“Inelastic Proxy for Consumption Growth”
Liquor Sector in Sri Lanka March 2016
Analyst- Hiruni Perera [email protected] 011 5889809
LOLC Securities Limited (An LOLC Group Company) Contents
Investment Case Industry Dynamics
Liquor industry to reap benefits from expected increase in GDP
Inelastic demand for Arrack consumption
Arrack Consumption to maintain a modest growth of 1.7%
Inelastic demand for malt liquor (Beer) consumption
Beer consumption growth to slow with recent excise duty hike
Excise duty for 1% of alc. strength of Beer > Excise duty paid for 1% of alc. strength of Arrack
However demand growth for Beer to outpace growth for Arrack in mid-long term
We estimate 4% growth in total recorded liquor consumption for 2016
Growth in tourism can be a key catalyst for the growth in the liquor sector
LOLC Securities Limited | Sector Research 2 Contents contd.
Industry Dynamics contd.
A gradual reduction in the illicit and illegal liquor consumption
Budget 2016 is trending positive for big players
Excise duty on liquor to play an important role in the Gvt. Fiscal revenue
Less likelihood of a complete ban of liquor in Sri Lanka
However certain countries exists in the world with prohibition of liquor
Tight regulations to govern the liquor industry in Sri Lanka
Cultural and demographic factors to influence liquor consumption
We estimate liquor consumers to represent 25% of population
Key Players in the industry
Appendices
LOLC Securities Limited | Sector Research 3 Investment Case
LOLC Securities Limited | Sector Research 4 Investment Case
Inelastic proxy for consumption growth…….
Liquor consumption in Sri Lanka is expected to be supported from the increase in GDP per capita income due to its strong positive correlation between total liquor consumption and GDP. During the last 5 years, Sri Lanka's total liquor consumption has seen a CAGR of 6% in relation to the average real GDP growth of 7.4%. We expect increasing per capita income to improve affordability of liquor products and thereby to improve liquor consumption. Accordingly we expect total liquor consumption to record a YOY growth of 4% for 2016 and 2017 with total per capita liquor consumption to be 11.45 Litres for 2016.
Generally liquor industries have been resilient with an inelastic demand due to its importance as a social lubricant among consumers. In Sri Lanka also despite being heavily taxed liquor has been an inelastic product due to its inherited chemical ability to impact on the human state of mind.
We estimate arrack consumption for next 3 years to post a modest growth of 1.7% YOY capped by high penetration of the industry. Growth of 1.7% is estimated considering the higher penetration, expected per capita income growth , potential shift from cheaper liquor to legal products on rise of disposable income and curtailing the availability of illicit liquor through tight regulatory controls.
We also expect soft liquor consumption growth over hard liquor to slow down in 2016 due to the excise duty hike in 2015. According to the tax change in November 2015, duty of locally produced strong Beer increased by 28.5% relative to the tax hike of 15.9% for Arrack. Further in 2015, total tax hike for strong Beer is 70% compared with the excise duty hike for Arrack of 25%. Despite the absence of a negative correlation of beer consumption with excise duties, we expect recent duty hike to result in lower “kick per buck” for Beer than Arrack and accordingly malt liquor (Beer) consumption growth over hard liquor to slow down. However there is a higher potential for beer consumption to grow in mid to long term due to low penetration.
A substantial increase in tourist arrivals can be considered as a key catalyst for growth in liquor consumption of the country. Considering the current tourist arrivals growth rate and the tourist arrival target of 2.5 Mn by 2016, we expect a further increase in the liquor consumption in the country.
LOLC Securities Limited | Sector Research 5
Investment Case
Inelastic proxy for consumption growth…….
We see a gradual decline of illicit and illegal liquor in line with GDP per capita rise reflecting that people are encouraged to consume legally produce liquor with their income growth. We believe this will enable big players to gain their lost market share from illicit liquor manufacturers in years to come.
Policies introduced by the government from Budget 2016 seem to have a positive impact on big players while negatively influencing smaller spirits manufacturers. Certain policies are expected to discourage illicit production of liquor while also making illegal players to pay more taxes in the future and causing them to leave the industry if policy execution took place properly. Hence there can be an increase in legal liquor consumption in the country.
Excise duty on liquor production plays an important role in government's total fiscal revenue as it represented 27% of the total excise duty revenue and 6% of the total government revenue in 2014. Therefore despite the strong pressure and concerns raised by certain communities in the society to ban liquor, it is highly unlikely that government will impose a complete ban of liquor products due to its substantial contribution to Gvt. revenue.
Since a ban in liquor is unlikely in Sri Lanka due to high tax revenue for the Gvt. it is more likely that liquor consumption will only be controlled through tight regulations. Tight regulations imposed by the government on the liquor industry such as restrictions relating to distribution and marketing of alcoholic products make entry barriers for new players to the industry while creating an advantage for large and established players.
Sri Lanka’s cultural and demographics factors to have a greater influence on the liquor consumption. Approximately 9% of population consists of Muslims who have been prohibited from consuming alcohol . Another 70% and 13% consist of Buddhists and Hindus who are encouraged to refrain from consuming according to their religion although there are consumer among both of these communities. Further 52% of total population consists of women who consume only insignificant amount of alcohol. Accordingly we estimate 25% of total population as potential liquor consumers.
LOLC Securities Limited | Sector Research 6
Industry Dynamics
LOLC Securities Limited | Sector Research 7 Industry Dynamics
Liquor industry to reap benefits from the expected increase in GDP…….
Figure 1: Increase in the Food, Beverage and Tobacco expenditure in Sri Lanka has recorded an average real GDP growth of 7.42% during past 5 years (2010- par with GDP rise 2014) in tandem with the turnaround of the country’s macro environment after end of civil 10,000,000 conflict in 2009. Along with the increase in GDP, private consumption expenditure is 8,000,000 expected to increase as a result of more spending on discretionary items along with the
6,000,000 increase in consumption of other essential goods. 4,000,000 Millions 2,000,000 Expenditure on Food, Beverage and Tobacco (nominal) has depicted a CAGR of 11.8% over 0 the five year period of 2010-2014 compared with the CAGR of 14.9% in GDP (nominal) 2010 2011 2012 2013 2014 Food Beverage and Tobbacco Total private consumption expenditure GDP reflecting that people have proportionately increased the consumption expenditure on Source: Annual Report 2014 of Central Bank of Sri Lanka Food, Beverage and Tobacco in par with their income level. Figure 2: Total liquor consumption has shown a steady growth inline with GDP Sri Lanka's total liquor consumption has seen a CAGR of 6% during last 5 year period 250 12,000
(2010-2014) while looking ahead we expect that liquor consumption to record a YOY 200 10,000
8,000 Bn growth of 4% for 2016 and 2017 driven by expected GDP growth of 6.5%* in the medium 150 6,000 term.
