Liquor stocks fall for second straight day as some states hike excise duty

The Mumbai Municipal Corporation decided to shut all liquor shops in Mumbai
Shares of liquor companies were under pressure for second straight day on Wednesday after some state governments hiked excise duty on liquor.

United Breweries, Radico Khaitan, United Spirits, GM Breweries, Associated Alcohols & Breweries and Globus Spirits declined between 3 per cent and 7 per cent in intra-day trade on the BSE. In comparison, the S&P BSE Sensex was up 1.2 per cent or 402 points at 31,855 at 12:26 pm. On Tuesday, these stocks had ended lower in the range of 3 per cent to 8 per cent on the BSE.

In the five trading days prior to that, most of the liquor stocks had outperformed the market by gaining up to 19 per cent, as the government allowed the opening of liquor shops from Monday with certain conditions. The benchmark index was up 1.2 per cent during the same period. After today's fall, the stocks erased all the gains from Monday's rally.

Some state governments, including Andhra Pradesh and Rajasthan, decided to restrict the timings of liquor shops as well as hike excise duty as a step to restrict buying, while the Mumbai Municipal Corporation decided to shut all liquor shops in Mumbai from today.

Brokerage firm Dolat Capital downgraded India's AlcoBev sector to 'Neutral' from 'Positive', led by increasing tax hikes by state governments to shore up tax in post Covid reopening, higher risk of receivables cycle stretching working capital for all players, and impacting cash flow generation and likely delay in consumption recovery and risk of down trading by consumers and focus on essential consumption.

“An important point to highlight here is that the reversal of tax increases, once initiated, is the rarest of the phenomenon. One, it is ‘seen’ as politically and socially challenging for a government to be aiding alcohol consumption. Second, once the state treasury gets a taste of higher tax inflows, giving it up it is difficult. Hence, the longer term impact of Covid led increase could well play over 12-18 months,” the brokerage firm said in a note.

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