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Radico spanner in Diageo design

New Delhi, Jan. 1: Radico Khaitan has said it will not sell its stake to Diageo in their joint venture Diageo-Radico Private Ltd, though Diageo has obtained the central government’s permission for the sale.

Diageo-Radico Private Ltd is a 50:50 venture which has accumulated substantial losses. A government press note makes it mandatory for Diageo to take Radico’s approval for a stake hike.

“Equal partnership of Diageo and Radico will continue and the board will decide on bringing in additional equity into the joint venture firm. There is no question of Diageo taking over the venture,” Dilip Banthiya, chief financial officer, Radico Khaitan, told The Telegraph.

The Netherlands-based Diageo Highlands, which owns Diageo India, had proposed to raise its stake in Diageo Radico Private Ltd to 100 per cent from 50 per cent. Diageo had sought FIPB (Foreign Investment Promotion Board) permission to increase its stake in the venture in three phases.

The FIPB had cleared the proposal on Wednesday along with eight others that are expected to bring Rs 524 crore into the country.

However, the approval is contingent on the global spirits leader meeting a criterion stipulated in a press note issued in 2005.

The note said any foreign company operating in the country through a joint venture has to seek a no-objection certificate from its Indian partner before investing in other firms in the same segment.

Unless Diageo is able to convince Radico, it may not be able to buy out the joint venture firm, or set up a venture, though under the current norms up to 100 per cent FDI is allowed under the automatic route in potable alcohol.

Radico Khaitan said this was an enabling resolution where both the partners were seeking to induct funds into the company to the tune of Rs 17.5 crore each. The shareholding pattern will not be altered.

The joint venture firm, reportedly, has substantial accumulated losses to the extent of Rs 30-35 crore.

However, sources in Radico Khaitan said they would be able to raise the funds by March.

Diageo-Radico Pvt Ltd was set up in 2006 to tap the Indian Made Foreign Liquor (IMFL) segment.

Radico Khaitan is among the largest manufacturers of IMFL with its range of whisky, brandy, rum and vodka spanning the entire market segment.

The company has over 23 brands and markets them through six of its own facilities and 41 tie-ups across the country.

In the joint venture, Diageo manages the distribution and marketing of Masterstroke, a semi-premium whisky battling heavyweights such as United Spirits’ McDowell’s No. 1 and Pernod Ricard’s Royal Stag whiskies.

On Thursday, the Radico scrip lost Rs 4.95 to end at Rs 115.20 on the Bombay Stock Exchange against the previous close of Rs 120.15.

The Indian market for alcohol — spirits, beer and wine — was worth $14 billion in 2008 and is one of the fastest-growing in the world.

“Imports account for only a tiny fraction of that, but with the Indian market booming while demand elsewhere is stagnant, no international beverage company can afford to ignore it. Over the next five years, the Indian market for alcohol is projected to grow at 10 per cent a year — more than China, the US and Europe combined,” according to an estimate by KPMG India.

The Radico-Diageo impasse follows the one between Vijay Mallya’s United Breweries (UBL) and the Netherland’s Heineken.

The differences had cropped up when the Dutch company became a significant shareholder in UBL nearly two years ago.

The two, finally, patched up less than a month ago, on December 7.

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