West Asia turmoil squeezes India’s alcobev profits, CRISIL sees EBITDA dropping 150–200 bps

India’s alcoholic beverage makers are likely to see profitability squeezed this fiscal as supply-chain disruptions linked to the ongoing conflict in West Asia push up packaging costs and constrain growth, according to a report by CRISIL Ratings.

The report said that earnings before interest, taxes, depreciation and amortisation (EBITDA) margins for the industry are expected to decline by 150–200 basis points.

It added that the revenue growth of the organised alcobev industry is also projected to slow to 5–7%, down sharply from an 11% compound annual growth rate over the past three years.

The sector, which includes spirits and beer accounting for more than 95% of industry volumes, is grappling with a shortage of glass bottles.

Glass bottle manufacturers have cut production by an estimated 35–40%, triggering shortages and pushing up prices across industries.

“The cost of glass bottles is expected to increase 20% on average this fiscal, to ₹280–300 per case,” said Jayashree Nandakumar, Director, Crisil Ratings.

“Given that the alcobev industry is highly regulated and manufacturers have limited ability to pass on cost escalations to customers, operating margins are expected to decline by 140–180 basis points in the spirits segment, whereas the impact will be sharper in the beer segment, at 250–300 basis points.”

Overall, the blended operating margin for the industry is projected to decline to 11.5–12 per cent this fiscal, assuming supply disruptions persist through the first half and there are no significant increases in retail prices.

The report also noted a decline in packaging inventory levels since the onset of the conflict. Typically, companies maintain inventory for 50–60 days, but this is expected to fall to 20–30 days.

“Players typically maintain packaging inventory of 50–60 days to manage supply disruptions. This is likely to drop to 20–30 days amid the ongoing West Asia conflict,” said Sajesh KV, Associate Director, Crisil Ratings. “The lower inventory position will result in near-term liquidity improving somewhat due to release of working capital for players.”

However, a prolonged disruption could tighten supplies further and add pressure on procurement strategies and pricing, the report said.

Balance sheets are expected to remain stable despite debt-funded capital expenditure, with interest coverage projected at 6.8 times and total outside liabilities to tangible net worth at about 0.75 times.