Shutters up: From Radico to United Breweries, liquor stocks in high spirits

Analysts say alcohol sales could be an early beneficiary of overall recovery

Shares of alcohol companies on Monday rose 3-16 per cent after the government permitted standalone liquor shops to reopen after they remained shut for nearly six weeks because of the nationwide lockdown.  The spike came in a falling market, with the broader BSE Sensex down 5.94 per cent to 31,715. 35. Most key companies from Reliance Industries to TCS, ITC, Nestlé, Hindustan Unilever, Maruti, and Mahindra & Mahindra were down between 1 per cent and 8 per cent at the end of trade.

The stock price of United Breweries, however, ended 3.23 per cent higher after hovering 7 per cent up intra-day. United Spirits saw some profit-taking, closing 0.95 per cent higher on the BSE, after going up as much as 4 per cent intra-day.

Radico Khaitan closed 7.72 per cent higher after inching up 10 per cent in intra-day trade.  Among other stocks, Som Distilleries ended 4.98 per cent higher. GM Breweries was up 14.25 per cent, and Indore-based Associated Alcohols and Breweries ended 16.76 per cent higher on the BSE.

Analysts say there can be more legs to the rally, as liquor stocks are seeing an uptick because of multiple factors.  “Liquor is an important source of revenue for any state. The other key revenue contributor -- real-estate -- will see a longer-than-anticipated recovery. So, state governments can meet their revenue collections through liquor sales,” said Pankaj Pandey, head, research at ICICI Securities.  Tax revenue from alcohol is estimated at Rs 700 crore per day or Rs 2.5 trillion annually, says Amrit Kiran Singh, chairman, International Spirits & Wines Association of India (ISWAI), members of which include top liquor players like Diageo and Pernod Ricard. The central government had prohibited sale of liquor after the national lockdown was first announced from March 25, resulting in states losing close to Rs 30,000 crore in tax revenues over the past month and a half.

 

 

“Liquor sales should also be an early beneficiary of overall recovery, given the pent-up demand for alcohol. Unlike several other sectors, liquor is not expected to see the same kind of damage to sales. For tier-I players, the balance sheet is not a concern,” Pandey said.  Long queues were seen on Monday across liquor vends in India as people clamoured to stockpile on alcohol, reminiscent of the frantic buying of groceries that happened in the first and the second phases of the lockdown.

Estimates by firms and industry executives that Business Standard spoke with are that around 25 per cent of sales could make its way back in May, following the new set of guidelines issued on Friday by the ministry of home affairs (MHA).  Almost 50 per cent of the 70,000 liquor vends across India are said to have opened on Monday after the MHA granted shops the permission to reopen in green and orange zones, as well as those located outside hotspots or containment areas in red zones. States from Karnataka to Maharashtra, Delhi, Andhra Pradesh, and Assam saw people thronging stores since morning to get hold of stock.

"We will be able to make up the loss of revenue owing to the lockdown through (liquor) sales in the coming days. The excise revenue target from liquor will be achieved during this fiscal year," said H Nagesh, excise minister of Karnataka. 

Karnataka has a Rs 22,700-crore revenue target for the ongoing financial year from the sale of liquor. However, due to the heavy demand, the inventory of liquor is likely to be finished in the next 10 days.