MUMBAI: Vijay Mallya-led United Spirits (USL) will invest around Rs 600 crore to set up glass manufacturing plants, as the world's largest liquor firm by volume tries to rein in volatile input costs.
USL is probably the biggest user of glass bottles by tonnage with its volume sales crossing 112 million cases (of 9 litre each) in the current financial year. India's glass industry, which is dominated by players like Hindustan National Glass (HNG), has increased the prices by 10-12% in the last few months.
"We are planning to invest Rs 500-600 crore into glass (bottle) manufacturing. We are talking overseas for light weighting technology, and will move ahead once this is finalized," said Ravi Nedungadi, president & CFO, UB Group, a diversified beer-to-airline conglomerate. The group's flagship USL controls around 55% share of India's branded spirits industry.
He said the move was part of a strategy to gain direct control over some of the key inputs such as extra neutral alcohol (ENA) and glass-the soaring prices of which could hurt the profitability. "There are tremendous cost savings to be achieved straight away. USL is now a juggernaut in an industry which is witnessing robust volume growth," Nedungadi added.
The company with Rs 5,600 crore debt on its books said it was ready to invest in initiatives that guaranteed better profitability and cash flows. The mandate to invest in glass manufacturing and in primary distillation was part of this thinking.
Industry observers believe the recent price spike (in glass bottles) has the potential to shave off at least Rs 20 per case for regular-priced brands like Bagpiper Whisky, which is USL's and the world's largest selling whisky brand. The impact could be higher in the case of premium brands as the firm uses fresh bottles in every production cycle, they added.
Besides, the company, which pipped UK's Diageo Plc as the world's largest spirits firm this year, is also at work to gain better control over primary distillation of ENA. The cost of molasses, a key substrate for alcohol production, has vaulted around 15% in recent months. USL has unveiled plans to plough significant investments to acquire or set up primary distilleries.
Glass is probably the second most key input after molasses in the production of packaged spirits brands. USL has experimented with tetra packs for some of its regular-priced brands in states like Andhra Pradesh and Karnataka. But this has been limited to smaller 180 ml packs and regular brands. Besides, the cost of investment in tetra packs is relatively higher.
