GM Breweries tanks 13% post 25% drop in Q3 net profit

Shares of GM Breweries plunged as much as 13 per cent to Rs 630 in the early trade on BSE on Friday after the beverage company reported a 25 per cent year-on-year (YoY) decline in its Q3 net profit. 

At 09:48 am, the stock was trading at Rs 634.70 apiece, down 12.37 per cent. 

For the quarter ended December 31, 2018, the company posted net profit of Rs 16.71 crore against Rs 22.3 crore in the corresponding quarter of last year. Total revenue from operations stood at Rs 448.89 crore, up 3.46 per cent. Earnings per share (EPS) of the company came in at Rs 9.14 against Rs 15.25 in the year-ago period.

GM Breweries is engaged in the activities of manufacturing and marketing of alcoholic beverages; such as Country Liquor (CL) and Indian made Foreign Liquor (IMFL).

A recent report by the news agency Bloomberg said a spate of political promises of waivers on farm-loan repayments in the country will have an adverse impact on the alcohol companies.

States are expected to hike taxes on liquor -- one of the top three revenue sources -- as they need to plug the fiscal hole arising from bearing the burden of farm-loan repayments. Any rise in tax will impact alcohol demand as companies will have to pass the additional levy to consumers, Bloomberg reported on January 2 quoting Edelweiss Securities as saying.

Raising liquor taxes -- which bring in nearly 25 percent of revenue -- is the most likely option as state governments are unlikely to borrow and worsen their debt to GDP ratios, Abneesh Roy and Alok Shah, analysts at Edelweiss wrote in an investor note Jan. 1. “In the past, there have been multiple instances where volumes have taken a beating owing to price hikes emanating from an increase in the tax rate,” they wrote.

Farm-loan waivers are on the agenda of all political parties as Prime Minister Narendra Modi struggles to alleviate agrarian distress ahead of a national election around May. Modi’s Bharatiya Janata Party was voted out in three key states last month by the Indian National Congress -- the main national opposition -- which immediately announced the waiver program after forming governments in Madhya Pradesh, Rajasthan and Chhattisgarh.

In the current financial year FY19, the stock has dropped 8 per cent to Rs 724.3 (as of Thursday's close) from Rs 785 on March 28, 2018. In comparison, the benchmark S&P BSE Sensex has rose around 7 per cent during the same window.