Get App
Indian alcohol beverage industry is expected to see a revenue growth of 18-20% in FY23 and 5-10% in FY24 as the industry rebounds from the disruptions caused by the pandemic, according to a report by ICRA.
“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,’ said Mythri Macherla, Assistant Vice President & Sector Head – Corporate Ratings, ICRA Limited.
However, Macherla added that increase in demand and a growing trend of premiumisation shows alcobev companies from ICRA’s sample set registering a 40% YoY growth in revenues in H1FY2023. Moreover, an early onset of summer in many parts of India augured well for beer sales. Consequently, the growth of beer manufacturing companies is predicted to be higher than that of IMFL players in FY23, according to ICRA.
Meanwhile, Sheetal Sharad, Vice President & Sector Head – Corporate Ratings, ICRA Limited said that extra neutral alcohol (ENA) prices started to rise since the third quarter of fiscla 2022 (an increase of 11% since March 2022), after being muted in fiscal 2021 due to the Covid-related restrictions.
Sharad added that ENA and glass typically account for over 65% of raw material costs for IMFL operators and they are requesting the state government to increase the price to offset the negative impact. Besides, barley prices have increased by about 50% since February 2022, due to the ongoing conflict between Russia and Ukraine conflict. The price of barley, which is the main ingredient in beer, is expected to remain elevated in the near-term. In such a scenario, the ability of companies to get price increased by state governments in a timely manner remains critical from a profitability perspective, according to ICRA.
Financials
The operating profit margin (OPM) for the sample set is expected to moderate by 100-150 basis points (bps) in FY2023 due to significant higher input cost along with limited pricing power. Nonetheless, the OPM will continue to remain healthy at 13–14%. In FY2024, the OPM for the sample set is expected to improve to 14-15% helped by operating leverage benefits.
Further, the industry’s capital expenditure is estimated to reach 7-9% of revenues in FY23 after the companies put their capex plans on the back burner due to pandemic-related uncertainty. A few companies are planning to expand their greenfield facilities and improve backward integration capabilities, while other companies are aiming to spend on capacity enhancements to meet future supply requirements.
ICRA in the report noted that although there is an increase in capital expenditures in FY23 that is partially funded by debt, strong cash generation is expected to maintain stable debt levels. This, along with strong cash inflow, will sustain the industry’s debt repayment capability. The rating agency said that the projected debt to operating profit before depreciation, interest, taxes, and amortization ratio for FY2023 and FY2024 is likely to be 0.5 to 0.7x, respectively, with an interest coverage ratio of 23 to 25x.
Stocks To Watch
United Spirits, United Breweries, Radico Khaitan, Sula Vineyards, Globus Spirits, Tilaknagar Industries, G M Breweries, Som Distilleries & Breweries, Associated Alcohols & Breweries, IFB Agro Industries, Jagatjit Industries, Khoday India, Northern Spirits, Ravi Kumar Distilleries, Winsome Breweries, and Silver Oak (India).