Alcohol Initiation

INDIAN ALCOHOLIC BEVERAGES INDUSTRY
Initiating Coverage on United Breweries Ltd and United Spirits Ltd
July 2, 2019
 GNANASUNDARAM SAMINATHAN  [email protected]  +91 44 4344 0062
Page 1
INDIAN ALCOHOLIC BEVERAGES INDUSTRY
The Party has just begun
“ There are only two real ways to get ahead today - sell liquor or drink it.” W.C. Fields, Actor
We initiate coverage on two Indian alcohol beverages (Alcobev) companies, United Breweries & United Spirits with an underlying positive
INITIATING COVERAGE
stance on the sector. The perception towards alcohol consumption has undergone a significant change over the past few years, which makes
02 July 2019
the Indian Alcobev industry best placed to ride on the Indian demographic dividend. Per Capita Consumption (PCC) of alcohol per adult in
India has grown at ~38% from 2010 to 2017 however the absolute PCC is still at a minuscule 6.0 litres per adult annually. Increase in PCC has
60%
largely been driven by a perception change towards alcohol consumption. Alcohol which was once upon a time frowned upon as evil has 50%
transformed to being cool and fun (Perception change from the lens of Bollywood – Slide 12,13,14). With ~42% of the Indian population still 40%
below the age of 25, we anticipate Alcobev industry growth to gallop over the medium term as ~17mn new consumers come into the legal 30%
alcohol drinking age (21 years) every year. Per capita value consumption of alcohol is correlated to per capita GDP, which we believe will lead 20%
to premiumization trend over the medium term. Though the ‘taboo perception’ about alcohol is changing in India, the ambiguous regulations 10%
should keep the industry growth under check. With alcohol being regulated by the state government in India, there are several regulatory 0%
aspects that the Alcobev industry is subjected to beyond just the taxes. The state governments have a high degree of control over the industry -10%
including imposing a ban on the sale of Alcobev in a state. Authority over licensing of manufacturing facilities, control over the Route To
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Market (RTM), pricing regulations are a few other key aspects where the regulators excise a significant control. Despite taxes from alcohol
being a key revenue generator for a state, a few state governments have imposed a ban as a populist measure. It is to be noted that several
states have also rolled back on the imposed ban as it gave rise to the consumption of spurious/illegal/smuggled liquor. Though the excise Nifty
duty hikes are largely passed on to the consumer and price increases have been demand inelastic, the probability of a ban by a state NSE Consumption Index
government remains a key overhang for the Alcobev sector in India.
We initiate coverage on United Breweries Limited (UB) with a BUY rating. We have factored in for a revenue and earnings CAGR of ~13% and
~20% from FY19-21 to arrive at our FY21e EPS of Rs. 30.6.. Beer industry volume growth should continue to outpace the overall alcoholic CMP TP RECO
industry volume growth while UB is anticipated to outgrow the category led by it's market leading brand, Kingfisher (KF). A network of 30
manufacturing facilities spread across 20 states is a definitive competitive moat considering the interstate hindrances in the transfer of alcoholic United
1335 1531 BUY
beverages. We note that Heineken NV taking complete control of UB could lead to additional growth and margin levers being unlocked over the Breweries
medium term. New launches from the global portfolio of Heineken NV into India over the medium term should aid UB in addressing their United
product portfolio gap at the top of the pricing pyramid by venturing into the emerging craft beer segment. Excise duty changes should continue 570 659 BUY
Spirits
to be passed on to the consumers, however, inflation in key raw material such as barley and glass should keep gross margins subdued over the
near term. Valuing the stock at 50x (10% discount to its 10 years historical P/E), we arrive at our TP: Rs.1531.
We initiate coverage on United Spirits Limited (USL) with a BUY rating. We have factored in for a revenue and earnings CAGR of ~10% and
~15% from FY19-21e to arrive at our FY21e EPS of Rs.14.5. With USL dominating the whisky segment volume market share in India, we believe
they are well placed to ride on the rise in consumption of Alcobev in India. Ever since Diageo PLC took over USL in 2014, several fundamental
changes have been made to the modus operandi of USL which in our opinion makes them better placed to ride on the industry growth levers
from a medium to long term perspective. With Diageo Global underlining that the Indian market is one of their key focus areas from a long term RESEARCH ANALYSTS
growth and profitability perspective, we believe there are further growth triggers to be unlocked in USL. Cross-pollination of brands from the
global scotch portfolio of Diageo has been driving premiumization for USL for the past couple of years. A renowned parent with an extensive GNANASUNDARAM
understanding of the global Alcobev industry and the underlying macro growth triggers in India provides for a Perfect Blend to USL’s long term [email protected]
growth ambitions. Despite several margin levers being exhausted since the takeover, we believe there is further scope for margin improvement +91 44 4344 0062
albeit at a slower pace. Valuing the stock at 45x (in-line with its 10 years historical P/E), we arrive at our TP: Rs.659.
find SPARK RESEARCH on  For US Investors: Click for Analyst Certification and Required Disclosures | Page 2
(SPAK <go>)
Indian Alcoholic Beverages Industry | Initiating Coverage
Indian Alcohol Industry (sans country liquor) Snapshot
Volumes have grown at a steady 8% CAGR over the past 12 years… …leading to ~11% value CAGR over the past 12 years.
3.0
CAGR: 8% 5.8 CAGR: 11% 2.8
5.5 2.5 2.6
5.2 5.3 5.2 2.4
4.9 2.2
4.6 2.0
4.1
3.7 1.7
3.3 1.5
3.0 1.3
2.6 1.1
2.3 1.0
0.9
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Alcohol Industry Volume in Litres (bn) Alcohol Industry Value in Rs.bn
Source: Company Filings, News Reports and Spark Capital Research Source: Company Filings, News Reports and Spark Capital Research
Country Liquor and Indian Made Foreign Liquors (IMFL) together contribute to ~60%
The growth was slightly impacted in 2015 on account of the Highway ban
of market volumes
CAGR: 3%
503 510 518 Country liquor,
472 Others, 2%
443 455 464 30%
394 416
377 376 384 387 Illicit Liquor, 2%
Home brewed
Alcohol, 11%
Spirits (IMFL),
30%
Wine, 4%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Beer, 21%
MRP (Rs/litre)
Page 3
Indian Alcohol Industry Snapshot
Beer dominates the market with ~52% volume share… …while Whisky dominates the market from a value share perspective
11% 10% 9% 8% 7% 7% 7% 7% 7%
10% 16% 14% 13% 11% 10% 9% 9% 9%
9% 9% 9% 11% 11% 11% 11% 10% 16%
12% 12% 12% 10% 10%
13% 13%
13% 13%
32% 30% 30% 30% 31% 30% 29%
32% 32%
55% 55% 56% 56%

55% 55% 55%
53% 52%
46% 46% 47% 48% 50% 51% 49% 50% 52%
13% 14% 15% 16% 18% 19% 19% 20%

13%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
Beer Whisky Brandy Rum White Spirits Beer Whisky Brandy Rum White Spirits
Increasing premiumization trends visible across the whisky market Domestic strong premium lager dominates among the beer offerings.
11% 11% 10% 12%
40% 42% 44% 44% 15% 15% 15% 14%
49% 46% 46% 44% 85%

85% 85% 85%
2014 2015 2016 2017 2014 2015 2016 2017
less than Rs.500 Rs.500-Rs.1500 Above Rs.1500 Domestic Premium Lager Domestic Mid-Priced Lager Imported Premium Lager
Page 4
Indian Alcohol Industry Snapshot

United Breweries through its dominating leadership in the beer market goes on to
In the whisky market, United Spirits dominates the market with ~34% market share
dominate the overall alcoholic beverages category
UB Group United Spirits - Diageo
22.7% Diageo Plc 30% Pernod Ricard
28.2% 34%
Anheuser-Busch InBev Allied Blenders & Distillers
NV
Carlsberg Radico Khaitan
1.9%
2.3%
2.3% Pernod Ricard Mohan Meakin Ltd
5.2% Allied Blenders & 4% John Distilleries Pvt Ltd
Distillers
6.2% 16.6% Radico Khaitan 4%
Jagatjit Industries
7.3% 5% 13%
Mohan Meakin Ltd Others
12.4% 5% 11%
In the beer market, it is UB group who dominates the market from a volume share In terms of overall non IMIL consumption, South India dominates the market with
perspective ~41% share
1% UB Group
2% East
10% SABMiller - Anheuser-Busch
2% India,
InBev 10%
3% Carlsberg India West India, 26%
SOM Distillery
14% North India, 24%
52% Mohan Meakin
MillerCoors South India, 41%

Devans
Others
18%
Page 5
Higher prevalence of Indian Made Indian Liquor (IMIL) in North India, leading to higher alcohol prevalence in these markets.
Chhattisgarh 36%
Tripura 35%
Jammu & Punjab
Kashmir
29%
Arunachala Pradesh 28%
Goa 26%
Himachal
Pradesh
Uttar Pradesh 24%
Manipur 22%
Punjab
Uttaranchal
Haryana 22%
Delhi 21%
Haryana
Arunachal Pradesh Uttranchal 19%
Daman & Diu 18%
Uttar Pradesh
Assam
Madhya Pradesh 18%
Rajasthan
Bihar Chandigarh
Meghalaya
18%
Telangana 17%
Jharkhand Tripura
West Bengal 17%
Gujarat Madhya Pradesh W Bengal
Odisha 16%
Sikkim 16%
India Average 15%
Orissa
Tamil nadu 14%
Maharashtra Andhra Pradesh 14%
Kerala 12%
Telengana Pondicherry 10%
Himachal Pradesh 9%
Assam 9%
Andhra
Pradesh Nagaland 8%
Karnataka Mizoram 8%
Jharkhand 7%
Karnataka 6%
Tamil Nadu Maharashtra 6%
Kerala Gujarat 4%
J&K 4%
Meghalaya 3%
Rajasthan 2% India and states: Prevalence of Alcohol Use (10-75
Bihar 1% years)
Source: Ministry of Social Justice and Empowerment – Government Of India, National Drug Dependence Treatment
Centre (NDDTC), All India institute of Medical Sciences (AIIMS), New Delhi, Substance use magnitude in India 2019 0% 5% 10% 15% 20% 25% 30% 35% 40%
Page 6
How the Alcohol industry has shaped over the past 8 years
Prohibition in Bihar, Demonetization, Route To Market (RTM) changes across several states and the Supreme Court directive on closure of all outlets within 500 meters of all
highways were the key industry disruptors over the past 8 years
18% 17%
14% Volume growth Price/Mix Increae
6%
2% 7%
10%
9%
8%
3% 2% 5% 6%
12% 2%
12% 3% 1%
10%
7% 7% 7% 6%
2% 5%
1% -1%
2010 2011 2012 2013 2014 2015 2016 2017 2018
During the year As a result of a weak High barley costs, Maharashtra, Bihar During the year 2014- The threat to sales in A very difficult year marked In the second one of the reasons
under review the economic climate, restrictions on use of and Punjab were 15, the Indian beer some territories in by imposition of prohibition quarter, some relief why categories grew
industry grew by regulatory changes recycled bottles in severely negatively market grew 8%, to the country arises in Bihar, Demonetization, came from a was that there was a
18%. Salience of and a poor summer, certain markets, impacted due to a reach 280 million due to changes in political turmoil in Tamil Supreme Court base effect from
the strong beer growth of the Indian unplanned power steep rise in excise cases. . The strong government Nadu and the Supreme clarification that lingering effects of
segment beer market in FY12 breakdown in key duty and end- beer segment regulations and the Court directive on closure States could de- demonetisation.
continues to was significantly States, requiring the consumer prices. The continues to lead the threat of prohibition of all outlets within 500 notify highways Also, in our category,
increase, and lower than the use of more industry in Tamil growth and is now which stems from meters of all highways passing through city we had a highway
strong beer now previous year. expensive self- Nadu was hit by the estimated to account constant changes in across the country limits, such that the ban a couple of years
accounts for an generated power, perverse ordering for 85% of the beer the political climate ban would not apply ago. When that went
estimated 79% have all contributed pattern of the state market. in the country. to outlets located away, last year was
of volumes sold The Indian Alcobev Bihar went dry in April, within city limits. This
to a high cost regime very good.
Industry has grown impacting the overall clarification resulted
rapidly in recent Higher consumer The recent financial Performance this growth for the year by in a recovery of the
years primarily due During fiscal 2012-13, prices following performance has year virtually flat ~1.5%. The supply in industry and growth It was a good year
The Indian increases in duties
to favorable the Indian spirits been mixed with the with less than 1% Punjab was disrupted due in sales. with sales growing
Branded Spirits and taxes by
demographic trends, market growth Prestige and above growth. Higher to procedural technical 10%,
Industry was governments, often
substantial economic dropped to a low segment gross consumer prices, issues. Significant rise in tax The Supreme Court’s notwithstanding a
around 270 unreasonable, always
growth, increased 3.4%. In our opinion, margins under following increases in had put the burden of highway ban, GST low comparative.
million cases in impacts consumer
per capita this was due to the pressure, driven by a duties and taxes, overall cost on states like implementation and However, our
Fiscal year 2010- demand of
consumption and a continuous combination of rising always impacts Andhra Pradesh, the uncertainty business was
11 a growth of discretionary goods
marked shift in enhancement in input cost inflation, consumer demand of Telangana, Karnataka and caused by route to impacted in the
~10% and alcoholic spirits
societal acceptance duties and taxes by price repositioning discretionary goods, Maharashtra. market changes in current quarter by
of alcohol State Governments have been no on key Prestige and alcoholic spirits Demonetisation impacted certain states this excise policy changes
Comments from UB consumption. exception. brands and restricted have been no businesses by knocking off in a couple of our key
year, disrupted the
pricing freedoms exception. about 15%-20% of sales industry.. states
Comments from USL
Page 7
VOLUME GROWTH LEVERS
Page 8
Volume growth has been largely resilient for both the players despite the incessant price increases
…USL volumes seem disrupted due to Whyte & Mackay sale in 2015 and shift
UB has recorded a ~8% volume CAGR over the past 11 years…
towards franchise model for most of its popular brands.
CAGR: 1%
CAGR: 8% 184
163 120 124 121
145 151 147 112
133 139 137 100
125 88 94 93 90
101 79 82
74
75 82
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Volumes Consumed (in mn cases) Volumes Consumed (in mn cases)
Source: Company Filings and Spark Capital Research Source: Company Filings and Spark Capital Research
…so has been the case with USL, which we believe is on account of the strong
Volumes have remained resilient despite the price increases over the years for UB…
underlying volume growth triggers in India
20% y = -0.2404x + 0.1244 25% y = -0.1792x + 0.1216
R² = 0.1026 R² = 0.1352
20%
15%
Price/mix increase
Price/mix increase
15%
10%
10%
5%
5%
0% 0%
-5% 0% 5% 10% 15% 20% 25% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%
Volume Growth (%)
-5% Volume Growth (%)
Page 9
How much does per person in India consume?
India per capita alcoholic beverages consumption trending in line with per capita GDP growth
2.00 3.0 3.1 3.1 3.0 3.0 3.0 3.5

2.7
2.5 3.0
1.50 2.5
1.8 1.8 1.9 1.9
1.7 1.8 1.7 1.7
1.6 1.5 1.6 2.0
1.00 1.4 1.4
1.2 1.2 1.3
1.0 1.1 1.5
0.9
0.50 1.0
0.5
0.4
0.4
0.3
0.3
0.3
0.4
0.4
0.4
0.4
0.4
0.5
0.5
0.5
0.5
0.6
0.7
0.7
0.8
1.1
1.0
1.1
1.4
1.5
1.5
1.5
1.6
1.6
0.00 0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Per Capita GDP (USD 000s) Per Capita Consumption (Litres of pure alcohol per person per year)
Source: WHO data and Spark Capital Research
Given the lower alcohol content in beer, per capita consumption seems lower Prices of alcohol content lower in India in comparison to other countries
Average price 500 mls Beer in US$ Average price 500 mls Spirits in US$ 33.3
2.8 2.9 2.9 2.8 2.8 2.8
2.6
2.3 25.4
23.3 22.6
1.8
17.6
1.4
14.2 13.0
11.7 11.6 11.7
4.2 5.4 4.1

0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 3.1 3.5 2.7
1.0 1.2 1.4 1.2 1.3 1.2
South
Brazil
India
Indonesia
UK
Germany
Japan
China
US
Argentina
Africa
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
France
Per Capita Consumption (Beer) Per Capita Consumption (Spirits)
Source: WHO data and Spark Capital Research Source: WHO data and Spark Capital Research
Page 10
Alcobev industry Volume growth drivers in India

~45% of the population yet to come to legal drinking …which along with rise in affordability, consumption Shift towards urban households to spur the
age in India, which is ~500mn consumer base… of alcoholic beverages to gain momentum consumption of IMFL and beer categories
65+ Yrs
55-64 Yrs 1% 7%
6% 3% 12% 12%
7% 00-14 Yrs
28% 30% 10% 13%
4% Metro
54% 5%
10%
78% 12% Tier 1
13%
Median 69% 17% Tier 2
Age: 28 43% Tier 3
Years 15%
51% Tier 4
25-54 Yrs 2005 2018 2030 41%
41% Rural
14-24 Yrs
Aspiring (< Rs. 2.5 Lakhs) Middle (<Rs. 2.5-25 Lakhs)
18%
Affluent (> Rs. 25 Lakhs) 2016 2025
Source: Company filigs and Spark Capital Research Source: Company filings and Spark Capital Research Source: Company Filings and Spark Capital Research
More international travelers from India getting a taste Rise in number of bars/pubs in India a definitive sign More women in the workforce should lead to more
of the international alcoholic beverage brands of rising popularity of alcohol consumption spending from women
21.9 22.0 22.5 111.7 112.6

20.4 34,768
18.3 109.1
16.6 33,658
106.5
14.9 32,678 103.9
31,789 101.3
31,013 98.7
30,314
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2018
International Travellers (mn) Bars/pubs ( Number of On-trade Establishments) Women in Workforce (mn)
Source: DGCA and Spark Capital Research Source: Industry Sources and Spark Capital Research Source: Industry Sources and Spark Capital Research
Page 11
The demographic advantage and rising income have always been there, so what has changed now? – It is the perception of Alcohol Consumption
It is no more the drink of the antagonist'…. Even the protagonist
Alcoholic beverages has transformed from being a symbol of
are spotted with alcohol, breaking the taboo of negativity around
evil/bad things To being cool and fun!
alcohol
Source: Youtube, News Reports and Spark Capital Research Page 12

Perception of Alcohol - through the lens of Bollywood

Alcohol from being associated with deprived and solitude… has
Women who were portrayed as admonishers of alcohol have
transformed into being associated with togetherness and
joined the party
happiness

Perception of Alcohol - through the lens of Bollywood

The Bollywood protagonists are no more ashamed or shy of being
Alcohol which was linked to failures and sorrows… is now more of
associated with Alcohol, signifying the underlying acceptance of
a celebration drink
alcohol over the years

We believe Alcohol industry volumes can grow in mid to high single digits over the next two years
Alcohol Industry volumes to touch close ~7.9bn liters in 4 years led by…
10
7.9
8 6.7
5.5 5.8
6 4.9 5.2 5.3 5.2
4.1 4.6
Rs.bn
3.7
4
2
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2020e 2022e
Alcohol Industry Volume in Litres (mn)
Source: Company Filings and Spark Capital Research
(1) Increasing population within the legal drinking

(2) Rise in per capita consumption of alcohol… …and (3) consumers migrating from IMIL to IMFL
age…
Population within legal drinking age Per Capita Consumption (Pure Alcohol)
69% 6% 7%
7.9
6.6 21% 25% 35%
67%
43%
2019 2022
65%
2.7 3.0 3.1 3.1 3.0 3.0 3.0
30% 34%
2014 2018 2025 2010 2011 2012 2013 2014 2015 2016 2020 2025
Indian Made Indian Liquor (IMIL) Beer
Population within legal drinking age Per Capita Consumption (Alcohol)
Indian Made Foreign Liquor (IMFL) Others
Source: Company Filings and Spark Capital Research Source: WHO data and Spark Capital Research Source: Company filings and Spark Capital Research
Page 15
STATE REGULATIONS AND THEIR IMPACT
Page 16
State governments have a wide range of authority over the sale of alcoholic beverages in India, including a few damning ones
Impact of the Regulation
Allocates Prescribes Determines Imposes Controls the Decides on Fixes the Assigns retail Allocates Determines Controls the Fixes the Has the
License for quota of the Excise Duty, wholesale the quantum retail store store license to the days of import of price for rights to
production production Maximum Import Duty market (in of inventory timing and licenses pubs/bars & operations liquor/Raw procurement enforce a
of Alcohol Retail Price and Value several at each retail location determines material of Sugar ban
liquor in the of the Added Tax states) outlet the timing of from other cane and
state product on the the sale states retail price
finished of loose
products Sugar
1 2 3 4 5 6 7 8 9 10 11 12 13
Government (State)
Source: State Excise departments & Spark Capital Research Quantum of impact High Medium Low
Page 17
Different tax structures, frequent changes to the Route To Market (RTM) strategies, pricing regulations and high import tariff complicates the
alcohol beverages market in India
Market Structure Overview Pricing Control

Jammu &
Kashmir
A business may apply for a
Company has
license for a fee defined by
Himachal Free / Open reasonable
the state government
Pradesh market independence over
Chandigarh subject to license
Punjab price increases
availability
Uttaranchal
Haryana The license for sale of liquor
Company has to
Sikkim Arunachal Pradesh is auctioned by the
negotiate price
Auction market Government to the highest
Uttar Pradesh increases with state
Assam bidder on an annual basis
Rajasthan
Bihar appointed distributors
Meghalaya
Nagaland based on an auction process
Manipur The government is the
Jharkhand Tripura wholesaler and/or
Gujarat Madhya Pradesh W Bengal State owned / distributor who purchases Strict control on pricing
Mizoram
Government directly from a company. by the state
Dadar and Nagar Haveli Orissa corporations Some states also have retail government
shops run by the
Maharashtra government
Telengana
States where sales of liquor
Prohibition Not applicable
is prohibited
Andhra
Pradesh
Karnataka
State Owned/Government Corporations Partly Banned

Puducherry
Tamil Nadu Free/Open Market Auction Market
Banned
Source: State Excise departments & Spark Capital Research
Page 18
The advantages and disadvantages of dealing with the state owned/government corporations
The government The government

