United Spirits, UBL, Som Distilleries Surge On Andhra's New Liquor Policy
Nuvama maintains a 'Buy' on United Spirits and United Breweries; sees policy boost for liquor companies and state sales.
Shares of alcohol companies rallied on Thursday moring after the Andhra Pradesh Cabinet approved a new excise policy, which will bring the starting price of select liquor to just Rs 99, with effect from Oct. 1. The stocks pared their gains by noon.
United Spirits Ltd. rose as much as 2.10%, while United Breweries Ltd. surged by 4.92% and Som Distilleries & Breweries Ltd. rose 4.48%. Tilaknagar Industries Ltd. saw the largest gains, with shares jumping 7.84%.
"The Andhra Pradesh government's new liquor policy is a significant positive for all liquor companies. Shop owners can expect a profit margin of 20% on their sales," said Abneesh Roy, Executive Director of Nuvama Institutional Equities.
The new policy focuses on ensuring quality, quantity, and affordability, with all liquor brands made available at reduced prices. The state government has fixed the price of 180 ml bottles of select brands at Rs 99. Liquor shop timings have also been revised to operate daily from 10 am to 10 pm.
In addition to the retail shops and bars, 13 premium shops will be established across the state, though Tirupati has been excluded from this list.
Licences for these premium outlets will be issued with a tenure of five years and an application fee of Rs 1.5 million.
Nuvama maintains a ‘buy’ rating on United Spirits and United Breweries. The reform is expected to lead to substantial market share gains for larger players, as the previous policy favoured local brands and was marred by irregularities during the previous government’s tenure, Roy said.
United Spirits Ltd. rose as much as 2.10%, while United Breweries Ltd. surged by 4.92%. Tilaknagar Industries Ltd. shares jumped 7.84%.
Licences will be divided into four categories, with fees ranging from Rs 5 million to Rs 8.5 million. The licence fee of the premium shops will add up to nearly Rs 10 million, said Roy.
The reason behind the slashes is that high prices and non-availability of popular Indian-made foreign liquor brands had led to the consumption of illegal, low-quality brands and other harmful substances, according to Roy.
The new policy, which reverts to the pre-2019 practice of retail sales through private players, aims to curb these issues, he added.
