Accelerating the rise in excise duties looks realistic to us, given the tightening state budget and the government’s target of reducing the abuse of alcohol across the country. The current schedule assumes the excise tax per half-litre bottle of vodka rising from RUB 46 in 2011 to RUB 100 in 2014. We estimate retail prices increasing 60-80%, pushing the market into the grey zone and the legal market losing 25% in 2012-2014F. While accelerating the rise further could worsen the outcome, the impact can only be quantified once there has been an official announcement.
The development is negative for vodka producers in Russia, as they would face significant pressure on sales volumes. In our view, the only opportunity comes from market centralisation as smaller players would unlikely be able to cope with such a harsh excise and retail price environment.