Bengaluru: United Spirits Ltd, India’s largest liquor maker, on Thursday said standalone net profit rose 86% in the quarter ended September, helped by a strong performance by its premium brands.
Profit rose to Rs153.1 crore in the three months from Rs82.5 crore a year ago. Revenue rose to Rs6,245.1 crore from Rs6,051.2 crore, the company owned by Diageo Plc. said in a filing with the BSE.
The apex court’s decision to prohibit all liquor sales within 500 metres of state and national highways last year has hurt sales volumes across the alcoholic beverage industry. In July, United Spirits said the impact of the ban will spill over into the next two quarters, i.e. until December, albeit to a lesser extent. On Thursday, United Spirits reiterated that the impact of the ban will continue to ease and business will return to normal by the end of the December quarter.
“In the second quarter, we have delivered strong underlying net sales growth of 4% driven by 12% growth in the prestige and above segment, despite the impact of the highway ban," chief executive officer Anand Kripalu said in a statement.
United Spirits’s biggest competitor in India, French liquor firm Pernod Ricard SA, also said that the disruption from the highway ban has started to ease. Gradual improvement is expected on this front starting in the October-December quarter, Pernod said in its September quarter sales update on 19 October.
Sales growth in United Spirits’s prestige and above segment—which includes brands like McDowell’s No.1, Royal Challenge, Antiquity and Signature—was fuelled by the firm’s brand renovation and premiumization strategy, the company said.
United Spirits has either repackaged or rebranded several of its power brands that delivered double-digit net sales growth in Q2. But net sales in its popular or mass segment of brands such as Bagpiper, Director’s Special and Haywards whiskies fell 22%. That drop is because of the firm’s shift to a franchisee model for these brands in some states, United Spirits said.
In January, United Spirits said it would start franchising some brands in its popular segment in Kerala, Andhra Pradesh and Goa to focus on its more profitable prestige and above business in those states. It added several more states to that list in May.
When it reported Q1 results in July, United Spirits 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.
“Based on our current expectations, through our continued focus on productivity initiatives coupled with price increases in select states, we expect the net adverse impact of GST on our margins to be moderate in this financial year," Kripalu said on Thursday.
Alcohol has been kept out of GST, but raw materials that liquor firms use, including glass bottles, come under the ambit of the new tax. Alcoholic beverage makers’ input costs will increase, but they cannot claim tax credit under GST to offset that rise.
In the notes accompanying its Q2 results, United Spirits has provided updates on pre-existing loans, deposits, advances and accrued interest that were due to it and its wholly-owned subsidiaries. United Breweries (Holdings) Ltd – the holding company that former United Spirits chairman and embattled liquor baron Vijay Mallya used to run his once-sprawling business empire - owed United Spirits an aggregate principal amount of Rs1,337.4 crore and Rs84.6 crore in accrued interest up to 31 March 2014.
United Spirits said it has set off Rs9.2 crore and Rs21.1 crore for the quarter and the six months to September, respectively, payable to UBHL against interest receivable from the latter. The corresponding provision for interest receivable has been reversed to ‘other income’ in the related periods, United Spirits added.
UBHL was asked to wind up by the Karnataka high court in February. The court also directed that all the assets of the firm to be taken over by an official liquidator.