Tag Archives: UP

Radico Khaitan to invest ₹900 crores in UP, makes commitment at Global Investors Meet

•   UP alcohol industry to get a boost with investments worth ₹16,392 crores

•   Radico investing ₹650 crores in Sitapur 400KL grain distillery

At the recent Global Investors Meet in Lucknow, organised by the Uttar Pradesh government, Radico Khaitan, the fourth largest Indian liquor manufacturer, said it was committing investments worth ₹900 crores in UP, including the ₹650 crores in the new Sitapur 400KL grain distillery with an annual bottling capacity of 20 million cases.

Making a presentation on the opportunities for the liquor industry in UP, the Chief Operating Officer of Radico Khaitan, Mr. Amar Sinha said that the UP alcohol industry would get further boost as investments worth ₹16,392 crores would be made by different players. Radico is a major player in UP, contributing 24% (about ₹7,000 crores) of the state’s Excise revenue. Radico has Asia’s largest manufacturing plant in Rampur with three distilleries (molasses, grain and malt), Malt maturation facility and bottling lines, having invested about ₹1,500 crores. The Rampur plant recently converted its existing 140 KLPD molasses distillery into Dual Feed with an investment of ₹250 crores.

The Sitapur plant would generate 1000 direct and 2,000 indirect employments and contribute nearly ₹1,000 crores annually to the excise exchequer. The plant would manufacture IMFL, country liquor, ENA and Ethanol.

Giving an overview about Radico Khaitan which started in 1943, Mr. Sinha said that as one of the largest spirits manufacturer it was expanding capacity from 160 million litres to 327 million litres. It was strategically limiting interstate taxes and transport costs, having five own and 28 contract bottling units spread across the country. It was consistently increasing Prestige & Above brand contribution to total IMFL volumes; 53% in value terms. The gross revenue for FY 2022 was ₹12,470 crores with an EBITDA of ₹402 crores.

Radico Khaitan’s 8 PM has been the fastest growing whisky globally in 2022, being the 9th largest whisky globally by volume. Similarly, Magic Moments is the 12th largest vodka; Contessa, the 8th largest rum and Old Admiral, the 3rd largest brandy, all globally by volume.

UP volumes grown by 2.6 times

Mr. Sinha said with a progressive policy approach by the UP government, industry volumes had a compounded annual growth rate (CAGR) of 17% for Indian Made Liquor (IML) and 13% for Indian Made Foreign Liquor (IMFL). “Ever since the formation of the new government and policy, industry volumes have grown 2.6 times and we expect it to double in five years.” In 2016-17, UP distillery volume was 348.4 lakh cases of IML and 112.9 lakh cases of IMFL and the estimates for 2022-23 is 903.8 lakh cases of IML and 231.3 lakh cases of IMFL.

Highest excise revenue grosser

Citing figures, he said the excise duty collection had increased from ₹17,320 crores in 2017 to ₹40,400 crores in 2022-23 (estimated). Karnataka is a distant second at ₹24,580 crores. The UP revenue target for 2023-24 is ₹45,000 crores, having potential to touch ₹100,000 crores in five years.

To sustain this industry growth, an investment of ₹10,000 Cr has been made including an investment of ₹2,500 Cr in setting up grain capacity for potable liquor; molasses distilleries – ₹2,100 crores; bottling lines for country liquor ₹400 crores; present investment in IMFL (including ancillary industries) – ₹5,000 crores.

Mr. Sinha mentioned that UP was witnessing substantial flow of investments in the distillery sector with the Excise department having already got letters of intent worth ₹1,400 crores and signing 17 MoUs for setting up industries based on distillery, brewing and alcohol products. The state government has issued a mandate regarding approval of distilleries from different feeds such as molasses, grains, potatoes etc. and also eased rules for establishment of microbrewery in hotel bars.  With a view to promote horticulture in the state, the government has exempted tax for five years for making fruit wine.

Simplified licensing process

The simplified licensing process, he said, was exemplary which many other states want to emulate. The ease of interaction with excise department has been transformational and like never experienced before in UP. Licenses are granted online in a timebound manner within 30 days after verification of all required KYC documents. The application is made online to the Commissioner of Excise through the concerned District Magistrate who then forwards his consent to Additional Chief Secretary (Excise & Sugar) and delivery of license is sent on WhatsApp besides online delivery. This process is applicable for all verticals like liquor, beer, winery, import and export permits.

Mr. Sinha mentioned that post 2017 (when Yogi Adityanath became the Chief Minister), the free market policy has been a game-changer. The government introduced a progressive excise policy, eliminated monopolistic nature of business and freed market at all levels of channels of distribution, starting from manufacturing to retail. While the consumer has a choice of brands, the industry has started expanding with a new level of confidence and exuberance.

