Inelastic Proxy for Consumption Growth - LOLC Securities · “Inelastic Proxy for Consumption Growth” Liquor Sector in Sri Lanka March 2016 Analyst- Hiruni Perera [email protected]

“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

LOLC Securities Limited | Sector Research 2

Investment Case

Industry Dynamics

Arrack Consumption to maintain a modest growth of 1.7%

Inelastic demand for malt liquor (Beer) consumption

Inelastic demand for Arrack consumption

Liquor industry to reap benefits from expected increase in GDP

Beer consumption growth to slow with recent excise duty hike

Growth in tourism can be a key catalyst for the growth in the liquor sector

However demand growth for Beer to outpace growth for Arrack in mid-long term

Excise duty for 1% of alc. strength of Beer > Excise duty paid for 1% of alc. strength of

Arrack

We estimate 4% growth in total recorded liquor consumption for 2016

Contents contd.


Industry Dynamics contd.

Excise duty on liquor to play an important role in the Gvt. Fiscal revenue

Tight regulations to govern the liquor industry in Sri Lanka

Cultural and demographic factors to influence liquor consumption

However certain countries exists in the world with prohibition of liquor

Less likelihood of a complete ban of liquor in Sri Lanka

We estimate liquor consumers to represent 25% of population

Key Players in the industry

Appendices

Budget 2016 is trending positive for big players

A gradual reduction in the illicit and illegal liquor consumption


Investment Case

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.


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.



Industry Dynamics

Figure 1: Increase in the Food, Beverage and Tobacco expenditure in par with GDP rise

Figure 2: Total liquor consumption has shown a steady growth inline with GDP

Industry Dynamics


Liquor industry to reap benefits from the expected increase in GDP…….

Sri Lanka has recorded an average real GDP growth of 7.42% during past 5 years (2010-

2014) in tandem with the turnaround of the country’s macro environment after end of civil

conflict in 2009. Along with the increase in GDP, private consumption expenditure is

expected to increase as a result of more spending on discretionary items along with the

increase in consumption of other essential goods.

Expenditure on Food, Beverage and Tobacco (nominal) has depicted a CAGR of 11.8% over

the five year period of 2010-2014 compared with the CAGR of 14.9% in GDP (nominal)

reflecting that people have proportionately increased the consumption expenditure on

Food, Beverage and Tobacco in par with their income level.

Sri Lanka's total liquor consumption has seen a CAGR of 6% during last 5 year period

(2010-2014) while looking ahead we expect that liquor consumption to record a YOY

growth of 4% for 2016 and 2017 driven by expected GDP growth of 6.5%* in the medium

term.

Note*- IMF forecasts

Source: Annual Report 2014 of Central Bank of Sri Lanka

Source: Annual Report 2014 of Central Bank of Sri Lanka and Sri Lanka Excise Department

0

2,000

4,000

6,000

8,000

10,000

12,000

0

50

100

150

200

250

2010 2011 2012 2013 2014

GD

P i

n L

KR

Bn

To

tal

Liq

ou

r C

on

sum

pti

on

in

Lit

res

Mn

Total Liqour Consumption (Litres) GDP at market prices (LKR)

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

2010 2011 2012 2013 2014

Mil

lio

ns

Food Beverage and Tobbacco Total private consumption expenditure GDP

Figure 03: Strong positive correlation between GDP and liquor consumption (litres )

Figure 04: Per capita recorded alcohol consumption for SL is higher than most of the countries in the region

Source: World Health Organization, (2010)

0 0.4

3.2

2.2

0.1 0.7

0.1 0.2

2.2

6.4

0.1

1.8

4.7

0

1

2

3

4

5

6

7

In L

itre

s o

f p

ure

alc

oh

ol

Industry Dynamics


Liquor industry to reap benefits from the expected increase in GDP…….

Past 6 year data for total liquor consumption has shown a strong positive correlation with

the GDP indicating that people tend to consume more liquor in line with the rise in their

income.

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

Coefficient of correlation with the GDP

Total Liquor Consumption (litres)

0.79

*Excludes tourist consumption


I. Arrack Consumption

Figure 05: People have continued the arrack consumption despite regular price increases

Industry Dynamics


Inelastic demand for Arrack Consumption…….

Historically, Arrack has been resilient with an inelastic demand, despite regular excise duty

increase in retail prices of liquor bottles. We believe that Arrack consumption to be backed

by price inelasticity of demand resulting in manufacturers passing down incremental taxes

and inflationary pressure to customers through increasing selling prices.

As depicted in the Figure 5, Arrack consumption which represents 35% of the total

recorded liquor consumption is linear with a flat slope indicating a relatively inelastic

behavior of demand despite regular duty increases. Further positive correlation between

selling price per litre of Arrack with the Arrack consumption (in litres) indicates that

people have continued the consumption despite price increases.

