Hic, hic but not hurray for liquor companies following SC order

In its judgement on Tuesday, the Supreme Court upheld a ban imposed by Kerala state government in 2014 on bars selling alcohol that are not attached to five-star hotels and serving or selling liquor. Kerala has the highest per capita consumption of alcohol in India, a whopping 14 per cent of the national consumption of alcohol.

Liquor market in Kerala is pegged at roughly Rs 10,000 crores. The companies that are likely to be impacted include –United Spirits, Tilaknagar Industries, Empee Distilleries and United Breweries. While volumes are there, players in the liquor industry are suffering due to the low margin and political pressure on the issue of ban on liquor. In addition, during the last five years, spirit companies have been unable to hike prices, leading to margin pressure. As a result, many national players are reducing their exposure to Kerala.

In 2014, Kerala government had passed orders directing only five-star hotels to sell Indian Made Foreign Liquor. The number of such properties is not very high in the state. The order said Kerala State Beverages Corporation outlets would be phased out and Sunday would be declared as a dry day across the state.

As a result of the order, liquor stocks continued to face selling pressure in the market from December 30. This happened soon after the Supreme Court upheld the Kerala government’s new policy restricting the issuance of bar licences only to five-star hotels.

From Tuesday the stock of United Spirits slipped by 3.67 per cent to Rs 2920 and United Breweries to Rs 936.15, a slip of 1.16 per cent. Empee Distilleries slipped 7 per cent to Rs 93.15 and Tilaknagar Industries slipped by 4.65 per cent to Rs 22.55.

Further the Supreme Court's judgement set a precedent for  states like Bihar which have decided to ban the sale and consumption of liquor in phases beginning  1st April 2016. Country-made liquor will be banned in the first phase, followed by IMFL six months on. The blanket ban in some states, and the low margin in the industry will deteriorate the financials of the companies further.