Is the booze gonna be expensive in the future? Find out the reason why liquor stocks are soaring higher.

The recent war between Russia and Ukraine has agitated a food prices-led crisis across the world. These two nations together export nearly a third of the world’s wheat and barley produce. These are the key ingredients required for making liquor and hence the liquor companies are facing a major expense on these fronts. 

Rice being the third major raw material, was also exported heavily by Russia. Factually, it was the world’s 28th largest exporter of the commodity in 2020. Now, with these two nations battling out in the Eastern Europe, prices of rice and barley have soared around 15% and 59%, respectively, over the last six months. 

Though, on the contrary, shares of related liquor companies have shed over 30% so far this calendar year. Among the lot, GM Breweries, Radico Khaitan and Globus Spirits saw over 20% slash in their stock prices. In comparison to this, the benchmark Nifty50 index declined around 9% during the period. 

And this fall came as the input costs soared higher thus putting pressure on related companies’ margins in Q4FY22. However, the individual companies witnessed a contraction in their EBITDA margins of up to 800 basis points in the January-March quarter, with average contraction at around 200-250 bps. Though according to some analysts, the worst is behind the sector. 

As per the Head of Research at ICICI securities:

“Input costs have been going up and investors should expect price hikes to be provided by states. State govts have announced rolling back of tax increase, reduction of custom duties, and reduction in local levies on imported products, he said. Industry is seeing positive changes.”

From the IPO perspective, Officer’s Choice whisky-maker- Allied Blenders and Distillers Ltd, has filed documents with SEBI to raise 2,000 crore rupees. As per some analysts, the near-term outlook of the sector looks hazy and the long-term growth story of the liquor industry remains intact and hence this premiumization would support margins

To know more about the latest happenings about the trending Brewery stocks click on the video below.