Cobra Beer is renewing the India story after divesting 50% stake in its domestic operations to New York-based Brahma Management.
Following the fund-raise, Cobra has just struck a brewing agreement with global beer giant AB InBev to roll out the namesake beer from the latter’s only plant in India. The arrangement with AB InBev gives Cobra access to one million cases production base in the key southern markets that account for over 50% of Indian beer consumption. This will be a pure manufacturing pact in which Cobra will pay AB InBev’s local arm, Crown Beers, a production fee depending on the utilization, said a source privy to the development, and who did not wish to be quoted.
AB InBev plant near Hyderabad will be the hub for Cobra’s supply into the southern markets. “Cobra can use up to one lakh cases of production capacity (translating to a million cases annually). The latest move will also help AB InBev better utilise its excess production capacity at Crown Beers, which can produce 6 million cases annually,” said sources.
Cobra India’s Managing Director Ravi Kaza could not be reached for comments immediately.
Cobra, which raised $7.5 million from Brahma through private equity placement, is rejigging its troubled Indian operations after the cash infusion about two months back. The PE transaction has also helped Cobra Beer complete the acquisition of Patna-based Iceberg Breweries, which has been hanging fire for nearly two years.
This move will also play anchor to Cobra’s operations in northern and central markets. Cobra is believed to have paid Rs 40 crore for the brewery whose capacity will be expanded to four million cases, up from two million, as consumption picks up. Cobra Beer India, which was spun off into a standalone company after Billimoria sold majority stake in UK operations to Molson Coors, has been in the process of rationalizing its contract manufacturing footprint.
Cobra is expected to report three million cases of volume sales in FY11 as it emerges from a rather difficult phase in the last few years. But, with Indian beer consumption rising in robust double digits (this year’s summer sales are up about 20% y-o-y), Cobra and its investors see an opportunity to develop as a viable niche brand.
Cobra Beer India has ended some of its production agreements spread across eight breweries in India as part of its efforts to drive a more capital efficient operation in an industry that can bleed smaller players as leaders United Breweries and SABMiller control about 80% of the domestic consumption. Cobra has also ended its first brewing deal in India with the Mount Shivalik Group in Rajasthan, which serviced the north previously, but has retained its contract manufacturing arrangements with Som brewery in Madhya Pradesh and Mikal brewery in Orissa.