Why ‘Melstacorp’ by Harry J?

Analysts speculate latest subsidiary could be DCSL’s new holding company

The corporate and investor community were surprised recently by business leader Harry Jayawardena’s choice of a company called Melstacorp by acquiring a 47% controlling stake in Pelwatte Sugar Industries for Rs. 890 million.

Melstacorp was identified as a subsidiary of Distilleries Company of Sri Lanka (DCSL). It appears that this subsidiary was recently floated as it wasn’t in the DCSL Group in the 2009/10 financial year.

For some of his previous acquisitions Harry J had used existing subsidiaries such as Milford Holdings, an investment arm (for example to acquire Sri Lanka Insurance Corporation, NAMAL) as well as Distilleries directly (in the case of Lanka Hospitals Corporation). However, for Pelwatte Sugar a new subsidiary was floated.

Some speculated that the new entity may be significant in the future as it could be DCSL’s investment arm or a likely candidate to be the holding company of DCSL.

Those who respect and emulate Harry J have always maintained that phrases such as “Distilleries’ boss,” “Liquor Baron” or even the word Distilleries doesn’t fit his profile or the diversified businesses which the Group has pursued since privatisation in early 1990s. In that context Melstacorp is likely to be a better fit to reposition and re-profile Distilleries.

However, analysts said Melstacorp becoming the engine of DCSL Group of course would require a share swap or a new structuring for the entire group.

Analysts said that whilst a new structure and holding company is welcome, the brand Distilleries might be retained as it is synonymous with the liquor business.

DCSL Group, led by its flagship Distilleries Company of Sri Lanka PLC, manages one of the nation’s most successful diversified blue chip portfolios spanning beverages, telecommunications, plantations, textiles, financial services, creative and media services and automotive services.

Interestingly, none of the subsidiaries carry a group name and thus do not leverage on advertising and publicity like some other well-known brands such as Keells, Aitken Spence and Hayleys. Some believe this is because the holding company is named after an industry that does not find favour with some conservative minds.
This is the argument put forward by some who preach the branding mantra that Melstacorp is in fact going to be the brand for the distilleries.

Having got the taste of the benefits of establishing brands such as Lanka Bell and Sri Lanka Insurance in the past, Harry J may be finally going to establish a conglomerate brand that could possibly join the few but well-known conglomerate brands in the country.   

The DCSL Group is among the top five corporate conglomerates in Sri Lanka with assets in excess of Rs. 38 billion and an annual turnover of approximately Rs. 41 billion.

The DCSL website states that its origin can be traced as far back as the year 1913, when the Excise Department of Ceylon, which was initially created as the enforcement authority and to distribute and sell liquor products in Sri Lanka, branched out into the distillation and manufacture of liquor products. Later, in 1974 the State Distilleries Corporation was incorporated by statute to take over this venture while the Excise Department was reintroduced to operate as a monitoring authority.

“We are thus the inheritors of an institution that has the distinction of being the pioneer distillery in the country. We have over the course of close to a century grown to become Sri Lanka’s largest distiller who has consistently received accolades from all quarters for the enduring quality of our products. We are justifiably proud, but one of our distinguishing characteristics is the determined refusal to rest on our laurels. This is why we prefer to think of history as a living thing,” the website states.

In 1989 the State Distilleries Corporation was converted to a limited company, as per the then government’s policy to privatise State-owned enterprises. The majority stake of DCSL was sold to the highest bidder on the Colombo Stock Exchange (CSE) in 1992, the then largest transaction in the history of the CSE.

“DCSL has now been recognised as one of Sri Lanka’s blue chip corporate entities, a far cry from what it was in 1992,” the website adds.

DCSL subsidiaries include Balangoda Plantations PLC (43% stake), Beruwala Distillery (100%), investment company Timpex Ltd. (51%), investment company Milford Holdings (98%), Periceyl Ltd. (100%), Collision Repair Centre (100%), Bogo Power Ltd. (100%), AION SG Residencies (100%), Aitken Spence (28%), Madulsima Plantations Plc, Lanka Bell (100%), Continental Insurance Lanka Ltd. (100%) and Texpro Industries (43% group).

Apart from these, Distilleries also owns a 28% stake in diversified blue chip Aitken Spence in addition to 6.4% in DFCC Bank and 2.5% in HNB.

A fortnight ago the strategic purchase of control in Pelwatte Sugar was toasted by investors as Distilleries’ share price rose by a high Rs. 12. Last week Distilleries’ share price reached a new high of Rs. 197, beating its previous 52-week best of Rs. 195. However, the stock closed the week at Rs. 182.30, down by Rs. 3.30 from the previous week.

source - www.ft.lk