Curbs have hurt, but liquor business will recover fast: United Spirits Ltd

United Spirits Ltd (USL), the country’s largest liquor company, said the alco-bev segment could recover faster than other discretionary segments, even as the industry faces both demand and supply challenges due to restrictions.
“The category is resilient and the category always bounces back. Having said that, there is some short-term dampening of attitude and spirits of people and therefore I would think there is some dampening of demand. But hard to say how much it is because of shops being shut and accessibility issue, and how much because of the spirits of people dampening,” MD Anand Kripalu said. "There is some dampening of demand, there are also supply challenges because many factories are in lockdown zones and many factories are able to work with limited people, limited timings, reduced number of shifts."

The company that sells brands including Johnnie Walker and McDowell's posted a 12% increase in sales in the March quarter, even as its Prestige and Above portfolio, which has mid-segment and premium brands, expanded 26%. However, for fiscal year FY21, sales declined 13%, or by Rs1,200 crore. Diageo-controlled USL said store closures during the first quarter last year due to the nationwide lockdown and route to market change in Andhra Pradesh led to a Rs 1,000 crore revenue loss last fiscal year.

Rival Pernod Ricard also posted double-digit sales growth in January-March quarter, but warned of Covid resurgence and lockdown’s impact on demand. However, sales in the sector improved sequentially every quarter and USL said it was upbeat on 2022.

“The ability to recover is huge. Alcohol is now a semi-essential category in the consumer share of wallet and we expect to recover faster than other discretionary categories," Kripalu said on an investor call, adding that nearly 17 million people would be added to legal drinking age population annually in India for the next three to five years. “The states also need the revenues and they do not see any value in keeping alcohol completely shut, so they are also finding a way to make sure people who want to buy alcohol have access,” he said.

USL is reviewing select mass-priced products in its portfolio as part of a strategy to drive higher profit by focusing on premium brands. "Though we await the strategic review of popular brands and its impact, we are of the view that USL's better overall performance offers comfort on growth and margins," said a report by Emkay.