Source: Sri Lank Excise Department and LOLC SEC Estimates

*Note- Prices of arrack includes the prices of estimates

60.00

65.00

70.00

75.00

80.00

85.00

90.00

600.00 700.00 800.00 900.00 1000.00 1100.00 1200.00 1300.00

Co

nsu

mp

tio

n i

n L

itre

s (M

n)

Arrack prices in LKR per litres

Arrack consumption(lr) Arrack Consumption trendline

Figure 06: Moderate positive correlation between GDP and Arrack consumption

Figure 07: Arrack consumption maintains a modest growth of 1.4%-1.7%

Source: World Health Organization and LOLC Sec Estimates

Industry Dynamics


We expect arrack consumption to maintain a modest growth of 1.7%…….

In the last decade, Sri Lanka's Arrack consumption has seen a modest growth of 1.4%. This

could be largely due to the increased penetration of illicit and illegal liquor products to the

society and disproportionate growth of taxes compared with disposable income rise. There

has been a moderate positive correlation between GDP with arrack consumption pattern.

Source: Annual Report 2014 of Central Bank of Sri Lanka, Performance Report Sri Lank Excise Department

Coefficient of correlation with the Real GDP growth rate

Arrack Consumption Growth

0.41

64

72 71 75

86 82

77 72 74 75 76

-10%

-5%

0%

5%

10%

15%

20%

-

10

20

30

40

50

60

70

80

90

2005 2008 2009 2010 2011 2012 2013 2014 2015(F)

2016(F)

2017(F)

Arrack consumption (lr) YoY Growth Average

Co

nsu

mp

tio

n i

n L

itre

s M

n

We estimate recorded Arrack consumption for next 3 years to be in line with a

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

products on rise of disposable income and curtailing the availability of illicit liquor

through tight regulatory controls.

Accordingly, we estimate a 3.8 litres per capita Arrack consumption by 2017 and it

could reach to 4 litres by 2020.

* Source - WHO


II. Malt Liquor (Beer) Consumption

Figure 08 : People have continued beer consumption despite excise duty increases

Industry Dynamics


Inelastic demand for malt liquor (Beer) consumption…….

Malt liquor (Beer) consumption has shown an inelastic demand in line with the average

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

the regular tax hike.

Further past 6 year data for beer consumption has not seen a negative correlation with the

increase in excise duty for Beer reflecting the inelasticity of consumption.

Source: Sri Lanka Excise Department and LOLC SEC Estimates

0

20

40

60

80

100

120

140

160

50 70 90 110 130 150 170

Bee

r C

on

sum

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on

in

Mil

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Lit

res

Beer consumption Beer consumption trendline

Beer excise duty in LKR

Figure 09: Beer consumption growth to slow down in 2016 relative to 2015

Figure 10: Beer duty exceeds the duties on Arrack

Source: Excise Gazettes

Industry Dynamics


Beer consumption growth to slow with recent excise duty hike…….

Sri Lanka's beer consumption has seen a rapid CAGR of 14% since 2010-2014 while there

has been a strong positive correlation of 0.88 between GDP with Beer consumption

pattern.

Source: Performance Reports of Sri Lank Excise Department and LOLC SEC Estimates

According to the recent tax changes, excise duty on locally produced strong Beer

increased by 28.5% compared with the tax hike of 15.9% for Arrack. Further in

2015, total excise duty hike for strong Beer is 70% compared with the excise duty

hike for Arrack of 25%.

Despite the absence a of negative correlation on beer consumption with increase in

excise duties, we expect recent excise tax hike on Beer to result in lower “kick per

buck” for Beer than Arrack and accordingly growth of malt liquor (Beer)

consumption over hard liquor consumption to slow down.

Accordingly, we estimate per capita beer consumption to be 6.5 litres per annum in

2016.

Type of Liquor W.E.F 25/10/2014

(LKR)

W.E.F 03/10/2015

(LKR)

W.E.F 21/11/2015

(LKR)

Arrack (LKR/Proof

Lit)

1485 1595 1850

% Change 7.4% 15.9%

Foreign Liquor-

(LKR/Proof Lit)

1700 1860 2030

% Change 9.41% 9.13%

Beer- Strength < 5%

(LKR/Lit)

150 190 160

% Change 26.6% -18.75%

Beer- Strength >5%

(LKR/Lit)

185 245 315

% Change 32.4% 28.5%

124 130

137

28%

39% 33%

0%

-7%

8% 5% 5%

-10%

0%

10%

20%

30%

40%

50%

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015 (F) 2016 (F) 2017 (F)

Co

nsu

mp

tio

n i

n L

itre

s M

n

Malt Liqour Consumption (Litres) YOY growth

Avarage Growth

Industry Dynamics


Excise duty for 1% of alc. strength of Beer > Excise duty paid for 1% of alc. strength of Arrack…….

