UBHL annual report - United Spirits Limited

Annexure to Report of the Directors (Contd.)Your Company’s overseas subsidiaries – Whyte andMackay, Bouvet Ladubay and Liquidity Inc. continue toperform well in international markets. Sales of thesebrands have been realigned so as to operate cohesivelywith export sales from India.The Emerging Markets Division created early this fiscalhas identified 4 key markets – 2 each in Africa andSouth East Asia as focus markets to start their foray intointernational emerging markets. The division has beenprogressively staffed over the year and partners havebeen identified through whom sales and subsequentlylocal manufacture will be undertaken.E. RISKS & CONCERNS, OPPORTUNITIES & THREATS:The ‘demographic window’ is a much talked aboutfactor in any discussion on India. For our industry too,the vast numbers of young Indians coming of legaldrinking age over the next few years is a tremendousadvantage and a huge potential consumer base. Thishas to be viewed in the context of a ‘greying’ populationin other parts of the world. It’s no wonder then thatthe growth in the Indian alcoholic beverage space farexceeds those of its counterparts in other countries.We expect that this ‘young’ India will continue to bea sustained growth opportunity for your Company.Indians are joining the work force sooner than inthe past and together with changing life styles andthe dismantling of social barriers to consumption ofalcoholic products, we believe, will augur well for yourCompany in the foreseeable future. The Company’sfocused drive to upgrade its business is but a reflectionof how we see Indian society moving in the years tocome.The alcoholic beverages industry continues to be afavorite with Governments, both at the Centre and atthe States, when confronted with revenue pressures.Increasing levels of taxation coupled with overregulationhas pushed taxes and duties to about threefifthsof the retail prices of our products. As mentionedearlier in this report, the much-delayed Goods andServices Tax (GST) regime could have corrected thecurrent system of tax-on–tax but with State Governmentsunwilling to let go of this golden goose, GST in thealcoholic beverage industry is still some way off.Additionally, a new legislation viz.the Food Safety& Standards Act (FSSA) has now been extended tocover alcoholic beverages. Representations about theindustry’s inability to serve two masters viz. the localExcise authorities and the FSSA Inspectors, both oftenworking at cross purposes, having fallen on deaf ears.The industry has now taken legal recourse against itsinclusion under FSSA.Shareholder communication over the past few years hasconsistently referred to a sharp rise in the prices of yourCompany’s key ingredient, viz. Extra Neutral Alcohol(ENA) as a result of a step-up in the Ethanol BlendingProgram and an unfairly remunerative price fixed by theGovt. for this purpose. This has taken the prices of ENAfor alcoholic beverage industry to a significantly higherlevel, thereby putting pressure on margins. With over70% of the Company’s products being sold to parastatalbuying agencies who are loath to grant price increaseseven in line with inflation, margins will be underpressure. Your Company has sought to mitigate suchcost increases through backward integration and the useof alternative substrates like grain and the extension ofalternate packaging like tetra brick container to newerpack size have proved to be hugely successful in themarket place.Your Company has sought to reduce its emphasis in asingle market by the creation of an Emerging MarketsDivision to focus on expanding into markets where thereis substantial scope for Indian alcoholic spirit products.Progressive local manufacture of these products in thesemarkets will benefit the Company through reduction oflogistics costs.Your Company has positioned its products at convenientprice points staggered across the price ladders to enableconsumers to remain within the Company's stable whenlooking to move up or down the value chain. Theavailability of rare and aged products from the Whyteand Mackay stable as also of wines from the BouvetLadubay and Four Seasons Wines portfolio have helped21