Bengaluru: United Spirits Ltd’s standalone net profit declined 8.8% in the fiscal third quarter and revenue grew only marginally as the company’s business was hurt by distribution changes in a few states and one-time provisions.

Profit at India’s largest liquor company fell to Rs134.7 crore in the quarter ended 31 December from Rs147.7 crore a year ago. Revenue increased to Rs7,160.9 crore from Rs7,077.8 crore, the Diageo Plc-controlled liquor maker reported in a filing with the BSE on Tuesday.

“Our net sales performance was adversely impacted in this quarter by the expected route to market changes in certain states, and to a lesser extent, by the residual effects of the highway ban. Given this context, I am particularly pleased with our gross margin improvement, which has allowed us to significantly increase marketing investment by 27% and, thereby, invest in the future," USL’s chief executive officer Anand Kripalu said in the statement.

India’s Supreme Court banned liquor outlets within 500 metres of national and state highways in April.

USL did not mention the states that changed their distribution process. But in the past, industry executives have said that Haryana, Punjab and Uttar Pradesh could possibly change the way they distribute alcohol and give governments more control over the process.

This has been expected to pose a challenge for organized liquor firms as sometimes those managing state-run alcohol outlets are lowly-paid employees, and that could lead to issues of graft, according to industry executives.

Sales in USL’s prestige and above segment—which includes brands like McDowell’s No.1, Royal Challenge, Antiquity and Signature and is its main focus area — declined 3% in the third quarter of 2017-18.

Net sales in its popular or mass segment of brands such as Bagpiper, Director’s Special and Haywards whiskies declined 16%, hurt by the one-time impact of operating model changes. Last January, the company had decided to take the franchise route for some of its popular segment brands in some states.

USL took a one-time charge of Rs13 crore for ‘supply footprint rationalization’ during the quarter, it said, without giving further details on what that entailed. However, in the notes accompanying its results, the company said it has incurred an impairment loss on property, plant and equipment in relation to certain manufacturing units.

In its notes, the company also said it has not recognized interest income on a loan that United Breweries (Holdings) Ltd (UBHL) and its subsidiaries owe to it, amounting to Rs31.7 crore, in the quarter. It has offset payables to UBHL amounting to Rs9 crore for the quarter against the interest receivable.

UBHL, the holding company from which embattled liquor baron Vijay Mallya used to run his business empire, had been asked to wind up by the Karnataka high court in February 2017.

“Looking ahead, while the adverse impact of the highway ban is behind us, we do expect to see continued impact of route to market changes in certain states in this financial year. Importantly, we now expect that the adverse impact of GST will be more than offset by productivity savings and pricing," Kripalu said.

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