6.67 7.37

8.93 9.81

10.68

12.74

15.64

17.74

19.44

23.51

30.17

5.96 6.69 6.76

8.24 8.24

11.03

13.31

15.15

17.65

22.06

33.46

0

5

10

15

20

25

30

35

40

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

Exc

ise

Du

ty i

n L

KR

Recent excise tax hike in end of 2015 to result in lower “kick per buck” for Beer over Arrack

Source: LOLC SEC Estimates and Excise gazettes

Figure 11: Sri Lanka’s beer consumption penetration is low compared with the South East Asia and the world

Industry Dynamics


However demand growth for Beer to outpace growth for Arrack in mid-long term

Despite short term slowdown in beer consumption due to increase in excise duty, we

expect beer consumption to grow in mid to long term given the facts that its growing

popularity among the young population as a life style product, low alcohol content and low

health effects of beer compared to hard liquor, easy access and due to greater affordability.

When compared with the average figures of South and East Asia and the world Sri Lanka is

still consuming more % of spirits compared with Beer based on the recorded consumption.

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

growth in the country.

.

Beer Wine Spirits Other

Sri Lanka 13% 0% 85% 2%

Bangladesh 0% 0% 0% 0%

Bhutan 100% 0% 0% 0%

Maldives 29% 29% 41% 0%

Nepal 48% 1% 51% 0%

India 7% 0% 93% 0%

Democratic People's

Republic of Korea

5% 0% 95% 0%

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%

Source: World Health Organization

Note: Recorded APC consumption by type of alcoholic beverage (beer, wine, spirits, other), 2010 (as a % of recorded alcohol per capita consumption


III. Total Liquor Consumption

Source: LOLC SEC Estimates and Sri Lank Excise Department,

Industry Dynamics


We estimate 4% growth in total recorded liquor consumption for 2016 …….

142

165

201

234 226

209 220

229 237

0%

16%

22%

16%

-3%

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5% 4%

4%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

50

100

150

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250

2009 2010 2011 2012 2013 2014 2015 (F) 2016 (F) 2017 (F)

Mil

lio

ns

Lit

res

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.

Figure 12: Tourist Arrivals to SL has increased at CAGR of 26% 2009-2015

Figure 13: Estimated percentage of liquor consumption attributed to foreigners has increased with the growth in tourist arrivals.

Source: LOLC SEC Estimates , SLTDA, Sri Lank Excise Department,

Industry Dynamics


Growth in tourism can be a key catalyst for the liquor sector…….

A substantial increase in tourist arrivals can be considered as a key catalyst for growth in

the liquor consumption in the country. From 2009 to 2015 tourist arrivals to Sri Lanka has

increased from 447,890 to 1,798,380 depicting a CAGR of 26%. In line with tourist arrivals

growth and tourist arrival target of 2.5 Mn by 2016 we expect a further increase in the

liquor consumption in the country.

Source: SLTDA

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013 2014 2015 2016(F)

Th

ou

san

ds

Tourist Arrivals YOY Growth

We estimate that total liquor consumption attributed to foreigners to Sri Lanka to be

approximately 5.1 Million Litres of liquor contributing 2.48% to the total liquor

consumption in 2014 which can be increased up to 6% by 2020.

1.08% 1.35%

1.46% 1.46%

1.89%

2.48%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0

50

100

150

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250

2009 2010 2011 2012 2013 2014

Liq

ou

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pti

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res

Mn

Total liqour consumption

Consumption attributed to tourists as a % total liqour consumption

Figure 14: Detections conducted by the excise dept. relating to liquor has shown a declining trend with the increase in GDP per capita

Industry Dynamics


We see a gradual reduction in the illicit and illegal liquor consumption …….

Past data reveals that total number of offences relating to the liquor industry has shown a

declining trend over the five year period despite slight increase in 2013. Further it has shown a

negative correlation with GDP per capita reflecting that illicit and illegal consumption decreases

with the increase in income as people are encouraged to consume legally produced liquor.

We believe this will enable big players to gain their lost market share over illicit and illegal

liquor manufacturers thus benefitting the licit and legal liquor industry in Sri Lanka.

Further Sri Lanka’s recorded alcohol (licit) consumption is 59% which is considered to be

relatively higher than the several neighboring countries and the average of the South – East Asia

although it is still below the World Average. (Source-WHO)

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.