Mn 100
4,000
GDP in GDP in LKR
Consumption Consumption Litres in
50 2,000
Liqour 0 0
Total 2010 2011 2012 2013 2014
Note*- IMF forecasts Total Liqour Consumption (Litres) GDP at market prices (LKR)
Source: Annual Report 2014 of Central Bank of Sri Lanka and Sri Lanka Excise Department
LOLC Securities Limited | Sector Research 8 Industry Dynamics
Liquor industry to reap benefits from the expected increase in GDP…….
Figure 03: Strong positive correlation between GDP and liquor Past 6 year data for total liquor consumption has shown a strong positive correlation with consumption (litres ) the GDP indicating that people tend to consume more liquor in line with the rise in their Coefficient of correlation with the GDP income. Total Liquor Consumption 0.79 (litres) Sri Lanka has a higher per capita recorded alcohol consumption in the South Asian region although it is still below the world average.
Source: Annual Report 2014 of Central Bank of Sri Lanka, Performance Reports of Sri Lanka Excise Department
Figure 04: Per capita recorded alcohol consumption for SL is higher than most of the countries in the region
7 6.4
6 4.7 5 4 3.2 3 2.2 2.2 1.8 2 0.7 1 0.4 0.2 In Litres Litres In pure of alcohol 0 0.1 0.1 0.1 0
*Excludes tourist consumption
Source: World Health Organization, (2010)
LOLC Securities Limited | Sector Research 9 I. Arrack Consumption
LOLC Securities Limited | Sector Research 10 Industry Dynamics
Inelastic demand for Arrack Consumption…….
Figure 05: People have continued the arrack consumption despite Historically, Arrack has been resilient with an inelastic demand, despite regular excise duty regular price increases
increase in retail prices of liquor bottles. We believe that Arrack consumption to be backed 90.00 by price inelasticity of demand resulting in manufacturers passing down incremental taxes 85.00 and inflationary pressure to customers through increasing selling prices. 80.00
75.00
As depicted in the Figure 5, Arrack consumption which represents 35% of the total 70.00 Consumption Consumption Litres in (Mn) recorded liquor consumption is linear with a flat slope indicating a relatively inelastic 65.00 behavior of demand despite regular duty increases. Further positive correlation between 60.00 600.00 700.00 800.00 900.00 1000.00 1100.00 1200.00 1300.00 selling price per litre of Arrack with the Arrack consumption (in litres) indicates that Arrack prices in LKR per litres people have continued the consumption despite price increases. Arrack consumption(lr) Arrack Consumption trendline
Source: Sri Lank Excise Department and LOLC SEC Estimates
*Note- Prices of arrack includes the prices of estimates
LOLC Securities Limited | Sector Research 11 Industry Dynamics
We expect arrack consumption to maintain a modest growth of 1.7%…….
Figure 06: Moderate positive correlation between GDP and Arrack In the last decade, Sri Lanka's Arrack consumption has seen a modest growth of 1.4%. This consumption could be largely due to the increased penetration of illicit and illegal liquor products to the Coefficient of correlation with the Real society and disproportionate growth of taxes compared with disposable income rise. There GDP growth rate has been a moderate positive correlation between GDP with arrack consumption pattern. Arrack Consumption 0.41 Growth
We estimate recorded Arrack consumption for next 3 years to be in line with a Source: Annual Report 2014 of Central Bank of Sri Lanka, Performance Report Sri Lank Excise Department modest CAGR of 1.7% considering the limited growth in the hard liquor consumption (due to high penetration;85% of recorded APC consists of Spirits in SL*), expected per capita income growth , potential shift from cheaper liquor to legal Figure 07: Arrack consumption maintains a modest growth of 1.4%- products on rise of disposable income and curtailing the availability of illicit liquor 1.7%
through tight regulatory controls. 86 90 82 20% 75 77 75 76 80 72 71 72 74 15% 70 64 Accordingly, we estimate a 3.8 litres per capita Arrack consumption by 2017 and it 60 10% could reach to 4 litres by 2020. 50 5% 40 30 0% 20 -5%
10 Consumption Consumption Litres in Mn - -10% 2005 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Source - WHO (F) (F) (F) Arrack consumption (lr) YoY Growth Average
Source: World Health Organization and LOLC Sec Estimates
LOLC Securities Limited | Sector Research 12 II. Malt Liquor (Beer) Consumption
LOLC Securities Limited | Sector Research 13 Industry Dynamics
Inelastic demand for malt liquor (Beer) consumption…….
Figure 08 : People have continued beer consumption despite excise Malt liquor (Beer) consumption has shown an inelastic demand in line with the average duty increases increase in excise duties of beer. As depicted in the Figure 08, beer consumption has been in an upward sloping trend line indicating a relatively inelastic behavior of demand despite 160 the regular tax hike. 140 120
100
Further past 6 year data for beer consumption has not seen a negative correlation with the 80 Litres Litres increase in excise duty for Beer reflecting the inelasticity of consumption. 60 40 20 Beer Beer Consumption in Millions 0 50 70 90 110 130 150 170 Beer excise duty in LKR Beer consumption Beer consumption trendline
Source: Sri Lanka Excise Department and LOLC SEC Estimates
LOLC Securities Limited | Sector Research 14 Industry Dynamics
Beer consumption growth to slow with recent excise duty hike…….
Figure 09: Beer consumption growth to slow down in 2016 relative to Sri Lanka's beer consumption has seen a rapid CAGR of 14% since 2010-2014 while there 2015
160 50% has been a strong positive correlation of 0.88 between GDP with Beer consumption 137 130 Mn 140 124 39% 40% pattern. 120 33% 30% 100 28% 80 20% 60 8% 10% 40 5% 5% According to the recent tax changes, excise duty on locally produced strong Beer 20 0% 0%
Consumption Litresin -7% 0 -10% increased by 28.5% compared with the tax hike of 15.9% for Arrack. Further in 2010 2011 2012 2013 2014 2015 (F) 2016 (F) 2017 (F) 2015, total excise duty hike for strong Beer is 70% compared with the excise duty Malt Liqour Consumption (Litres) YOY growth Avarage Growth
hike for Arrack of 25%. Source: Performance Reports of Sri Lank Excise Department and LOLC SEC Estimates Figure 10: Beer duty exceeds the duties on Arrack Despite the absence a of negative correlation on beer consumption with increase in Type of Liquor W.E.F 25/10/2014 W.E.F 03/10/2015 W.E.F 21/11/2015 (LKR) (LKR) (LKR)
excise duties, we expect recent excise tax hike on Beer to result in lower “kick per Arrack (LKR/Proof 1485 1595 1850 buck” for Beer than Arrack and accordingly growth of malt liquor (Beer) Lit) % Change 7.4% 15.9% consumption over hard liquor consumption to slow down. Foreign Liquor- 1700 1860 2030 (LKR/Proof Lit) % Change 9.41% 9.13% Accordingly, we estimate per capita beer consumption to be 6.5 litres per annum in Beer- Strength < 5% 150 190 160 2016. (LKR/Lit) % Change 26.6% -18.75%
Beer- Strength >5% 185 245 315 (LKR/Lit) % Change 32.4% 28.5% Source: Excise Gazettes
LOLC Securities Limited | Sector Research 15 Industry Dynamics
Excise duty for 1% of alc. strength of Beer > Excise duty paid for 1% of alc. strength of Arrack…….
