Coca-Cola's concentrates arm makes money

But bottling partner Hindustan Coca-Cola Beverages continues to report fall in profit

Coca Cola India Pvt Ltd, Atlanta-based Coca-Cola Company's subsidiary that sells concentrates for aerated beverages, has continued to boost its parent, recording increases in net profit during the past five financial years. However, Hindustan Coca-Cola Beverages, the company's largest bottling partner in India (accounting for 65 per cent of Coca-Cola's bottling operations), has been reporting declines in profit in the past two financial years, with a marginal increase in revenues.

Both Coca Cola India and Hindustan Coca-Cola Beverages are subsidiaries of Coca-Cola Company. While Coca-Cola has 13 other bottling partners in India, it only makes money from them by selling concentrates. Coca-Cola Company does not get additional revenue from other bottling partners.

For 2013-14, Coca Cola India reported an 11 per cent rise in net profit at Rs 355 crore, against Rs 320 crore for the previous year. Its net sales grew only four per cent to Rs 1,492 crore from Rs 1,438 crore reported in the year ago period, according to filings with the Registrar of Companies (RoC).

During the past five financial years, the concentrates arm's net profit jumped 112.6 per cent. Net profit, as percentage of net sales, also increased substantially.

However, Hindustan Coca-Cola Beverages reported a 29.6 per cent fall in net profit for 2013-14, at Rs 195 crore, compared with Rs 278 crore for the previous year. Revenue increased only 4.5 per cent to Rs 6,888 crore.

In its RoC filings, Hindustan Coca-Cola Beverages stated the decline in operating income was due to investments in "building the organisational capabilities during the slowdown". It added it hoped to see better profitability when markets revived. "The accumulated loss in the books of the company, as of March 31, 2014, is Rs 621 crore (about Rs 817 crore a year ago)," the company noted. It said it had gained market share during the period.

For 2012-13, Hindustan Coca-Cola Beverages had posted a 26.32 per cent drop in net profit, compared with a 89.9 per cent jump in net profit the previous year. However, the company has consistently reported growth in revenue from sales through the past five financial years. But growth slowed from 23.5 per cent in FY12 to 17.6 per cent in FY13 and only 4.5 per cent in FY14.

In a statement, Hindustan Coca-Cola Beverages said in FY14, its performance was hit by a challenging macroeconomic environment, low consumer confidence amid consistently high inflation and unfavorable weather in the key season. "The revenue growth had slowed to five per cent in FY14, after many years of strong, double-digit growth in India. However, the company continues to make investments, as part of The Coca-Cola Company's $5-billion investment plan for India by the end of 2020. As a result of making robust capital investments of about Rs 775 crore, it led to a lower interest income of Rs 40.3 crore in the previous year. Its investments in Varanasi could not be put to commercial production due to inordinate regulatory delays, which had an impact of Rs 14 crore for the year. This, coupled with slower revenue growth, led to a slowdown in profit," it noted.

The company said it had already returned to strong growth in revenue during the first half of FY15.

Coca-Cola Company, the world's largest beverages firm, has reported a two per cent decline in global revenue at $12 billion for the September quarter, while net profit fell 14 per cent to $2.1 billion.