Brokerage firm Elara Capital has said that the liquor price hike by the Telangana government can prove to be an earnings booster for leading alcohol beverage companies.
The firm said that since Telangana contributes approximately 12 percent to Indian-made foreign liquor (IMFL) volumes in the Indian alcohol market, the price hike can help companies like United Spirits Ltd., Radico Khaitan Ltd. and Allied Blenders and Distillers Ltd.
According to the brokerage firm, the Telangana government has raised prices by 12-13 percent for the IMFL segment, while hikes have been in the range of 16 percent for the regular / popular segment.
The price increase in the beer segment looked unlikely, said Elara, citing its channel check.
It added that the increase in liquor prices shall boost United Spirits and Radico’s operating profits, or EBITDA (earnings before interest, tax, depreciation and amortisation) by 5-6 percent.
Notably, Telangana contributes approximately 8-9 percent to United Spirits’ revenue and 9-10 percent to Radico Khaitan’s revenue.
The price hike of 12-16 percent should, therefore, lead to around Rs 70-80 crore boost to United Spirits’ EBITDA, which is nearly 5 percent of overall estimated EBITDA for financial year 2024.
For Radico, the price increase benefit shall be higher at around 11-12 percent due to higher salience of over Rs 1,000 EDP (ex-distillery price) sales.
Therefore, Telangana government’s liquor price hike should lead to around Rs 25-30 crore boost to the company’s EBITDA, which is almost 5-6 precent overall estimated operating profit for financial year 2024, according to Elara.
The brokerage also noted that there is an excise duty/cess cut, which may not lead to any major increase, if any, in the consumer MRP for IMFL. This shall support sales volumes and boost revenue growth, which is a positive for these companies, it added.
On Friday, shares of Radico Khaitan were trading at Rs 1,101 apiece, up 1 percent, while United Spirits stock was up 0.5 percent at Rs 787.40 per share, at 12:53 pm on BSE.
