PE firm Gaja Capital begins talks to exit John Distilleries

John Distilleries Paul John.Photo:Angels Whisky Club

Private equity (PE) firm Gaja Capital has initiated discussions to exit its investment in John Distilleries Pvt. Ltd, the makers of Original Choice whisky, said two people aware of the development.

John Distilleries was established in 1992 by Paul P. John. It has a strong presence across southern states.

Its flagship brand, Original Choice, sells more than 10 million cases annually, according to the company’s website. Some of its other popular brands include Mônt Castlé, Grand Duke, Big Banyan and Ampersand. The company also has in its portfolio an indigenously developed single malt called Paul John Single Malt.

“Gaja Capital has been invested in the company for five years now. They think that it is the right time to start looking for an exit route. Gaja and the company have been meeting with several banks to evaluate their exit options,” said one of the two people cited above, requesting anonymity as talks are private.

The company and its investor are evaluating both an initial public offering (IPO) and a secondary share sale to other PE funds or strategic investors for providing an exit route for Gaja, he said. “They have discussed both the options with banks and are yet to take a final decision on the path they want to take,” he added.

Gaja Capital holds a significant minority stake in the company.

An IPO could see the company raise as much as Rs.500 crore (US$75m), said the second person cited above, also requesting anonymity.

“While they have been trying to raise PE funding, attempts have not been so successful till now as quite a few PE firms have restrictions on investing in alcobev (alcoholic beverage) companies as part of their investment thesis,” he added.

John Distilleries has a network of eight manufacturing units spread across seven states.

The company also exports to the UK, Europe, Africa, the UAE, New Zealand, Australia, the US, Malaysia, Singapore and Taiwan.

“We are currently evaluating various options for the company going forward. There is significant interest in the company,” Gopal Jain, founder and managing partner at Gaja Capital, said in an email response.

“We completed five years of our investment in JDL (John Distilleries) this year. In these five years, JDL has performed well and increased market share to emerge as one of the leading alcobev companies in India. It’s also begun to make a mark internationally with its award-winning great Indian single malt Paul John,” he added.

Paul John, chairman of John Distilleries, declined to comment.

According to data from the company’s filings with the Registrar of Companies (RoC), John Distilleries’ revenue grew to Rs.608.1 crore (US$91m) in 2014-15 from Rs.467.4 crore (US$70m) in the previous year. It reported a profit of only Rs.60 lakh (US$90k) in 2014-15 against a profit of Rs.1.6 crore (US$240k) in the previous year. Latest financial numbers of the company were not available with RoC.

In 2015, the volume of liquor sales in India declined for the first time in almost 15 years, as rising taxes and lack of new brand launches acted as dampeners, Mint reported in January.

Liquor sales volume, which grew in the low single digits in the two previous fiscal years, was down 1-2% for the eight months to December, according to data gathered from executives at liquor companies, Mint reported on 5 January.

Since the early 2000s, rising incomes has led to consistent volume increases of 10-15% every year. However, over the past four years, liquor demand has been hit by ballooning state taxes and slowing economic expansion.

“Most state governments have been increasing taxes on alcohol in the last four-five years. Thus store-level prices have increased and consumers have cut back on consumption,” said Abneesh Roy, associate director of institutional equities and research analyst at Mumbai-based Edelweiss Securities Ltd.

Along with a slowdown in volume, margins have come under pressure, especially in the economy segment, he added.

Globally too, alcohol consumption fell in 2015, reported market research firm Euromonitor International in May. A slump in the economies of major emerging markets led to a fall of 0.7% in the volume of alcohol consumed, it said.

Read Also:

India: PE firm Gaja Capital closes third round at $240m, exceeds initial target

India: Gaja Capital-backed temp staffing firm TeamLease sets IPO price band 

This story was first published on Livemint.