Liquor tax hikes seen eroding Distilleries’ margins
View(s):The Sri Lankan government announced a tax hike on wine, arrack, foreign liquor and beer with effect from early this month which saw Distilleries Company increasing the prices of all varieties of liquor by Rs 20-40 a bottle, keeping a modest margin which would reflect in its earnings, analysts say.
“The impact on demand for liquor would be minimal by this increase due to consumers’ low sensitivity to the price,” a TKS Securities report said.
The biggest selling product (generating nearly 80 per cent of the total revenue) of the company is “Extra Special” which has been sold at Rs 770 and now sees an increase of 5 per cent, the report said, noting that thus it is unlikely that the consumers would be much concerned about the price hike, given the nature of the industry. Moreover, the upcoming festive season would further mitigate any possible short term drops in demand.
DCSL’s outlook is very healthy in the backdrop of strong revenue streams and healthy profits, with the anticipated growth in the key liquor business on the back of development in the tourism industry, more sales in the previously war affected North and East and anticipated increase in disposable income, and improved earnings from Browns Beach Hotel and Aitken Spence Hotels (which are connected companies), the report said.
DCSL is the leader in the hard liquor segment with a market share of circa 75 per cent, thus has been subject to strict legal restrictions and heavy taxes being in this industry due to various religious and cultural aspects in the country.
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