Excise duty hike in Karnataka to raise MRP of beer prices by 7-8%: Karan Taurani

economictimes.indiatimes.com:

«We believe that this will have a negative impact in terms of the overall volume growth rate in Karnataka as a market. So, if you look at the volume growth prospects in a market like Karnataka, it was probably growing at almost about 5 to 6 odd percent,» says Karan Taurani, Sr VP, Elara Securities.With respect to this excise duty high coming in from the Karnataka Government. How big a challenge do you see it for the likes of United Breweries, Som Distilleries, etc?I think if you look at Karnataka as a market, typically 15% to 20% of volumes come from Karnataka.

The number is higher for beer. Now, what happened in the month of April is that Karnataka Government had given a price high for the beer segment of about 8% to 9% on the ex-distillery price so which was a positive for the beer companies because that would have led to higher realisation purchase in the state.

But what has come is more of a negative surprise because they kind of hiked duties both on spirits and beer and basis our calculation this will lead to an MRP increase of anywhere close to 7% to 8% for beer and about 13% to 15% for the whiskey companies. So, we believe that this will have a negative impact in terms of the overall volume growth rate in Karnataka as a market.

So, if you look at the volume growth prospects in a market like Karnataka, it was probably growing at almost about 5 to 6 odd percent. Because of such a steep hike in the MRP and no hike in EDP as such, we will probably see volume growth converging towards 3% to 4% and which means that there is a negative impact of close to 0.5% to 0.6% on the revenue for UBBL and UNSP basis this hike which has been done right now and potential earnings downgrade in the range of 3% to 6% as of now.