Pakistan’s oldest-running enterprise continues its run of top line growth. But converting such a gain into improved profit margins is another matter. As per the latest results announced by Murree Brewery Company Limited (PSX: MUREB) yesterday, net profits for the nine month period ended March 31, 2017 were down by 22 percent year-on-year, as manufacturing costs slipped.

For the uninitiated, the leading brewery – which is also a maker and marketer of juices, marmalades, and sauces under the Tops Foods brands, besides a seller of Sparkletts mineral water as well – had doubled its net profits between FY11 and FY16 (Rs1.15 bn).

During that period, such profitable growth had come about on the back of a 15 percent average growth in net revenues per annum. Besides, MUREB also managed to achieve a checked expansion in its manufacturing costs and operating expenditures. In the last full year, annual net profits had increased by 16 percent in FY16, and a 17 percent net margin looked healthy for a consumer-facing firm.

But so far in FY17, the growth story seems to have taken a pause. First up, gross sales are not growing in double digits anymore. Breaking down the revenues, the liquor division – a star performer which historically accounted for roughly three-fourth of MUREB’s gross third-party sales – looks under stress.

Having grown by an average of 17 percent p.a. between FY11 and FY16, gross revenues of alcoholic beverages marginally declined in 9MFY17. This reflects a tough operating environment, where liquor cannot be legally sold to Muslims in Pakistan, alcohol exports remain banned since 1977, and new levies hinder inter-provincial movement of the firm’s products.

Over at the Tops division, which has historically provided roughly 23 percent of the firm’s gross revenues from third-party sales, the growth momentum was preserved as gross revenues jumped 17 percent year-on-year. It must be noted, however, that the Tops division is a margin diluter for MUREB, as its operating margin is usually the lowest, and in low single-digits, among the three divisions.

The positive bit this year has been the surge in Glass division sales to third parties, which grew by more than 50 percent year-on-year in 9MFY17. Historically, MUREB’s glass division has provided a meager, 2 percent of the firm’s overall gross sales to third parties. However in 9MFY17, the glass division sales of bottles, jars and other glass products were 5 percent of the revenue mix. It must be noted that glass division usually posts the highest operating margin among the three divisions.

The slowdown in liquor division is not a good omen, as it is a main earner for the brewery. During the period under review, the bottom line sagged a great deal not just due to a slowing top line but also due to a more than five percentage point higher depletion of revenues on manufacturing cost of goods sold, which went on to exhaust 69 percent of net sales. To close the year on a note of profitable growth, MUREB must deliver a net sales figure of Rs2 billion or more in the final quarter.