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CORPORATE: STRATEGY Breaking Up To Win... Or why Vijay Mallya's decision to break United Breweries into two makes sense. By Dilip Maitra
One company, UB Holdings will retain all physical assets except the breweries and investments in shares and debentures of other group and non-group companies that aren't into beer. And it will also start work on a large real estate project on the vast stretch of land in the heart of Bangalore where its soon-to-be-shifted brewery is housed. In today's market, UB Holdings assets, on the basis of some back-of-the-envelope number crunching, could add up to anything between Rs 300 crore and Rs 400 crore. The second company, United Breweries, will own all the beer brands, the breweries, and the group's holdings in other beer companies like Associated Breweries, Inertia Industries, Mangalore Breweries, Millennium Alcobev and Nepal Breweries. Together, these companies will sell around Rs 500 crore worth of beer this year (2001-02). And since the group already holds a majority stake in the companies listed, they will, at some point in the future, be merged into United Breweries. There are compelling reasons to separate the group's substantial investment activity from its beer business. In the first nine months of last financial year, interest payments, primarily stemming from investment activity, caused a dent in UB's bottom line (Rs 12.88 crore). The move to detach the investment business could boost UB's image, and stock price. Currently, there's little investment interest in the company. As an equity analyst with Motilal-Oswal Securities puts it: ''No one is quite sure about UB's accounts, there is no clarity of earnings and margins. Besides, no one likes a company that has investments in large number of dud shares.'' For the record, UB's investment schedule lists 53 companies, mainly subsidiaries in dead-end businesses. A focused beer play could also help Mallya attract strategic investors or list the company on a foreign bourse-a desire he articulates from time to time. The buzz in the beer market has it that global beer biggies like Heineken and Carlsberg are on the lookout for an Indian partner; UB is one company that is mentioned in these half-whispers. A foreign brand or two won't hurt Mallya's portfolio. Avers Devin Narang of Narang Breweries, the Indian partner of South African Breweries: ''No one can take foreign players lightly. They have strong brands and enough resources for the long haul.'' Some of these companies have already made inroads into the market. Fosters is a significant player in Maharashtra; Stroh, which recently switched partners from Rajasthan Breweries to Mount Shivalik Breweries is attempting a comeback; and South African Breweries will soon launch its Castle brand. Mallya, if his restructuring activity is any indication, is ready to tackle the foreign burp. |
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It's easy
to dismiss Vijay Mallya's decision to split the flagship of his UB group,
the eponymously named beer-major as another whim of a man given to
impulses. The company owns the best-selling Kingfisher brand that controls
a 25 per cent share of the market, and the other eight major brands in its
portfolio carve up an additional 15 per cent between them. But UB isn't
exactly a cash cow-it was Rs 45 crore in the red last year-and its
dominance could be threatened by foreign beer brands whose entry is
imminent. The division, which will engender an aggressive and sharply
focussed company is Mallya's response to both.