Strong demand and premiumisation will lead to India’s organised liquor industry revenues growing 12-13% this fiscal to ~Rs 4.45 lakh crore, after a 15-16% growth last fiscal.

Blended operating profitability of distillers and brewers is expected to increase 100-150 bps with softening of input costs. Credit profiles will remain strong with leaner balance sheets on back of significant deleveraging in last three fiscals.

A study of 33 liquor companies, accounting for ~15% of the organised liquor segment revenues, indicates as much.

The liquor industry can be broadly segmented into distillers and brewers. Distillers produce Indian-made foreign liquor (IMFL), accounting for ~65-70% of the industry’s revenues while brewers produce beer, that accounts for ~25-30% of the industry revenues.

Says Rahul Guha, Director, CRISIL Ratings, “The growth will be driven by a rebound in tourism and hotel industries, rising disposable incomes and premiumisation trend. The premium segment which is over Rs.1000 per 750 ml bottle, is expected to grow at over 20%, albeit on a lower base. On the other hand, the price sensitive mass consumer segment comprising of liquor priced below Rs.700 per 750 ml bottle and contributing to over 3/4th of the liquor industry revenues will see volume growth of 5-7% as prices in this segment have remained largely unchanged.”

The players’ operating profitability will benefit from not only the increased revenue base but also from softening of input costs. Extra neutral alcohol (ENA) / rectified spirit¹ and barley constitute ~55% of the input cost for the distillers and brewers, respectively while packaging material such as glass, plastics and labels contribute to the rest.

While packaging costs have moderated, ENA prices are expected to remain high, thus restraining any major margin expansion for the distillers. On the other hand, the brewers will benefit from not only the lower packaging cost but also from the sharp correction seen in prices of barley. Barley prices after rising by more than 20% on year last fiscal have fallen by over 25% in first half this fiscal.

Says Jayashree Nandakumar, Director, CRISIL Ratings, “With the favourable input costs coupled with a strong revenue growth, brewers will see profitability expand ~250 basis points (bps), while distillers will clock 70-80 bps improvement this fiscal. Overall, the industry will toast a blended 100-150 bps expansion in operating profitability this fiscal.”

Strong demand will spur capacity additions with focus on backward integration, such as adding captive ENA/ grain-based distilleries. However, with rapid deleveraging in the past three fiscals and prudent funding of capex, gearing will remain comfortable at ~ 0.3 time as on March 31, 2024, versus 0.4 time a year earlier. Interest coverage will remain strong at 7-7.5 times this fiscal, compared with 6.5 times last fiscal.

Government policy, changes in duty structure and volatility in input costs will bear watching.

¹ ENA / rectified spirit derived from molasses or grain