Karan Taurani, Senior Vice President & Research Analyst, Elara Capital, says, Pernod Ricard was the market leader in Delhi. Pernod has got close to 33% market share in the prestige segment. In the total whisky volume cases, their market share is somewhere close to 17-18%. In Delhi, their market share would be somewhere close to 40% plus in the ENA segment, because there was a very strong recall from brands like Royal Stag and Blenders Pride. The middle and upper prestige segment is something which is going to see changes here in terms of market share. The non-renewal of Pernod Ricard’s liquor licence in Delhi will benefit many local brands and companies like Radico and United Spirits to some extent.
As far as United Breweries commentary regarding India is concerned, there are talks about how the net revenue is up high single digit for the Indian market. It has been aided by both volume as well as pricing growth. The beer volume growth has been led by Kingfisher and it is coming at mid-single digits but the premium portfolio has shown high teens growth in India business. What do you read in Heineken numbers and what does it spell for Indian companies?
If you look at the volume growth numbers, high single digit or rather mid-single digit is something which is very good. We have to understand the fact that United Breweries did see a lot of disruption. They really changed the route to market in Tamil Nadu which has a sizable chunk – close to 7-8% of the volume.
There are also some changes which are happening in terms of the premiumisation shift and focus on Heineken and other premium brands. If Kingfisher has been able to report a growth of about 5% to 6% odd, this is definitely ahead of our estimates and expectations. As far as premium growth is concerned, that is largely in line. 12 to 15% is the industry average growth, which is there on the premium beer front.
In terms of premium beer, UBL has a very small market share as compared to the regular beer where they are the market leaders and they have a sizable market share. So because of Heineken’s single launch and because of other things that they have in terms of their premium offering, we expect the growth rates to amplify from here if they were able to gain market share in the premium beer sector.
Regarding the Delhi license issue, is the Delhi market big enough for United Spirits to make an impact or to eat into the market share of Pernod Ricard?
The Delhi market, purely in terms of volume share, is not more than 2% and so it is a very small market that way. But in terms of the broader revenue share, it would be close to 3 to 5% of India’s alco bev revenue as far as spirits are concerned, because it is a premium market and a lot of the prestige and the sports brands are sold in large numbers over there, which have got a higher EDP as compared to the normal brands.
In terms of the broader impact on United Spirits, we definitely foresee a positive impact for UNSP because if you look at the numbers here, Pernod was the market leader in Delhi. Pernod has got close to 33% market share in the prestige segment. In the total whisky volume cases, their market share is somewhere close to 17-18%.
In Delhi, their market share would be somewhere close to 40% plus in the ENA segment, because there was a very strong recall from brands like Royal Stag and Blenders Pride. The middle and upper prestige segment is something which is going to see changes here in terms of market share. There are many local brands, companies like Radico, which will benefit.
In terms of UNSP, it will be limited to McDowell’s No1 because if you look at the middle and upper prestige segment, UNSP that way has not done phenomenally well in terms of broader recall with the customer. So it is a win-win for UNSP, for Radico and for other players as well. But the bigger delta here comes in for Radico and maybe 0.5% to 1% kind of a volume growth revision can come for UNSP as well.
But we will have to wait and see in terms of how long the situation persists because we believe that there is a high likelihood of Pernod contesting against this in the Supreme Court or higher courts. If at all they come back, then this kind of market share gain will be very short-lived.
What would be your pecking order? Is it spirits or beer and in that category, which are the stocks that you are advising for?
Karan Taurani: In the Alcobev industry, we generally do not have a compelling buy as such because we do see concerns on the raw material (RM) inflationary front. Of course, RM inflationary pressures have eased off as compared to last year, whether you call it glass packaging or even around barley or ENA, which are key ingredients used for beer and whiskey. But there are issues here in the form of price hikes being subdued this year versus last year, which was better.
There are also challenges around growth in terms of volume growth as well. So in terms of pecking order, we have got an accumulated rating on United Spirits. We have a reduced rating on United Breweries and we have an accumulated rating on Radico Khaitan as well. But nothing to come as a compelling buy because these are the issues which exist internally and externally for the Alcobev industry.
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