Beer

INTRODUCTION The product chosen for analysis is beer and the two firms chosen for analysis are United Breweries Limited (UBL) and Skol Breweries Limited (SB). UBL is a major shareholder in the beer market. It has a strong market presence and an indomitable brand in Kingfisher beer. In the last few years the corporate has grown stronger which directly reflects on the bourses, and also has been one of the top revenue grossers in the country as well as one of the most respected brands. Currently, United Breweries has crossed sales of 100 million cases in financial year 2010 and has an amazing growth rate of more than ten percent. As an investor, the corporate boosts confidence in investing into the company. Similarly, SB (SABMiller India) is the second largest producer of beer (Haywards). SABMiller India is the closest competitor to UBL in the beer market. With highly competing products, the company has been able to give some tough time to the Kingfisher products. Therefore for an investor, it becomes very important to compare the financial positions of both these highly competing firms before deciding to invest. Examination of certain factors like Price of Finished goods (Beer) and Volume produced The price of beer produced by the two firms and the volume of beer produced are tabulated below: Table 1: Price and Volume Details for UBL FY 2009 2008 2007 Price per litre (Rs) 53.60 50.52 45.14 Volume produced in litres 367463200 313368400 299759200 Table 2: Price and Volume Details for SB Limited FY 2009 2008 2007 Price per litre (Rs) 46.01 40.69 38.11 Volume produced in litres 471542112 435924576 354753036 The average market price and the average volume produced of the product by the market are tabulated below: Table 3: Price and Volume Details for Market FY 2007 2008 2009 AVERAGE MARKET PRICE (Rs) 48.29 44.18 40.65 TOTAL VOLUME PRODUCED BY MARKET (LITRES) 725592915 847032833 953169618 COMMENTS ON THE ABOVE FACTORS TABLE 4: COMPARISON OF PRICES OF COMPANIES WITH THE AVG MARKET PRICE FY 2009 2008 2007 AVERAGE MARKET PRICE (Rs) 48.29 44.18 40.65 UBL PRICE (Rs) 53.60 50.52 45.14 SB PRICE (Rs) 46.01 40.69 38.11 CHART 1 In the above chart the horizontal axis represents the financial years and the vertical axis represents the price of the finished goods in rupees. On examining the prices of the two firms and the market, we observe that the price has an upward trend generally, that is, the price of the finished good increases every subsequent year. The reason for this could be attributed partly to inflation during the years. However, on closer examination, we find that the volumes produced have increased and along with that, there has been a substantial increase in costs for both the firms. For example, the variable and fixed costs have increased by 62% and 78% respectively from 2007 to 2009 for UBL. Similarly, only the variable costs have increased by 164% for SB during 2007 to 2009. This has pushed up the price of the product. Since the market price is derived by taking the aggregates of all the prices of all the firms in the market, hence the average market price also has an upward trend. The price for SB and UBL has increased by 21% and 19% respectively during 2007 to 2009 while by 19% for the market. This indicates that UBL plays an important role in determining the average market price. TABLE 5: COMPARISON OF VOLUME PRODUCED BY COMPANIES WITH THE MARKET PRODUCTION VOLUME FY 2007 2008 2009 TOTAL VOLUME PRODUCED BY MARKET (LITRES) 725592915 847032833 953169618 VOLUME PRODUCED BY UBL(LITRES) 299759200 313368400 367463200 VOLUME PRODUCED BY SB (LITRES) 354753036 435924576 471542112 CHART 2 In chart 2, the horizontal axis represents the financial years and the vertical axis represents production volumes in litres. The trend lines clearly indicate that the volume produced increases every year for the firms as well as the market. The market volume is the aggregate of the volumes produced by all the firms in the market. Hence, the market volume also increases every year. We also find that the volumes produced by SB are higher than UBL every year. For example, volumes produced by SB have increased by 33% from 2007 to 2009 whereas production for UBL has increased only by 23% while the increase for the market volume is 31%. This means that the market volume is contributed to majorly by SB.