As the government
controlling the market controlling the market
handles distribution,
lends to a strong entry lends to a strong entry
clamping down
barrier for new players barrier for new players
counterfeits/ smuggled
to come in as they will to come in as they will
is done rigorously
have to obtain several have to obtain several
preventing revenue loss
licenses before setting licenses before setting
to spurious liquor.
up operations. up operations.
The government
The government
operates on a stable
ensures payment on a
distribution model that
robust basis which
ensures product reaches
ensures that debtor
retail shelf with minimal
days outstanding is
hindrance from the
under control.
retailers.
Given the steep

The opaque Despite government Pricing control derails
interstate taxes, a
government policies controlling the price/led growth which
manufacturer will
leads to a few distribution model, the can severely impact
have to set up a
players having an retailers will need to margins especially
manufacturing unit in
undue competitive be incentivised for during a inflationary
the state for better
advantage 'Push based' offtakes. raw material cycle.
economic prospects.
Source: Spark Capital Research

Page 19
Importance of Alcohol for the state governments
Given that alcohol contributes anywhere between ~10% to as high as ~30%, the revenues from sale of alcohol beverages is a key for the state governments
35% % of alcohol revenues as a % of state generated tax revenues

30%
25%
20%
15%
10%
5%
0%
Kerala
Karnataka
Tamil Nadu
WB
Orissa
Maharashtra
J&K
Himachal
Haryana
Chhattisgarh
Telangana
MP
UP
Assam
AP
Jharkhand
Rajasthan
Punjab
With Alcohol industry being one of the key consumers of Extra Neutral Alcohol (ENA) derived from sugarcane, it is imperative for the states with large sugar cane farmers to
allow local alcohol sales.
22.34 State wise Sugarcane cultivated Area (Lakh ha)
9.02
3.7
2.43 1.84 1.83 1.14 1.02 0.99 0.98 0.93 0.35 0.3 0.3 0.19 0.17 0.07 0.05 0.05 0.01
Karnataka
Tamil
Gujarat
Others
Kerala
Bengal
Pradesh
Pradesh
Madhya
Haryana
Chhattisgarh
Telangana
Assam
Odisha
Maharas
Bihar
Uttarakhand
Jharkhand
Punjab
Rajasthan
Pradesh
Nadu
Andhra
West
Uttar
Page 20
Ban of Alcohol in states – Report Card

Several states have lifted the ban that they had imposed as banning has resulted in loss of tax revenues, increase in consumption of spurious alcohol and smuggling of alcohol
from the neighboring states.
Tamil Nadu Tamil Nadu Rajasthan Manipur Orissa Mizoram Bihar Andhra
Lifted in 1971 Lifted in 1981 Partial Selectively Lifted in 1995 Lifted in 2014 Banned Pradesh
Prohibition – removed in Phase out
Lifted in 1989 2002 Andhra Pradesh
Lifted in 1997
Gujarat Lakshadweep Nagaland Uttar Pradesh Kerala Mizoram
Banned Banned Banned Partial Haryana Lifted in 2016 Banned
Prohibition –
Lifted in 1998
Lifted in 1998
Years – Liquor Ban in India

Alcohol prohibition has been manifested by several parties with limited success Bihar’s loss of tax revenues has flown into the neighboring states.
State Excise Revenues (Rs.bn) 173.2

Maharashtra, Goa, Arunachala Pradesh, Assam, Rs.bn
12 Gujarat, Haryana, Himachal Pradesh, Jharkhand,
134.8 140.8 142.7
Manipur, Tripura, Uttar Pradesh, Uttarakhand 116.4
93.4
4 Madhya Pradesh, Punjab, Rajasthan, Chattisgarh 52.3

35.9 31.4 40.2
31.7 30.2 32.2
6.3 7.4 9.1 0.3 9.6 8.4
Tamil Nadu (AIADMK), Kerala (CPI(M)), 2014 2015 2016 2017 0.0 2018
Andhra Pradesh (YSR Congress), Telangana (TRS),
12 Karnataka (JDS), Orissa (BJD), West Bengal (TMC),
Meghalaya (NPP), Mizoram (MNF), Nagaland (NDPP),
Bihar Jharkhand Uttar Pradesh West Bengal
Sikkim (SKM), Bihar (JDU)
Source: Government of India & Spark Capital Research Source: State Excise departments & Spark Capital Research
Page 21
Excise duty increases have been more systematic in the recent past rather than sporadic increases
The state government’s have increased alcohol taxes offlate more from a perspective of gaining tax revenues rather than to reduce consumption of alcohol
80%
70% Excise Duty as a % of gross income (beer)
60%
50%
40%
30%
20%
10%
0%
WB
Karnataka
Mizoram
Kerala
HP
Chattisgarh
Maharashtra
A&N
Manipur
Tamil Nadu
Orissa
Dadra
Madhya Pradesh
Chandigarh
J&K
Andhra Pradesh
Delhi
Tripura
Arunachala
UP
Goa
Sikkim
Haryana
Assam
Telangana
Pondicherry
Uttarakhand
Punjab
Rajasthan
Jharkhand
Pradesh
South India remains the key market for Beer in India, we understand that Karnataka
Differential tax rates leads to differential pricing across the states.
and Maharashtra are the most lucrative markets from a net realization perspective.
20%
150
145
145
140
120
120
120
110
110
109
15%
100
100
95
90
65
10%
5%
0%
WB
Karnataka
Kerala
Maharashtra
Tamil Nadu
Orissa
Chattisgarh
UP
Haryana
Delhi
Telangana
Pondicherry
Uttarakhand
Rajasthan
Jharkhand
Andhra…
Karnataka
WB
Others
Maharashtra
Tamil Nadu
Kerala
Orissa
Chattisgarh
UP
Haryana
Telangana
Delhi
Punjab
Rajasthan
Price of Kingfisher Strong Beer (Rs./650ml) % of beer volumes sold in India
Source: State Excise departments & Spark Capital Research Source: State Excise departments & Spark Capital Research
Page 22
Additional Excise Duty in IMFL have been based on MRP across most of the markets
The incentive to tax IMFL lower is to disincentivize the consumption of illicit and smuggled alcohol; thereby increasing tax revenues for the state.
80% Excise Duty as a % of gross income (IMFL)

70%
60%
50%
40%
30%
20%
10%
0%
WB
Karnataka
HP
Chattisgarh
Maharashtra
A&N
Manipur
Orissa
Tamil Nadu
Kerala
Mizoram
Dadra
Chandigarh
J&K
Tripura
UP
Goa
Arunachala
Madhya Pradesh
Sikkim
Haryana
Delhi
Andhra Pradesh
Telangana
Assam
Uttarakhand
Punjab
Pondicherry
Rajasthan
Jharkhand
Pradesh
South Markets remain the key markets for IMFL sales too; IMIL more prevalent in
Price of IMFL whisky is as wide as being 2X to the price in a few states.
North India
974 20%
725 760 760
650 675 690 696 15%
570 580 610
440 450 460 490 10%
5%
0%
Chattisgarh
Tamil Nadu
Karnataka
Kerala
Orissa
WB
Maharashtra
Others
Haryana
UP
Andhra Pradesh
Telangana
Delhi
Rajasthan
Punjab
WB
Kerala
Chattisgarh
Karnataka
Tamil Nadu
Maharashtra
Orissa
Delhi
Haryana
UP
Telangana
Pondicherry
Rajasthan
Uttarakhand
Jharkhand
% of IMFL volumes sold in India

Price of Royal Challenge Whisky (Rs./750ml)
Source: State Excise departments & Spark Capital Research Source: State Excise departments & Spark Capital Research
Page 23
With state government’s excising control over the Route To Market (RTM); distribution expansion has been constrained.
Total outlet reach in India is limited only to 75000 outlets on account of regulatory curbs and state interferences
16000
14000
12000
10000
8000
6000
4000
2000
0
Karnataka
WB
Kerala
A&N
Maharashtra
Tamil Nadu
HP
Chattisgarh
Arunachala
Manipur
Madhya Pradesh
Orissa
Goa
J&K
Andhra Pradesh
Tripura
Sikkim
Haryana
Telangana
Assam
Delhi
Meghalaya
Pondicherry
D&N
Uttar Pradesh
Rajasthan
Uttarakhand
Punjab
Jharkhand
Pradesh
Despite the lower store count, throughput per store is higher than other consumer
Selling & Distribution and Freight expenses as a % of sales
companies
Throughput Reach
FY18 Sales 29%
per store (mn outlets) 27% 28% 27% 28%
25% 26%
HUL 355,450 3,291 9.000 24%
20% 20%
18%
ITC (Gross Sales) 512,840 5,342 8.000
Nestle 112,923 2,689 3.500

16% 15% 16% 15%
14% 13% 14% 14% 14%
Britannia 99,140 12,71 6.500 11% 12%
Asian Paints 168,246 233,675 0.060

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
United Spirits (Gross Sales) 283,631 315,146 0.075
United Breweries United Spirits
United Breweries (Gross Sales) 141,398 157,109 0.075
Source: Company Filings & Spark Capital Research Source: Company Filings & Spark Capital Research
Page 24
Excise duty has been on the steady increase for UB and USL
Excise Per case for United Breweries has increased at a ~17% CAGR over the past 13 …while for USL. excise duty per case has increased at a ~13% CAGR over the past 13
years… years
418 417
373
2,289 2,394
318
1,882
244 1,657
221 1,388
189
168 1,086
124 903
104 106 753
91 609
56 70 394 435 466
273 314
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Price increases have been affected to pass on the Excise Duty increase for UB… …as well as in the case of USL
25% y = 0.5084x + 0.0171 40% y = 0.7594x + 0.0052

R² = 0.847 35% R² = 0.479
Price Mix YoY increase/decrease
Price Mix YoY increase/decrease

20% 30%
15% 25%
20%
10% 15%
10%
(%)
(%)
5%
5%
0% 0%
-5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 0% 5% 10% 15% 20% 25% 30% 35%
-5%
Excise Duty YoY increase/decrease Excise Duty YoY increase/decrease
Excise Duty inc/dec (%) Linear (Excise Duty inc/dec (%)) Excise Duty inc/dec (%) Linear (Excise Duty inc/dec (%))
Page 25
UNITED BREWERIES LIMITED – INITIATING COVERAGE
Page 26
UNITED BREWERIES CMP Target Price Rating
Rs.1,335 Rs.1,531 BUY
King of all times
We initiate coverage on United Breweries Limited (UB) with a BUY rating and a TP of Rs. 1531. We have factored in for a revenue and earnings
CAGR of ~13% and ~20% from FY19-21 to arrive at our FY21e EPS of Rs. 30.6. We believe the ~13% Revenue CAGR over the next two years will INITIATING COVERAGE
be a function of ~10% volume growth and ~3% price/mix increase. Beer industry volume growth should continue to outpace the overall 2nd July 2019
alcoholic industry volume growth while UB is anticipated to outgrow the category led by it's market leading brand, Kingfisher (KF). The network
of 30 manufacturing facilities (owned and leased) spread across 20 states is a definitive competitive moat considering the interstate hindrances Industry CONSUMER
in the transfer of alcoholic beverages from one state to another. We decipher that Heineken NV who holds ~46% of UB is yet to take complete
CMP Rs.1,335
control of the Indian associate. We note that Heineken NV taking complete control of UB could lead to several growth and margin levers being
unlocked over the medium term. New launches from the global portfolio of Heineken NV into India over the medium term should aid UB in Target Price Rs.1,531
addressing their product portfolio gap at the top of the pricing pyramid by venturing into the emerging craft beer segment. Excise duty changes Key Stock Data
should continue to be passed on to the consumers, however, inflation in key raw material such as barley and glass should keep gross margins
subdued over the near term. Valuing the stock at 50x (10% discount to its 10 years historical P/E), we arrive at our TP: Rs.1531. Bloomberg UBBL IN
#1 Beer industry volumes to be driven by strong underlying macro growth levers: ~8% beer industry volume CAGR to be driven by favourable Shares o/s 264mn
demographics, rising urban population, the emergence of microbreweries and beer’s resonance with the consumption hot zones of South & West
Market Cap Rs. 358bn
India. Beer to be preferred over other alcohol for its convenience cost advantage and lower alcohol content
52-wk High-Low Rs. 1,494-1,030
#2 A strong product portfolio should enable UB to consolidate its market leadership: UB holds ~54% volume market share of the beer market in
India with 14 major product offerings straddled across the malt liquor and pale lager segments. Apart from the flagship KF brand, UB also boasts of 3m ADV Rs. 621mn
several region-specific brands that were acquired over time.
Index NSE100
#3 Kingfisher’s brand recall to aid UB to maintain its market dominance: The brand Kingfisher, synonymous with beer in India has ~47% of
volume market share and contributes to ~90% of UB’s market share. The strong brand has aided UB to launch several brand extensions under the Sep’18 Dec’18 Mar’19
KF umbrella over the years. The 3 popular offerings of KF are its Strong, Premium Lager and Ultra variants. Heineken NV 43.7 43.7 46.5
#4 Established manufacturing setup gives UB a natural hedge: UB has 30 manufacturing locations in India vs 17 of Anheuser-Busch InBev and 7 of Vijay Mallya 13.8 13.8 11.2
Carlsberg India. Given the rigorous state legislations for manufacturing licensing set up and the hindrances involved with interstate transfers of
Enforcement
Alcoholic beverages, we ascertain that the entrenched manufacturing presence is a definitive moat for UB. 16.2 16.2 16.2
Directorate
#5 Leveraging the global portfolio of Heineken NV: There have been only two brands from the stable of Heineken NV launched in India, we Institutions 20.6 20.4 20.2
believe Heineken NV will want to take complete control of UB before spreading its global portfolio into India, which we anticipate to happen over
Public 14.8 5.9 5.9
the near term. Launches from the global portfolio will also lead to premiumization by venturing into niche categories such as craft and fruit beer.
#6 Margins to be under pressure over the near term: We anticipate most of the excise duty hike if any to be passed on to the consumers as the Pledge 13.3 13.3 10.5
category has been demand inelastic over the past few years. However, inflation in key raw material costs is anticipated to pressurize margins over
the near term.
Financial Summary
RESEARCH ANALYSTS
Year Revenues (Rs. mn) EBITDA (%) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA (x) RoE (%)
GNANASUNDAR
2019P 64,754 17.6% 5,629 21.3 63 31 19%
[email protected]
2020E 72,133 17.5% 6,633 25.1 53 28 19% +91 44 4344 0062
2021E 82,078 18.1% 8,096 30.6 44 23 20%
find SPARK RESEARCH on Page 27
(SPAK <go>)
United Breweries Ltd I Initiating Coverage I Rating: BUY I TP:Rs.1531
Company Factsheet
Corporate Factsheet
United Breweries was founded in 1915 with 5 breweries. The company was then bought by late Mr. Vittal Mallya in 1947. Setting up its headquarter in
Company Background Bangalore (Bengaluru) in 1950, the company launched its iconic Kingfisher brand in 1978. Heineken NV acquires control over Scottish & Newcastle and
Heineken becomes promoter of UB in 2009. Heineken along with its subsidiaries owns ~47% of United Breweries as per March 2019 filings.
Heineken N.V is a dutch brewing company founded in founded in 1864 by Gerard Adriaan Heineken in Amsterdam. As of 2017, Heineken owns over 165
breweries in more than 70 countries. It produces 250 international, regional, local and speciality beers and ciders. Heineken is the second largest
Parent Background
brewer in the world. Heineken organises the company into five territories which are, Western Europe, Central and Eastern Europe, The Americas, Africa
and the Middle East, and Asia Pacific.
Mr. Shekhar Ramamurthy – Managing Director – He has been with the UB Group since 1989 and has been in several roles across the Group. He joined
in the Corporate Planning function and soon thereafter moved into a Marketing role with what is now United Spirits Limited. He spent over 9 years in
the Spirits business in Marketing and Sales roles before joining United Breweries Limited as the Head of Marketing and Sales in October 1999. He took
on greater responsibilities as the Deputy President of UBL from October 2007 and then as the Joint President of the company from September 2012 till
taking over as the Managing Director on August 01, 2015.
Top Management Mr. Steven Bosch – Director & CFO - Mr. Bosch has been on the board of UBL since September 01, 2016. Before joining Heineken, he was a Vice
President with the Royal Bank of Scotland, based in Hong Kong. As a Director in Heineken International’s Global Business Development team, Mr. Bosch
has led a wide range of projects including acquisitions, divestitures, mergers, restructuring and business due diligence projects.
Mr. Kiran Kumar - Chief Sales Officer, Mr. Manmohan S. Kalsy - Chief Human Resource Officer, Mr. Cedric Vaz - Chief Supply Chain Officer, Mr. Samar
Singh Sheikhawat - Chief Marketing Officer, Mr. Perry Goes - Chief Strategy & Business Analytic Officer, Mr. Ramesh Vishwanathan - Chief New
Business Officer, Mr. Govind Iyengar - Senior Vice President - Legal & Company Secretary
Distribution Footprint Total Reach: ~75000 outlets

Andhra Pradesh – Srikakulam, Telangana – Mallepally & Kothlapur, Goa – Ponda, Kerala - Cherthala & Palakkad, Karnataka - Mangalore, Nelmangala &
Own Manufacturing
Mysore, Odisha – Khurda, Haryana – Dharuhera, Tamil Nadu – Kuthambakkam & Aranvoyal, Punjab – Ludhiana, West Bengal – Kalyani, Rajasthan –
Facilities
Chopanki & Shahjahanpur and Maharashtra - Taloja & Aurangabad
Leased Manufacturing Uttar Pradesh – Aligarh, Daman And Diu – Daman, Madhya Pradesh – Indore, Jammu And Kashmir – Samba, West Bengal – Hoogly, Assam – Gauhati,
Facilities Sikkim – Rangpo, Meghalaya – Shillong, Jharkhand – Ranchi and Andhra Pradesh – Nellore
Key Brands volume share
Kingfisher Premium Strong (35%), Kingfisher Premium Lager (11%), Bullet (2%), Heineken (0.6%) and Kalyani Beer (0.5%),
(as per estimates)
Corporate Structure Maltex Malsters Limited (51% Holding - subsidiary) and Kingfisher East Bengal Football Team Private Limited (49.99% holding – Associate)
Auditors S.R. Batliboi & Associates LLP, Chartered Accountants
Page 28
Brand Launch Timeline and Manufacturing units

There have been 8 new launches over the past decade primarily under the United Breweries owns 21 own manufacturing units across different states and has
Kingfisher brand and cross pollination from Heineken NV. 9 contract based units taking the total to 30 units
"Exports
1944
Beer"
Kalyani
1960 Jammu &
Breweries Kashmir
Kingfisher
Premium Lager
1978 Himachal
Pradesh
1981 Kingfisher Punjab

Canned Beer Uttaranchal
Kingfisher 1999 Haryana

Arunachal Pradesh
Strong Zingaro
2000 Strong Rajasthan
Uttar Pradesh
Assam
Bihar Meghalaya
Kingfisher Blue 2008

Jharkhand Tripura
Kingfisher Madhya Pradesh
2009 Ultra
Gujarat W Bengal
Heineken 2012 Orissa
Brewed by UB Maharashtra
2015 Kingfisher Ultra

Max Telangana
Kingfisher Storm 2016

Andhra
Kingfisher Karnataka Pradesh
2016
Buzz Own Manufacturing Units
Amstel 2018
Tamil Nadu Franchise Units
Kerala
2018 Kingfisher Radler
Source: Company fillings, Spark Capital Source: Company fillings, Spark Capital
Page 29
Strong Set of brands – (1) Under the Kingfisher umbrella, (2) Regional oriented brands, (3) From the Heineken portfolio
Launched in 1978, Kingfisher Kingfisher Strong, India's largest Launched in 2009, Kingfisher Launched in 2015, Kingfisher Ultra
Premium is one of the first brands selling beer, is brewed from the Ultra Lager is the foremost Max is a crisp, refreshing strong beer
launched in the mild beer finest malted barley and hops. he premium beer brand on offer in with pleasant aroma and after taste.
category under the Kingfisher brand symbolizes the values of the country. Launched first in A slow-brewing and prolonged
umbrella. It is available in 650ml strength, style, youthfulness and Bombay, Bangalore, Delhi and maturation process, using the finest
bottles, 330ml pints, 500ml fun. In essence, the brand is a Calcutta, Kingfisher Ultra is now imported Pilsen malt, Kingfisher Ultra
regular cans and 330ml slim cans. symbol of modern India. widely available all across India. Max is smooth and easy to drink.
Launched in 2017, Kingfisher Kingfisher Buzz is a malt based, Bullet has been a favourite beer Cannon 10000 is a legacy brand
Storm is a new strong beer from flavoured alcoholic beverage. brand of the people of Rajasthan of Maharashtra which has been
the house of United Breweries It comes in 2 flavours: Berry ever since its launch decades in existence for almost four
Ltd. It is part of the flagship brand and Lychee. Launched in 2016, ago. The bold strategy of decades. It has a very strong
Kingfisher the largest, most loved, Kingfisher Buzz is currently consumer friendly pricing has market presence in the
trusted and enjoyed beer brand available in Bangalore, Delhi, made the brand an undisputed marathwada region of
in India. Mumbai, Goa, Pune leader in Rajasthan. Maharashtra.
Kalyani Black Label is an iconic UB Export is Karnataka‘s home Zingaro Super Strong was London Pilsner is the iconic beer
brand in West Bengal. KBL, as it grown brand for decades. People launched in the year 2000. of Mumbai and has a loyal
is fondly called, is an established of Karnataka have grown up with Zingaro was established as a light following in Mumbai, Pune and
brand with a differentiated taste UB Export, and love the brand hearted super strong premium other parts of Maharashtra,
and has its footprints across for its authenticity, taste and and refreshing beer that unravels despite the launch of a multitude
many eastern states, offering good quality. It is a high quality the 'real person in consumer' for of beer brands from multi-
great value for money. product at a affordable price. moments of uninhibited fun. national companies.
Kingfisher Radler is a soft drink