40 Recent excise tax hike in end of 2015 to result in lower 35 “kick per buck” for Beer over 33.46 Arrack 30.17 30
25 23.51 22.06
19.44 20 17.74 17.65
15.64 15.15 15 13.31 12.74 11.03
Excise Excise in Duty LKR 10.68 9.81 8.93 10 8.24 8.24 7.37 6.67 6.69 6.76 5.96
5
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Arrack duty paid for 1% Alcohol strength Beer duty paid for 1% Alcohol strength
Source: LOLC SEC Estimates and Excise gazettes
LOLC Securities Limited | Sector Research 16 Industry Dynamics
However demand growth for Beer to outpace growth for Arrack in mid-long term
Figure 11: Sri Lanka’s beer consumption penetration is low Despite short term slowdown in beer consumption due to increase in excise duty, we compared with the South East Asia and the world expect beer consumption to grow in mid to long term given the facts that its growing Beer Wine Spirits Other popularity among the young population as a life style product, low alcohol content and low Sri Lanka 13% 0% 85% 2% health effects of beer compared to hard liquor, easy access and due to greater affordability. Bangladesh 0% 0% 0% 0%
Bhutan 100% 0% 0% 0% When compared with the average figures of South and East Asia and the world Sri Lanka is Maldives 29% 29% 41% 0% still consuming more % of spirits compared with Beer based on the recorded consumption. Nepal 48% 1% 51% 0% Sri Lanka’s beer consumption is much lower at 13% compared to the region and the world average indicating that in the long term there is enough potential for beer consumption India 7% 0% 93% 0% growth in the country. Democratic People's 5% 0% 95% 0% Republic of Korea
Indonesia 85% 0% 15% 0% . Myanmar 83% 6% 12% 0%
Thailand 27% 0% 73% 0%
Timor- Leste 9% 76% 15% 0%
South & East Asia Avg 40% 15% 42% 0%
World Avg. 35% 8% 50% 7%
Note: Recorded APC consumption by type of alcoholic beverage (beer, wine, spirits, other), 2010 (as a % of recorded alcohol per capita consumption Source: World Health Organization
LOLC Securities Limited | Sector Research 17 III. Total Liquor Consumption
LOLC Securities Limited | Sector Research 18 Industry Dynamics
We estimate 4% growth in total recorded liquor consumption for 2016 …….
25% 250 234 237 22% 226 229 220 209 201 20% 200 16% 16% 15% 165 142 Millions Litres Millions 150 10%
5% 4% 4% 5% 100
0% 0%
50 -3% -5%
-8% 0 -10% 2009 2010 2011 2012 2013 2014 2015 (F) 2016 (F) 2017 (F)
Arrack consumption Beer consumption Other types of liqour consumption Total liqour consumption Total liqour consumption growth
We expect a 4% growth in the total liquor consumption for the year of 2016 despite 5% growth estimate for 2015. Growth of 5% for 2015 was arrived due to rise in excessive income of people driven by the increase in the public sector pay and reduction of prices of essential goods through the interim budget in January 2015. However we expect growth to limit to 4% in 2016 in par with the tightening macro-economic conditions.
Source: LOLC SEC Estimates and Sri Lank Excise Department,
LOLC Securities Limited | Sector Research 19 Industry Dynamics
Growth in tourism can be a key catalyst for the liquor sector…….
Figure 12: Tourist Arrivals to SL has increased at CAGR of 26% 2009- A substantial increase in tourist arrivals can be considered as a key catalyst for growth in 2015 the liquor consumption in the country. From 2009 to 2015 tourist arrivals to Sri Lanka has 3,000 50% increased from 447,890 to 1,798,380 depicting a CAGR of 26%. In line with tourist arrivals 2,500 40% 30% growth and tourist arrival target of 2.5 Mn by 2016 we expect a further increase in the 2,000 20% liquor consumption in the country. 1,500 Thousands 10% 1,000 0%
500 -10%
0 -20% 2008 2009 2010 2011 2012 2013 2014 2015 2016 Tourist Arrivals YOY Growth (F)
We estimate that total liquor consumption attributed to foreigners to Sri Lanka to be Source: SLTDA approximately 5.1 Million Litres of liquor contributing 2.48% to the total liquor Figure 13: Estimated percentage of liquor consumption attributed to foreigners has increased with the growth in tourist arrivals. consumption in 2014 which can be increased up to 6% by 2020.
250 3.00%
2.48% Mn 1.89% 200 2.50%
Litres 1.46% 2.00% 150 1.46% 1.35% 1.08% 1.50% 100
1.00%
Consumption Consumption
50 0.50% Liqour 0 0.00% 2009 2010 2011 2012 2013 2014 Total liqour consumption Consumption attributed to tourists as a % total liqour consumption
Source: LOLC SEC Estimates , SLTDA, Sri Lank Excise Department,
LOLC Securities Limited | Sector Research 20 Industry Dynamics
We see a gradual reduction in the illicit and illegal liquor consumption …….
Figure 14: Detections conducted by the excise dept. relating to liquor Past data reveals that total number of offences relating to the liquor industry has shown a has shown a declining trend with the increase in GDP per capita declining trend over the five year period despite slight increase in 2013. Further it has shown a 40000 3,900 negative correlation with GDP per capita reflecting that illicit and illegal consumption decreases 3,700 with the increase in income as people are encouraged to consume legally produced liquor. 35000 3,500
30000 3,300 We believe this will enable big players to gain their lost market share over illicit and illegal 25000 3,100 liquor manufacturers thus benefitting the licit and legal liquor industry in Sri Lanka. ofNo Offences 2,900 20000 GDP Per Capita (USD) 2,700 15000 2,500 Further Sri Lanka’s recorded alcohol (licit) consumption is 59% which is considered to be 2010 2011 2012 2013 2014 relatively higher than the several neighboring countries and the average of the South – East Asia Total Number of offences GDP Per capita Source: Handbook of Drug Abuse Information in Sri Lanka 2015 of National Dangerous & Drugs although it is still below the World Average. (Source-WHO) Control Board
Note -In Sri Lanka illicit liquor mainly goes by name “kassippu” and includes liquor products that are not produced within the legal framework and therefore will not be properly reflected in the records.
