India: The country has the economic potential to be a leading global beer market
India's policy has become lenient towards foreign investment in the liquor industry since an increasing numbers of people died from consumption of illegal crude alcohol. Several years ago, India was cut off from the rest of the world in terms of foreign investment due to its rigid exchange control regulations, Business Day commented on June 15.
With a population in excess of 1- billion people, and gross domestic product growth of more than 6%, India has the economic potential to be a leading global beer market, says Carl Stein, a commercial director at Werksmans Attorneys.
Last month, brewing giant SABMiller increased its stake in its Indian brewing business to 99%, making it the second-largest brewer in the country after a presence in that country of only five years.
Foreign investments can be approved through one of two routes, says Stein, -- automatically, through the Reserve Bank of India, while proposals not falling into this category referred to the Foreign Investment Promotion Board. SABMiller had to get a licence to brew beer for each state that the company operates in, says Stein.
India is a federal country consisting of states and union territories. Each state has its own rules and regulations, similar to the US. "It does not mean that because you can brew beer in one state that you have the ability to brew in another state."
A joint venture was formed two years ago through SABMiller's subsidiary MBL Investments in conjunction with the Shaw Wallace group.
The Mallya and Chabbria families were originally partners in the Indian brewing market but had a fallout in the 1980s. The Mallya family subsequently owned United Breweries and the Chabbria family started up Shaw Wallace.
Shaw Wallace retained 100% of the distillery business. This year Shaw Wallace decided to auction the distillery. Liquor baron Vijay Mallya was one of the bidders.
Mallya also made a hostile bid for the holding company of Shaw Wallace. As soon as the offer closed, SABMiller started negotiations with the Chabbria family to buy out the remaining 50% of the brewery business. At the time of the offer, Mallya made it clear to Shaw Wallace that he only wanted the distillery business and not the beer market. Upon completion of the transaction, the brewing operations boasted net assets of $37m.
Beer consumption in the Indian market is about 1l a person a year, compared with about 20l in comparable developing markets, Stein says.
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