M PadmakshanMumbai

Kishore Chhabria is the colossus now towering over  the 320 million cases  Indian spirit industry. With over 30 million cases sales that account for over 10 % of the entire market, and gunning for strategic acquisitions of brands  and distilleries, the journey of Mr Chhabria,from a 3 million cases single brand company  has been an eventful one.

There was only another Indian  who powered  the industry in a similar fashion before him - Vijay Mallya . Mr Mallya, however  has ceded control of his company United Spirits to Diageo, the world’s largest spirit manufacturer, leaving his  space in the Indian spirits industry  vacant,almost.

 The space left by Mallya is deep and wide, but the industry observers believe Mr Chhabria will be the one to be watched closely,for he, with plans for strategic acquisitions of brands aswell as distilleries,and bottling plants all over India,  is the one likely to emerge as the Indian spirit tycoon who will play  a critical role in shaping the industry’s future.

Allied Blenders & Distillers (ABD), the company Mr Chhabria heads produces Officer’s Choice whisky the flagship brand, Jolly Rogers Rum and Kyron brandy and Gorbatschow Vodka.  In three years the company  expects its sales to cross 50 million cases mark !

At present, He is eyeing Tilaknagar Industries which in its portfolio has the marquee brand Mansion House brandy. Mansion House is originally a brand owned by  Netherland company Herman Jansen and  Tilaknagar Industries has been making Mansion House since 1983 under a commercial understanding with the Dutch company but somewhere on the way bothparties ended fighting a case over the right to produce the brand in India.  Mr Chhabria who has been on an expansion mode for some time got into the fray, acquiring a 50 % stake in the Dutch  Company in a deal completed in August  2014. Analysts see it   an apparent bid toblock any possible  entry of another corporate entity aspiring to bid for the same,even  while the Stanford graduate Amit Dahanukar,Chairman  of Tilaknagar, reiterates his company is not on block.

Mr Chhabria  is also set for a major leap with an IPO that would fetch Rs 500 cr which will be utilised for the projects in the anvil.

Chhabrai’ s march to prominence has not been a smooth one. In 1983 he joined elder  brother  Manu Chhabria, the takeover tycoon of the 80’swho had acquired  Shaw Wallace,a company with colourful portfolio of brands, such as Royal Challenge, Director’s Special and a long line of of beer brands such as Haywards 5000. Acquisition of Shaw Wallace  was jointly made by the brothers and Vijay Mallya, but  the  brothers and Mallya had to part ways over business differences,resulting into  a long drawn  internecine  fight  fought at different levels of judiciary

and enforcement agencies. In 1992 the brothers too parted ways  warring over  ownership of brands and companies..

It was at this juncture  Kishore Chhabria made a decisive move of his life-he joined hands with Mr Mallya who  by then had emerged the strongman of the Indian spirits industry. That was in 1994. According to the arrangement between them, BDA, now rechristened as ABD was made subsidiary of Herbertsons Ltd, a flagship company in the UB group,  while Chhabria was made the Vice Chairman of Herbertsons. Mr  Chhabria continued to manage  BDA  and its sole brand Officer’s Choice,independently. It was then agreed between themselves  that neither of them  would attempt to  raise their respective stake  in Herbertsons. But then again the friendship and understanding did not last as it was discovered in the course of time that one of them wasraising the stake, without informing the other.

 The relationship soured inevitably, resulting into a bitter, noisy and costly litigation fought at all  layers of judiciary, including the  apex court and after  blowing mountains of money on solicitorsand lawyers, both agreed for a detente. Mr Mallya bought peace with Chhabria in 2005, by giving the ownership of BDA and Rs 130 cr cash in return for Chhabria ceding his stake in Herbertsons.  It was a moment of freedom, Chhabria reminisces,as it released  the humungous energy locked up in litigation.

Soon Mr Chhabria  did his master stroke-appointed Deepak Roy, the one-time blue eyed boy of Vijay Mallya , who had famously helped the latter shape UB’s successful  marketing strategy, as ABD’s Managing Director. The rest is history.

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Following is an excerpt from an interview conducted at his residenceon  the 10th floor of Casa Grande,Malabar Hill, near Hanging Garden,  which alsohouses a part of  his office.

*You are already  No-3, after  the Diageo_USL combine and the Frenchspirit major Pernod Ricard. How soon you will become no-2 ? And what are your vision foryour company”s future?.

We are already the largest Indian company. Let us be clear about it now.  Diageo and Pernod Ricard are international majors. They are ahead of us  in volume and valuation, indeed. We are the largest among the  Indian companies but  are not interested in the number game. Bottomline is the driving force. Otherwise we will be making a serious mistake. The entire industry got  a shock when Pernod Ricard, the one that makes Royal Stag in India declared a profit which was higher than the Vijay Mallya led United Spirits. When this  happened,  USL’s Bagpiper was declared by the International analysts as the largest selling whisky in the world. USL has longbeen controlling between 50 to 60 % of the market while Pernod Ricard was hardly 7 to 8 %.

*How the industry reacted  after the revelation?