Source: Handbook of Drug Abuse Information in Sri Lanka 2015 of National Dangerous & Drugs Control Board

2,500

2,700

2,900

3,100

3,300

3,500

3,700

3,900

15000

20000

25000

30000

35000

40000

2010 2011 2012 2013 2014

GD

P P

er C

apit

a (U

SD)

No

of

Off

ence

s

Total Number of offences GDP Per capita

Industry Dynamics


Budget 2016 is trending positive for big players …….

Minimum excise duty of LKR 250 Mn per month

• 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 market rate.

• 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.

Single annual license fee of LKR 50 Mn

• 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.

• However, this fee has been brought down to LKR 50 Mn per annum (Sources-Excise Ordinance Notification No. 983).

• 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.

Fool proof sticker

• Proposal to make every tax paid liquor bottled to be labeled with a fool proof sticker enable the visual identification 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 .

Annual manufacturing license fee of LKR 150 Mn for each distillery

• Government proposed to increase the annual license fee for each distillery owned by the manufacturer to LKR 150 Mn.

• Subsequently it has been reduced to LKR 100 Mn (Sources- Excise Notification No.983)

• 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.

Industry Dynamics


Budget 2016 is trending positive for big players …….

Income tax rate to be reduced from 40% to 37.5%

• With the introduction of 30% corporate tax rate and 25% of surtax for liquor industry the total effective income tax 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 positive impact on their bottom line. However with the recent tax adjustment done to the budget 2016 corporate tax rate applicable to liquor industry will remain at 40% FY 2016 while 37.5% will be applicable from 2017 onwards.

Increased custom and excise duties on imported foreign liquor, beer and imported ethanol

• Government’s proposal to increase the total tax burden (mainly on custom import duty) of imported foreign liquor from LKR 1850/ ltr to LKR 2500/ ltr will make the foreign liquor further costly while shifting the consumers to country made foreign liquor produced by big local producers.

• However on the negative side liquor manufacturing companies will have to incur an additional cost due to increased import duties on ethanol from 300/ltr to 400/ltr.

Figure 15: Liquor revenue to be the second largest contributor to the excise duty revenue

Figure 16:Significant growth in the excise duty revenue from liquor Production

Industry Dynamics


Excise duty on liquor to play an important role in the Gvt. Fiscal revenue…….

Government continues to have a strong interest on excise duty revenue on liquor as it is

the second largest contributor to the total excise tax revenue after excise tax on motor

vehicles. During the 6 year period spanning from 2008 to 2014 liquor sector excise duty

contribution has been hovering around 27%-29% while also representing approximately

6% of the total government revenue.

Tax revenue from liquor which was LKR 23.9 Bn in 2007 has increased to LKR 69.1 Bn in

2014 with a CAGR of 16% during the ten year period. Due to the regular excise duty

increases with regard to liquor it has resulted difficulties for manufacturers to increase

prices on a regularly basis due to the competition within the industry. Higher taxes help

the government to bridge the fiscal account as well as regulate the industry by curtailing

the growth.

Source: Annual Report 2014, Ministry of finance and planning Sri Lanka

Source: Annual Report 2014, Ministry of Finance Sri Lanka

27% 29% 28% 27% 27% 26% 27%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2008 2009 2010 2011 2012 2013 2014

Liqour Cigarettes/Tobacco Motor Vehicles Petroleum Products Other

23.9 27.3 28.1

37.7

55.8 59.9

66 69.1

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012 2013 2014

LK

R B

n

Figure 17: DIST pays the highest excise duty revenue on liquor among the key players in the industry.

Industry Dynamics


Less likelihood of a complete ban of liquor in Sri Lanka…….

Being the highest contributor to the total excise duty on liquor, DIST contributed 50% with

LKR 35 Bn paid for the year ending 2014. LION, IDSL and ROCKLAND contributed 21%,

11% and 6% respectively while remaining contribution came from other players.

Source: Performance Report 2014, Sri Lank Excise Department

-

5

10

15

20

25

30

35

40

Distilleries +Periceyl

Lion BreweryLtd.+ Millers

Brewery

InternationalDist.

Rockland Asia PacificBrewery

(Lanka) Ltd.

W.M Mendis Others

Bil

lio

ns

Revenue generated from excise duty on liquor can be considered as a key contributor

to the government revenue. Therefore it is unlikely that government will impose a

complete ban of liquor despite the pressure from various communities in the society

given the fact that government will lose its tax revenue on such a scenario.

Figure 18: Countries and the regions that have presently banned alcohol have a Muslim majority.

Industry Dynamics


However certain countries exist in the world with prohibition of liquor…….

However there are countries in the world that have prohibited liquor consumption while

most of them have a Muslim majority.

Afghanistan, Bangladesh, Brunei, some states of India (Gujarat, Kerala Manipur, Mizoram,

Nagaland and the union territory of Lakshadweep), Iran, Libya, Mauritania, Pakistan,

Emirate of Sharjah in UAE, Saudi Arabia, Sudan, Kuwait, Yemen have banned liquor due to

the pressure from the religious beliefs although some of the above countries allow

foreigners to drink with a license whereas others have a zero tolerance policy.

