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An Indian brewery

An Indian brewery. A strategic analysis for ABC Breweries. CLSW Consulting Group. Presentation Overview. Introductions Indian Beer Market Introduction to India Brewery Operations Risks and Mitigation Strategies. Recommendations Cash Flows and Capital Structure Cost of Capital Questions.

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An Indian brewery

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  1. An Indian brewery A strategic analysis for ABC Breweries CLSW Consulting Group

  2. Presentation Overview • Introductions • Indian Beer Market • Introduction to India • Brewery Operations • Risks and Mitigation Strategies • Recommendations • Cash Flows and Capital Structure • Cost of Capital • Questions

  3. CLSW Consulting Group • Started in 2007 • Helps U.S. firms expand in international markets • Regional consulting teams • Eastern Europe • China • India • Southeast Asia • Africa

  4. ABC Breweries • Started as a microbrewery in 1982 in Portland, OR • Expanded throughout the Western United States • Three breweries • Went public in 1994. • Current market cap is $300M • Perceives growth potential is limited in the U.S. • Expects greater growth opportunities is Developing Asian markets

  5. Engagement Goals • Identify risks in entering Indian market • Identify risk mitigation strategies • Suggest investment entry and exit strategies • Provide investment analysis of best plan • Provide recommendations

  6. Why India • One of the fastest growing economies in the World • Expected 8-10% GDP growth for the next 5 years • Second largest population - 1.1 Billion inhabitants • Average mean age is 27 years old and dropping • Large number of NEW beer drinkers over the next few years • Changing lifestyles mean larger disposable income for young Indians • Growth of “Pub” culture

  7. Changing Face of Indian Culture • Large population exposed to western culture • International travel for a greater number of Indians • Beer no longer considered taboo • Beer is more often considered equivalent to soft drinks • Linked to adventurous, fun-seeking lifestyle

  8. Indian Beer Market • Over 130 million cases of beer in 2006 • Beer market expected to grow by 17.2% CAGR through 2011 • Two Types of Beer • Strong beer - (65% of market in 2006) • Lager • Sales are highly dependent on temperature and weather conditions • Highest sales in May, lowest in January

  9. Top 3 Competitors • United Breweries - Almost 50% of the market • Top brand - Kingfisher • SABMiller (SAB and Miller Beer) - 37% of market • Top brand - Haywards 5000 • Millenium Alcobev

  10. New Entrants • Anheuser-Busch in Hyderabad • Carlsberg • InBev

  11. India It's hard to find a country with as much variation, contrast and contradictions as India.

  12. Location of India

  13. Surrounded by Pakistan , Nepal , China , Bhutan and Bangladesh Coastline stretches 7000 kilometers. Surrounded by the Arabian Sea in the west, the Bay of Bengal in the east and the Indian Ocean in the South Total: 3,287,590 sq km land: 2,973,190 sq km water: 314,400 sq km Slightly more than one-third the size of the US Capital: New Delhi Geography of India

  14. Population: 1,129,866,154 Second most populous country of the world 0-14 years: 31.8% (male 188,208,196/female 171,356,024) 15-64 years: 63.1% (male 366,977,821/female 346,034,565) 65 years and over: 5.1% (male 27,258,259/female 30,031,289) Population growth rate: 1.606% Birth rate: 22.69 births/1,000 population Death rate: 6.58 deaths/1,000 population Sex ratio: 1.064 males/female Demographic factors *Above data is as of July 2007 est.

  15. Demographic factors • Labor force: 509.3 million (2006 est.) • agriculture: 60% • industry: 12% • services: 28% (2003) • Unemployment rate: 7.8% (2006 est.) • Life expectancy at birth: 68.59 years total population • Population below poverty line: 25% (2002 est.)

  16. Key Economic Parameters • Currency (code):- Indian rupee (INR) • Exchange rates:Indian rupees per US dollar – 40.42 (07/15/2007)

  17. India GDP Growth • GDP (purchasing power parity): - $4.156 trillion • GDP (official exchange rate): - $804 billion • GDP - real growth rate: - 9.2% (2006) • GDP - per capita (PPP): - $3,800 • GDP - composition by sector: • agriculture: 19.9% • industry: 19.3% • services: 60.7%

  18. India GDP Growth Forecast • India's economic boom will continue. • Real GDP growth will keep an annual average of 7.6% between • 2007 – 2012. • Information technology (IT) and IT-enabled services (ITES) output • will grow rapidly

  19. India’s leading industrial state. Contributing 13% of national industrial output Major industries include chemical and allied products, electrical and non-electrical machinery, textiles, petroleum and allied products. Capital city: Mumbai, formerly known as Bombay Most populous city of India Estimated population of 18million.(2006) Indian State of Maharashtra

  20. Mumbai • Entertainment Capital of India • Bollywood, the centre of India's Hindi film and television industry is located in Mumbai • Commercial Center of India. It contributes: • 10% of all factory employment • 40% all income tax collections • 60% of all customs duty collections • 40% of India's foreign trade • Headquarter of many Indian companies

  21. Brewing is the production of alcoholic beverages through fermentation, a method used for beer production. Work in the brewery is typically divided into 7 steps: mashing, lautering, boiling, fermenting, conditioning, filtering, and filling. Brewery Operations 16th Century Brewer

  22. Brewery Operation Flow Chart

  23. Brewery Operation Inputs • Raw material • Malted barley, Water, Starch source, Hops, Yeast • Bottles and Aluminum Cans • Capital Equipment • Numerous tanks and piping • Bottling equipment • Labor • Production, Marketing, Sales, Administration, Management, Distribution

  24. Risk Mitigation Strategies • Acceptance • “If it happens, we will live with it” • Mitigation/Risk Reduction • “If it happens, we have a way of reducing the negative effects” • Elimination • “It won’t happen. We will not do the deal” • Transfer • “It it happens, the insurance will pay for the loss”

  25. Infrastructure Risks • Indian Roads • 80% of traffic is crammed into 3% of available roads • Power Requirements • Reliability problems • Widespread power outages • Water Requirements • Increasing depletion of surface and ground supplies • Pollutant contamination

  26. Infrastructure - Risk Mitigation • Roads - Risk reduction • Build brewery in the Navi Mumbai • Two distribution centers in Mumbai and Pune • Power - Risk reduction • Purchase backup power generation equipment • Water Supply - Risk reduction • In-house, reverse-osmosis filtration systems

  27. Internal Political Tensions Risks

  28. Internal Political Tensions - Risk Mitigation

  29. External Political Tensions Risks

  30. External Political Tensions - Risk Mitigation

  31. Poverty Risks

  32. Poverty - Risk Mitigation

  33. Input Sourcing Risks

  34. Input Sourcing - Risk Mitigation

  35. References • Bhavna Rathore, “The beer market in India - forecasts to 2011” - Just - Drinks. Bromsgrove: Mar 2007 • Risk Management - http://en.wikipedia.org/wiki/Risk_management

  36. Acknowledgements • Bombay Travel Agent Vishnu Verhere • Chief Arbitration Expert Viola Fuss • Director of Planning Kent C. Detrees • Russian Chauffeur Picov Andropov • Self Esteem Coach Mia Culpa • Lay Off Counselor Oscar Lavista • Staff Fact Checker Neera Nuff

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