LOLC Securities Limited | Sector Research 21
Industry Dynamics
Budget 2016 is trending positive for big players …….
• Proposal of minimum excise duty of LKR 250 Mn per month (LKR 3 Bn per year) upon effective implementation, will result in illegal players to pay more taxes and thereby preventing them to price liquor products way below the Minimum excise duty market rate. of LKR 250 Mn per
month • Due to the proposed proposal being legally challenged this may not come to effect in short term. However due to the current Gvt’s aggressive revenue collection we believe this policy to be gradually effective, eventually industry concentrating with big players.
• Proposal to impose a flat annual license fee of LKR 150 Mn for liquor manufacturers irrespective of volume could adversely affect the small companies who do not have a strong scale of production volumes. Single annual license • However, this fee has been brought down to LKR 50 Mn per annum (Sources-Excise Ordinance Notification No. 983). fee of LKR 50 Mn • This new fee will be more affordable for medium size and big firms while small manufacturers will have to find ways to absorb this incremental cost.
• Proposal to make every tax paid liquor bottled to be labeled with a fool proof sticker enable the visual identification Fool proof sticker for the excise officers in identifying the tax paid bottles. • The decision is favorable to large players while unregulated liquor will be curtailed down with a proper execution .
• Government proposed to increase the annual license fee for each distillery owned by the manufacturer to LKR 150 Mn. Annual manufacturing • Subsequently it has been reduced to LKR 100 Mn (Sources- Excise Notification No.983) license fee of LKR 150 Mn for each distillery • However this is not effective yet and as per Excise Department and “Daily Mirror on 26.12.2015” and few other publications indicated that the government is to withdraw this decision due to the plea made by liquor producers based on possible collapse of many liquor manufactures if this implemented.
LOLC Securities Limited | Sector Research 22 Industry Dynamics
Budget 2016 is trending positive for big players …….
• With the introduction of 30% corporate tax rate and 25% of surtax for liquor industry the total effective income tax Income tax rate to be will be 37.5% which is a drop of 2.5% from the existing rate of 40% enabling the players in the industry to have a reduced from 40% to positive impact on their bottom line. However with the recent tax adjustment done to the budget 2016 corporate tax 37.5% rate applicable to liquor industry will remain at 40% FY 2016 while 37.5% will be applicable from 2017 onwards.
Increased custom and • Government’s proposal to increase the total tax burden (mainly on custom import duty) of imported foreign liquor excise duties on from LKR 1850/ ltr to LKR 2500/ ltr will make the foreign liquor further costly while shifting the consumers to imported foreign country made foreign liquor produced by big local producers. liquor, beer and • However on the negative side liquor manufacturing companies will have to incur an additional cost due to increased imported ethanol import duties on ethanol from 300/ltr to 400/ltr.
LOLC Securities Limited | Sector Research 23 Industry Dynamics
Excise duty on liquor to play an important role in the Gvt. Fiscal revenue…….
Figure 15: Liquor revenue to be the second largest contributor to the Government continues to have a strong interest on excise duty revenue on liquor as it is excise duty revenue the second largest contributor to the total excise tax revenue after excise tax on motor 40% 35% vehicles. During the 6 year period spanning from 2008 to 2014 liquor sector excise duty 29% 28% 30% 27% 27% 27% 26% 27% contribution has been hovering around 27%-29% while also representing approximately 25% 20% 6% of the total government revenue. 15% 10% 5%
0% Tax revenue from liquor which was LKR 23.9 Bn in 2007 has increased to LKR 69.1 Bn in 2008 2009 2010 2011 2012 2013 2014 Liqour Cigarettes/Tobacco Motor Vehicles Petroleum Products Other
2014 with a CAGR of 16% during the ten year period. Due to the regular excise duty Source: Annual Report 2014, Ministry of finance and planning Sri Lanka increases with regard to liquor it has resulted difficulties for manufacturers to increase Figure 16:Significant growth in the excise duty revenue from liquor prices on a regularly basis due to the competition within the industry. Higher taxes help Production 80 the government to bridge the fiscal account as well as regulate the industry by curtailing 70 69.1 the growth. 66 60 59.9 55.8
50 40 37.7 LKR Bn 30 27.3 28.1 23.9 20
10
0 2007 2008 2009 2010 2011 2012 2013 2014
Source: Annual Report 2014, Ministry of Finance Sri Lanka
LOLC Securities Limited | Sector Research 24 Industry Dynamics
Less likelihood of a complete ban of liquor in Sri Lanka…….
Figure 17: DIST pays the highest excise duty revenue on liquor Being the highest contributor to the total excise duty on liquor, DIST contributed 50% with among the key players in the industry.
40 LKR 35 Bn paid for the year ending 2014. LION, IDSL and ROCKLAND contributed 21%, 35 11% and 6% respectively while remaining contribution came from other players.
Billions 30 25 20
15 10 Revenue generated from excise duty on liquor can be considered as a key contributor 5
- to the government revenue. Therefore it is unlikely that government will impose a Distilleries + Lion Brewery International Rockland Asia Pacific W.M Mendis Others Periceyl Ltd.+ Millers Dist. Brewery complete ban of liquor despite the pressure from various communities in the society Brewery (Lanka) Ltd.
given the fact that government will lose its tax revenue on such a scenario. Source: Performance Report 2014, Sri Lank Excise Department
LOLC Securities Limited | Sector Research 25 Industry Dynamics
However certain countries exist in the world with prohibition of liquor…….
Figure 18: Countries and the regions that have presently banned However there are countries in the world that have prohibited liquor consumption while alcohol have a Muslim majority. most of them have a Muslim majority. Country % of Muslim population
Afghanistan 99.8% Afghanistan, Bangladesh, Brunei, some states of India (Gujarat, Kerala Manipur, Mizoram, Bangladesh, 90.4% Nagaland and the union territory of Lakshadweep), Iran, Libya, Mauritania, Pakistan, Brunei 51.9% Emirate of Sharjah in UAE, Saudi Arabia, Sudan, Kuwait, Yemen have banned liquor due to India (Gujrat, Kerala, Manipur, Mizoram, 14.6% of the total the pressure from the religious beliefs although some of the above countries allow Nagaland and in the territory of Lakshadweep) Indian population foreigners to drink with a license whereas others have a zero tolerance policy. Iran 99.70% Libya 96.6% Mauritania 99.2%
Despite existence of certain countries which have banned liquor Sri Lanka is Pakistan 96.40%
unlikely to implement such a policy due to its importance to the country in terms of Emirate of Sharjah in UAE 76% of total population in UAE tax revenue and relatively low rejection of liquor products by the society. Therefore Saudi Arabia 97.10%
it is more likely that liquor consumption will only be controlled through tight Sudan 71.4%
regulations. Kuwait 86.4%
Yemen 99.0%
Sources- http://www.swifty.com/lifestyle/5322/13-countries-with-booze-bans#page=5, https://www.cia.gov/library/publications/the-world-factbook/geos/af.html, http://www.pewforum.org/2011/01/27/table-muslim-population-by-country/
LOLC Securities Limited | Sector Research 26 Industry Dynamics
Tight regulations to govern the liquor industry in Sri Lanka…….
