E-Malt.com News article: India: Bihar chief minister bans alcohol in the state

Shares of liquor making companies were battered on November 26 after Bihar chief minister Nitish Kumar said he was fulfilling his poll promise of banning alcohol in the state, The Economic Times reported.

Bihar, Kumar, said will formulate a plan of banning liquor in the state from April 1, 2016. Stock market analysts, however, were not much worried and feel there was nothing more than sentimental impact to the November 26th's fall in liquor stocks. Liquor stocks have witnessed a sharp rally in the past couple of months after announcement of global mergers and takeovers in the segment.

Diageo-controlled United Spirits, UP based Radico Khaitan and United Breweries were the stocks that fell the most as the news of Bihar banning alcohol broke on television channels. While not all companies give state wise break-up of revenues, analysts say less than 3% of United Spirits revenue came from the state.

"At such times, street tends to act more fearful and extrapolate things," said Rajat Rajgariah, head of research, at Mumbai based brokerage Motilal Oswal. "This is more of a sentiment dampener than a number dampener."

United Spirits fell Rs 159 or 4.74% to close at Rs 3,211. Before the news the stock had touched a high of Rs 3,450. Radico Khaitan fell 6.92% to close at Rs 114. The stock had crashed by 12% in the intra-day trade. United Breweries that was trading at around Rs 970 before the Bihar news, fell to a low of Rs 927 before it recovered some lost ground. The stock closed at Rs 958 on a flat note from its previous close. The share price of Globus Spirits that had risen by close to 20% during intra-day trade gave up its entire gains to close at Rs 78.6.

According to Rajgariah, the actual impact on the revenue of the companies could be less than 3%. "There are high chances of bootlegging or smuggling of liquor from the neighbouring states. While it is a short term negative news, the fall could be an opportunity to buy into liquor stocks," Rajgariah said.

A buy side analyst working with a domestic mutual fund house said that the devil could lie in detail rules that Bihar will formulate regarding the matter. "It is likely that there may not be a blanket ban on alcohol but it would be more of prohibition. After, the state gets its largest share of taxes from liquor sales. Also, there are various studies that show that government bans are no deterrent to liquor sales in the state as smuggling increases," the mutual fund analysts said.

Liquor shops rose at a fast pace in Bihar in the past few years. Reportedly, the number of liquor vendor licenses allotted in the state rose to 5,467 in 2012/13 from 3,436 in 2006/07, official data shows. The rise was high in rural areas, where the number of shops tripled to 2,360 from 779 during the same period. Consumption of country liquor quadrupled while that of India-made foreign liquor increased almost five times and beer sales soared more than 11 times in Bihar till last year. Bihar's excise revenue, due to surging liquor sales, jumped to Rs 2,765 crore in 2012/13 from Rs 525 crore in 2007/08.


26 November, 2015