SABMiller India

Price hike set to revive fortunes of SABMiller

Bangalore 14th-April-2010
South African beer company, SABMiller, is set to come out of a temporary setback of its operations in India, after the Andhra Pradesh government allowed it to increase the prices of its brands recently.

SABMiller, which is the second largest beer company in India, is also expanding capacity at one of its breweries in Karnataka after the plant's relocation, the company's managing director, Mr Paolo Lanzarotti, told Business Line.

SABMiller's sales were crippled last year because of a stand-off with the Andhra Pradesh Government . The company was unable to secure price increases from the Andhra Pradesh Beverages Corporation to partly offset the increase in the cost of raw materials and other inputs, and hence was forced suspend operations at the brewery for sometime during the peak season last year. The retail price of beer is usually fixed by the respective State governments. Andhra Pradesh accounts for about 30 per cent of volume sales for the company and about 16 per cent of total revenues. Its share in the State is about 60 per cent. The government has now allowed it to increase prices of its brands by nearly Rs 20 per bottle (at producer's level).

The beer maker is also planning to expand capacity in neighbouring Karnataka but will do so after relocating its plant near Bangalore. The current location has now become part of the city because of rapid urbanisation around the plant. The present capacity is about 370,000 hecter litres.

SABMiller has 10 breweries across the country and another brewery on contract which is based out of Madhya Pradesh.

Re-working portfolio

Its all-malt beer, Indus Pride, is now expected to be launched only in those markets where the mild segment is popular. The brand has already been launched in Karnataka as well as in Rajasthan. “It is still early days, but we are looking at large volumes for the brand,” Mr Lanzarotti said. But he said there are no immediate plans to launch Miller Lite in the country as there is no market in India for a low calorie beer brand.

After a rejig of its brand portfolio a few years ago, SABMiller has now eight brands from the earlier 13. While three are regional brands, the rest are national brands.

SABMiller incurred losses of about Rs 64 crore in its Indian operations during 2008-09, as per its annual report though it posted a profit of about Rs 34 crore during the previous year.

A major part of the loss was mainly on account of change in accounting policy. The company's share in the total beer market might shrink further as it was forced to suspend sales during the peak season last year because of the stand-off with the Andhra Pradesh Government. Its total sales during 2008-09 was 60 million cases out of a 170 million case market during that year. During 2009-10, the total market size was around 190 million cases.

The company has so far invested about Rs 2,500 crore in its Indian operations which includes $100 million investment in each of the last five years. “Any future investments will be need-based,” Mr Lanzarotti said.