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

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)
Industrial Alcohol is a source of raw material for various alcohol-based chemical industries and is
used in manufacture of ethyl acetate, mono ethylene glycol, acetic acid, various esters and
pesticides. It also finds extensive use in the pharmaceutical and paints industry. There is a huge
demand for these products in the market.
Liquor industry is unique as there are certain key variable factors that influence its viability and
growth such as duty structures, excise rules and regulations, product-pricing, marketing
initiatives to promote the brand, distribution and several regulatory issues like licenses to
manufacture, labelling etc. On issues of excise and duties, these are fast coming to World Trade
Organization (WTO) levels. The industry does not have many entry barriers and with the opening
up of the economy there are multiple ways of market entry; it could be Bottled in India (BII) or
Bottled in Origin (BIO) or Bulk Import and locally bottled. While this will enable world-class
quality brands to enter India, there is a fear that the stagnating markets overseas may trigger
dumping of cheap liquor into the Indian market, which will not be a healthy trend for both the
Indian consumer as well as the domestic liquor players.
Taxation being a major contributing factor to the increase in the price at the consumer level, the
trend to go in for cheaper products in key whisky and rum segment has been on the increase of
late. The lower category whisky segment has been growing rapidly in recent years.
The lower per capita consumption in India, the high volume in the unorganized cheap segment
of the spirits business with its likely transition into the organized sector, the changing consumer
perception of alcohol and the progressive regulatory changes are the key drivers to the growth
of this industry.
The IMFL market primarily comprising of Whisky, Rum, Brandy, Gin and Vodka, has grown over
the past decade.
The IMFL industry in India is estimated at over 160 million cases and is growing steadily.
Consumption is largely skewed towards whisky, which accounts for more than half of the
market. The whisky segment is further classified into Scotch, Super Premium, Premium,
Prestige/Deluxe, Regular, Medium and Cheap segment. Brandy, Rum and Whites (Gin, Vodka
and others) account for the balance.
The Country Liquor market is basically a regional market and there exist a large number of small
manufacturers spread across various States. Major IMFL manufacturers, however, have a
countrywide presence.
Indian Market: Present Status & Products
Currently the industry is dominated by 3 brewers, the United Breweries, Shaw Wallace and
Mohan Meakins. However, a number of international brewers are starting to become established.
Joint ventures will continue to be more important as the distribution network in India is complex.
There are around 23,000 licensed liquor outlets in India, with another 10,000 outlets such as
bars and restaurants. States vary as to their treatment of liquor and there are restrictions on the
transfer of alcohol between states. In Tamil Nadu, Kerala and Andhra Pradesh the distribution is
controlled by the state government, which enables changes in political parties to dramatically
affect the availability of alcohol. In Andhra Pradesh a change of government resulted in a ban on
the sale of alcohol in the state, while in Uttar Pradesh, Rajasthan and Punjab, liquor distribution
licenses are auctioned to the highest bidder. Such a system encourages market concentration by
favouring existing suppliers. Only in states such as Maharashtra, where distribution is relatively
open, are new entrants able to compete effectively. Draught beer is popular in Mumbai and
Bangalore and in these cities a large number of pubs and bars operate. (Source: Ministry of Food
Processing Industries, Government of India; http://mofpi.nic.in/industryspecificinformation)
Whisky and Other Spirits
In India Country Liquor and IMFL (Indian-Made Foreign Liquor) cater to two quite different
sectors of the liquor market. Country liquor is consumed in rural areas and by low-income
66