Takeaway alcohol users save the day for USL

Mumbai: Mile-long queues before liquor stores were among the first striking visuals of urban India's phased unshackling through the blistering summer, but all that pent-up demand that spawned numerous memes on the true growth driver of a comatose economy wasn’t enough to fully restore the health of the country’s biggest spirits maker due to the lingering curbs on dining out.Sales at airport duty-free stores, fine-dining restaurants, bars and pubs are still a fraction of what they were before Covid-19 forced an unprecedented shutdown, impacting the operations at United Spirits (USL).The maker of Johnnie Walker and Vat 69 generates about a fourth of its sales at bars and restaurants, called on-trade in industry parlance. However, continuing curbs on social gathering have hit patronage at restaurants and bars, and that segment of the business may not mend quickly – unlike other consumer businesses such as non-regulated FMCG.“Off-trade (retail outlets) delivered an above-par performance. Duty-free is at best 10-15 per cent of the earlier level,” Anand Kripalu, USL managing director, said in an investors call. “On-trade has opened but footfalls are and could be 50 per cent compared to earlier. So, there is still some time to recover.”To be sure, more patrons bought liquor for consumption at home, helping buttress sales through the standard retailing channel at the company that controls about 40 per cent of the local market. USL also said it is ‘cautiously optimistic’ on the re-opening of the Bihar market, a dry state for about four years.“In Bihar, prohibition doesn’t seem to be as essential and central to the current election manifesto. While I don't know what could happen, I just remain cautiously optimistic that something could happen; a door may open,” Kripalu said.The three months to December are crucial for liquor companies: Winters in the north and weddings usually boost demand in the third quarter, although restrictions on socialising mean demand may not be as robust as it was last year.The Diageo-controlled firm posted a 6.5 per cent decline in overall net sales but the company said the base quarter had exceptions, excluding which growth was positive. 79070742A year ago, Andhra Pradesh had taken over the liquor retail business and also introduced a new bar policy, which includes cancellation of existing bar licences, issuance of new permits, and reduction in the number of bars and outlets.“Excluding the impact of bulk Scotch inventory, which we sold last year during this quarter, and adjusting for the Andhra Pradesh business base effect, our net sales grew 1 per cent,” said Kripalu.USL grew 1 per cent in prestige and above segment, a market where it competes with the French rival Pernod Ricard, which reported a 13 per cent decline. The popular segment that has mass-market brands such as Haywards, Bagpiper and White Mischief fell 12.5 per cent. Its margins shrank 553 basis points to 12.6 per cent during the quarter.“With the new policy for ENA, it is imperative for the industry and USL to get price-hikes in key states. Margin expansion remains a challenge,” said Abneesh Roy, senior vice-president at Edelweiss Securities. Extra neutral alcohol (ENA) is the primary raw material for alcoholic beverages.At Thursday’s closing price of Rs 534.7, the stock traded at 38 times FY22 estimated earnings, which is cheaper than most consumer stocks. This may attract optimistic investors to India’s biggest spirits maker.

from Economic Times https://ift.tt/3evRYe1