Figure 19: Key restrictions imposed on liquor industry in SL. Liquor industry is considered as one of the most tightly regulated industry in Sri Lanka. Liquor manufactures to prohibit from selling products directly to Basically manufacturing and sale of liquor in Sri Lanka come under the supervision of the the end consumers. Excise Department and any related operations will have to be statutory and for these purposes different types of licenses are issued by the Excise Department to engage with Total ban of the public advertising ,free distribution and such operations. sponsorship of alcohol related products as a means of promotions. (However free distribution of malt liquor products in some events can be seen in Sri Lanka) Among these regulations one of the main concern is the complete prohibition relating to advertising and promotion of liquor products. National Authority on Tobacco & Alcoholic Prohibition of the sale of alcohol products to persons under 21 years of age. (NATA) Act prohibits advertising and promoting alcoholic brands through any form of media which has naturally created an entry barrier for new comers by preventing them to Prohibition on installation of vending machines for dispensing promote their products. However we see this as an opportunity for big established players alcohol products. operating in the industry to stay resilient amidst hefty competition since peers cannot promote their brands or products. Sale of liquor are prohibited on all fess moon (Poya) days, holidays marked for religious occasions, temperance days and any other days declared by the authorities.
Males under 21 years and females are prohibited from possessing liquor in any public place while the relevant limit of possession for arrack and toddy for males and females over 21 years in private places are restricted to 7.500 ltrs. and 1.500 ltrs. respectively.
Source: Sri Lank Excise Department, NATA Act No 27 of 2006
LOLC Securities Limited | Sector Research 27 Industry Dynamics
Regulations govern the liquor industry…….
Sri Lanka India Malaysia Indonesia Myanmar Thailand Singapore
Excise taxes on Beer , Wine and Spirits Yes Yes Yes Yes Yes Yes Yes National legal minimum age for off-premise sales of alcoholic beverages 21 Subnational 18 21 18 20 18 National legal minimum age for on-premise sales of alcoholic beverages 21 Subnational 18 No 18 20 18 National maximum legal blood alcohol concentration (BAC)when driving a vehicle Zero in % 0.08 0.03 0.08 Tolerance 0.07 0.05 0.08
Legally binding regulations on alcohol
advertising / product placement Yes Yes Yes Yes Yes Yes No Legally binding regulations on alcohol
sponsorship Yes Yes No Yes Yes Yes No Legally required health warning labels on
alcohol advertisements/ containers No Yes No Yes No Yes No
Source: WHO
LOLC Securities Limited | Sector Research 28 Industry Dynamics
Cultural and demographic factors to influence the liquor consumption…….
Figure 20: Population of Sri Lanka by religion Sri Lanka’s cultural and demographics factors are believed to have a great influence on the liquor consumption while consumption patterns are expected to vary based on the religion, 7.6% age and gender etc. 9.7%
Out of total population of 20 million, 9.7% consists of Muslims who have been prohibited 12.6% from consuming alcohol according to the religion. Another 70.1% and 12.6% consist of 70.1% Buddhists and Hindus who are encouraged to refrain from consuming liquor according to their religion although there are liquor consumers among both of these communities. Buddhist Hindu Islam Christian
Further 52% of total population consists of women who consume only insignificant Figure 21: Majority of the population consists of women who consume amount of liquor as liquor is perceived as a male specific drink by the society. insignificant amount of liquor
48% 52%
Male Female
Source: Source: Economic and social statistics of Sri Lanka 2015 (Central Bank of Sri Lanka)
LOLC Securities Limited | Sector Research 29 Industry Dynamics
We estimate liquor consumers to represent 25% of the population…….
Figure 22: Alcohol consumers are expected to represent 25% of the Due to the impact stemming from the cultural influences, Sri Lanka’s liquor consumers are population estimated to be 25% of total population indicating a target market of 5.2 million after adjusting for male children below 15 years of age, 98% of the total women population, 25% Islamic male population above 15 years of age and male population who abstain from consuming liquor. 75%
Total Population (As at 2014) 20.77 Mn Male children below 15 Years 2.64 Mn Consumers Non consumers Total female population who abstain 10.51 Mn from liquor (98%) Source: LOLC SEC Estimates, Economic and Social Statistics of Sri Lanka 2015 Figure 23: Trincomalee has shown the highest alcohol usage by Islamic male population above 15 years 0.63 Mn population age 50 42.80 43.5 Male who abstain from liquor out of the 1.74Mn 45 40.1 38 38.5 40 remaining population (25%) 33.3 33.8 31.6 35 29 30 29.3
30 Potential liquor consumers 5.25 Mn 25 (%) 20 15 Source: LOLC SEC Estimates, Economic and Social Statistics of Sri Lanka 2015 10 5 0
As depicted in the Figure 24, Trincomalee has recorded the highest alcohol usage by population while Colombo being the second.
Source: State of the Sri Lankan Alcohol Industry and analysis of Governing policies, Institute of Policy Studies of Sri Lanka.
