The liquor maker's consolidated net profit dropped 20.6% to Rs 125.10 crore on 5.1% decrease in net sales to Rs 2,196 crore in Q2 September 2020 over Q2 September 2019.
Consolidated profit before tax (PBT) tanked 39.3% to Rs 176.20 crore in Q2 September 2020 as against Rs 290.30 crore in Q2 September 2019. Current tax expense for the quarter declined 16.3% to Rs 32.40 crore as against Rs 38.70 crore in Q2 September 2019. The Q2 result was declared post market hours yesterday, 4 November 2020.
On a standalone basis, net profit skid 42.8% to Rs 128.40 crore on 6.5% fall in net sales to Rs 2,145.90 crore in Q2 September 2020 over Q2 September 2019.
On a sequential basis, the net sales were driven by strong off-trade resilience, offset by the on-trade remaining largely shut and the contraction of owned and franchise business in Andhra Pradesh (AP). Underlying net sales declined 3.4% Q-o-Q (quarter-on-quarter) after adjusting for the one-off benefit of bulk Scotch sales last year.
During the quarter, popular segment net sales declined 12.5% as against last year, since priority states declined at 10% Y-o-Y (year-on-year). The liquor manufacturer stated that increased consumer prices impacted demand in the price conscious segment while unfavourable State mix further contributed to the decline.
Gross margin stood at 42.1%, recording a 284 basis points (bps) decline on reported basis, primarily driven by contraction of business in Andhra Pradesh which resulted in a one-off inventory provision and a decline in the South franchise business. Removing the one-off inventory provision, effective gross margin for the quarter was at 43.2%.
Reported EBITDA stood at Rs 270 crore, registering a 35.1% Y-o-Y decline. Reported EBITDA margin was at 12.6%, down by 553 bps due to a higher A&P investment rate to support national renovation roll-out of two core brands, McDowell's No.1 Whisky and Royal Challenge Whisky, and lower fixed cost absorption. Underlying EBITDA decline was down 497 bps. Removing the impact of the one-off inventory provision, EBITDA margin for the quarter was at 14.5%.
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Anand Kripalu, the chief executive officer (CEO) of United Spirits, has said that: "The underlying revenue decline of 3.4% in the second quarter is ahead of expectations and reflects the resilience of our category, notwithstanding prolonged on-trade closures, the route to market change in Andhra Pradesh and high taxation led price increases post COVID-19. The agility of our supply chain team provided a fast start post lockdown and the renovation of our two core brands supported the top-line recovery."
"First half performance has been primarily impacted by initial COVID-19 led lockdown driven challenges in Q1 and lower fixed cost absorption. Contraction of owned and franchise business in AP due to the RTM change further impacted performance adversely. Notwithstanding the satisfactory second quarter performance, our net sales in the first half declined 27%, EBITDA margin contracted to 6% with a net loss of Rs 87 crore. Operating cash flow remained strong which facilitated Rs 780 crore of debt repayment during the first half of FY 2020-21."
"Looking ahead, we remain cautiously optimistic with the gradual re-opening of on-premise and the ensuing festive season, recognising that safety and social distancing norms could impact demand versus prior years. Due to unprecedented variability in the macro environment brought on by COVID-19, the company is unable to provide quantitative guidance for fiscal 2021. Our business fundamentals and our financial position is strong allowing us to navigate this pandemic as circumstances evolve," he signed off.
The cash closed at Rs 38 crore for the first half of the year. The cash performance was driven by higher underlying operating profit and improvement in working capital. Cash generated from the underlying business was used towards debt repayment worth Rs 780 crore. Capex expenditure stood at Rs 67 crore was mainly focused on projects for asset maintenance, health and safety. The closing net debt was Rs 1,293 crore. The company repaid its short-term borrowings amounting to Rs 780 crore.
Shares of United Spirits rose 3.25% to Rs 526.50 on BSE.
United Spirits (USL) manufactures and distributes a variety of alcohols and spirits, including whiskey, brandy and rum. The company also manufactures Indian-made foreign liquor brands.
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