"USL's objective is to be the largest alcobev company globally" - Vijay Rekhi

United Spirits Limited's inexorable growth has stunned the alcobev industry worldwide. It is not just the one man army (Vijay Mallya, also called VJM) who is out there winning all battles in terms of mergers and acquisitions in the international arena; there is in fact a team of highly motivated professionals who are driven with a single objective to make USL the largest alcobev company in the world. We present an exclusive interview with Vijay Rekhi, President-USL, who is the strongest pillar of the USL Empire.

Just as a recap, USL has recently acquired Bouvet Ladubay, the French Company, Whyte & Mackay, the Scotch Whisky Company and looking for many such lucrative acquisitions in near future as well. Here is what Vijay Rekhi says about the latest moves of the company.

Highlight UB's overall Financial Performance of 2007-08.
USL's volume achievement is nearly 74 million 9-litre cases during 2007- 08. This in value terms is in excess of Rs.4600 crores. The EBIDTA has also grown very healthily. This combined with its brand McDowell being the biggest FMCG brand in the country, shows the No.1 position United Spirits Limited occupies in India, being the 3rd largest globally.

Expansion programme within India and overseas.
In 2007, United Spirits Limited acquired Whyte & Mackay and Bouvet Ladubay – manufacturers of Scotch whisky and fine French Wines. These companies' products have been launched in the Indian markets successfully. United Spirits Limited is also making investments in a local winery coming up at Baramati at a total cost of over Rs.70 crores. This blistering pace of acquisitions and organic growth is likely to continue in the years to come so that the Group achieves its objective of being the largest beverage alcohol company globally.

Investment opportunities you see in various segments of alcobev industry.
Consumers are constantly upgrading. Disposable income is rising in the hands of young consumers. Awareness of brands and demand for variety and exclusivity is high. All these provide huge opportunities for premiumisation, creating niche products, brands that cater to the aspiration of younger generation etc. Similarly, Vodka is an emerging flavour where almost 1-2 brands are introduced every month. Social taboos attached to drinking are also steadily declining leading to overall higher consumption.

Current status of Alcobev Industry in India
Industry is steadily growing at 10% CAGR over the last 5 years. The trend is likely to continue in the next 2-3 years. Last year the industry volumes were around 158 million 9- litre cases and this year they are likely to close at 175 million cases. This growth is without taking into account the upsurge in Karnataka on account of arrack ban in July 2007, which has added 15 million cases in the cheap segment.

Major Challenges of the alcobev industry in India.
State specific rules and regulations, increased controls and restrictions on movement of both raw materials and finished goods and control on price by few state governments like AP are few challenges that this industry is facing. Availability of basic raw material – Molasses and Spirits is under pressure due to lower sugarcane production coupled with diversion of ethanol for doping of fuel. Defining Alcohol products as "Food" and bringing it under The Food Safety and Standards Act without understanding the intricate issues involved is yet another challenge currently faced by this industry. Removal of ACD has also enabled international brands to compete with domestic industry throwing challenge to improve domestic product offerings.

On reduction of the import duties in India in the near future.
In July 2007, Central Government had removed Additional Customs Duty (ACD) which was ranging from 150% to 25% (on a sliding scale – lower the CIF price, higher the rate of ACD and vice versa) of CIF price plus Basic Customs Duty of 150% even though levying of ACD was justified. As the reduction has been very substantial, I do not see any need for further reduction in the import duties in the near future. In fact, State Governments like Delhi and Maharashtra are yet to correct their state levies post removal of ACD to make them at par with levies on locally bottled spirits. This has resulted in discrimination and undue advantage extended to Bottled In Origin (BIO) imports.

Issues before CIABC today and how are you tackling?
As mentioned earlier, CIABC is fighting the challenges faced by this industry through representation to relevant ministries and State Governments directly or through FICCI, CII, AIDA, etc. Challenges are State specific rules, multiple controls in movement of raw materials and finished products, price controls, The Food Safety Standards Act, issues of Service Tax Act etc.

Factors contributing to the success of alcobev industry.
Growth in economy, higher disposable incomes, demographic shift to larger young population, declining social taboos attached to drinking, more number of micro families generating more occasions to celebrate all these has contributed to the success of this industry.