Unaudited financial results for the quarter and nine months ended 31 December 2018
Net sales grew 12% in the nine months enabled by Prestige & Above portfolio
Third quarter performance highlights:
• Net sales grew 11%; enabled by the performance of Prestige and Above segment as well as benefitting from lapping of a weaker comparative in the prior year, when the business was impacted by expected route to market changes in certain states.
• Prestige & Above segment net sales grew 16%, albeit on a weaker base, as a result of continued focus on premiumisation.
• Popular segment reported net sales declined 3%. Underlying net sales, after adjusting for the impact of operating model changes declined 2%. Net sales of Popular segment in priority states declined 5%.
• Gross margin was 47.3%, almost flat versus last year, as the positive impact from improved mix and productivity savings was offset by adverse impact of COGS inflation.
• Reported EBITDA was Rs. 348 Crores, up 28%. EBITDA margin was 13.9%, up 188bps, primarily driven by savings in operating costs, which more than offset a 3% increase in marketing investment. Underlying* EBITDA margin improvement was 91bps.
• Interest costs were Rs. 55 Crores, 16% lower than prior year, despite a rising interest-rate environment, driven by lower debt and improved debt-mix.
• Profit after tax was Rs. 192 Crores, up 43%; PAT margin was 7.7%, up 174bps.
Nine months performance highlights:
• Reported net sales grew 12%, as a result of double-digit growth in the Prestige & Above segment as well as benefitting from lapping a lower base which was impacted by the highway ban last year. Net sales excluding the one-off impact of operating model changes grew 13%.
• Prestige & Above segment performance was robust with net sales growth of 18% and 5ppts positive price/mix.
• Popular segment reported net sales grew 1%. Underlying net sales adjusted for the impact of operating model changes grew 2%. Net sales of Popular segment in priority states grew by 4%.
• Gross margin was 48.5%, up 141bps, mainly due to productivity gains, improved mix and flow through effect of pricing that more than offset the adverse impact of inflation. Underlying gross margin improvement, net of the impact of operating model changes, was 113bps.
• Reported EBITDA was Rs. 973 Crores, up 30%; reported EBITDA margin was 14.4%, up 196bps, primarily driven by increased gross margin and savings in operating costs, which more than offset a 20% increase in marketing investment. Underlying* EBITDA increased by 28%; underlying* EBITDA margin was 15%, up 173bps.
• Interest costs were Rs. 153 Crores, 24% lower than prior year, driven by lower debt and more favourable debt-mix and despite a rising interest rate environment.
• Profit after tax was Rs. 532 Crores, up 52%; PAT margin was 7.9%, up 205bps.
*Underlying movement excludes the one-off impact of operating model changes and one-off costs.
Anand Kripalu, CEO, commenting on the quarter and nine months ended 31 December 2018 said:
“I am pleased with our performance as we delivered double-digit sales growth for a third consecutive quarter this year. During the quarter, overall net sales growth was 11%, benefitting from lapping the impact of expected route to market changes last year, while also driven by momentum in Prestige & Above segment.
During the quarter, net sales of Prestige & Above segment grew 16%, bringing net sales growth of the segment to 18% during the first nine months of the year. Although this growth was on a low comparative, we are encouraged to see the underlying momentum in the category return this year.
Despite no increase in gross margin versus last year, we delivered an EBITDA margin improvement of 188bps through savings in our operating costs. We achieved this even as we continued to increase marketing investment, with a reinvestment rate of 10.7% during the quarter.
We made further progress in monetizing some of our non-core assets; and that, together with an improved operating performance, have helped us deliver an overall PAT increase of 43% during the quarter.
While we have been in a relatively stable operating environment this year, looking ahead, we do expect the general elections to have an impact on our sales during the next quarter. We will however continue to make progress towards our strategic priorities in order to capture the long-term opportunity in spirits market in India. We also reiterate our medium-term ambition to grow topline by double digits consistently and to improve EBITDA margin to mid-high teens.”