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Slowdown has also hit India's liquor industry

November 14, 2019 12:16 IST

Experts are of the opinion that though the second half of this financial year will see some recovery, volume growth is likely to remain in single digit as compared to the double-digit rise recorded in past years.

The growth in liquor sales is unlikely to see a meaningful revival in the second half of this financial year as the impact of economic slump and liquidity deficit in trade channels has cast a shadow over the sector.

Experts are of the opinion that though the second half of this financial year will see some recovery, volume growth is likely to remain in single digit as compared to the double-digit rise recorded in past years.

 

“It (liquor sales) will all depend on the (gross domestic product) growth rate.

"Because, it is discretionary purchase and (further slowdown in GDP) could lead to fall in consumption,” said Abneesh Roy, executive vice-president (institutional equities), Edelweiss Research.

“The mid-premium segment will be the most impacted. Also, after the flat growth seen in the second quarter, overall growth is expected to be in low single (digit) for the full year.”

At present, major companies producing liquor are earning more than 65 per cent of their revenue from premium brands, with the rest coming from other brands.

During the July-September quarter, United Spirits (USL) reported a volume growth of 1 per cent, owing to general slowdown in the economy, floods as well as liquidity stress in its trade channels.

While the makers of McDowell’s whiskey reported 3 per cent growth year-on-year in its prestige and above (P&A) segment, which deals with premium products, the popular segment saw a dip in growth by 1 per cent.

Another major player Pernod Ricard, with brands such as Blenders Pride and Royal Stag, reported 3 per cent growth in India during the second quarter (Q2), which was the lowest in nearly two years for the company.

“There was macroeconomic environment softening and impact of flooding in the quarter and the growth was on a high base of 34 per cent last year,” Pernod Ricard’s finance head, Hélène de Tissot, had said in an investors’ call after the company announced its Q2 earnings.

Queries sent to USL and Pernod Ricard via mails remained unanswered till the time of going to press.

Apart from economic slowdown, some liquor companies like USL have also flagged concerns relating to liquidity shortage faced by their trade partners in certain states.

“Liquidity shortage is the outcome of the crisis being faced by the non-banking financial companies.

"No one should expect this pain point to go away in one or two quarters,” said a Mumbai-based analyst.

Anticipating rising defaults, companies are also not pushing credit sales aggressively, the analyst said.

However, some experts are optimistic about the revival in demand starting from next year.

During its Q2 earnings, USL Chief Executive Anand Kripalu had said that the company was witnessing green shoots.

“Looking ahead, we are seeing some signs of revival in consumption with the onset of the festival season.

"While it is too early to say that the consumption slowdown is behind us, we remain committed to capturing the opportunity in the spirits market in India,” Kripalu had said.

Photograph: Reuters

Debasis Mohapatra in Bengaluru
Source: source
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