Alcohol consumption in Maharashtra is set to become significantly more expensive following the state government's decision to substantially increase excise duty. This hike, described as the highest percentage increase in Maharashtra since 2011, applies to both retail purchases and consumption in restaurants and bars, with premium foreign liquor brands seeing the most considerable rise.
Impact on Alcohol Companies
The move is anticipated to be a significant negative for the luxury alcohol segment in Maharashtra, potentially leading to "downgrading" by consumers and a sharp decline in sales volumes.
According to Elara, a research firm, the companies most affected will be:
United Spirits: As a market leader in the scotch and luxury segments, United Spirits is expected to see a decline in volumes within its upper prestige segment. Elara projects a negative impact of 6-8% on United Spirits' earnings, with Maharashtra contributing 20-22% of its total sales. Elara has reduced its rating on UNSP with a target price of INR 1,560.
Radico Khaitan: The second most consumed brand in Maharashtra, Radico Khaitan could experience a negative 2-3% impact on its earnings. Maharashtra accounts for 7-8% of Radico Khaitan's sales. Elara has an "Accumulate" rating on RDCK with a target price of INR 2,600.
The industry awaits the final document from the Maharashtra state government for finer details and complete clarity on the new regulations.
Positive Outlook for Beer and Wine Companies
In contrast to the liquor segment, the excise duty hike does not include beer, which is seen as a positive for beer companies. Beer has reportedly been underperforming IMFL, and this exemption could provide a boost. Beer stocks in focus include Som Distilleries, United Breweries, and GM Breweries.
GM Breweries, which focuses on country liquor, contributes 25-30% of Maharashtra's excise duty. Som Distilleries has a revenue split heavily favoring beer, with 93% from beer and only 7% from IMFL.
Similarly, wine companies are expected to remain unaffected as wine has a separate regulatory framework in Maharashtra. This is particularly positive for Sula Vineyards, which maintains a strong market presence in the state.
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