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Financial Analysis of Ubhl and Radico Khaitan

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Financial Analysis of Ubhl and Radico Khaitan
Liquor Industry
"All is fair in love and war and when it comes to the liquor industry, it is war." This was an extract from a note signed by none other than the man they called the ‘King of Good Times’.

The Indian liquor industry is a high-risk industry, primarily on account of the high taxes and innumerableregulations governing it. As a result, liquor companies suffer from low pricing flexibility and have inefficientcapacities, which, in turn, have led to low margins and weak financial profiles. Moreover, even though the twolarge liquor groups in the country enjoy a majority market share, the price-sensitive nature of the industry hasensured a high degree of competition, which is exacerbated by the low export potential. Hence, while severalstrong brands have come up and the industry has exhibited healthy volume growth over the last few years (forinstance, the Indian-made foreign liquor (IMFL) segment has registered a 8-10% compounded annualaggregate growth rate (CAGR) over the last three-four years), its high-risk profile continues to dog theindustry.

• Indian Liquor Industry is divided into 2 broad categories  Indian Made Foreign Liquor (IMFL)  Indian Made Indian Liquor (IMIL)

Jaypee Business School

2

Liquor Industry

FSABV

IMFL Brown Spirits hite Spirits W Whisky Vodka Brandy Gin Rum Licensed

IMIL Illicit

The Indian liquor industry comprises the IMFL, foreign liquor bottled in India (BII), foreign liquor bottled inorigin (BIO), country liquor, beer and wine segments. The estimated 80 million case2 per annum IMFLsegment primarily includes molasses-based whisky, rum, brandy, gin and vodka. This segment is dominated bywhisky, which accounts for about 60% of its volumes, followed by rum at about 25%. The BII and BIOsegments are very small in comparison. Put together, they are estimated to be less than one million cases perannum. The country liquor segment, estimated to be one-and-a-half to two times the size of the IMFL segment,is,

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