Home / Companies / News /  High input costs play spoilsport for beverage manufacturers: Report

New Delhi: The Indian alcoholic beverage industry is expecting revenue growth in FY23, after some years of downturn, despite the divestiture of several brands by one of the companies in the sample set, Icra said.

The ratings agency expects its sample set to show healthy growth of 18-20% in revenues in FY23 and 5-10% in FY24.

Mythri Macherla, assistant vice president and sector head, corporate ratings, for the company said: “The alcobev industry was impacted in FY2021 and FY2022 owing to the pandemic-induced disruptions and the discretionary nature of products. While the impact on the Indian made foreign liquor (IMFL) players was minor, beer players suffered volume losses because their peak summer season coincided with the first and second waves of Covid.“

She added that with a revival in demand and a growing trend of premiumisation, its sample set of alcobev companies witnessed a 40% YoY growth in revenues in the first half of FY23.

An early onset of summer in many parts of the country, which was hotter than usual, augured well, particularly for beer sales. Consequently, the growth of beer players is predicted to be higher than that of IMFL players in the year.

However, the operating profit margin (OPM) for the sample set is expected to moderate by 100-150 basis points (bps) in FY23 due to substantially higher input prices in recent quarters combined with limited pricing power.

But the OPM is expected to remain between 13-14%. In FY2024, it is expected to improve a little to 14-15% largely on the back of operating leverage benefits.

The company added that extra neutral alcohol (ENA) prices have been steadily rising since the third quarter of FY22 (depicting an increase of 11% since March 2022), after being suppressed in FY21 due to the pandemic, and are expected to remain high in the near term.

ENA and glass typically account for more than 65% of raw material costs for IMFL operators, who are requesting price increases from state governments to mitigate the impact.

On the other hand, the prices for barley, a major ingredient in beer, have risen substantially by about 50% since February 2022, a result of the Russia-Ukraine conflict, and are expected to remain elevated in the near term. Amid such a scenario, the ability of industry players to get price increases from state governments in a timely manner remains critical from a profitability perspective.

While covid-related uncertainty forced organic capex to the backburner in the previous two years, it is estimated to reach 7-9% of revenues in FY23. Some companies are focusing their expansion on greenfield facilities (grain-based distilleries) and improving backward integration capabilities (such as captive ENA production). Other companies in the agency’s set are also projected to spend on capacity enhancements to meet future supply needs. Despite the somewhat higher capex in FY23, which is partially debt-funded, healthy cash accruals are likely to keep debt levels flattish. This, in combination with strong accruals, is likely to support the industry’s debt coverage metrics.

In FY23 and FY24, the debt/OPBDITA ratio is expected to be 0.5–0.7times, with an interest coverage ratio of 23–25x.

Varuni Khosla
Varuni Khosla is a journalist with close to 14 years of experience in writing business news stories for mainstream newspaper companies like Mint and The Economic Times. She reports and writes on luxury and lifestyle brands, hospitality and tourism news, the business of sports, the business of advertising and marketing and alcohol brands.
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout