UB threatens to stop beer sales in TN & AP

The Rs 453 crore UB Limited has threatened to stop sale of its beer in the states of Tamil Nadu and Andhra Pradesh if these state governments do not allow price hikes for its products.

These two states account for nearly 25 per cent of UB's revenue in its beer business. This move has been precipitated by what UB terms as state-controlled price regime for beer and not allowing price increase for the past five years.

Speaking to the media at the sidelines of the company's Annual General Meeting in Bangalore on Tuesday, UB Group chairman Vijay Mallya said: "The operations of our business in these two states is getting increasingly difficult for the sheer fact that we have not got price increase from TN and AP for the past five years, while the entire cost of production has been steadily growing. If we do not get the price increase of at least 20 per cent within the next quarter, we will be forced to stop sales of our products in those two states."

Stating that the state-controlled price regime should end, Mallya said that market forces should determine the cost of beer and not the states.

"I have met the chief ministers of AP and TN on this issue and have appraised them about the economies of running this business. They fear that if the price increase is granted, then smuggling of beer may happen in their state. Governance, administration and making sure that smuggling does not take place is the responsibility of the states to tackle it and I cannot be responsible for administration. I am responsible to my shareholders and am interested in running a profitable business," Mallya noted.

To overcome the problem of how to arrive at the price increase, Mallya said that on a yearly basis they should be given the same increase as the registered yearly inflation rate.

"In this way, there will be some uniformity in the industry and no one will be accused of favouritism," he highlighted.

Commenting on the UB shareholders grouse that the profits have been dipping and there has been no payment of dividends, Mallya said: "The full potential of the industry has been held back by a variety of regulatory constraints, most significantly, the regulation and taxation of beer which has lower alcohol content is clubbed that of spirits. Universally beers and wines are treated on a different footing, both in regard to the taxation, as well as in respect of distribution, which is generally freer than for spirits. High tax rates have greatly hampered the growth of the beer industry in India, as it has led to increased prices which encourage growth of cheap and illicit liquor. The high dependence of state governments on the revenues from taxation of alcoholic products has caused the levels to be kept unreasonably high."

In addition to this, he said that the cost of bottles is shooting up dramatically as also the cost of molasses. "All these factors are taking a toll on our bottom line," Mallya noted.

Commenting on the way forward for the industry, he said: "Harmonisation of tax structure across states and change in the present system of taxation wherein tax incidence based on alcohol content rather than ad valorem basis shall go a long way in improving the position of beer industry in India."