United Spirits Ltd’s (USL) fiscal second-quarter profit rose 16% from a year earlier as India’s largest liquor maker continued to focus on more expensive brands. Net profit rose to Rs82.54 crore in the three months ended 30 September from Rs71.24 crore in the year earlier.
Net sales at its Prestige & Above premium segment grew 12% in the quarter, while spirits sales of its mass-market segment declined 3%, USL said in a filing to the stock exchanges on Thursday. Total sales rose 12.5% to Rs6,038.8 crore from Rs5,369.9 crore in the year earlier.
“We have increased our investments behind our power brands and our strategic priorities which led to strong top line performance,” chief executive Anand Kripalu was quoted as saying in the exchange filing.
The company’s Prestige & Above segment accounts for 41% of total volume and 57% of total net sales.
“Signature returned to growth in the first quarter post renovation and grew net sales by 16% in the first half. The McDowell’s No. 1 whisky brands (excluding Platinum) net sales was up 10% in the first half post renovation and Royal Challenge grew net sales 28% despite lapping a strong growth following the relaunch in 2014,” he added.
That echoes French spirits company Pernod Ricard’s results from last week. The world’s second-largest distiller reported 8% growth in India on double-digit growth in premium brands such as Blender’s Pride and Royal Stag.
Sales in USL’s Popular segment were hurt by the Bihar government’s decision to ban alcohol, the company said. The ban was overturned by the Patna high court, but the case is expected to be heard in the courts again in the next few weeks.
At least two analysts over the past week said that USL’s results will be strained due to ongoing regulatory challenges such as the Bihar liquor ban and the reintroduction of a local municipal body tax on alcohol this August in Maharashtra.
Gross margin was flat at 42.5% in the quarter from a year earlier, weighed down by input cost inflation, while marketing costs rose 47% and employee costs rose around 24%.
“We have incurred about Rs28-31 crore for severance cost for this quarter. That is where the (employee cost increase) is spent,” explained Sanjeev Churiwala, USL’s chief financial officer, in an investor call.
And when asked by an analyst, CEO Kripalu said that cost is not fully done yet. “There’s a little bit more to be done. And it’s not a one-time project we are going to continue to look for opportunities to build the right kind of lean organization.”
On Thursday, USL’s stock fell 2.2% to Rs2,275.55 on BSE, while Sensex gained 0.29% to 27,915.90 points.