Bangalore: The spirits arm of billionaire Vijay Mallya-led UB Group, United Spirits Ltd, is putting up new distillation units which can take in either foodgrain or molasses to hedge itself against supply side risk.
Alongside, India’s largest spirits company will launch new vodka brands even as it aims for supremacy in the domestic wine market, a segment which it entered just two years ago.
Vijay K. Rekhi, who has been with United Spirits for 38 years, has helped build the business to around Rs4,100 crore from Rs1,000 crore in 1996. The company, with brands such as McDowell’s No.1 whisky and Celebration rum, has a 59% market share in India and is the world’s second largest liquor maker by volume. An alumnus of the Indian Institute of Management, Ahmedabad, Rekhi, president and managing director, talks about expansion and risk mitigation in an interview. Edited excerpts:
Aiming high: United Spirits president Vijay K. Rekhi says the firm will have a leadership position in the wine market in three-five years.
Are rising input costs still a cause for worry?
Sugar cane production last year was short of the normal acreage so the resultant availability of molasses was less. But grain (based) alcohol availability has gone up. While we were able to manage this phenomenon, input costs are a problem and the expectancy is that molasses will free up a little bit in this year. Again like last year there would be adequate quantity of grain alcohol available. Therefore, we are hoping that input costs will be no worse than what they were in the first nine months.
Tell us about the Rs650 crore expansion plan to mitigate the supply side risk.
Going forward we need to have supply side security. If you buy spirit from a third party, there is a cost of capital and profit which the third party takes away.
At the moment we are producing only 11% of our own spirit requirements. We hope with this investment we should be able to produce 35-40% of our own liquid requirements for which we have identified five states in which we will either acquire or go greenfield with (multi-substrate) distillation projects. We have grown pretty rapidly in the last three years to be able to come to a magic figure of 100 million cases this year. So at the back end we are trying to increase our self-reliance.
With the liquor industry growing at 12-13%, do you foresee more foreign brands launching? How are you gearing up?
Whoever finds that this is a good playground for their brands will come. We have to scan the map and introduce products. We have plans to introduce two-three other products along with the Black Dog (whisky), flavour variants of vodkas and a premium vodka (in the next three-six months) to take on the other established brands like Smirnoff.
In the wine market you are expected by many to be the market leader in a few years. What is your game plan?
If you see the wine producers Indage (Indage Vintners Ltd), Sula (Nashik Vintners Pvt. Ltd) and Grover (Grover Vineyards Ltd) are the only brands to reckon with. We are the fourth entrant into this market. The seriousness of players depends on the sustainability of your investment and how much you are putting behind the category. That’s where we would outrun the competition. Given another three-five years we believe we will have the leadership position.
On the demand side, Whyte and Mackay’s four-year contract to supply bulk Scotch to Diageo Plc ends in March. What next?
We have to either replace that contract or go back to them (Diageo), or go back to the market (brokers, agents or liquor companies). We are exploring all options.