1 Industry Overview6
2 Product Segments
6 Company – United Spirits36
The alcoholic beverages industry in India is at an inflexion point. Given the favorable demographics, higher bargaining power following industry consolidation and favorable change in operating environment, the party has just begun. Robust volume growth is expected across segments - IMFL (Indian made foreign liquor), beer and wine. Given the strong visibility for earnings growth, the valuations are expected to further move up. India is best placed demographically, with nearly 485m people in the drinking age. With growing discretionary income of young consumers and increasing consumption of lifestyle products, demand for alcoholic beverages is set to rise.
The top-2 players account for over 70% market share in IMFL and beer, the top player alone accounts for about 70% market share in the wine segment. Consolidation, especially in the IMFL segment, has enhanced the industry's bargaining power. The industry is still characterized by strong entry barriers like ban on advertising, duty on inter-state movement of products, licensing and very high taxes. This works to the advantage of existing players.
United Spirits is the new entity born after the consolidation of UB Goup's IMFL operations under the erstwhile McDowell & Co. The company acquired its archrival, Shaw Wallace and now controls over 59% of India's IMFL market. The retail sales of United Spirits' top-4 brands are US$1.5b and these brands account for 46% of the company's volumes. Its total retail sales are estimated at US$2.7-3b, while the enterprise value of the company is US$2b, valuing the company at less than 1x retail sales.
Demographics favorable to consumption of alcoholic beverages India's per capita consumption of alcoholic beverages is one of the lowest in the world. Even a small increase in per capita consumption could significantly alter industry growth, given the large population base. India is best placed demographically, with nearly 485m people in the drinking age. Another 150m are likely to be added to the target population in the next five years. With growing discretionary income of young consumers and increasing consumption of lifestyle products, demand for alcoholic beverages is set to rise substantially. The industry is expected to report steady double-digit volume growth in the coming years. Beer – Per Capita Consumption
IMFL – Per Capita Consumption
A huge target population
The age group of 20-59 years is the primary target audience for alcoholic beverages. India has 485m people in the age group of 20-59 years as on 2001, which is expected to increase to 636m by 2011. Out of the total population, 600m people would be less than 25 years of age and 320m would live in urban areas. The young and urban population has greater exposure to western media and has lower inhibitions about consuming alcoholic beverages. Population – Age Composition
Rising discretionary Incomes
India is one of the fastest growing economies in the world. Its GDP has been growing around 7%-8% over the last two years and the growth rate is expected to remain strong. Per capita income has increased from US$450 in FY01 to US$784 in FY09. Economic growth is leading to higher per capita income and the proportion of the 'consuming class' is increasing. The number of middle-high income households is likely to double during the period 2001-2010. The growth in per capita income is expected to increase the discretionary income at much higher pace than the GDP growth, boosting demand for lifestyle products including alcoholic beverages. Distribution by Income Group
Consolidation has helped enhance industry's bargaining power India's alcoholic beverages industry has undergone considerable consolidation...