LOLC Securities Limited | Sector Research 30 Key players of the industry
LOLC Securities Limited | Sector Research 31 Key players of the industry
Our Key Focus of the Sector- Distilleries Company of Sri Lanka –DCSL (DIST)
Figure 24: Revenue from Beverage Sector continues to dominate the DIST is the market leader in the hard liquor industry with 67% volume market share Group revenue . of domestic hard liquor market while also maintaining a diversified portfolio of other 5% 6% business operations including plantation, telecommunication, insurance and other 5% 5%5% 5% financial services, power generation, logistics, textiles, business process outsourcing (BPO) services ,media and tourism. DIST’s Beverage segment continues to be the 2015 major contributor to the group’s revenue and profit while registering 85% and 86% 2014 85% FY15 respectively. 84%
Beverage Sector Plantations sector DIST’s diversified business have been restructured under Melstacorp Limited Telecommunication sector Diversified sector enabling Distilleries company to focus more on the beverage segment with Melstacorp Source: DIST Annual report (2015) Figure 25: Strong balance sheet and low gearing to allow for to provide greater focus on diversified businesses and its strategic investments. investments
100,000 Gearings ratio is below 25% and 30% Investment Consideration 90,000 declining 80,000 25% We expect DIST being the leading Arrack producer of the country to benefit from the
70,000 20%
expected GDP per capita rise and the inelastic consumption growth of Arrack. 60,000 50,000 15%
LKR Mn 40,000 30,000 10% We expect DIST’s current market share of 67% to increase up to historical averages 20,000 5% 10,000 of 70% by FY 18 in line with the regulatory measures introduced from the budget 2016 - 0% 2010 2011 2012 2013 2014 2015 and proved business acumen of the Owner/ Chairman’s contribution to the group. Cash and cash equivalents Total Assets Gearing
Source: Bloomberg
LOLC Securities Limited | Sector Research 32
Key players of the industry
Our Key Focus of the Sector- Distilleries Company of Sri Lanka-DCSL (DIST)
Figure 26 : Valuation of DIST “ DCSL Arrack” a strong brand name which is expected to continue its strong
foothold in local houses while standing above the competition. BUY
LOLC SEC Valuation LKR 291.30 We believe that Budget 2016 to trend positive for DIST while making the industry 12M Tgt Price( excl. dividend) LKR 264.80 more concentrated with few larger players as a result of reduction in illicit and illegal Share Price LKR 206.10 liquor consumption upon effective implementation of budget proposals. Upside/ (Downside) 41%
Risk Level Medium DIST has been able to generate strong free cash flow balances and gearing has continued to be below 25% over the last three years which will open up further Source: LOLC SEC Estimates avenues for raising debt to venture into new projects. Figure 27: Forecasted Financials
DIST is also is one of the largest cap counters in the Colombo Stock Exchange (CSE) LKR Bn 12M 2016 2017 2018 with the market capitalization of LKR 61,830 Mn (USD 430 Mn) and it is the only listed Trail ( F) (F) (F) player operating in the hard liquor manufacturing sector.“ Revenue 30.8 31.8 33.8 35.3 Net Profit 6.9 5.5 7.9 8.4 Valuation S/H’s equity 64.8 69.5 76.2 83.4 We assumed a cost of equity of 14.34% which is a 6% premium on 3 year treasury bond Total Assets 91.9 97.9 105.2 112.8 rate (GOSL), taking into consideration the equity market risk. Accordingly, we have ROA (%) 7 6 8 7 valued the counter using SOTP approach and derived the value of a share at LKR 291.30. ROE( %) 11 8 11 11
Source: Bloomberg
LOLC Securities Limited | Sector Research 33
Key players of the industry
Our Key Focus of the Sector- Distilleries Company of Sri Lanka- DCSL (DIST)
Type of liquor Brands
Arrack
Domestically manufactured foreign Liquor
Imported foreign liquor
Source : DCSL Group website
LOLC Securities Limited | Sector Research 34 Key players of the industry
ID Lanka Ltd (International Distilleries Ltd)
IDL Lanka Limited commenced its operations in 1980 as a result Gilbeys of London’s decision to establish operations in Sri Lanka as Gilbeys Lanka Limited. With the acquisition of controlling stake by East India Holdings (Pvt) Ltd the company was renamed as ID Lanka Limited in 2004. The company was renamed as International Distillers Limited (IDL) in January 2014 as a part of its rebranding initiatives.
Type of liquor Brands
Local Brands
International Portfolio
Source : IDL website
LOLC Securities Limited | Sector Research 35 Key players of the industry
W. M Mendis & Company Ltd
W. M Mendis & Company Ltd was established in 1960 by Mr. E. M Mendis who is an expert in the preparation of local liquors. The company’s ultra-modern distillery is located in Southwest coast which is surrounded by Coconut plantations, from which the company obtains its main raw materials- the sap of coconut flowers.
The bottling factory situated in Northern outskirts of Colombo, consists of 5 fully automatic bottling lines manufactured in Germany while the company produces 27 types of liquor products which includes pure coconut arrack, old arracks, blended arracks and foreign liquors.
Type of liquor Brands
Local Brands
Source : State of the Sri Lankan alcohol industry and analysis of Governing Policies of IPS and Google
LOLC Securities Limited | Sector Research 36 Key players of the industry
Rockland Distilleries (Pvt) Ltd
Rockland Distilleries began on a family estate in 1924. A pioneering venture, set up to produce high quality Arrack for the first time in Ceylon's history. For nearly a Century, Rockland Distilleries remains a privately owned family business, maintaining its position as one of the most advanced distilleries in the country.
Type of liquor Brands
Imported Wines and Spirits
Source : Rockland Distilleries website
37 LOLC Securities Limited | Sector Research Key players of the industry
Lion Brewery Ceylon PLC (LION)
Figure 28: LION’s profit grew at a CAGR of 12% during past 5 years Lion Brewery was incorporated in 1996 as a joint venture between Ceylon Brewery
(Ceylon Beverage Holdings PLC) and the global brewing giant Carlsberg. 1,600 1,476 30 1,343 1,330 1,400 1,220 25 1,200 1,046 LION is the market leader for malt liquor/Beer in Sri Lanka mainly known for its 3 20 1,000 832
800 15
Lion brands and Carlsberg and Carlsberg Special Brew. Following the acquisition of % 600 trademarks, brands and the shareholding in it’s entirely of Millers Brewery Limited by 10
400 Net Net Income (LKR Mn) 5 LION, two of miller’s brands Sando Stout and Sando Power Strong were re-introduced 200 to the market with a minor packaging overhaul during the year under review. Other 0 0 2011 2012 2013 2014 2015 Last 12M three brands Three Coins larger, Irish Dark and Grand Blonde will be introduced. Net Income ROE Source: Bloomberg Figure 29: LION is trading at a premium to market multiples LION is also the sole authorized importer and distributor of the Diageo & Moet
Hennessey of brands which includes iconic brands such as Johnny Walker, J&B, PE PBV Div Yield (%) Smirnoff, Tanqueray, Ciroc, Bailey’s & Guinness. Market 13.00 1.40 2.84
Beverage 16.19 28.90 2.88 Considering low per capita soft alcohol consumption is low in Sri Lanka compared Sector with the peer countries such as Malaysia, Thailand and Singapore we see a growth LION 26.95 4.40 0.80 potential in the malt liquor (Beer) segment which will be essentially backed by increasing per capita GDP and the tourist arrival growth.
