Crisil Reports Rising Packaging Costs to Impact Alcohol Beverage Margins
Packaging costs to dent alcobev margins by up to 200 bps, says Crisil
Business Standard
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A report by Crisil Ratings indicates that alcohol beverage firms in India may experience a decline in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins by 150–200 basis points this financial year due to rising packaging costs and supply chain disruptions. Revenue growth is projected to slow to 5–7%, down from 11% in previous years.
- 01Ebitda margins for alcobev firms expected to decline by 150–200 basis points.
- 02Revenue growth forecasted to slow to 5–7% this financial year.
- 03Shortages of glass bottles due to LNG supply disruptions are a key factor.
- 04Packaging costs account for 35% of net revenue for beer makers and 25% for spirits producers.
- 05Temporary relief may come from inventory reduction.
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Crisil Ratings has projected that alcohol beverage (alcobev) manufacturers in India will face a decline in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins by 150–200 basis points during the current financial year. This decline is attributed to rising packaging costs and supply chain disruptions, particularly a shortage of glass bottles linked to geopolitical tensions affecting liquefied natural gas (LNG) availability. The report forecasts revenue growth for the alcobev sector to moderate to 5–7%, significantly lower than the 11% compounded annual growth rate (CAGR) observed over the past three years. Packaging costs represent a substantial portion of expenses, accounting for 35% of net revenue for beer producers and 25% for spirits makers, with approximately two-thirds of these costs related to glass bottles. The ongoing supply constraints have forced glass manufacturers to reduce production by 35–40%, exacerbating the shortage and increasing prices. Despite these challenges, Crisil notes that firms may find temporary relief through inventory reduction, which could alleviate some working capital pressures. The findings are based on an analysis of 31 alcobev companies, including 10 listed entities, which together represent around 30% of the organized liquor industry's revenue of ₹3.8 trillion.
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The increase in packaging costs and the decline in margins may lead to higher prices for consumers, affecting the affordability of alcoholic beverages.
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