Indian Liquor Is Quicker
Not more than two years ago many people believed that the Indian consumer was waiting with bated breath for the foreign liquor brands like Seagram's, Whyte and Mackay and Johnny Walker. 'Informed' opinion, mostly emanating from highly paid executives, had you believe that people here were prepared to pay as much as Rs 450-1500 per bottle for the privilege of drinking a foreign brand.
The ground reality in the India market is that old and well established brands such as Aristocrat (Jagatjit Industries), Old Monk (Mohan Meakin), Royal Challenge (Shaw Wallace) continue to rule. In fact they have continued to thrive while the MNCs are still struggling to find a footing in the market.Which is why domestic alcohol companies such as the around Rs 400 crore Jagatjit Industries Limited (JIL) are still good options for the investor.
Owned by the London-based Jaiswal family, JIL is the third largest liquor company in the country. A national level player, JIL has owns around 12 brands, of which Aristocrat is the single greatest contributor to the Profit and Loss account. In the deluxe whisky range it has Fortune Gold and Black Velvet. Its Deluxe brand is Aristocrat Premium, while in the Regular range of Whiskies it has Aristocrat and Executive Club. In the Medium and Low priced segments it has three brands -- Bonny Scot, Binnys and VIP. Apart from Whiskies, the company sells Gin (Aristocrat Gin) , Brandy (Aristocrat Brandy) Vodka (Aristocrat Vodka) and rum ( Captain Henry).
As has been said before, of all the above mentioned names, Aristocrat, in the regular range, is the company's strongest brand. Of the roughly 16 million cases sold in 1995-96 in India in the regular whisky segment, Aristocrat accounted for roughly 11 per cent of the market. And overall, of the roughly 55 million cases per annum of Indian-made foreign liquor sold in that year Jagatjit Industries took a market share of around 9 per cent. The other two majors, United Breweries and Shaw Wallace had a share of 29 per cent and 17 per cent respectively. The other major strength of the company is its manufacturing base: Jagatjit's distillery in Hamira, Punjab, is one of the largest in Asia, with a 48.5 million litres per annum capacity.
In the liquor sector, like the other two majors, UB and Shaw Wallace, JIL has operated in an protected environment for decades altogether. But unlike other sectors, this has not proved to be disadvantageous at all. In fact the company, like other players, has built up a nationwide presence and learnt to operate in the myriad states, each with their own rules, which could take a new entrant years to operate. JIL com-
menced operations in liquor in the 1960s. Today apart from its liquor activities it has production facilities for PET containers and potato chips. Liquor accounts for around 70 per cent of its turnover.
And by the end of 1995-96 JIL's market share in 1995-96 for regular whiskies in a few state such as Punjab (20 per cent), Rajasthan (20 per cent)UP (25 per cent) , Kerala (1 per cent) and Karnataka (3 per cent) amply proves a huge distribution and sales reach.
And when you combine that with the conservative, price fixated tastes of the Indian consumer it is not surprising that the MNC competition has failed to come anywhere close to their targets. Indeed they are now reorienting strategies to try and focus on the lower and middle end mass markets. In one way or another this situation has been replicated in other industries in the country. And almost always, investors tend to find it advantageous to keep track of what's happening.
This is the reasoning: For MNCs the last two years is a case of hugely overestimating potential of local markets. It is now apparent to foreign companies that the Indian consumer is not going to pay the high prices that everybody said he would. As a result most new projects are caught short by the double whammy of spiralling costs and poor demand.
However, such a situation can get interesting for the investor. For example, what happens when a large company enters a foreign market and finds out that it would be much easier to simply invest in already installed capacities ? Instead of setting up projects on their own, the easier route in some cases is to acquire an existing plant or unit. On the other hand domestic companies are strapped for cash and hampered by the realisation that in the long run they can never hope to match the staying power of MNCs. In such a situation, as is the case today, the investor could do well to keep track of companies such as JIL, which might tie up, or sell existing capacities if the price and conditions are right.
Of course this is not to say that the sun is shining brightly all over the company. JIL has had its share of troubles in the past and more. Some time back it terminated its joint venture agreement with the MNC Hiram Walker. The 50:50 joint venture partners then aid that there were "irreconcilable differences" with each other that resulted in the JV being called off. Then, three of the company's top executives resigned in quick succession.
For September 1996, it sho-wed a sales performance of around Rs 158 crore which was almost exactly the same as that of September 1995. The stagnant turnover is largely because one of the company's other divisions was facing some trouble. But there was a substantial increase in the Rs 20.63 crore operating profit, of around 28 per cent. It may be noted that the impact of the other income component is not very high, around Rs 1.8 crore. Net profit went up by a substantially higher figure, 75 per cent, to close at Rs 7.83 crore.
The company has made provisions for tax to the tune of Rs 3.5 crore, which is normal for the first half for a liquor company. (It paid a total tax of Rs 10.50 crore in 1995-96). However, due to the GDR in 1996, the equity has gone up to Rs 49.44 crore. In 1995-96, it had gross block of around Rs 225 crore. The scrip is trading at Rs 44 and could be worth picking up if you are a punter in the high risk, high return mould.