Launched in 2008, Kingfisher with 0% alcohol! With 100% natural Amstel is a slow brewed and
Heineken, one of the fastest
Blue is brewed for the ones who ingredients and 30% less sugar, this extra matured lager,
growing brands in UBL’s
seek adventure and are of the non alcoholic drink is available in internationally appreciated for
portfolio, has established itself as
outdoors kind. three flavours of Ginger Lime, its quality and enjoyed in over
India’s most premium brand.
Lemon and Mint Lime. 100 countries across the globe.
Source: Company fillings, Spark Capital
Page 30
Financial Profile
Revenues are expected to grow at ~13% revenue CAGR over the next two years… …led by high single digit volume growth and low single digit price/mix growth
~13%
82 13%
72
~8% 65
~11% 56
48 20% 11%
47 47 18% 3%
39 42 24% 4% 3%
36 7%
31 6% 13%
11% 9% 10% 9% 10%
6% 5% 6% 4%
-1% -3%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e
Revenues (Rs.bn) Volume Growth (%) Price Mix increase (%)
Gross profit per case to increase only marginally due to near term raw material cost PAT however is anticipated to grow ~20% led by ~10% volume growth, 3% price mix
headwinds increase and ~7% from cost savings.
192 189 190 197
182 179 173 184 ~20%
162 ~2%
146
133 8.1
~21% 6.6
62 63 67 5.6
55 ~4% ~17%
34 43 43 46 44
31 31 3.9
2.6 3.0
2.3 2.3
37 ~9% 1.4 1.4 1.7
24 31 33
11 10 12 16 18 20 16
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Gross Profit Per case EBITDA Per case PAT Per case 2019-21E CAGR PAT
Page 31
THESIS
#1 Beer industry volumes should continue to outpace the alcohol industry led by strong underlying growth levers
#2 A strong product portfolio should enable UB consolidate its market leadership
#3 Kingfisher’s strong brand recall to aid UB maintain its market dominance
#4 Leveraging the global portfolio of Heineken by cross pollinating several global brands into India
#5 Established manufacturing setup gives UB a natural hedge over its competitors
#6 Premiumization opportunities galore at the upper end of the pricing pyramid
#6 Price/mix growth to be a function of Excise Duty increases and raw material cost inflation
#7 Raw material cost inflation headwinds to impact near term gross margins.
Page 32
#1 Beer industry volumes should continue to outpace the alcohol industry volumes led by strong underlying growth levers
Alcohol Industry volumes have grown at a ~8% CAGR over the past 12 years, the growth in between was severely impacted in 2015 due to the highway liquor sale ban,
~8%
~3%
~9%
~13%
7.9
6.7
5.2 5.3 5.2 5.5 5.8
4.1 4.6 4.9
3.0 3.3 3.7
2.3 2.6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e
Alcohol Industry Volume (bn litres)
Source: Industry Sources, DRHP filings, company filings and Spark Capital Research
Beer industry growth throughout has been better than the overall industry growth, we anticipate the growth over the next two years also to outpace the industry growth.
10%
~4%
~11%
~14%
4.3
3.6
2.6 2.7 2.5 2.7 3.0
1.9 2.1 2.4
1.2 1.3 1.5 1.7
1.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e
Beer Industry Volumes (bn litres)

Page 33
#1 Beer industry volumes should continue to outpace the alcohol industry volumes led by strong underlying growth levers
COST CONVENIENCE LIGHTER OPTION

MRP (Rs.1000ml in Karnataka)
Alcohol by volume 41%
With Indians seldom

1298
consuming alcohol ‘on
223 8%
the rocks’, there are a
Kingfisher Strong Beer Royal Challenge Premium Whisky
lot pre-mixes that are
needed for other Kingfisher Strong Beer Royal Challenge Premium Whisky
Beer is much cheaper than any other alcohol in the alcohol drinks Given the lower alcohol content in Beer, it is largely
market, making them most lucrative for new consumers preferred in lighter outings
MORE PREFERRED ON A OUTING URBAN ORIENTED WEATHER DRIVEN CONSUMPTION

On-trade Volume as a % of offtrade volume Consumption in Bengaluru as a % of Karnataka Max/min temperature in celcius
consumption
27% 47% North India 28/17
22%
36%
West India 32/20
East India 30/20
Beer Spirits Beer IML
South India 32/22
Beer has greater volume emerging from the on Beer more of a urban drink than the other spirits, who
trade channel in comparison to other spirits still have ~2/3rd of their revenues from non-urban Beer more popular in the tropical South and West India.
EMERGENCE OF MICRO BREWERIES #GIRLSWHODRINKBEER YOUNGER & COOLER
Number of micro-breweries Why Indian women are sharing

120 beer selfies
20
2014 2019
Given the lower alcohol content in
Beer, it is preferred by women more
Micro breweries have started attracting greater often than any other Alcobev Beer is perceived to be more ‘cooler’ while a whisky is
number of audience given their tastier appeal. considered to be more sophisticated
Page 34

UB has a strong set of brands that enables UB to have a commanding ~54% volume Apart from the national brands, UB also has a plethora of regional legacy brands
market share of the beer market… that command a healthy fan following in specific markets.
Mild/
Strong Mild Strong Mild Lager Strong Strong Strong Strong Strong
Strong
8.0% 8.0% 7.8% 8.0% 8.0%

7.5%
4.8% 5.0% 5.0%
7.5% 7.5% BRAND
34.8% 11.0% 2.2% 1.3% 1.2% 1.0% 1.0% 0.6% 0.2% 0.1% 0.1%
FOCUS
Rajasthan Mumbai Karnataka West Bengal Maharashtra
MARKET
Volume Share Alcohol Content
Source: Industry Sources, DRHP filings, company filings and Spark Capital Research Source: Company filings and Spark Capital Research
The 4 strong brands in Kingfisher strong, Premium lager, Bullet and Kingfisher Ultra feature among the top 10 beer brands in the country and together command ~50% of the
market both from a volume and value perspective.
Brand Company Volume Share Value Share Alcohol Content Style
Kingfisher Strong United Breweries 35% 34% 8.0% Malt Liquor
Tuborg Carlsberg 12% 11% 6.5% Pilsner
Kingfisher Premium Lager United Breweries 11% 10% 4.8% Pale Lager
Haywards 5000 AB-Inbev 8% 7% 7.0% Malt Liquor
Knock Out AB-Inbev 6% 7% 7.8% Malt Liquor
Bullet United Breweries 2% 2% 7.5% Malt Liquor
Carlsberg Carlsberg 2% 2% 5.0% Pilsner
Budweiser AB-Inbev 2% 3% 6.5% Pale Lager
Kingfisher Ultra United Breweries 1% 2% 5.0% Pale Lager
Hunter SOM 1% 1% 7.5% Malt Liquor
Page 35

The two common types of beer in India are the Malt Liquor based strong beers (85% of the market) with alcohol content of ~8% and Pale lager, UB has a strong set of brands
across both these varieties, new varieties such as Ale and craft based beginning to gain traction in India
PALE LAGER MALT LIQUOR ALE
• Bullet Lager • Kalyani Srong

• Charger Lager • Kingfisher Strong
• Kalyani • Kingfisher Ultra
• Hi Five
• Kingfisher Premium Lager • Marco Polo Lager
• UB Export • Turbo
• Zingaro Lager • Zingaro
• Budweiser
• Armstrong Beer
• Castle Lager
• Haywards Strong Beer • Blazer Beer
• Corona
• Knock Out Beer • Hoegaarden
• Fosters Lager
• Royal Challenge Beer
• Haywards
• SABMiller
• Carlsberg
• Tuborg Mild
• Bombay
• Khoday
• Golden Peacock
• Godfather
• Thunderbolt
• Punjab 10000 • Kangaroo Beer
• San Miguel
• Golden Eagle • Black Knight Beer
OTHERS • Black Fort
• Vorion • Miller Beer
• Woodpecker
• Hunter • Mount Shivalik Beer
• Arlem Mild
• Power 1000
• Asahi
• Peroni
• Birra
Lager is a type of beer conditioned at low Malt liquor is a strong lager or ale in which
Ale is a type of beer brewed using a warm
Description temperatures. Lagers can be pale, amber, sugar, corn or other adjuncts are added to
fermentation method, resulting in a
or dark. the malted barley to boost the total
sweet, full-bodied and fruity taste.
amount of fermentable sugars in the wort.
Source: Industry Sources, DRHP filings, company filings and Spark Capital Research Page 36
#3 Kingfisher’s strong brand recall to aid UB maintain its market dominance
Over the years, Kingfisher brand has grown to dominate UB’s offerings with several brand extensions. Kingfisher contributes to ~90% of UB’s beer marketshare.
Kingfisher Volume Share (%) UB Group Volume Share (%)

55 55 54 53 53
52 51 51 50 50 52
50 48 50
48 47 47
44 45 45 44 45 44 45 44 45
41 41 42 41 40 40
39 37
37 35 36 36
34 34 32 33 34
32
25 25 25
23 23 23
21 19 21 21
17 18
1990 1991 1992 1993 1994 1995 1996 1997 1999 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Industry data, UB annual report archive and Spark Capital Research
Though direct advertisements are banned, Kingfisher continues to engage with

Several extensions riding on the brand Kingfisher’s strength over the years
consumers through several surrogate advertisements.
Brand Extensions Taste
1978 Kingfisher Premium Lager Pale Lager
1981 Kingfisher Canned beer Pale Lager
1999 Kingfisher Strong Malt Liquor
2008 Kingfisher Blue Malt Liquor
2009 Kingfisher Ultra Pale Lager
2015 Kingfisher Ultra Max Malt Liquor
2016 Kingfisher Buzz NA
2017 Kingfisher Storm Malt Liquor
2018 Kingfisher Radler 0% alcohol
Source: Company filings and Spark Capital Research Source: Kingfisher campaigns and Spark Capital Research
Page 37
#4 Leveraging the global portfolio of Heineken by cross pollinating several global brands into India
India contribution to the overall pie is miniscule as of now; currently India profits
Heineken has been steadily increasing its share in United Breweries reported as an associate entity.
50% Gross Revenues (Rs.bn) 2018 2017

Heineken ownership share in United Breweries
45% Heineken NV 2359 2274
40% United Breweries 141 122
35% % of Heineken Revenues 6% 5%
43.7% 43.7% 46.5%
30% 43.0%
37.4% 37.4% 38.9%
25% EBITDA (Rs.bn) 2018 2017
20% Heineken NV 420.2 429.7
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 United Breweries 11.4 9.0
Heineken at the forefront to buy out erstwhile promoter shares (currently remaining ~8%) that are % of Heineken EBITDA 3% 2%
held by the Enforcement Directorate (ED). Sale likely to conclude soon as the lenders are pressurizing
ED to release the erstwhile promoter shares to enable them to sell and get their dues back. Source: Company Filings & Spark Capital Research
Source: Company Filings & Spark Capital Research

Two of the Heineken brands are brewed and sold in India through United Breweries
“Once the Dutch company gets over 51 per cent stake, it is likely to make several Nature of Transaction Company FY16 FY17 FY18
Purchase of materials Heineken Supply Chain B.V. 0.4 0.4 0.8
changes to the management structure. Once the current managing director’s Purchase of materials Heineken Asia Pacific Ltd. 0.1 0.0 8.0
tenure ends in another couple of years, it is likely to post a general manager to Technical service fees Heineken International B.V. 60.0 60.0 60.0
run the company’s operations in India. Most of the subsidiaries of Heineken Royalty paid Heineken Brouwerijen B.V. 25.6 31.7 50.3
Consultancy fees paid Heineken Supply Chain B.V. 6.0 5.4 7.2
across the globe have general managers heading the domestic operations.” Consultancy fees paid Heineken International B.V. 1.4 1.2
News Snippets – September 2018 Consultancy fees paid Heineken Brouwerijen B.V. 0.0 0.2
Reimbursements paid Heineken International B.V. 23.1 35.3 32.7
Reimbursements paid Heineken Brouwerijen B.V. 0.0 1.2 0.0
Potential of Heineken Brands in India “Price is not the chief determinant for this Reimbursements paid Heineken Ceska Republika 2.5 4.1 0.5
segment – provenance, story, heritage, beer experience etc is. Europe is Dividend accrued/paid on equity shares Scottish & Newcastle Ltd 90.0 103.5 103.5
associated with the best quality beers in the world, especially Belgian beers. Dividend accrued/paid on equity shares Heineken UK Limited 8.5 9.8 9.8
Dividend accrued/paid on equity shares Heineken International B.V. 12.7 17.6 19.7
Affligem is Belgian, Desperados is French and Edelweiss is Austrian" Mr. Samar Trade payables Heineken International B.V. 55.8 48.0 52.1
Singh Sheikhawat” erstwhile Chief Marketing Officer of United Breweries Trade payables Heineken Brouwerijen B.V. 6.9 7.2 11.4
Trade payables Heineken Supply Chain B.V. 0.0 1.4 3.6
Source: Company Filings & Spark Capital Research
Page 38
#4 Leveraging the global portfolio of Heineken by cross pollinating several global brands into the Indian market.
International
Started (Year) Category Taste Brand Extensions Countries Origin Country
Brand
Amstel Light, Amstel Lager, Amstel Premium Pilsener,
Amstel 1870 Beer Pilsner over 100 Netherlands
Amstel Bright and Amstel Radler
Desperados NA Beer Flavored Tequila based beer NA France
Sol Cero, Sol Limón y Sal, Sol Clamato, Sol Michelada and
Sol 1899 Beer Pale Lager over 60 Mexico
Sol Oscura.
Tiger 1932 Beer Pale Lager Tiger Crystal, Tiger White, Tiger Black 50 Singapore
Birra Moretti 1859 Beer Pale Lager na over 40 Italy
Affligem 1950 Craft Ale Pale Affligem Blonde, Affligem Double, Affligem Triple NA Belgium
Lagunitas 1993 Craft Pale Lager na NA United States
Mort Subite NA Variety Beer Flavored Kriek, Whitte, Gueuze, Botanic, Oude Gueze, NA Belgium
Strongbow Gold Apple, Red Berries, Medium Dry, Original Dry,

NA Cider Brands Apple Cider NA England
Apple Ciders Elderflower, Dark Fruit, Rosé Apple
Orchard
NA Cider Brands Fruit Flavors na NA New Zealand
Thieves
Stassen 1895 Cider Brands Apple Cider na NA Belgium
Bulmers 1887 Cider Brands Apple Cider na NA Australia
Old Mout 1954 Cider Brands NA na NA NA
Blind Pig NA Cider Brands fruit and liquor na NA NA
Source: Heineken Global Website & Spark Capital Research
Page 39

Given the complexity involved with interstate goods transfer and their taxation in Given the warmer climate in South and West India, they remain the key markets for
India, manufacturing plants across several states is a definitive advantage. beer in India
Assam  East
Orissa   12%
South
Chhattisgarh  35%
West Bengal   West
31%
Meghalaya 
Jharkhand  North
22%
Sikkim 
Bihar 
Maharashtra   
Source: Industry Filing & Spark Capital Research
Goa 
Karnataka and Maharashtra are the key state by revenue and profitability for
Daman 
United Breweries
Madhya Pradesh 
Punjab 
Haryana   
UP  
Rajasthan   
J&K 
Himachal Pradesh 
Karnataka   
Telangana  
Kerala  
Pondicherry 
Tamil Nadu  
Andhra Pradesh  
Source: Company Website & Spark Capital Research Source: Industry Filing & Spark Capital Research
Page 40
All the three global players have an armor of strong brands in their global portfolio; global fight could start ensuing in the Indian soils.
Heineken Global portfolio Anheuser-Busch InBev Global portfolio

 Amstel  Budweiser  Hero
 Desperados
 Corona  Hoegaarden
 Sol
 Tiger  Stella Artois  Jupiler
 Birra Moretti  Aguila  Labatt Blue

 Affligem
 Beck's Blue  Leffe
 Lagunitas
 Mort Subite  Bogota Beer  Michelob ULTRA
 Strongbow Apple Ciders  Boxing Cat Contender Extra Pale Ale  Modelo Especial
 Orchard Thieves
 Brahma  Patagonia 24.7
 Stassen
 Bud Light  Pilsen
 Bulmers
 Old Mout  Canvas  Pirate Life Throwback IPA
 Blind Pig
 Cass  Quilmes
 Castle Lager  Salva Vida

Carlsberg global portfolio
 Tuborg  Cusqueña Dorada  Skol
 Somersby cider
 Eagle Lager  Victoria
 Kronenbourg
 Goose Island Bourbon County Brand Stout  Victoria Bitter
 Grimbergen
 Holsten  Harbin  Wäls Brut
Source: Global Website of the respective companies Page 41

UB has brands that are straddled across the pricing pyramid with… …the top end Heineken and Kingfisher Ultra brands gaining value share
Marco Polo 90 10.0
London Pilsner 90 5.0

650ml
Kingfisher Buzz (330ml) 100 0.0
2012 2013 2014 2015 2016 2017 2018
Kalyani Black Label 100
Heineken KF Ultra
Bullet 100 Source: Industry Sources & Spark Capital Research
Craft as a % of the overall market is currently miniscule in India

Canon 10000 100
Zingaro 120
India 1% 99%
UB Export 120
USA 13% 87%

Amstel 140
Kingfisher Premium Lager 140

Craft as a % of overall beer market Others
Kingfisher Storm 145 Several craft beer brands in the global Heineken portfolio that can be launched to
take advantage of the rise in craft consumption
Kingfisher Strong 145
Brand Year of origin Type Taste
Kingfisher Ultra 175

Affligem 1950 Craft Ale Pale
Kingfisher Ultra Max 190 Lagunitas 1993 Craft Pale Lager
Heineken 190 Mort Subite NA Variety Beer Flavored
Source: Company Website & Spark Capital Research Source: Company Website & Spark Capital Research
Page 42

United Breweries Carlsberg AB InBev Others
Vorion 6000
Kingfisher BLUE Premium
Kangaroo Beer
Kingfisher Draught Beer Knock Out
Bombay Other Beer
POPULAR UB Export Fosters
Thunderbolt
PRICE RANGE : Kalyani black label Tuborg Booster Haywards 5000
< Rs.22/100 ml) Punjab 1000
Buller Super Strong Royal Challenge
Meakin 10000
Zingaro
Black Knight Super Strong
Power 1000
Kingfisher Premium Lager Meakin 10000

Kingfisher Strong Premium Black Knight
PREMIUM Kingfisher Ultra Max Tuborg Green Miller ace strong
Fosters Lager
PRICE RANGE : Kingfisher Ultra Lager Beer Tuborg Strong Premium Miller High Life
Budweiser Premium
btw Rs.( 22 - Heineken Carlsberg All Malt Premium Godfather
40/100 ml) Budweiser Magnum Strong
Canon 10000 Carlsberg Elephant Strong Khajuraho Super Strong
Amstel Vorion 12000
London Pilsner Hunter
Bira 91
Corona Extra
St. Feuillien
Corona Light
LUXURY Leffe
Corona sunsets
PRICE RANGE : Stella Artois Premium
>Rs.59/100 ml) Hoegaarden
Asahi Japan
Fuller's London
Murphy's Irish Stout-
Source: Madhuloka & Spark Capital Research
Page 43
#6 Price/mix growth to be a function of Excise Duty increases and raw material cost inflation
Gross MRP to increase at a ~4% CAGR over the next two years led by price
…historically price increases have been to pass on the excise duty increases
increases…
y = 1.6662x - 0.0023
40%
R² = 0.847
Excise Duty Increase/decrease

35%
824 30%
769 800
748 25%
679 20%
621
531 15%
497 10%
423 447
355 5%
327 321
286 0%
216 243
-5%
-10%
-5% 0% 5% 10% 15% 20%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Gross MRP increase/decrease
Differential tax rate across the states makes Excise duty a complex problem to solve as there are pricing restrictions too in a select few markets.
80%
70%
60%
50%
40%
30%
20%
10%
0%
HP
Delhi
UP
Sikkim
Assam
Orissa
Mizoram
J&K
Andhra Pradesh
Maharashtra
Uttarakhand
Haryana
Madhya Pradesh
A&N
WB
Telangana
Karnataka
Kerala
Goa
Arunachala Pradesh
Manipur
Dadra
Pondicherry
Tamil Nadu
Chattisgarh
Rajasthan
Punjab
Chandigarh
Tripura
Jharkhand
Source: Company Filings, Industry sources, State government excise departments & Spark Capital Research
Page 44
Cost Of Goods Sold per case has increased ~6% per annum over the past 13 years Gross margins are currently at ~54% and is expected to contract over the near term
65.0%
162 164 59.0% 59.6%
6% 57.8%
148 56.1% 60.0%
140 54.6%
126 130 54.4% 53.9% 53.2% 53.6%
122 118 55.0%
113 110 112 51.1%
99
83 50.0%
75 34.7
27.9 27.1 29.9 45.0%
22.5 25.0 25.5
16.6 19.4
11.6 40.0%
35.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
COGS per case Gross Profit Gross Margin (%)
Source: Company filings & Spark Capital Research Source: Company filings & Spark Capital Research
Packaging material constitutes ~60% of the overall COGS pie… …while raw material pie is comprised ~50% of Barley
Purchase of
traded goods
4%
Packaging
Raw Material
Material Barley Others
37%
59%
Page 45
Barley produced in India continues to be on the uptrend… …so has been the MSP on the crop…
Barley Produced in India (1000 MT) Barley MSP (INR/Quintal) 1410 1440
1325
1950 1225
1689 1752 1831 1750 1770 1100 1150
1663 1619 1613 980 980
1355 1440
1328
1221 1196 750 780
650 680
565
500 500 500 525 540 550
385
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Bloomberg & Spark Capital Research Source: Bloomberg & Spark Capital Research
…which has led to overall prices spiraling up higher over the past 6 months "Barley is scarce in our country and the crop comes in March-April. We are in the
process of buying most of our barley for the year right now and barley prices are
Barley Price (INR/qtl) ruling at least 15% higher than last year. The reason for that is earlier this year, the
1775
government increased the support prices for grains across the board. What tends to
1450 happen is that when other grains go up, the demand for barley goes up and prices
1255 go up. Because the other use for barley is for cattle feed and apart from us and a
few other malted beverage industries who use barley as input material, large
amount of barley in this country goes into cattle feed and it is today the lowest
priced cattle feed though prices are higher by about 15% vis-à-vis last year and the
production is not going up."
Actually we have to import barley this year and we are going to import almost
about 20% of our barley requirements from overseas. So that is already putting and
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Oct-15
Feb-16
Oct-16
Feb-17
Oct-17
Feb-18
Oct-18
Feb-19
Aug-15
Apr-16
Aug-16
Apr-17
Aug-17
Apr-18
Aug-18
Apr-19
will continue to put a lot of pressure on our input costs"
Source: Bloomberg & Spark Capital Research
Page 46
Scarcity of water and cost of water could turn out to be the biggest long term raw material risk for United Breweries
Litre of water/Litre of Beer

