USL acquires 41.54% in Sovereign Distilleries

United Spirits Ltd, the flagship liquor brand of the UB Group, has acquired 41.54 per cent stake in Karnataka-based Sovereign Distilleries for for Rs 3.5 crore to increase distillation capacity of the company, as part of its backward integration plan.

The company has also taken a 20 years exclusive lease of Sovereign Distilleries for a deposit amount of Rs 42 crore.

Sovereign Distilleries, which produces extra neutral alcohol (ENA) using both molasses and grain, has a capacity of producing 180 kilo litres of alcohol per day (Klpd). The acquisition will help United Spirits meet 35 per cent of its projected liquid requirement from captive sources.

“United Spirits aims to achieve a volume growth of 200 million cases in the next five years. Increasing self reliance in ENA, which is the core raw material of our business, is our highest priority. The present acquisition of equity stake in Sovereign is a significant step forward in this direction,” said Vijay Mallya, chairman, UB Group. The company,which will be 35 per cent self-reliant after this acquisition, aims to achieve 50 per cent self-reliance in ENA by 2013, Mallya added.

USL is in constant look-out for multi-substrate distilleries to hedge its risks from the cyclical availability and pricing of molasses. Earlier, the company had increased its distillation capacity by 200 KLPD through its acquisition of Tern Distilleries in Andhra Pradesh and Pioneer Distilleries in Maharashtra.

“United Spirits volumes have grown by 12 per cent in the current financial year. The opportunity for growth of our premium brands, especially in markets like Maharashtra, Karnataka and Andhra Pradesh, is compelling. This investment augurs well for our expansion plans and will also help us in improving margins,” V K Rekhi, president and managing director of United Spirits Ltd, said.

The acquiring of stake in Sovereign Distilleries is also expected to improve company's margin through arbitrage in purchase rates.

According to industry experts, the acquisition of multi-substrate distilleries will increase the scope of exports of USL products.

“Grain-based distilleries will help USL to export its products, as liquor prepared from molasses are not well received in foreign markets,” an analyst said. USL had registered a 34 per cent rise in its net profit at Rs 129.96 crore in the third quarter ended December, 2010, owing to higher sales of its flagship brands. The total revenue of the company rose by 45 per cent to Rs 1969.40 crore during this period.