A report states that players have not only increased their bottling capacities by 30 to 35 per cent over the past two fiscals but also expanded their distribution network and cold chain infrastructure
After subdued sales growth last fiscal, soft drink bottlers are poised to see revenue rebound to their long-term average growth of around 15 per cent this fiscal year (FY27), driven by hotter summers and deeper penetration into untapped domestic territories.
A report by Crisil Ratings stated that competition is also on the rise with newer entrants launching products at popular price points. Incumbents in a bid to protect their market share are thereby expected to ramp up marketing and distribution spends while also expanding capacity and distribution infrastructure. A sharp rise in crude prices due to the West Asia conflict has driven up packaging costs, too. These will negatively impact the industry’s profitability by up to 250 basis points (bps).
“Players have not only increased their bottling capacities by 30 to 35 per cent over the past two fiscals but also expanded their distribution network and cold chain infrastructure. This will drive a healthy double-digit volume growth. The higher volume, coupled with 2 to 4 per cent price hike in a competitive environment will help players revert to their long-term revenue growth trajectory,” stated Shounak Chakravarty, Director, Crisil Ratings.
Growth And Competitive Landscape
The impact of the West Asia crisis will be lower for bottlers with nationwide presence, due to their higher pricing power and better economies of scale. Cash flows of the players will remain healthy, ensuring stable credit profiles.
The report by Crisil Ratings was based on analysis of 13 bottlers in the non-alcoholic beverage industry, which includes carbonated soft drinks (around 70 per cent of the market), juices (around 12 per cent) and packaged water (around 18 per cent).
The competitive landscape is also heating up as healthy, long-term prospects of the industry keeps attracting newer entrants. In addition to launching novel indigenous flavours, these newer entrants are targeting impulse purchases through popular price points such as Rs 10 and Rs 20 bottles. As a result, their market share has increased to an estimated 6 to 7 per cent last fiscal, from around 2 per cent in fiscal 2024.
“Intensifying competition, leading to reduced pricing flexibility amid rising crude-linked packaging costs (20 to 22 per cent of overall cost), will cause a moderation in profitability this fiscal. However, marginal price hikes and increasing focus on zero-sugar variants may limit the overall impact to 200 to 250 bps, keeping margins healthy at 15 to 16 per cent,” added Rucha Narkar, Associate Director, Crisil Ratings.
Cash flows will remain healthy for the players, allowing them to continue spending on expanding bottling capacities and increasing visi-coolers at outlets, keeping capital expenditure (capex) intensity elevated. The capex intensity, which had surged last fiscal owing to acquisitions, will, however, be lower this fiscal.
The report noted that aggregate debt/Ebitda and interest coverage ratios of players may improve to 0.9 to 1 time and 10 to 11 times, respectively, this fiscal, from 1.1 times and 9 times last fiscal. In the road ahead, sustained elevated crude prices and adverse weather patterns will bear watching, Crisil Ratings pointed out.
