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Indian Alcohol Beverages Industry Set for Margin Improvement in FY2025, Forecasts ICRA

Indian Alcohol Beverages Industry Outlook


Indian Alcohol Beverages Industry Set for Margin Improvement in FY2025, Forecasts ICRA

The Indian alcohol beverages industry is poised for margin improvement in the fiscal year 2025, supported by robust demand and moderation in input prices, particularly packaging materials such as glass bottles. According to ICRA, industry revenues are expected to grow by 8-10% in FY2025, with the industry operating profit margin (OPM) projected to expand by approximately 50-100 basis points (bps) due to the moderation in input costs.

ICRA estimates revenue growth of 8-10% for its sample set of domestic alcohol beverages (alcobev) companies in FY2025. Indian made foreign liquor (IMFL) companies are expected to witness revenue expansion of 11-13%, supported by a preference towards premium products and volume growth of around 3-5% on a high base of FY2024. Revenues for beer companies are expected to increase by 9-11% year-on-year, driven mainly by a 4-6% expansion in volumes. The beer industry is expected to have a strong season in Q1 FY2025, anticipating a hot summer compared to the previous fiscal, which experienced unseasonal rainfall.

Ms. Kinjal Shah, Vice President and Co-Group Head – Corporate Ratings, ICRA, stated, “In addition to healthy demand, the industry is expected to benefit from the moderation in input costs, especially packing material (such as glass bottles), which accounts for around 60-65% of an alcobev manufacturer’s cost, even though grain prices, particularly non-basmati rice, are not depicting a favorable trend.”

Despite the increase in minimum support price (MSP) and higher procurement rates for recent crop arrivals, the cost is expected to remain elevated over the next few months. The diversion of grains towards ethanol could also keep prices firm and lead to costlier extra neutral alcohol (ENA). However, prices of barley, the key raw material for beer, are expected to continue to be stable. On the packaging side, both aluminium (used for cans) and soda ash (determining glass bottle prices) witnessed highs in Q4 FY2022 and H1 FY2023, respectively, due to the significant pick-up in demand and rise in coal prices. Aluminium prices have marginally softened in the current fiscal, while soda ash prices have corrected by around 20% on a year-on-year basis in 9M FY2024.

Ms. Shah added, “The OPM for ICRA’s sample set companies is expected to increase by around 50-100 bps in FY2025, owing to moderation in packaging material costs, coupled with price hikes approved by the state governments, partly offset by the increase in grain prices.”

ICRA expects working capital requirements for the sample set companies to moderate in FY2024 and FY2025, mainly towards maintaining finished goods inventory for the upcoming peak season. With lower input prices led by correction in packaging costs, funding requirements may be lower.

Overall, the credit metrics for ICRA’s sample set are expected to remain strong, supported by healthy accruals and limited debt addition in the absence of major capex plans. ICRA expects the Debt/OPBDITA for its sample set companies to remain at around 0.5 times and interest coverage at approximately 15-17 times for FY2024 and FY2025.

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