(TAP) Molson Coors Brewing Joins Cobra India to Tap Asia

Molson Coors Brewing Co. (TAP) announced that it has joined with Cobra India to form a company called Molson Coors Cobra India, to brew and market Cobra beer in South Asia including India, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. The joint venture will be headquartered in Mumbai.

Molson Coors will purchase a controlling stake of 51% of Cobra India from the existing shareholders and will have operational control over the new Molson Coors Cobra India.

New-York based private equity fund Brahma Management and Katyal family, which has brewing facilities in Bihar, holds 51% of Cobra India.

Molson Coors will be injecting approximately $35 million in the joint venture. It will invest further to meet the working capital requirements and the future expansion plans of the brewery operations.

The deal with Cobra India will come up with a 175,000 hl. brewery in Bihar, and will expand to 500,000 hl. The deal will add brands like Cobra Premium, King Cobra Superior and Iceberg 9000 in the portfolio of Molson Coors Cobra India.

The Indian beer industry which started in 1820, has been witnessing steady growth of 10 to 17% per year over the last ten years. It is estimated to grow to 50 million hl. by 2020, putting it in the top 10 beer markets globally. While SABMiller’s Haywards 5000 is the biggest-selling strong beer brand, United Brewer’s Kingfisher is the largest-selling beer brand overall in the market.

The deal is an extension of Molson Coors, UK and Cobra Beer joint venture in 2009 that gave way to Cobra Beer Partnership Ltd. The deal gave Molson Coors the right to produce and market Cobra beer in the United Kingdom where it is sold in 6,000 restaurants, a majority of which offer specialties from the Indian sub-continent.

Then Cobra’s Indian business, Cobra Indian Beer, was kept away from the ambit of the deal. It had been an independent company whose major owner was Karan Bilimoria of Cobra Beer.

Recommendation

We remain encouraged by the restructuring initiatives taken by the company to reduce overhead costs and boost profitability. The initiatives include closure of underperforming breweries and efforts to improve efficiencies in finance, administration and human resource activities. However, seasonal nature of business of Molson Coors and increased competition from Anheuser-Busch InBev (BUD) concerns.

Currently, Molson Coors has a Zacks #3 Rank implying a short-term Hold recommendation.

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