Punjab liquor baron sees a future in ethanol

SAD MLA Deep Malhotra's Oasis group pushes for ethanol from "non-food grade" food grains for blending with fuel

It is not difficult to locate Deep Malhotra's office in west Delhi's Punjabi Bagh area, not very far from the Shivaji Park metro station. Locals recognise the premises as belonging to the "diamond-business" family (Malhotra's daughter runs the business). A few policemen and security guards in safari suits can be seen in the parking lot. A small board refers to Malhotra as the MLA from Faridkot belonging to the Shiromani Akali Dal, the party that heads the state government in Punjab and has representatives in the Union Cabinet.

Dressed casually in a white T-shirt and pants, the second generation businessman confided that it is still early days for him in politics. "I entered politics just before the 2012 assembly elections," says Malhotra. He now divides his week among his constituency of Faridkot in Chandigarh, where he attends to his duties as a law maker, and Delhi, from where he runs his business. "I try to spend a day in Delhi every week."

Though a recent politician, Malhotra is a seasoned businessman. Sitting in his boardroom, which has a showcase stacked with bottles of different brands of liquor produced by his family-owned distillery, Oasis group, such as Old Fox rum, Limanov Vodka and Blue Patrol Whisky, Malhotra explains how he has grown his father's business over the past three decades. As the chairman and managing director, he has taken Oasis from a single distillery in 1987 set up by his father Omprakash Malhotra to a Rs 1,500-crore business with interests in manufacturing, distribution and marketing of liquor across 18 states. The group has also ventured into the hospitality sector with properties in Delhi and Mussorie. He expects the business to grow 33 per cent in 2015-16 to cross the Rs 2,000-crore mark.

As prices of Extra Neutral Alcohol (ENA), which Oasis units produce in millions of litres, is under pressure, liquor makers such as Malhotra are warming up to the idea of shifting to producing ethanol. Malhotra says he is in talks with a couple of state governments to set up ethanol units that will produce 500,000 litres per day. Each such unit can involve investments of up to Rs 500 crore. "We have written to the Punjab government seeking environmental clearances. We have also recently made a presentation to the Jharkhand government," he says.

However, there are some hurdles in the centre's ethanol policy, he points out. The group is trying to impress upon the government how the grains used to produce ENA, which are not fit for human consumption, can also be used to produce ethanol. "There is a fear that ethanol production will create a shortage of food grains. But the grains we use to produce ENA are unfit for human consumption," says Malhotra. "We need a change in policy. We are saying that there is a need to change the definition of the term 'non-food feed stocks' to include 'any source of grain unfit for human consumption'."

While people opposing grain-based ethanol wonder who will determine when grain is unfit for human consumption, Malhotra argues that the pricing of ethanol would ensure that higher quality food grain doesn't get diverted for ethanol production.

Oasis is also seeking state-level controls to ensure that ethanol produced locally is used for blending with fuel. "There is no molasses-based ethanol produced in Punjab. If there is a need to source ethanol locally, then it has to be grain-based."

Oasis - which operates five distilleries across the country with a total production of approximately 200 million litres of grain-based NA, making it one of the largest grain spirit producers in the country - is ideally placed to cash in on any favourable shift in policy. While it has a wide presence through its manufacturing and bottling units, Oasis' mainstay is its control over retail vends in Punjab. These vends, which are auctioned by the state government annually, are key to the group's financials and account for over half of the overall turnover. In the latest auction, Oasis group took control of about 900 retail vends in Punjab.

Malhotra has also made inroads into Haryana. "We acquired two distilleries in Ambala from the Chadha group. These units located adjacent to each other have a capacity of 120 kilolitres/day and are currently operational," he says. These units were bought from the family of Hardeep Singh Chadha, who died following a shootout at the farmhouse of his brother, Ponty Chadha, in 2012.

In January, CARE Ratings analysed the banking facilities of one of these two distilleries called Oasis Commercial. It gave it a B+ rating for short-term loans and CARE A4 for the working capital facilities. While CARE expressed concerns about the limited track record, high competition and its working-capital intensive operations, it added, "The ratings however, derive strength from the strong promoter group with experience in a similar line of business, group synergy in selling & distribution and strategic location of the unit. Going forward, the ability of the company to achieve growth in the scale of operations and improve profitability margins while effectively managing working capital requirements would be the key rating sensitivities."

The group is chalking out plans to expand its offerings in the liquor market with flavoured vodkas and plans to broaden its brand base by entering into semi-premium and premium segments in whisky, brandy and white spirits.