India says Salut, Pernod Ricard raises a profit

Pernod Ricard, the world’s second largest distiller, saw its India revenues jump 23% while profits rose 28% in FY18, indicating a strong demand for premium brands, albeit on a favourable base last year. Pernod’s growth numbers outpaced Diageo’s Indian business that grew 3% in revenues. The maker of Absolut vodka and Chivas Regal scotch had gross sales of Rs 15,693 crore in the year-to-March 2018 with a net profit of Rs 1,228 crore, its latest filing with the Registrar of Companies showed. That’s a sharp revival for the company that posted sales growth of 6% while profits declined a year ago. Globally, the French company follows a financial year ending June and had said its Indian business had grown 14% during the period.

“India saw a strong performance across portfolio, enhanced by favourable basis of comparison, in improving environment. We maintained market leadership, with over 45% value market share (bottled in India premium and western style spirits whiskies),” Alexandre Ricard, chairman of Pernod Ricard, had said at an investors’ call in August. India is the second largest market for Pernod Ricard globally, only behind the US and bigger than the home market, France. The French distiller has been expanding its Indian business in double digits for more than a decade, bucking the broader industry trend of slowing growth. A year ago, Pernod India trimmed over 100 people from its workforce, who have been given one and a half year of severance pay, according to officials. Analysts also expect the growth momentum to continue.

“The very strong first quarter benefitted from an easy basis of comparable. This normalises into 2019 where we estimate growth of about 16%, reflecting a double digit underlying runrate with some benefit from the opening up of Uttar Pradesh,” Edward Mundy and Elsa Hannar, analysts at Jefferies International, wrote in a recent investor note. “Medium term, we see a sustainable run-rate at low double-digits to mid-teens. We believe that the risk of inclusion of grain-neutral spirit in GST has moderated.”

India is also one of the most profitable markets for Pernod Ricard globally and its net profit is more than double compared to its larger rival United Spirits. That’s because USL has more than about 100 brands, mostly in the mass segment in its portfolio such as Bagpiper and DSP Black, but the top 15 brands contribute more than 80% to its sales led by McDowell and Celebration. In comparison, Pernod India gets a significant chunk from premium and semi-premium brands, mainly Royal Stag and Imperial Blue. However, this is changing - after British spirits giant acquired USL more than five years ago, there has been a strong focus on premium segments, which is now contributing nearly 66% to its overall sales, up from around 45-50% around the time of its acquisition. The overall liquor market in the country saw sluggish demand in the aftermath of disruptions such as demonetisation and the new tax regime. These challenges were further accentuated by complete prohibition in Bihar, the Supreme Court’s ban on liquor vendors along highways and other taxrelated changes that dragged the sector’s growth from the high-teens to as low as 4% over the past three years.