Despite existence of certain countries which have banned liquor Sri Lanka is

unlikely to implement such a policy due to its importance to the country in terms of

tax revenue and relatively low rejection of liquor products by the society. Therefore

it is more likely that liquor consumption will only be controlled through tight

regulations.

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/

Country % of Muslim population

Afghanistan 99.8%

Bangladesh, 90.4%

Brunei 51.9%

India (Gujrat, Kerala, Manipur, Mizoram, Nagaland and in the territory of Lakshadweep)

14.6% of the total Indian population

Iran 99.70%

Libya 96.6%

Mauritania 99.2%

Pakistan 96.40%

Emirate of Sharjah in UAE 76% of total population in UAE

Saudi Arabia 97.10%

Sudan 71.4%

Kuwait 86.4%

Yemen 99.0%

Figure 19: Key restrictions imposed on liquor industry in SL.

Industry Dynamics


Tight regulations to govern the liquor industry in Sri Lanka…….

Liquor industry is considered as one of the most tightly regulated industry in Sri Lanka.

Basically manufacturing and sale of liquor in Sri Lanka come under the supervision of the

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

such operations.

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

(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

promote their products. However we see this as an opportunity for big established players

operating in the industry to stay resilient amidst hefty competition since peers cannot

promote their brands or products.

Source: Sri Lank Excise Department, NATA Act No 27 of 2006

Liquor manufactures to prohibit from selling products directly to

the end consumers.

Total ban of the public advertising ,free distribution and 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)

Prohibition of the sale of alcohol products to persons under 21 years of age.

Prohibition on installation of vending machines for dispensing alcohol 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.

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

in % 0.08 0.03 0.08

Zero

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

Figure 20: Population of Sri Lanka by religion

Figure 21: Majority of the population consists of women who consume insignificant amount of liquor

Industry Dynamics


Cultural and demographic factors to influence the liquor consumption…….

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,

age and gender etc.

Out of total population of 20 million, 9.7% consists of Muslims who have been prohibited

from consuming alcohol according to the religion. Another 70.1% and 12.6% consist of

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.

Further 52% of total population consists of women who consume only insignificant

amount of liquor as liquor is perceived as a male specific drink by the society.

Source: Source: Economic and social statistics of Sri Lanka 2015 (Central Bank of Sri Lanka)

70.1%

12.6%

9.7%

7.6%

Buddhist Hindu Islam Christian

48%

52%

Male Female

Figure 22: Alcohol consumers are expected to represent 25% of the population

Figure 23: Trincomalee has shown the highest alcohol usage by population

Industry Dynamics


We estimate liquor consumers to represent 25% of the population…….

Due to the impact stemming from the cultural influences, Sri Lanka’s liquor consumers are

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,

Islamic male population above 15 years of age and male population who abstain from

consuming liquor.

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.

42.80

33.3

40.1

29

38 33.8 31.6 30

38.5 43.5

29.3

05

101520253035404550

(%)

Source: LOLC SEC Estimates, Economic and Social Statistics of Sri Lanka 2015

Total Population (As at 2014) 20.77 Mn

Male children below 15 Years 2.64 Mn

Total female population who abstain from liquor (98%)

10.51 Mn

Islamic male population above 15 years age

0.63 Mn

Male who abstain from liquor out of the remaining population (25%)

1.74Mn

Potential liquor consumers 5.25 Mn

Source: LOLC SEC Estimates, Economic and Social Statistics of Sri Lanka 2015

25%

75%

Consumers Non consumers


Key players of the industry

Figure 24: Revenue from Beverage Sector continues to dominate the Group revenue .

Figure 25: Strong balance sheet and low gearing to allow for investments



Our Key Focus of the Sector- Distilleries Company of Sri Lanka –DCSL (DIST)

DIST is the market leader in the hard liquor industry with 67% volume market share

of domestic hard liquor market while also maintaining a diversified portfolio of other

business operations including plantation, telecommunication, insurance and other

financial services, power generation, logistics, textiles, business process outsourcing

(BPO) services ,media and tourism. DIST’s Beverage segment continues to be the

major contributor to the group’s revenue and profit while registering 85% and 86%

FY15 respectively.

DIST’s diversified business have been restructured under Melstacorp Limited

enabling Distilleries company to focus more on the beverage segment with Melstacorp

to provide greater focus on diversified businesses and its strategic investments.

Investment Consideration

We expect DIST being the leading Arrack producer of the country to benefit from the

expected GDP per capita rise and the inelastic consumption growth of Arrack.

