Inflation leaves Coca-Cola's bottling arm HCCB thirsty in India

HCCB reports Rs 1.18-billion loss for FY18; in the red for second consecutive year

Hindustan Coca-Cola Beverages (HCCB), the bottling arm of Coca-Cola in India, posted a loss of Rs 1.18 billion in 2017-18 (FY18).

This was a second year of losses for the largest bottling company in the country; in 2016-17 (FY17), it had posted a loss of Rs 2.33 billion, according to documents with the Registrar of Companies.

In 2015-16 and 2014-15, HCCB had posted net profits of Rs 1.74 billion and Rs 2.41 billion, respectively.

The losses of HCCB, which oversees 65 per cent bottling operation and distribution for Coca-Cola in India, could be attributed to inflation in FY18. According to the data, the cost of raw material and packaging went up 2.6 per cent to Rs 39.64 billion, from Rs 38.65 billion. At the same time, its operating revenue declined 4.3 per cent — from Rs 94.7 billion in FY17 — to Rs 90.6 billion.

The company said changes in reporting standard after the goods and services tax (GST) roll-out last year resulted in the dip. 

“Our comparable (net) revenue from operations in 2018 was Rs 85.64 billion, compared to the previous year of Rs 80.09 billion. Net revenue growth for the year was 7 per cent,” it said in an email response.

Since the GST roll-out, companies are required to disclose operating revenue after net tax paid; earlier, the revenue they reported included excise duty.

HCCB said its earnings before interest and taxes (Ebit) improved in FY18 to Rs 716 million, from a loss of Rs 1.4 billion previous year.

“The Ebitda margin also improved. The introduction of the GST helped the company in leveraging our national supply chain and drive productivity. Our focus on product mix, plus the launch of several new products last year, helped us increase our net revenue, on a comparable basis,” said Harsh Bhutani, chief financial officer, HCCB.

Analysts indicated that its bottom line suffered because of its inability to hike prices of popular aerated drinks, such as Thums up, Coca-Cola, and Sprite, despite surging prices of raw materials and packaging items.

HCCB’s performance remains in contrast to rivals in the industry.

Varun Beverages — a firm that bottles colas for Coke’s rival PepsiCo in large parts of India — observed a period of healthy growth in recent time. During calendar year (CY) 2017, its operating revenue surged 18.4 per cent to Rs 45.29 billion, from Rs 38.25 billion a year ago. It follows a CY format.

In 2017, its net profit jumped by a third to Rs 2.13 billion, from Rs 1.6 billion.

Coca-Cola India, the group’s marketing arm that also owns the rights to its secret recipe, managed to grow its business.

Its net profit and operating revenue, both, touched new highs in 2017-18.

While, net profit surged 14 per cent to Rs 5.54 billion, operating revenue grew 8 per cent to Rs 23.07 billion.

During FY17 and FY18, Coke tried to venture into several new areas such as value-added dairy, packaged tea, coconut water, and expanded its fruit-based drinks portfolio.

However, several of these initiatives failed to take off. It is now relaunching Vio, the value-added dairy brand. These projects may have had an impact on HCCB’s performance.

Bhutani, however, said the firm was in the right direction to achieve its stated objective. 

“We are making steady progress towards our ambition and targets for 2020,” he said.

Earlier, the management had announced that HCCB will become a $2.5 billion (Rs 175 billion) entity by 2020. For this, the firm will now have to grow its top line by 39 per cent per annum in the next two years.