Madhya Pradesh, Chhattisgarh prohibition plans unlikely to hit liquor firms hard
The bigger, more immediate concern for liquor firms is the Supreme Court ban on sale of alcohol near highways
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Madhya Pradesh and Chhattisgarh, the states that have announced a phased ban on liquor sales, are among the smaller markets for alcoholic beverages, and prohibition there is unlikely to significantly impact sales volumes in the near-term, analysts say.
The more immediate blow for liquor companies is expected to come from the Supreme Court rule banning sale of alcohol within 500 metres of state and national highways that came into effect from 1 April, according to the analysts.
Madhya Pradesh accounts for only around 3-4% of overall liquor sales in the country, while Chhattisgarh accounts for around 1-1.5%, estimated Abneesh Roy, senior vice-president at Edelweiss Securities. Analysts at Motilal Oswal said in a research report that Madhya Pradesh accounts for around 3% of the national sales of two large listed firms—Diageo Plc-owned United Spirits Ltd and United Breweries Ltd.
On Sunday, Madhya Pradesh chief minister Shivraj Singh Chouhan said all liquor shops will be shut down across the state in a phased manner, starting with those within a 5 kilometre radius from the Narmada river, which many in the state consider holy.
Chhattisgarh chief minister Raman Singh on Tuesday announced that his state has also taken steps towards prohibition and that as part of the move, liquor sales will be banned in villages with a population of up to 3,000. The two states join Kerala, Bihar and Tamil Nadu on the list of states that have announced full or partial bans on liquor over the past two years.
“The prohibition is only partial in Tamil Nadu and likely to be repealed in Kerala. Liquor prohibition has not lasted for more than two years in any Indian state other than Gujarat,” Motilal’s Krishnan Sambamoorthy and Vishal Punmiya wrote in a 12 April report.
Tamil Nadu implemented phased prohibition and closed 500 outlets on the first day of ban, said a liquor company executive, who did not want to be named. Assuming that Tamil Nadu has 7,000 outlets, it will take the state more than 10 years to implement the ban completely, the executive said.
Both Madhya Pradesh and Chhattisgarh have not announced timelines for implementing the ban.
The analysts said prohibition could deal a far more lethal blow to liquor companies if other states followed suit. While it is “highly unlikely” that states that are large markets for liquor such as Maharashtra, Karnataka, Andhra Pradesh, Telangana and Punjab will adopt prohibition, the possibility of some smaller states doing so cannot be ruled out, according to analysts at Motilal.
“We don’t know if the contagion will spread to other states. In Andhra, during the mid-1990s we lost all our sales due to prohibition. Even 22 years after that, we’ve still not been able to regain our volumes,” said Rakshit Jagdale, executive director at Amrut Distilleries Pvt. Ltd. But the bigger concern for liquor firms, at least immediately, is the ban on sale of alcohol near highways. While there are still too many moving parts to that policy, not the least of which is the number of outlets that will eventually be able to shift, analysts and company executives estimate it will result in a high single-digit decline in volumes over the near term.