We expect DIST’s current market share of 67% to increase up to historical averages

of 70% by FY 18 in line with the regulatory measures introduced from the budget 2016

and proved business acumen of the Owner/ Chairman’s contribution to the group.

Source: DIST Annual report (2015)

Source: Bloomberg

0%

5%

10%

15%

20%

25%

30%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2010 2011 2012 2013 2014 2015

LK

R M

n

Cash and cash equivalents Total Assets Gearing

Gearings ratio is below 25% and declining

85%

5% 5% 5%

84%

5%

6% 5%

Beverage Sector Plantations sector

Telecommunication sector Diversified sector

2015

2014

Figure 26 : Valuation of DIST

Figure 27: Forecasted Financials



Our Key Focus of the Sector- Distilleries Company of Sri Lanka-DCSL (DIST)

“ DCSL Arrack” a strong brand name which is expected to continue its strong

foothold in local houses while standing above the competition.

We believe that Budget 2016 to trend positive for DIST while making the industry

more concentrated with few larger players as a result of reduction in illicit and illegal

liquor consumption upon effective implementation of budget proposals.

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

avenues for raising debt to venture into new projects.

DIST is also is one of the largest cap counters in the Colombo Stock Exchange (CSE)

with the market capitalization of LKR 61,830 Mn (USD 430 Mn) and it is the only listed

player operating in the hard liquor manufacturing sector.“

Valuation

We assumed a cost of equity of 14.34% which is a 6% premium on 3 year treasury bond

rate (GOSL), taking into consideration the equity market risk. Accordingly, we have

valued the counter using SOTP approach and derived the value of a share at LKR 291.30.

Source: LOLC SEC Estimates

Source: Bloomberg

BUY

LOLC SEC Valuation LKR 291.30

12M Tgt Price( excl. dividend) LKR 264.80

Share Price LKR 206.10

Upside/ (Downside) 41%

Risk Level Medium

LKR Bn 12M Trail

2016 ( F)

2017 (F)

2018 (F)

Revenue 30.8 31.8 33.8 35.3

Net Profit 6.9 5.5 7.9 8.4

S/H’s equity 64.8 69.5 76.2 83.4

Total Assets 91.9 97.9 105.2 112.8

ROA (%) 7 6 8 7

ROE( %) 11 8 11 11



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



ID Lanka Ltd (International Distilleries Ltd)


Local Brands

International Portfolio

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.

Source : IDL website



W. M Mendis & Company Ltd


Local Brands

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.

Source : State of the Sri Lankan alcohol industry and analysis of Governing Policies of IPS and Google




Imported Wines and

Spirits

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.

Source : Rockland Distilleries website

Figure 28: LION’s profit grew at a CAGR of 12% during past 5 years

Figure 29: LION is trading at a premium to market multiples



Lion Brewery Ceylon PLC (LION)

Lion Brewery was incorporated in 1996 as a joint venture between Ceylon Brewery

(Ceylon Beverage Holdings PLC) and the global brewing giant Carlsberg.

LION is the market leader for malt liquor/Beer in Sri Lanka mainly known for its 3

Lion brands and Carlsberg and Carlsberg Special Brew. Following the acquisition of

trademarks, brands and the shareholding in it’s entirely of Millers Brewery Limited by

LION, two of miller’s brands Sando Stout and Sando Power Strong were re-introduced

to the market with a minor packaging overhaul during the year under review. Other

three brands Three Coins larger, Irish Dark and Grand Blonde will be introduced.

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,

Smirnoff, Tanqueray, Ciroc, Bailey’s & Guinness.

Considering low per capita soft alcohol consumption is low in Sri Lanka compared

with the peer countries such as Malaysia, Thailand and Singapore we see a growth

potential in the malt liquor (Beer) segment which will be essentially backed by

increasing per capita GDP and the tourist arrival growth.

Source: Bloomberg

PE PBV Div Yield (%)

Market 13.00 1.40 2.84

Beverage Sector

16.19 28.90 2.88

LION 26.95 4.40 0.80

Source: Bloomberg

832

1,220

1,046

1,343 1,330

1,476

0

5

10

15

20

25

30

0

200

400

600

800

1,000

1,200

1,400

1,600

2011 2012 2013 2014 2015 Last 12M

%

Net

In

com

e (L

KR

Mn

)

Net Income ROE

Figure 30: BREW’s profit grew at a CAGR of 10% during past 5 years

Figure 31: BREW is trading at a premium to the market multiples



Ceylon Beverage Holdings PLC (BREW)

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

BREW and Bukit Darah PLC is the ultimate parent and controlling entity of BREW.

BREW through LION manufactures, imports and distribute alcoholic brands while the

marketing of the portfolios is carried out by Luxury Brands Pvt Ltd.

