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MOSL: ALCOHOLIC BEVERAGE-Bad news – when it rains, it pours-Alcoholic beverage companies face significant near-term headwinds

​Alcoholic Beverage: Bad news – when it rains, it pours; Alcoholic beverage companies face significant near-term headwinds

• On 10 April 2017, Madhya Pradesh (MP) became the fourth Indian state (after Kerala, Bihar and Tamil Nadu) in past two years to announce a ban on liquor.
  
• We note that (i) the prohibition is only partial in Tamil Nadu and likely to be repealed in Kerala; (ii) liquor prohibition has not lasted for more than two years in any Indian state other than Gujarat and (iii) MP makes up a small proportion (~3%) of national sales for both the large listed alcohol players – i.e. United Spirits (UNSP) and United Breweries (UBBL).
  
• However, we believe more such bans (even if temporary in nature and by smaller states) could lead to significant near-term damage for the alcoholic beverage companies. Other near-term headwinds include: (i) lingering impact of demonetization, (ii) Supreme Court (SC) ban on liquor outlets located within 500 meters of state/national highways, (iii) uncertainties over inclusion of alcoholic beverages in GST and (iv) delay in discretionary consumption recovery.
  
• We have cut our FY18 PAT forecasts by as much as 26% for UNSP and 23% for UBBL from pre-demonetization levels.