Pernod rides U.S. and China growth, but India presents speed bump

By Dominique Vidalon and Pascale Denis

PARIS (Reuters) - Pernod Ricard's third quarter sales beat forecasts on Thursday, lifting its shares, but the French spirits group cautioned that a ban on alcohol sales near Indian highways would slow growth in its second-largest market.

Pernod, the world's second-biggest spirits group after Britain's Diageo, maintained its profit outlook, saying it saw further robust growth in the U.S, its largest market, and in Europe and improving Chinese demand for its Martell cognac.

The owner of Mumm champagne and Absolut vodka said it expected underlying operating profit growth of between 2 and 4 percent in the full year to June 30.

India, which accounts for about 10 percent of group revenue, has been a key growth area, driven by local whisky brands such as Blender's Pride and Royal Stag.

But a government ban on high-value bank notes held back local consumption in the second and third quarter and sales growth in India slowed to 1 percent in the nine months to March 31, from 12 percent in the full year 2015-16, Pernod said.

While the ban on alcohol sales near Indian highways will impact sales mainly in the fourth quarter and in the first half of the fiscal year 2017/18, finance chief Gilles Bogaert told Reuters he hoped they should be close to flat in the full year ending June 30 and he was confident about India over the long-term.

The company did not specify what proportion of its sales in India would be hit by the highway sales ban.

Pernod Ricard posted sales of 1.987 billion euros ($2.13 billion) in the three months to March 31, up 3 percent on a like-for-like basis, beating expectations for 1 percent growth, helped by double-digit sales growth of its Jameson Irish whiskey in the United States and improving demand in Europe.

Pernod shares had gained 1.8 percent to 115.3 euros by 1010 GMT, outperforming the French blue chip CAC-40 index.

"The stronger-than-expected (results) ... should provide further comfort that the business continues to improve," Jefferies analysts, who have a "buy" rating, said in a note.

However, the performance marked a slight slowdown from 4 percent growth in the second quarter, reflecting weaker sales in Asia due to regulatory changes in India and the earlier timing of the Chinese New Year, which helped second quarter sales.

Like other spirits makers, Pernod Ricard has been hit by a downturn in China sparked by a government clampdown on extravagant spending and its sales fell in the third quarter and were flat over the nine months, after falling 9 percent last year, although Bogaert said the underlying trend was improving.

"The expected rebound in China is materialising," he said, echoing Remy Cointreau which made optimistic comments over its prospects in the country.

($1 = 0.9327 euros)

(Editing by Sudip Kar-Gupta and Alexander Smith)