United Spirits Ltd. (USL), India’s largest liquor company, said it will sell about 32 mass-priced brands, including Haywards, Old Tavern, White-Mischief, Honey Bee, Green Label and Romanov, to Singapore headquartered Inbrew for a total cash consideration of Rs 820 crore.
The deal includes the entire business of these brands such as related contracts, permits, intellectual property rights, associated employees, and a manufacturing facility. In addition, USL and Inbrew have entered into a five-year franchise arrangement for 11 other brands, including Bagpiper and Blue Riband. USL has also granted Inbrew a right to convert the fixed term franchise arrangement into one with perpetual rights to use with a call option to acquire the brands at a pre-agreed consideration.
“The transaction reflects the continued evolution of the management of the popular portfolio since 2016, when the company moved to a franchise model in many states, to enable a sharpened focus on ‘Prestige & Above’. This is a significant move to reshape our portfolio in service of our publicly stated mission to deliver sustained double-digit profitable top-line growth,’ said Hina Nagarajan, CEO, United Spirits Ltd.
The review, initiated over a year ago, is part of a strategy to increase profit by focusing on premium brands. The exercise by the Diageo subsidiary will exclude McDowell’s and Director’s Special, two of its largest brands by volume.
Inbrew, led by Indian entrepreneur Ravi Deol, bought the Indian unit of US brewer Molson Coors for about Rs 1,000 crore last year. As part of the deal, Inbrew acquired Molson Coors’ Indian beer brand Thunderbolt along with selling and distribution rights of its global brands such as Miller, Blue Moon, Carling and Cobra in India.
“The acquisition of these iconic brands provides Inbrew with a unique platform to extend its ambition of becoming India’s trusted household beverage company. These brands have delighted consumers over generations, and we are excited at the prospect of strengthening this legacy. Inbrew will revitalise these brands through expanded distribution, innovation and investments,” said Deol, Chairman of Inbrew.
The company expects to complete the transaction by the end of the quarter ending 30 September 2022.
USL reported a 19% increase year-on-year in sales value for 2021-22 and 12% in volume. Net sales of the P&A portfolio increased 24% while net sales of the popular segment rose 8%.
Over the past five years, USL has moved towards the franchisee model in the popular segment with fixed-fee arrangements in more than a dozen states and this has helped expand margins. The company’s P&A business now accounts for nearly three-fourths of its overall sales, up from less than half five years ago, indicating a strong focus on premium segments.
Margins are low in the economy segment, where distillers have little pricing power and branding capability. The segment also includes many smaller Indian companies, which increases competition. Rival Pernod Ricard India gets a significant chunk from premium and semi-premium brands, mainly Blenders Pride, Royal Stag and Imperial Blue.
