Financials of select co.s

Anup Menon

AS FAR as the stock market is concerned, a few companies attract considerable interest.

On top of the list is United Breweries. Trading at around Rs 69.20, the United Breweries stock discounts its latest annualised earnings per share around 20 times. Given the company's recent strategic acquisitions and a good performance for the quarter ended September 2001, the stock may attract further interest in the near future.

UB's financial performance for the quarter ended September 2001 was good. Sales revenue rose around 39 per cent to Rs 73.90 crore, compared to the corresponding previous period. In the same time-frame the company also declared an operating profit (computed without taking into account other income) of Rs 2.16 crore, compared to a loss of Rs 9.46 crore. In contrast post tax earnings declined by around 18 per cent to Rs 3.32 crore. On an equity base of Rs 37.71 crore, the annualised earnings per share of the company works out to around Rs 3.52.

UB is the market leader in the domestic beer market. The company has control over such well-established brands as Kingfisher and Kalyani Black Label, among others. For the year ended March 2000, the company derived close to 94 per cent of its revenues from its main business _ beer. In 2000, the company has managed a capacity utilisation rate of around 73 per cent.

At present, the company controls close to 40 per cent of the beer market. Of late, UB has been on an acquisition spree, acquiring a 65 per cent stake in Associated Breweries, which gives it the rights to manufacture and distribute the San Miguel brand. The company has also announced plans of acquiring Mangalore Breweries. If this works out, UB will have control over 26 of the country's 56 breweries. By the end of fiscal 2001, UB could also have a 50 per cent share of the overall beer market.

However, the acquisition of the San Miguel brand raises a question as to how the product will be positioned, especially as it will directly compete with the Kingfisher brand. The company may take the price differentiation route, as it may be the only way out. The UB group has also expressed interest in moving out of its non-core businesses, such as chemicals and real estate. This can be viewed as a strategic move to exit its non-core businesses and focus exclusively on its core breweries business. Apart from this, it would also prove financially beneficial for the company as the estimated cash outflow on account of the acquisitions will be around Rs 75 crore.

Given these moves, the UB group will be a major player in the breweries industry. The string of acquisitions has had a positive impact on the stock price. Shareholders can stay invested. Fresh investments from a long-term perspective can be considered at declines to the current market price.

The other stock that has been attracting market interest is McDowell India. The stock trades at around Rs 77, which discounts the latest annualised earnings per share around 20 times. The company's performance for the quarter ended September 2000 has been fairly impressive.

The earnings performance for the quarter ended September 2000 has been fairly impressive. Sales revenues increased 15 per cent to Rs 254.28 crore, over the corresponding previous period. In the same period, operating profits rose from Rs 13.10 crore to Rs 72.9 crore. Post-tax earnings declined marginally from Rs 5.50 crore to Rs 5.04 crore. On an equity base of Rs 51.70 crore, the annualised earnings per share of the company worked out to around Rs 3.90.

In 1999-2000, McDowell grew at 19 per cent, compared to the industry average of 10 per cent. Even then, the stock market failed to take notice. Comparatively, the company's performance in the first half of fiscal 2000-2001 has not been very impressive. It has been affected by a slowdown in some of the major markets, such as Maharashtra. In the first half of fiscal 2000-2001, the company grew around 7 per cent.

McDowell, the flagship company of UB group's spirits division, is one of the major players in the IMFL market, its market share exceeding 25 per cent. The company controls some of the leading liquor brands in the country, including Centenary Whisky, Gold Riband Whisky and Celebration Rum, among others.

Traditionally, liquor sales pick up in the second half of the fiscal. This can be attributed to the winter in the North. This means the company's performance for fiscal 2000 might be impressive. The company has expressed its intentions of moving into international markets, such as Sri Lanka and Bangladesh, in the near future. Bangladesh may also be a sourcing point for molasses and sugarcane for Indian distilleries. In this backdrop, existing shareholders can stay invested.