The Indian Made Foreign Liquor (IMFL) players in India are gearing up for a 10 per cent price hike in the key market of Andhra Pradesh. The price hike, which will be effected by the state government, has been pending for a while after IMFL players made a representation for the price to be hiked at the earliest. The IMFL segment is a tightly-controlled sector in India and the players cannot effect price hikes on their own depending on the external parameters including hike in raw material prices.
Senior industry officials from two of the large players in IMFL sector said, they are hoping for the price hike within the next two months, and if “effected it will cushion the industry to a large extent”.
The IMFL industry which sold 240 million cases (1 case is 9 litres) last fiscal is looking towards a 10 per cent growth this fiscal, to touch 260 million cases by the end of FY12. On an average, around 40 million cases are sold on an annual basis in Andhra Pradesh, followed by Karnataka and Tamil Nadu accounting for a major share of India’s IMFL market.
The industry, in which UB Group’s flagship United Spirits dominates with a 50 per cent market share, has been facing a hostile environment with the prices of key raw material — ENA (extra neutral alcohol) and glass, spiking up sharply.
“The prices of ENA has increased by 15-17 per cent in the past few months and the landing cost is as much as Rs 40 a litre, while Hindustan Natural Glass, India’s largest glass supplier has increased prices by 10 per cent. These are two major input costs for us and we are in a tough situation. If the price hike is effected by the government of Andhra Pradesh at the earliest, it will help us cushion these price hikes to an extent and will not dent our margins further,” officials at one of the spirits company told Business Standard. United Spirits, to offset these spikes in the cost of core raw material is taking up an aggressive Rs 1,000 crore expansion plan to own production of these two ingredients. It is feverishly working on ways to have as much as 50 per cent control over ENA, a key ingredient in distilling spirits.
“It is a volatile situation. We recently acquired three distilleries which are multi-substrate units and are capable of producing ENA through both molasses and as well as by grain. Prior to these moves, nearly 90 per cent of our ENA requirements were from third party vendors and with these moves we have reduced our dependence to around 65 per cent,” he said.
Eventually we want to depend on third party vendors for around 50 per cent of our requirements,” a senior official of United Spirits told Business Standard. In addition to these three acquisitions, USL officials added that they will start work on a greenfield unit shortly which will cost them around Rs 150 crore. USL has already spent around Rs 350 crore to acquire the three distilleries.
The company also announced that it will invest around Rs 350 crore for a glass manufacturing plant at Vijayawada, Andhra Pradesh which will manufacture around 6,000 tonnes of glass a day.
