India has banned alcohol sales within 500m of state and national highways

India has banned alcohol sales within 500m of state and national highways

If it's not one thing then it's another. Such is the way of the global drinks market.

As Cognac looks set for recovery thanks to a rebound in China and ever-growing strength in the US - and even as Russia shows signs of life - India goes and throws a spanner in the works.

First there was last year's demonetisation plan from the government, which took the INR500 (US$7.40) and INR1,000 notes out of circulation. Then, this month, the Supreme Court upheld a ban on selling alcohol within 500m of state and national highways.

The dispiriting effects of both of these pieces of legislation can be seen in Pernod Ricard's nine-month results, released this week.

In an otherwise solid performance, the Chivas Regal owner said demonetisation had already impacted its Q2 and Q3 in India, leading to a slowdown in growth to just 1% for the year-to-date. The highway ban, however, is likely to impact sales all the way to the end of this year.

City analysts trimmed their regional forecasts accordingly - Stifel's Mark Swartzberg even predicted that the India weakness could stop Pernod from returning to +4/5% organic group sales growth in its fiscal full-year. 

However, the major impact from the regulatory moves could well be the uncertainty they have seeded. 

"The highway ban is likely to cause short-term uncertainty and destocking as state governments decide how to implement the national law," says Societe Generale analyst Laurence Whyatt.

For Pernod, this uncertainty is a major concern as India accounts for 25% of its Asia-RoW regional footprint and 10% of overall group sales. The highway ban, in particular, shows that when it comes to alcohol, authorities in India are veering increasingly towards regulatory suppression. Speaking to just-drinks this month about the highway ban, Morningstar's Philip Gorham warned that the regulatory environment in India "is a problem, and there could be more measures like this".

There are, it seems, a number of global alcohol markets worth getting excited about right now. However, India is not one of them.

Pernod Ricard YTD fiscal-2017 sales performance - results data