India’s alcoholic beverage firms poised to stay on double-digit high in FY26: Crisil

New Delhi:  Alcoholic beverage (alcobev) manufacturers in the country will see their revenue grow 8-10 per cent to Rs 5.3 lakh crore in financial year 2025-26, keeping up the momentum of a compound annual growth rate (CAGR) of 13 per cent over the three preceding fiscals. The operating profitability will increase 60-80 basis points (bps), supported by continuing premiumisation, according to a Crisil report released on Friday.

Consequently, credit profiles will remain strong, driven by healthy accruals, deleveraged balance sheets, and absence of large debt-funded capital expenditure (capex), it states.

The Crisil report is based on a study of 25 liquor companies, accounting for around 12 per cent of the organised alcobev industry revenue.

The industry is dominated by spirits, which contribute 65-70 per cent of total revenue, with the remaining coming from beer, wine and country liquor. Spirits are alcoholic beverages produced through distillation, whereas beer and wine are made via fermentation.

The industry volume will grow 5-6 per cent, driven by urbanisation, increase in drinking population and rising disposable income, according to the report.

Crisil Ratings director Jayashree Nandakumar said, “This fiscal, healthy volume and ongoing premiumisation will support revenue growth despite the absence of major price revisions. Revenue from premium and luxury segments, priced at over Rs 1,000 per 750 ml, is expected to grow around 15 per cent. The contribution from these segments will rise to 38-40 per cent of spirits revenue this fiscal compared with 31-33 per cent in fiscal 2023.”

Higher volumes and realisations would support the profitability of players through better contribution and cost absorption, despite a marginal increase in input costs, the report states.

The major raw material input for the spirits and beer segments are extra neutral alcohol (ENA) and barley respectively, which together account for 60-65 per cent of the total material cost, while the rest is towards packaging, primarily glass bottles.

ENA prices are expected to rise 2-3 per cent this fiscal due to higher demand from ethanol blending program, notwithstanding expected higher supplies. Barley prices are expected to increase 3-4 per cent this fiscal due to the tight demand-supply situation. The prices of glass bottles will remain firm given increasing demand and steady supplies.

A 3-4 per cent increase in realisation due to premiumisation, along with continuing volume growth, will help in cost absorption and improve operating margins, according to the report.

The steady growth in volumes has encouraged manufacturers to expand capacities by 15-20 per cent in the past two fiscals. The industry is currently operating at 70-75 per cent utilisation, leaving enough headroom for meeting demand. Therefore, no major debt-funded capex is expected this fiscal, the report stated.

The absence of large capex plans and a steady working capital cycle indicates the credit metrics of alcobev manufacturers in the Crisil Ratings portfolio will remain solid, with interest coverage ratio healthy at 21 times this fiscal, it said.

However, government policy, changes in duty structure and volatility in input costs will bear watching, the report added.

–IANS