The Hindu Business Line : Liquor prices to head north as cos feel cost pressure

THE Indian liquor industry has pressed the panic button and is asking for a price increase from all State Governments as it faces the worst cost pressure in a decade.

The shooting price of extra neutral alcohol (ENA) and rectified spirit (RS) alone has resulted in the input cost increase by about Rs 55 to Rs 60 per case for the liquor companies, which have started slashing supplies to check their plunging profit margins.

"The various industry associations have written to all the States asking for a price increase," said Mr Vijay Rekhi, President, UB Spirits Division, which accounts for nearly 40 per cent of the Indian Made Foreign Liquor (IMFL) sales. In fact, many free price markets in the East including Bihar, Jharkhand, West Bengal, Assam and a few others such as Maharashtra have allowed a price hike, while hectic efforts are being made for a similar price increase in the auction driven markets in the North and the State run markets in the South.

The liquor companies are pushing for a minimum price hike of Rs 60 per case, while they are looking at an upward revision to the tune of Rs 100 per case in the deluxe and premium offerings.

While the companies, which are implementing the price increase in many parts of the country, did not comment on the specifics of the impact at the retail level, liquor depending on the segment and the State may turn costlier by Rs 5 to Rs 10 per quart (750 ml).

With mounting cost pressure, industry sentiments remained similar across the board. Mr Abhishek Khaitan, Joint Managing Director of Radico Khaitan, the third largest liquor marketer and a major ENA producer, said, the company supported the push for price increase. "I think it has to be a case of water finding its level," he said in a recent interaction with Buiness Line.

The increased pressure on ENA and RS follows a near doubling in the molasses price, which has crossed Rs 500 per quintal in most markets in the country as drought conditions and a decline in acreage has affected the domestic sugarcane output.

"The price of ENA and RS has steadily ramped up and it is perhaps the worst crisis since 1993-94. The conversion rate into ethanol has also not helped the case," the industry observers said. Meanwhile, UB's Mr Rekhi said the situation was being aggravated by speculative trading and added the liquor industry was looking for duty parity with industrial alcohol companies in importing molasses and ENA.

With the industry driving volume through low-priced IMFL and country liquor in recent years, the dramatic cost pressure increase has forced many distillers to slash supplies of economy and cheap products as it is already apparent in Andhra Pradesh, a market where the State has not allowed a price increase in the last five to six years.