Hopes that India’s Supreme Court might relax its ban on alcohol have spurred stocks of liquor companies and breweries on Thursday. In December, the Supreme Court ordered a ban on the sale of liquor within 500 meters of all highways in a bid to curb incidents of drunken driving. This ruling could be modified in the second week of July as affected hotels and clubs sought changes, saying that allegedly the regulation forces especially smaller companies out of business.
India has tightened laws to fight alcohol in recent years. Four Indian states (Madhya Pradesh, Kerala, Bihar and Tamil Nadu) have completely banned alcohol in the last two years, Madhya Pradesh being the last on 10 April. Many breweries are forced to close existing breweries.
Last year it became known that Carlsberg will close its new $25 million brewery in the Indian state of Bihar only three years after the inauguration (inside.beer, 2.9.2016). This week also United Breweries (UBL) announced that “consequent to imposition of total prohibition effective April, 2017, commercial production at the company’s brewery located at Naubatpur, District Patna/Bihar has been discontinued.” UBL has challenged Patna high court’s decision and the matter is pending in Supreme Court.
Market observers believe that despite near-term headwinds, United Breweries’s beer business could return to double-digit volume growth.
The CEO of Diageo-owned United Spirits, Anand Kripalu also said in a presentation on Tuesday that the impact from the liquor ban would go only through to the first half of the financial year 2017-18, till September. “We expect the impact to be mitigated eventually and where it doesn’t get mitigated the consumption will shift to other outlets,” Mr. Kripalu said.
Nevertheless, the industry already faces another challenge with the implementation of the Goods and Services Tax (GST). While raw materials will be included, alcohol will be excluded from the tax, which makes it impossible for the liquor industry to receive tax credits. But talks between state governments and the industry suggest that the impact of the new ruling could be lowered.