Volumes will be under pressure post the hike in excise duty by the state government. Wine sales may jump to a new high as this segment has not been touched by the Budget

Moneylife Digital Team

If you are thinking of spending a relaxed day this summer, with a glass of beer, watching a cricket match, think twice. You could end up shelling extra bucks as the prices of beer and whiskey are likely to be increased.

In the recently announced state budget, the Maharashtra government has announced a hike in excise duty on liquor products, including country liquor, Indian Made Foreign Liquor (IMFL) and beer that is sold in the state.

The duty has been increased by 50% for IMFL and over 100% for beer. Accordingly, the excise duty has been hiked by Rs35/proof litre for country liquor, Rs80/proof litre for IMFL, Rs18/bulk litre for mild beer and Rs22/bulk litre for fermented beer (or beer with alcohol content higher than 5% v/v).

This hike, industry experts say, would obviously result in a rise in the prices of liquor products, because the price hike would most probably be passed on to the end customers. It would also likely impact the volumes and margins of liquor players in the state. IDFC Securities, in its event update report has stated, "The increase in duty will surely lead to a material increase in the price of liquor products in the state."

As per the same report, for the IMFL segment, the pricing impact will be sharper for lower-end brands. "Regular and economy segment brands will see a 25-35% price increase, while the impact on premium and above segments will be 10-15% (for a 750ml bottle)," it says.

On the pricing of beer post the hike, the report states, "The average price for a mild beer bottle of 650ml stands at Rs60. We estimate a 20% increase in the MRP per bottle on the back of the duty hike for mild beer. For strong beer, the pricing is estimated to range from Rs65 to Rs90 per bottle. Thus, the price increase is estimated to be to the tune of 20% for lower value strong beer and 13%-14% for the premium/ultra category."

For the beer market leader in the state, United Breweries, post the hike the volumes are expected to be impacted. The IDFC report says, "With respect to beer, the industry leader, United Breweries, Maharashtra, is the largest volume contributor and forms 17%-18% of its total volumes. Thus, we see the excise duty hike impacting volumes for UBL."

Maharashtra is estimated to contribute less than 10% to the overall IMFL industry volumes in the country. "For United Spirits the market is estimated to contribute 7%-8% to its overall volumes. Thus United Spirits is likely to see some volume pressure in the state. For Radico Khaitan, the contribution from Maharashtra is less than 3% and hence the impact would be limited," the report says.

Meanwhile, wines which got 100% exemption from excise duty in Maharashtra, expect a boost in sales. Jagdish Holkar, president of the All India Wine Producers' Association, told Moneylife, "We will definitely witness a boost in sales of wine. But our cost of production is still high and we are working on measures to reduce it so that the end consumer doesn't have to pay more."

There is also fear in the liquor industry that such a hike in excise duty will have a recurring effect and that other states might follow suit. "The event is directionally negative for the industry as other states could follow suit. The extent of excise duty pass through and corresponding volume impact in the state will be the key monitorable," the IDFC report said.