TRIS Rating Co., Ltd., the Thai rating agency, foresees a rise in the excise tax on alcoholic beverages will limit on beer consumption. However, the effect on the credit rating of Thai Beverage PLC (ThaiBev), which is still at “AA-”, should be minimal on the back of the company’s strong market position and a potential rise in spirits consumption to offset declining beer sales.
In response to the Cabinet’s resolution on 6 May 2009 to raise excise tax for beer and spirits effective immediately, TRIS Rating believes that the new tax scheme will likely put pressure on brewers and alcoholic beverage producers to raise retail prices. In terms of value for alcoholic content, beer will be considered as more expensive than white and compounded spirits given its lower alcoholic content. Medium- to low-income drinkers who prefer high alcoholic content may shift from beer and consume liquor instead.
Beer consumption proves to be more sensitive to economic condition than spirits, TRIS Rating adds. For the first time in a decade, beer consumption dropped, falling by 4.3% in 2008 and dropping further by 11.2% year-on-year in the first quarter of 2009. On the contrary, spirits consumption grew 6.3% and 10% during the same two periods. The expected price rises will likely discourage beer consumption further.
Despite a higher cost of production, TRIS Rating says that any rating action on ThaiBev remains unnecessary because of the company’s dominant position in both the beer and spirits markets and a solid cash flow stream. The negative impact should be partially mitigated by some price adjustments. However, TRIS Rating will pay close attention to any future government actions which are major factors for the rating consideration of alcoholic beverage business.
ThaiBev is currently assigned a company rating at “AA-” with a “stable” outlook by TRIS Rating. — End
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