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Business News/ Companies / United Spirits’ Q2 results likely to be strained due to Bihar liquor ban
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United Spirits’ Q2 results likely to be strained due to Bihar liquor ban

India's largest spirit maker United Spirits is expected to report a net profit of Rs134.70 crore and revenue of Rs2,288.10 crore, according to 'Bloomberg' estimates

United Spirits reported a 277.26% rise in first-quarter net profit to Rs43.80 crore in the quarter ended 30 June, from Rs11.61 crore in the year-ago period. Photo: BloombergPremium
United Spirits reported a 277.26% rise in first-quarter net profit to Rs43.80 crore in the quarter ended 30 June, from Rs11.61 crore in the year-ago period. Photo: Bloomberg

Bengaluru: India’s largest spirit maker United Spirits Ltd (USL) is expected to report a net profit of Rs134.70 crore and revenue of Rs2,288.10 crore, according to Bloomberg estimates.

The results, to be announced on Thursday, are expected to be strained due to ongoing regulatory challenges including the liquor ban saga in Bihar and the re-introduction of a local municipal body tax on alcohol this August in Maharashtra, according to at least two analysts. The company also is grappling with a high debt load.

USL had found it particularly hard in Bihar where a government imposed ban has been overturned by the courts, but the case is expected to be heard again in the next few weeks. USL, in an investor call on 27 July, said that it will look to exit from all manufacturing and related activities from Bihar in the “medium term" as well as scrap its plans to export from the state, Mint reported.

The spirit maker reported a 277.26% rise in first-quarter net profit to Rs43.80 crore in the quarter ended 30 June, from Rs11.61 crore in the year-ago period. Net sales rose 9.66% to Rs2027.33 crore as its decision to invest more in premium products paid off, Mint reported on 27 July.

Bihar has traditionally been a popular market for USL.

“They can’t sell in Bihar, for instance, so their plants there need distribution channel reworks and that can cost quite a bit. Having plants in states that have banned liquor depends on how much demand is there from neighbouring states. It is very state driven and not pan-India. It all depends on the kind of deals they are able to strike with each state," an analyst who requested anonymity told Mint. Demand for liquor has not gone down, it is regulatory authorities that are artificially clamping down on it, the analyst added.

That trend has already been seen in Pernod Ricard’s results.

Pernod, the world’s second largest distiller, reported 8% growth in India on double-digit growth in brands like Blender’s Pride and Royal Stag last Thursday. That 8% growth came despite “regulatory challenges in several states (tax increase in Maharastra, distributor change in Punjab, Bihar prohibition)," the company said. Still, in comparison that growth rate was lower than the 12% for the full fiscal year that ended 30 June 2016.

Analysts Mint spoke to over the past week expect USL to have continued its focus on the premium rather than mass market in the second quarter that ended 30 September too.

USL’s Prestige and above segments—its premium liquors—are expected to grow in low double digits led by the relaunch of McDowell’s No.1 and Royal Challenge wrote Abneesh Roy, senior vice president of institutional equities at Edelweiss Securities Ltd in a note on last Thursday after French distiller Pernod Ricard’s results were announced.

“Pernod Ricard has not mentioned anything about Imperial Blue which might suggest that USL has gained market share with McDowell which was relaunched by the company," Roy added in the note.

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Published: 27 Oct 2016, 01:12 PM IST
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