Supreme Court banned on liquor shops near national highways

Most brokerages maintain their rating for United Spirits but expect sales to get impacted in the next few quarters after the Supreme Court banned liquor outlets within 500 meters of state and national highways effective April 1, 2017.
The SC ruling will impact will be negative for all liquor companies as 35-40 percent of liquor outlets are located along NHs or state highways, and will have to shut shop and relocate from April 1.
This ruling was originally announced in Dec-16. The court as also clarified that this will be applicable on retail liquor outlets, bars, pubs and restaurants located on highways and will be effective April 2017.
Credit Suisse maintains an outperform rating on United Spirits with a 12-month target price of Rs 2,500. The immediate impact of ruling significant, as nearly 40 percent of the sales for United Spirits come from affected shops.
StoreCLSA maintains sell rating on United Spirits and reduced its 12-month target price to Rs 1,600 from Rs 2,100 earlier. CLSA expects states to support the industry during the transition, which will still take time. “We cut FY17-19CL earnings per share (EPS) by 17-28 percent acknowledging our lack of understanding of various aspects,” said the report.
s within cities face the major issue as most cities in India have highways passing by. Credit Suisse sees this issue impacting sales of the company for the next 6- to 12-months. It slashed earnings outlook for United Spirits by 12 percent for FY18.
CLSA strongly recommends investors to sell the stock as the road to profitability could be quite long unless hope is on a tender offer from Diageo.
Morgan Stanley maintains an overweight rating on United Spirits with a 12-months target of Rs 2,900.
As per the ruling, liquor sales within 500m of highways will have to relocate. As per media reports, 42 percent of liquor sales in the country face dislocation due to this ban.
Morgan Stanley sees a near-term impact on volumes of United Spirits as the business aligns with the new rules.
IIFL maintains an ADD rating on United Spirits with a 12-month target price of Rs 2,250. The Supreme Court ban on liquor outlets near highways announced in Jan has affected 30-40 percent of outlets.
Given confusion on how this ban would be implemented (whether shops would close/ relocate), retailers have undertaken channel de-stocking, which would weigh on 4Q sales, it said.
With some states yet to provide clarity on the next steps, IIFL believes that this impact may continue in 1QFY18.
otak Institutional Equities maintain an ADD rating on United Spirits with a 12-month target price of Rs 2,400. The SC ruling is likely to impact most of the liquor companies as 35-40 percent of liquor outlets are located along highways.
Jefferies maintain an underperform rating on United Spirits but slashed its 12-month target price to Rs 1,812 from Rs 1,900 earlier. The brokerage firm is of the view that the ban on highway liquor shops will be disruptive.
Relocation of shops to drive destocking in the near-term which may impact volume for the quarter ended June quarter. The domestic brokerage firm expects the impact to be material but transitory in nature until shops relocate.
The ban may shift the demand to shops further away from the highways which may lead to fall in demand. The global investment bank slashed earnings per share (EPS) for United Spirits by 6.5 percent. The SC ban could cause a temporary demand destruction even in the case of circumvention by states.