Liquor ban clarification a key positive for United Spirits

A majority of the 15,000 outlets, which closed after initial ban, are expected to open soon

Shares of liquor companies gained after the Supreme Court clarified that the highway ban on liquor sales was not applicable to licensed establishments within municipal areas. While United Spirits was up nearly four per cent and Tilaknagar Industries traded higher by about two per cent. Analysts say while the order is positive, it is expected to be implemented after the ongoing Ganesh Chaturthi festival. The impact, thus, will be seen even in the September quarter. Analysts expect malls/outlets within municipal areas but close to national highway to open, given Supreme Court’s clarification.

Abneesh Roy of Edelweiss Securities believes this is a major positive for the sector. “For highways (state and national) which were passing through the city, licences were not being issued for bars and hotels. The clarification has helped clear the confusion. I expect some of the affected outlets to open.”

As many as 30 per cent of United Spirits’ retail outlets were impacted by the earlier order, and though some have reopened after the Supreme Court ruling permitting states to de-notify particular stretches of highways within city limits, about 15,000 outlets are still closed. While state-wise data on the outlets is not available, analysts say not all of the affected outlets will open given they might not be viable option 500 metres from the highway. But, of the 15,000 outlets impacted, a reasonably large number should open over the next few weeks. The USL management had earlier indicated the impact of the ban would continue in the September and December quarters; the impact will be much lower now.

Analysts say though sales were impacted, consumers advanced their purchases or chose alternative outlets for liquor, thus mitigating some of the impact. Destocking had led to a threefour per cent impact on the company’s June quarter sales. Among the markets that saw the maximum impact from the highway ban were Kerala and Maharashtra (excluding Mumbai) while the impact was relatively muted in the other key markets of Karnataka, Andhra Pradesh and Telangana.

Going ahead, while there are risks on account of higher excise duties as well as lack of input tax credit (alcohol is out of the GST’s ambit), volume growth was expected to be strong, given higher discretionary spends. Analysts, however, have not upgraded the stock yet as they await clarity on the GST front and the impact of the liquor ban.