Mumbai: The domestic beer industry is set to see some real action as the formidable $5-billion South African Breweries (SAB) Indian subsidiary SAB India consolidates operations in India.
Indian beer companies, notably United Breweries and Shaw Wallace, which are the main players - and bitter rivals, having 40 per cent and 23 per cent share of the beer market in India - should be viewing SABs movements with some concern as the latter is the fifth largest brewer in the world with undoubted deep pockets.
Furthermore, SAB India seems to be making all the right moves to gain a strong foothold in the country. For one thing, instead of going in for direct imports or outsourcing production, SAB India has acquired three breweries and has plans to acquire more. After this, the company plans to launch some of its big brands in India, including Castle Lagar.
It has already launched its mild beer brand, Three Lions, recently in the Indian market. Among the breweries, SAB Indias acquisition of Mysore Breweries (MBL) is of major significance.
In June this year, SAB India went on an acquiring spree by buying the promoters holding of 75.77 per cent in MBL and a 67 per cent in MBLs subsidiary Pals Distilleries. Following this, it made two successive open offers and increased its holdings in the two companies. The first open offer enabled SAB India to hold about 94 per cent in Mysore Breweries and 92 per cent in Pals Distilleries. With the second offer it will own a 100 per cent stake in both these companies.
MBL is a profitable company having posted a turnover of Rs 60.80 crore last year with a profit after tax of Rs 5.5 crore. It gave a dividend of 80 per cent to shareholders in 2001. Pal Distilleries registered a turnover of Rs 20 crore and a profit of Rs 1.2 crore in the year ending 31 March 2001.
The acquisition of MBL will give SAB access to two good breweries located in Aurangabad and Bangalore, with a combined annual brewing capacity of 4.8 lakh hectoliters. MBL's flagship brand, Knock Out, the second largest strong beer brand in the country, and other MBL brands like Bengal Premium and MBL Lager will also be transferred to SAB India. Knock Out is a strong brand built over 15 years having had marketing investments to the tune of Rs 100 crore over the years.
The deal also means that MBL's considerable assets, comprising land worth of at least Rs 40 crore, and other intangible assets estimated at around Rs 14 crore, will be transferred to SAB. Industry experts say that unlike other mid-sized brewers, MBL has been a consistently profitable company and more importantly has not stripped away its liquid assets.
These apart, the most crucial part of the acquisition is the long-term strategic benefits coming to SAB. This is MBL's trade network across Maharashtra, Andhra Pradesh and Karnataka - the three States that together account for nearly 50 per cent of the overall domestic beer market and will make SAB India a force to reckon with in the years to come.
The company plans to consolidate its holding in India further by integrating all its subsidiaries (Narang Breweries, Pals Distilleries and Mysore Breweries) into one unified operating entity. SAB is planning to make investments of about Rs 50 crore in India in fiscal 2002.
Future plans of SAB consist of launching global brands in the Indian market, including alcoholic fruit beverages, Redds and Solantis by March 2002, and grabbing at least 30 per cent of the beer market by next year.
SAB made its entry into India with the acquisition of the Uttar Pradesh-based Narang Breweries. This gave it control over local beer brands like Continental and Tipsy 10,000, which have a substantial presence in the north.
Industry experts say SAB makes investments in fast-growing markets that offer opportunities for future expansion. India has a huge upwardly mobile middle class whose incomes are rising steadily. The Indian beer market is growing at over 7 per cent every year. The government policy, with its faulty line of treating beer on par with alcohol for excise, has constrained the growth of the market so far. Uttar Pradesh has made a beginning by delinking beer from hard liquor for taxation purposes. If in due course of time other states follow this example, the beer market might well boom in the country and SAB wants to become a big player here when that happens.
SAB Plc, the parent company of SAB India, produces 900 million cases of beer every year, from 82 breweries located in 22 countries. It has a 70-brand portfolio, which includes famous brands (Castle Lagar, Carling Black Label, Hansa Pilsner and Lion Lagar). It operates hotels and resorts (Holiday Inn, Crown Plaza and Sun Internationals) and had a market capitalisation of Rs 45,000 crore in 2001.
For the financial year ended March 2001, the company recorded a profit before tax of $731 million on a turnover of $4.18 billion.