Further, BREW operates three retail outlets via its subsidiary , Retail Spaces Pvt Ltd.

while these outlets are located in Negambo, Aluthgama and Moratuwa. These outlets

are outsources with income being generated in the form of a royalty.

Group’s restaurants are operated in the names of “Machang”, “O!” and “8.8” while the

restaurant chain is owned by BREW’s subsidiary Pubs N’ Places Pvt Ltd.

Source: Bloomberg

Source: Bloomberg

PE PBV Div Yield (%)

Market 13.00 1.40 2.84

Beverage Sector

16.19 28.90 2.88

BREW 15.96 2.73 1.38

449

666

520 528

659

764

0

5

10

15

20

25

30

0

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014 2015 Last 12M

%

Net

In

com

e L

KR

(M

n)

Net Income ROE


Appendices

Appendix 01


History of the liquor industry in Sri Lanka.

Earliest literature documents with reference to liquor date to the legend of Lord Buddha, where the Enlightened One quelled an intoxicated elephant, which was sent to attack him.

Stories relating to Ceylon Toddy go back to the days of King Dutugemunu, (161-137BC) where the Mahavamsa shows that the King and his army relaxed and drank toddy on the way to Anuradhapura through the coastal areas.

Toddy tapping, the first step in the process of fermenting, was an activity described as a traditional vocation in the folklore of the country.

The Portuguese invasion in 1505 influenced the drinking habit among the Sri Lankans and the Dutch continued the propagation of alcohol.

British introduced the first Excise Ordinance in the form of the Toddy Act of 1912 and granted licenses to open taverns around the island.

Toddy tapping in Kalutara was initiated in 1870s, where it was said that Governor Sir William Henry Gregory (1873-1877) developed this industry.

Distilleries Company of Ceylon was established after the developments of toddy tapping. However toddy industry was only limited to the people of the upper class by the British rulers.

Expansion of tea plantations in colonial life led to privately owned imported foreign liquor outlets to be established in main cities.

In 1913 the Excise Department was constituted to manufacture liquor to the local market.

State Distilleries Corporation was formed in 1974, taking over the distilling and bottling activities from the Excise Dept. which continued to function as the monitoring industry.

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.

Appendix 02


Overview of liquor industry in Sri Lanka…

Type of

Liquor

Key Producers Quantity wise

production in proof

litres (2014)

Type of Liquor Key Producers Quantity wise

production in proof

litres (2014)

Hard Liquor Malt / Soft Liquor

Special

Arrack

DCSL

IDL

Periceyl

Hingurana Distilleries

Ltd.

23,983,779.807

2,678,332.139

1,481,577.776

647,056.870

Beer (Alcohol % below

5%)

Lion Brewery

Millers Brewery

Asia Pacific Brewer

11,697,122.730

525,616.770

472,148.940

Coconut and

Processed

Arrack

DCSL

Rockland

IDL

W.M Mendis

2,912,885.476

1,897,378.950

619,480.436

505,052.564

Beer (Alcohol % above

5%)

Lion Brewery

Asia Pacific Brewery

Millers Brewery

91,389,532.945

16,500,480.960

3,935,835.890

Molasses

Arrack

IDL

W. M Mendis

Rockland

Nippon Expo

920,640.626

667,957.379

163,960.846

136,640.065

Wine

Lanka Wine (Pvt) Ltd

4,493.137

Country

made

foreign

liquor

IDL

Rockland

Periceyl

W.M. Mendis

1,691,527.294

1,316,243.708

940,204.444

249,353.841

Toddy Production Manori Lanka,

Wayamba Super

Singha Bottled Toddy

Manufactory

1,369,165.000

1,163,580.000

1,051,420.000


Figure 32: Production of special arrack continues to dominate the other hard liquor

Figure 33: Market Share of molasses Arrack (2014)

Appendix 02


Overview of the liquor industry in Sri Lanka….

Arrack

Founded in the 5th Century A.D in Sri Lanka, Coconut arrack is a unique product obtained

by tapping the coconut palm. Among all the types we believe that Special Arrack is more

preferred among the hard liquor users as it has shown the highest consumption over the

other hard liquor types.

According to the data of Excise department, out of the 24 licensed liquor manufactures in

Sri Lanka 13 players manufacture Molasses Arrack, 12 produce coconut and processed

arrack while 17 players produce special arrack.


0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014Special Arrack Molasses Arrack

Coconut and Processed Arrack Country made foreing liqour

Source: Performance Reports of Sri Lanka Excise Department

43%

31%

8%

6% 5%

7%

International Distilleries Ltd W.M Mendis & Company Ltd Rockland Distilleries Ltd

Nippon Expo Company Ltd Periceyl Company (Pvt) Ltd Others

Figure 34: Market share of Coconut and Processed arrack (2014)

Figure 35: Market Share of Special Arrack (2014)

Appendix 02


Overview of the liquor industry in Sri Lanka….

