Despite taxes demand intact for liquor
Distilleries Company of Sri Lanka (DCSL)’s size, strong distribution channel and strict regulations on advertising imposed on the industry minimises the threat from existing small players and new entrants on DCSL's operations, a stock market research has said.
"(Also) Despite the heavy taxes imposed, demand for liquor remains unaffected due to its relative price inelastic nature and we further foresee a continuous growth in the industry through the revival of tourism and growing social life (i.e. domestic travelling and night life) as a result of the peace dividend," a TKS Securities Report said.
DCSL is the leader in the local hard liquor segment with a market share of 75 percent operating under three main segments; local liquor brands, locally manufactured foreign liquor and imported brands.
Of DCSL's liquor sale, local liquor brands account for 90 per cent and out of that over 60 per cent is attributable to its ‘DCSL Extra Special’ which is the most favourite spirit across the country.
The liquor business contributed nearly 85 per cent to the gross revenue where the segment's net revenue has remained almost stagnant at Rs. 762.2 million in the second quarter of 2014 (2Q2014). "Despite the dip in volumes, the segmental revenue was kept intact by the increased prices as price revisions took place in October 2012 and August 2013 following the excise duty hikes. Consequently prices DCSL's products increased by Rs. 40 per litre on average providing a cushion for the liquor giant's margins,” it said.
DCSL is progressively taking steps to move its consumer base to towards higher end products despite its strong footing in inexpensive, regularly consumed liquor. This will gradually enable DCSL to enjoy fatter margins in the future, according to the report.
"In this back drop Periceyl, the foreign liquor manufacturing company tied up with Albert Bichot, a high quality French wine company to distribute the products within the country to cater the wine sub segment within the liquor industry, which is on a trend for unique and high quality products," it said.