Diageo’s Indian subsidiary has reported 8% net sales growth despite challenges

In the six months to 30 September 2016, net sales hit Rs. 4,089 crore (US$614.6m), while profit after tax grew 53% to Rs. 126 crore (US$18m). USL’s net sales were hit by the complete ban on the sale and consumption of alcohol in Bihar – India’s third most populous state – which was enforced in April this year.

Net sales of the group’s ‘Popular’ segment declined 5% in H1 due to the measures in Bihar, but other “priority states” grew volumes and net sales in the category. Excluding the impact of Bihar’s prohibition, total H1 net sales grew 11%.

“This set of results continue to demonstrate that we have the right strategy in place with strong focus on premiumisation coupled with selective participation in popular,” said Anand Kripalum, CEO of United Spirits.

“We have increased our investments behind our power brands and our strategic priorities which led to strong top line performance. We also invested in organisational changes which will enable us to capture future growth.”

After USL’s board called for his removal, Vijay Mallya resigned as chairman and non-executive director of United Spirits in February this year, with parent company Diageo agreeing to pay the tycoon US$75m.

However, Mallya was blocked from receiving the package as a consortium of banks attempted to recover substantial loans. Meanwhile, USL itself is attempting to recover US$182m worth of “improper transactions” made at the company while Mallya was chairman.

In April this year, USL confirmed that it would change the name of its McDowell’s No.1 brand in markets outside of India following pressure from the Scotch Whisky Association (SWA).

Kripalum said of the Indian whisky’s H1 performance: “The McDowell’s No.1 whisky brands (excluding Platinum) net sales was up 10% in the first half post renovation and Royal Challenge grew net sales 28% despite lapping a strong growth following the re-launch in 2014. The prestige and above segment now represents 57% of the overall business.”

He added: “Several challenges we have faced last year are now behind us and we have seen good growth in some states and partial recovery in others.

“These results give me confidence that the interventions we have made to shape the business to drive future growth will deliver strong and sustained performance in the coming years.”

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