India’s Largest Liquor Maker Sees Impact Of Highway Ban Fading

United Spirits Ltd.’s net profit rose 86 percent in the July-September quarter as some liquor outlets re-opened after a Supreme Court clarification on the highway ban and sales of premium brands of alcoholic beverages improved.

Net profit went up to Rs 153 crore from Rs 82.5 crore a year ago, according to a stock exchange filing. United Spirits expects the impact of the highway ban to fade completely by the end of December, Chief Executive Officer Anand Kripalu said in a media statement.

The Supreme Court of India had ordered a ban on the sale of liquor within 500 metres of state and national highways from April this year. Recently, it clarified that the ban is not applicable within city limits. The tweak came as a relief for Indian distillers whose revenue in the previous quarter had taken a hit due to the ban.

Besides, United Spirits managed to offset Goods and Services Tax-related disruptions as the operating margin expanded 630 basis points to 16.3 percent. While alcohol is out of the ambit of GST ambit, raw materials like molasses and packaging material like glass bottles were not. This was expected to eat into distillers’ margins.

"Despite the implementation of GST which has resulted in stranded taxes, I am pleased that we have been able to deliver a robust underlying gross margin improvement," Kripalu added.

Revenue rose 3.2 percent to Rs 6,214.6 crore driven by a 12 percent sales growth of premium alcoholic beverages which contribute 63 percent to United Spirits' revenue.

This is reflective of the company’s increased focus on premiumisation, as it expects premium brands to contribute 70 percent of the industry’s profit by 2021. The company spent 11 percent more on marketing for its premium brands during the quarter.

The company aims to achieve double digit revenue growth in the medium term, Kripalu said.

Other Highlights

• Exceptional loss of Rs 14.4 crore for inventory reprocessing in Bihar, after the state announced a blanket ban on liquor last year.
• Interest costs fell 26 percent to Rs 66 crore