The Indian alcohol industry, the third largest in the world, has started seeing ‘green shoots’ after three lacklustre quarters, but impending elections could lead to higher stimulus programs, which could be financed by increasing prices of the liquor industry. The performance of the sector will also be impacted by an increase in the price of glass and alcohol.
Valued at USD 14.9 billion in FY20, the Indian whisky market is projected to touch USD 22.4 billion by FY25, said Nuvama Institutional Equities in a report on the sector.
Of Lows
The Indian liquor industry is still recovering from the pandemic of 2020-21 when it was among the worst hit.
For example, market leader United Spirits (UNSP) saw its revenue decline to Rs 8,131.3 crore in FY21 due to the pandemic, from Rs 9,325.4 crore in the previous year. In the just-concluded 2022-23 financial year, the company’s revenue has risen to Rs 10,579.7 crore.
Similarly, the company’s EBITDA margin dipped to negative 7.5 per cent in the Apr-Jun 2020 quarter from 17.8 per cent in the same quarter of the preceding year. In the latest quarter, it has bounced back to 17.7 per cent.
Back To Growth
According to a report by the Confederation of Indian Alcoholic Beverage Companies (CIABC), the total sales of Indian Made Foreign Liquor (IMFL) products in 2022-23 was 385 million cases, which is 14 per cent more than the previous year and 12 per cent over pre-covid levels.
According to them, across the country, “Sales have grown by 32 per cent in the Western region, 22 per cent in the Eastern region, 16 per cent in Northern region and 9 per cent in the Southern region.”
“Amongst major states, Punjab has led the growth with a whopping 54 per cent over last year,” they said. The growth could be an effect of the new excise policy introduced in the state.
“While most other states have shown positive sales growth, prominent states where sales have not grown include Telangana (-6 per cent), UP (-1 per cent) and Uttarakhand (-3 per cent). (In Telangana) High consumer prices and possible infiltration from neighbouring states could be the reason,” the report added.
According to analysts from Nuvama Institutional Equities, the liquor sector is poised for further growth as India is on its way to being home to nearly 39 per cent of total alcohol consumers in the world by 2025.
According to them, the improvement will be driven by a revival of events and marriages to pre-covid level.
“This could help counter the urban slowdown that is affecting many other markets like fast food, footwear and apparel,” they said.
The improvement will be visible across all segments, including the largest segment of whisky, followed by beer and wine.
The premium segment of India’s liquor market is dominated by global companies Diageo, which owns United Spirits, and Pernod Ricard, which sells brands such as Ballantine’s, Royal Stag and Imperial Blue.
The so-called ‘Prestige and above’ segment — used to denote the premium liquor brands — is the largest in the whisky segment in India accounting for 50 per cent of the volume, and is projected to reach 53 per cent by FY25.
The mass premium segment on the other hand makes up 37 per cent of India's whisky market.
Within the Prestige and above, premium and luxury brands are set to touch 33 per cent of the overall whisky market by FY25, compared to 31 per cent in FY21.
However, some of this growth will depend on demographic trends, the continuation of the premiumisation trend and the addition of new customers, the analysts said.
Vinod Giri, Director General of CIABC said that they expect the liquor industry to grow by at least 8 per cent in the current fiscal.
“We also see more and more Indian brands entering the premium segment. Some states like Delhi, UP, Karnataka and Kerala seem fatigued on growth and we have been urging those state governments for favourable policy interventions to bring back much-needed growth momentum to the sector which sustains 50 lakh farmers, contributes Rs 3 lakh crore in taxes and gives direct and indirect employment to 20 lakhs of people across India,” he said.