RED HERRING PROSPECTUS Dated August 24 ... - Globus Spirits

SECTION III
INTRODUCTION
SUMMARY
This is only a summary and does not contain all the information that one should consider before
investing in the Equity Shares of the Company. You should read the following summary together
with the Risk Factors beginning on page no. xi of this Red Herring Prospectus and the more
detailed information about Globus Spirits Limited and its financial statements beginning on page
no. 150 of this Red Herring Prospectus before deciding to invest in the equity shares offered by
the Company.
Industry Overview
Alcohol is a member of a class of organic compounds containing carbon, hydrogen and oxygen,
considered as hydroxyl derivatives of hydrocarbons, produced by the replacement of one or
more hydrogen atoms by one or more hydroxyl (-OH) GROUPS.
In earlier years the policy of the Indian government was to discourage the consumption of
alcoholic beverages. This even went so far as to involve total prohibition in some states.
However, the resulting problems of illicit distillation, the leakage of government excise revenue
and the problems involved in enforcement, led to a review of this policy.
The importation of potable alcohol is subject to government licensing. Alcoholic drinks carry a
very heavy tax burden which is itself a major source of revenue for state governments.
Liquor manufactured in India is categorized as beer, country liquor and Indian Made Foreign
Liquor (IMFL). IMFL production includes wines, whisky, rum, vodka, gin and brandy. Draught
beer has been recently introduced and has done well in the places in which it has been
introduced. Canned beer is an even more recently introduced new beverage.
Production of Alcohol drinks from non-molasses sources is very small in the country compared to
the total production of Alcoholic drinks. It is in this context that Government of India encourages
foreign investments as well as up gradation of technology in the field of non-molasses based
alcoholic drinks and beer provided the Indian partner is in possession of a valid Industrial
License under Industries (Development & Regulation) Act, 1951. (Source: Ministry of Food
Processing Industries, Government of India)
According to the Reserve Bank of India’s latest report on ‘State finances: A study of budgets of
2006-07; liquor (excise) alone is slated to yield Rs. 29,533.48 crores, making it the largest
revenue source for States after sales tax (Rs. 1,20,709.15 crores).
(Source: AIDA Newsletter, February, 2007)
In India, alcohol is largely produced from sugarcane molasses. The value chain in a distillery
industry comprises of raw material suppliers (Sugar Mills), distillers, and intermediaries (Govt.,
wholesalers and retail dealers). The important end users are institutional (e.g. Armed Forces)
and retail buyers.
In India alcohol is largely produced from sugarcane molasses. The industry is cyclical in nature,
as sugarcane production itself is affected every 3-4 years with monsoon and other factors,
resulting in low availability of molasses. (Source: Financial Appraisal Report of SBI dated
September 5, 2008)
Government Policy
Each State levies taxation and duties on alcohol at its own decided rates. Each State also levies
excise duties and also regulates distribution channels of alcohol in its own way. Liquor happens
to be a major contributor to the state’s exchequer. Some states, have, in the past, taken firm
action in terms of banning the sale of alcohol within their state, but their decision had its own
political fallout, and the ban had to be withdrawn. The state of Andhra Pradesh, in 1995,
enforced prohibition and it had to lift prohibition in mid 1997. Similarly, the state of Haryana also
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