After listing, beer maker Kati Patang to acquire, incubate al-bev firms to grow

The company acquired a stake in the owner of a UK brewery last month and will look to acquire and incubate domestic and international brands to foster the expansion while also growing its own brands.

Kati Patang Lifestyle has raised ₹25 crore year to date and an additional ₹10 crore from existing investors from a share-swap deal.

“In India, we’ve noted that the route to market for beer companies is primarily through selling strong beer. While we sell that, our focus has been primarily on creating brands. We too have a strong beer, but that is also on the premium end of the market,” Upadhyay said. “Generally, beer brands end up burning a lot of cash because of high excise duties coupled with heavy discounting. But we started our craft beer retail journey in 2018 and generally want to remain at the most premium end of the market with our beers priced around ₹150-180 a pint in a state like Delhi,” he said.

About 75% of the company’s business comes from retail sales and the remaining is from hotels and restaurants. The company expects to cross ₹15 crore of net revenue by the end of FY25. Its beers are available in Delhi, Punjab and Himachal Pradesh. It has just started in Haryana and will enter Chhattisgarh and Daman and Diu in the coming months.

“This fiscal, we will cross 150,000 beer case volumes and will look to double this by FY26. Our net revenue in FY26 should cross ₹45-50 crore on the back of organic growth. We should also be able to triple our volumes by FY26. Inorganic growth will be over and above the beer business. This will help as there is a huge premium in the capital markets for brands that will promise growth over the next few years,” Upadhyay said.

Share swap

Kati Patang was founded in 2018 with a majority of its production from Bhutan. The company specialises in using Indian ingredients such as saffron, turmeric, ginger, and peppercorn in its beers.

It has five variants including Zesty Amber, which is a take on an American Amber ale, a wheat beer, Saffron Lager, and Bareilly Bold, which is a strong beer. Today, part of the company’s production comes from Solan in Himachal Pradesh, where it took up a contract manufacturing facility in 2020. Today, its strong beer and one type of lager are made in India.

In December, the company initiated a share-swap deal with VirtualSoft Systems Ltd, a listed company that then changed its name to Kati Patang Lifestyle Ltd. VirtualSoft was founded by Gokul Tandan and the company’s other promoter is Forest Essentials’ executive director Samrath Bedi. Both are early investors in Kati Patang.

“We wanted to go to the capital markets with the intent of raising ‘patient’ capital to help the company in its growth cycle and believe in its long-term vision. We were lucky to find such investors in our early years. In the process of listing our business at the stock exchange, we also cleaned up the balance sheet by swapping debt with equity and raised an additional ₹10 crore from existing investors to drive near-term growth,” said Upadhyay, who is also the CEO of Kati Patang Lifestyle.

Kati Patang Lifestyle’s wholly owned unit Empyrean Spirits Pvt Ltd, through its UK subsidiary Kati Patang, acquired a 23% stake in Chadkp Holdings Ltd for ￡300,000 to expand its business in the UK market. The deal closed on 24 December. Chadkp owns Chadlington Brewery and The Tite Inn in Chadlington.

Kati Patang Ltd UK signed a three-year licensing agreement to brew its gluten-free Saffron Lager at its brewery. Plans are under way to establish taprooms across major urban centres in the UK.

“In the UK, we’d like to have a ￡1 million revenue target by the end of calendar year 2025 in our joint venture with Chadlington and this could double by end of calendar year 2026,” Upadhyay said.

Mint reported in August 2023 that Kati Patang had scaled back its business due to excise policy disruptions in the few states it operated in.

“In FY23, our revenue took a hit because of policy changes in different states,” added Upadhyay.

Now, following the share-swap deal, the company expects to return to a healthy growth path.

Balance needed

According to Vinod Giri, director-general of the Brewers Association of India, companies such as Kati Patang bring experimentation and innovation to the category and refresh the beer consumption environment. He said that it must bear in mind that craft as a category is not a mainstream lager business – its appeal is rooted in its uniqueness and limited scale and not in its mass acceptance. The company’s growth ambitions and expansion strategy must eschew the temptation of scaling up too quickly.

“A very aggressive expansion plan and widespread availability will dilute the uniqueness of the product in consumers’ minds. That would be neither here nor there. So, they must follow a business model which balances investor expectations of quick returns with their own passion to create artisanal and different products,” Giri said.

According to Upadhyay, the global lager market was valued at $380 billion in 2023 and will grow to $512 billion by 2033. Premium lager will be the fastest-growing segment. The US is the largest consumer of beer, contributing as much as 24% to global consumption, while Germany and Japan are next with a 7% and 5% share, respectively.

As per independent data from drinks consultancy IWSR, India’s beer volumes will grow at a compounded annual growth rate of about 3% from 2022 to 2027.

“India is a big market with a growing portfolio of brands that require a lot of working capital to reach potential,” Upadhyay said. “Our vision is to become a homegrown company which will incubate other complementary businesses with premium alco-bev experiences like ours. Free trade agreements or FTAs will disrupt a lot of smaller companies in the coming years. That’s when a lot of such companies that represent the ‘new-age India’ will need a larger platform and support.”

However, Giri of Brewers Association added that currently India’s beer market has a size of about 425 million cases, of which craft beer accounts for about 4 million cases. Of this, B91 Beverages’ Bira brand is the largest player, accounting for almost 3 million cases.