Water availability in India 7.42
6.46
1498
5.49
5.12 4.94
4.54 4.25
3.75 3.73 3.52 3.4
744 3.24
650 634
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Supply Demand
2008 2030
Source: NITI Aayog, company filings and park Capital Research
Packaging cost remains ~28% of revenues and is on the uptrend… …indicated by the uptick in glass prices on account of rise in energy costs
30.3% 29.7% US Producer Price Index Flat Glass (NSA, Index) 137
28.2% 28.6% 27.4%
25.7% 26.8% 25.1% 24.7% 27.0% 26.4% 25.3% 25.0%
130.5
118.1
47 49 52 58 61 74 79 74 78 81 90 92 95
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
Feb-19
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
May-13
May-14
May-15
May-16
May-17
May-18
May-19
Packaging Material cost per case (Rs. ) as a % of sales
Source: Company Filings and Spark Capital Research Source: Bloomberg and Spark Capital Research
Page 47
Operating Profit levers
EBITDA margins should inch to ~18.1% over the next two years… …led by moderation in other expenses
17.6% 17.5% 18.1% 7.0%

7.5% 7.1%
16.1% 6.9% 6.7%
6.3% 6.2% 6.4% 6.5%
14.1% 14.3% 13.6%
12.8% 13.3% 5.3%
11.6% 12.2% 4.7% 4.7%
10.3%
23 31 31 34 43 43 46 44 55 62 63 67 1.1 1.4 1.9 2.4 2.6 3.0 3.4 3.6 4.0 4.5 4.8 5.3
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
EBITDA per case EBITDA margin (%) Employee Expenses (Rs.bn) % of sales
Source: Company Filings and Spark Capital Research Source: Industry, Spark Capital Research
S&D expenses have been rationalized over the past few years (some on account of
…leading to overall S&D expenses declining.
change in accounting mechanism)…
27%
24% 25%
24% 24% 23% 39.3% 38.7% 39.9%
21% 22% 22% 22% 36.1% 36.9% 37.7% 34.8% 32.8%
30.0% 29.0% 28.4% 28.5%
13% 13%
12%
1.9 2.9 3.7 4.8 6.2 7.0 7.4 8.4 9.2 10.4 6.2 6.2 6.6 8.2 11.3 13.4 15.3 16.4 18.7 16.8 15.5 16.9 18.8 20.5 23.4
2006 2007 2008 2009 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
S&D expenses % of sales Other Expenses (including S&D expenses) % of sales
Page 48
Operating Profit levers
United Breweries Carlsberg India AB InBev India
2016 2017 2018 2016 2017 2018 2016 2017 2018
Gross Revenues 93,965 100,130 121,746 25425 30,273 37,237 39,226 31,434 30,429
Excise Duty 48,083 55,006 68,116 13551 16431 21533 18,490 15,724 17,330
Net Revenues 45,882 45,124 53,630 11,874 13,842 15,704 20,736 15,710 13,099
COGS 21,209 21,779 26,315 5997 6887 6839 10,418 8,120 7,456
Gross Profit 24,673 23,345 27,316 5,877 6,955 8,865 10,318 7,590 5,643
Employee Cost 3,386 3,563 3,992 1441 1454 1545 1,744 2,552 1,743
S&D 6,238 6,155 6,583 2188 2138 2095 1,675 1,442 531
Other Expenses 7,362 6,265 6,895 2465 2052 3320 5,245 5,162 4,269
EBITDA 7,687 7,362 9,846 -217 1,311 1,905 1,654 -1,566 -899
Excise Duty as a % of gross sales 51% 55% 56% 53% 54% 58% 47% 50% 57%
COGS as a % of net sales 46% 48% 49% 51% 50% 44% 50% 52% 57%
GP as a % of net sales 54% 52% 51% 49% 50% 56% 50% 48% 43%
Employee Cost as a % of net sales 7% 8% 7% 12% 11% 10% 8% 16% 13%
S&D as a % of net sales 14% 14% 12% 18% 15% 13% 8% 9% 4%
Other Expenses as a % of net sales 16% 14% 13% 21% 15% 21% 25% 33% 33%
EBITDA as a % of net sales 17% 16% 18% -2% 9% 12% 8% -10% -7%
EBITDA as a % of gross sales 8% 7% 8% -1% 4% 5% 4% -5% -3%

Page 49
Financial Leverage – Interest cost to go down on the back of debt repayments
Finance cost has dropped by ~2.5x in the past 4 years and is expected to further decline over the near term
6.0% 5.9%
4.1% 4.2%
3.3%
2.8% 2.8%
2.0% 1.9%
1.6% 1.7%
1.2% 0.1% 0.1%
0.8%
0.5% 86 79
477 496 662 1141 752 865 985 796 795 728 811 587 477 312
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Finance Cost (Rs.mn) % of sales
With robust debt repayment; Debt levels at miniscule levels as on 2019. We have built in for further repayment over the next two years.
1.01 1.02
0.71 0.67 0.65

0.49 0.50
0.44
0.34 0.38
0.32
0.25
0.12 0.03
810 770
4,033 6,262 6,903 7,649 7,962 4,379 4,414 7,440 7,433 9,490 8,062 5,940 3,121 910
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Debt D/E 0.02 0.02
Page 50
Free Cash flow to improve significantly over the near to medium term
PAT margin improvement should lead to better RoE over the near term… …and also to better RoCE and RoIC over the near to medium term
FY FY
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
20E 21E
24.2%
21.4%
Asset 19.3%
1.09 1.52 1.86 1.70 1.54 1.53 1.55 1.57 1.87 2.05 2.02 1.96
Turnover
14.2%
11.5% 18.4% 18.8% 19.5%
10.2% 11.1% 11.0% 11.1%
Leverage 1.68 1.51 1.37 1.46 1.53 1.52 1.47 1.34 1.20 1.08 1.03 1.02 8.6% 8.4%
14.1%
4.6% 10.8% 11.4% 11.3% 11.9%
10.2% 10.7%
PAT Margin 8.9%
3.6% 4.5% 3.9% 4.4% 5.3% 5.5% 6.2% 4.9% 7.0% 8.7% 9.2% 9.9% 6.3%
%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 FY 20E FY 21E
Dupont 6.5% 10.4% 9.9% 11.0% 12.6% 12.9% 14.0% 10.2% 15.7% 19.2% 19.1% 19.8%
RoE (%) RoIC (%)
FCF also should meaningfully improve led by better operating profits and lower
Core working capital days (on gross revenues) should remain flat.
CAPEX
FY FY FY FY
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
20E 21E 20E 21E
EBITDA
2264 3498 3730 4214 5054 5028 6169 5419 6898 8224 9059 10526 Inventory
post tax
25 24 26 30 29 29 27 27 24 27 27 27
Working days
Capital -531 2213 -1845 -2692 -2159 3381 -777 22 -1265 -1416 -2545 -2616
Debtor
Changes 75 43 45 48 51 44 43 47 45 39 39 39
Days
OCF 1733 5711 1885 1522 2895 8408 5392 5441 5633 6808 6514 7910
Creditor
54 32 25 15 11 18 16 17 16 15 15 15
days
CAPEX -1513 -4389 -3806 -3782 -2120 -4069 -2430 -2355 -2014 -4331 -2599 -2685
Core WC
FCF 220 1323 -1921 -2260 776 4339 2962 3086 3619 2477 3915 5225 46 35 47 63 69 55 54 58 54 50 51 51
Days
Page 51
Corporate Governance (1/3) – Erstwhile Promoter, Dr.Vijay Mallya’s influence on United Breweries – Nil in our opinion
Dr. Vijay Mallya evicted from BoD in CY2017: “Vide Order dated 25.01.2017 passed by the Securities and Exchange Board of India (SEBI) Dr. Vijay
Mallya was restrained from holding the position as Director or Key Managerial Personnel of any listed company with effect from the date of said
Order. Thereafter, Dr. Mallya did not participate in any Board Meetings and was not involved in taking business decisions of the Company. At its
meeting held on August 10, 2017, the Board of Directors of the Company observed that in normal course, Dr. Mallya, as Director would have come
up for retirement by rotation at the AGM on September 23, 2017 in terms of Section 152(6)(d) of the Act. In the circumstances that SEBI had
restrained Dr. Vijay Mallya from holding position as Director or Key Managerial Personnel of any listed entity, neither could Dr. Mallya offer himself
for re-appointment nor could the Board of Directors recommend his re-appointment as Director of the Company at that AGM till such time the
restraint imposed by SEBI Order was vacated or disposed off in favour of Dr. Mallya.” FY18 Annual report
Dr.Vijay Mallya shares taken over by the Enforcement Directorate: “As per disclosures received by UBL in May 2018 under SEBI (Prohibition of
Insider Trading) Regulations, 2015 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 from a few Promoter companies
controlled by Dr. Vijay Mallya, we are informed that 41315690 Equity Shares held by such entities in UBL constituting 15.63% of the total paid up
capital have been transferred to the demat account of Enforcement Directorate, Mumbai, Government of India. Earlier, in August 2017, 1389068
Equity Shares constituting 0.52% of the total paid up capital were also transferred to the demat account of Enforcement Directorate, Mumbai,
Government of India. The Enforcement Directorate now holds 42704758 constituting 16.15% Equity Shares in the Company.”. The enforcement
directorate sold ~2.8% of this stake to Heineken in March 2019.” FY18 Annual report
Dividend to the erstwhile promoters to be withheld: “Pursuant to Order of Debt Recovery Tribunal, Karnataka, Bangalore, (the Tribunal) dated
September 30, 2015, dividend for the financial year 2016-2017 and thereafter, if declared and payable to Dr. Vijay Mallya and United Breweries
(Holdings) Limited shall be withheld till further Orders. 9. It is in public domain that United Breweries (Holdings) Limited (UBHL), a promoter of your
Company has been ordered to be wound up by Hon’ble High Court of Karnataka vide Order dated February 07, 2017. UBHL has since filed an appeal
against the said Winding-up Order which is pending.” FY18 Annual report
Shareholding snapshot
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
Heineken 38.9% 43.0% 43.7% 43.7% 46.5%
Dr.Vijay Mallya 35.9% 30.7% 29.9% 29.5% 11.0%
Source: Company Filings and Spark Capital Research Page 52

Corporate Governance (2/3) – Top Management salary structure

Board of directors remuneration is in acceptable standards of the companies act (all values in Rs.mn)
Name of the Director/KMP 2014 2015 2016 2017 2018
Remuneration Paid
Mr. Shekhar Ramamurthy 0 49 82 84
Mr. Kalyan Ganguly 58 84 200
Mr. Henricus Petrus van Zon 49 69 63 33 0
Mr. Steven Bosch 0 0 25 34
Mr. Govind Iyenger 10 12 14 16 16
Mr. Umesh Hingorani 7 9 9 11 9
Mr. Guido de Boer
Ms. Kanta Labroo 2 2 2 1 2
Total 126 175 336 169 146
Sitting fee paid
Dr. Vijay Mallya 0.1 0.3 0.3 0.6 0.0
Mr. A K Ravi Nedungadi 0.1 0.4 0.5 1.1 1.3
Mr. Duco Reinout Hooft Graafland 0.0 0.1
Mr. Roland Pirmez 0.0 0.1 0.1
Mr. Sijbe Hiemstra 0.0 0.1 0.5 0.3
Mr. Frans Erik Eusman 0.0 0.2 0.8 0.8
Mr. Ernst Van De Weert 0.0 0.1
Mr. Stephan Gerlich 0.0 0.1 0.2 0.5 0.6
Mrs. Kiran Majumdar Shaw 0.1 0.3 0.3 0.5 0.7
Mr. Madhav Bhatkuly 0.1 0.1 0.1 0.8 0.6
Mr. Chugh Yoginder Pal 0.2 0.6 1.0 1.8 1.4
Mr. Chhaganlal Jain 0.2 0.6 1.0 1.9 2.0
Mr. Sunil Alagh 0.2 0.5 0.9 1.8 1.6
Mr. Christiaan August J Van Steenbergen 0.0 0.1
Director Commission paid 1.0 3.1 4.8 10.3 9.4
Dr. Vijay Mallya 21.0 20.1 24.6 6.4 0.0
Mr. A K Ravi Nedungadi 0.0 0.0 0.0 2.8 7.5
Mr. Stephan Gerlich 2.3 2.2 2.7 2.8 7.5
Mrs. Kiran Majumdar Shaw 2.3 2.2 2.7 2.8 7.5
Mr. Madhav Bhatkuly 2.3 2.2 2.7 2.8 7.5
Mr. Chugh Yoginder Pal 2.3 2.2 2.7 2.8 7.5
Mr. Chhaganlal Jain 2.3 2.2 2.7 2.8 7.5
Mr. Sunil Alagh 2.3 2.2 2.7 2.8 7.5
Total 34.8 33.3 40.8 26.0 52.5
Source: Company Filings and Spark Capital Research Page 53

Corporate Governance (3/3) – Other Corporate governance tenets
2015 2016 2017 2018

Total No. of Directors 12 12 11 11
Board of Directors
No. of Independent Directors 6 6 6 6
No. of changes in directors over last year 2 4 1 1
Risk Corporate
Audit Nomination & Share Transfer Stakeholders’ Borrowing
Director Management Social
Committee Remuneration Committee Relationship Committee
Committee Responsibility
Mr. Shekhar Ramamurthy Member Member Member
Board Members
Mr. Steven Bosch Member Member Member Member
composition in
various committees Mr. A K Ravi Nedungadi Member Chairman Member
Mr. Frans Erik Eusman Member
Mr. Christiaan A J Van Steenbergen
Mr. Chhaganlal Jain Member Member Member Member Chairman
Mr. Chugh Yoginder Pal Chairman Member Member Chairman
Mr. Sunil Alagh Member Chairman Member Member
Ms. Kiran Mazumdar Shaw Chairman Member Member
Mr. Madhav Bhatkuly Member Chairman
Mr. Stephan Gerlich
2015 2016 2017 2018

Auditors
S.R. Batliboi & S.R. Batliboi & S.R. Batliboi & S.R. Batliboi &
Auditor
Associates LLP Associates LLP Associates LLP Associates LLP
(In Rs.mn) 2015 2016 2017 2018

Contingent st
Contingent Liabilities outstanding as on March 31 5.3 7.4 7.8 8.7
Liabilities &
Commitments
As % of networth 28.1% 34.3% 33.5% 32.3%
Source: Company Filings and Spark Capital Research; Page 54

Valuations – The stock has traded between 50x-70x for more than 2/3rd of the time over the past 10 years
UB has traded at an average of ~55x over the past 10 years despite volatile
UB has traded at a 50x-70x P/E range for 2/3rd of the duration in the past 10 years.
performance
100.0
Cumulative
P/E Multiple No. of days % of of no. of %of Cumulative 90.0
traded no. of
range traded days no. of days
days 80.0 +2 SD, 78.3
70.0
+1 SD, 66.8
under 30x 46 2% 46 2% 60.0
Average PE, 55.3
30 - 35x 83 3% 129 5% 50.0
-1SD, 43.7
40.0
35 - 40x 175 7% 304 12% -2 SD, 32.2
30.0
40 - 45x 159 6% 463 19% 20.0
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
45 - 50x 271 11% 734 29%
Source: Bloomberg & Spark Capital Research
50 - 55x 473 19% 1207 48%
We believe the company would trade at the band of ~50x-60x over the medium
55 - 60x 379 15% 1586 63%
term too
2,200
60 - 65x 392 16% 1978 79% 2,000 78x
1,800
65 - 70x 360 14% 2338 94% 1,600
66x
1,400 54x
70 - 75x 103 4% 2441 98%
CMP (Rs.)
1,200
1,000 42x
75 - 80x 20 1% 2461 98% 800 30x
600
80 - 85x 12 0% 2473 99% 400
200
85 - 90x 14 1% 2487 99% 0
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
90 - 95x 12 0% 2499 100%
Page 55
Valuations – Cashflow Valuations
Using a discounted cash flow methodology, we ascertain that UB will have to deliver low double digit top line growth and high teen margin to justify the potential upside
FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E
Total revenue 42,297 46,881 48,331 47,292 56,190 64,754 72,133 82,078 92,991 1,04,334 1,18,188 1,33,906 1,51,716 1,71,894 1,94,756 2,20,659 2,50,006
EBITDA 5,973 6,217 6,930 6,421 9,020 11,384 12,633 14,888 17,109 19,268 21,865 24,773 28,067 31,800 36,030 40,822 46,251
EBITDA margin % 14.1% 13.3% 14.3% 13.6% 16.1% 17.6% 17.5% 18.1% 18.4% 18.5% 18.5% 18.5% 18.5% 18.5% 18.5% 18.5% 18.5%
Dep 1,978 2,075 2,436 2,871 2,597 2,599 2,685 2,857 3,037 3,229 2,718 3,080 3,489 3,954 4,869 5,516 6,250
EBIT 3,995 4,142 4,493 3,551 6,423 8,785 9,948 12,031 14,072 16,039 19,146 21,693 24,578 27,847 31,161 35,305 40,001
Tax 1,087 1,188 1,560 1,182 2,132 3,160 3,574 4,362 5,159 5,945 6,510 7,376 8,357 9,468 10,595 12,004 13,600
Effective Tax rate (%) 27% 29% 35% 33% 33% 36% 36% 36% 37% 37% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%
Minority Interest 4 4 4 4 4 4 4 5 6 7 8 9 11 12 14 15 17
as a % of sales 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EBI 2,904 2,950 2,930 2,365 4,287 5,621 6,369 7,663 8,907 10,087 12,628 14,308 16,211 18,367 20,553 23,286 26,383
Dep 1,978 2,075 2,436 2,871 2,597 2,599 2,685 2,857 3,037 3,229 2,718 3,080 3,489 3,954 4,869 5,516 6,250
WC Changes -2,159 3,381 -777 22 -1,265 -1,416 -2,545 -2,616 -2,870 -2,983 -2,364 -2,678 -3,034 -3,438 -1,948 -2,207 -2,500
as a % of sales -5% 7% -2% 0% -2% -2% -4% -3% -3% -3% -2.0% -2.0% -2.0% -2.0% -1.0% -1.0% -1.0%
Capex -2,121 -4,075 -2,436 -2,360 -2,017 -4,248 -2,599 -2,685 -2,857 -3,037 -3,037 -3,037 -2,000 -2,000 -2,000 -2,000 -1,000
FCFF 602 4,331 2,152 2,897 3,601 2,556 3,911 5,220 6,216 7,295 9,946 11,673 14,666 16,883 21,474 24,596 29,133
FCFF/EBITDA 0.10 0.70 0.31 0.45 0.40 0.22 0.31 0.35 0.36 0.38 0.45 0.47 0.52 0.53 0.60 0.60 0.63
Stable EBITDA and low CAPEX to improve FCFF Which on an assumption of ~5% terminal growth rate
translates to the projected upside of ~15%.
Assumption Table Rs. mn FY20
Discounted FCFF 82495
Measure FY19-23 FY23-30
PV of Terminal Value 318968
Volume 10% 10%
EV 401464
Price 3% 3% Less: Net Debt/(net Cash) -3333
Excise Duty 14% 13% Implied Market Cap 404796
13% 13% Outstanding Shares 264
Total income
Target Price 1531
EBITDA Margin (Avg) 18% 18%
Terminal Growth 5.0%
EBITDA growth (%) 15% 15% WACC 9.0%
FCFF/EBITDA (Avg) 34% 52% Terminal Value 7,57,697 Source: Bloomberg & Spark Capital Research
Source: Bloomberg & Spark Capital Research Page 56