Source: Bloomberg
LOLC Securities Limited | Sector Research 38
Key players of the industry
Ceylon Beverage Holdings PLC (BREW)
Figure 30: BREW’s profit grew at a CAGR of 10% during past 5 years Ceylon Beverage Holdings which was previously known as the Ceylon Brewery is the
parent company of LION while Carson Cumberbatch PLC is the parent company of 900 30 764 BREW and Bukit Darah PLC is the ultimate parent and controlling entity of BREW. 800 666 659 25 700 600 520 528 20 500 449 BREW through LION manufactures, imports and distribute alcoholic brands while the
15 % 400 marketing of the portfolios is carried out by Luxury Brands Pvt Ltd. 300 10 200 Net Income LKR (Mn) 5 100 Further, BREW operates three retail outlets via its subsidiary , Retail Spaces Pvt Ltd. 0 0 2011 2012 2013 2014 2015 Last 12M while these outlets are located in Negambo, Aluthgama and Moratuwa. These outlets Net Income ROE are outsources with income being generated in the form of a royalty. Source: Bloomberg Figure 31: BREW is trading at a premium to the market multiples
Group’s restaurants are operated in the names of “Machang”, “O!” and “8.8” while the PE PBV Div Yield (%) restaurant chain is owned by BREW’s subsidiary Pubs N’ Places Pvt Ltd. Market 13.00 1.40 2.84
Beverage 16.19 28.90 2.88 Sector BREW 15.96 2.73 1.38
Source: Bloomberg
LOLC Securities Limited | Sector Research 39 Appendices
LOLC Securities Limited | Sector Research 40 Appendix 01
History of the liquor industry in Sri Lanka.
The Portuguese Toddy tapping in Distilleries Earliest Stories relating to Toddy tapping, Expansion of tea invasion in 1505 Kalutara was Company of State literature Ceylon Toddy go the first step in influenced the plantations in documents with back to the days the process of initiated in 1870s, Ceylon was Distilleries drinking habit established colonial life led Corporation reference to of King fermenting, was where it was said to privately among the Sri that Governor Sir after the was formed in liquor date to Dutugemunu, an activity Lankans and the owned imported the legend of (161-137BC) described as a William Henry developments 1974, taking Dutch continued of toddy foreign liquor over the Lord Buddha, where the traditional Gregory (1873- outlets to be the propagation of 1877) developed tapping. distilling and where the Mahavamsa vocation in the alcohol. established in Enlightened One shows that the folklore of the this industry. However bottling toddy industry main cities. activities from quelled an King and his country. British intoxicated army relaxed and introduced the was only the Excise elephant, which drank toddy on first Excise limited to the In 1913 the Dept. which was sent to the way to Ordinance in the people of the Excise continued to attack him. Anuradhapura form of the Toddy upper class by Department was function as the through the Act of 1912 and the British constituted to monitoring coastal areas. granted licenses rulers. manufacture industry. to open taverns liquor to the around the island. local market. In 1992, 60% of the issued capital of the State Distilleries Corporation was sold at the CSE.
Source: State of the Sri Lankan Alcohol Industry and analysis of Governing policies of Institute of Policy Studies of Sri Lanka.
LOLC Securities Limited | Sector Research 41 Appendix 02
Overview of liquor industry in Sri Lanka…
Type of Key Producers Quantity wise Type of Liquor Key Producers Quantity wise Liquor production in proof production in proof litres (2014) litres (2014) Hard Liquor Malt / Soft Liquor
Special DCSL 23,983,779.807 Beer (Alcohol % below Lion Brewery 11,697,122.730 Arrack IDL 2,678,332.139 5%) Millers Brewery 525,616.770 Periceyl 1,481,577.776 Asia Pacific Brewer 472,148.940 Hingurana Distilleries 647,056.870 Ltd. Coconut and DCSL 2,912,885.476 Beer (Alcohol % above Lion Brewery 91,389,532.945 Processed Rockland 1,897,378.950 5%) Asia Pacific Brewery 16,500,480.960 Arrack IDL 619,480.436 Millers Brewery 3,935,835.890 W.M Mendis 505,052.564
Molasses IDL 920,640.626 Wine Lanka Wine (Pvt) Ltd 4,493.137 Arrack W. M Mendis 667,957.379 Rockland 163,960.846 Nippon Expo 136,640.065
Country IDL 1,691,527.294 Toddy Production Manori Lanka, 1,369,165.000 made Rockland 1,316,243.708 Wayamba Super 1,163,580.000 foreign Periceyl 940,204.444 Singha Bottled Toddy 1,051,420.000 liquor W.M. Mendis 249,353.841 Manufactory
Source: Performance Report 2014, Sri Lank Excise Department
LOLC Securities Limited | Sector Research 42 Appendix 02
Overview of the liquor industry in Sri Lanka….
Figure 32: Production of special arrack continues to dominate the Arrack other hard liquor 100% Founded in the 5th Century A.D in Sri Lanka, Coconut arrack is a unique product obtained 80% by tapping the coconut palm. Among all the types we believe that Special Arrack is more 60% preferred among the hard liquor users as it has shown the highest consumption over the 40% other hard liquor types. 20% 0% 2010 2011 2012 2013 2014 According to the data of Excise department, out of the 24 licensed liquor manufactures in Special Arrack Molasses Arrack Coconut and Processed Arrack Country made foreing liqour Sri Lanka 13 players manufacture Molasses Arrack, 12 produce coconut and processed Source: Performance Reports of Sri Lanka Excise Department arrack while 17 players produce special arrack. Figure 33: Market Share of molasses Arrack (2014)
5% 6% 7% 43% 8%
31%
International Distilleries Ltd W.M Mendis & Company Ltd Rockland Distilleries Ltd
Nippon Expo Company Ltd Periceyl Company (Pvt) Ltd Others
Source: Performance Report 2014, Sri Lank Excise Department
LOLC Securities Limited | Sector Research 43 Appendix 02
Overview of the liquor industry in Sri Lanka….
Figure 34: Market share of Coconut and Processed arrack (2014) Arrack
4% 1% 8% Being the dominant player in the Sri Lankan alcohol industry, DCSL holds 77% market 10% 47% share in the Special Arrack, 47% of the market share in the Coconut and Processed arrack 30% segment and 5% market share of Molasses arrack (Periceyl Company (Pvt) Ltd) in terms of the volume while other players share the rest.
