Domestic alcohol companies may see revenue growth of 8-10% in FY24: Icra

  • The Indian liquor industry reported strong growth in FY23

Suneera Tandon
First Published10 Oct 2023, 02:19 PM IST
Companies are set to see a decline in operating margins.(Representative Photo)
Companies are set to see a decline in operating margins.(Representative Photo)(HT_PRINT)

New Delhi: Alcoholic beverage makers in India are set to report revenue growth of 8-10% in the current fiscal, lower than the 20% rise witnessed in the previous fiscal, ratings firm Icra said on Tuesday.

The Indian liquor industry reported strong growth in FY23 after the pandemic-linked closures adversely impacted sales in the two preceding fiscals --FY2021 and FY2022.

“Icra’s sample set of companies witnessed a year-on-year growth of 20% in revenues in FY2023 to 26 billion, exceeding the pre-covid levels. During Q1 FY2024, the spirits industry reported a 13% year-on-year increase in revenues despite being the lean season for the segment, while the beer industry, despite being the peak season, witnessed a marginal decline of 1%, due to the unseasonal rainfall,” the ratings firm said in its note.

However, companies are set to see a decline in operating margins on account of elevated prices of input materials such as non-basmati rice and other grains such as maize, used to produce extra neutral alcohol (ENA), the base to manufacture spirits.

Icra anticipates companies under its coverage to report margin contraction of 90-140 basis points in FY2024, following a sharp 300 basis points decline in FY2023. The impact of a sub-par monsoon, the El Nino conditions, and the Government measures on grain prices thus remain crucial to ascertain the industry cost structure, it said.

“Icra expects alco-bev consumption to remain steady, supported by growing urbanisation, rising disposable incomes, favourable demographics, and easing regulatory environment by some states. A sub-par monsoon with warm weather amid ongoing El Nino conditions will further drive demand, particularly for beer, in FY2024,” Kinjal Shah, Vice President and Co-Group Head, corporate ratings said.

Analysts at Icra warned of high packaging material costs—particularly glass, led by an increase in soda ash prices. However, prices of barley, the key raw material for producing beer, have corrected in recent quarters and are likely to remain stable in the near to medium term. Moreover, the availability and consequent pricing pressures from the diversion of grains towards production of ethanol, which is seeing increased demand due to the government blending norms, is also a key influencing factor to monitor for the industry, it said.

“The timely increase in the selling price of the alco-bev products from state governments is the key to absorbing the rise in input costs. This typically happens on an annual basis at the beginning of a fiscal; hence, any mid-year raw material price volatility must be absorbed by the manufacturers. Some key states, including Karnataka, Haryana, Delhi, and Uttar Pradesh, have permitted the increase in prices of alco-bev products for the current fiscal. Further, the Madhya Pradesh government expanded the distribution network for alco-bev products last year, which continues to provide an upside to the industry in the current year as well,” Shah added.

The rating agency expects capex of domestic liquor makers to moderate to 2-3% of FY24 revenues from 5% in FY2023. A large part of the ongoing capacity addition is being driven by beer makers, it said.

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First Published:10 Oct 2023, 02:19 PM IST
HomeIndustryDomestic alcohol companies may see revenue growth of 8-10% in FY24: Icra

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