The spirits industry's pugnacious challenger, Kishore Rajaram Chhabria, will take his Allied Blenders & Distillers (ABD) for an initial public offering when sales volume moves closer to 30 million cases. He, however, does not see that scenario before FY13.

In the next one year, ABD may look at private equity placement to steer its capex plans even though formal discussions with funds will start only after it scripts a new business plan in the coming 2-3 months.

"I have said the company will go for an IPO, but only when it can fetch the right valuation. I think the right time for this would be when we take our sales to around 30 million cases delivering net profit of Rs 100 crore. This can happen by 2012-13 at the earliest," Kishore Chhabria, Chairman, ABD Pvt Ltd, told VCCircle, in a rare media interaction. "We will be between 15 and 16 million cases in the current financial year (up from around 12.5 million last year). Our top line revenue will be around Rs 1,500-1,600 crore with PBT of over Rs 40 crore," Chhabria, who is better known as KRC in close circles, said.

This essentially means that KRC flagship, which is now steered by industry veteran Deepak Roy, will be targeting to more than double its volume as well as profits in the next 2-3 years. ABD has been a single brand company, led by Officers' Choice Whisky, in its little over two-decade-old existence. It would look at new brand introductions to flank Officers Choice but the target looks a challenging one nevertheless.

"We have more than doubled our volumes in the last two years," he reminds. India's spirits sales is expanding 8-10% annually and is estimated at around 200 million cases, which include the commoditised cheap brands sold in regional pockets.

KRC, who figured in the domestic liquor industry's two most high-profile takeover battles, is focused on building his enterprise now. In 2007, he roped in Roy, who holds 5% stake, as vice chairman and managing director to spearhead the company then known as BDA Ltd.

"We are preparing a new blueprint for the business, and it should be ready in the next 2-3 months. We own three bottling plants in Maharashtra, Karnataka and Haryana. We need to control more bottling units in a couple of more states, besides setting up our own primary distilleries. We need capital and this is where we are looking at private equity to come in," Chhabria explained. Having control over primary distillation is critical when extra neutral alcohol (ENA) price exhibits great deal of volatility like during last year.

ABD and its peers saw profitability erode as the price of this key input soared sporadically during 2008-09. "This was one of the key reasons for our low profitability of just Rs 10 crore (on top line revenue of Rs 1,200 crore) last fiscal," he said. The prevailing industry estimates suggest that average ENA price during the ongoing financial year will be around Rs 30-31 per litre compared to Rs 38-39 in the previous year. The profitability of firms like ABD will be buoyed if these price estimates hold and the industry continues to rein in spends, especially on the trade.

"We have had informal talks with some funds, but we will appoint an investment bank for a formal process once we are ready with the new business plan. Bringing in a private equity about 18-24 months before IPO will be ideal," Chhabria added. Sectoral analysts said, ABD should be going in for fundraising as early as possible as it would require capital not just for production infrastructure but for maintaining growth itself. The company's relatively new brands Gorbatschow Vodka and Jolly Roger Rum - launched in select markets recently - would require funding to take it forward in a market where successful brand introductions are few.

ABD's profitability and volume projections for the current year are not a surprising. The industry is having a good year with ENA price being stable and most brands taking price increases last year. But can the company make a straight-line projection for the next two years?," Sanjay Jain, Director at Taj Capital, said. "Some of ABD's mid-sized peers like Radico Khaitan, Tilaknagar Industries have raised cash or are in the process. All of them will be pushing for growth and a certain degree of hawkish spending will be back. ABD will need some serious capital raising to maintain the growth momentum," Jain, who has tracked the alcobev sector, added.

Radico Khaitan Ltd raised up to $75 million through the QIP route recently, which will de-leverage the firm adequately and leave them with liquidity. Another fast-growing mid-sized spirits firm Tilaknagar Industries Ltd, makers of Mansion House brandy and Senate Whisky, as well as John Distilleries Ltd have been raising cash to propel growth. Domestic market behemoth United Spirits Ltd (USL) could step up spending on Bagpiper Whisky with profitability concerns easing in the current environment bringing pressure on most regular priced whiskies in the country.

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