United Spirits dives 8% on liquor ban as foreign brokers cut target price by 25%

NEW DELHI: Shares of United Spirits, the largest domestic spirits company, nosedived 8 per cent in Monday’s trade after the Supreme Court last week ruled that its December 15 order on banning liquor vends across national and state highways is also applicable to hotels and restaurants.

While the ruling on a ban on liquor vends within 500 metres of national and state highways that began Saturday is estimated to hit 1 million hospitality industry employees, United Spirits too is expected to take a hit.

CLSA has turned negative on the stock, slashing its target price to Rs 1,600 from Rs 2,100.

Court denied relief even to restaurants and bars, which was widely expected, the brokerage said, adding that it expects states to support the liquor industry during the transition phase.

The brokerage has cut FY17-19 EPS estimate for the company by 17-28 per cent “as road to profitability is quite long.” “Potential open offer from Diageo seems to be only positive trigger, if at all,” it said.

Jefferies too has reduced its target on the stock to Rs 1,812 from Rs 1,900 expecting the ban on highway liquor shops will be disruptive.

Liquor consumption in hotels, restaurants near highways will be immediately impacted, it noted.

“Believe retail sales might witness shift in demand to shops away from highways. We cut FY19 EPS estimates by 6.5 per cent; expect to witness some demand destruction,” the brokerage said.

Credit Suisse said that the immediate impact of ruling would be significant as nearly 40 per cent of sale of liquor is from affected shops
“Major issue is with stores within cities as most cities in India have highways passing through them,” it said, adding that it sees the issue to have 6-12 months impact.

State governments have started reclassifying highways within city limits as city roads, it though noted while maintaining its Rs 2,500 target on the stock.