Liquor sales lose some spirit in Q4 on rising poll fever
Liquor sales growth in the country tapered of to its lowest level in at least six quarters during the January-March period when sales of whisky, rum, brandy, gin and vodka grew just 3% year-on-year, partly due to pre-election related disruptions.
Spirit sales had grown 13% on year-on-year in the quarter ended March 2018. And the market had expanded 10% in the last calendar, the most since 2012, helped by the fading impact of a highway liquor sales ban and increased stability following distribution changes in some states.
The industry expects sales to pick up after the elections. “The slowdown is more of an aberration and is led by destocking and excise hikes rather than consumption issue,” said Deepak Roy, executive vice-chairman at ABD, the country’s third largest distiller. “We expect volume sales to pick up post the election once operations are normalised.”
One of the largest markets in the world, India consumed 91 million cases of alcohol, known as Indian made foreign liquor, or IMFL, in the quarter ended March, up from 89 million cases a year earlier, industry executives said, citing excise department data. For the whole of 2018-19, spirits sales grew 8% to 361 million cases.
Popular whisky brands such as Royal Stag, McDowell and Officer’s Choice account for more than three-fourths of the market.
Industry insiders said the fourth quarter of the fiscal is seasonally weak for the liquor industry due to channel destocking ahead of new excise policy. This time there was election-related impact too, in terms of restriction on running the factories, they said. Some analysts believe United Spirits, the country’s largest distiller with 30% market share, may have taken the brunt of slowing sales the most. Its factory in Karnataka worked in two shifts instead of three, they pointed out.
The Diageo-owned company also deferred price hikes despite some states such as Maharashtra increasing excise rates, which led to volume loss. Also, there were inventory issues in UP after lenders were issued new licences. With increase in dry days during elections, coinciding with the label registration cycle, the current quarter ending June could also see low volume, industry insiders said.
“Our proprietary database of monthly alcobev volume and gross sales across three key states covering 40% of pan-India spirits volumes suggests a sharp slowdown in growth in 4QFY19E,” Kotak Research said in a recent report. “Base is catching up and pre-election disruptions may have had a role to play as well. The slowdown in spirits is particularly sharp with year on year volume decline in the three-state composite,” it said.
Two month ago, United Spirits had flagged concerns about general elections disrupting sales in the next quarter. A recent DBS Emkay report said the volume growth of spirit sales in five key states in the country was at about 2.3% in Q4 “due to an 8% decline in Karnataka and a moderation in Maharashtra and Andhra Pradesh”.
“Pernod Ricard said India grew 19% for nine months, indicating 9% growth in March 2019 quarter versus 14% in December 2018, signalling a moderation in growth trends,” it said. For the spirits market, cost pressures increased significantly with prices of extra neutral alcohol (ENA), a key raw-material used in IMFL, rising more than 20% in the last fiscal compared to FY18. Glass bottles price too had increased in the fourth quarter.
Companies and analysts expect an impact on companies’ margins because they are unlikely to pass on the steep increase in costs to consumers in a slowing market.
Delay in price hikes due to elections and lower pass-through of tax increases in states such as Maharashtra will aggravate margin pressures further, experts said.