Allied Blenders may sell up to 5% stake to PE firm

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Mumbai: Allied Blenders and Distillers Pvt. Ltd plans to sell a 5-6% stake to a private equity investor before going for an initial public offering (IPO) by the end of 2017, a top executive at the liquor maker said.

“For the last 2-3 months, we have been in talks with private equity investors and will look at getting on board a strategic investor prior to our listing,” Jeetu Hemdev, executive director, Allied Blenders, said on Friday. He said the move will help the firm prepare for its IPO and expand its global footprint.

In August last year, the Kishore Chhabria-led company announced plans to raise Rs1,000 crore in an IPO.

Allied Blenders, which makes Officer’s Choice whisky and Jolly Roger rum, will use the money to expand its portfolio of premium brands with two launches next year, increase its own capacity and buy more bottling plants.

Allied Blenders spent Rs350 crore on capital expenditure last fiscal, Hemdev said, adding this year it will spend Rs200 crore. Last year, it acquired Shasta Bio Fuels, a grain distillery unit, and Paramount Distillery, a blending and bottling plant, both in Telangana, besides expanding its own capacity.

Currently, 44 contracted bottling facilities produce 70-75% liquor for the company. It has nine plants of its own.

“We will continue to invest in expanding our own production capacity,” said Hemdev, without giving any specific targets. He, however, added that it will expand its overall manufacturing capacity to 40 million cases a year in 2016-17 from the current 36 million cases.

“The alcohol industry is witnessing growth and premiumization, in line with the Indian consumption story. Growth is more pronounced in the premium segments while the economy segments are stagnant,” said Angshuman Bhattacharya, managing director, Alvarez & Marsal India, while noting that the alcoholic beverage industry also faces execution challenges as it is a complex business to manoeuvre with state-level variations in regulations and the need for relevant operating licences.

“Funds often find it difficult to envisage the returns in the sector and, hence, interest may be relatively subdued,” he added.

The alcoholic beverage sector has faced several challenges such as sugar price hikes and difficulties getting permits for licensing and manufacturing. Restrictions on alcohol in states like Bihar and Kerala and demands for a ban in other states have made the environment challenging for manufacturers.

The Patna high court on Friday struck down the Bihar Prohibition of Liquor Act, calling it “illegal”, but the state government on Sunday came out with a new law banning liquor with harsher provisions, including the arrest of all adults in the event of recovery of the contraband in their house. At a special cabinet convened on Sunday, chief minister Nitish Kumar and other members of his cabinet took a pledge that the government would continue with prohibition, which is “ushering positive social change” in the state.

The Kerala government, however, has softened its stance on the liquor ban.