Bangalore: After dislodging United Spirits Ltd’s (USL’s) Bagpiper whisky to become India’s top-selling spirits brand with Officer’s Choice, Kishore Chhabria’s Allied Blenders and Distillers Pvt. Ltd (ABD) has drawn up expansion plans that will sharpen competition with the Vijay Mallya company and global liquor makers Diageo Plc and Pernod Ricard SA.
Over the next three years, ABD is looking to invest Rs 500 crore on new brands, bottling units and distilleries. Some of the money will come from Chhabria himself; ABD is keeping its fund-raising options open for the rest.
Growth plans: ABD’s executive vice-chairman and CEO Deepak Roy.
“We may look at an IPO (initial public offering), a strategic sale or even private equity funding in the next 12 months depending on the need,” said Deepak Roy, executive vice-chairman and chief executive officer (CEO) of ABD.
Roy was CEO of Diageo India, formerly known as International Distillers India, for about nine years. He had at one time been tipped to join USL before he took the ABD job in 2007.
ABD’s expansion plans may have to wait because a November Calcutta high court interim order restrained Chhabria from raising additional funds. The order followed a legal challenge in June last year by Mallya, who claimed that the Officer’s Choice brand was owned by USL.
ABD’s legal battle with USL goes back to their tussle over Herbertsons, distributor of VAT 69 whisky and Kalyani Black Label beer. ABD, under its former name BDA Ltd, used to be a 100% subsidiary of Herbertsons.
Chhabria, who had a 49% stake in Herbertsons, was locked in a legal battle with Mallya over ownership of the company. USL eventually paid Chhabria Rs 130 crore for his stake in Herbertsons, while Chhabria took full control of BDA.
The tangle is part of a longer history of conflict between Mallya and the late Manu Chhabria, Kishore Chhabria’s brother, that began in 1984 and was resolved in 2005.
The latest dispute began in 2011 with the Mallya challenge.
UK-based International Wine and Spirit Research said last week that sales of Officer’s Choice grew 7.5% to 15.8 million cases in 2011, while Bagpiper’s sales fell 5.9% to 15.6 million cases.
Roy, who has a 5% stake in ABD, said the case was a frivolous one, and will be resolved shortly, after which the company will seek funding. “For now, we have adequate funding from the promoter for our expansion,” he said.
USL declined to comment on the matter on grounds that it is sub judice.
ABD, which until two years ago was a single-brand company, has ventured into new categories with Gorbatschow vodka and Jolly Roger rum. It’s currently test-marketing semi-premium brandy Lord & Master in south India. Both Jolly Roger and Lord & Master will be rolled out nationally in the next few months, said ABD, which touched the 20 million case mark last year.
In addition, ABD wants a piece of the premium market and win away market share from rivals. It’s test-marketing premium whisky Officer’s Choice Blue in Maharashtra, West Bengal and Assam, positioning it against USL’s McDowell’s No. 1 and Pernod Ricard’s Imperial Blue.
Premium whisky sales are growing much faster than sales of the regular segment, according to sector analysts. For USL, the regular segment saw volumes decline 3% in the December quarter, while premium brands grew 23%.
“ABD is a reasonably large player with distribution clout, so if they’re entering the premium space, it’s sure to increase the intensity (of competition) in the segment,” said Arnab Mitra, an analyst with India Infoline Ltd.
ABD expects to capture about 15% of the premium whisky segment with Officer’s Choice Blue by the end of this year.
“ABD’s done a competent job in the mass segment, so they will be able to take some market share in the premium segment, too,” said Nikhil Vora, managing director of IDFC Securities Ltd. “Whether that’s 15% I can’t say for sure, but it is a statement of intent.”
ABD, which currently outsources 70% of its production, is looking to acquire three bottling units in Andhra Pradesh, West Bengal and Rajasthan. The liquor maker also plans to buy distilling units in Maharashtra and West Bengal.
Having its own distilleries is key to ABD’s growth plans, as this gives it control over key ingredients such as extra neutral alcohol (ENA), which saw a 15% increase in prices last year. Typically, Indian liquor companies use ENA, a refined form of rectified spirit unlike foreign liquor, which is made from grain or malt.
Last year, the rise in raw material costs has contributed to the erosion of earnings at liquor companies. ABD saw profits slump by as much as 65% last year.
“(Having) our own distilleries will help us capture the value chain margin more efficiently,” Roy said.