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MOSL: UNITED BREWERIES (Sell)-CCI penalty a significant sentiment dampener

(UBBL IN, Mkt Cap USD5.8b, CMP INR1603, TP INR1170, 27% Downside, Sell)

 

• The Competition Commission of India (CCI) has imposed penalties of INR7.52b on United Breweries (UBBL) and INR1.22b on Carlsberg India (CIPL, unlisted). No penalty has been imposed on Anheuser-Busch InBev (AB InBev)/SABMiller as it is the whistleblower.
• The penalty comes on the back of a detailed probe ordered four years ago with regard to alleged cartelization and price fixing by all the three major Beer players that came to light when AB InBev (after its global acquisition of SABMiller) came to acquire the business of SABMiller India.
• The period of cartelization is considered to be from CY07 to at least 10th Oct’18, with CIPL joining in from CY12, and the All India Brewers Association (AIBA) serving as a platform facilitating such cartelization since CY13.
• The companies were found to have exchanged commercially sensitive information and colluded to fix beer prices in Andhra Pradesh, Karnataka, Maharashtra, Odisha, Rajasthan, West Bengal, National Capital Region of Delhi, and the Union Territory of Puducherry.
• UBBL had cash and cash equivalents of INR4.7b (net cash of INR3.54b) at the end of FY21. As per our current forecasts, it may have the net cash to pay the penalty of INR7.52b by end of FY22 (assuming that is the timeline) or else it may have to raise debt.
• UBBL has stated in its that it is reviewing the order in consultation with its legal advisors and will evaluate further legal options. Given the lack of clarity on the timeline for payment of the said penalty and the company’s statement, we have not made changes to our numbers yet.
• We maintain our SELL rating on the stock.