Financial Summary
Abridged Financial Statements
Rs. mn FY13 FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E
Profit & Loss
Revenue 38,987 42,297 46,881 48,331 47,292 56,190 64,754 72,133 82,078 92,991
Gross profit 22,546 24,976 27,944 27,122 25,513 29,876 34,678 37,988 43,625 49,880
EBITDA 4,769 5,973 6,217 6,930 6,421 9,020 11,384 12,633 14,888 17,109
Depreciation 1,704 1,978 2,075 2,436 2,871 2,597 2,599 2,685 2,857 3,037
EBIT 3,065 3,995 4,142 4,493 3,551 6,423 8,785 9,948 12,031 14,072
Other Income 392 152 377 864 517 131 320 349 512 744
Interest expense 796 795 728 811 587 477 312 86 79 75
Exceptional items 0 0 0 0 0 0 0 0 0 0
PBT 2,660 3,351 3,790 4,547 3,481 6,078 8,793 10,211 12,463 14,741
Reported PAT (after minority interest) 1,721 2,260 2,598 2,983 2,296 3,942 5,629 6,633 8,096 9,575
Adj PAT 1,721 2,260 2,598 2,983 2,296 3,942 5,629 6,633 8,096 9,575
EPS (Rs.) 6.5 8.5 9.8 11.3 8.7 14.9 21.3 25.1 30.6 36.2
Balance Sheet
Net Worth 15,112 17,066 18,851 21,471 23,342 26,903 31,838 37,451 44,273 52,193
Employee Benefit Obligation 745 795 676 634 470 182 114 114 114 114
Total debt 7,440 7,433 9,490 8,062 5,940 3,121 910 810 770 730
Other liabilities and provisions 166 332 75 110 105 129 47 47 47 47
Total Networth and liabilities 23,463 25,625 29,092 30,277 29,857 30,335 32,909 38,422 45,204 53,084
Gross Fixed assets 24,660 26,684 30,530 32,731 34,794 36,956 40,011 42,609 45,294 48,151
Net fixed assets 15,748 15,861 17,710 17,627 16,966 16,803 17,260 17,173 17,002 16,822
Capital work-in-progress 1,140 823 902 608 1,372 723 1,899 1,899 1,899 1,899
Intangible Assets 444 460 648 596 537 495 512 512 512 512
Investments 946 1,059 1,238 1,010 541 532 626 2,626 4,626 6,626
Cash and bank balances 2,331 1,425 132 140 243 242 462 1,517 3,855 7,044
Loans & advances and other assets 510 744 1,646 2,012 1,717 2,276 3,534 3,534 3,534 3,534
Net working capital 2,345 5,253 6,816 8,285 8,480 9,263 8,617 11,162 13,777 16,648
Total assets 23,463 25,625 29,092 30,277 29,857 30,335 32,909 38,422 45,204 53,084
Capital Employed 22,552 24,499 28,341 29,533 29,282 30,023 32,748 38,261 45,043 52,923
Invested Capital (CE - cash - CWIP) 18,136 21,191 26,070 27,775 27,127 28,526 29,761 32,219 34,663 37,353
Net debt 4,164 4,948 8,120 6,912 5,156 2,346 -178 -3,333 -7,711 -12,940
Cash Flows
Cash flows from Operations (Pre-tax) 2,266 3,902 9,832 6,988 6,876 8,167 9,968 10,088 12,272 14,239
Cash flows from Operations (post-tax) 1,522 2,895 8,408 5,392 5,441 5,633 6,808 6,514 7,910 9,080
Capex 3,801 2,121 4,075 2,436 2,365 2,017 4,248 2,599 2,685 2,857
Free cashflows -2,280 774 4,333 2,956 3,075 3,616 2,559 3,915 5,225 6,223
Free cashflows (post interest costs) -1,543 1,569 5,049 3,750 3,658 4,123 2,871 4,001 5,304 6,298
Cash flows from Investing -4,317 -1,576 -3,295 -2,452 -2,336 -1,970 -5,363 -4,254 -4,179 -4,120
Cash flows from Financing 2,113 -1,722 -5,717 -2,968 -3,012 -3,635 -1,226 -1,205 -1,393 -1,771
Total cash & liquid investments 3,277 2,485 1,370 1,150 784 775 1,088 4,143 8,481 13,670
Page 57
Financial Summary
FY13 FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E
Growth ratios
Revenue 9.5% 8.5% 10.8% 3.1% -2.2% 18.8% 15.2% 11.4% 13.8% 13.3%
EBITDA 5.6% 15.4% -6.1% 8.1% -5.3% 18.2% 9.5% -0.4% 3.6% 1.4%
Adj PAT 24.6% 31.3% 15.0% 14.8% -23.0% 71.7% 42.8% 17.8% 22.1% 18.3%
Margin ratios
Gross 57.8% 59.0% 59.6% 56.1% 53.9% 53.2% 53.6% 52.7% 53.2% 53.6%
EBITDA 12.2% 14.1% 13.3% 14.3% 13.6% 16.1% 17.6% 17.5% 18.1% 18.4%
Adj PAT 4.4% 5.3% 5.5% 6.2% 4.9% 7.0% 8.7% 9.2% 9.9% 10.3%
Performance ratios
Pre-tax OCF/EBITDA 48% 65% 158% 101% 107% 91% 88% 80% 82% 83%
OCF/IC (%) 8% 14% 32% 19% 20% 20% 23% 20% 23% 24%
RoE (%) 12% 14% 14% 15% 10% 16% 19% 19% 20% 20%
RoCE (%) 11% 11% 11% 12% 9% 14% 18% 19% 19% 20%
RoCE (Pre-tax) 15% 17% 16% 18% 14% 22% 28% 27% 28% 28%
RoIC (Pre-tax) 17% 19% 16% 16% 13% 23% 30% 31% 35% 38%
Fixed asset turnover (x) 1.58 1.59 1.54 1.48 1.36 1.52 1.62 1.69 1.81 1.93
Total asset turnover (x) 1.66 1.65 1.61 1.60 1.58 1.85 1.97 1.88 1.82 1.75
Financial stability ratios
Net Debt to Equity (x) 0.3 0.3 0.4 0.3 0.2 0.1 -0.0 -0.1 -0.2 -0.2
Net Debt to EBITDA (x) 0.9 0.8 1.3 1.0 0.8 0.3 -0.0 -0.3 -0.5 -0.8
Interest cover (x) 1.9 3.6 11.5 6.7 9.3 11.8 21.8 75.8 100.2 121.1
Inventory days 30 29 29 27 27 24 27 27 27 27
Working capital days 63 69 55 54 58 54 50 51 51 51
Valuation metrics 1335
Fully Diluted Shares (mn) 264 264 264 264 264 264 264 264 264 264
Market cap (Rs.mn) 3,52,981 3,52,981 3,52,981 3,52,981 3,52,981 3,52,981 3,52,981 3,52,974 3,52,974 3,52,974
P/E (x) 205.1 156.2 135.8 118.3 153.8 89.5 62.7 53.2 43.6 36.9
P/OCF(x) 187 232 122 42 65 65 63 52 54 45
EV (Rs.mn) (ex-CWIP) 3,56,005 3,57,106 3,60,200 3,59,284 3,56,765 3,54,604 3,50,904 3,47,749 3,43,371 3,38,141
EV/ EBITDA (x) 75 60 58 52 56 39 31 28 23 20
EV/ OCF(x) 234 123 43 67 66 63 52 53 43 37
FCF Yield 0.9% 1.0% 0.7% 1.1% 1.5%
Price to BV (x) 23 21 19 16 15 13 11 9 8 7
Dividend pay-out (%) 12.6% 12.4% 12.3% 10.7% 16.0% 9.3% 14.2% 15.4% 15.7% 17.3%
Dividend yield (%) 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.2% 0.2% 0.3% 0.4%
Page 58
Crystal Ball Gazing
United Breweries revenues are likely to grow at a ~13% CAGR over the next three years, supported by volume growth of ~10%
and price/mix increase of ~3%. Operating margins are likely to expand on the back of premiumization and cost savings. Operating
profits are anticipated to increase at a ~14% CAGR over the next three years. Assuming a 10% discount to its 10 year P/E multiple
and assigning a multiple of ~45x
Revenue growth of Capital efficiency to improve led Multiple should at
13% to be aided by by better margins least inch to average
Volume growth of levels as growth
~10% improves
We believe the strong revenue growth and operating
Operating margin expansion coupled with higher Total Asset turnover to increase as no major CAPEX is
margin expansion levers should enable the multiples
cash levels should lead to ~20% earnings growth envisioned over the medium term.
to at least sustain at current levels
FY06-FY11 FY11-FY14 FY14-FY19 FY19-FY23E FY06-FY11 FY11-FY14 FY14-FY19 FY19-FY23E P/E multiple FY21E EPS (Rs.) Price target
Revenues CAGR 30.8% 11.4% 8.9% 12.7% RoE (%) 7% 12% 14% 20% 40 41.7 1669
Gross Margin 53.9% 57.2% 55.7% 53.4% RoCE (%) 7% 11% 12% 19% 45 41.7 1878
EBITDA CAGR 27.2% 15.2% 13.8% 14.1% RoIC (%) 3% 11% 11% 25%
EBITDA margin 12.3% 12.6% 14.3% 18.1% Average 1 yr fwd
EPS CAGR -223.0% 17.5% 20.0% 18.3% PE (x) 37.8 58.8 59.4 52.4
Total Asset Turnover (x) 1.1 1.7 1.7 1.8 EV/EBITDA (x) 17.6 27.8 28.1 26.6
Total WC days 35 60 55 51 Peak 1 yr fwd
Pre-tax OCF/EBITDA (%) 58% 58% 114% 83% PE (x) 59.9 98.1 89.8 55.8
Post Tax OCF as a % of IC 9% 12% 23% 23% EV/EBITDA (x) 27.5 43.1 38.6 28.2
Debt/EBITDA 2.5 0.7 0.8 -0.6
TOTAL
EPS CAGR of ~18%, exit RETURN OF
Entry = Rs. 1335@ 44x Cumulative Dividends of
multiple of 43x on FY23E
FY21E EBITDA Rs.12/share
EPS 42%
Page 59
UNITED SPIRITS LIMITED – INITIATING COVERAGE
Page 60
UNITED SPIRITS LTD CMP Target Price Rating
Rs.570 Rs.659 BUY
The perfect Blend
We initiate coverage on United Spirits Limited (USL) with a BUY rating and a TP of Rs. 659. We have factored in for a revenue and earnings
CAGR of ~10% and ~15% from FY19-21e to arrive at our FY21e EPS of Rs.14.5. We believe the ~10% Revenue CAGR over the next two years will INITIATING COVERAGE
be a function of ~8% volume growth and ~2% price/mix increase. With USL dominating volume market share of the whisky segment in India, 2nd July 2019
we believe they are well placed to ride on the rise in consumption of alcoholic beverages in India. Alcoholic beverages growth in India to be
driven by the underlying demographic advantage and the change in perception towards alcohol. Ever since Diageo PLC took over USL in 2014, Industry CONSUMER
several fundamental changes have been made to the modus operandi of USL which in our opinion makes them better placed to ride on the
CMP Rs.570
industry growth levers from a medium to long term perspective. Cross-pollination of brands from the global scotch portfolio of Diageo has
been driving premiumization for USL for the past couple of years. A renowned parent with an extensive understanding of the global alcohol Target Price Rs.659
industry and the underlying macro growth triggers in India provides for a Perfect Blend to USL’s long term growth ambitions. Despite several
Key Stock Data
margin levers being exhausted since the takeover, we believe there is further scope for margin improvement albeit at a slower pace. Valuing
the stock at 45x (in-line with its 10 years historical P/E), we arrive at our TP: Rs.659. Bloomberg UNSP IN
#1 Strong brands to enable USL to consolidate their market leadership: USL dominates the whisky market (56% of the industry’s value share) in Shares o/s 727mn
India with ~34% volume market share. Volumes of the focus prestige segment brands such as McDowell, Royal Challenge and Signature have
Market Cap Rs. 427bn
grown at a CAGR of ~21%, ~46% and ~26% respectively from CY14-18 and we expect this trend to continue over the medium term cementing USL
as the undisputed leader of the whisky segment. 52-wk High-Low Rs. 680-438
#2 Premiumization journey should aid in improving product mix and profitability: Prestige and above segment that contributed ~51% of volumes 3m ADV Rs. 894mn
and ~67% of value sales in 2019 should increase its share to ~55% of volumes and ~70% of value sales by FY21e. The rising popularity of premium
whisky offerings in the market and cross-pollination of global Diageo offerings into the Indian market should fuel this rise in premiumization. Index BSE100
#3 Transforming from United Spirits India ltd to DIAGEO India: Several changes have been made to the business modus operandi of USL such as Sep’18 Dec’18 Mar’19
product rationalisation, supply chain efficiencies, selling and distribution competencies, higher accountability and investing back into the business Diageo 54.8 54.8 54.8
ever since Diageo’s takeover making the organisation leaner and better equipped to tap into the long term growth levers. With Diageo PLC having
outlined its key growth levers to be Scotch, US and India, we believe the parent is fully tuned into driving considerable growth from the Indian Vijay Mallya 2.0 2.0 2.0
subsidiary over the medium to long term. With an Indian born Mr Ivan Menezes at the helm of Diageo PLC, we ascertain that the focus on the Enforcement
1.7 1.7 1.7
Indian market to be significant. Cross-pollination of offerings from the global portfolio to be an additional growth driver. Directorate
#4 Raw material cyclicality to impact near term margins: Rise in Molasses ENA price (~30% of USL’s RM basket) is anticipated to impact gross Institutions 27.5 27.8 27.8
margins of USL over the near term. Increase in the volumes of grain-based alcohol should enable USL to mitigate this risk over the long term. We Public 14.0 13.7 13.7
do not anticipate any structural inflationary pricing impact on account of Government Of India’s Ethanol lending Project (EBP) as we anticipate the
Pledge 1.9 1.9 1.8
EBP requirement to be met from the diversion of sugar production (which is in excess) and not from the molasses used for the production of Extra
Neutral Alcohol (ENA). With the energy costs up, glass bottle costs are also on the uptrend. We anticipate excise duty changes to be passed on to
the consumers.
Financial Summary
RESEARCH ANALYSTS
Year Revenues (Rs. mn) EBITDA (%) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA (x) RoE (%)
2019P 93,408 16.4% 7,916 11 52 29 28.7% GNANASUNDAR
[email protected]
2020E 102,906 16.2% 8,780 12 47 26 24.9% +91 44 4344 0062
2021E 113,452 16.7% 10,549 15 39 22 23.5%
find SPARK RESEARCH on Page 61
(SPAK <go>)
United Spirits Ltd I Initiating Coverage I Rating: BUY I TP:Rs.659
Company Factsheet
Corporate Factsheet
Founded in 1926 by Scotsman Angus McDowell as McDowell and Co, a trading company with its headquarters in Madras. In 1951, Mr.Vittal Mallya
acquires Mcdowell and co. in 2006, United Spirits Limited (USL) is created through the merger of McDowell & Co Limited, Herbertsons Limited, Triumph
Company Background
Distillers and Vintners Private Limited, Baramati Grape Industries India Limited, Shaw Wallace Distilleries Limited and four other companies. In 2013-14
Diageo plc acquires 54.8 percent shareholding in USL, making India one of its largest markets.
Diageo plc is the global leader in beverage alcohol with an outstanding collection of brands across spirits and beer. Diageo has more than 200 brands
that are enjoyed in more than 180 countries through the world. The have more than 150 manufacturing sites involved in production of these brands.
Parent Background
Diageo plc owns several well renowned brands which include Johnie Walker, Smirnoff, Captain Morgan, Bailey, Tanqueray and Guinness. Diageo plc has
an employee base of ~30000 throughout the globe.
Mr. Anand Kripalu – Managing Director and CEO– Anand Kripalu joined Diageo India in May 2014 as Chief Executive Officer. Mr.Anand has over 30
years of experience in the Indian consumer goods market.
Mr. Sanjeev Churiwala – CFO - He has around 23 years of diversified work experience. Prior to joining Diageo India, Sanjeev was with LafargeHolcim`s
Indian subsidiary Ambuja Cements
Mr. Prathmesh Mishra- Chief Commercial Officer - He is responsible for the business operations in India. Prathmesh joined Diageo India in 2014.
Top Management & Board
Ms. Julie Bramham- Chief Marketing Officer - Prior to joining Diageo in India Julie was part of Diageo Europe for nearly two decades.
of Directors
Ms. Abanti Sankaranarayanan - Chief Strategy and Corporate Affairs Officer - Prior to her current role, She was MD of Diageo India Pvt Ltd.
Mr. Kedar Ulman - Chief Supply Chain Officer - he is responsible for Diageo India’s complex supply chain comprising a wide India footprint of 60
manufacturing locations and procurement. Kedar joined Diageo India in 2009 as Chief Procurement Officer
Ms. Mamta Sundara - General Counsel - In this role, she is responsible for leading the legal function, which balances and mitigates the company’s risks.
Mr.Arif Aziz - Chief Human Resources Officer - Aarif’s 20 years’ experience spans several sectors many of which have been senior leadership roles.
Distribution Footprint Total Reach: ~75000 outlets
Manufacturing Facilities 19 owned facilities as on March 2018

1. Alwar (Rajasthan) ,2. Asansol (West Bengal), 3. Aurangabad (Maharashtra), 4. Baddi (Himachal Pradesh), 5. Baramati (Maharashtra), 6. Bhadrakali
(West Bengal), 7. Bhopal-I (Madhya Pradesh), 8. Gopalpur-On-Sea (Orissa), 9. Gulbarga (Karnataka), 10. Hyderabad I (Nacharam, Telangana), 11.
Key Plant locations
Hyderabad II (Malkajgiri, Telangana), 12. Kumbalgodu (Karnataka), 13. Meerut (Uttar Pradesh), 14. Nasik-I (Maharashtra), 15. Nasik-II (Maharashtra),
16. Pathankot (Punjab), 17. Ponda (Goa), 18. Rosa (Uttar Pradesh), 19. Udaipur (Rajasthan)
Key Brands McDowell’s No.1, Old Tavern, Hayward’s Fine, Bagpiper, Royal Challenge, Director’s special, Signature.
Corporate Structure Wine Society of India Pvt Ltd (33% Holding - Associate) and Hip Bar Private Limited (26% holding – Associate)
Auditors Price Waterhouse & Co. Chartered Accountants LLP
Page 62
Company Timeline
Company Timeline Manufacturing citadels
 An enterprising Scotsman Angus McDowell sets up McDowell and Co as a trading company
1826
with its headquarters in Madras.
1951  Vittal Mallya acquires McDowell & Co

Jammu &
1959  McDowell's sets up its first distillery in Kerala. Kashmir
 McDowell's launches its own McDowell's No.1 Brandy after the import contract for No.1
1963-64 Pathankot Himachal
Bisquit Brandy gets terminated. Pradesh
Baddi
Punjab
1968  McDowell's No. 1 Whisky launches and is an instant success.
Uttaranchal
Meerut
 USL acquired Herbertsons & Co. Defying all odds to acquire a host of breweries during Haryana
1973 Arunachal Pradesh
Prohibition in India. Rosa
 Vittal Mallya goes on a distillery acquisition spree in Udaipur, Alwar, Mirganj and Uttar Pradesh
1977-80
Serampore. He also sets up a plant in Pondicherry. Rajasthan
Bihar
Assam
Meghalaya
 Master blenders at Shaw Wallace & Company (which was later acquired by McDowell's) Udaipur
1980
perfect Royal Challenge Tripura
Jharkhand Asansol
Alwar Bhopal
1992  McDowell's launches Asia's first Single Malt, Duet Gin and Vodka variants. Gujarat Madhya Pradesh W Bengal
Bhadrakali
 India's first joint venture in alcohol beverages — United Distillers India Limited — is formed
1992 with United Distillers plc of United Kingdom. Black Dog 12 Year Old Deluxe Scotch, Black Orissa
and White, VAT 69 and White Horse are bottled in India at the company’s Nashik Unit. Aurangabad Gopalpur-On-Sea
Nasik-I Baramati
Telengana
1994  McDowell's Signature, slated to be the 'Best Indian Whisky,’ is introduced. Maharashtra
Hyderabad I - Nacharam
Hyderabad II - Malkajgiri
 McDowell's completes the acquisition of its traditional competitor Shaw Wallace &
Gulbarga
2005 Company. Celebrated brands such as Royal Challenge, Antiquity, Director’s Special, and
White Mischief are now part of the portfolio. Pathankot Andhra
Karnataka
 United Spirits Limited (USL) is created through the merger of McDowell & Co Limited, Pradesh
2006 Herbertsons Limited, Triumph Distillers and Vintners Private Limited, Baramati Grape
Industries India Limited, Shaw Wallace Distilleries Limited and four other companies. Kumbalgodu
2007  USL acquires Whyte and Mackay, the United Kingdom's leading Scotch whisky distillers.
Tamil Nadu
 Diageo plc acquires 54.8 percent shareholding in USL, making India one of its largest Kerala
2013-2014
markets.
Source: Company fillings, Spark Capital Source: Company fillings, Spark Capital
Page 63
Brands
Consumer Prices* Focus Brands Non Focus Brands
Luxury
> Rs.2,000
Premium
Rs. 900 – 2,000

Prestige
Rs. 350 – 900

Popular
< Rs. 350
* Average consumer prices in India, 750ml bottle Source: Company fillings, Spark Capital
Page 64
Financial Profile
…driven by ~12% growth in the P&A segment and ~3% growth in the popular
We anticipate a ~8% volume growth over the next two years…
segment
95
Volumes in Mn cases 88 Volumes in Mn cases
120 124 121
112
63
100 59
94 93 90 95 53 52
88 47
82 42 40 42
79
33 34 37 37 41 41
29 31
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
Prestige & Above Popular

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
Source: Company filings and Spark Capital Research Source: Company filings and Spark Capital Research
EBITDA per case is anticipated to increase to Rs.200 leading to PAT per case of
Overall PAT anticipated to grow ~15% over the next two years.
Rs.111
581 578 588

541
10.55
400 437 401 432 7.92 8.78
347 381 6.66
318 314 5.45
1.94 3.11
189 200 1.49
153 187
72 102 93 88 104 110
-11 4 -0.13 -1.17
85 97 100 111
49 16 16 35 -8.22
-1 -9
-86 -87 -10.41
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
PAT
Gross Profit per case (Rs. ) EBITDA per case (Rs. ) PAT per case (Rs. )
Page 65
Thesis
#1 Alcohol Industry volumes to grow led by strong underlying macro growth levers
#2 USL’s wide portfolio straddled across various alcohol offerings keeps them well equipped to demand changes
#3 Strong brands to enable USL consolidate their market leadership
#4 Premiumization journey should aid in improving product and profitability mix.
#5 Transforming from United Spirits India ltd to DIAGEO India
#6 Strategically located manufacturing units provide a natural advantage
#7 Excise duty hikes to be managed through price increases
#8 Margins to be under pressure in the near term; no structural long term threats.
Page 66
#1 Alcohol Industry volumes growth to be led by strong underlying macro growth levers
Alcohol Industry volumes anticipated to grow at 6.5% CAGR over the next two
…while USL volumes are anticipated to grow ~8% over the next two years
years…
2,645 344
2,484 324
2,332 291 289 293 299 306
2,115 2,200 279
1,985 2,015 261
1,848 243
1,699 221
1,498
1,303
112 120 124 121
94 93 90 79 82 88 95
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e
Alcohol Industry (Without Beer)(Rs.bn) Alcohol Industry Volumes (mn cases) (Without Beer) USL
Volume growth for the industry should be driven by rise in per capita
…while price/mix growth to be driven by consumers up trading
consumption…
7.9 Country liquor,

Others, 2%
6.6 30%
Illicit Liquor, 2%
Home brewed
2.74 2.96 3.06 3.05 3.02 3 3.04
Alcohol, 11%
Spirits (IMFL),
30%
Wine, 4%
2010 2011 2012 2013 2014 2015 2016 2020 2025
Beer, 21%
Per Capita Consumption (Alcohol)
Page 67
#1 Alcohol Industry volumes to grow led by strong underlying macro growth levers
Whisky is the largest among the IMFL market volumes & value consumed and… …has grown the highest from a value share perspective among the IMFL spirits
10 11 12
11 11 10 174
13 65 63 65 142 164
12 61 65 63 147 143 299 295
47 100 312 324
11 41 43 94 301 322 262
35 43 43 42 43 110 282 258 256
44 42 301 272 260
46 99 263
44 219 305
307
278
176 182 187 1534 1613 1714
157 165 172 174 1331 1423 1461
130 144 1034 1206
912
2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
Whisky Rum Brandy White Spirits Whisky Rum Brandy Vodka
Premium whisky has been gaining share Diageo is the market leader in the whisky market ~34% volume share
11% 11% 10% 12% 13% Others

