USL says high taxes dampening demand in certain states

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United Spirits (USL) is not seeing demand for alcohol in states that have spiked up taxes recently to make up for lost excise revenue due to the lockdown, its chief executive Anand Kripalu said. States and union territories like New Delhi, West Bengal and Andhra Pradesh have put in steep taxes on liquor, what it terms as corona cess, to almost 75% and while demand for spirits went up initially, such drastic increases have dampened it over the last few weeks.

“Production will be ramped up, we are already at about 60-70% of pre COVID production rate and while we are operating in a single shift we will get approvals in to start second shifts as well in certain states but the question is how is the demand. We are not able to see that in states which have increased taxes,” said Kripalu in a post-earnings conference call with analysts. Such extraordinary hikes a bottle with MRP of Rs 1,000 earlier, now sells at Rs 1,700 will also force many people to downtrade or buy cheaper drinks to prevent burn a big hole in their pockets.

“If you have such sharp tax increases, then somebody will balance their money and budget considering the times when many have challenged incomes,” he added. Alcobev companies are bracing up for one of the worst years ever as sales have nearly vapoured in April and May and many executives feel that volumes would be down by 15% this fiscal. For United Spirits, the hit is expected to be across its portfolio making short term challenges outweigh opportunities such as online sales and home delivery.

With bars and international travel closed and restaurants still not allowed to sale alcohol, USL said its premium segment, or costlier drinks consisting of brands such as Vat 69 and Smirdoff vodka, will also see a drop in volumes this fiscal. The Prestige segment now contributes 65% to the total sales while popular segment the remaining.

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