Buzz around Scotch whisky import duty cuts lifts United Spirits

The possibility of a cut in import duties for Scotch has brightened volume prospects for Diageo-backed United Spirits Ltd.

High custom duty is seen restricting tipplers from consuming more quality alcohol and lower import duty might give a leg-up to volumes.

“Any news of a cut in duties on imported scotch will be celebration time for high spirits business entities like United Spirits Ltd with over 80 brands of Scotch whisky selling more than a million cases annually and enjoys around 45 percent market share in the Indian whiskey market wherein whiskey accounts for over 60 percent spirits sale in India,” said Prashanth Tapse, Vice President (Research), Mehta Equities.

As of now, imported Scotch currently faces a customs tariff of 150 percent, which is extremely high when compared to Thailand (60 percent), China (5 percent), and South Korea (zero). Hence Indian industry expects a tariff cut by 50 percent and slowly eliminate duties in next five years, Tapse explained.

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If duty cuts really do come in, India whiskey volume will reach 2.82 billion litres from 1.3-1.5 billion litres on or before 2026, he highlighted.

The company was in news lately after the liquor maker said it has approved the sale and franchising of selected brands to Singapore-based Inbrew Beverages for Rs 820 crore.

Nagarajan had pointed out that this is a significant move to reshape the company’s portfolio and deliver sustained double-digit profitable top-line growth.

While talking about portfolio reshaping, Nagarajan had also said the spirits major is accelerating its offering in the luxury and premium portfolio through Scotches, which are bottled in India and at the origin in Scotland.

Here's how the company has performed in the quarter ended March:

Awanish Chandra, Head of Institutional Equities at SMIFS, also believes that the Bengaluru-based company's premium segment, which includes Scotch, would get a leg up in terms of volume in the medium-to-long term as new consumers would opt for a premium brand if the Free Trade Agreement includes a cut in duties.

“If the import duty is lowered, alcohol prices would also come down, which means there may be a rise in consumption and eventually higher volumes for the Indian alcoholic beverage company,” Chandra said.

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Technically, United Spirits is trading neutral with respect to market volatility and the upside is limited to Rs 830-840, said Tapse. This implies a 4-5 percent upside from the current market price.

On June 1, the stock ended at Rs 799.95, down 1.4 percent, on the BSE.

In the past one week, the stock is up 7 percent while it has gained more than 30 percent in the past one year.