Kishore Chhabria’s Allied Blenders Seeks 10% Price Hike To Beat Inflation

Kishore Chhabria-backed Allied Blenders & Distillers Pvt. Ltd., the largest homegrown spirits maker, said it would need at least a 10% price hike as it faces “unprecedented” cost pressures in ingredients to energy and transport.“The war in Ukraine has changed the cost dynamics and it’s getting more expensive to make a bottle of whiskey,” Shekhar Ramamurthy, executive deputy chairman at the Officer’s Choice brand owner, told BloombergQuint in an exclusive interview.“Manufacturers in India, however, are unable to unilaterally raise their prices as it’s controlled by the state governments, which creates variation in the pricing models across states. Most states levy either value-added tax or excise duty or both since alcoholic drinks don’t come under the ambit of the goods and services tax.”Sale of alcohol has been a key source of inflow for states. According to Crisil, for the five southern states—Andhra Pradesh, Tamil Nadu, Telangana, Karnataka and Kerala—over 10% of the tax revenue comes from liquor sales. Rajasthan, Punjab, Uttar Pradesh, West Bengal and Maharashtra get 5-10% of their revenue from liquor.“We are constantly talking with the states to allow us to raise prices to offset the current cost pressures, which is unprecedented,” Ramamurthy said. “If we had the freedom to fix prices, it would be a 10% hike.” The excise policies of the states, according to him, need to have an inflation-embedded approach to pricing, with prices being projected to rise.Allied Blenders generates 70% of its whiskey sales either through part or full corporation market—regulated by states—and the rest through distributors.The cost of packaging materials such as glass bottles are 9-13% more expensive, PET bottles are up 7-10%, cartons are up 17% and labels increased 13% in just one year, according to estimates by Confederation of Indian Alcoholic Beverage Companies. Prices of extra neutral alcohol—the principal ingredient of liquor—and maize and grain, among others, have also been rising. The cost of transportation has increased 15%, in line with costlier fuel. Energy costs have surged due to a 50% rise in the cost of coal to Rs 9,000 a tonne.Wages, too, have risen 4-5%, directly impacting manufacturing cost. “Since alcoholic beverages are out of the purview of the GST, manufacturers cannot claim input tax credit for GST paid on input material, which by itself pushes up cost of production by 3-5%,” Vinod Giri, director general at CIABC, told BloombergQuint..The maker of Officer’s Choice—one of the world’s largest selling whiskies with a market share of 34%—said that the need of the hour is more flexible regulatory processes to ensure that the businesses in this sector are viable.Revenue-wise, the Kishore Chhabria company doesn’t expect to surpass pre-pandemic levels in the fiscal ended March 31, 2022. Ramamurthy said consumption and consumer sentiments, although improved, remains low because of wave after wave [of Covid-19]. “We are hopeful that FY23 will be better.”Allied Blenders, competing with Diageo Plc, Pernod Ricard and Radico Khaitan, sells spirits ranging from whiskey and rum to brandy and vodka across 20 countries, according to a company release. It owns 10 bottling units, one distilling facility and over 22 outsourced manufacturing sites..FinancialsThe company’s net revenue declined 21.6% year-on-year to Rs 2,348.3 crore in FY21, India Ratings & Research said in a report. That was on a 26% drop in volumes because of the pandemic-induced nationwide lockdown and a route-to-market change—a strategy that determines the use of distribution channels to deliver a product to customers—in Andhra Pradesh.Allied Blenders reported sales of 25.5 million cases (a case contains 12 bottles) in FY21, garnering a market share of 7.6% in the Indian-made foreign liquor market. It sold 15.5 million cases of its flagship Officer’s Choice brand.The company’s volume contribution from Andhra Pradesh, according to India Ratings, reduced to 0.2% in FY21 from 9% in FY20 and 12% in FY19 amid changes in the state policy as well as in the company’s strategy to restrict sales in the region because of elongated receivables in the past.The company’s sales volumes, however, improved as restrictions eased. The rating agency expects ABD India to report 10-20% revenue growth in FY22. Ramamurthy didn’t disclose the financials for the last fiscal..FundraisingThe company, Ramamurthy said, is in need of liquidity as it plans to strengthen its infrastructure and launch three new brands in this fiscal. He didn’t disclose details as the Mumbai-based distiller is readying to file a draft red herring prospectus for an initial public offering with the market regulator. It can be expected in the next four-six weeks, Ramamurthy said.For Allied Blenders, however, this isn’t the first attempt at an IPO. It was close to hitting the markets in 2016 and 2019 but deferred due to adverse market conditions.The IPO-bound company has earlier raised Rs 100 crore from promoters in the first quarter of FY22. After the fund infusion, its net leverage improved to 4.2x as of June 2021 from 4.8x in FY21, according to India Ratings. Total gross debt for the distiller stood at Rs 974.5 crore as of March 2021.This, along with high cost of borrowings, led to its interest coverage ratio to remain low at 1.3x. “The net leverage staying above 4.0x and the interest coverage staying below 2.0x, both on a sustained basis, could lead to a revision in ratings outlook from positive to stable,” the ratings agency said.To support its liquidity position, the company had likely raised another Rs 50 crore in Q2 FY22 in the form of compulsorily convertible debentures, India Ratings said. The company, according to the ratings agency, is also planning to raise additional term loans of Rs 150 crore to augment liquidity.So, India Ratings expects the company’s overall debt position to be slightly higher than in FY21 even after repayment of current maturities. The distillery has to repay long-term debt of Rs 65.7 crore in FY23.

Kishore Chhabria’s Allied Blenders Seeks 10% Price Hike To Beat Inflation

War in Ukraine has changed the cost dynamics and it’s getting more expensive to make a bottle of whiskey, Shekhar Ramamurthy.

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