USL plans Rs 3,000-crore capex

United Spirits Ltd, India’s largest spirits company, is understood to have chalked out a Rs 3,000-crore (Rs 30-billion) capital expenditure plan for the next three years as it plans to have a firm grip on raw materials.

The company will move swiftly to consolidate its recent acquisition of three distilleries and will also take a decision on setting up a Rs 650-crore two-furnace glass plant in Andhra Pradesh, said sources.

USL has already acquired land for the glass plant in an effort to move away from buying glass from a single supplier, Hindustan National Glass and Industries Ltd.

Till the plant is set up, the company is looking at sourcing glass from China and is also planning to increase the usage of tetra packs for various of its spirit brands.

The Vijay Mallya-led company, which is in the process of completing a stake sale deal with British multinational Diageo Plc, is also looking at this new glass plant as one of the future suppliers to Diageo’s Asia-Pacific requirements.

Diageo, which currently has 10.4 per cent stake in USL, is hoping to raise its stake to 27.4 per cent by the end of June, and after that, may look at operational integration.

As part of the multi-pronged transaction in which Diageo was seeking to pick up as much as 53.4

per cent stake in USL, the British firm has the right to nominate the chief executive officer and the chief financial officer for USL.

According to senior company officials, USL acquired the three distilleries in Maharashtra, Andhra Pradesh and Karnataka as part of its efforts to raise inhouse sourcing of ethanol to 50 per cent from the current 10 per cent.

It is understood that more investments may be channelled in to these units to meet the stated target.

USL, maker of McDowell and Bagpiper whisky, sold around 124 million 9-litre cases of spirits last year and accounts for as much as 40 per cent of the industry volume, which is at 305 million cases.

Both the industry and USL saw three per cent growth last financial year.

The company is looking at growing volumes by seven-eight per cent and revenues by around 14 per cent, aided by a premiumisation drive.

Senior company officials indicated that with Diageo coming on board shortly, this process of premiumisation would be more at play, and there might be a margin expansion of 2.5 per cent over the next three years, taking in account the increase in spending on brands, which would move up to 10 per cent from the current 8.5 per cent.