A spirited bid at going global

Papiya De

Manu Chabbria, chairman, Shaw Wallace & Company Ltd

On November 26, the Rs 609 crore Shaw Wallace & Company Ltd chairman Manohar Rajaram Chabbria signed a memorandum of understanding for a global tie-up with Scotland-based Kyndal Spirits Ltd, the fourth largest player in scotch whisky globally. This marked the beginning of his jumbo plan of making Shaw Wallace a truly worldwide company. “ This will help us not only to manufacture and bottle world-class liquors in our distilleries but we will also be able to use this as a stepping-stone for launching some of our strong brands across the globe,” says the 54-year-old Mr Chabbria. Adds Mr Brian Megson, chairman and chief executive, Kyndal: “This tie-up fits in with our strategy of investing in growing markets like India, and our brands will help strengthen the growth of the premium segment in India.”

Such a move, in a way, was imperative to boost up the spirits of the company which needed to overcome the hangover of its trouble-stricken past. Shaw Wallace, the flagship of the Chabbria promoted $ 1.5 billion Jumbo Group had run into trouble amidst allegations of financial irregularities and mismanagement due to its inability to repay high cost debt in time.

Earlier this year, the company was able to silence speculations about the uncertain future of the company. On January 31 this year Shaw Wallace repaid Rs 140 crore to 106 Inter-corporate Deposits (ICD) holders. To that end, the company had been depositing a part of its profits in an escrow account. It has steadily been reducing its debt from Rs 414 crore in June 2000 to Rs 271 crore in March 2001. However, its debt equity ratio is still at 3.3: 1.

From nearly being dragged on a stretcher to the Board of Industrial and Financial Restructuring in 1999, to reviving its fortunes and sealing a global tie-up in 2001, has been a arduous journey for Shaw Wallace.

Restructuring
What seems to have seen the company through during these testing times is a strong brand portfolio that spans across its liquor and beer businesses. In the early 1990s when management consultant M B Athreya had advised the company, it decided to invest in diversified businesses like property development, hospitality, tourism and leasing. Today, however, it has changed its strategy and has decided to focus on a few core areas.

To concentrate on the core sector Shaw Wallace had embarked on a series of restructuring. Last year, it roped in McKinsey for sharpening its focus on core areas of liquor and beer. The company embarked on a first phase of restructuring by spinning-off the liquor and beer businesses as separate companies.

This, Mr Chabbria feels would not only streamline operations but also facilitate association with foreign partners. The two businesses have been consolidated into two subsidiary marketing companies of SWC: Shaw Wallace Distilleries (SWDL) and Shaw Wallace Breweries (SWBL).

With the completion of the first round of restructuring, Shaw Wallace has announced the roll out of its second phase. This entails merging all the manufacturing subsidiaries of the company into two entities: Maharashtra Distilleries and SKOL Breweries. What this exercise also entails is getting out of all non-core businesses and reducing its subsidiaries from 70 to 10. The company had sold of its consumer products division to Henkel-SPIC for Rs 50.05 crore in January 1999 and is now planning to sell off its other non-core businesses, gelatine and agro-chemicals.

With fundamentally strong brands like Antiquity Rare Premium Whisky, Director’s Special, Royal Challenge Whisky, White Mischief Vodka, Haywards range of beer, what hindered Shaw Wallace’s growth in the mid-nineties was capacities required to have a pan-India dominance. Part of the money raised through debt to fund diversification into other areas was used to acquire 12 distilling and brewing units across the country. This was followed with a modernisation drive at many of its existing manufacturing facilities. Today, with 38 liquor and 17 brewing units Shaw Wallace is only next to the UB Group.

The Kyndal alliance
What has also helped the company hedge against the imposition of dry law and other regulatory measures by various state governments is geographical spread of its manufacturing facilities. This has also enabled the company reduce freight costs and other levies on inter state movemnet of liquor and beer.

In the first six months of this financial year Shaw Wallace has witnessed an impressive growth. While the liquor business has grown 20 per cent against an industry average of 5 per cent, its beer business has also registered 20 per cent against a 10 per cent industry growth. Consequentially, Shaw Wallace is expecting a turnover of Rs 1,000 crore in the current year, over last year’s Rs 609.3 crore.

A tie-up with Kyndal at this stage, would perhaps give Shaw Wallace a chance to tap markets where it does not have a significant presence. Kyndal was formed in October 2001, after a Pound 200 million management buy-out. The new company had been operating under the name JBB (Greater Europe), formerly the Whyte & Mackay Group which was a wholly owned subsidiary of Jim Beam Brands Worldwide Inc. Kyndal dominates 9 per cent of the global scotch whisky market. In liquor, marketing and distribution comprise a substantial portion of the cost, Kyndal with its already established distribution network will enable the company to tap markets in Europe, Fareast and across all Duty-Free outlets. “ What Kyndal will enable Shaw Wallace to do is to chalk out a matrix of markets vis-a-vis categories of liquor in demand, “ say Raj Halve, vice-president-marketing, SWDL. Shaw Wallace will then launch its relevant brands throught Kyndal’s distribution network in those potential markets. This collaboration is expected to contribute to Shaw Wallace’s bottomline by the second quarter of next year. However, there are still sceptics. “ It is not very clear how far Shaw Wallace will achieve its dream of establishing a global presence with the help of a company like Kyndal as its management does not have a proven track record of establishing new brands,” says an industry watcher.

What will, however, benefit the company is that the foreign partner will help it in upgrading its existing facilities to match international standards, provide latest technology, help in training personnel and importing raw materials. “All these services will be provided free,” says Mr Siddharth Banerji, regional director, Kyndal.

The foreign liquor major, has brands like Whyte and Mackay Scotch, Dalmore Single Malt, Valdivar Vodka, Glavya Liquer among others in its kitty and hopes to introduce some of them in India. “ What Shaw Wallace will bring to the table is its ability to manage premium brands in the Indian marketplace, combined with a comprehensive distribution network,” says Mr Siddharth Banerji, regional director, Kyndal.

On stronger wicket
Having sealed a deal with Kyndal, Mr Chabbria is now scouting for a similar alliance for SWBL. Shaw Wallace has emerged as one of the fastest growing beer company with its market share escalating from 8 per cent in 1994 to 25 per cent currently, in the 70 million case market in India. The company has apparently notched up sales of 7.5 million cases of beer in the first four months of the current financial year. Shaw Wallace is investing a total of Rs 100 crore to set up four greenfield breweries in Kerala, Goa, Madhya Pradesh and West Bengal, to meet the growing demand. What is also on the cards is expanding the existing capacity at of four of its breweries, SKOL in Maharashtra, SICA in Pondicherry, Charminar in Hyderabad and Harayana Breweries. The total expansion will increase its existing capacity by 50 per cent. Haywards 5000 is the largest selling strong beer in the country and is growing at a healthy rate of 30 per cent. The company already sells Lal Toofan beer in UK and has started exporting Kohinoor beer to the UK and US markets. “ We want to have a significant presence in the US beer market and we are exploring the option of a strategic alliance for the same,” says Mr Chabbria. The company has already secured FDA approval and is the first Indian company to do so for its alchoholic beverages.

What remains to be seen is whether this cocktail of restructuring, expansion and globalisation will be able to get the blend right for Shaw Wallace finally.