The issue has been addressed for two years, but the basic pricing of their products have not increased, resulting in increasing losses that have made their Telangana operations unfeasible.
Due to severe and continuous operating losses in the state, United Breweries Ltd. (UBL), a BSE-listed company that produces well-known brands like Kingfisher, said on Wednesday that beer supplies to Telangana Beverages Corporation Ltd. (TGBCL) will be immediately suspended. The business said that despite two years of work to resolve the problem, its base product pricing have not increased, resulting in growing losses that have made their Telangana operations unprofitable.According to the company's BSE filings, it has decided to immediately stop supplying Telangana Beverages Corporation with its beer because the corporation hasn't changed the company's beer's basic price since FY20, which has led to "escalating losses" in the state and sizable amounts owed by the corporation for the company's previous beer supply.
The state's retail and wholesale alcohol sales are solely under the jurisdiction of TSBCL, a government-run company. After splitting from the Andhra Pradesh Beverages Corporation Ltd., it was established in 2014.
UBL said in a media statement that it had a fiduciary duty to stakeholders and that it could no longer keep selling beer at a loss. The business claimed that the Telangana government has received numerous requests from its advocacy group, the Brewers Association of India (BAI), asking them to raise prices in order to counteract inflationary pressures on the sector, but that no agreement has been reached as of yet.
The share price of the company dropped 4.1% to ₹1,990.50 by the end of the trading day.
Numerous depictions
The letter that the association exchanged with the Telangana chief minister and excise department on November 19 has been accessed by Mint. According to the beer industry's apex body, which represents AB InBev, Carlsberg India, and UB, Corona, and Hoegaarden, the companies it represents sell 85% of all beer sold in India. Its members have also invested in five production facilities in Telangana and provide the state with ₹6,500 crore in tax revenue each year.
"The basic prices permitted to Telangana beer supplier companies are based on 2019 costs submission," the letter continued. The cost of production has increased by 35–40% since then. To offset the rise in production costs, the government has not permitted a simple price adjustment. As a result, Telangana operations are no longer commercially viable, and any further expenditures are no longer feasible.
"In Telangana, just ₹290-315 per case."
According to the letter, compared to states like Karnataka and Maharashtra, Telangana provides beer brewers costs that are about 90% lower per case, ranging from ₹290 to ₹315 per case. A case of beer (containing 12 cans of 650 ml each) costs ₹550 to 600 in Karnataka, similar to Maharashtra, according to a comparison of the average basic price range of the major states. Similar to Andhra Pradesh, Tamil Nadu and Kerala pay between ₹430 and ₹460 each case. Until the time of publication, BAI representatives were not immediately accessible to provide an updated response on the article.
Given that the company has not raised prices in Telangana for the past four years, despite rising inflation in materials like glass and barley as well as rising staff costs, analyst Abneesh Roy, executive director at institutional brokerage Nuvama Institutional Equities, said the company is probably making very little money from the state.
"It is hard to predict how long this will take, but Vivek Gupta, the new managing director, has taken a brave and assertive step. The company's market share in Telangana is 70%, and as the state accounts for 13–14% of its volume, a short-term decline in market share is anticipated. However, since alcohol is still available even in states like Gujarat and Bihar where it is illegal, it is unclear how much of this may be made up by shipments from other states, Roy said.
According to him, price increases typically occur every two to three years, although they haven't occurred in the previous four. "Even though UBL's short-term prospects seem bleak, if the business is successful in negotiating price increases, the long-term impact might be favorable."
Over the past few years, the cost of raw materials for the beer manufacturing industry has increased dramatically, failing to keep up with price increases that certain states have imposed on alcohol producers. It will be more difficult for businesses to survive, and state governments must comprehend the struggles faced by manufacturers. The chairman and managing director of Devans Modern Breweries, Prem Dewan, told Mint, "We have urged a lot of states to at least adjust prices to the year-on-year inflation."
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