John Distilleries 30%
40% 42% 44% Pvt Ltd
44% 45%
4%
Mohan Meakin
Diageo Plc
Ltd
34%
49% 46% 46% 44% 5%
42%
Radico Khaitan
5%
2014 2015 2016 2017 2018 Allied Blenders &
Distillers Pernod Ricard
less than Rs.500 Rs.500-Rs.1500 Above Rs.1500
11% 13%
Page 68
United Spirits Limited (USL) Pernod Ricard Radico Khaitan Allied Blenders & Distillery Mohan Meakin John Distilleries
 Johnnie Walker  100 Pipers  8PM whisky  Officer’s choice  Summer Hall  Paul John Brilliance
 McDowell's No.1  Blenders Pride  After Dark premium whisky  Officer’s choice blue  Colonel's Special  Paul John Edited
 Royal Challenge  Chivas Regal  Regal Talon whisky  Officer’s choice black  Golden Eagle  Paul John Bold
 The Singleton (Glen Ord Distillery)  Seagram's Imperial Blue  Rampur Indian single malt  Sterling reserve premium whiskies  Top Brass  Paul John Nirvana
 Talisker  Jameson  Whytehall  Officer’s choice star  Diplomat Deluxe  Paul John Classic Select Cask
 Signature  Passport  Black Knight  Paul John Peated Select Cask
 Black Dog  Ricard  Solan No.1  Paul John Kanya
 VAT 69  Royal Stag  Cellar 117  Paul John oloroso Single Cask
 Antiquity Blue (USL)  MMB  Paul John Mars Orbiter
 Baileys Irish Cream Whisky Liqueur  Blue Bull  Paul John Christmas Edition 2018
 Lagavulin (Diageo)  Original Choice Deluxe Whisky
 Bagpiper (USL)  Black Pelican Whisky
 Director's Special (USL)
 Cardhu (Diageo)
 Clynelish (Diageo)
 Cragganmore (Diageo)
 Dalwhinnie (Diageo)
 Glenkinchie (Diageo)
 Oban (Diageo)
 Gordons (Diageo)
 Black & White (Diageo)
 Caol Ila
USL has the widest whisky portfolio in India with several scotch offerings that are Bottled In India and several Bottled In Origin
Page 69
Pernod Ricard Radico Khaitan USL ABD Mohan Meakin John Distilleries
 Absolut Vodka  Magic Moments vodka  Smirnoff (Diageo)  Class 21
 Orloff  Ciroc (Diageo)
 Ketel One (Nolet Distillery)
 White Mischief (USL)
 Romanov (USL)
VODKA
 Original Choice Deluxe XXX
RUM  Vana  Contessa rum  McDowell's No.1  Jolly Roger Rum  Old Monk Supreme Rum
Rum
 Pluton Bay rum  Captain Morgan (Diageo)  Old Monk Gold Reserve Rum
 1965 premium rum  Ron Zacapa  Old Monk XXX Rum
 Old Monk Deluxe XXX Rum
RUM  Old Monk White Rum
 MORPHEUS  McDowell's VSOP  Kyron Premium Brandy  Triple Crown  Mont Castle Grape Brandy
Non focus segment

 Roulette XO Premium Grape
 OLD ADMIRAL  Lord & Master Brandy  Doctor's Reserve No.1
Brandy
 Officer’s Choice Brandy  D.M.
 MMB
BRANDY
Page 70
The three key focus prestige segment whisky brands have demonstrated considerable growth over the last 5 years. USL brands have ~36% share of the total top 16 brands.
Volume 2014- Volume Share 2014-

2018 Vs 2018 Vs
Brand Owner 18 18
2017 2017
2014 2015 2016 2017 2018 CAGR 2014 2015 2016 2017 2018 CAGR
Oﬃcer’s Choice Whisky Allied Blenders & Distillers 28.4 32.9 32.9 32 34 6.25% 5% 17% 19% 19% 18% 18% 61bps 170bps
McDowell’s No.1 Whisky United Spirits 13.4 25.7 26.6 26.4 29 9.85% 21% 8% 15% 15% 15% 16% 101bps 774bps
Imperial Blue Pernod Ricard 14.1 17.5 18 19 22.7 19.47% 13% 8% 10% 10% 10% 12% 171bps 396bps
Royal Stag Pernod Ricard 16.1 17.3 18 18.7 21.6 15.51% 8% 9% 10% 10% 10% 12% 129bps 221bps
Original Choice John Distilleries 10.6 10.7 10.1 10.3 11.5 11.65% 2% 6% 6% 6% 6% 6% 50bps 0bps
Hayward’s Fine United Spirits 4.8 7.1 7.9 8.5 9.4 10.59% 18% 3% 4% 4% 5% 5% 36bps 224bps
8PM Radico Khaitan 4.3 4.1 5.7 7 8.2 17.14% 18% 3% 2% 3% 4% 4% 54bps 189bps
Blenders Pride Pernod Ricard 4.8 5.6 6.2 6.4 7.3 14.06% 11% 3% 3% 4% 4% 4% 39bps 112bps
Old Tavern United Spirits 5.5 11 9.9 7.1 6.2 -12.68% 3% 3% 6% 6% 4% 3% -58bps 12bps
Bagpiper United Spirits 3.7 7.3 7.2 5.8 5.6 -3.45% 11% 2% 4% 4% 3% 3% -19bps 85bps
Royal Challenge United Spirits 1.4 3.6 4.7 4.5 5.6 24.44% 41% 1% 2% 3% 2% 3% 52bps 219bps
Bangalore Malt Whisky John Distilleries 0.8 1.1 2.1 3.6 5.2 44.44% 60% 0% 1% 1% 2% 3% 81bps 232bps
Director’s Special Whisky United Spirits 2.9 5 5 4.1 4.2 2.44% 10% 2% 3% 3% 2% 2% -1bps 56bps
Signature Whisky United Spirits 0.9 1.5 1.8 2 2.3 15.00% 26% 1% 1% 1% 1% 1% 13bps 71bps
White & Blue Alcobrew 0.4 1.2 1.4 1.6 2.1 31.25% 51% 0% 1% 1% 1% 1% 24bps 89bps
Sterling Reserve Premium Whiskies Allied Blenders & Distillers N/A N/A N/A N/A 1.2 N/A N/A 0% 0% 0% 0% 1% 64bps 64bps
Top 16 Brands 112 152 158 157 175 11.40% 12% 65% 87% 89% 86% 94%
Market Size 172 174 176 182 187 2.68% 2% 29% 40% 40% 37% 36%
USL brands 33 61 63 58 62 19% 35% 36% 32% 33%
Page 71
USL has 3 prestige focus brands, 3 popular focus brands, 2 popular non-focus brands and 1 prestige non-focus brand among the top 16 whiskies sold in India in 2018
2018 2014-18
Rank Brand Owner Category 2014 2015 2016 2017 2018 Category Brand Importance
growth CAGR
3 McDowell’s Whisky United Spirits Whisky – Indian 13.4 25.7 26.6 26.4 29 21.3% 21.3% Prestige Focus Brand
16 McDowell’s No.1 Rum United Spirits Rum 8.9 17.2 15.7 12.3 11.2 5.9% 5.9% Popular Non-Focus Brand
20 Hayward’s Fine United Spirits Whisky – Indian 4.8 7.1 7.9 8.5 9.4 18.3% 18.3% Popular Non-Focus Brand
37 Old Tavern United Spirits Whisky – Indian 5.5 11 9.9 7.1 6.2 3.0% 3.0% Popular Focus Brand
38 Bagpiper United Spirits Whisky – Indian 3.7 7.3 7.2 5.8 5.6 10.9% 10.9% Popular Focus Brand
39 Royal Challenge United Spirits Whisky – Indian 1.4 3.6 4.7 4.5 5.6 41.4% 41.4% Prestige Focus Brand
54 Director’s Special Whisky United Spirits Whisky – Indian 2.9 5 5 4.1 4.2 9.7% 9.7% Popular Focus Brand
94 Signature United Spirits Whisky – Indian 0.9 1.5 1.8 2 2.3 26.4% 26.4% Prestige Focus Brand
128 McDowell’s No.1 Brandy United Spirits Brandy 3.5 3.3 3.6 1.7 1.4 -20.5% -20.5% Prestige Non-Focus Brand
These 9 brands constitute ~92% of company volumes. The key brand McDowell's contributes to ~50% of the overall volumes of USL .
92% 92% 92% 46 46

88%
3 4 40 42
2 1
17 16 11
12
48% 26
4
9
26 27 26 29
13
45 94 82 93 82 90 72 79 75 82
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Top 9 products cases sold Overall Cases Sold % of overall cases sold McDowell’s Whisky McDowell’s No.1 Rum McDowell’s No.1 Brandy
Source: Spark Capital Research Source: Industry, Spark Capital Research
Page 72
Volume Share of the premium offering on the uptrend… …driven by the introduction of the premium scotch portfolio in India
Blue Label
53% 49% 47% 45%

67% 63% 59% Platinum Label
78% 77% 73%
Gold Reserve Label

47% 51% 53% 55%
33% 37% 41%
22% 23% 27%
Talisker
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
Singleton
P&A Popular
Source: Spark Capital Research Double Black
Value share to be in excess of ~90% over the next few years as per our estiamtes Black Label
86% 91% Bottled in

82%
75% Rare J&B
Origin
48% 47%
54% 57%
Red Label
(BIO)
45%
32%
40% 37%
Black & White
30% 35% 34% 37% 37% 36% 35%
32%
Black Dog
Bottled in
P&A Popular Vat 69
India (BII)
Source: Spark Capital Research Source: Spark Capital Research
Page 73

Consumer Prices* Focus Brands
Luxury
> Rs.2,000
Premium
Rs. 900 – 2,000

Prestige
Rs. 350 – 900

Popular
< Rs. 350
* Average consumer prices in India, 750ml bottle Source: Company Filings &Spark Capital Research
Page 74

In FY16, USL decided to franchisee most of its non-focus popular segment brands to
Popular Brands growth expected to stabilize and grow at ~3% in the near term
local distilleries to focus on its core portfolio of premium brands
Date of shifting to Franchise State Brands Cases
5% 5% 5% Andhra Pradesh Select Popular Segment Brands 3.3mn cases, 180crs
3% 3% 3%
January 2017 Goa Select Popular Segment Brands revenue for
Kerala All Brands 9MFY17
0% Pondicherry Select Popular Segment Brands
-3% Andaman & Nicobar Select Popular Segment Brands
April 2017
-7% Chandigarh Select Popular Segment Brands
-9% -10% -9% Rajasthan Select Popular Segment Brands
-16% Madhya Pradesh Select Popular Segment Brands 7 mn cases, 460crs
Himachal Pradesh Select Popular Segment Brands of revenue in FY17
May 2017
-22% Jammu & Kashmir Select Popular Segment Brands
FY15 FY16 FY17 FY18 FY19 FY20E FY21E Delhi Select Popular Segment Brands
Sikkim Select Popular Segment Brands
June 2017
Volume growth (%) Value growth (%) Uttar Pradesh Select Popular Segment Brands
FY15 Tamil Nadu All Brands
Source: Company Filings &Spark Capital Research Source: Company Filings &Spark Capital Research
The huge potential of the IMIL market is the key underlying growth trigger for the
The income from franchise agreements to grow at ~6% over the next two years.
popular brands portfolio
1,493 1,670
161% 1,579
1,492 240 240
229 225 230
183% 215
198
184 180
953 164
686
528
0% 6% 6%
-28% -23%
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Income from brand franchise arrangements growth (%) Indian Made Indian Liquor (IMIL)mn cases
Source: Company Filings &Spark Capital Research Source: Company Filings &Spark Capital Research
Page 75
• “We started our journey in 2014 with the objective of transforming our business in India from the Product Rationalisation
erstwhile United Spirits to making it a true Diageo subsidiary.
• We went through the process of picking core/focus brands and then refreshing most of them. Creating a ‘Pull’ demand
• We have made a big change in how we sell from sell in to sell out culture.
Investing back into the business
• We have built a huge muscle of productivity and that has provided us vital fuel to invest back into the
business.
Supply chain integration
• We have brought about clarity and accountability in customer service levels by integrating the entire
end to end supply chain.
Feedback looping mechanism
• We have put in place better systems and processes and significantly enhanced our controls and speed
and quality of reporting.
• We have also made a step change in our corporate citizenship, starting by ensuring highest level of Sticking to global standards in dealing with
compliance and governance in the market, and from compliance to community to road safety. And
external clients/ relations
we have also changed the nature of our engagement that both we and the industry have with the
government.
• We have made significant organizational changes in terms of our talent, our culture, our business Changing the way the company works
model and our ways of working.
• We have sorted out a host of legacy issues that we have inherited as part of the acquisition
Sorting out the legacy issues
• And finally, in the last couple of years, we have faced some of the largest external headwinds ever
seen in this business –demonetization followed by highway ban and then GST. Despite that, we have
come out stronger and every part of this business has been transformed. Business transformation
• And to go back to Ivan’s point, while a lot has been done, we are absolutely not complacent. We
know there is a lot more to do and we are focused on trying to do that.”
Not complacent, but confident
Anand Kripalu Managing Director & Chief Executive Officer of United Spirits Limited
Page 76
India a key part of Diageo Global’s growth plans.. …so are the prestige segment Indian whisky brands
(Forecast 2017 – 2022, International Spirits, 2017 Constant Currencies)

(Forecast 2017 – 2022, International Spirits, 2017 Constant Currencies)
Incremental Retail Sales £bn
Incremental Retail Sales £bn

Diageo #1 Diageo #1
78%
North Europe India LAC SE Asia Developed Greater Africa Global Total
America Asia China Travel US Gin Scotch Other Indian Vodka Tequila Cognac Rum Canadian Liqueur Spirits
Whiskey Whiskey Whiskey Armagnac Whiskey
Source: Diageo presentations &Spark Capital Research Source: Diageo presentations &Spark Capital Research
Diageo global has a consolidated ~55% holding in United Spirits India a key focus market for Diageo Global: “For Diageo Global the three focus areas
are scotch, US spirits, and India.
January 2019: Volume growth accelerated. This was largely driven by India, which
accounted for nearly 60% of total volume growth as it lapped a weaker prior year
period. There were also volume gains in gin and scotch. Contribution from price/mix
Other continued to be strong, with every region delivering positive price/mix. Improved
45.2% growth in U.S. Spirits and scotch more than offset the adverse impact of the double-
Diageo Global digit net sales growth of Diageo India, a business with lower average NSV per case
54.8% compared to Diageo’s average."
"India, LAC and Africa together accounted for 27% of the global emerging middle class
in 2018 and are expected to drive 66% of forecast growth between now and 2030.“
Diageo Global presentations and transcripts

Source: BSE filings &Spark Capital Research
Page 77
Diageo posses an enviable global portfolio of brands that can be cross pollinated into India (a few of the brands already present in India)
Scotch Whisky Other Whisky Vodka Rum

Bell's Blended Scotch Whisky Crown royal Ciroc Captain Morgan
Buchanan’s Baileys Ketel one Ron zacapa
Cardhu sheridan's Smirnoff Cacique
Cragganmore Bundaberg
Glenkinchie Pampero
Haig Club
justerini and brooks
Johnnie Walker
Mortlach
Oban
Grand old parr
Talisker
VAT 69
White horse
Windsor
the singleton
Caol ila
Royal Lochnagar
Clynelish
Dalwhinnie
Glen elgin
Lagavulin
Bulleit
Source: Diageo global website &Spark Capital Research
Page 78

Diageo has 20 brands among the top 150 spirits brands in the World (not including the USL brands)
Rank Brand Owner Category 2014 2015 2016 2017 2018 %+/-
4 Smirnoff Diageo Vodka 25.6 25.8 25.7 26 26 0%
9 Johnnie Walker Diageo Whisky – Scotch 17.9 17.6 17.4 18.3 18.9 1%
13 Captain Morgan Diageo Rum 10.4 10.3 10.7 11.7 11.7 3%
31 Crown Royal Diageo Whisky – Canadian 5.3 6.2 6.8 7 7.3 8%
33 Baileys Diageo Liqueurs 6.2 6.3 6.5 6.9 7.1 3%
36 Gordon’s Diageo Gin 4.3 4.3 4.5 5.1 6.5 11%
45 Ypióca Diageo Local – Cachaça 5.2 4.9 4.8 5.1 4.7 -2%
55 Tanqueray Diageo Gin 2.5 2.7 3.1 3.5 4 12%
68 J&B Diageo Whisky – Scotch 3.7 3.5 3.5 3.4 3.2 -4%
73 Yeni Diageo Local – Raki 3.5 3.5 3.4 3.4 3 -4%
79 Ketel One Diageo Vodka 2.4 2.4 2.4 2.4 2.8 4%
80 Black & White Diageo Whisky – Scotch 1.3 1.5 1.8 2.4 2.7 20%
81 Seagram’s 7 Crown Diageo Whiskey – American 3.2 2.9 2.9 2.9 2.7 -4%
95 Bell’s Diageo Whisky – Scotch 2.2 2.2 2.2 2.2 2.2 0%
99 Cîroc Diageo Vodka 2.6 1.8 2.4 2 2.1 -5%
109 Buchanan’s Diageo Whisky – Scotch 1.6 1.5 1.7 1.7 1.7 2%
118 White Horse Diageo Whisky – Scotch 1.7 1.5 1.3 1.5 1.6 -2%
119 Bulleit Diageo Whiskey – American 0.8 1 1.3 1.5 1.6 19%
122 Don Julio Diageo Tequila 0.4 0.9 1 1.3 1.5 39%
139 Vat 69 Diageo Whisky – Scotch 1.2 1.3 1.2 1.3 1.3 2%
Source: Spirits Research &Spark Capital Research
Page 79
#6 Strategically located manufacturing units provide a natural advantage
ZONE STATES
Pernod Ricard Radico Khaitan USL ABD Mohan Meakin John Distilleries
Orissa 
EAST
West Bengal  
Maharashtra     
WEST
Goa  
Madhya Pradesh 
Punjab  
Haryana 
NORTH
UP   
Rajasthan  
Himachal Pradesh  
Karnataka  
Telangana   
SOUTH
Kerala 
Pondichery 
Andhra Pradesh 
Key markets for USL

Page 80
#7 Excise duty hikes to be managed through price increases
Excise duty per case has increased at a ~18% CAGR over the past 13 years… …with majority of the excise duty hike passed on to the consumers
40% y = 0.7594x + 0.0052

R² = 0.479
2289 2394 35%
1882 30%
MRP per case (Rs.)

18% 1657
1388 25%
1086 20%
903
753 15%
609
394 435 466
273 314 10%
5%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 0%
4% 8% 12% 16% 20% 24% 28% 32%
ED per case
ED per case (Rs.)
We understand that USL’s key markets are Maharashtra, Karnataka, UP, Rajasthan, Telangana, West Bengal and Rajasthan going by their plant locations
80%
70%
60%
50%
40%
30%
20%
10%
0%
WB
Karnataka
HP
Manipur
Orissa
Chattisgarh
Tamil Nadu
Kerala
Mizoram
Maharashtra
A&N
Dadra
Chandigarh
UP
J&K
Tripura
Goa
Madhya Pradesh
Andhra Pradesh
Sikkim
Haryana
Telangana
Delhi
Assam
Uttarakhand
Pondicherry
Rajasthan
Punjab
Arunachala Pradesh
Jharkhand
Source: State Excise Department filings and Spark Capital Research
Page 81
Gross margins which has been on the uptrend over the past few years is anticipated
Gross Profit per case has increased ~4% CAGR over the past 13 years
to remain flat over the next two years
55%
51% 50% 49% 51% 49% 49%
48%
581 578 588 45% 45% 45% 44% 44% 44%
541
437 432
381 400 401
345 315 318 347
314
25 35 42 47 48 41 37 39 43 47 51 56 61 67
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Gross Profit per case Gross Profit (Rs.bn) Gross Margin (%)
Raw material and packaging costs are relatively lower in the last two years on Raw material cost per case of 9 liters of alcohol is Rs.323 and packaging costs are
account of premiumization Rs.202
316 317 323

2% 2% 277 264
10% 7% 13% 3% 3%
11% 231
10% 7% 218
202 202
9% 21% 21% 196 193
10% 20% 20% 19% 168 174
20% 20% 19% 164 157
20% 21% 137 126 142 137
19% 118
18% 111 116
30% 31% 35% 32% 30%

