The Hindu Business Line : UB Group looking to spin off subsidiaries

One of the options being looked at is floating subsidiaries for specific segments of business, which could then be used to allow foreign liquor companies to pick up a certain percentage of stake.

K. Giriprakash

Bangalore, Sept. 18 The UB Group is considering an option to spin off subsidiaries of some of its group companies for entering into joint ventures with foreign liquor companies.

Sources close to the group told Business Line that one of the options being looked at is floating subsidiaries for specific segments of business, which could then be used to allow foreign liquor companies to pick up a certain percentage of stake in each of them.

The UB Group’s chairman, Dr Vijay Mallya, told newspersons last week that at least three foreign liquor companies, all from Europe, had offered to pick up stake in his group company, United Spirits, the largest liquor company in India and the third largest in the world.

Dr Mallya is apparently keen to unlock the value of his liquor companies, which have a substantial market share in India. An analyst with a brokerage firm pointed out that access to more funds will also allow Dr Mallya to reduce debt in some of his group companies and allow him to invest more on acquisitions as well as expansion into newer markets.

De-risking route

Partner & Head of Grant Thornton’s Strategic Services, Mr Vinamra Shastri, said spinning off subsidiaries is an efficient way to unlock value. At the same time, it is a prudent route to de-risk the mother firm from any problems that may crop up in the subsidiary.

He said even if one of the joint venture partners pulls out of a subsidiary, it does not affect the mother company. Newer subsidiaries would also help focus on the segment for which they are set up, such as premium or even white spirits, he said.

Foreign liquor companies are also keen to tie up with the UB Group because of the width of the distribution it offers in India, which is considered one of the fastest growing liquor markets in the world. “They (foreign players) will be able to make higher recovery from each case,” another analyst with a consultancy major said.

Also, it is becoming costlier for foreign liquor companies to operate their manufacturing units and hence outsourcing (manufacturing) it to India is another benefit these companies would be interested in.

Another reason for foreign players to tie up with Indian firms is because they are not witnessing major growth in their own markets as drinking patterns remain the same and hence the need to find newer markets, the analyst said.

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