Company cheers to earnings: An intoxicating case of brewing profits

Murree Brewery witnesses phenomenal growth with share price increasing up to 400%

KARACHI:

Holding a portfolio and seeing when, and if, the net worth rises can sometimes be a painstaking task. Given the number of choices, market rumours, company news and financial statements, patience and sticking to one option can be a virtue.

However, investors holding onto Muree Brewery’ stocks have been more than just a lucky bunch. If someone invested Rs25,000 then the amount rose to Rs100,000 over a 13-month period – between April 2013 and May 2014.

In April 2013, Murree Brewery was trading at Rs250 a share in the Karachi Stock Exchange. By December, it touched Rs400 on the back of monthly trading volume of 1.5 million shares.

Over the next few months, it continued to rise and by May 2014 it had crossed the Rs1,000 threshold before coming down to Rs900 – still going beyond the reach of the average retail investor.

Some part of this price surge has been attributed to the investment in Murree’s stocks by THS Kingsway Funds, a UK-based discretionary investment arm for anonymous wealthy investors. The fund now holds more than 10% stake in Pakistan’s oldest enterprise.



But the fortune of the company known for its Classic and Millennium beers had begun to shift way before the share price moved up hill. Year after year, Murree has recorded growth in sales and profits. Its net profit before tax jumped 345% between 2010 and 2014.

“Yes, we have done pretty well but then all the FMCGs (fast moving consumer good companies) have been doing great. There has been a double-digit growth in sales for the past few years,” says Isphanyar Bhandara, the 42-year-old CEO.

“Pakistan has a huge segment of its population that is young — nearly 60% of it. They are spending and consuming … they drink juices and eat chips. That is driving the growth.”

Murree has three business divisions – liquor, glass and tops, which include juices. Additionally, it also has a bottled water plant.

By far the largest source of revenue and profit remains the liquor division, contributing 73.5% to bottom line in nine months to March 2015. Its beer and other liquor brands dominate the market but fruity malts like apple, lemon and Cindy also do well.

About 10% revenue of the liquor division comes from sale of fruity malts.

Although, Isphanyar does not talk much about liquors, it is well known among industry circles that he has struggled hard to expand the foothold of his family business especially in the face of high taxation and continuous difficulties wine retailers face across the country.

Like every established brewer, the company also has its own beer-making process. It malts the barley and uses its own yeast that gives its products a peculiar taste. But it is also the quality of ground water which it uses that distinguishes Murree, whose brewery is located in Rawalpindi.  “Between 40 and 50 wells were dug before partition by the British owners of the company. They are over 400 feet deep and the quality of water is very good as it has its own chemical composition,” says Isphanyar.

He also remains optimistic about continued growth prospects of the company in the coming years. “I am very positive about the future. You need to understand that terrorism and insecurity does not affect us as badly as it would a cement company or a car manufacturer. After all, everyone has to eat and drink.”

Before the drink comes the glass

Murree also owns a glass-making facility in Hattar, Khyber Pakhtunkhwa. This division was a loss-making entity up till 2009. And now it has become the fastest growing arm of the company.

From just Rs7 million in 2010, this division’s net income steadily grew and in nine months to March 2015 it touched Rs281.8 million.

“That’s because of a management change I made there. The new people are running the facility brilliantly,” said Isphanyar.

The company’s financial statements also show Rs300 million in capital work in progress, which is the cost of a new glass melting furnace Murree is building, he says.

It is looking at restarting its sale of glass bottles and other glass products to various companies once the expansion completes.

‘Not worried about foreign buying’

While it remains difficult to conclude reasons for the massive surge in Murree’s share since most stock analysts do not cover the company, one thing is for sure — the interest of foreign funds had played a major role.

But private equity funds do not deter Isphanyar’s sprit. “Listen, my job is to run this company to the best of my ability. In any case, my family still holds substantial stake. As for THS, I know for sure that its 100% foreign investment.”

Published in The Express Tribune, May 26^th, 2015.

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