Sure, chairman L N Jaiswal is playing his cards close to his chest, but a sell-out to a transnational is a god call.

By George Skaria

In his 20 years as a bridge-player at the Delhi Gymkhana Club -- before he shifted to an apartment at Grosvenor House in central London six years ago -- Ladli Pershad Jaiswal, the feisty 84-year-old chairman of the Rs 355-crore Jagatjit Industries, was a seasoned gambler, a tough negotiator, and a professional player who could bluff his way through in the evening.

Today, he is using the same skills to negotiate the sale of his flagship. For starters, Jaiswal completely denies the move. ''I have no intention of selling Jagatjit Industries. I have built this company, brick by brick, and it has the latest technology, large manufacturing facilities, a wide distribution network, and high profitability,'' he argues.

Notwithstanding this posture, BT learns that Jaiswal has initiated discussions with three global liquor majors: the $5-billion Bacardi, the $10-billion Seagram -- with whom earlier discussions through intermediaries had come a cropper -- and the $6.50-billion Pernord Ricard. And, unlike the past, some progress is, definitely, being made.

For one, Bacardi has reportedly commissioned Coopers & Lybrand to carry out a due diligence exercise. Two, Jaiswal is willing to scale down the earlier asking-price of Rs 500 crore -- high since a 50 per cent stake in Jagatjit Industries had been valued at below Rs 200 crore -- by 20 per cent. And the stockmarkets sense a possible deal: the scrip-price has zoomed from Rs 74 on April 6 to Rs 144 on May 5, 1998.

More important, Jaiswal's recently-acquired British citizenship will help him finalise a sale through an offshore deal. That's because, after a $15-million Global Depository Receipts (GDR) issue in June, 1994, 51 per cent of Jagatjit Industries' Rs 49.44-crore equity is held by, apart from foreign institutional investors, foreign trusts -- most of which are indirectly controlled by Jaiswal. In addition, he owns a 20 per cent stake while his two sons, Jagatjit 'Binny' Jaiswal and Punu Jaiswal, together own an additional 12 per cent.

Therefore, Jaiswal can sell the block of shares held abroad in an overseas deal without any interference from his sons; the financial institutions, who own a mere 4 per cent; or the remaining shareholders, who own just 13 per cent. Moreover, such a deal will not require the clearances of the Foreign Investment Promotion Board, the Reserve Bank of India, or even Jagatjit Industries' lead financial institution, the Industrial Development Bank of India.

While Jaiswal refuses to discuss the possibility -- let alone the modalities of the sale -- several sell-out options exist. One possibility is an outright sale of the Rs 236.10-crore liquor business -- which contributed 66 per cent to Jagatjit Industries' turnover in 1996-97 -- with Jaiswal's sons retaining the foods and packaging divisions. Another option is to sell the flagship, with the proviso that Jaiswal will remain its non-executive chairman. Finally, prospective buyers could, to begin with, look at a joint venture -- like the Coke-Parle alliance in 1992. Which would ensure that, at least in the initial years, the new owner can piggyback on Jagatjit Industries' distribution and marketing strengths.

Indeed, Jagatjit Industries' 2,000-and-odd outlets, spread across the country, will come in handy for any transnational to expand its operations in the Rs 5,000-crore Indian-Made Foreign Liquor (IMFL) market. For instance, the 76-per cent subsidiary of Bacardi, Bacardi Martini India (BMI, equity-base: Rs 15 crore), wants to increase its marketshare over the next 12 months. But the American liquor major -- which owns an array of brands like Bacardi, Benedictine Liquer, and Camino Tequila -- is hamstrung.

For one, its Indian partner, Gemini Distillers -- which has a 24 per cent stake in BMI -- has a toehold only in South India. And its bottling capacity of 4 lakh cases per annum at Nanjangud (Karnataka) constitutes less than 10 per cent of the super-premium segment. Therefore, Bacardi -- which launched its flagship brand in Mumbai in March, 1998, and in Bangalore in April, 1998 -- is unlikely to capture a sizeable share of the market.

By contrast, Jagatjit Industries is the third-largest liquor company in the country, with an annual capacity of 80,000 litres of potable alcohol. With regular and premium brands, like Aristocrat and Binnies, its IMFL-sales increased from 4.38 million cases in 1996-97 to 5.40 million cases in 1997-98. Adds Jaiswal: ''In 1998-99, we expect to notch up even higher sales of 7.50 million cases.''

This is reflected by its strong financials. For instance, in 1996-97, Jagatjit Industries posted net profits of Rs 20.98 crore on sales of Rs 330.09 crore compared to profits of Rs 14.11 crore on sales of Rs 338.68 crore in the previous year. One of the reasons for the increase in profits was Other Income, which went up from Rs 1.23 crore in 1995-96 to Rs 5.05 crore the next year.

However, Jagatjit Industries has other problems: few brands in the non-whisky categories, low ad spend, and an exodus of senior managers. Add to this the fact that most liquor companies are facing pressure on the price-front. Admits Jaiswal: ''We are shifting from a production-driven company to a marketing-oriented one.'' True, since the average sales realisation per bulk kilo litre dropped from Rs 1.06 lakh in 1995-96 to Rs 90,000 in 1996-97.

In such a scenario, the transnational entrants -- which are forced by government regulations to use only non-molasses-based raw materials like grain -- are bound to suffer. For, they cost seven times more than molasses and, hence, increase the project's gestation-period by a similar multiplier. That's why International Distillers & Vintners (IDI) -- which has formed an Indian joint venture with the Rs 129.83-crore Polychem India -- brews liquor under a licence issued to the latter in 1977, which allows it to go through the molasses-based route.

Under the circumstances, Jagatjit Industries, with its licence to use both molasses and grain, is an ideal takeover target. Perhaps the only impediment is the price of the deal since the gap between independent valuations and Jaiswal's expectations is difficult to bridge. Especially since the value of a 50 per cent stake in Jagatjit Industries is only Rs 350 crore at the scrip-price of Rs 144 (on May 5, 1998).

In fact, Jaiswal's attempts to sell the company have floundered for the past three years for this very reason. Talks were first held with a subsidiary of the -- 3-billion Allied Dominique, Hiram Walker -- with which Jagatjit Industries had signed a joint venture -- and later, feelers were even sent to IDI and Brown Foreman. Knowing Jaiswal's negotiation prowess, a 20 per cent price reduction may, possibly, be the lowest offer he is willing to make.

Especially since Jaiswal, who has the RBI's approval to spend -- 200,000 (Rs 1.30 crore) every year to facilitate exports between the UK and India, and controls other businesses in the UK, enjoys a comfortable lifestyle. Obviously, there may still be some way to go before a toast can be raised to this deal.

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