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Despite margin pressure, liquor sector in high spirits
Liquor companies in India are on a high as revised excise policy by Punjab government is likely to complement an already robust demand environment of consumption. Analysts, however, said that margin pressure will continue due to higher input cost and an overall inflationary environment.
Bengaluru: Liquor companies in India are on a high as revised excise policy by Punjab government is likely to complement an already robust demand environment of consumption. Analysts, however, said that margin pressure will continue due to higher input cost and an overall inflationary environment.
"This is positive for the liquor players. Liquor prices are expected to get cheaper with new excise policy coming into effect from July 1. Punjab has one of the highest per capita consumption of liquor. Our sense is that the state contributes around five per cent of total Indian consumption," said Abneesh Roy, Executive vice-president of Edelweiss Financial Services.
Punjab government has announced its new excise policy under which the higher prices of liquor prevailing in the state would come down and would be at par with neighbouring regions of Haryana and Chandigarh. As liquor prices are expected to drop by 30-40 per cent post implementation of this policy, it is likely to provide fillip to consumption in the state. He, however, said that margin pressure will continue for companies like United Spirits Ltd (USL) given low pricing power in an inflationary environment apart from high packaging cost. Despite inflationary environment, liquor consumption has not seen a downward trend yet.
Last year was the best period in a decade for the Indian liquor industry when the rate of growth was the highest. Sales of beer and spirits such as whisky, vodka, and gin saw a rise of 17-18 per cent by volume in 2021, the latest report of IWSR Drinks Market Analysis showed.
Sales in the pandemic year of 2020 were fallen by 20 per cent for spirits and 39 per cent for beer.
According to IWSR, beer sales are seeing revival on the back of soaring temperature in many parts of the country along with opening of bars and restaurants. It noted that brandy and rum may see delay in achieving their peak sales (of 2019). Whisky sales, however, is likely to surpass its previous record sales numbers this year given the robust demand.
Meanwhile, price rise in various inputs of the liquor industry has already been putting pressure on the margins of these companies. Prices of critical inputs of IMFL (Indian made foreign liquor) like extra neutral alcohol and glass are up by around 30 per cent now as compared to 2018. Similarly, beer industry has to bear the rising cost of aluminium and glass apart from increased sales and distribution costs. Moreover, global shortage of wheat and barley owing to Russia-Ukraine conflict is putting further pressure on input cost for beer industry.
