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Web Exclusive/Magazine Extra | Oct 17, 2011 | 6825 views

Shaw Wallace Acquisition Was a Milestone

In e-mail interview to Forbes India, P.A. Murali, Joint President & CFO, United Spirits (USL), says that none of the company’s competitors has the kind of pan India footprint that USL brands command
Shaw Wallace Acquisition Was a Milestone
P.A. Murali, Joint President & CFO, United Spirits (USL)

USL is today the world’s largest spirits company in volumes. What have been the important milestones and decisions that has helped the firm scale this peak?
Our unerring understanding of the complex landscape of the alcobev industry, the emerging trend of the Indian consumers and the vision about the synergies that can be brought to the table by acquiring a fierce competitor are the hallmarks of this journey to global leadership.
 
In my opinion, our decision to offer top dollar for the acquisition of Shaw Wallace & Company, in 2005, amidst lot of skepticism in the minds of the investors and analysts’ fraternity, was an indelible milestone in our path to achieving not only the increased profitability, but also global leadership by volume.
 
The Indian liquor market presents significant challenges what with varying state policies, different tax structures and competition in the market. USL has managed to overcome these difficulties. What to your mind has been the key to this success?
Competition especially from multinationals is not new to the Indian alcoholic beverage sector. They have been present in this country for more than 15 years now and have failed to make an impact or counter the scorching growth of USL.
 
Following are the keys to our success:

  • Having brands which straddle all segments, all flavours and all price points across the spectrum. These are brands which are leaders in their own category. There are ‘21 Millionaire Brands’ in our portfolio which is unparalleled in this industry across the globe. This ensures that we are best placed to retain our consumers (and consequently market shares) when they move across price and flavour segments. None of the competitors have this strength and width in their portfolio.
  • Pan India footprint in manufacturing capacity which ensures more than 90 percent captive consumption.
  • There are very high penetration levels in the front-end wherein 98 percent of points of sale in this country have USL’s products in its shelves.
  • Five out of the top 10 fastest growing brands worldwide comes out of USL’s stable.

Top of mind recall of our brands by consumers across categories is a huge strength in a market where regulations act as a barrier to entry and brand building.
 
Recently USL stock was downgraded by a few analysts. To your mind, how justified are these concerns and how have you responded to investor concerns?
USL is a solid medium to long term growth story. Any short-term investment into this category would obviously be constrained because of the volatility attached to cultivation of sugarcane and administered pricing of sugar cane/sugar in this country.
 
We, as market leaders, have put together a backward integration plan which will not only address the volatility by creating a natural hedge through Multi Substrate Feed Stock capable plants but also go a long way in improving our margins going forward by mopping up the arbitrage that  a ‘make vs. buy’ situation offers. The benefits of these investments will be reflected in the future performance and margins of USL once the implementation of backward integration is complete.
 
USL has driven growth and volumes in the industry. Now in hindsight, would you have done things differently to ensure profitable growth?
This is an erroneous perception. Over the last six years, our EBITDA margin to NSR has doubled and is close to 18 percent today. This wouldn’t have been possible if we had just grown by volume and not by value. Our focus on premiumisation continues to be the centre stage of our growth plan.
 
McDowell Platinum has been a success. But the fact that it was priced only 10 percent higher than McDowell No.1 and on par with Pernod Ricard’s Royal Stag, do you believe you lost an opportunity in building a premium brand and instead ended up focussing on volumes? Moreover, creating brands in the premium segment would mean altering the organisational DNA. What is USL doing on this front?
Currently, the premium and above segments constitute less than 6 percent of the volume salience and about 20 percent of the value pie. Over the last 10 to 15 years, we have in fact launched several premium and semi-premium brands like:
 

  • Black Dog
  • Antiquity Blue
  • Signature
  • McDowell Platinum
  • McDowell VSOP
  • Romanov Red
  • Flavours of Vodka and Gin apart from brands from Whyte and Mackay stable

 
Please note that all the above are success stories.

This article appeared in the Forbes India magazine issue of 21 October, 2011
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