Will India's Alcoholic Beverage Sector Maintain Double-Digit Growth in FY26?

New Delhi, May 16 (NationPress) Manufacturers of alcoholic beverages in India are projected to witness a revenue increase of 8-10%, reaching Rs 5.3 lakh crore in the fiscal year 2025-26. This trajectory aligns with a robust compound annual growth rate (CAGR) of 13% over the previous three years. Operating profitability is anticipated to rise by 60-80 basis points, fueled by ongoing premiumisation, as outlined in a recent report by Crisil.

As a result, the credit profiles of these companies are expected to remain strong, bolstered by healthy accruals, reduced debt levels, and a lack of large debt-driven capital expenditures (capex), according to the report.

The Crisil analysis encompasses 25 liquor firms, representing approximately 12% of the organized alcobev industry's revenue.

The sector is primarily driven by spirits, which make up 65-70% of total revenue, with the balance originating from beer, wine, and country liquor. Spirits are produced through distillation, while beer and wine are created through fermentation.

Industry volume is projected to grow by 5-6%, spurred by urbanization, an expanding drinking population, and increasing disposable income, the report notes.

According to Crisil Ratings director Jayashree Nandakumar, “This fiscal, strong volume growth and continuing premiumisation will drive revenue increases, even without significant price adjustments. Revenue from premium and luxury segments, costing over Rs 1,000 per 750 ml, is forecasted to grow by around 15%. The share of these segments is expected to rise to 38-40% of spirits revenue this fiscal, compared to 31-33% in fiscal 2023.”

Increased volumes and realizations are likely to enhance profitability, aiding in cost absorption despite a slight uptick in input costs, as highlighted in the report.

The primary raw materials for the spirits and beer sectors are extra neutral alcohol (ENA) and barley, constituting approximately 60-65% of total material costs, with the remainder allocated to packaging, mainly glass bottles.

ENA prices may rise by 2-3% this fiscal due to heightened demand from the ethanol blending initiative, even with anticipated higher supply. Barley prices are expected to see a 3-4% increase this fiscal due to a tight demand-supply balance. The prices of glass bottles are likely to remain stable, propelled by consistent demand and steady supplies.

A 3-4% increase in realizations due to premiumisation, combined with ongoing volume growth, will facilitate cost absorption and enhance operating margins, according to the report.

The consistent growth in volumes has prompted manufacturers to boost capacities by 15-20% over the last two fiscal years. The industry currently operates at 70-75% capacity utilization, providing adequate room to meet demand. Consequently, no significant debt-funded capex is expected this fiscal, the report indicates.

The absence of large capex plans and a stable working capital cycle suggest that the credit metrics of alcobev manufacturers within the Crisil Ratings portfolio will remain robust, with a healthy interest coverage ratio of 21 times this fiscal.

However, changes in government policy, duty structures, and fluctuations in input costs will need to be monitored closely, the report concluded.