22% 22% 25% 26% 27% 27%
18%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Raw material consumed Packaging material consumed Others Raw Material cost per case (Rs.) Packaging cost per case (Rs.)
Page 82
Extra Neutral Alcohol (ENA) or Rectified Spirit inflation has been in tandem to
…as 70% of ENA is derived from molasses in India as against 4% globally
Molasses prices in India…
Molasses Non Agri
4% 3%
Sugar Beet Grain
2% 26%
Cane Juice
World Ethanol India Ethanol
32% production by production by
feedstock Raw Material
Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Coarse Grains Molasses
Wheat 56% 74%
India WPI Rectified Spirit Molasses price INR/qtl. 3%
Source: Bloomberg & Spark Capital Research Source: ISMA presentations and Spark Capital Research
Molasses prices are lower and the process of conversion is also simpler leading to With no clear guideline definition of the aw material to be used, most brown malts
most brown spirits being made out of molasses in India in India are made out of molasses.
Key Alcohol  Whisky is an alcoholic beverage made by distilling the fermented extract of malted cereal
Complexity Process RM used Whisky grains such as corn, rye, barley, or using neutral grain spirit or rectified grain spirit, or
source
neutral spirit of agricultural origin, or their mixture.
Simple Single Stage Hydrolysis Sucrose  Cane juice ; Beet juice; Molasses
 Rum is an alcoholic distillate obtained from fermented juice of sugarcane, sugarcane
 Cassava; wheat rice; sorghum; Rum molasses, or any other sugarcane product, and shall not contain any colouring matter other
Moderate Two Stage Hydrolysis Starch
millets than caramel.
Pretreatment Followed by  Gin is a distilled alcoholic beverage made from neutral spirit of agricultural origin flavoured
Most Complex Cellulose  Bagasse; wheat & rice straw; grass Gin
Liquefaction with juniper berries and or other flavoring agents of botanical origin
Country  Country liquors or spirits are alcoholic beverages obtained from distillation of fermented
liquors carbohydrates of agricultural origin.
Molasses 225 – 235 l/ton  Brandy is an alcoholic beverage made by distillation of wine. Brandy may be aged or
Brandy
matured to possess aroma and taste characteristic of brandy
B- Heavy molasses 300 – 310 l/ton Fenny or  Fenny or Feni is a distilled liquor made from the fermented juice of cashew apple or
Feni coconuttoddy
Grains above 400 l/ton  Vodka is a distilled alcoholic beverage made from the neutral spirit obtained from fermented
Vodka mash of rye, potato, cassava, grains or any other carbohydrates of agricultural
Sugar cane 70 – 75 l/ton
origin.
Source: ISMA presentations and Spark Capital Research Source: FSSAI and Spark Capital Research
Page 83
Molasses prices have been on the uptrend despite record production and high …due to rise in the state determined FRP prices, ex-mill sugar price has been on the
underlying stock of Sugar… downtrend over the past two years.
300 3,620 275 4000
256 248 254 260 3,148 3,121 3,120 3500
229 226 228 242 245 2,951 2,951 2,917
219 213 208 2,727
250 2,492 3000
255 3,040
2500
110.33 105 92.98 90.8
107.2 220 230 230
66.01 74.74 77.52 200 170 2000
43.64 49.8 58.54
38.8
210
145 1500
264 145 200 244 263 251 244 283 251 203 325 307 139.12
150 129.84 1000
2018-19E
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
500
100 0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Production Internal Consumption Opening Balance
FRP (per quintal of Sugar Cane) Avg. ex-mill price of Sugar (INR/tonne)
Source: ISMA presentations and Spark Capital Research Source: ISMA presentations and Spark Capital Research
Sugar Mills derive ~80% of revenues from …despite ethanol generate higher We understand that EBP requirements will be met out of diversion in Sugar
Sugar, while ethanol is just ~13%... profitability production rather than from molasses.
Power Other mn
Ethanol & 6% 1% C-Grade B-Grade
tonnes
RS Molasses Molasses
1 tonne of Sugar Cane - 107 kgs of
13% Sugar Cane crushed in FY19 300
sugar and 46 kgs of molasses
Sugar - Profit/(Loss)
-2 -8 Sugar produced 32.1
(INR/Kg)
average realistic yield of alcohol @
Ethanol - Realisation Molasses produced 13.8
47 52 235 liters/ton of molasses
(INR/litre)
Alcohol Produced (litres) 3243
500mn cases sold & 9 litre per case
OMCs are advised to prioritise ethanol Portable Alcohol Indutry demand 1800
and 40% of average alcohol)
from 1) 100 % sugarcane juice, 2) B heavy
molasses / partial sugarcane juice, 3) C Less: Grain based Alcohol (30%) 540
Sugar heavy molasses and 4) Damaged Food Portable Alcohol industry Usage 1260
81% grains/other sources, in that order. Remaining 1983
10% blending requirment 3300
Source: ISMA presentations and Spark Capital Research Source: ISMA presentations and Spark Capital Research
Source: Industry, Spark Capital Research
Balance to be diverted from Sugar production 1317
Source: ISMA presentations and Spark Capital Research Page 84

USL has been increasing its consumption of non-molasses based offerings Prices of grain based spirits driven by paddy cost…
3500
70%
3000
2500
2000
35%
1500
20%
1000
10%
500
0
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
Sep-17
Dec-17
Mar-18
Sep-18
Dec-18
Mar-19
FY08 FY09 FY13 FY19
Grain based spirit as a part of USL's RM basket
Source: Company filings & Spark Capital Research Source: Bloomberg & Spark Capital Research
…and wheat prices Packaging cost on the rise on account of higher energy cost.
2500 140
1950 135
2000
130
1500
125
1000 120
115
500
110
0 105
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
May-13
May-14
May-15
May-16
May-17
May-18
May-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Page 85
Operating margin levers to gain momentum over the medium term

EBITDA margins to remain relatively flat over the two years on account of gross
EBITDA per case is anticipated to increase by a ~3% CAGR over the two years
margin pressure
16.4% 16.2% 16.7%
EBITDA per case
14.0%
12.1% 11.4%
200 11.2%
187 189 10.4%
153
104 110
93 88
4 11.2 10.9 0.4%

0.3 9.6 9.9 12.0 15.3 16.6 18.9
-1.3%
-11 FY12 FY13 -1.4
FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e
EBITDA per case EBITDA (Rs.bn) EBITDA Margin (%)
Employee cost as a % of sales is expected to dwindle as pay scales are matched with
A&P as a % of sales is anticipated to remain flat over the next two years
Diageo global
8.1% 8.3% 8.0%
7.8% 7.8% 7.9% 12.2%
7.2% 7.4% 11.3%
6.9% 10.9%
6.5% 10.1%
9.2% 9.2%
7.2% 7.6%
7.2 7.5 8.6 7.8 6.8 6.9 6.8 6.9 7.1 7.4 10.1 10.6 13.0 10.6 6.2 6.7 7.9 8.6
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20e FY21e FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Employee Cost % of sales A&P % of sales
Page 86
Operating Profit levers Vs competitors

USL Pernod Ricord Allied blenders and distillers Radico Khaitan
Rs.mn 2015 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018
Gross Sales 224,060 239,209 257,568 265,559 102,908 119,755 128,486 157,442 21,280 30,072 39,620 55,714 32125.623 36038.737 48,680 62,704
Excise Duty 130,710 154,260 169,393 179,653 40,406 56,180 63,251 85,813 7,163 12,133 19,496 32,385 17,242 20,607.79 31,881 44,476
Net Sales 93,350 84,949 88,175 85,906 62,502 63,575 65,235 71,629 14,117 17,938 20,124 23,329 14,884 15,431 16,799 18,228
COGS 52,190 47,571 49,297 43,406 26,932 32,587 33,721 34,628 5,353 7,660 10,016 11,657 7,196 7,206 9,214 9,522
RM 24,887 29,423 28,561 25,365 24,772 30,423 30,260 32,035 3,634 5,718 8280 9,957 4,294 4,304 5,208 4,792
Packaging 18,451 17,946 18,194 15,894 2,414 2,795 3,817 4,600
Others 8,852 202 2,542 2,147 2,160 2,164 3,461 2,594 1,719 1,942 1736 1,700 488 107 189 130
GM 41,160 37,378 38,878 42,500 35,570 30,987 31,514 37,001 8764 10278 10108 11672 7688 8225 7,585 8,706
Employee cost 7,779 6,800 6,882 6,809 2,289 2,516 2,958 3,286 1,241 1,566 1648 1,640 1,195 1,310 1,412 1,550
A&P 10,563 6,154 6,734 7,916 3,860 3,345 3,295 3,760 2,909 3,184 2452 3009 1,073 1,160 805 873
Distribution Cost 1,461 1,310 1,331 1,465 309 387 437 499 304 241 818 770 885 780 227 261
Freight 2,135 2,092 2,329 2,276 2,467 2,549 2,555 2,637 683 650 802 862
Other expenses 18,892 11,375 11,710 12,027 12,392 6,973 7,630 9,082 2703 3,408 3,328 3845 2,148 2,379 2,226 2,462
EBITDA 330 9,647 9,892 12,007 14,253 15,217 14,640 17,737 1607 1879 1863 2409 1,704 1,946 2,113 2,698
Other Income 811 436 1,053 2,189 395 2,085 903 1,900 44 104 101 150 450 381 196 267
Depreciation 2,229 1,572 1,886 1,923 301 372 456 479 128 203 716 860 383 403 417 409
Interest 6,873 4,574 3,751 2,710 956 324 342 353 628 832 1198 1453 899 847 804 682
PBT -7,961 3,937 5,308 9,563 13,391 16,607 14,744 18,805 895 948 50 246 871 1,077 1,089 1,873
Extraordinary -8,392 -274 -3,681 -445 -78 -135 -8 1 5
TAX 520 2,228 697 2,599 4,538 5,781 5,178 6,525 378 297 25 133 195 308 288 638
PAT -16,873 1,435 930 6,519 8,852 10,826 9,566 12,280 439 516 17 113 676 769 802 1,240
Net Worth 14,676 16,347 17,856 24,191 15,997 19,577 22,654 23,364 2,166 2,695 3,256 3,251 8,293 9,045 10,441 11,568
Capital Employed 66,151 59,903 59,818 59,448 16,083 19,944 25,032 23,661 3,896 2,995 3,886 4,023 12334 11847 12,259 12,946
Inventory 19,519 19,276 19,197 19,343 5,724 6,548 6,264 7,129 419 841 1716 1878 2130 2327 2,930 3,109
Debtors 23,032 29,534 27,112 25,425 15,276 19,769 23,029 24,743 1,620 2680 3306 3553 778 5489 6,240 6,300
Creditors 10,189 12,247 14,551 14,083 8,236 10,017 10,004 11,850 864 1268 2089 2258 1242 1490 3,407 2,977
Source: Company filings, RoC & Spark Capital Research
Page 87
Operating Profit levers Vs competitors

USL Pernod Ricord India Allied blenders and distillers Radico Khaitan
Rs.mn 2015 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018
Excise Duty as a % of Gross Sales 58.3% 64.5% 65.8% 67.7% 39.3% 46.9% 49.2% 54.5% 33.7% 40.3% 49.2% 58.1% 53.7% 57.2% 65.5% 70.9%
Excise Duty as a % of Net Sales 140.0% 181.6% 192.1% 209.1% 64.6% 88.4% 97.0% 119.8% 50.7% 67.6% 96.9% 138.8% 115.8% 133.5% 189.8% 244.0%
as a % of net sales
Cost Of Goods Sold 55.9% 56.0% 55.9% 50.5% 43.1% 51.3% 51.7% 48.3% 37.9% 42.7% 49.8% 50.0% 48.3% 46.7% 54.8% 52.2%
Raw Material 26.7% 34.6% 32.4% 29.5% 39.6% 47.9% 46.4% 44.7% 25.7% 31.9% 41.1% 42.7% 28.8% 27.9% 31.0% 26.3%
Packaging 19.8% 21.1% 20.6% 18.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16.2% 18.1% 22.7% 25.2%
Others 9.5% 0.2% 2.9% 2.5% 3.5% 3.4% 5.3% 3.6% 12.2% 10.8% 8.6% 7.3% 3.3% 0.7% 1.1% 0.7%
Gross Margin 44.1% 44.0% 44.1% 49.5% 56.9% 48.7% 48.3% 51.7% 62.1% 57.3% 50.2% 50.0% 51.7% 53.3% 45.2% 47.8%
Employee cost 8.3% 8.0% 7.8% 7.9% 3.7% 4.0% 4.5% 4.6% 8.8% 8.7% 8.2% 7.0% 8.0% 8.5% 8.4% 8.5%
A&P 11.3% 7.2% 7.6% 9.2% 6.2% 5.3% 5.1% 5.2% 20.6% 17.7% 12.2% 12.9% 7.2% 7.5% 4.8% 4.8%
Distribution Cost 1.6% 1.5% 1.5% 1.7% 0.5% 0.6% 0.7% 0.7% 2.2% 1.3% 4.1% 3.3% 5.9% 5.1% 1.4% 1.4%
Freight 2.3% 2.5% 2.6% 2.6% 3.9% 4.0% 3.9% 3.7% NA NA NA NA 4.6% 4.2% 4.8% 4.7%
Other expenses 20.2% 13.4% 13.3% 14.0% 19.8% 11.0% 11.7% 12.7% 19.1% 19.0% 16.5% 16.5% 14.4% 15.4% 13.2% 13.5%
EBITDA Margin 0.4% 11.4% 11.2% 14.0% 22.8% 23.9% 22.4% 24.8% 11.4% 10.5% 9.3% 10.3% 11.4% 12.6% 12.6% 14.8%
Other Income 0.9% 0.5% 1.2% 2.5% 0.6% 3.3% 1.4% 2.7% 0.3% 0.6% 0.5% 0.6% 3.0% 2.5% 1.2% 1.5%
Depreciation 2.4% 1.9% 2.1% 2.2% 0.5% 0.6% 0.7% 0.7% 0.9% 1.1% 3.6% 3.7% 2.6% 2.6% 2.5% 2.2%
Interest 7.4% 5.4% 4.3% 3.2% 1.5% 0.5% 0.5% 0.5% 4.4% 4.6% 6.0% 6.2% 6.0% 5.5% 4.8% 3.7%
PBT Margin -8.5% 4.6% 6.0% 11.1% 21.4% 26.1% 22.6% 26.3% 6.3% 5.3% 0.2% 1.1% 5.9% 7.0% 6.5% 10.3%
Extraordinary -9.0% -0.3% -4.2% -0.5% 0.0% 0.0% 0.0% 0.0% -0.6% -0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
TAX 0.6% 2.6% 0.8% 3.0% 7.3% 9.1% 7.9% 9.1% 2.7% 1.7% 0.1% 0.6% 1.3% 2.0% 1.7% 3.5%
PAT Margin -18.1% 1.7% 1.1% 7.6% 14.2% 17.0% 14.7% 17.1% 3.1% 2.9% 0.1% 0.5% 4.5% 5.0% 4.8% 6.8%
RoE -115% 9% 5% 27% 55% 55% 42% 53% 20% 19% 1% 3% 8% 9% 8% 11%
RoCE -26% 2% 2% 11% 55% 54% 38% 52% 11% 17% 0% 3% 5% 6% 7% 10%
Inventory Days 32 29 27 27 20 20 18 17 7 10 16 12 24 24 22 18
Debtor Days 38 45 38 35 54 60 65 57 28 33 30 23 9 56 47 37
Creditor Days 17 19 21 19 29 31 28 27 15 15 19 15 14 15 26 17
Core WC days 53 56 45 42 45 50 55 46 20 27 27 21 19 64 43 37
Pernod Ricord’s high gross margin and operational efficiencies are the potential benchmark for United Spirits to aspire for. Pernod Ricord’s margins are also a testament to the margin
potential that exists in the category. Premiumization drive coupled with operational cost efficiencies should lead USL closer to Pernod Ricord’s operating margins.
Page 88
Financial Leverage
Financial leverage to accrue over the next two years as more debt gets repaid out of the FCF generated. Given the rise in credit ratings, USL could also bring down its interest
rate significantly over the next two years.
13.1% 12.5%
11.8%
9.5% 9.5% 9.4%
7.1% 7.4%
6.2%
5.4%
4.3%
2.9% 3.2%
2.5%
1.8% 1.2% 0.7%
0.87 5.45 7.18 6.07 4.56 8.76 9.85 13.23 6.87 4.57 3.75 2.71 2.37 1.83 1.39 0.84 0.35
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21e FY22e
Interest Expense % of sales
Source: Company filings & Spark Capital Research
Debt repayment to continue over the next two years and we have assumed for an all time low debt of Rs.8.06bn by FY21.
3.5
3.2 3.3
2.7 2.6
2.3
1.8 1.8 1.7
1.6 1.6
1.4
1.1 0.9
0.6 0.1
0.3
15.43 14.80 66.04 78.04 58.50 67.11 81.63 82.42 83.07 50.81 42.82 41.55 34.60 28.70 23.70 16.06 8.06
FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21e FY22e
Gross Debt Gross Debt/Equity
Source: Company filings & Spark Capital Research
Page 89
Cash Flow & Capital efficiency
RoE to optically seem lower on account of reduction in leverage RoIC though to increase from the current ~14% to ~18%
32% 29%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E 25% 23%
18%
14%
Asset 10%
0.6 0.7 0.8 0.8 0.8 1.0 1.3 1.5 1.4 1.6 1.7 1.7 4%
Turnover 0% -2% 18%
12% 14% 15%
-9% -11%
6% 3% 6%
Leverage 3.2 2.6 2.7 2.8 3.2 4.1 4.1 3.5 2.8 2.2 1.8 1.5 0% 2% -1%
PAT Margin -27%

-0.2% 7.4% 2.1% -1.1% -9.8% -8.8% 1.8% 3.5% 7.7% 8.5% 8.5% 9.3%
% -37%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 FY 20E FY 21E
Dupont 0.00 14% 4% -2% -26% -36% 9% 18% 32% 29% 25% 23% RoE (%) RoIC (%)
FCF generation in the next two years should be utilized to repay the debt Core WC days (as a % of gross sales) to remain flat over the next two years
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
EBIDA
20,491 8,355 12,597 12,165 8,626 5,701 8,614 5,088 9,373 12,016 12,273 13,713 Inventory
Post tax 59 55 56 43 46 31 30 28 27 25 25 25
days
WC
-4,577 -9,513 -5,036 7,523 -14,146 -7,664 -5,787 1,380 -122 6,319 -3,358 -3,294
changes Debtor
45 36 36 41 35 27 36 42 38 33 33 33
Days
OCF 15,914 -1,158 7,561 19,688 -5,519 -1,963 2,827 6,468 9,251 18,335 8,915 10,419
Creditor
50 36 40 32 28 16 16 18 20 18 18 18
days
CAPEX -2,734 -2,308 -6,195 -1,506 -2,288 -1,626 -2,580 -2,274 -298 -1,075 -2,147 -2,325
Core WC
FCF 13,180 -3,466 1,366 18,182 -7,807 -3,590 247 4,194 8,953 17,260 6,768 8,094 54 54 51 52 52 43 50 52 45 39 39 39
Days
Page 90
Corporate Governance (1/4) – Dr. Vijay Mallya’s impact

Initial and Additional Inquiry: “As disclosed in the financial statements for the year ended March 31, 2017, upon completion of the Initial Inquiry which identified references
to certain additional parties and certain additional matters, the MD & CEO, pursuant to the direction of the Board of Directors, had carried out an additional inquiry into past
improper transactions (‘Additional Inquiry’) which was completed in July 2016 and which prima facie identified transactions indicating actual and potential diversion of funds
from the Company and its Indian and overseas subsidiaries to, in most cases, Indian and overseas entities that appear to be affiliated or associated with the Company’s
former non-executive chairman, Dr.Vijay Mallya, and other potentially improper transactions. All amounts identified in the Additional Inquiry have been provided for or
expensed in the financial statements of the Company or its subsidiaries in prior years. Pursuant to a detailed review of each case of such fund diversion, and after obtaining
expert legal advice, the Company has, where appropriate, filed civil suits for recovery of funds from certain parties, including, Dr. Vijay Mallya, before the appropriate courts.
Further, at this stage, it is not possible for the management to estimate the financial impact on the Company, if any, arising out of potential non-compliance with applicable
laws in relation to such fund diversions. - as disclosed in the financial statements for the years ended March 31, 2016 and March 31, 2017, from the Securities Exchange
Board of India (‘SEBI’), in relation to the Initial Inquiry, Additional Inquiry, and matters arising out of the Agreement entered into by the Company with Dr.Vijay Mallya to
which the Company has responded and no further communications have been received thereafter” FY18 Annual report
Regulatory notices and communications: “as disclosed in the financial statements for the years ended March 31, 2016 and March 31, 2017, from the Ministry of Corporate
Affairs (‘MCA’) in relation to its inspection conducted under section 206(5) of the Companies Act, 2013 during the year ended March 31, 2016 and subsequent show cause
notices alleging violation of certain provisions of the Companies Act, 1956 and Companies Act, 2013 to which the Company had responded. The Company has received a
letter dated October 13, 2017 from the Registrar of Companies, Karnataka (the ‘Registrar’) inviting the Company’s attention to the compounding provisions of the
Companies Act, 1956 and Companies Act, 2013 following the aforesaid show cause notices. The Company thereafter filed applications for compounding of offences with the
Registrar in relation to three show cause notices, applications for adjudication with the Registrar in relation to two show cause notices and requested the Registrar to drop
one show cause notice based on expert legal advice received. The management is of the view that the financial impact arising out of compounding/ adjudication of these
matters will not be material. as disclosed in the financial statements for the years ended March 31, 2016 and March 31, 2017, from the Directorate of Enforcement (‘ED’) in
connection with agreements entered into with Dr.Vijay Mallya and investigations under the Foreign Exchange Management Act, 1999 and Prevention of Money Laundering
Act, 2002 to which the Company had responded and no further communications have been received thereafter; and” FY18 Annual report
Sep’18 Dec’18 Mar’19

Diageo 54.8 54.8 54.8
Vijay Mallya 2.0 2.0 2.0
Enforcement Directorate 1.7 1.7 1.7
Institutions 27.5 27.8 27.8
Public 14.0 13.7 13.7
Pledge 1.9 1.9 1.8
Source: Company filings & Spark Capital Research Page 91

Corporate Governance (2/4) – Top Management

Board of directors remuneration is in acceptable standards of the companies act (all values in Rs.mn)
Nature of Transaction Company Nature of Relationship FY14 FY15 FY16 FY17 FY18
Remuneration Anand Kripalu Managing Director 62 119 123 135
Remuneration Sanjeev Churiwala Executive Directors 0 45
Remuneration Mr Ashok Capoor Managing Director 66 3
Remuneration Mr P A Murali Executive Directors 48 153 27
Employee share-based payments Anand Kripalu Executive Directors 5 9
Sitting fee paid Mahendra Kumar Sharma Non-Executive directors 1 1
Sitting fee paid Indu Shahani Non-Executive directors 1 1
Sitting fee paid Rajeev Gupta Non-Executive directors 1 1
Sitting fee paid D Sivanandhan Non-Executive directors 2 1
Sitting fee paid V K Viswanathan Non-Executive directors 1 1
Sitting fee paid Nicholas Bodo Blazquez Non-Executive directors 0 -
Sitting fee paid Sudhakar Rao Non-Executive directors 0 -
Sitting fee paid Ravi Rajagopal Non-Executive directors 1 -
Director Commission paid Mahendra Kumar Sharma Non-Executive directors 5 5
Director Commission paid Indu Shahani Non-Executive directors 4 4
Director Commission paid Rajeev Gupta Non-Executive directors 3 4
Director Commission paid D Sivanandhan Non-Executive directors 4 4
Director Commission paid V K Viswanathan Non-Executive directors 2 4
Director Commission paid Nicholas Bodo Blazquez Non-Executive directors 2 -
Director Commission paid Sudhakar Rao Non-Executive directors 1 -
Director Commission paid Ravi Rajagopal Non-Executive directors 2 -