Ethanol opportunity in UP

Delving on the ethanol opportunity in UP, Mr. Sinha said with ethanol blending target of 20% by 2025-26, there is a big opportunity for investment in grain distilleries for potable liquor and ethanol production. Giving an industry overview, he said the production of ethanol for blending with petrol was introduced in India in 2006-07 under the Ethanol Blending Programme (EBP). The initial target was blending of 5% ethanol with petrol by 2016-17 which got scaled to 10% by 2021-22 and revised to 20% by 2025-26. A 100 KLPD distillery would cost ₹120-130 crores (excluding land cost).

Ethanol production in August 2022 reached 327 crore litres and achieved blending ratio of 10.1% with UP contributed about 99 crore litres. The target is 1,016 crore litres by 2025 with sugar / molasses contributing 684 crore litres and grain 332 crore litres. Approximately 800-1000 crore litres of additional grain-based alcohol capacities are required by 2025 to meet the demand for 20% EBP and potable alcohol industry, thus opening up immense opportunities for grain distilleries in UP. The current India projects is 386 (molasses 263 and grain 123) and the capacity is 948 crore litres (molasses 619 and grain 329). The total UP projects is 85 (molasses 81 and grain 4) and the capacity is 209 crore litres (molasses 205 and grain 4).

Central Government initiatives

The Central Government has taken several initiatives for EBP and they include – Additional differential excise duty of ₹2 per litre on unblended fuel from October 2022; Financial assistance in the form of interest subvention @ 6% per annum or 50% of the rate of interest, whichever is lower for five years including one-year moratorium; Fixing remunerative prices of ethanol produced from different feed-stocks for the supply of ethanol to Oil Marketing Companies (OMCs); Reduced GST on ethanol meant for EBP programme from 18% to 5%; FCI rice and maize also allowed as feedstock; Environmental Clearance procedures simplified by the Ministry of Environment; Enhancement of storage capacities to store ethanol started by OMCs; Use of automotive fuel E12 (12% ethanol with 88% petrol) and E15 notified; Flexi-fuel engine and components (capable of running up to E85 fuel) included under PLI scheme; and Amendments to the National Policy on Biofuels to make India energy independent by 2047. The total requirement for 20% blending and other uses is 1,750 crore litres of alcohol (650 crore litres from sugar sector and 1,100 crore litres from grain-based distilleries) by 2025.

Liquor consumption to rise manifold in India in 5 years

Mr. Sinha said liquor consumption in India is set to rise manifold in the next 5-years and cited Boston Consulting Group (BCG) report which mentions increase 3.5 times from ₹31 trillion (3.1 Lakh Crore) to ₹110 trillion (110 Lakh Crore) over the decade ending 2018 of domestic liquor consumption. The report estimates consumption in India to touch ₹335 trillion (335 Lakh Crore) by 2028, exhibiting a CAGR of 13.2%, from its 2018 level.

UP is the second largest producer of sugarcane in India with molasses as the by-product for the alcohol industry. With 23.1 lakh hectares under cultivation, the state advisory price is above the fair and remunerative price of the centre. It is pegged at ₹340 per quintal as against ₹280-310 in South. The output value of sugarcane grew 43.9% from ₹24,860 crore to ₹35,770 crore over the decade ending 2022.

UP driven to achieve $1 trillion economy

Giving an overall view of the UP economy, he said the government is driven to achieve $1 trillion economy goal by 2027. The state scored high on Law & Order; Infrastructure & Connectivity; Power; Work Force; Raw material; and lesser political intervention. UP’s contribution to Indian economy as GSDP India: 100, UP 8; GSDP growth rate: 11.5 %, UP 8.43%; Per capita GSDP (US$) – India: 2,092 | Uttar Pradesh: 1,016; Cumulative FDI inflow (from Oct 2019-Jun 2022) (US$ million) – India: 158,879 | Uttar Pradesh: 995.

Mr. Sinha cited that the Chief Minister’s vision was laudable and that according to the Mood of the Nation survey, conducted by India Today & C Voters, 39.1% of respondents consider CM Yogi Adityanath as the best performing chief minister in the country. The survey was conducted in 30 states, thus making a case for UP as the best investment destination.

Uttar Pradesh increases license fee, sets excise revenue target at Rs. 40,000 for 2022-23

Uttar Pradesh became the first state to announce its excise policy for the year 2022-23, setting an excise revenue target of Rs. 40,000 crore, up from Rs. 34,500 crore in the previous year. To achieve the target, one of the routes the UP government has taken is to increase the license fee across all categories. The increase ranges from 20% to a whopping 172%, depending upon the nature of license.

Revenue Target

The UP government collects 20% of its annual revenue from excise, however in the last two years, due to Covid, there has been a dip in the collection of excise from the set targets. In 2020 -21 targetted revenue was `37,500 crore which was reduced to Rs. 34,500 crore in the current financial year (21 -22) against which by this year end the expected revenue collection is Rs. 36,000 crore. Considering the positive trends and situation becoming normal the UP government has fixed an optimistic revenue of Rs. 40,000 crore. This is 16% more than the revenue target of 2021-22. The breakup of revenue planned for 22-23 is shown below :

Avenues for Revenue

Licence Fee

To achieve Rs. 40,000 crore, it has increased the licence fee and security amount across all categories of licences. Some of these licences are shown below:

Besides the above mentioned increase, the processing fee for these licences has been increased to `1.0 lac as against Rs. 55,000 for each application.

