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    Pernod Ricard's sales growth in India hits regulatory bump

    Synopsis

    The company posted an 8% growth in sales in the September quarter, and said it recorded double-digit growth during the same period last year, without sharing specifics.

    ET Bureau
    MUMBAI: The Indian unit of the world’s second largest distiller Pernod Ricard has reported one of its slowest sales growth during its first quarter ended September, and blamed regulatory challenges in the country for the slowdown.

    The Indian operations “continued strong growth, albeit slightly lower than in FY16 due to conjunctural regulatory challenges in several states such as tax increase in Maharashtra, distributor change in Punjab and Bihar prohibition”, the Paris-based maker of Absolut vodka and Chivas Regal Scotch said in an investor presentation on Thursday.

    The company posted an 8% growth in sales in the September quarter, and said it recorded double-digit growth during the same period last year, without sharing specifics. Sales growth in India for the previous fiscal was 12%. Pernod Ricard follows a July-June financial year.

    Last fiscal, Pernod Ricard had crossed the Rs 10,000-crore annual sales mark in India, making the country its third-largest market, ahead of its home market France. The company over the last three years had been consistently growing sales by over 15% on the back of premium brands even as the overall market slumped to less than 3% during the same period.

    Image article boday
    The Indian whisky market is roughly 250 million cases with 80 million cases in the premium and semi-premium segment. Pernod Ricard’s portfolio is exclusively focused on the more profitable premium Indian whiskies, dominating the segment with about 48% market share.

    United Spirits (USL), now controlled by Diageo, has historically focused on volume growth with nearly 150 brands, which are low margin products, and despite that, its overall market dominance had fallen behind Pernod Ricard in the premium segment.

    But this is changing. USL’s mix has improved significantly as share of revenue and volume from the premium segment has risen to over 50% compared with 38% in FY13. The company has relaunched three core brands — McDowell’s No 1, Bagpiper and Signature — which compete with Pernod’s Royal Stag, Imperial Blue and Blenders Pride.

    Experts said United Spirits brands may be increasing their share faster. “Pernod Ricard has not mentioned anything about Imperial Blue, which might suggest that USL has gained market share with McDowell which was relaunched by the company,” said Abneesh Roy, senior vice president at Edelweiss Securities.

    In India, the overall spirits market has been slowing down, but the premium segment has bucked the trend, growing at 15-20% every year. India is among the most important top-line growth driver for both Diageo and Pernod Ricard, contributing close to 25-35% of total growth for these firms in the next three years.

    Analysts also feel liquor companies including Pernod Ricard, the most profitable liquor company in India, could see margin pressure due to non-inclusion of the sector within goods and services tax. While GST will not impact the price of finished spirits, it will raise the price of inputs and therefore be a drag on gross margins if no pricing action is taken.

    Spirits manufacturers are not permitted to raise prices without permission from local governments and most companies petition them to raise prices to offset gross margin pressure.


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