United Breweries Ltd. (NSE:UBL, Financial) is an Indian brewer that markets Kingfisher beer and is partially owned by Heineken (XAMS:HEIO, Financial)(HEINY, Financial). The company’s principal shareholder, Vijay Mallya, is in legal and financial trouble. The stock was recently purchased by IVA Funds.
The stock trades for 811 rupees ($12.59), there are 264.4 million shares and the market cap is 218 billion rupees ($3.4 billion). It takes 64.4 rupees to buy one dollar. The dividend is 1.15 rupees and the dividend yield is .0014%. Earnings per share are 8.7 rupees and the price-earnings (P/E) ratio is 93.2.
Sales for fiscal year 2017 were 102.3 billion rupees and were up from 96.4 billion rupees in the previous year. Free cash flow usually runs from about 2.5 billion rupees to a little over 4 billion rupees a year. The free cash flow yield on 4 billion rupees would be 1.8%.
The balance sheet shows 691 million rupees in cash and 12.9 billion rupees in receivables. The liability side shows 4.6 billion rupees in payables and 4 billion rupees in debt. That is a very strong balance sheet.
The brewers’s main beer is Kingfisher. You’ve probably seen it—it has a little bird (a kingfisher) on the label and is served in Indian restaurants. United sells Kingfisher with differing tastes such as Strong, Blue, Ultra and Max. It also distributes Heineken in India.
The heir to the founder, Vijay Mallya, has had all kinds of legal and financial problems. Mallya founded Kingfisher airlines and used his holdings in United Brewers and other companies as collateral to back loans. When the company went bankrupt, Mallya was left owing over $1 billion in loans and salaries to employees. Mallya left India for the U.K. He has been charged in India and is being extradited back from the U.K. Mallya kept a high profile and even owned the only Formula 1 racing team on the subcontinent. As of this June 6 article, he has still not been brought back for trial.
Heineken owns about 43% of the company and Mallya owns about 30%. This 30% of Mallya’s holdings is in play, along with other assets and real estate. The legal entity in India pursuing Mallya is named the Enforcement Directorate. How would you like to get a letter from something called the Enforcement Directorate? It does not sound pleasant.
I was surprised to find in the annual report that in 60% of United’s markets in India, the state dictates the price at which beer can be sold. The company has almost 50% of the market share in India. The company is optimistic on beer sales in India as half of the population is under 25 and the country is projected to surpass China in total population by 2025. That is just around the corner!
I do not like the way the annual report reads. I do not know if it is United Brewers or all Indian companies. It starts off with the board of directors and their bios and then goes to awards and what it is doing for marketing. I like reports that start with a letter from the chairman. The narrative of how the company did is pretty brief.
What brought my attention to United Breweries is a recent article on GuruFocus. Charles de Vaulx (Trades, Portfolio) of IVA Funds recently bought shares. IVA is a great place to look for ideas that you will not find from your typical U.S. broker or mutual fund. Still, I do not quite see what the excitement is. The stock is very expensive. Having said that, there may be hidden assets that are difficult to find for the U.S. investor. Perhaps Heineken will go for a takeover. It would be an excellent company to own lock, stock and barrel.
Disclosure: We own stock in Heineken Holdings.
