OREANDA-NEWS. June 11, 2010. The Ministry of Finance proposed an increase in the excise tax for 1 liter of spirits from RUB210 to RUB330 in 2011. The tax would rise to RUB490 in 2012, and to RUB650 in 2013, reported the press-centre of OTKRITIE Financial Corporation.

View: If approved, the tax would likely increase the minimum bottle price from RUB89 to RUB120 per bottle in 2011. Lower segment vodka producers (priced below RUB120 per 0.5l bottle) are likely to suffer from the price increase. CEDC’s top selling brand, Zelenaya Marka, is priced around RUB150 per bottle and is less likely to suffer from a rise in the minimum vodka price. CEDC's production volumes might decrease in the short run, with the company shifting toward more premium vodka production because consumption of premium brands could rise on the back of the growing per capita income. We are going to review our assumptions on the excise tax, factoring in potential changes to production volumes and ex-factory price.

Valuation and Action: CEDC trades on a 2010 EV/EBITDA of 9.9x, which is a 43% discount to EM peers. In case there is a sell-off on the back of the news, we would be buyers of CEDC.