Street cautious on liquor stocks

Liquor stocks such as United Spirits and Radico Khaitan, among others, fell 1-6 per cent on Monday as the Supreme Court's ban on liquor sales on highways came into force on April 1. Analysts say these companies' revenues will take a hit in the next couple of quarters at least because of this order. The apex court's decision to include restaurants and bars in its order will impact the sales and consumption of liquor. An indication of the potential impact for the industry can be gauged from Maharashtra Excise Minister Chandrashekhar Bawankule’s statement on Sunday that the state government will lose Rs 7,000 crore as a result of the ban, according to the Press Trust of India. Around 15,699 establishments are likely to be affected in Maharashtra. The impact of the ban is felt across Indian states, including top cities. Most brokerages, thus, toned down their earnings estimates for these companies, particularly United Spirits. These downgrades took a toll on the United Spirits’ stock, which fell by about six per cent in Monday’s trade as against a surge (nearly 300 points) in the S&P BSE Sensex.  Astrology and Numerology Trading Tips

However, there are some silver linings. Consumers can still buy alcohol at stores located more than 500 meters away from the highways and stock them in their journey. Also, while Maharashtra state is looking to de-notify state highways around major cities like Mumbai, Pune and Thane, reports suggest that other states are also considering steps to overcome the ban as liquor contributes significantly to their revenues. Some states are also looking to approach Supreme Court for a three-month exemption. While these measures will help and/or if the apex court provides relief, they will take time to bear fruit. Nevertheless, liquor companies' financials will witness some impact, believe analysts.  Commodity Trading Tips

While CLSA has trimmed United Spirits’ FY17-19 earnings estimates by 17-28 per cent, Jefferies toned down its FY19 estimates by 6.5 per cent and Credit Suisse has cut its FY18 estimates by 12 per cent. Analysts at Credit Suisse believe that the major issue is with stores within cities as most cities in India have highways passing through them. They believe stores will shift and state governments have started reclassifying highways within city limits as city roads. Analysts at Kotak Institutional Equities estimate that about 35-40 per cent of liquor outlets are located along highways. “However, we expect the impact to be material but transitory in nature as destocking in Q1FY18 due to relocation of these shops will be followed by restocking in Q2/Q3FY18 once shops are relocated,” they said in a note. Rajasthan government has declared state highways passing through habituated areas as urban or district roads, which don’t come under the purview of this ban.  Nifty Trading Tips