Tilaknagar to buy top IFB liquor brands

Part of process to consolidate IMFL labels with regional pull, as competition rises

Tilaknagar Industries (TI), maker of brandy brands Mansion House and Courrier Napoleon, is set to acquire leading Indian Made Foreign Liquor (IMFL) brands from Kolkata-based IFB Agro. A agreement was signed last week.

This comes in the wake of the merger between Diageo and United Spirits (USL). Analysts expect mid-sized companies in the liquor segment to take the brand acquisition route to consolidate in the 260-million cases a year IMFL market.

Aiming at diversifying its portfolio and strengthening the presence in eastern India, Tilaknagar is buying vodka brand Volga and Blue Lagoon gin from IFB. The deal size is not known. These two brands are popular in Assam, West Bengal and Odisha and sell half a million cases (a case is nine litres) in the east.

ON A HIGH

• Indian Made Foreign Liquor market has annual sales of 260 million cases (one case is nine litres)
• Whisky is about 59% of IMFL market, rum holds 20%, brandy has a 16% hold, whle white spirits are 5% of the market
• United Spirits hold 55% of IMFL market share
• TI sells 14 million cases

Apart from producing own brands, the BSE-listed IFB also markets brands such as Smirnoff of Diageo and those of USL. Amit Dahanukar, chairman, Tilaknagar Industries refused to comment on the buyout.

The IMFL division of IFB has two manufacturing units in Kolkata. The leading products include Leonov, Volga, Russki (vodka) Goldcup, Benjamin (brandy), Jubilation (Rum), Blue Lagoon (Gin), 3 Cheers (Whisky) and Baluba (Rum).

In its latest annual report, IFB said it had exited the third- party bottling business and was now getting its own brands manufactured from outsourced vendors in all states.

"IMFL sales in West Bengal, Odisha and Assam have been affected by the increase in the duties and taxes, resulting in steep increases in end prices, which resulted in a decline in sales for the industry overall. In IMFL, the company being a regional player, (it) faces stiff competition from large Indian and multinational companies. Necessary actions are being taken to improve sales by restructuring the distribution model and by doing focused promotional activities," said the annual report.

Sushil Patra of retail consultancy Technopak said, "Building alcohol brands is a significant challenge, driven by the fragmented nature of the market and regulations that make brand building a difficult and long-term initiative." In 2010, through the acquisition of Alcobrew Distillieries India Pvt Ltd in Punjab, Tilaknagar added brands such as White House whisky, White House brandy, Golden Chariot whisky, Bachelor Deluxe whisky and Bonking rum to its portfolio. Punjab is the second largest liquor consuming state, with 14 per cent of all the liquor consumed in India. Kerala, with 16 per cent, comes first.

In August, Business Standard had said Tilaknagar was in talks with Suntory Holdings and Pernod Ricard to sell a 15-20 per cent stake in the company, to de-leverage its balance sheet, which had debt of Rs 600 crore.

"The complex structure of the market has led to a few national brands and a large number of regional brands. Till now, the performance of these brands has been measured by the volumes sold, without much focus on the profitability. This has led to a large number of low-priced brands catering to a very specific geography. This nature of the market might not be sustainable in the long run and, hence, the market is going to undergo consolidation," Patra added.