Corporate Governance (3/4) – Related Party Transactions

Most loans extended to group companies by the erstwhile promoter has been written off in FY16.
Nature of Transaction Company Nature of Relationship FY14 FY15 FY16 FY17 FY18
Loans advanced to Wine Society of India Private Limited Associate 58 29 15 0 38
Loans advanced to UBHL Fellow subsidiary 1,285 9,955 -249 0 0
Assignment of receivables in favour of the Company Diageo India Private Limited Fellow subsidiary 62 3
Loan outstanding Principal amount Wine Society of India Private Limited Associate 117 168 314 314
Loan outstanding Principal amount UBHL Fellow subsidiary 9,955 -249
Trade receivables from related parties Guinness Nigeria Plc Fellow subsidiary 8 6
Trade Payable to related parties Diageo Plc Parent - 58
Trade Payable to related parties Diageo Brands BV Fellow subsidiary 937 535
Trade Payable to related parties Diageo India Private Limited Fellow subsidiary 5 -
Trade Payable to related parties Diageo Great Britain Limited Fellow subsidiary 5 -
Trade Payable to related parties Diageo Australia Limited Fellow subsidiary 3 4
Trade Payable to related parties Diageo North America Inc. Fellow subsidiary 20 17
Trade Payable to related parties Diageo Scotland Limited Fellow subsidiary - 17
Trade Payable to related parties Diageo Singapore Supply Pte Limited Fellow subsidiary 15 1
Trade Payable to related parties Diageo Business Service India Pvt Limited Fellow subsidiary - 128
Amount due from / (due to) Diageo India Private Limited Fellow subsidiary -81 88 -43
Amount due from / (due to) Diageo Scotland Limited Fellow subsidiary -813 5
Amount due from / (due to) Diageo Singapore Pte Limited Fellow subsidiary -4
Amount due from / (due to) Diageo Singapore Supply Pte Limited Fellow subsidiary -17
Amount due from / (due to) Diageo Australia Limited Fellow subsidiary -29
Amount due from / (due to) Diageo North America Inc. Fellow subsidiary -18
Amount due from / (due to) Diageo Great Britain Limited Fellow subsidiary 1
Amount due from / (due to) Diageo Vietnam Fellow subsidiary 2
Amount due from / (due to) Diageo plc. Fellow subsidiary 2
Amount due from / (due to) Diageo Brands BV Fellow subsidiary -256 -254
Amount due from / (due to) Relay BV Fellow subsidiary 0
Amount due from / (due to) UBHL Fellow subsidiary 14,223 14,220 13,965
Amount due from / (due to) UBHL - UB Global Corporation Fellow subsidiary 156 135 86
Amount due from / (due to) Wine Society of India Private Limited Associates 182 233 285
Amount due from / (due to) UBHL - Pegasus Fellow subsidiary -27 -126 0
Amount due from / (due to) United Breweries Limited Fellow subsidiary 17 8
Amount due from / (due to) Kingfisher Finvest India Limited Fellow subsidiary -28 1 -1
Amount due from / (due to) Sovereign Distilleries Ltd Associates
Amount due from / (due to) City Properties Maintenance Company Bangalore Limited Fellow subsidiary 0
Deposits outstanding UBHL Fellow subsidiary

Corporate Governance (4/4) – Top Management

2015 2016 2017 2018
Total No. of Directors 9 10 10 10
Board of Directors
No. of Independent Directors 5 5 5 5
No. of changes in directors over last year 4 2 3 0
Audit & Risk

Nomination & Stakeholders’ Corporate Social
Director Management
Remuneration Relationship Responsibility
Committee
Board Members Mr Mahendra Kumar Sharma Member

composition in Mr Anand Kripalu Member Member
various committees Mr Sanjeev Churiwala
Mr V K Viswanathan Chairman Member
Dr (Mrs) Indu Shahani Member Chairperson Member Chairperson
Mr D. Sivanandhan Member Member Chairperson Member
Mr Rajeev Gupta Member
Mr Vinod Rao Member
Mr John Thomas Kennedy Member Member Member
Mr Randall Ingber
2015 2016 2017 2018

Auditors BSR & Co. LLP BSR & Co. LLP Price Waterhouse & Price Waterhouse &
Auditor Chartered Chartered Co. Chartered Co. Chartered
Accountants Accountants Accountants LLP Accountants LLP
(In Rs.mn) 2015 2016 2017 2018

Contingent st
Contingent Liabilities outstanding as on March 31 9,646 11,826 14,638 14,296
Liabilities &
Commitments
As % of networth 66% 72% 82% 59%
Source: Company filings & Spark Capital Research; Page 94

Valuations – Relative Valuation
The stock has traded between 38x-45x for ~43% of its 10 years history USL has traded at ~45.3x over the past 10 years
120.0
Cumulative
P/E Multiple No. of days % of of no. of %of Cumulative 100.0
traded no. of
range traded days no. of days
days +2 SD, 84.8
80.0
+1 SD, 65.0
10 - 17x 99 4% 99 4% 60.0
Average PE, 45.3
17 - 24x 382 15% 481 19% 40.0
-1SD, 25.6
20.0
24 - 31x 335 13% 816 33%
-2 SD, 5.9
-
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
31 - 38x 59 2% 875 35%
38 - 45x 291 12% 1166 47%
Source: Bloombergg & Spark Capital

45 - 52x 403 16% 1569 63%
52 - 59x 385 15% 1954 78% Current price presents a valuation upside, even on mean reversion.
59 - 66x 201 8% 2155 86% 1,800

1,600
66 - 73x 108 4% 2263 90% 1,400
1,200
73 - 80x 102 4% 2365 95% 90x
1,000
CMP (Rs.)
800 70x
80 - 87x 68 3% 2433 97% 50x
600
400 30x
87 - 94x 40 2% 2473 99%
200
10x
94 - 101x 26 1% 2499 100% 0 Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
101 - 108x 2 0% 2501 100%
Source: Bloombergg & Spark Capital Source: Bloombergg & Spark Capital
Page 95
Valuations – DCF Valuations
We have assumed EBITDA to increase at a ~13% CAGR over the estimated period and a terminal growth rate of ~5%
FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E
Total revenue 1,06,154 93,350 84,949 88,175 85,906 93,408 1,02,906 1,13,452 1,25,239 1,38,422 1,57,658 1,79,425 2,04,044 2,31,876 2,63,327 2,98,854 3,38,969
EBITDA -1,375 330 9,647 9,892 12,007 15,297 16,622 18,933 21,243 23,873 27,906 31,758 36,116 41,042 46,609 52,897 59,997
EBITDA margin % -1.3% 0.4% 11.4% 11.2% 14.0% 16.4% 16.2% 16.7% 17.0% 17.2% 17.7% 17.7% 17.7% 17.7% 17.7% 17.7% 17.7%
Dep 2,026 2,229 1,572 1,886 1,923 2,147 2,325 2,557 2,833 3,138 3,626 4,127 4,693 5,333 6,057 7,471 9,830
EBIT -3,402 -1,899 8,075 8,006 10,084 13,150 14,297 16,376 18,410 20,735 24,279 27,631 31,423 35,709 40,552 45,426 50,167
Tax 2,762 520 2,228 697 2,599 3,281 4,349 5,221 6,093 7,062 8,012 9,118 10,369 11,784 13,382 14,991 16,555
Effective Tax rate (%) -81% -27% 28% 9% 26% 25% 30% 32% 33% 34% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0%
Minority Interest 3 4 52 -71 181 -166 50 50 50 50 57 65 74 84 95 108 122
as a % of sales 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EBI -6,167 -2,423 5,795 7,380 7,304 10,035 9,898 11,104 12,266 13,623 16,210 18,448 20,980 23,841 27,075 30,327 33,490
Dep 2,026 2,229 1,572 1,886 1,923 2,147 2,325 2,557 2,833 3,138 3,626 4,127 4,693 5,333 6,057 7,471 9,830
WC Changes -14,146 -7,664 -5,787 1,380 -122 6,319 -3,358 -3,294 -3,681 -4,118 -3,153 -3,588 -4,081 -4,638 -5,267 -5,977 -6,779
as a % of sales -13% -8% -7% 2% 0% 7% -3% -3% -3% -3% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0%
Capex -2,325 -1,643 -2,597 -2,802 -1,843 -917 -2,147 -2,325 -2,557 -2,833 -2,833 -2,833 -2,000 -2,000 -1,000 -1,000 -1,000
FCFF -20,611 -9,502 -1,017 7,844 7,262 17,584 6,718 8,043 8,861 9,810 13,850 16,153 19,592 22,537 26,865 30,822 35,540
FCFF/EBITDA 14.98 -28.80 -0.11 0.79 0.60 1.15 0.40 0.42 0.42 0.41 0.50 0.51 0.54 0.55 0.58 0.58 0.59
FCFF to increase at a ~13% CAGR over the forecast

period Assuming a WACC of 9.3%, we arrive at our TP: Rs.659
Assumption Table Rs. mn FY20
Measure FY19-23 FY23-30 Discounted FCFF 107876
Volume 8% 8% PV of Terminal Value 396032
Price 3% 3% EV 503908
Excise Duty 11% 10% Less: Net Debt/(net Cash) 19992
Total income 10% 13% Implied Market Cap 483916
EBITDA Margin (Avg) 17% 18% Outstanding Shares 727
EBITDA growth (%) 12% 18% Target Price 659
FCFF/EBITDA (Avg) 42% 53% Terminal Growth 5.0%
WACC 9.3%
Source: Bloomberg & Spark Capital Research Terminal Value 8,78,058
Page 96
Financial Summary
Abridged Financial Statements
Rs. mn FY13 FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E
Profit & Loss
Revenue 1,04,986 1,06,154 93,350 84,949 88,175 85,906 93,408 1,02,906 1,13,452 1,25,239
Gross profit 47,090 48,261 41,160 37,378 38,878 42,500 47,374 50,794 55,607 60,917
EBITDA 10,908 -1,375 330 9,647 9,892 12,007 15,297 16,622 18,933 21,243
Depreciation 1,784 2,026 2,229 1,572 1,886 1,923 2,147 2,325 2,557 2,833
EBIT 9,124 -3,402 -1,899 8,075 8,006 10,084 13,150 14,297 16,376 18,410
Other Income 1,563 6,859 811 436 1,053 2,189 692 716 835 894
Interest expense 9,849 13,226 6,873 4,574 3,751 2,710 2,372 1,834 1,391 844
Exceptional items -108 -32357 -8392 -274 -3681 -445 -1353 0 0 0
PBT 946 22,589 430 4,211 8,989 10,008 12,823 13,180 15,820 18,460
Reported PAT (after minority interest) -1,012 -44,891 -16,877 1,383 1,001 6,338 7,002 8,780 10,549 12,318
Adj PAT -1,168 -10,412 -8,219 1,490 3,105 6,656 7,916 8,780 10,549 12,318
EPS (Rs.) -9.3 -71.6 -56.6 10.5 21.9 46.9 10.9 12.1 14.5 17.0
Balance Sheet
Net Worth 47,873 30,323 14,676 16,347 17,856 24,191 30,903 39,684 50,233 62,551
Employee Benefit Obligation 0 0 0 0 0 0 0 0 0 0
Total debt 82,424 83,071 50,806 42,817 41,545 34,595 28,698 23,698 16,057 8,057
Other liabilities and provisions 4,433 4,028 669 739 417 662 504 504 504 504
Total Networth and liabilities 1,34,730 1,17,421 66,151 59,903 59,818 59,448 60,105 63,886 66,794 71,112
Gross Fixed assets 31,026 35,317 24,062 15,799 17,503 18,438 19,323 21,470 23,795 26,353
Net fixed assets 20,305 21,905 15,110 14,440 14,554 13,714 14,599 14,421 14,189 13,913
Capital work-in-progress 1,312 1,097 1,133 2,821 1,993 1,018 1,019 1,019 1,019 1,019
Intangible Assets 58,386 35,099 5,731 5,100 4,612 4,199 4,230 4,230 4,230 4,230
Investments 2,179 2,381 9,150 620 1,498 1,235 227 227 227 227
Cash and bank balances 2,816 7,047 3,464 1,368 872 2,560 2,829 3,429 3,276 4,188
Loans & advances and other assets 22,664 19,478 7,787 7,445 8,812 12,036 18,376 18,376 18,376 18,376
Net working capital 27,068 30,415 23,776 28,109 27,477 24,686 18,825 22,183 25,477 29,159
Total assets 1,34,730 1,17,421 66,151 59,903 59,818 59,448 60,105 63,886 66,794 71,112
Capital Employed 1,30,297 1,13,394 65,482 59,164 59,401 58,786 59,601 63,382 66,290 70,608
Invested Capital (CE - cash - CWIP) 1,23,990 1,02,869 51,735 54,355 55,038 53,973 55,526 58,706 61,768 65,173
Net debt 77,429 73,643 38,192 40,829 39,175 30,800 25,642 20,042 12,554 3,642
Cash Flows
Cash flows from Operations (Pre-tax) 21,590 -3,822 -550 4,735 8,468 13,382 21,616 13,264 15,639 17,561
Cash flows from Operations (post-tax) 19,688 -5,519 -1,963 2,827 6,468 9,251 18,335 8,915 10,419 11,470
Capex 2,243 2,325 1,643 2,597 3,330 1,843 917 2,147 2,325 2,557
Free cashflows 17,446 -7,844 -3,607 230 3,138 7,408 17,418 6,768 8,094 8,912
Free cashflows (post interest costs) 27,310 1,703 3,597 4,833 6,890 9,936 19,790 8,601 9,485 9,756
Cash flows from Investing -11,210 -2,520 38,772 7,514 -2,273 1,044 -5,715 -1,481 -1,540 -1,713
Cash flows from Financing -9,924 12,350 -40,019 -11,549 -4,749 -9,661 -8,324 -6,834 -9,032 -8,844
Total cash & liquid investments 4,995 9,428 12,614 1,988 2,370 3,795 3,056 3,656 3,503 4,415
Page 97
Financial Summary
FY13 FY14 FY15 FY16 FY17 FY18 FY19P FY20E FY21E FY22E
Growth ratios
Revenue 13.6% 1.1% -12.1% -9.0% 3.8% -2.6% 8.7% 10.2% 10.2% 10.4%
EBITDA -2.4% -112.6% -124.0% 2823.6% 2.5% 21.4% 27.4% 8.7% 13.9% 12.2%
Adj PAT -160.1% 791.2% -21.1% -118.1% 108.3% 114.4% 18.9% 10.9% 20.1% 16.8%
Margin ratios
Gross 44.9% 45.5% 44.1% 44.0% 44.1% 49.5% 50.7% 49.4% 49.0% 48.6%
EBITDA 10.4% -1.3% 0.4% 11.4% 11.2% 14.0% 16.4% 16.2% 16.7% 17.0%
Adj PAT -1.1% -9.8% -8.8% 1.8% 3.5% 7.7% 8.5% 8.5% 9.3% 9.8%
Performance ratios
Pre-tax OCF/EBITDA 198% 278% -167% 49% 86% 111% 141% 80% 83% 83%
OCF/IC (%) 16% -5% -4% 5% 12% 17% 33% 15% 17% 18%
RoE (%) -2% -27% -37% 10% 18% 32% 570% 25% 23% 22%
RoCE (%) -12% 3% -1% 5% 9% 15% 16% 16% 18% 19%
RoCE (Pre-tax) 8% 3% -2% 14% 15% 21% 23% 24% 26% 27%
RoIC (Pre-tax) 7% -3% -4% 15% 15% 19% 24% 24% 27% 28%
Fixed asset turnover (x) 3.38 3.01 3.88 5.38 5.04 4.66 4.83 4.79 4.77 4.75
Total asset turnover (x) 0.78 0.90 1.41 1.42 1.47 1.45 1.55 1.61 1.70 1.76
Financial stability ratios
Net Debt to Equity (x) 1.6 2.4 2.6 2.5 2.2 1.3 0.8 0.5 0.2 0.1
Net Debt to EBITDA (x) 7.1 -53.5 115.7 4.2 4.0 2.6 1.7 1.2 0.7 0.2
Interest cover (x) 2.0 -0.4 -0.3 0.6 1.7 3.4 7.7 4.9 7.5 13.6
Inventory days 43 46 31 30 28 27 25 25 25 24
Working capital days 52 52 43 50 52 45 39 39 39 39
Valuation metrics 570
Fully Diluted Shares (mn) 126 145 145 145 145 145 727 727 727 727
Market cap (Rs.mn) 71,746 82,837 82,821 82,821 82,837 82,837 4,14,184 4,14,184 4,14,184 4,14,184
P/E (x) -61.4 -8.0 -10.1 55.6 26.7 12.4 52.3 47.2 39.3 33.6
P/OCF(x) 55 21 -75 -211 147 64 45 23 46 40
EV (Rs.mn) (ex-CWIP) 4,90,301 4,86,731 4,51,243 4,52,192 4,51,366 4,43,966 4,38,807 4,33,207 4,25,719 4,16,807
EV/ EBITDA (x) 45 -354 1,368 47 46 37 29 26 22 20
EV/ OCF(x) 25 -88 -230 160 70 48 24 49 41 36
FCF Yield 3.8% 8.9% 21.0% 8.2% 9.8%
Price to BV (x) 1 3 6 5 5 3 13 10 8 7
Dividend pay-out (%) -37.5% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Dividend yield (%) 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Page 98
Crystal Ball Gazing
United Spirits revenues are likely to grow at a ~10% CAGR over the next three years, supported by volume growth of ~8% and
price/mix increase of ~2%. Operating margins are likely to expand on the back of premiumization and cost savings. Operating
profits are anticipated to increase at a ~12% CAGR over the next three years. Assuming its 10 year P/E multiple and assigning a
multiple of ~45x
Revenue growth of Capital efficiency to remain low Multiple should
10% to be aided by due to cash accumulation remain at its 10 year
Volume growth of historical average
~8%
We believe a strong revenue growth and operating
Operating margin expansion coupled with higher Total Asset turnover to increase as no major CAPEX is
margin expansion levers should enable the multiples
cash levels should lead to ~16% earnings growth envisioned over the medium term.
sustain at mean levels
FY06-FY11 FY11-FY14 FY14-FY19 FY19-FY23E FY06-FY11 FY11-FY14 FY14-FY19 FY19-FY23E P/E multiple FY23E EPS (Rs.) Price target
Revenues CAGR 20.0% 12.9% -2.5% 10.3% RoE (%) 9% -8% 6% 23% 40 19.7 786
Gross Margin 50.7% 45.1% 45.4% 48.8% RoCE (%) 8% -1% 7% 18% 45 19.7 885
EBITDA CAGR 21.3% -149.4% -261.9% 11.8% RoIC (%) 6% -3% 3% 18%
EBITDA margin 15.8% 7.1% 9.2% 16.8% Average 1 yr fwd
EPS CAGR 3.7% -218.3% -168.7% 15.8% PE (x) 25.9 41.3 58.8 42.7
Total Asset Turnover (x) 0.9 0.8 1.4 1.7 EV/EBITDA (x) 14.7 21.6 32.0 25.6
Total WC days 49 52 47 39 Peak 1 yr fwd
Pre-tax OCF/EBITDA (%) 62% 186% 20% 82% PE (x) 40.7 102.5 98.6 47.4
Post Tax OCF as a % of IC 8% 6% 8% 17% EV/EBITDA (x) 24.4 49.3 44.9 27.3
Debt/EBITDA 6.1 -13.2 31.6 0.4
TOTAL
EPS CAGR of ~16%, exit RETURN OF
Entry = Rs. 570@ 39x Cumulative Dividends -
multiple of 45x on FY23E
FY21E EBITDA NIL
EPS 55%
Page 99
Spark Disclaimer
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INDIAN ALCOHOLIC BEVERAGES INDUSTRY

Initiating Coverage on United Breweries Ltd and United Spirits Ltd

 GNANASUNDARAM SAMINATHAN  [email protected]  +91 44 4344 0062

Indian Alcohol Industry (sans country liquor) Snapshot

Indian Alcohol Industry Snapshot

55% 55% 56% 56%

46% 46% 47% 48% 50% 51% 49% 50% 52%

13% 14% 15% 16% 18% 19% 19% 20%

11% 11% 10% 12%

40% 42% 44% 44% 15% 15% 15% 14%

49% 46% 46% 44% 85%

2014 2015 2016 2017 2014 2015 2016 2017

Indian Alcohol Industry Snapshot

MillerCoors South India, 41%

2010 2011 2012 2013 2014 2015 2016 2017 2018

How much does per person in India consume?

2.00 3.0 3.1 3.1 3.0 3.0 3.0 3.5

Source: WHO data and Spark Capital Research

4.2 5.4 4.1

Alcobev industry Volume growth drivers in India

21.9 22.0 22.5 111.7 112.6

Source: Youtube, News Reports and Spark Capital Research Page 12

Perception of Alcohol - through the lens of Bollywood

Source: Youtube, News Reports and Spark Capital Research Page 13

Perception of Alcohol - through the lens of Bollywood

Source: Youtube, News Reports and Spark Capital Research Page 14

(1) Increasing population within the legal drinking

Impact of the Regulation

Market Structure Overview Pricing Control

State Owned/Government Corporations Partly Banned

Source: State Excise departments & Spark Capital Research

The government The government

Given the steep

Source: Spark Capital Research

Importance of Alcohol for the state governments

35% % of alcohol revenues as a % of state generated tax revenues

22.34 State wise Sugarcane cultivated Area (Lakh ha)

Source: State Excise departments & Spark Capital Research

Ban of Alcohol in states – Report Card

Years – Liquor Ban in India

State Excise Revenues (Rs.bn) 173.2

4 Madhya Pradesh, Punjab, Rajasthan, Chattisgarh 52.3

80% Excise Duty as a % of gross income (IMFL)

% of IMFL volumes sold in India

Nestle 112,923 2,689 3.500

Asian Paints 168,246 233,675 0.060

25% y = 0.5084x + 0.0171 40% y = 0.7594x + 0.0052

Price Mix YoY increase/decrease

Distribution Footprint Total Reach: ~75000 outlets

Auditors S.R. Batliboi & Associates LLP, Chartered Accountants

Brand Launch Timeline and Manufacturing units

1981 Kingfisher Punjab

Kingfisher 1999 Haryana

Kingfisher Blue 2008

Heineken 2012 Orissa

2015 Kingfisher Ultra

Kingfisher Storm 2016

Kingfisher Radler is a soft drink

Source: Company fillings, Spark Capital