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

Government Policy & Regulations
The Indian potable alcohol market has high entry barriers, largely due to government
regulations. The policies and levies on alcohol vary from State to State. In most of the States,
the distribution of alcohol is regulated by the concerned State Government.
Being a state subject; within India itself, the policy on alcohol retail differs from state to state.
While some states such as Maharashtra, Uttar Pradesh, and Tamil Nadu have a liberal policy,
other states such as Haryana and Andhra Pradesh have had very bitter experiences in trying to
make these states dry and have eventually had to withdraw the 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political fallout, and the ban had to be withdrawn.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
enforced prohibition in 1996, but had to withdraw its decision in April 1998. As per AIDA 2004
Report, Whisky is the basic IMFL spirit, and it continues to grow.
Majority of the State Governments have realized, over a period of time, the futility of enforcing
prohibitions in their respective states. Prohibition has bred crime and jeopardized the economies
of various states.
The Indian alcohol industry comprises Indian Made Foreign Liquor (IMFL) like Whisky, Rum,
Brandy, Gin, Vodka, which together sell 100 million cases a year; Beer sells 90 million cases per
year and Wine sells only around 5 lakh cases per year.
India is emerging as the largest global market for whisky, registering sales of more than 60
million cases per annum. Other spirits (Brown – Brandy/Rum; White – Gin, Vodka, Rum)
constitute the rest 40% of IMFL market. Of late, white spirits, although currently placed at only
5% of the market are growing at a much faster pace of 40% p.a. as against 10% p.a. growth of
the overall IMFL market.
(Source: Financial Appraisal Report of SBI dated September 5, 2008)
Raw Materials / Inputs:
India is the largest producer of sugarcane in the world and sugar industry is the second largest
agro-based industry of our country, textiles industry being the largest. Production of molasses
has increased from 0.4 million tonnes in 1950-51 to 8.29 million tonnes in 1995-96. The
Government has already decontrolled the prices and movement of molasses.
(Source: Financial Appraisal Report of SBI dated September 5, 2008)
Advertising
Advertising of alcohol and alcohol-related products is officially banned and considered illegal.
Major liquor manufacturers, however, spend heavily on surrogate brands under the same brand
names such as glasses, mineral water, music items, fashion articles etc. Satellite and cable
television however, being uplinked from outside India, have allowed liquor advertising by Indian
brands.
Distribution
As regards the distribution system, all outlets have to be licensed; Wholesalers, Retailers, Bars
and Restaurants, and Bonded Warehouse operators. The Distribution system is still the same for
Beer as for Spirits and Wine. They pay the, varying, States licence fees. These can, at present,
only sell Indian-made Liquor over most States. It continues to be expected that Beer and Wine
may shortly be permitted to sell in more outlets.
In some States, licenses for selling alcoholic beverages are allotted through auction. At present,
India has around 40,000 licensed retail alcoholic beverage outlets (Source: Financial Appraisal
Report of SBI dated September 5, 2008)
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