Distilleries Company of Sri Lanka Ltd Rockland Distilleries Ltd. Arrack Manufacturing Process International Distilleries Ltd W.M Mendis & Co. Ltd Acme Lanka Ltd. Other
•Tapping or extracting coconut sap or Toddy from the unopned flower of coconut tree and Source: Performance Report 2014, Sri Lanka Excise Department Step 1 collected in eathernware pots. Figure 35: Market Share of Special Arrack (2014) •It undergoes rapid fermentation process due to the natural variety of wild yields and Step 2 bacteria. 2% 2% 6% 5% • After a minute of filtration process it is poured into large wooden casks made out of Step 3 halmilla wood. 8%
•Wooden casks are then generally transported to factories for distillation. 77% Step 4
•Distillation process begins and completed within 24 hours. Step 5
•Spirits of different age groups are selected with different flavours and blended to Distilleries Company of Sri Lanka Ltd International Distilleries Ltd. Step 6 manufacture arrack. Periceyl Company (Pvt) Ltd Hingurana Distilleries Ltd.Samanabadda
Acme Lanka Company Ltd Other Source: State of the Sri Lankan Alcohol Industry and analysis of Governing policies of Institute of Policy Studies of Sri Lanka. Source: Performance Report 2014, Sri Lank Excise Department
LOLC Securities Limited | Sector Research 44 Appendix 02
Overview of the liquor industry in Sri Lanka.…….
Figure 36: Market share of Country made foreign liquor (2014) Country made foreign liquor
6% 3% 0%
There are 7 players in Sri Lanka which import spirits and blend locally according to the 22% 39% international standards while the country made foreign liquor segment is dominated by IDL with a market share of 39%, Rockland with a market share of 30% and DCSL’s fully 30% owned subsidiary Perceyl (Pvt) Ltd with a market share of 22% while other manufactures shares the rest. International Distilleries Ltd. Rockland Distilleries (Pvt) Ltd Periceyl Company (Pvt) Ltd W.M. Mendis & Co. Ltd Malt Liquor Hingurana Distilleries Co. Ltd. Dompe Others Source: Performance Report 2014, Sri Lanka Excise Department
There are two categories of malt liquor production namely Beer production with alcohol % Figure 37: Market Share of Malt Liquor (2014) below 5% and more than 5%. Alcohol content above 5% accounted for 90% of the total malt liquor production in 2014. There had been three malt liquor manufacturers in the Sri 3% Lanka namely Lion Brewery, Asia Pacific Brewery and Millers Brewery Ltd. With the 14% acquisition of the trademarks and the entire shareholdings of the Millers Brewery by the Lion Brewery, Lion Brewery’s market share increased up to 86% of the malt liquor 83% industry.
Lion Brewery Ltd. Asia Pacific Brewery (Lanka) Ltd Millers Brewery Ltd.
Source: Performance Report 2014, Sri Lank Excise Department
LOLC Securities Limited | Sector Research 45 Appendix 03
PEST and SWOT analysis of the liquor Industry….
P E S T Political Economical Social Technological
Political stance of imposing heavy Increasing GDP per capita income Religious and cultural pressure on Technology may help in upgrading the excise duties on liquor products (growth) could generate more liquor consumption. manufacturing of liquor. consumption. Regulating the industry through Alcohol drinking is considered a granting license by Department of Tourist arrival growth might also gendered activity (females refrain Excise Duties. result in increased demand for liquor. from drinking due to cultural factors).
Limitations on the marketing of liquor Potential price increase in liquor products. products due to inflation and taxes.
S W O T Strengths Weaknesses Opportunities Threats • Consumer’s desire for liquor products. Possible health implications and the Increase in per capita income which is Religious and cultural influence. negative perception towards liquor expected to increase the demand for • Addiction ability of liquor products. products by certain communities. liquor products. Government rules and regulations including higher tax burden. • Island wide distribution network of liquor Increase in tourist arrivals to the products. country. Intense rivalry within the industry.
• Industry being one of the key income Inelastic consumption irrespective of Restrictions on advertising and generator for the government. taxes. sponsoring events.
Illicit consumption of liquor
LOLC Securities Limited | Sector Research 46 Appendix 04
24 Licensed liquor manufactures in Sri Lanka (2014)
V & A (Pvt.) Ltd - Padukka Randenigala Distilleries Ltd-Kaduwela
Acme Lanka Company Ltd- Hanwella Rockland Distilleries Ltd-Colombo 05
Asia Pacific Brewery (Lanka) Ltd-Mawathagama Sri Lanka Distilleries Ltd-Wadduwa (only till March 2014)
Classic Distilleries (Private) Ltd- Malabe. Scotland Distilleries Company Ltd-Badulla
Distilleries Company of Sri Lanka Ltd-Colombo 10 Thikkam Distilleries-Point Pedro
Hingurana Distilleries (Pvt) Co-Thittapattara Uva Glen Company (Pvt) Ltd-Moragahahena
International Distillers Ltd-Kaduwela Valikamam Distilleries-Manipai
Lion Brewery Ltd-Biyagama W.M Mendis & Company Ltd-Ragama
Manori Lanka Company (Pvt) Ltd-Gampola Varani Distilleries Ltd-Warani
Millers Brewery (Pvt) Ltd-Meegoda (only till May 2014) Wayamba Distilleries (Pvt.) Ltd-Kurunegala
Nippon Expo Company Ltd-Dompe Synergy Hotel & Holdings (Pvt.) Ltd-Payagala
Periceyl Company (Pvt) Ltd-Colombo 5
Randiya Marketing Services (Pvt) Ltd-Dankotuwa
Source: Performance Report 2014, Sri Lank Excise Department
LOLC Securities Limited | Sector Research 47 Disclaimer
LOLC Securities Limited is a company incorporated in Sri Lanka and licensed by the Securities and Exchange Commission of Sri Lanka to operate as a
stockbroker/stock dealer in Sri Lanka. LOLC Securities Limited is a trading member of Colombo Stock Exchange. This research is based on information from
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research, LOLC Securities Limited does not give a guarantee on the accuracy ofSocial the information presented in the paper nor will take the responsibility on
investment decisions taken based on the information provided by the research and hence LOLC Securities Limited nor its employees accepts any liability
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research which may be influenced by different circumstances.
LOLC Securities Limited | Sector Research 48 Glossary
Liquor Spirits of Wine, Spirit, Wine, Toddy, Beer and all liquid consisting or containing alcohol also any substance, which the Minister may by notification declare to be liquor for the purposes of Excise Ordinance (Excise Department).
Alcohol Product Social A beverage containing a volume of 1% or more of alcohol (National Authority on Tobacco and Alcohol Act No 27 of 2006).
Zero- Tolerance
The policy of applying laws or penalties to even minor infringements of a code in order to reinforce its overall importance.
CAGR
Cumulative Annualized Growth Rate.
W.E.F
With Effect From.
APC
Alcohol Per Capita.
YOY
Year on Year
Proof litre (Arrack)
= Bulk Litre*Alcohol By Volume/0.571
LOLC Securities Limited | Sector Research 49
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LOLC Securities Limited | Sector Research 50