Officer’s Choice maker Allied Blenders revives IPO plan, eyes year-end launch
Allied Blenders and Distillers plans to use the capital from the IPO, which will involve a 10% stake sale initially with an issue of around Rs1,000 crore, to trim debt
Bengaluru: Allied Blenders and Distillers Pvt. Ltd (ABD), India’s third largest liquor company, is reviving plans to go public and aims to launch its share offering by the end of 2018 at a rough valuation of around $1.8 billion, a top company executive said.
The company plans to use the capital from the initial public offering (IPO), which will involve a 10% stake sale initially with an issue of around Rs1,000 crore, to trim debt and set up a malt spirit plant at its existing distillery in Telangana.
“We will definitely do it (the IPO) this year. Work is going on progressively but, of course, we have to keep a watch on the markets,” ABD’s executive vice-chairman Deepak Roy said.
ABD has been planning an IPO for years. In August 2015, it had announced plans to go public over the following 18 months. In 2017, the company had planned to file its red herring prospectus well before the year ended and had mandated JM Financial and Credit Suisse to manage its IPO. JM Financial and Credit Suisse continue to advise ABD on this.
“We felt it prudent to wait because of market conditions, and because our business was impacted by the highway liquor sales ban and demonetisation and everything. Now, things are back to normal and bouncing back,” Roy said.
The liquor industry’s sales were hit in 2017 after the Supreme Court banned the sale of all alcohol near state and national highways leading to a significant, albeit temporary, closure in retail outlets.
And even in 2012, when Roy first spoke about the option of raising capital through an IPO, he stressed that ABD would take that route only when market conditions permitted it to get the valuation it deserves.
“They (ABD) will also not get too much more in terms of debt because they already have a sizeable amount. But it all depends on the market situation and the current financial performance of the company. I doubt their numbers will improve substantially. Large players like Pernod and Diageo get higher margins because of their mix, but ABD’s mix is hugely in favour of the regular segment so their earnings may not improve in a major way going forward,” said Sameer Deshmukh, senior analyst at Reliance Securities.
ABD’s total debt right now stands at around Rs950 crore. Nearly 90% of its revenue comes from sales of its Officer’s Choice brand of whisky and brandy. Officer’s Choice whisky alone is a 33 million cases per year business, and is the world’s largest-selling whisky in volume terms.
Still, ABD’s profitability is not as high as market leaders Diageo Plc-owned United Spirits Ltd (USL) and Pernod Ricard SA. The Officer’s Choice variants either operate in the regular or in the semi-premium price segments. But the higher profit margins come from the premium, super premium and luxury segments that USL and Pernod focus on.
However, ABD has plans in place to change that. It launched a premium blended whisky brand called Sterling Reserve in West Bengal and Haryana. The company expects to spend around Rs40 crore each year over the next two-three years to establish Sterling Reserve, which Roy says has the potential to account for half of ABD’s total profits in just three years.
ABD’s target is to capture 5% market share for Sterling Reserve this year in the premium blended whisky segment. ABD’s master distiller who created Sterling Reserve, Arun Barik, is also the man behind the creation of Officer’s Choice, and the Blender’s Pride and Royal Stag tipples (originally Seagram’s but now part of Pernod’s stable).
The company even acquired a small Scottish distillery called Jardine Crescent to give Sterling Reserve a heritage and a home. But Reliance Securities’ Deshmukh says it will not be an easy segment to crack.
“Consumers are very brand loyal when it comes to liquor and cigarettes so it is that much more difficult to establish a new brand. And the current market leaders in the premium segment will be very protective about their share in the premium space because that is their key strategy,” Deshmukh said.
- Homebuyer moves NCLT against SPV owned by 3C directors
- CPPIB may acquire $277 million debt Mytrah raised from Piramal Group
- Elon Musk’s oil conspiracy against Tesla ends with Saudi Arabia’s billions
- Fortis shareholders approve stake sale to Malaysia’s IHH
- Kotak Mahindra Bank’s plan to cut promoter stake doesn’t meet norms: RBI
Editor's Picks »
- BofA-ML survey: Short EM equity second most crowded trade
- GST-led shift from informal to formal sector happening, but at a snail’s pace
- Uncertain earnings for agricultural input firms despite bountiful rains
- PVR pays a premium for south
- Tata Steel’s Q1 supports India push but investors enquire at what cost