Radico Khaitan to hive off IMFL business ahead of stake sale
Japanese liquor maker Suntory has begun preliminary talks to acquire a strategic stake in the company, which makes 8PM Whisky.
Japanese liquor maker Suntory has begun preliminary talks to acquire a strategic stake in the company, which makes 8PM Whisky. Other Japanese companies such as Asahi are also understood to be in the fray as spirits sales in India are expected to reach 360 million cases by 2017 from 261 million.
Radico Khaitan's board, which met on Monday, decided to spin off the IMFL business into a separate subsidiary, the company said in a notice to stock exchanges.
The IMFL division contributes over 70% of the business and revenues for Radico.
"The spin off is meant to facilitate the induction of a foreign partner into the IMFL business and to create value for investors. Couple of foreign players have evinced interest," said Abhishek Khaitan, managing director at Radico. He, however, declined to reveal the names of prospective investors.
"The negotiations are now ongoing with an idea to complete all diligence and commercial agreements before the shareholder approvals for the subsidiarisation comes in the next two months," one of the bankers quoted earlier said. Besides being a major player in the IMFL segment, Radico also has a significant presence in the bulk liquor business.
Hiving off the IMFL division into a 100% subsidiary is a strategy that would provide independent existence to the business of IMFL and the business of bulk liquor.
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 ageing home market, where the total population is expected to decline by a third in the next few decades.
Radico accounts for 19 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.
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.