Moneycontrol
Oct 30, 2017 04:18 PM IST | Source: CNBC-TV18

H2FY18 should be better; worst is over: United Breweries

Liquor stocks gained on Friday after a strong show from United Spirits in Q2. In an interview to CNBC-TV18, Shekhar Ramamurthy, MD of United Breweries spoke about the latest happenings in his company and sector.

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Liquor stocks gained on Friday after a strong show from United Spirits in Q2. In an interview to CNBC-TV18, Shekhar Ramamurthy, MD of United Breweries spoke about the latest happenings in his company and sector.

Impact of the highway ban has gotten mitigated because many outlets have reopened post Supreme Court (SC) clarification in July, he said.

We always believe that the second half of the year (H2FY18) will be better. We are optimistic that going forward the worst will be behind us, he added.

Confidence is coming back, optimism is coming back and we see increase in consumption. Same-store-sales numbers are higher than last year, said Ramamurthy.

The overall industry is still low single digit growth, he said.

Our focus has always been on controlling costs and driving revenue, he further mentioned.

The impact of goods and services tax (GST) has been less than we anticipated. For our business, GST has not been a disruptor because our output is not in GST, Ramamurthy said.

Below is the verbatim transcript of the interview.

Latha: It has been a great performance that came from United Spirits so just wanted to ask you how have volumes and sales panned out even in the first month of the current quarter? Are you seeing a substantial improvement from what things were earlier this year?

A: The impact of the highway ban has got mitigated because after July when SC ruled that highways, which run through municipal limits would be exempted from the ban a lot of the outlets have reopened. However, if you go back to the number of outlets that were there in March, when April came, about 30 percent of the outlets have closed.

We anticipate that at present, still about 10 percent of the outlets are closed. Going forward, it will probably take this 10 percent to take much longer to come back simply because they are on highways and they will need to relocate but this impact has gone away.

I have always said as I have been speaking to you over the last six months, we always believe that the second half of the year will be better. The impact of demonetisation would have receded, the impact of highway ban would recede. So yes, we are also optimistic that going forward, the worst will be behind us.

Anuj: Second half also is about winter, so you see more of hard liquor sales compared to beers, so in that sense, are you still optimistic about second half? I am just referring to H1 versus H2?

A: H1 versus H2 will always suffer in comparison because we are a hot tropical country with high seasonality. But on a lighter note, I always do hope that people in India realise that we are a hot and hotter country, we are not a hot and cold country. So anytime is good for beer.

Surabhi: I wanted to ask you for a like-to-like comparison. So we will leave aside the 10 percent of the outlets that have yet not reopened and they are sort of still figuring out how to get back but if you look at the outlets, which are operational, are volumes generally looking better than last year or is there stability, what is the trend?

A: I would say it is stable. Confidence is coming back, optimism is coming back. We do see increase in consumption so if 10 percent of the outlets are closed and till recently 20-30 percent were closed, clearly same-store-sales are higher than last year same time.

Surabhi: By how much? Is there a rough number you can give us, what is the band?

A: The overall industry is still low single digit growth in Q2. So low single digit growth would mean that each outlet would probably be growing mid-single digit.

Latha: You stunned us with your margins in Q1 and that was extremely capable cost controls, are things doing even better on that trend or are you at least maintaining the trend?

A: For that you will have to wait a little bit when we announce our results.

Qualitatively, our focus has always been on controlling our cost and of course driving revenue because you cannot always depend on cost control to improve margins. So our focus has always been on revenue and with that we are focusing on higher price brands, focusing on higher margin states. So a combination of two driving revenue and keeping a control on cost is what is helping our margins stay up.

Latha: And GST, last time you said the impact was lesser than you thought it would be, but any disruptions or any comments at all?

A: Yes, the impact of GST on our business has been less than we anticipated simply because the final form the GST has come, the input tax rates haven't gone up as much as we had anticipated. Yes, they have gone up but not to the extent we had anticipated. For our business, GST has not been a disruptor because our output is not in GST. It is only our input material that is in GST.

Anuj: What about the performance of Kingfisher Storm? Carlsberg clearly had been gaining some market share and I guess that was the reason that you had launched Storm. How has that done?

A: Kingfisher Storm is doing very well. We are slowly in the process of rolling it out to different market. It is currently available in parts of Maharashtra, parts of Karnataka, Bengal and over the next 6-9 months we will take it to the rest of the country. Initial response of consumers has been very positive. It is a very different kind of beer, very smooth, differentiated brew and what we are particularly pleased about is that consumers have reacted very positively to our packaging innovation. We have brought in first of its kind blue bottle, so all in all good experience for us with consumer with Storm.
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