SECTOR REPORT: BREWERIES & DISTILLERIES

INTRODUCTION:
The Alcoholic Beverage industry in India comprises of Indian Made Foreign Liquor
(IMFL) and Country Liquor,, apart from beer, which is considered a different segment
segment.
IMFL consists of Whisky, Rum, Brandy, Gin and Vodka etc. Whisky comprises the
largest portion of IMFL market and accounts for nearly 60% of the total market
followed by Rum at around 20% and Brandy at around 15%. White spirits viz. Vodka,
Gin and white Rum account for the balance of 5% only. Sales of alcoholic drinks
continue to be driven by urban consumption in the country. In 2010, urban areas
accounted for 64% of volume sales through off
off-trade channels.
INDIAN BREWERIES AND DISTILLERIES
DISTILLERIE INDUSTRY:
The global spirits industry is estimated at over 2.2 billion cases per annum with India
accounting for about 12% at 270 million cases per annum without considering 300
million cases of country liquor. The liquor consumption in India has
ha been growing at
CAGR of 15% for the last few years.
A noticeable trend in the industry is that consumers are increasingly choosing premium
spirits brands. This has been driven to some extent by growth in high
high-end bars and
restaurants. Although premium brands have been performing well, the overall growth of
the industry is driven by double digit volume expansion of economy and standard
brands, which cater to low and middle income consumers. The ongoing switch of low
income consumers from country liquor to branded economy brown spirits,
spirits the rising
urban youth population and increasing
increasing disposable incomes continue to expand the
consumer base for spirits in India.
The IMFL industry in India is subject to strict licensing and regulations by the
concerned State Governments.
Governments All the alcoholic beverages in the country are taxed
uniformly irrespective of their alcohol content. Consequently, same rate of taxation is
applied for spirits, lager beer, strong beer and other alcoholic beverages, resulting in
higher price for beer relative
ive to high alcohol beverages. This is very different from the
global practices, where levies on beer are typically at half the rate applicable to spirits,
providing an incentive for consumers towards lower alcohol beverages.

The per capita consumption

tion of beer in India though continues to be very low at about
1.5 liter per capita, which is 5% of the global average. There has been a steady growth
in the Indian beer industry
ndustry of about 15% per year over the last five years, with
wi Industry
volumes crossing 225 million
ion cases in financial year 2010
2010-2011 from about 100 million
cases in financial year 2003-2004.
2004.
In terms of volume, country liquor is the largest segment in the domestic alcohol
industry, driven primarily by healthy rural demand. Also in terms of affordability, the
t
price differential between country liquor & branded IMFL on accou
account of the steeper
taxes on branded IMFL will continue to drive demand. The country liquor clientele
includes consumers like agriculture
culture workers in rural India, construction
struction and industrial
workers in towns/cities and hence, affordability plays a crucial role.
KEY GROWTH FACTORS:
FACTORS
Favorable demographics, Rise
ise in disposable incomes
incomes, Urbanization, Changing lifestyles
and social habits, Increasing preference
prefere
for premium branded products
products, Increasing
social acceptability of drinking
GOOD COMPANIES:
02-12)
(Price information as on 29-02
The leaders

United
Breweries
United Spirits

Good
valuations
Globus
Spirits

Current PE:
Price:

PB:

Avg.
EPS PEG(M MCap(Cr):
Growth(3
ar
year-%):
2011):

459

75.99

7.57

33.30

2.63

12,103

572.05

18.24

1.30

-1.70

7,482

Current PE:
Price:
115

7.31

PB:

1.10

Avg. EPS PEG(Mar

Growth(3 2011):
year-%):
26.37

0.27

MCap(Cr):

264

Other
names

good Current PE:

Price:

Radico
Khaitan
Tilaknagar
Industries

PB:

Avg. EPS PEG(Mar MCap(Cr):

Growth(3 2011):
year-%):

118

20.44

2.29

130.12

0.18

1,566

61.95

18.88

2.09

-37.26

715

PORTERS FIVE FORCES ANALYSIS:

Threat of new competition: Although

ough high taxation adversely impacts the
profitability of the Indian liquor industry, the industry is a play on large volumes
which the Indian market offers. With various licensing requirements, inter
inter-state
duties and ban on many forms of advertising, though,
though, there are enough entry barriers
for threat of new competition to remain moderate.

Threat of substitutes: It is low since liquor products are essentially part of the habit
forming products and while there may be switching between preferences for
different alcoholic beverages, there is little threat from any substitutes.

Bargaining power of customers: This is low for seasoned customers segment since
they usually dont switch loyalties between different brands. However, the beverages
catering to younger segments of the population, like beer and entry level spirits face
more bargaining power from their customers.

Bargaining power of suppliers: This is moderate to high. The key input for the
industry is molasses. Its availability and price is dependent on the sugarcane
cultivation & output and support price fixed by the local Government. Any increase
in support price of sugarcane
ane or its un
un-availability
availability may significantly impact the cost
of molasses, which will affect the price of alcoholic beverages.

Existing competition: This is a very competitive market which is seeing increasing

presence of international brands which are vyingg for a share of the ever increasing
Indian liquor market. The industry is also suffering due to illicit liquor production,
which not only affects the organized players but also the state governments, which
lose large amount of excise duty and sales tax et
etc.

FUTURE OUTLOOK:
With an increasing acceptance of social drinking, the alcoholic beverages industry is
likely to grow at a CAGR of around 15%
15 for the next few years.
years Low per capita
consumption of alcohol along with rising disposable incomes and favorable
demographics, present a compelling opportunity for liquor manufacturers.
The beer market is also poised to grow significantly with m
more
ore and more foreign
players expected to come into India, to capitalize on the increasing trend of drinking
beer byy the younger population.
population
The primary challenge is the high taxation facing the industry. As high as more than
50% of the retail sale price of IMFL goes to the State and local Governments by way of
taxes and duties. Needless to say, tthe liquor industry in India is highly Government
regulated in terms of constraints on manufacturing, storage as well as distribution. The
industry faces threats of prohibition, high excise duties, exorbitant import duty,
restrictions on advertisement, restri
restrictions on inter-state
state movement and barriers in
control over distribution.
The proposed Goods and Services Tax (GST) legislation would be a big help for this
industry as it will reduce the burden of excessive. Increasing levels of taxation and
imposition of newer duties show no sign of abatement in the near future though - a
factor that puts pressure on margins and profitability despite continuing growth in
consumer demand.