GST exclusion cost liquor companies billions of dollars last year

Nearly a dozen listed liquor companies in India lost almost $4 billion, which is almost a third of their market capitalisation, over the past one year because of fall in their shares. This happened after a consistent decline in sales growth, prohibition in few states and the fact that the segment was not excluded in the GST ambit.

The three largest companies, viz. United Spirits, United Breweries and Radico Khaitan, had their combined market value crash by 30% and fell to Rs 55,392 crore.

"Prices of liquor brands went up by over 20% due to taxes since more than two years. Then there are many states that banned alcohol which is impacting the estimated growth of the industry," Aditya Joshi, consumer analyst with Nirmal Bang, told ET.

Over the past one year, Kerala, Bihar, and Tamil Nadu have banned liquor either completely or in a phased manner. These states accounted for 20% of India's alcohol consumption, which is next only to China on a global scale.

Even though there are strong growth prospects for companies in India's alcoholic beverage in the long term, there seems to be a problem when it comes to profitability, because alcohol taxes make up to about 16% of the overall tax revenues of state government.

However, the industry looks hopeful.

"Post GST, alcohol will be the biggest direct source of revenue to a state compared to second largest now. States have been very possessive about this stream of revenue which is best reflected in the fact that they made sure alcohol was not included in GST," said Amrit Kiran Singh, chairman at International Spirits & Wines Association of India.

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