Vijay Mallya loses crown; Pernod Ricard now India's most profitable spirits firm
MUMBAI: French firm Pernod Ricard has overtaken Vijay Mallya's United SpiritsBSE 1.97 % to become the country's most profitable spirits marketer last year, thanks to Indian consumers' increasing appetite for premium drinks.
The maker of Absolut Vodka and Chivas Regal Scotch whisky crossed the $1-billion sales mark in the country in 2011-12 when its sales rose 34% to Rs 5,941 crore, making India the fourth-largest market for Pernod Ricard. Its net profit soared 77% to Rs 593 crore during the period, according to the Registrar of Companies, where it filed the financial results in January, making India the fifth-largest contributor to the French firm's worldwide profits.
In comparison, United Spirits reported a net profit of Rs 343 crore on standalone sales of Rs 7,763 crore last fiscal. On a consolidated basis, United Spirits' sales during the fiscal year 2012 stood at Rs 9,356 crore and net profit amounted to Rs 187.2 crore.
While Pernod Ricard has been earning higher profit at an operating level compared with United Spirits since the past two years, this is the first time the maker of Blenders Pride and Royal Stag whiskies raked in higher profit at the next level. "Pernod's success in India demonstrates that it is possible for an MNC to run a highly profitable spirits business in India," Arnab Mitra and Akshay Saxena of Credit Suisse said in an investor note. "The other key takeaway from Pernod's success in India is that its business is not built around the company's global brands, but around local brands it acquired from Seagram's in India," the note added. Pernod's volumes have jumped from 1 million cases in 2000 to 22 million cases in 2011.
This is still less than one-fifth of United Spirits' volumes, which controls 55% of the 250-million-case Indian spirits market. One key reason for Pernod's high profitability is its growing heft in the premium Indian-Made Foreign Liquor, or IMFL, space as Indians guzzlers move up the price ladder with the brand they drink becoming a status symbol or lifestyle statement. "For consumers, higher personal income and growing brand awareness is driving the trend of up-trading from regular to premium IMFL," said Sudip Sinha, beverage analyst at Rabobank Group India. "For supply side, premiumisation is seen as an indispensable strategy given companies are unable to raise prices either in response to changing raw material cost or consumer demand during the year because of rigid control on pricing and potential impact on demand due to progressive taxation," Sinha said.
Pernod Ricard's margins in India are some three times that of United Spirits. For every case it sells, United Spirits earns over Rs 70 in profits and over Rs 720 in sales. In contrast, Pernod's profit per case is Rs 320 while its average sales value is Rs 1,760, an industry insider said. A global report by Credit Suisse said that in 2012, Pernod Ricard's organic growth in India was 26% — faster than any other major market and slightly ahead of China's 24% growth. Three IMFL brands — Royal Stag, Blenders Pride and Imperial Blue — make up for over 98% of Pernod's volumes in India. In 2012, it sold 12 million cases of Royal Stag, a prestige whisky,while United Spirits sold 16.9 million cases of McDowellBSE 4.90 % No.1 in the same segment. In the premium segment, while Pernod Ricard sold over 3 million cases of Blenders Pride, United Spirits sold around 6 million cases across brands such as Antiquity, Royal Challenge and Signature.