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Radico Khaitan in talks with Suntory Holdings to sell 26% stake for Rs 870 crore

The makers of Magic Moments vodka and 8 PM whisky is examining the option of offering 26% in the company to Suntory, investment bankers close to the transaction said.

Updated: Sep 03, 2013, 04.33 AM IST
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MUMBAI: Radico Khaitan, India’s fourthlargest liquor maker, has begun preliminary talks to sell a minority stake to Japan’s oldest liquor company Suntory Holdings, underscoring the growing attraction of the local liquor market to foreign firms. The makers of Magic Moments vodka and 8 PM whisky is examining the option of offering 26% in the company to Suntory, investment bankers close to the transaction said.

The Japanese spirits major is expected to pay close to Rs 870 crore for the stake, valuing Radico Khaitan at Rs 3,500 crore, or close to 20 times its FY13 operating profit. British drinks giant Diageo bought 53.4% in Vijay Mallya’s United Spirits (USL) for close to Rs 12,000 crore in November 2012 at a valuation of 20 times the operating profit of USL.

Several phone calls made to Suntory’s corporate headquarters in Japan remained unanswered. Rahul Gagerna, senior V-P and head marketing, Radico Khaitan, said: “We do not want to comment on market speculations.”

The proposed deal is likely to include a provision to buy another 23% stake at a later date, the bankers said. Khaitans, the promoters of the company who started as bottlers, will retain stake in the distillery business and provide outsourcing support to the multinational partner, one of the persons quoted above said.

Multinational investment bank UBS is understood to be the advisor to Radico Khaitan. Suntory is likely to rope in a reputed Japanese multinational investment bank. A UBS spokesperson from Hong Kong declined comment. The Khaitans began talks with Suntory in 2011, but a deal did not materialise due to issues over majority control, said industry experts.

However, it resulted in creation of an alliance whereby Radico got the rights to market Suntory's Yamazaki single malt and Hibiki blended whiskies in India. Japanese liquor makers such as Suntory are keen to expand into a growing market like India as liquor sales plummet in a rapidly aging home market, where the total population is expected to decline by a third in the next few decades. Spirits sales in India are expected to reach 360 million cases by 2017 from 261 million cases as more than 60% of India’s population is between the 15-45 age bracket.

Radico accounts for 18 million cases in the Indian spirits market, with 8 PM whisky alone crossing four million cases. Suntory has been trying to ramp up its presence in India through acquisitions. In 2009, it launched an unsuccessful attempt to acquire a stake in Indage Vinters. The Radico acquisition, if and when it happens, will underscore multinational liquor companies’ hegemony over the Indian market.

Diageo, which now has a controlling stake in USL, accounts for 50% of the Indian spirits market. French spirits behemoth, Pernod Ricard, sells nearly 26 million cases while Kishore Chhabria-controlled ABD sells about 25 million cases. “The increasing presence of foreign liquor companies will result in a major shift to premium products. The process has already started and it will eventually bring more choice for consumers.

Liquor companies will become more transparent,” said Deepak Roy, director, ABD. Radico Khaitan, which originally engaged in supplying alcohol to United Breweries, Shaw Wallace and Mohan Meakins, launched the 8 PM whiskey in 1996. But its turning point came in 2006 when it had brought out the Magic Moments vodka in 2006.

It now sells 2.8 million cases a year which is 30% of the total vodka market in the country. In FY13, Radico Khaitan’s net profits grew by 21% to Rs 77 crore on a year-on-year basis.

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