Focus on pricier offerings rings in 14% net profit jump for Coca-Cola India

Coca-Cola India, owner of big brands like Thums Up, Sprite and Fanta, registered a 14 per cent rise in net profit during 2017-18, backed by its growing focus on pricier offerings. The firm’s bottom line expanded to a new high of Rs 5.54 billion, up from Rs 4.85 billion in 2016-17, documents with the Registrar of Companies show. The healthy growth comes after two years of lull, when net profit fell below 2014-15 level.

The firm’s operating revenue grew 8 per cent to another high of Rs 23.07 billion, year-on-year, from Rs 21.35 billion. Significant rise in tax expenses — thanks to a sin tax imposed by the government on aerated drinks after implementation of goods and services tax (GST) last year — brought down Coke’s profit growth in 2017-18, as total tax expenses surged 34 per cent to Rs 2.98 billion from Rs 2.59 billion. According to estimates, the effective tax rate on colas, which form over 65 per cent of Coke’s sales in India, has increased to over 32 per cent post-GST from 23 per cent earlier.

Last year’s performance reflects brightly against its financial numbers in the previous two years. During the four years between 2011-12 and 2014-15, net profit grew at 11 per cent to 61 per cent, in 2015-16 Coke’s bottom line shrank by 6 per cent and inched up by 2.3 per cent the following year. Operating revenue growth, however, remained below par compared with the previous year, when it grew at 21 per cent. However, improved volume growth in the second half of the year may have helped the firm’s finances.

The financial numbers for Coke does not directly reflect the sale of its beverages though. The company gets majority of its revenues from sell of concentrates of popular drinks like Coca-Cola and Maaza as it keeps it formulations secret from its bottlers. Production and distribution of Coca-Cola products is the domain of a large in-house bottler — Hindustan Coca-Cola Beverages — a dozen-odd franchise partners and co-packers.

Growing concern about health effects of sugary drinks has shifted the consumption trend towards healthier products like juices, packaged teas and value-added dairy products. Coke has also shifted focused on expanding its portfolio in these areas. Sources say the firm’s newer launches like Vio (value-added dairy brand), smart water and variants under Minute Maid (its juice brand) has helped diversify. 

Also, these products have helped the firm avoid the heavy tax rate that is usually imposed on sugary carbonated drinks and improve per unit revenue.

Globally, the firm has set a target of lifting India business and making it the third-largest market in the coming years. Its earlier goal of lifting India to the number five position, currently held by China from current sixth is yet to materialise. Consumption of Coca-Cola products in China is more than 150 per cent higher than in India.

The third- and fourth-largest markets, Japan and Brazil, respectively, consume much more than China’s 39 units of Coke beverages. Per capita consumption in Japan is 182 units and in Brazil 241 units, 13 and 17 times higher, respectively, than India’s 14 units. One unit is based on 8 fl oz of a finished beverage (close to 200 ml).