Representative image of alcohol.
Credit: Reuters File Photo
Bengaluru: United Breweries Limited said on Wednesday that it is suspending the supply of its beer to state-owned Telangana Beverages Corporation Limited (TGBCL) with immediate effect due to ‘significant’ unpaid dues.
Post the announcement, shares of Bengaluru-based United Breweries (UBL) closed down nearly 4 per cent at Rs 2,001.25 a share. During the day, shares had dropped as much as 7.5 per cent, the company’s sharpest intraday fall since March 2022.
Telangana Beverages looks after the sales and distribution of alcoholic beverages in the state. In July, UBL, which is majority-owned by Dutch brewing giant Heineken NV, had said that TGBCL had run up Rs 900 crore in dues.
Analysts believe that the move will have a negative impact on the company over the near term as it will disrupt supplies in one of India’s largest beer consuming states. UBL is the maker of the popular beer brands Kingfisher and Heineken in India.
“Telangana contributes 15-20 per cent of volumes for United Breweries and has an earnings contribution of 10-12 per cent, as the state operates at lower margins in comparison to others,” said Karan Taurani, Senior Vice President, Elara Capital.
UBL, in which former promoter Vijay Mallya still holds an 8 per cent stake, also said that the Telangana-owned firm had not agreed to a price revision. “This decision has arisen because TGBCL has not revised the basic price of the beer since 2019-20, resulting in huge losses in Telangana,” it said in a stock exchange filing.
However, the company did not disclose the amount of unpaid dues.
Analysts have also factored in an elongated payment cycle as one of the reasons for the halt in beer supply. Experts are of the view that even though there is a significant contribution from Telangana, profits are negligible, given that there has been no hike for four years amidst higher inflation in glass and barley apart from higher staff and manufacturing costs.
“We believe that the Telangana government is likely to be entailed for a positive action in terms of ex-brewery price (EBP) hike, as historically, companies have carried such supply suspensions upon failed discussion to receive price hikes,” observed Taurani.
If there is a positive action on EBP within the coming three months, it will most likely reward the brewery with a price hike in peak season, helping them gain their lost market share within the state, however prolonged supply suspension may significantly impact its competitive positioning in the state.
Moreover, there will be pressure on Telangana to carry material action on the back of supportive policies and opening up of Andhra Pradesh, which could also lead to a volume shift.