Karnataka Budget 2024: Why brewery stocks will be in focus next week?

Karnataka Budget 2024: The recent announcement made by the Karnataka government to raise excise duty on alcohol, particularly beer, has put the spotlight on brewery stocks in the upcoming week. According to stock market experts, liquor prices are already high in Karnataka and the current Karnataka Budget 2024 proposal may have an adversary impact on liquor sales in the state in the short term.

Speaking on the Karnataka Budget 2024 proposal, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "The Karnataka government has increased duty on alcohol for the second time in the last one year. In July 2023, the Karnataka government raised excise duty on beer and Indian-made foreign liquor. So, these Karnataka Budget proposals are going to put the spotlight on the liquor majors like United Breweries, United Spirits, Radico Khaitan, Globus Spirits, etc."

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Market connection with Karnataka Budget

On how this Karnataka Budget 2024 proposal will impact the leading liquor brands in India, Yashovardhan Khemka, Senior Manager — Research at Abans said, "With the current hike, companies manufacturing and distributing beers will be impacted more than those focused on spirit. Notably, this marks the second instance of such a duty hike, following a similar move in July 2023, when excise duty on Indian-made foreign liquor (IMFL) rose by 20 percent and on beer by 10 percent. With this recent adjustment, the government aims for a substantial 13 percent uptick in excise collection compared to current run rates."

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The Abans expert went on to add that despite already higher liquor prices in Karnataka compared to other southern states, especially for beer, spirit brands with lower price tags remain relatively more affordable in the state. In Karnataka, 78 percent of sales come from liquor falling within the lowest and medium price brackets, with a small share of 5 percent coming from top-tier brands, underscoring the predominant price sensitivity among buyers. The recent move can place some constraints on the growth of premium brands, hindering their market expansion in the medium term.

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On how the market will react to this Karnataka Budget 2024 proposal on Monday, Yashovardhan Khemka said, "As liquor sales are inelastic, the impact of duty hikes on overall liquor sales will be temporary, and long-term market trends will remain stable. Recently, despite prior excise duty hikes, beer sales surged by 15% in 2023, while Indian-made liquor witnessed an uptick of just over 2%, indicating sustained demand and customer preference for beers despite price pressures."

Disclaimer: The views and recommendations above are those of individual analysts, experts, and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.