Arrack

Being the dominant player in the Sri Lankan alcohol industry, DCSL holds 77% market

share in the Special Arrack, 47% of the market share in the Coconut and Processed arrack

segment and 5% market share of Molasses arrack (Periceyl Company (Pvt) Ltd) in terms

of the volume while other players share the rest.

Arrack Manufacturing Process


Source: Performance Report 2014, Sri Lanka Excise Department

47%

30%

10% 8%

4% 1%

Distilleries Company of Sri Lanka Ltd Rockland Distilleries Ltd.

International Distilleries Ltd W.M Mendis & Co. Ltd

Acme Lanka Ltd. Other

77%

8%

5% 2% 2% 6%

Distilleries Company of Sri Lanka Ltd International Distilleries Ltd.

Periceyl Company (Pvt) Ltd Hingurana Distilleries Ltd.Samanabadda

Acme Lanka Company Ltd Other

Step 1

•Tapping or extracting coconut sap or Toddy from the unopned flower of coconut tree and collected in eathernware pots.

Step 2

•It undergoes rapid fermentation process due to the natural variety of wild yields and bacteria.

Step 3

• After a minute of filtration process it is poured into large wooden casks made out of halmilla wood.

Step 4 •Wooden casks are then generally transported to factories for distillation.

Step 5 •Distillation process begins and completed within 24 hours.

Step 6

•Spirits of different age groups are selected with different flavours and blended to manufacture arrack.

Source: State of the Sri Lankan Alcohol Industry and analysis of Governing policies of Institute of Policy Studies of Sri Lanka.

Figure 36: Market share of Country made foreign liquor (2014)

Figure 37: Market Share of Malt Liquor (2014)

Appendix 02


Overview of the liquor industry in Sri Lanka.…….

Country made foreign liquor

There are 7 players in Sri Lanka which import spirits and blend locally according to the

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

owned subsidiary Perceyl (Pvt) Ltd with a market share of 22% while other manufactures

shares the rest.

Malt Liquor

There are two categories of malt liquor production namely Beer production with alcohol %

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

Lanka namely Lion Brewery, Asia Pacific Brewery and Millers Brewery Ltd. With the

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

industry.


Source: Performance Report 2014, Sri Lanka Excise Department

39%

30%

22%

6% 3% 0%

International Distilleries Ltd. Rockland Distilleries (Pvt) Ltd

Periceyl Company (Pvt) Ltd W.M. Mendis & Co. Ltd

Hingurana Distilleries Co. Ltd. Dompe Others

83%

14%

3%

Lion Brewery Ltd. Asia Pacific Brewery (Lanka) Ltd Millers Brewery Ltd.

Appendix 03


PEST and SWOT analysis of the liquor Industry….

P Political

E Economical

S T Technological

Political stance of imposing heavy

excise duties on liquor products

Regulating the industry through

granting license by Department of

Excise Duties.

Limitations on the marketing of liquor

products.

Increasing GDP per capita income

(growth) could generate more

consumption.

Tourist arrival growth might also

result in increased demand for liquor.

Potential price increase in liquor

products due to inflation and taxes.

Religious and cultural pressure on

liquor consumption.

Alcohol drinking is considered a

gendered activity (females refrain

from drinking due to cultural factors).

Technology may help in upgrading the

manufacturing of liquor.

Social

S Strengths

W Weaknesses

O Opportunities

T Threats

• Consumer’s desire for liquor products.

• Addiction ability of liquor products.

• Island wide distribution network of liquor

products.

• Industry being one of the key income

generator for the government.

Possible health implications and the

negative perception towards liquor

products by certain communities.

Increase in per capita income which is

expected to increase the demand for

liquor products.

Increase in tourist arrivals to the

country.

Inelastic consumption irrespective of

taxes.

Religious and cultural influence.

Government rules and regulations

including higher tax burden.

Intense rivalry within the industry.

Restrictions on advertising and

sponsoring events.

Illicit consumption of liquor

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


Disclaimer


Social

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

sources that LOLC Securities Limited believes to be reliable. Whilst reasonable care has been taken to ensure accuracy of the information presented in the

research, LOLC Securities Limited does not give a guarantee on the accuracy of 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

whatsoever for any loss arising from investments decisions taken using the information provided in this paper. The reader also should note this paper does not

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research which may be influenced by different circumstances.

Glossary


Social

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

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

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Documents

Inelastic Proxy for Consumption Growth - LOLC Securities · “Inelastic Proxy for Consumption Growth” Liquor Sector in Sri Lanka March 2016 Analyst- Hiruni Perera [email protected]