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1. Market potential: The Indian IMFL market has recorded a growth of 11% over FY05-13 and is expected to continue to record strong growth of 6% for next three years. Favourable demographics, greater social acceptance of alcohol and higher disposable income are expected to propel growth in per capita consumption of liquor from 2 litres per annum to 3 litres per annum over the next couple of years. India is likely to add nearly 150 million people in next 4-5 years to the target population of 485 million people in legal drinking age.
2. Whyte & Mackay Sale: The Whyte & Mackay sale due to regulatory requirement would enable United Spirits to trim down its debt burden. The sale is expected to fetch around $660 million to United Spirits. There are already bidders in the race including KKR, Lion Capital, Thai Beverage and Davide Campari. This money will be used by USL to trim its debt thereby helping Diageo. The final offers are expected by Thursday.
3. Good potential: United Spirits has more than 40% market share and with 140 brands is the largest alcoholic beverage company in India. The company has nearly 21 brands selling more than one million cases a year and its five marquee brands are selling more than 10 million cases a year. USL with sales of nearly 123.7 million cases in FY13 via a robust network of 64,000 outlets and 91 manufacturing facilities is a pioneer in the Indian alcohol industry. Every dollar invested by Diageo will help the British company to increase its market share in India.
4. Strong brands: USL is at pole position with 40% market share in the Indian liquor industry with McDowell’s No.1 being the eight largest selling alcoholic drinks and the largest selling whisky brand in the world. USL’s top 10 whisky brands grew at a CAGR of 11.5% over FY07-13 whereas the rest is growing by 10%.
5. No way out: With United Spirits, company Chairman Vijay Mallya sued by the Indian banks to recover its Rs 7,000 crore loans to Kingfisher airlines, Diageo is in catch 22 situation. The Karnataka HC has already banned the sale of 7% stake by Kingfisher to Diageo as the shares were pledged to banks. The only way out for Diageo now is to launch yet another open offer and consolidate its stake in the company. Though large shareholders say they will retain their shares even at this new offer price of Rs 3,030 a share.
