The recent decision by the Telangana government to allow a 15% increase in beer prices has raised eyebrows among consumers and industry stakeholders alike. This significant price hike comes in light of supply issues and financial losses faced by breweries operating in the region, particularly United Breweries Limited (UBL). As summer approaches, insights into this price adjustment and its implications for consumers and the beer industry are worth exploring.
Context Behind the Price Raise
The Telangana government authorized this price increase following a request from the Brewers Association of India (BAI). The move was precipitated by UBL’s announcement on January 8, 2024, that it would suspend the supply of beer to Telangana Beverages Corporation Limited (TGBC) until its financial concerns were addressed. UBL attributed its decision to a lack of price adjustments since the 2019-20 fiscal year, which led to substantial losses for the company.
Information from UBL
In its regulatory filings, UBL highlighted that its decision to halt supply was based on accumulating dues owed by TGBC for previous transactions. While specifics regarding these outstanding debts were not disclosed, the urgency of the matter reflects deeper financial challenges within the state’s beer distribution framework. Following the announcement, UBL resumed supply, indicating a temporary resolution to the immediate crisis.
Reasons for the Price Increase
The Brewers Association of India welcomed the government’s decision, urging Chief Minister K. Chandrashekar Rao to address various unresolved issues within the beer industry. According to the BAI, while the approved price increase is less than the escalation in production costs and expectations from the industry, it is still seen as a positive step. Vinod Giri, the BAI’s Director-General, emphasized that a market-driven approach would serve the industry’s interests better and that they will continue to advocate for this framework through dialogues with the government.
Impact on UBL’s Stock Performance
On the stock market front, UBL experienced a decline of over 1.5% in its shares on the day following the announcement. According to BSE data, UBL’s stock closed at ₹2,022.55, reflecting a drop of 1.59%. Notably, the shares hit a low of ₹2,020 during the trading session, despite opening at ₹2,069.95, which indicated a strong initial performance before witnessing a downward trend throughout the day.
Future Outlook
As the beer industry braces for the effects of this price hike, both consumers and investors are keenly observing how these developments will unfold. With summer approaching, it remains to be seen whether the price increase will deter consumption or if the government’s involvement will lead to a more stable future for breweries in Telangana.