Having already lost some ground in the domestic market during the last fiscal in terms of net profits, the new development is a clear indication of UB chairman Vijay Mallya seeking new pastures abroad, especially in the Saarc region. The liquor baron was also eyeing a couple of breweries in China for a possible joint venture.

Top UB officials confirmed the move, saying: ``We have zeroed in on Mcalum Breweries as our joint venture partner there, but an agreement to this effect is yet to be fructified. The company is not averse to an idea of a wholly-owned subsidiary in Sri Lanka.''

The Sri Lankan government, seven months ago, had allowed liquor companies to set up 100 per cent subsidiaries. Going by the cheap labour available in that country, an arm could be a better bet for a company like UB, industry analysts said.

The equity pattern and details of the total investment are still being worked out. In fact, over the last 18 months, the company has been in different stages of negotiations with Sri Lanka-based Ceylon Breweries Ltd and UB Lanka and Carlsberg Brewing Co, in addition to Mcalum Breweries to set up a brewery in that country.

The Sri Lankan beer market has a potential to consume around 60 lakh dozen bottles per annum in which Ceylon Breweries has a market share of about 85 per cent. Setting up breweries in Sri Lanka does not involve large amounts of capital expenditure, but marketing for a new entrant would be a tough task, the UB official said.

It is immediately not known whether the UB group would set up a greenfield facility or not. The company earlier had planned to enter into a marketing arrangement with a local firm. But the current market potential in Sri Lanka has prompted the company to settle for a joint venture for manufacturing products there.

Though `Kingfisher' is the fourth largest beer brand in the world and still growing in the international market, competing in the subcontinental market is not easy because of the presence of the international brands. The company recently unveiled its Kingfisher beer in Kathmandu following the acquisition of Nepal Breweries.

With the reduction of duty on mild alcoholic drinks, the Sri Lankan beer market is booming, resulting in the entry of other dominant international firms. The markets in Nepal, Bangladesh, and Sri Lanka are dominated by well-known brands like San Miguel, Tiger, Heineken and Tuborg.