Unaudited financial results for the quarter and six months ended 30 September 2019
EBITDA margin expanded by 271bps during the first half of the year
Second quarter performance highlights:
• Reported net sales increased 3% benefiting from the second tranche of sale of bulk Scotch inventory. Net sales growth, excluding this one-off benefit was almost flat, primarily impacted by slowdown in consumer demand, liquidity challenges in certain markets as well as temporary supply chain disruption in our Scotch portfolio, notwithstanding a high base.
• Prestige & Above segment net sales growth was almost flat, lapping a high comparative last year.
• Popular segment net sales declined 1% overall versus last year, while stayed flat in priority states.
• Gross margin was 45.0%, down 526bps versus last year, largely due to the adverse impact of COGS inflation. After adjusting for bulk Scotch sale, underlying gross margin was 45.3%, down 494bps.
• Reported EBITDA was Rs. 416 Crores, down 6%. Despite significant gross margin compression, reported EBITDA margin was 18.1%, down 181bps, primarily delivered through savings in operating costs and phasing effect of marketing investment. After adjusting for bulk Scotch sale, underlying EBITDA decreased 12% and underlying EBITDA margin was 17.5%; 238bps lower than last year.
• Interest costs were Rs. 45 Crores, 3% higher than last year, despite a reduction in debt and cost of borrowing, mainly because of a one-time reversal in the base quarter.
• Profit after tax was Rs. 225 Crores, down 13% as the benefit from corporate tax cut was offset by one-time write down of deferred tax assets.
First half performance highlights:
• Reported net sales grew 7%; underlying net sales excluding the one-off benefit from bulk Scotch sale grew 3%, impacted by general elections in the first quarter and by consumption slowdown coupled with liquidity challenges in certain markets and temporary supply chain disruption in our Scotch portfolio in the second quarter.
• Prestige & Above segment net sales grew 4%, lapping a high comparative last year.
• Popular segment reported net sales were almost flat versus last year. Underlying net sales excluding the impact of operating model changes grew 1%, on a high base. Net sales of Popular segment in priority states grew by 2%.
• Gross margin was 46.1%, down 411bps versus last year, primarily due to significant COGS inflation and marginally due to part-absorption of excise duty hike in Maharashtra. After adjusting for the bulk Scotch sale, underlying gross margin was 46%, down 428bps.
• Reported EBITDA was Rs. 811 Crores, up 26%; reported EBITDA margin was 18.0%, up 271bps despite
significantly lower gross margin; delivered through savings in operating costs and phasing effect of marketing investment. After adjusting for the one-off impact of bulk Scotch sale and restructuring costs, underlying EBITDA increased by 7% and underlying EBITDA margin was 16.8%, higher by 65bps.
• Interest costs were Rs.97 Crores, 5% lower than last year.
• Profit after tax was Rs.422 Crores, up 24%.
Anand Kripalu, CEO, commenting on the quarter and six months ended 30 September 2019 said:
"Our revenue growth in this quarter was impacted by broad based consumption slowdown as well as liquidity challenges in the trade channel in certain markets. We also faced some one-off operational issues. Consequently, net sales for the second quarter grew 3%, including the sale of bulk Scotch inventory; net of that, underlying net sales growth for the quarter was flat.
Within the Prestige & Above segment, our Scotch portfolio growth was particularly impacted by a temporary supply chain disruption which has now been resolved; as well as by liquidity challenges in certain key markets for Scotch.
For the first half of this year, we have experienced significant inflation in our key raw material costs. While this led to significant compression in gross margin, we have still delivered an underlying* EBITDA margin of 16.8% during the first half of the year. This is particularly encouraging as judicious management of our operating costs contributed more to this improvement than the phasing effect of marketing investment.
Our reinvestment rate** for the first half of the year was 7.9%, reflecting our conscious decision to defer a part of our marketing spend to the upcoming festive season.
Overall, we delivered a PAT of Rs. 422 crores during the first six months of the year, up 24%, even as the benefit from corporate tax cut didn’t come through yet due to one-time adjustments.
Looking ahead, we are seeing some signs of revival in consumption with the onset of the festive season and we are investing behind all growth levers. And while it is too early to say that the consumption slowdown is behind us, we remain committed to capturing the opportunity in the spirits market in India and to to grow top line by double digits and to improve EBITDA margin to mid-high teens over the medium-term.”