Bengaluru: United Spirits Ltd (USL) said Q1 profit rose 43.6% even as revenue fell 0.5%, largely because of the Supreme Court’s decision last year to ban alcohol sales near highways.
The impact of the December ban will spill over into the next two quarters as well, albeit to a lesser extent, the liquor maker said. The decline in revenue is also a result of operational changes brought about in the June quarter as the firm increasingly moves towards using a franchisee model to sell its mass or value brands—classified as the popular segment internally—in a few states.
USL’s profit rose to Rs62.9 crore in the three months to June from Rs43.8 crore a year ago. Revenue fell to Rs5,847.7 crore from Rs5,877.2 crore, the firm said in a filing to the exchanges on Sunday evening.
“Performance in the first quarter, as expected, was impacted by the highway ban which has led to lower consumption due to a reduction in the number of retail outlets. We have also seen destocking by customers during the first quarter," chief executive officer Anand Kripalu said in a statement.
Net sales from its popular segment, which includes brands such as Bagpiper, Director’s Special and Haywards whiskies, declined 20% due to its decision to take the franchisee route for this segment in a few states. In January, the firm said it would start franchising some brands from this segment in Kerala, Andhra Pradesh and Goa to focus on its more profitable “prestige and above" business. And in May it added several more states to that list.
But sales of higher-end brands in its prestige and above segment—which includes the likes of McDowell’s No.1, Royal Challenge, Antiquity and Signature—also declined in the latest quarter as the industry was hit by the apex court’s decision to ban alcohol sales within 500 metres of state and national highways. Sales from this segment fell 8% during the period.
Still, its brand renovations for Signature and Antiquity are showing signs of paying off, the firm said. In March, Mint reported USL was betting on relaunches of its top whisky brands and brand extensions to drive growth. The rebranding or renovation of its Signature brand and the relaunch of its Anqituity brand are part of that initiative.
“Looking forward we expect the impact of the highway ban to continue in the second and third quarter in FY18, however, to a lesser extent. With the recent Supreme Court ruling allowing states to de-notify particular stretches of highways within city limits, we are starting to see early signs of outlets opening again, which is encouraging," he added.
The company also said it will have more clarity on the financial implications of the implementation of the goods and services tax (GST), which came into effect on 1 July, in the next few months.
Alcohol has been kept out of GST but raw materials that liquor firms use come under the ambit of the new tax.
This means, alcoholic beverage firms’ input costs will increase but they cannot claim tax credit under the new regime to offset that price increase.