Whyte and Mackay Sale

United Spirits limited, the Vijay Mallya owned company may offer a stake of more than 15% to Diageo. Initially Mr. Mallya had offered a 14.9% stake since a purchase of 15% stake automatically triggers an open offer of 20%. USL, has a current debt of USD $1.4 billion with a current leverage of 3, mostly on account of the USD $1.2 billion acquisition of Whyte and Mackay. According to media reports USL is also considering selling off 49% of its stake in Whyte and Mackay, the Scotch whisky Company-PTI

UB Woes

The market has been buzzing for quite some time with the news that USL was looking for a strategic investor to finance its recent Whyte and Mackay acquisition. However, Diageo may be looking at a higher than 15% stake in United Spirits limited (USL) and may even go for an open offer. As a strategic investor Diageo is looking more than just securing some board seats in the company. The company has a current debt of Rs 1162 crores. The market is also buzzing with the news that Kingfisher has had preliminary negotiations with Air France- KLM for a 20-25 per cent stake in the company. But Mr. Mallya is seeking a premium 4 times the current market cap. With the current FDI window at 49% in the aviation sector the government may allow foreign airlines to hold upto 26% directly, a move mooted to curtail the losses of the aviation sector which may cross a billion dollars this fiscal year.

Slowdown catches up with the Indian Beer Industry

The effect of global slowdown has caught up with the Indian Beer Industry as well. The Beer industry which had been growing with a CAGR of 14% has slowed down to 8-9%. The southern market has shown a dismal market growth of 5% and the Northern region with a growth rate of 12.8%. The central region realized a low figure of 8.5% growth mainly on account of the extended monsoon which curtailed the peak selling summer season. The reasons may not be solely related to recession but then the effect has percolated, with people curtailing their liquor related expenses. The bars and pubs in the metros have witnessed foot-falls falling by 15-20% .

One of the main reasons for the lower growth rate is the standoff between the two major Indian brewers UB, SABMiller and the AP government. AP forms the largest beer market in the country contributing to nearly 18% of the total beer consumption. The input prices have risen substantially over the past few years however, the AP government has not revised the prices since 1997, this is despite the fact that the retail prices have more than trebled in the same time period. Following the same the two brewers had suspended production in the peak month of April; this has left a severe dent on the overall growth of the Industry

An increase in the raw materials used for the production of beer is also having a downward pressure on the bottom line of the brewers. For e.g. consider the price of sugar, one of the raw materials used in beer production has seen almost 66-75% increase in price. The retail price of sugar was quoting in the range of Rs15-17/Kg last year, this year the price has shot to the Rs22-23/Kg range. Apart from sugar even malt used in beer production has seen an increase in its price. With the cost of other over heads like power, salaries also shooting up the brewers are trying hard to remain in the green.

New Excise Policy for Rajasthan

The Rajasthan Liquor Industry is all set for a jolt owing to the new Liquor Policy being declared. A number of policies of the government are likely to hit the producers and the retailers. The number of country liquor shops has seen no change from last year’s figure of 6600. However, the number of shops offering IMFL/Beer has been reduced from 1800 to 1000. Bids are currently being invited for the same and the allotment of licenses would be done based on a lottery system drawn on the 24th of this month.

The number of shops in Jaipur and Jodhpur have been brought down from 453 to 250 and the license fee has been increased from Rs 3.8 lacs to 7.5 lacs. Similar changes have been observed in other places where the number of shops have been brought down by almost half and the license fee has almost been doubled.However, for country liquor no such changes have been incorporated.

There is also a provision for additional 20% VAT on IMFL/FL. However, it is not clear as to at which stage would this additional duty be levied.

Apart from the above the License fee for On Premise has also been increased by almost 200% to 100%. 30th January has also been declared as a dry day. The timings of the retail shops have also been fixed from 10 a.m. to 8 p.m.