SC ban on sale of liquor within 500 metres of highways takes a toll on liquor stocks

Supreme Court declared that there will be no sale of liquor in restaurants or outlets within 500 metres of state and national highways. Further, areas having population below 20000 and hill states of Sikkim, Meghalaya & Himachal Pradesh, the ban will be within 220 metres of state and national highways.

This judgement is going to show its adverse impact on volumes of breweries and distilleries in Q1FY18, because almost 35-40% of liquor outlets are located along highways. They will have to shut down and relocate from April 1, 2017. Impact of this will be significant but temporary. This decision of SC will lead to the situation of destocking in Q1FY18, and will impact volumes in Q1FY18. Due to the relocation of these shops, there will be restocking in Q2/Q3FY18. Until it gets resolved, demand of the customers would be met through compliant outlets.

United Spirits (UNSP) is the largest liquor company in India with more than 50% market share. In addition to ban on sale of liquor close to highways, company's performance would be affected by GST implementation, as it adapts to the changed regulatory environment. Furthermore, increase in tax in Karnataka will also affect FY18 volumes of the company, while it is still reeling under 5% decline in revenue because of prohibition of liquor in Bihar.

The stock of United Spirits was down by 5% on Monday.

Stocks of other breweries were also affected by this decision, in yesterday's trade. Radico Khaitan by 4%, Associated Alcohols by 4% and United Breweries by 1.9%.