 "8 PM whisky, Mansion House brandy & Wodka Gorbatschow")
Ace investor Rakesh Jhunjhunwala, the promoter of Mumbai-based asset management firm, Rare Enterprises, bought 6,85,000 shares (or 0.5 per cent) of liquor manufacturer Radico Khaitan for Rs 11.50 crore last month.
It comes at a time when the 260-million-cases spirits market in India is seeing steady consolidation. Diageo, the world's largest spirits maker, through its acquisition of United Spirits in November, 2012, has a firm grip on the market despite the latter's creditors challenging the deal in court. The Supreme Court recently directed that the status quo be maintained in the sale of United Spirits to Diageo until April, 2014. The deal had run into legal hurdles after completion last July.
While Diageo-USL is in the driver's seat, the number two position has been taken up by French giant Pernod Ricard for some time now. It sells 30 million cases compared to United Spirits' over-140 million cases but is also the most profitable player in the business.
It is the third position that is up for grabs and Jhunjhunwala's investment confirms it is no less coveted. After all, he knows where to put his money. Radico Khaitan is not the sole contender for the third spot; there are others like Allied Blenders & Distillers (ABD) and Tilaknagar Industries, all vying for a larger share of the market. The fight, according to market sources, is stiff between ABD and Radico Khaitan.
They are both within striking distance of each other. ABD and Radico Khaitan sell roughly 22-25 million cases annually. Tilaknagar does about 14 million cases.
If ABD or Radico has to race ahead, then an acquisition or a strategic alliance would help it achieve this objective. In a rapidly consolidating market, acquiring size becomes critical, say experts. Mid-sized companies are expected to take this route because it gives them the necessary scale to compete with the big boys. The big-boys league in India is populated by Diageo and Pernod Ricard, who bring with them global expertise, best practices and big brands.
Sushil Patra, associate director, Technopak, says, "Acquisition of local brands or companies would be driven by the desire to fill portfolio gaps or to build presence in certain markets where the buyer does not have a foothold. Going forward, buyers would also consider product profitability, besides volume sales when looking at local acquisitions."
ABD's executive vice-chairman and chief executive, Deepak Roy, had recently said his firm, the maker of brands such as Officer's Choice, was looking to buy a majority stake in Tilaknagar, the maker of Mansion House brandy. "We are looking at it (majority stake in Tilaknagar Industries). Our efforts are on… let's see if it materialises," he had said. ABD is also said to be raising Rs 1,200 crore to fund the acquisition.
Radico, meanwhile, was rumoured, some time ago, to be talking to Japanese major Suntory for a possible 26-per-cent stake sale, which was expected to fetch it Rs 870 crore and give Suntory much-needed access to India's alcoholic beverage market. Radico had described this as mere speculation. Had the deal fructified, Radico-Suntory, who have a marketing alliance, would have edged past ABD. Radico sells Suntory's whisky brands Yamazaki 12 YO single-malt and Hibiki 17 YO blended whisky.
Suntory is said to be now courting Tilaknagar for a 15-20 per cent stake. Other contenders for the minority stake include Pernod Ricard and Beam Global.
Tilaknagar in the race too
While most alcoholic beverage majors appear to be circling around Tilaknagar as it is keen to offload the Rs 600-crore debt on its books, it is not putting its own plans to acquire regional brands on hold.
Tilaknagar is in the process of acquiring the liquor business of BSE-listed IFB Agro Industries following board approval of the transaction on 8th of February. The Kolkata-based IFB sells vodka brand Volga and Blue Lagoon gin, popular in Assam, West Bengal and Odisha.
While Tilaknagar has not specified the deal size, experts say it is not too large (not exceeding Rs 200 crore) given the limited presence of IFB. The company is also in talks with Tamil Nadu-based Imperial Spirits Group, maker of brandies VSOP and Imperial XO. This deal is estimated to be in the region of Rs 400 crore. Besides Tamil Nadu, Imperial's products retail in markets such as Kerala, Karnataka and Goa.
Patra says, "Many regional players are looking to offload stake or business as the market is highly competitive, especially at the lower end, where margins are thin. Regional players have a limited portfolio, manufacturing capability and licences in select markets. These are impediments to further growth." The three players contending for number three are already making these drawbacks work for them.
