much below average
 has turned out to be, thus far, better than expected. Most parts of the
 country, barring some areas of the West, have received enough rainfall
 in the sowing period and consequently there are reports of 4% increase
 in acreage under cultivation. This too is resulting in an improved
 confidence in the rural sector leading to enhanced demand for goods and
 services.
 
 Despite very visible hurdles to governance arising from political
 rivalry between the Government and the Opposition Parties that has
 stalled Parliament and blocked the progress of several important
 legislations, most particularly the introduction of the Goods and
 Service Tax and Land Acquisition Bill, several initiatives by the newly
 formed Government to streamline processes, clamp down on corruption,
 etc. are beginning to take root. The most significant among these
 initiatives has been the move towards direct transfer of benefits and
 strenuous efforts to enhance banking outreach through universal
 coverage. To my mind, bringing millions of previously unbanked Indians
 into the formal financial sector is very likely to reap rich dividends
 in the years to come.  Similarly, the replacement of subsidies by
 targeted direct benefit transfer not only dramatically reduces leakages
 but also empowers a new set of consumers.
 
 Turning to the operation of our company, United Breweries consistent
 with its record of many years, sustained growth at higher rates than
 industry and thereby accrued market share during the last financial
 year. In the backdrop of an industry that grew at about 7%, our company
 has recorded overall growth of 7%, accumulating volumes of 147 million
 cases (12 mio HL), accounting for 51% of the total market. Importantly,
 in the premium beer segment, within both strong and mild categories,
 which constitute the core of United Breweries'' business growth rate,
 has been significantly higher than the overall industry, reflecting
 higher willingness and ability to spend among target consumers. Despite
 the aggressive presence of all the major international brewers in the
 country, I am proud that we have been able to increase our share
 year-on-year and today our size is more than double of the nearest
 competitor.
 
 These growths have been made possible both by new launches and strong
 performance of star brands. Kingfisher Ultra has now become the most
 aspiratory premium mild beer in the country and Heineken is now the
 fastest growing brand in our company''s portfolio as a world-class super
 premium beer.
 
 Our company, of course, continues its recognized efforts to keep the
 Kingfisher brand in the forefront of the consumers mind through
 associations built up over many decades in areas such as Sports, Food,
 Music and Fashion. Association of our brands with premier events which
 capture the fancy of young Indians such as IPL Cricket, Kingfisher
 Derby, Formula 1 Motor Racing, Marathons in Mumbai, Delhi and Bangalore
 - all add to the demand pull. The Kingfisher Calendar remains one of
 the most sought after events in the country''s social calendar and the
 Great Indian Oktoberfest is a much loved opportunity for consumers to
 be part of a global cultural heritage.
 
 Much as our company is known for its marketing prowess, our
 profitability is sustained by tight cost controls and manufacturing
 innovations. Obviously, with the healthy volume growth on an already
 large base of over 147 million cases, it is incumbent upon our company
 to invest continuously both in capacity and technology. During the year
 the Greenfield brewery near Patna in Bihar has commenced operations and
 in Rajasthan we have expanded our supply base by the acquisition of
 brewing assets near Shahjahanpur, which will commence production later
 this year.
 
 United Breweries has been recognized within the Heineken''s global
 network for the consistent high quality of its products and this is a
 tribute to the unstinting efforts of our manufacturing team.
 
 In the brewing industry, packaging, particularly bottles, constitute a
 major cost. The strategy of introducing patented embossed bottles is a
 major driver of cost control which continues to reap dividends over the
 years. Long term contracts for new technology, light weight bottles and
 locally manufactured aluminum cans have helped also to lock in cost
 advantages in a highly inflationary environment.
 
 Total productivity management and focus for every aspect have also
 yielded advantages through energy savings and water savings.
 
 Our company has long recognized that the communities we operate in are,
 in fact, a part of our business and we have been doing much to improve
 quality of life, well long before the whole concept of Corporate Social
 Responsibility gained legal mandate. Not only do we continue to be
 involved deeply in Education and Healthcare, within the communities
 that we operate in but some of our initiatives on energy saving and use
 of water have received international acclaim and recognition. Several
 of our breweries have, during the year, received recognition and awards
 from State Governments as well as by international organizations.
 
 Human Resources are an important part of our business and I am pleased
 to record the very harmonious relationship that our company has both
 with management staff as well as the workers and continues to focus on
 a transparent manpower model that benefits all categories of employees
 on a continuous basis.
 
 While I have talked in the previous paragraphs about the positive
 underlying trends in the industry in general and the proactive steps
 taken by our company to take advantage of the same, it is also
 necessary to caution on several fronts.
 
 The single largest constraint to profitability remains the intrusive
 Government regulations and erratic, often unexplained changes to both
 regulations and taxation. In most parts of the world beer is the
 preferred beverage of choice particularly for young consumers and
 internationally ranks 3rd among all beverages after water and tea. In
 India, decades of perverse taxation policy that equates spirits and
 beer has resulted in beer being prohibitively expensive as a share of
 the consumer''s wallet. This has consistently led to the size of the
 beer market being much smaller than its corresponding shares in almost
 every other country in the world. It has driven and continues to drive
 our youngsters to prefer hard alcohol with attendant moral and social
 consequences in preference to beer which is a low alcohol social
 beverage.
 
 Our company and I in particular, have been in the forefront of efforts
 to educate the State Government on the need for a rational regulatory
 and taxation policy which will also bring long term benefits to our
 citizens. One of the land mark economic legislations which is expected
 to improve the ease of doing business in India and truly put in place a
 common market among Indian states is the planned Goods and Service Tax.
 This historic legislation has been caught up in political infighting.
 Even as I write this, this bill is stalled in Parliament, thus
 depriving the country of what most economists estimate would be a 1%
 boost to GDP It is particularly concerning for our industry that an
 effort appears to being made to exclude some industries most
 prominently the beverage alcohol industry form the ambit of GST. This
 will lead to the continued balkanization of Indian states in the
 industry and impose punitive costs on us. As a long standing advocate
 of a vibrant India, growing on the back of world class products and
 services, I end with a note of optimism both for the nation and for the
 business of our company.
 
 My personal appreciation to all who have striven to make us proud and
 trust that we have many more milestones to cross in the years ahead.
 
 Thank you.
 
                                                           VIJAY MALLYA
                                                               CHAIRMAN
 
 
Source : Dion Global Solutions Limited
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