A hotter-than-usual summer forecast by the India Meteorological Department is expected to boost revenues for soft drink bottlers this fiscal year, even as rising input costs and intensifying competition are likely to squeeze margins, according to Crisil Ratings.
The report notes that after a subdued performance last year, the soft drink industry is likely to return to its long-term growth trend of around 15% this fiscal. The key driver is expected to be above-normal temperatures, with summer accounting for nearly 40% of annual beverage sales. The possibility of El Niño could further extend the duration of hot weather, supporting higher consumption.
Crisil’s analysis of 13 bottlers across carbonated soft drinks (70% market share), juices (12%), and packaged water (18%) suggests the industry is well-positioned for demand growth. Companies have expanded bottling capacity by 30–35% over the past two years and strengthened distribution and cold chain networks, which is expected to support strong double-digit volume growth. Alongside this, 2–4% price increases in a competitive market are likely to help drive revenue recovery, the report said.
However, competition in the sector is intensifying, with new entrants gaining share through low-cost offerings and regional flavours, increasing their presence to an estimated 6–7% from about 2% in FY24. Established players are responding with higher spending on marketing, distribution expansion, and capacity additions to protect market share.
At the same time, rising crude oil prices linked to the broader West Asia conflict are pushing up packaging costs, which account for 20–22% of total expenses. This is expected to limit pricing flexibility and weigh on profitability.
Crisil projects industry margins to contract by 200–250 basis points to around 15–16% this fiscal. While limited price hikes and growing demand for zero-sugar beverages may offer some cushion, larger pan-India players are expected to perform better due to stronger procurement scale and distribution efficiency.
Despite margin pressure, the sector’s overall financial position remains stable, supported by healthy cash flows. This will enable continued investments in capacity expansion and infrastructure such as visi-coolers, although capital expenditure growth is expected to moderate compared to last year’s acquisition-led surge.
(With inputs from ANI)