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Radico in talks with Diageo to cut JV stake

Radico in talks with Diageo to cut JV stake
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First Published: Mon, May 10 2010. 06 39 PM IST
Updated: Mon, May 10 2010. 06 39 PM IST
Mumbai: India’s second largest liquor manufacturer, Radico Khaitan Ltd, said on Monday it is talking to UK-based Diageo Plc to reduce its stake in their joint venture Diageo Radico Distilleries Pvt Ltd.
“Things are moving and at an appropriate time we will discuss it out. At this point of time all I can say is that talks are going on,” Dilip K. Banthiya, chief financial officer told Reuters.
The world’s largest alcoholic drinks maker and Radico have an equal JV to make and sell liquor products in India.
In January the Indian firm had declined to comment on whether it would be willing to reduce stake in the joint venture.
Late last year Diageo had received approval from India’s Foreign Investment Promotion Board (FIPB) to raise its stake in the joint venture to 100%.
Radico, which has brands such as 8 pm Whisky, Magic Moments, Contessa Rum and Old Admiral Brandy in its portfolio, in its four-year old joint venture with Diageo has so far produced the premium whiskey brand, Masterstroke, launched about three years back.
The firm has raised Rs340 crore recently via a Qualified Institutional Placement (QIP) and has used the proceeds to reduce debt.
The firm’s current debt on the books is at Rs420 crore from Rs770 crore before the QIP, Banthiya said.
New launches
In the current fiscal the firm plans to launch two more whiskey brands in India.
“We are planning to launch two more whiskeys from Radico in the premium space and on that you will hear very soon..the launch will be this fiscal,” Banthiya said.
The Indian liquor maker also said it expects a huge boost to its performance in this fiscal as it targets a more than two-fold jump in sales in its premium brandy ‘Morpheus’.
“Morpheus is doing very well and we have done 80,000 cases in the first year itself and going forward we are targetting a substantial growth of about 240,000-270,000 cases,” Banthiya said.
“The product is at a high price point so it should give our margins a significant boost,” he added.
Radico, which saw overall volume sales of 14.62 million cases in FY10, a growth of 13.6% from the same period a year earlier, expects a volume growth of 15-17% in FY11.
The firm is expecting a topline growth of 20-22% and expects operating profits to climb 27-30% in FY11. It has also outlined a capital expenditure of Rs15-20 crore for the current fiscal.
“The capex is just for some normal maintenance requirements and we don’t have any capacity expansion this year,” Banthiya said.
The firm which did exceptionally well this year saw its net profit for the twelve months ended 31 March surge to Rs41. 54 crore in FY10 from Rs6.53 crore and saw a sales jump 23% in the same period to Rs1,150 crore.
“Price increases and lower raw material prices helped us achieve such good numbers..we expect to continue this performance with good volume growth and as molasses prices in the past month have corrected by 18-20%,” he said.
“If it stays at current levels also our operating margins will improve by 100-150 basis points,” Banthiya said.
Shares of the firm ended up 1.08% at Rs126.45 in a strong Mumbai stock market on Monday.
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First Published: Mon, May 10 2010. 06 39 PM IST
More Topics: Radico Khaitan | Liquor | Diageo | Rum | Wine |