Brand & Label Registration Fee

Label registration is very tedious work which the entire beverages alcohol industry has to indulge in every year by compromising manufacturing and supplies till new labels are registered. Manufacturers spend a good amount of productivity of its people besides paying the stipulated fee. The industry feels it is difficult to understand the reason for this increase every year. Under the new excise policy, this fee has been increased from 33% to 90%.

Excise Duty

There is a very nominal increase in the Pratifal fee of IMFL. This increase will be between 0.75% – 1.50% maximum per case of 9 litre depending upon the Liquor category (Economy, Medium, Regular, Premium etc.). Similarly for beer the Pratifal fee has been increased by Rs. 1 per litre. At least this is a relief to the industry which has a direct impact on fixation on MRP.

Country Liquor – The Milking Cow

Due to high sales, massive production stakes with minimal import allowed from outside state, country liquor (CL) has always been top priority for various state excise departments. CL’s contribution in overall excise revenue ranges between 45% – 50% every year and therefore a lot of effort is made to safeguard this major chunk of revenue. The UP excise has therefore initiated following steps to ensure its revenue of Rs. 19,140 cr. for the fiscal 2022 -23;

  • Reducing MRP by Rs. 5 per unit of 200 ML
  • Removal of Covid cess
    a) Not increasing the excise duty
  • Removing 42.8% v/v MASALA CL . Now there will be only two types of MASALA CL i.e. 36% & 25% v/v
  • However 42.8% v/v UPML shall continue to sell at reduced MRP

It is very interesting to note that the same UP Govt and state excise department which had become very strict on changing the packaging norms of country liquor last year has changed its decision in just a couple of months . After two subsequent hooch tragedies in western UP in early 2021, the alternatives of the CL in PET bottle were being discussed at high levels of government and in the months of July – August 21 pressure was mounted on the industry to source aseptic brick carton filling machines aka Tetra Pack machine since this kind of packing is considered as 100% tamper proof. In fact few circulars were issued to industry to start supplying at least 20% of CL in Tetra Pack immediately. There was much hue & cry in UP’s distillery sector because there is hardly any manufacturer of this type of filling machine in India and import of this machine can take minimum 90 – 120 days’ time. In the new excise policy this condition has been replaced from Tetra pack to glass bottle packing having a shrink wrap on the cap. This will certainly give a boost to Firozabad (UP) glass industry which has been requesting the government to provide a platform for its revival.

Wine: Still a Mirage

The total excise revenue generated through wine sales in 20 -21 was only Rs. 9.68 crore out of total revenue generated of approx. Rs. 30,000 crore. Wine’s revenue contribution increased to Rs. 29.54 crore in 2021-22 of Rs. 34,500 crore. The growth in wine sales in UP has phenomenally increased by 200% in just one year which clearly shows the scope and opportunities for wines. The increase of revenue is directly proportional to consumption.

At the moment there is not a single winery in UP and to boost the wine industry the government is continuing with its endeavour as provided in its last years excise policy by :

  • Exempting wines produced in UP from all types of excise duty & levy for a period of another four years
  • Allowing vintner to sell wine in a store inside the winery by paying a small annual fee of `50,000 for a year
  • Allowing wine taverns inside the winery.
  • A licence fee of Rs. 57,500 for establishing a winery in UP

The new excise policy also indicates towards a separate new wine policy being prepared. It is suggested that the UP government establish a wine promotion board on the lines of the Karnataka Wine Board which is headed by a knowledgeable and senior IAS officer and other administrative officers who closely work with wine industry to find our more and more avenues for increasing wine production and consumption. Associations and federations like the Indian Wine Academy should also come forward to tap this potential.

Ease of Doing Business

We can see some steps the U.P. government is taking for ease of doing business in the excise policy. Some of these initiatives are:

  • Annual licence fee for home/personal possession of liquor licence has been reduced to Rs. 11,000 from Rs. 12,000 from last year and the refundable security amount has also been reduced to Rs. 25,000 from earlier Rs. 51,000.
  • Wine manufacturing and selling soaps as mentioned.
  • No increase in bar licence fee.
  • Microbrewery can sell/supply craft beer in 50 litre kegs.
  • Wholesale licence can store stocks w. e. f. 15th Feb.22 meant for next excise year.
  • Renewal of retail shops is permitted.
  • No increase in any licence fee and excise duty for defense forces establishments in UP.
  • Rs. 50,000 will be given as discount on the licence fee if bar & microbrewery both licences are applied simultaneously.
  • Track & Trace system to be extended to the retail sales.

Analysis By: Gopal Joshi

Strategist & Consultant

Beverages Alcohol Industry

linkedin.com/in/gopal-joshi-78a2a33