United Breweries - Killing the goose that lays golden eggs - Kotak

Beer companies have not been granted any price increase in Andhra Pradesh (largest state by volumes) for the past five years, even as retail prices of beer in AP have increased by 42% in the past 4 years. The State Government has skimmed the entire increase in retail prices either by way of taxes or higher distribution margins, setting a bad precedent for other states. Also, this kind of ad hoc behavior impedes growth prospects of the industry by denying just profits. As per our estimates, companies are selling beer at a marginal loss (PBT) in AP. Hence, given large volumes, in case price increase comes forth in AP, it would mean a large positive trigger for UB/industry.

Source : Equity Bulls

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