Ashok Capoor | We have never feared leveraging ourselves to the hilt4 min read . Updated: 09 Jul 2012, 11:51 AM IST
Ashok Capoor | We have never feared leveraging ourselves to the hilt
Bangalore: United Spirits Ltd (USL), the Vijay Mallya-controlled company which in 2007 bought Whyte and Mackay to get access to some of the world’s finest Scotch whiskies, continues to face debt concerns, after battling rising input costs and higher interest rates.
In an interview, Ashok Capoor, president and managing director of USL, spoke about tackling high debt and forecast an overall positive outlook for the liquor industry. Edited excerpts.
What is United Spirits’ premiumization strategy looking like? What new brands and in what segments are you targeting?
Premium segments, that include prestige, premium whisky and Scotch, contribute 55% of USL’s contribution pie. This number is likely to increase to 60% this year with the continued focus on premiumization.
Dalmore and Jura are the fastest growing brands, both worldwide and in India. We have just launched Dalmore 15 YO (year old) in India, in addition to the existing 12 YO, Gran Reserva and 40 YO. Jura 10 YO, Superstition 16 YO grew by 67% in 2011 while Dalmore in India grew by 92% last year.
We dominate the 12 YO Scotch market with Black Dog. We understand that the market is now ready for higher aged Scotch whisky and are now launching Black Dog 21 YO to offer a complete and more robust Black Dog franchise from the regular to the luxury Scotch segment. This will allow uptrading much faster. Black Dog 21 YO will be available in key markets in the price range of ₹ 12,000-16,500 per unit, depending on the state.
We also launched premium Vladivar vodka last year from the Whyte and Mackay portfolio. McDowell’s No.1 is yet another unique success story with leadership in both volume and value, and the franchise added 44 million cases, recording a growth of 9% over last year. McDowell’s No. 1 Platinum, Signature Premier are among the new launches in the premium segment.
What is the status on USL’s plans for the emerging markets?
We have already started distribution in Africa and some of the South-East Asian markets. We are looking at export markets contributing 10% of total USL volume in the next two-three years.
We see a good potential for our premium IMFL (Indian made foreign liquor) brands to ride along with our premium Scotch portfolio in these markets. We are looking for alignments in certain parts of Africa and we will explore a joint venture there. In the US, we recently launched our premium whisky and are following it up with gin and vodka.
With a population of a little over one billion, Africa is the next growth destination for world’s economy. Alcobev (alcohol beverage) industry is still evolving—currently huge fragmentation in terms of categories of spirits consumed. Whisky and vodka are seen as international spirits and hugely aspirational. McDowell’s No. 1 enjoys a significant traction in some markets in Africa.
What are your debt restructuring plans?
We will be bringing in appropriate instruments, FCCBs (foreign currency convertible bonds) being one such option which can give us the leeway for managing our day-to-day operations and putting money behind where it needs in terms of working capital and capital expenditure expansion, while remaining focused on when we should reduce the debt itself by selling off the non-core assets.
However, debt doesn’t have an adverse impact on our operations. We have never feared leveraging ourselves to the hilt if a situation offers an opportunity to consolidate and create value for our stakeholders. Over the past decade, on multiple occasions, we have also demonstrated our ability to quickly deleverage after concluding fully leveraged buyouts. As of today, we have ₹ 1,500-2,000 crore of non-core monetizable assets on our balance sheet like treasury stock, investment in United Breweries Ltd, the cricket franchise, among others, which shall be used at an appropriate time to deleverage and bring the gearing to a comfortable level.
However, this is not the right time to monetize those non-core assets because the markets are depressed. But at any point of time, we can sell off these assets and bring down our debt.
Will the firm look at more overseas acquisitions? In hindsight, what is the company’s view on expensive acquisitions such as Whyte and Mackay in the past?
We are continuously looking to address value gaps in the market by launching new brands. We may look at acquisitions if there are appropriate opportunities at the right price.
Our earlier acquisitions are fully leveraged. Whyte and Mackay is a strategic asset, both from the perspective of bulk stocks as well as globally iconic brands in the portfolio. The focus is obviously on building these brands further, both in global and in Indian markets. We will now launch a value Scotch from our W&M portfolio—John Barr—in the Indian market in this fiscal. All these brands give us an entry into the on-premise category and completing our domestic portfolio. Scotch is growing at 30% per annum, as against the total industry growth of 10%. W&M, Black Dog, Jura and Dalmore and new Scotch brands will catapult our Scotch shares.
With a slowdown buzz, what is your outlook on the liquor space?
Demographically, India has a large drinking population with 50% of the population below 25 years, and with a large amount of disposable income, I don’t see growth slowing down in the next five-seven years.
Last year, in a couple of states such as Maharashtra and West Bengal, excise duties shot up; but, even then, growth is normal and people are not drinking less.