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Topics: Per capita income, Income, Price Pages: 54 (7047 words) Published: May 30, 2014
SAPM INDUSTRY ANALYSIS

ALCHOLIC BEVERAGES INDUSTRY

Made By : Vaibhav Tomar

ISB&M Gurgaon
2013-15 Batch

Snapshot of liquor industry in India

Liquor industry break-up

ImportedBeer

3%13%

Country liquor

48%

IMFL

36%

Per-capita consumption: IMFL

(ltr/p.a./person)

120

100

80

60

40

20

0

South Africa

Brazil
Mexico

China
Taiwan
Hong Kong

Malaysia
India

Indonesia

Australia
Russia

Argentina

Thailand

Philippines
Vietnam

Egypt

Market share of IMFL companies

Others

13%

Mohan Meakins

9%

Tilak Nagar

4%
United Spirits

Jagatjit
53%

9%

Radico

12%

Indian-made foreign liquor (IMFL) industry break-up

Rum 20%

Brandy
Whisky
16%
59%

White spirits 5%

Per-capita consumption: beer

(ltr/p.a./person)

140

120

100

80

60

40

20

0

New Zealand
Denmark

India
Germany

China

Market share of beer companies

Others 13%

Mohan Meakins

6%

UB 50%

SAB Miler

31%

Beer industry break-up

Premium

1%

Standard

45%

Strong

54%

Market share: IMFL and country liquor

(%)

100

80

60

40

20

0

FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11

IMFL Country liquor

Region-wise market structure: IMFL

North 12%

East

9%

South

49%

West

30%

Due to strong entry barriers and numerous taxes, existing liquor manufacturers are likely to enjoy undiminished strength over the medium to long term. Brands with a strong sub-segmentation strategy (expansion of product categories by leveraging brand strength) are expected to gain market share as, due to the ban on liquor ads, there are few ways to build new brands. However, pricing power in the face of volatile raw material costs is a concern, as state governments allow price hikes only once a year. Top picks: Tilaknagar & Globus Spirits.

Strong entry barriers protect incumbents. Several entry barriers exist for new companies and new brands. These include the ban on liquor ads, limited potential for stock-keeping units (SKUs), ‘import’ duties on inter-state transfer of molasses and liquor, limited distribution networks due to the various licenses required and stringent government controls.

Sub-segmentation to offset limited brand-building and volatile income trends. With limits on brand creation, companies are leveraging their existing brands with a sub-segmentation strategy. This also caters to consumers who are likely to change products to match volatile per capita income growth. We expect brands that have products at all price points and segments to do well.

Pricing power hit by volatile raw material cost & government curbs.

Pricing power is a concern for the sector. Most state governments permit price hikes only once a year. The sector also faces progressive taxation, which further dissuades price hikes, as this attracts higher taxes. A few companies are using a premiumization strategy to pass on the volatile prices of molasses and glass, thereby improving realizations.

2

Investment Argument and Valuation

The advertising ban has created strong entry barriers in establishing brands....
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