Dutch beer maker Heineken is ready to go for the ultimate kill. On Thursday, Reuters reported that Heineken, which holds a 42.4 per cent stake in India’s largest brewer, United Breweries Ltd (UBL) will make the necessary moves to ask the company’s chairman Vijay Mallya to step-down, following the latter’s financial troubles.
A company spokesperson, in an e-mail response said ‘as a matter of policy Heineken does not comment on market rumour or speculation.’ However for a more specific question on its plans to expand in India, the company said, “India has highly favourable demographics with strong economic fundamentals so the market remains an exciting opportunity for continued growth.”
Speculations around Heineken wanting to up its stake in UBL surfaced around two weeks ago. On February 25, UK-based liquor major Diageo had forced Mallya to step down from the board of United Spirits Ltd through a $75 million (Rs 515 crore) golden handshake. This was quickly followed by market regulator Securities and Exchange Board of India (SEBI) notifying that UB Group companies will not be able to raise any fresh capital from the public as long as Mallya was on the board of the companies. With over Rs 9000 crore owed by Kingfisher Airlines, Mallya has be declared as wilful defaulter by three public sector banks.
Heineken’s speculated move to oust Mallya from UBL is only logical and a prelude to increasing its stake in UBL above 50 per cent. Heineken today holds 42.4 per cent stake in United Breweries up from the 37.5 per cent stake it picked up in 2008 through the takeover of Scottish & Newcastle. Mallya along with a clutch of UB Group companies holds 32 per cent stake in the company of which his personal stake is around 8 per cent.
Beer market in India, according to All India Brewers Association is expected to cross Rs 43,000 crore by 2017. This is not exactly the ‘exciting opportunity’ Heineken is talking about. Per capita consumption of beer in India is still one of the lowest in the world at 2 litres. In the Czech Republic this number is 132 litres making this small European country of 12 million the world’s No.1 beer nation.
India’s low per capita beer consumption stands out even among the BRICS nations -- Brazil (65 litres), Russia (66 litres), China (32 litres) and South Africa (63 litres).
Even a small increase of the 2 litres per capita in India to say 4 litres would mean a staggering growth for brewers in India. Even with a single digit per capita consumption, India accounts for 13 per cent of the world beer consumption.
With half the market share in India already under its belt, Heineken will be one of the biggest gainers in the relatively dormant beer market in India. With the recent SEBI’s order, Heineken will now have a good reason to seek the ouster of Mallya from the board and make UB Group’s crown jewel its own.