The Hindu Business Line : Liquor sector sees bubbly growth

His optimism is not misplaced because the domestic liquor industry has been chugging along cheerfully, with a growth rate of about 15 per cent during 2008, while most other industries are finding newer depths as they struggle to stay afloat.

Even the super premium brands, which are normally shunned during recession, witnessed growth of about 40 per cent year on year. For example, the reserve brands of Diageo, such as Johnnie Walker, Blue Label and King George V, priced at about Rs 40,000, posted a growth of 40 per cent.

Turnaround

But the big positive for the largest liquor company in India and the second largest in the world, United Spirits, during 2008, was the turnaround of Whyte & Mackay which the group acquired in May 2007.

It showed that the Mr Mallya-owned group had the capability to take control of a foreign company and manage it efficiently.

Pre-acquisition, Whyte & Mackay had incurred a loss of about £1.2 million but as of March 2008, (2007-08), it reported a PBT (profit before tax) of £13 million.

The year 2009 will see UB Group’s United Spirits, which owns Whyte & Mackay, commence repayment of the debt of the Scottish company when the first tranche of Rs 160 crore will become due by March.

According to an analyst firm, IDFC SSKI Securities, United Spirits should have no problem repaying the debt because of the huge cash profit the company is sitting on.

Talks with Diageo

While the UB Group continues to discuss how the brands of Heineken, its new joint venture partner in United Breweries, can be accommodated, it has started talks with the world’s largest liquor company, Diageo, which makes Johnnie Walker whisky, for a financial tie-up.

According to a top official of the company, the talks “have gone the farthest” with Diageo though there is a timeline attached to the outcome of the talks.

What remains to be seen is whether Mr Mallya’s stand on foreign liquor brands will also see a change in case Diageo and his company agree to shake hands.

The acquisition of Balaji Distilleries based in Tamil Nadu is another big plus for the UB Group as it cements its place as the top liquor company in a State which, till recently, did not allow import of brands from other States.

The acquisition of Balaji Distilleries, which was a contract manufacturer for the UB Group, now gives it full manufacturing facility in the State, leading to tax savings for the group.

The Tamil Nadu Government recently floated tenders that will allow other liquor manufacturers to set up their base in the State.

Flow of competition

The second largest beer maker in India, SABMiller, which is inching closer to the market share of United Breweries, made a rather low-key launch of Indus Pride, a competitor to Kingfisher beer.

Its national roll-out is still a few months away but early reports from cities where it has already been launched suggest Indus Pride could turn out to be a worthy rival to Kingfisher beer.

But perhaps the big letdown during the year was the sudden drop in retail sales of wine, mostly because of the huge taxes slapped on wine brands by Karnataka and Maharashtra, two of the biggest markets for the beverage.

This has made companies such as Sula Vineyards and Four Seasons, again a UB Group company, revisit some of their expansion plans. Latest reports suggest that the wine manufacturers might just be able to get some concessions from these two States soon.

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