ICRA estimates that alcobev companies will see 8-10% revenue growth in FY2025. Steady beer demand and a revival in spirits consumption drive this growth. Consumers are increasingly preferring premium products. Price hikes approved by some state governments will also boost FY2025 revenues. In Q1 FY2025, the spirits industry recorded a ~9% year-on-year revenue increase. Realizations improved by 5-7%, while volumes grew by 2-4%. The beer industry, in its peak season, saw ~12% revenue growth in Q1 FY2025. Volumes increased by 3-5%, and realizations rose by ~7-9%.

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Commenting on the near-term expectations of the industry’s volume, Kinjal Shah, Senior Vice President and Co-Group Head – Corporate Ratings, ICRA, said: “ICRA expects the alcobev industry volume growth to improve to 5-6% in FY2025 from ~4% in FY2024. Spirits consumption had contracted by ~3% YoY in FY2024 on account of the rise in prices due to substantially higher taxes levied by some state governments, inflation, and increasing consumer preference towards premium products, which had impacted volumes to a certain extent. ICRA expects spirits volumes to grow at a moderate pace of 2-4% in FY2025 supported by favorable demographics and a limited increase in taxes anticipated for the year. Beer witnessed higher consumption growth than spirits in FY2024 with a YoY growth of ~8%. This was supported by stable demand and higher increases in taxes on spirits in some states. ICRA expects moderate growth of 5-7% for beer volumes in FY2025, on a high base”. 

The OPM for ICRA’s sample set companies increased by 200 bps to 12.9% in FY2024. Corrections in glass bottle prices led to this improvement. Grain prices remained largely stable, further supporting the OPM revival.

“The alcobev manufacturers witnessed an increase in grain cost in H1 FY2025 due to a 20-25% rise in non-basmati rice prices, while barley prices have been fairly stable. However, the non-basmati rice prices have started softening from July 2024 onwards. Further, the packaging material costs (glass bottles) declined in the current year due to a sharp correction in soda ash prices. This, along with price hikes received from various state governments at the start of the fiscal, is expected to keep the OPM for ICRA’s sample set companies intact at 12-13% in FY2025. However, the availability and diversion of grains towards the production of ethanol, which is seeing increased demand due to the Government blending norms, will remain a key factor to monitor,” added Shah.

Companies in ICRA’s sample set incurred capital expenditure (CAPEX) of more than Rs. 1,000 crore each in FY2023 and FY2024, ~4% of their operating income, indicating an investment revival after the pandemic. This capex was primarily towards distilleries and brewery capacity additions and enhancement of manufacturing infrastructure, including maintenance. ICRA expects capex to moderate to ~2-3% of operating income in FY2025 and FY2026. Key players have recently enhanced their capacities, leading to this moderation.

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Modest debt-funded capex plans will keep debt levels stable for ICRA’s sample set. Strong cash accruals will support this stability. ICRA expects debt coverage metrics to remain healthy in the near to medium term. ICRA projects total debt/OPBDITA to be 0.3-0.5 times by March 31, 2025. They expect interest coverage to range between 27-30 times in FY2025.