United Spirits (USL), the spirits arm of Vijay Mallya-owned United Breweries, said it has acquired Tern Distilleries, an unlisted distillery in South India for Rs 13.42 crore ($2.89 million).

In a statement to the Bombay Stock Exchange on Monday, United Spirits said it has bought the entire share capital of Tern, which will now become its wholly-owned subsidiary.

Tern Distilleries is engaged in the business of alcoholic beverages with its manufacturing facility at Thallapalem in Visakhapatnam district in Andhra Pradesh. “United Spirits is targeting to augment its primary distillation capacity in the next two-three years. This acquisition will bring us multi-substrate capabilities,” CFO of USL PA Murali told Financial Chronicle.

He added that with sales volumes growing at around 14 per cent year-on-year, USL is always looking to augment their capacities both for distillation and also for the manufacture of Indian made foreign liquor (IMFL). “USL will capitalise on any opportunity that presents itself for such augmentation either at its in-house facilities or through outsourced contracts,” Murali pointed out.

USL at present owns two plants in Andhra Pradesh, one in Nacharam and the other at Malkajgiri, both in Hyderabad. In addition, the company has four other contracted facilities within the state. Previous year, USL sold over 16 million cases in Andhra Pradesh, 99 per cent of which are locally sourced (except scotches).

The spirits arm of the liquor giant recently raised Rs 1,615.60 crore by issuing 1.76 crore shares at Rs 913.70 apiece to qualified institutional investors. The issue resulted in an equity dilution of 16.4 per cent.

The net proceeds of the issue is expected to be used mainly to reduce debt incurred following the acquisition of Whyte and Mackay, a Scottish whiskey maker, which it bought in May 2007 for £595 million. The proceeds will also be used to repay other debt and fund capital expenditure.

For the second quarter ended September, United Spirits posted a net profit of Rs 69.60 crore, a drop of 25.9 per cent over the same period the previous year. Its net sales for the quarter saw a 19.7 per cent rise to Rs 1,080.05 crore over the corresponding period the previous year.