Organised liquor industry revenue seen up 12-13% to Rs 4.45 lakh crore this fiscal, led by strong demand, premiumisation – Industry News

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Indian organised liquor industry revenue is growing at 12-13 per cent this fiscal to ~Rs 4.45 lakh crore, after a 15-16 per cent growth last year, said a report by CRISIL Ratings. The growth is driven by strong demand and premiumisation. A study of 33 liquor companies, accounting for ~15 per cent of the organised liquor segment revenues, by CRISIL Ratings said that blended operating profitability of distillers and brewers is expected to increase 100-150 bps with softening of input costs. Meanwhile, credit profiles will remain strong with leaner balance sheets on back of significant deleveraging in the last three fiscals.

The liquor industry can be broadly segmented into distillers and brewers. Distillers produce Indian-made foreign liquor (IMFL), accounting for ~65-70 per cent of the industry’s revenues while brewers produce beer, which accounts for ~25-30 per cent of the industry revenues.

“The growth will be driven by a rebound in tourism and hotel industries, rising disposable incomes and premiumisation trend. The premium segment, which is over Rs 1000 per 750 ml bottle, is expected to grow at over 20 per cent, albeit on a lower base. On the other hand, the price sensitive mass consumer segment comprising liquor priced below Rs 700 per 750 ml bottle and contributing to over 3/4th of the liquor industry revenues will see volume growth of 5-7 per cent as prices in this segment have remained largely unchanged,” said Rahul Guha, Director, CRISIL Ratings. 

The players’ operating profitability will benefit from not only the increased revenue base but also from softening of input costs. Extra neutral alcohol (ENA) / rectified spirit and barley constitute ~55 per cent of the input cost for the distillers and brewers, respectively while packaging material such as glass, plastics and labels contribute to the rest.

While packaging costs have moderated, ENA prices are expected to remain high, thus restraining any major margin expansion for the distillers, the CRISIL report stated. On the other hand, the brewers will benefit from not only the lower packaging cost but also from the sharp correction seen in prices of barley. Barley prices after rising by more than 20 per cent on-year last fiscal have fallen by over 25 per cent in the first half this fiscal.

“With the favourable input costs coupled with a strong revenue growth, brewers will see profitability expand ~250 basis points (bps), while distillers will clock 70-80 bps improvement this fiscal. Overall, the industry will toast a blended 100-150 bps expansion in operating profitability this fiscal,” said Jayashree Nandakumar, Director, CRISIL Ratings.

Strong demand will spur capacity additions with focus on backward integration, such as adding captive ENA/ grain- based distilleries. However, with rapid deleveraging in the past three fiscals and prudent funding of capex, gearing will remain comfortable at ~ 0.3 time as on March 31, 2024, versus 0.4 time a year earlier. Interest coverage will remain strong at 7-7.5 times this fiscal, compared with 6.5 times last fiscal. Per the report, going forward, government policy, changes in duty structure and volatility in input costs will bear watching.

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