Firms are not ecstatic yet as strict price controls may continue to prohibit their ability to supply to the state
The much regulated Tamil Nadu alcohol market has shown signs of giving the liquor industry a breather, but players in the alcohol industry aren't clinking their glasses just yet. The Madras High Court has asked the state-run sole distributor of Indian Made Foreign Liquor (IMFL) to make all brands of IMFLs available in the state but firms are not ecstatic yet as strict price controls may continue to prohibit their ability to supply to the state.
Besides allowing only two price hikes in the last decade, the ordering pattern of Tamil Nadu State Marketing Corporation (TASMAC) has long been a bone of contention with players in the Indian liquor business and the body has often been accused of following an erratic unfavourable model that has hurt many a player in the industry, large and small alike.
Players like United Spirits Ltd, among others, face tight price controls, mandates on production within the state only and even curbs on the quantity that can be produced at each plant. UB Group Chairman Vijay Mallya has indicated the company is often and constantly in negotiations with Tasmac and the state Government to ease the regulations, but with little effect.
The industry estimates the situation in Tamil Nadu has led to a drop in volumes by over 50 per cent for companies in the state where demand is estimated to be growing in the low double digits every year.
An order issued by Justice V Dhanapalan said that the choice of the consumer could vary based on the brand and quality of the liquor and hence Tasmac retail outlets should stock all brands as per the customer's requirement. Besides, Dhanapalan also observed that TASMAC must be fair in its approach and formulate a set of guidelines for issuing orders and indents.
The order was issued in a petition filed by Golden Vats Pvt Ltd, a Chennai-based manufacturer and seller of Indian Made Foreign Spirits. The company has been manufacturing the IMFLs in the state from March, 2011 in the ordinary, medium and premium segment and providing employment to about 600 people, directly and indirectly.
"This will be applicable to all players," says analyst Abneesh Roy of Edelweiss Securities referring to the Court's directive. "United Spirits and Tilaknagar were severely impacted because of policies in Tamil Nadu. So both of them should benefit because of this," he added.
Analyst Gautam Duggad of Motilal Oswal Securities says, "If it indeed applies to the entire industry and all players operating in Tamil Nadu, it will be positive for the industry."
However, players themselves have been cautious in their reactions to the order just yet.
"The problem is a much larger structural one. On the one hand you have a state government trying to provide its people with with cheap alcohol and on the other, there is an industry that is grappling with very high input costs and unable to supply at that price," says Siddharth Banerjee, Managing Director of Kyndal Spirits.
Banerjee and other leaders in the industry, including Mallya have repeatedly highlighted that the Central Government's directive to sugarcane farmers to sell molasses to the oil industry has taken a toll on alcohol manufacturers who now have to procure molasses, a key raw material, at a much higher cost than received earlier.
In addition, being the second largest liquor market in the country, the Tamil Nadu market is largely dependent on volumes but industry players say they are unable to compete in the segment at the low cost at which they are directed to supply their products.
Besides, the petitioner (Golden Vats) has also alleged that TASMAC from July 2013 "with a malafide intention to favour certain IMFL manufacturers of its choice," suddenly changed its purchase pattern and drastically reduced issuing of Indent orders to the petitioner. TASMAC alone is entitled to open as many as shops as required for carrying on the business of sale of IMFL. Today there are 6800 shops established by the Corporation, it added.
The much regulated Tamil Nadu alcohol market has shown signs of giving the liquor industry a breather, but players in the alcohol industry aren't clinking their glasses just yet. The Madras High Court has asked the state-run sole distributor of Indian Made Foreign Liquor (IMFL) to make all brands of IMFLs available in the state but firms are not ecstatic yet as strict price controls may continue to prohibit their ability to supply to the state.
Besides allowing only two price hikes in the last decade, the ordering pattern of Tamil Nadu State Marketing Corporation (TASMAC) has long been a bone of contention with players in the Indian liquor business and the body has often been accused of following an erratic unfavourable model that has hurt many a player in the industry, large and small alike.
Players like United Spirits Ltd, among others, face tight price controls, mandates on production within the state only and even curbs on the quantity that can be produced at each plant. UB Group Chairman Vijay Mallya has indicated the company is often and constantly in negotiations with Tasmac and the state Government to ease the regulations, but with little effect.
The industry estimates the situation in Tamil Nadu has led to a drop in volumes by over 50 per cent for companies in the state where demand is estimated to be growing in the low double digits every year.
An order issued by Justice V Dhanapalan said that the choice of the consumer could vary based on the brand and quality of the liquor and hence Tasmac retail outlets should stock all brands as per the customer's requirement. Besides, Dhanapalan also observed that TASMAC must be fair in its approach and formulate a set of guidelines for issuing orders and indents.
The order was issued in a petition filed by Golden Vats Pvt Ltd, a Chennai-based manufacturer and seller of Indian Made Foreign Spirits. The company has been manufacturing the IMFLs in the state from March, 2011 in the ordinary, medium and premium segment and providing employment to about 600 people, directly and indirectly.
"This will be applicable to all players," says analyst Abneesh Roy of Edelweiss Securities referring to the Court's directive. "United Spirits and Tilaknagar were severely impacted because of policies in Tamil Nadu. So both of them should benefit because of this," he added.
Analyst Gautam Duggad of Motilal Oswal Securities says, "If it indeed applies to the entire industry and all players operating in Tamil Nadu, it will be positive for the industry."
However, players themselves have been cautious in their reactions to the order just yet.
"The problem is a much larger structural one. On the one hand you have a state government trying to provide its people with with cheap alcohol and on the other, there is an industry that is grappling with very high input costs and unable to supply at that price," says Siddharth Banerjee, Managing Director of Kyndal Spirits.
Banerjee and other leaders in the industry, including Mallya have repeatedly highlighted that the Central Government's directive to sugarcane farmers to sell molasses to the oil industry has taken a toll on alcohol manufacturers who now have to procure molasses, a key raw material, at a much higher cost than received earlier.
In addition, being the second largest liquor market in the country, the Tamil Nadu market is largely dependent on volumes but industry players say they are unable to compete in the segment at the low cost at which they are directed to supply their products.
Besides, the petitioner (Golden Vats) has also alleged that TASMAC from July 2013 "with a malafide intention to favour certain IMFL manufacturers of its choice," suddenly changed its purchase pattern and drastically reduced issuing of Indent orders to the petitioner. TASMAC alone is entitled to open as many as shops as required for carrying on the business of sale of IMFL. Today there are 6800 shops established by the Corporation, it added.
