United Spirits expects upcoming elections to dampen spirits of liquor companies

United Spirits, the country’s biggest liquor maker, has flagged concerns about India’s general elections disrupting sales in the next quarter though several others felt sales might not be impacted. General elections are scheduled to be held during April and May, when sale and consumption of liquor is banned on and around voting days. The Diageo-controlled maker of McDowell’s and Signature whiskey said it expects the upcoming general elections to have an impact on their sales during the next quarter.
“Excise officials, many of them who are posted in our factories, are co-opted for election duty. So, sometimes you don’t have the excise people there to open and shut the factory and supervise the factory during the day,” United Spirits managing director Anand Kripalu said at an investor call for December quarter earnings.

Rival Pernod Ricard, however, said it is confident of delivering low double-digit growth between January and June 2019. “Elections are going to happen but we don’t see that as a threat,” Hélène de Tissot, executive vice-president — finance, Pernod Ricard, told analysts last week.

While increase in dry days during election is not new, they will coincide with the label registration cycle this time, something that can directly impact operations and supply chain.

“The revenue impact of anything adverse or delay during label registration cycle is significant. But I don’t expect anything going awry and excise may even try to quickly accelerate the process and get it over with,” said Paramjit Singh Gill, chief executive officer at Allied Blenders, which sells Officers Choice, the world’s largest spirits brand.

The possible disruption comes at a time when liquor sales in India have grown in double digits, the most in six years, helped by the fading impact of a highway ban and increased stability following distribution changes in some states. Sales volumes of so-called Indian-Made Foreign Liquor (IMFL) rose 10% to 359 million cases in 2018, compared to a 3% decline in 2017, the worst year in more than a decade. Most companies said they will try to prepare and pre-empt the impact on their business across value chain — from retailers purchasing extra stock to factories building more unfinished goods in advance. Historically, lower priced products see a surge in sales during elections but this trend has stopped over the past decade, companies said. Analysts, however, feel the upcoming election is likely to be a drag on sales in the coming quarter and some states could even increase taxation on alcoholic beverages as a populist measure.

“Alcohol taxation is separately administered by each state and can be used to meet a state’s discretionary expenses, for example, farm loan waivers. Also, historically, prohibition has been used as a platform to appeal to women voters in India, especially in regions with higher levels of crime against women,” wrote Sunita Sachdev, analyst in a recent UBS report.