United Breweries, Radico Khaitan Shares Surge Amid Karnataka's Draft Liquor Policy Release

Karnataka to Introduce New Excise Duty Structure Based on Alcohol Content

The Karnataka government has issued a draft notification to amend the more than six-decade-long alcohol taxation policy, effective April 20. The new policy proposes to tax alcohol based on its actual content, a move that will affect several liquor companies in the state.

The state plans to introduce an alcohol-in-beverage (AIB) based excise duty structure, reducing the pricing slabs from 16 to a more streamlined system. With the amendment to the Karnataka Excise (Excise Duties and Fees) Rules, 1968, Karnataka will become the first state in India to introduce excise duty based on AIB. The new tax regime will increase the MRP of alcohol sold in the first four Excise slabs, while bringing down the cost of premium alcohol in the top slabs like Scotch (bottled in origin with 40% v/v).

According to the new policy, the tax on alcohol will be determined by its strength, with higher content attracting higher taxes. This move is expected to benefit spirits and beer companies operating in the state. The prices of mild beer (less than 5% v/v) may face lower taxes, as reported by The New Indian Express.

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As a result of the new policy, shares of several liquor companies, including Tilaknagar Industries, Radico Khaitan, and United Breweries, were trading up to 3% higher on April 20. At 11:30 am on that day, the shares were trading 3.5%, 3%, and 2.3% higher, respectively. Radico Khaitan and UBL were also top gainers on the Nifty FMCG index, which was trading flat.

Brokerage Nuvama has expressed optimism about the new policy, stating that it will drive volume growth for spirits companies. The UK FTA is also expected to kick in from Q2, aiding margins for spirits companies. Nuvama has a BUY on United Spirits, Allied Blenders, and United Breweries.

Tilaknagar Industries holds a 39% market share in the "Prestige and Above" segment in Karnataka, making it the largest player in this segment. The state is also one of the top revenue-generating states for United Spirits' "Prestige & Above" portfolio, which includes McDowell’s No. 1 and Royal Challenge. United Breweries, on the other hand, is the largest beer company in the state.

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Karnataka is one of the largest states for liquor consumption in India, and the new policy aims to simplify the taxation structure. The state currently has among the highest alcohol taxes in India, with liquor classified into multiple price sections, each attracting an additional excise duty.