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Excise duty hike offsetting volume growth potential
June, 19th 2012

Five years after it started commercial operations in India, Carlsberg Breweries A/S has become the third biggest brewer in the country, behind only United Breweries Ltd and SABMiller Plc, claiming a market share of 6.1% (for the three months ended March, excluding Tamil Nadu).

As managing director of Carlsberg India Pvt. Ltd for the past two years, Soren Gronnegaard Lauridsen has played an important role in the Danish beer makers growth in the country. Under the 48-year-old Dane, the company has grown 50% in each of the past two years, driven by Tuborg Strong, Carlsbergs fastest growing brand by sales. Carlsberg plans to open more plants and is looking at all the big markets where it makes sense to have a brewery, Lauridsen said in an interview. Edited excerpts:

How has Carlsbergs India journey been so far?

It has been what I would define as an exciting challenge and, as you probably know, we are still a young company on the learning curve to understand the Indian market, the Indian customers and consumers. We have been in India for five years. We got good taste, appetite for doing more in India and our market share has been growing steadily and probably accelerated a little bit after we ventured into strong beers with Tuborg Strong in 2010 and Carlsberg Elephant in 2011. So far we must say that we are encouraged to do more, encouraged to invest more and we are quite upbeat about the development we have in India and the way Indian consumers have embraced our innovative brands.

How much have you invested in India to date? How much do you plan to invest?

I cannot speak about the total investment... But its a substantial amount because we now have breweries in five statesAndhra Pradesh (Hyderabad), West Bengal (Kolkata), Maharashtra (Aurangabad), Himachal Pradesh (Paonta Sahib), Rajasthan (Alwar). All these are company-owned. We will invest in line with our growth, accomplishments and as long as it is profitable.

How has the market been, how are sales growing?

For us, its steep growth every year. We are kind of getting used to sales growth of 50%. We are growing aggressively across states in India. Also because we have a good footprint of the breweries, we are able to supply to all corners of India.

What has been the general trend in the beer market?

If you talk about the total market, I would say that it is a little bit more of a roller-coaster ride. There is consistent growth in the market, but some years it is single digit and some years it is double digits. In 2009-10 we saw steep growth, coming close to 15-17%, and in 2011 it was a little bit more disappointing growth of around 6%.

We are hopeful the growth will come back to double digits, but in the northern part of India it has been a little bit of a cold April. In fact in the NCR (National Capital Region) area, it has been the coldest April for 30 years, which is not something that is stimulating to beer consumption. Theres still growth, but it is not as high as we would like... Its a very mixed picture across the nation. But overall, I am quite hopeful that we can grow the market at 8-10% this year.

What does the typical Indian beer drinker prefer?

He is a little bit different from the rest of the world, in fact. There is a very high likability around the strong beer with a high alcohol percentage. So, unlike the rest of the world where the mild and lagers are dominating, here in India we actually are seeing a trend where strong beer relative to mild beer is growing faster. Strong beers are now above 80% of the total beer market.

Most of the beer makers in India have been complaining about high excise duties in some key markets like Maharashtra. How has Carlsberg been faring in these markets?

The industry is in the same boat here. We are all being exposed to excise duty increases along the same lines. Whenever there is a chance to try to absorb the excise duty increase by higher price increases, the industry has a tendency to do that. And, of course, by higher prices, the demand goes down a little bit. There is no doubt that the excise duty increase is offsetting the volume growth potential which is in India. There is a trade-off there that the excise duty commissioners and ministers need to carefully consider; that is, higher the excise, lower the volume growth, and whats the right development for generating sufficient revenue for the government, which is not an easy equation. Because what is often looked at is only direct implication on the industry. Very seldom we are looking at what are the downstream and upstream impacts. (By) upstream I mean what are the consequences for the restaurants and hotelsfewer consumers going there when the liquor prices go up. And downstream is, of course, the impact on the suppliers of the market...with lower volume growth they also have less business. There is a substantial impact up and downstream, which we are not able to communicate as an industry.

Input costs have also risen for beer makers, how are you balancing this? Are you passing on the input costs to consumers?

Not only input costs, but also labour (costs) in the company. There is an inflationary pressure on the company, so we need to partly increase our consumer prices of beer. But we also need to be much more efficient within the company, so we have quite many efficiency programmes in order to be more effective, in order to produce beer for less (cost). In some states we have not really been allowed to increase the prices, but overall we typically increased not more than Rs.5 in price. Then you have exceptions like Maharashtra where there was this extraordinary excise duty increase and everybody had this extraordinary price increase, as well. But even with the price increase, we are not able to recover on the products.

How do you think 2012 will be for Carlsberg India?

In 2012, we are hopeful we will grow somewhat faster than the market...close to 30-40% (growth), so lets see. Tuborg is the faster growing brand and it has reached the fourth position in the Indian beer market. Tuborgs growth today is 60% and we will try to grow faster than that.

Do you intend to open more breweries?

We are looking into that and analysing opportunities Given the excise duty that you have when you cross the border, we would definitely try to set up breweries in new states where we are not today.

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