The report notes that alcobev makers in India are expected to see their Ebitda margin decline by 150 to 200 basis points this fiscal due to a rise in packaging costs
Revenue growth of alcoholic beverage (alcobev) manufacturers in India is likely to slow to 5 to 7 per cent due to bottle availability issues, in sharp contrast to the 11 per cent compound annual growth rate (CAGR) the industry clocked over the last three fiscals, as per a report.
Crisil Ratings said that the makers in India are set to see their earnings before interest, taxes, depreciation and amortisation (Ebitda) margin decline by 150 to 200 basis points (bps) this fiscal (FY27) due to a rise in packaging costs following supply-chain disruptions caused by the ongoing West Asia conflict.
Despite lower cash flows, a reduction in inventory will provide temporary relief to the working capital cycle for alcobev makers, the report, based on a study of 31 alcobev makers accounting for around 30 per cent of the organised alcobev industry revenue of Rs 3.8 lakh crore, pointed out.
Battling The Crisis
The alcobev industry is currently battling a shortage of glass bottles. The report added that spirits and beer comprise more than 95 per cent of the industry size. Packaging costs are higher for the beer segment, at 35 per cent of net revenues, compared with around 25 per cent for spirits.
Around two-thirds of the packaging cost goes towards glass bottles. The current geopolitical crisis has affected the supply of liquefied natural gas, a key component for manufacturing glass bottles. Hence, glass bottlers have currently cut down their production by around 35 to 40 per cent, resulting in a shortage across industries and a gradual rise in glass bottle prices.
“The cost of glass bottles is expected to increase 20 per cent on average this fiscal, to Rs 280-300 per case. Given that the alcobev industry is highly regulated and manufacturers have limited ability to pass on cost escalations to customers, operating margins are expected to decline by 140 to 180 bps in the spirits segment; whereas the impact will be sharper in the beer segment, at 250 to 300 bps,” Jayashree Nandakumar, Director, Crisil Ratings, said in the report.
The report emphasised that the blended margin for the industry would decline by 150 to 200 bps to 11.5 to 12 per cent this fiscal, assuming the supply chain disruptions continue through the first half of the fiscal, with no major revision in retail prices.
“Players typically maintain packaging inventory of 50 to 60 days to manage supply disruptions. This is likely to drop to 20 to 30 days amid the ongoing West Asia conflict. The lower inventory position will result in near-term liquidity improving somewhat due to the release of working capital for players,” Sajesh KV, Associate Director, Crisil Ratings, added in the report.
Despite debt-funded capital expenditure plans, balance sheets are likely to remain healthy due to prudent debt funding, as in the past. Interest coverage ratio is likely to remain healthy at 6.8 times this fiscal, the report said.
