Indian alcohol beverages industry to maintain revenue growth at 8-10% in FY24: ICRA

According to the Investment Information and Credit Rating Agency (ICRA), domestic alcoholic beverage producers would continue to have stable revenue growth of 8-10% in FY24. It further reported that the Indian alcohol market saw a strong revival in FY23, led by healthy demand across both segments, i.e., spirits and beer, following two successive pandemic-hit years of FY21 and FY22.

Revenues for ICRA's sample set companies increased year-on-year (Y-o-Y) by 20% in FY23 to Rs. 26 billion (US$ 312.4 million), surpassing pre-COVID levels. Despite being the lean season for the segment, the spirits business recorded a 13% year-on-year (Y-o-Y) growth in revenues during the first quarter of FY24, whereas the beer industry, which was in its peak season, had a minor decline of 1% because of the unseasonal rainfall.

According to Mrs. Kinjal Shah, Vice President and Co-Group Head-Corporate Ratings, ICRA Limited, ICRA anticipates that alcohol consumption will be constant, helped by factors such as expanding urbanisation, rising disposable incomes, favourable demographics, and laxer state regulations. In FY24, demand will be further fueled by a subpar monsoon, warm temperatures, and continuing El Nino conditions.

However, it continued to state that despite a constant demand, the OPM of the enterprises in ICRA's sample set is expected to decrease sharply by 300 basis points in FY23 and then by another 90–140 basis points in FY24. The non-basmati rice and other grains, such as maize, that are used to produce Extra Neutral Alcohol (ENA), the raw material needed to make spirits, are the main causes of the predicted margin reduction in the current fiscal year. Therefore, it's still important to consider how a poor monsoon, El Nino conditions, and government policies would affect grain prices in order to determine the industrial cost structure.

The report also stated that the cost of packing materials, notably glass, remained high due to rising soda ash prices. However, recent quarters have seen a correction in barley prices, which are expected to stabilise in the short to medium term. Barley is the primary raw material used to make beer. Another important element to watch for the business is the availability and resulting pricing pressures from the redirection of grains towards the manufacture of ethanol, which is seeing higher demand as a result of the government blending rules.

Mrs. Kinjal Shah further stated that the timely increase in the selling price of alcoholic beverages products from the state governments is the key to absorbing the rise in input costs. This usually 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 alcoholic beverages products for the current fiscal. Further, the Madhya Pradesh government expanded the distribution network for alcoholic beverage products last year, which continues to provide an upside to the industry in the current year as well.

While ICRA's sample set invested a large amount of capital—5% of revenues—in FY23, this is anticipated to decline to 2-3% in FY24 and FY25 since important companies have lately improved their capabilities. Most of the current capacity expansion is linked to the production of beer, which is anticipated to increase in the short- to medium-term as some players want to grow into new states and further entrench themselves in their current markets. ICRA, on the other hand, anticipates that the sector will continue to exhibit steady and sound credit metrics supported by solid cash flow production and minimal debt accumulation.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.