The industry as a whole  has put in place initiatives to change gear from volume to bottomline. A new word was created, premiumisation.They upgraded many brands to premium level, enhancing the profit margin.

*What did ABD do ?

ABD has come out with premium brands, Officer’s Choice Blue and Officer’s Choice  Black both in premium segments. This is in fact a serious diversiification. We entered other segments too. Jolly Rogers Rum, Kyron brandy etc. They are a notch above regular segments.

*What was the major breakthrough for Officer’s Choice? How it transformed from a small brand To world’s no-1 ?.

The end of litigation in 2005 was the real breakthrough, when I and Mr  Mallya decided to end litigation through an out of court settlement. It was in 2005. ABD’s  executive time till then was spent mostly on litigation.  With this the lull phase in the brand too ended..The journey from a brand that sells five million cases a year to the largest selling whisky began with  that. We will become 50 million cases in three years. By then the market will expand to 400 million cases, presumably.

*When do you think you will be able to become the no-2.  I am mentioning the no-2 because No- 1 is too far ahead of you?

Before two years we will be crossing  Pernod Ricard.in volumes then may be later in  valuation. That is a long way to go. We will do It with  backward integration.Since we do not have distilleries of our own we buy alcohol now We want to start a new phase where manufacture from Our own distilleries..We are looking for distilleries, one in each  of the four zones ie North South East and west. And we already have sufficient no of bottling plants.And we will be introducing new brands soon besides giving a boost to the the existing brands.

*How often brands succeed in liquor business?

Very often they fail. One in 10 brands succeed. Even if you put all your might behind one brand, it may fail. To establish a brand  , a premium one, you may well have to spend about 50 cr. Still it may fail. I say it is luck. Luck. When a brand becomes a success, all that analysis, the   brand and advertisement and the managerial jargons  are brought in to  explain away the logic of a brand success. But I say brand success hinges upon pure luck.I will explain this  to you this

way. A director makes a movie  and it becomes a success. Then his second movie  flops at box office. You cannot explain away both. Luck is a factor.

*Vijay Mallya’s UB has many millionaire brands. Bagpiper, McDowell No-1, Signature, Black Dog  to say a few. They all succeeded because of luck? Mallya’s and his team’s understanding of the market do not count at all?

Mallya did not make these brands. He bought the companies which owned these brands. He improved upon them after acquiring these companies.

*How do you plan to finance your projects ?. An IPO is in the offing?An IPO is being planned.  This will be issued in two years.

*It was reported in the media that you were planning an IPO in  an year’s time.Why did You postpone it.?

We postponed it by an year because we thought it would be ideal if we reach a certain bench mark before we head for an IPO.

*How many distilleries USL own? May be 14-16, I do not know exactly.

*Are you the new liquor baron, after Vijay Mallya exited the space?

I do not know, seriously. And I do not know the word baron has a positive or negative connotation. But ABD is there, already. We have established our presence and as I told you we are the largest  Indian spirit company.

*What you think caused the fall of Mr Mallya ?

Do not write off Mallya. He failed in one business, the airlinebusiness. That does not mean that he is a failure. He is active inhis other businesses.

*Are you still friends, Mallya and You?

Yes, we have always been friends, though in business we are rivals andhave fought  well in the market as well as in the courts.

*When did you meet Mallya first time ?

In 1984. At  Hyver Hall, at an outskirt of London,with brother Manu Chhabria. Mallya was young

and talked business. I then understood he knew his business very well.

*That was for buying Shaw Wallace?

Yes.

*What was the reason for  Mr Mallya parting ways with your elder brother?

Complications arose in the deal, but I do not want to narrate it here, they were too complicated. But Mallya’s stand was that he had never been involved in buying Shaw Wallace as he was not a non-resident at that time. The laws that prevailed then were different. My brother was a non-resident.

 *When did you join hands with Mallya ?.

When I parted ways with my brother.

*Who called first, You or Mallya?

I called Mallya first and he was receptive..

*Was he receptive?

Very.

*And when did both of you begin fighting?

When the Income-tax raid took place at my office and residence. . The I-T officials found that I had bought shares of Herbertsons.  There was an agreement that  nobody would attempt to  raise  the stake  in Herbertsons.

*Was it an agreement in writing  or just verbal ?

Mostly verbal.

*Therefore Mallya  thought you had breached the agreement, from there the differences started?

Mallya too had raised the stake, to 44 %. Mine became 51 % from 26%.

*You have been mainly in the news for the last couple of years because of a reported attempt to take overTilkanagar Industries.

That is not correct.We are interested only in Mansionhouse. And do not say that I am trying to

take over. I already own the brand.We have registered our brand here..In  August 2014  ABD and Herman Jansen had signed an agreement under which ABD will market and produceMansionhouse in India. However there is a case going on in the Bombay High Court involving all the three parties.I hope this will end soon.

*How soon you think the dispute will end ?

Very soon.

*What is the valuation of your company?

ABD is not for sale.

*Have you ever felt uncomfortable for being in the business of spirits, ever thought of exiting this business and start another ?Never.