Alcohol Sector Margins are Anticipated to Decrease

Alcohol Sector Margins are Anticipated to Decrease

by Tanushree Jaiswal Last Updated: Oct 10, 2023 - 06:32 pm 597 Views
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What’s buzz in Alcoholic Beverage Industry?

The alcohol beverage (alcobev) business appears to be moving into a phase of contracting operating margin in FY24, after a steep fall in FY23, according to the Stats, despite stable demand. 
According to the report, the operating margin (OPM) of the enterprises in ICRA's sample set is expected to decline by 90 to 140 basis points in FY24. The margins were 300 basis points smaller a year ago.

What's the Reason Behind It?

  1. Costly Raw-Materials: The high cost of essential materials is primarily reason for the expected margin contraction. 
  2. Climate and Factors Monsoon: The crop yields and input costs gets influence by factors such as business sensitivity to climatic conditions.
  3. Policies of the Government: In determination of industry costs Government policies on grain prices play a important role. The cost structure of alcoholic beverage production, can get significant impact by the government.
  4. Costs of Packaging: The pressure on profit margins is also created by the costs associated with packaging materials, especially glass. These expenditures elevate to the overall expenditure structure of the industry.

What Should Retail Investors Do?

Retail investors in the alcoholic beverage industry should consider the following:

  • Monitor Government Policies
  • Keep an Eye on Input Costs
  • Consider Diversification 
  • Stay Informed with vital information and news

Overview of the Liquor Industry

The liquor industry in India is booming, thanks to the growing middle class, urbanization, and changing attitudes towards alcohol. It has been experiencing steady growth of around 7-8% each year, and this upward trend is expected to continue.

Liquor dominates the Indian alcohol market, accounting for more than 60% of total alcohol consumption in the country. The market is categorized based on price, with premium and super-premium brands enjoying a significant share.
Overall, the liquor industry in India has a promising future, fueled by increasing demand and favourable market conditions.

Overview of the Best Liquor stocks in India

1. Sula Vineyards Ltd


I. Influencer Marketing: Leverage influencers for wider audience reach and brand awareness.
II. Strong Digital Presence: Maintain engagement, grow followers, and build a loyal community.
III. Increase Wine Penetration: Drive interest and adoption of wine in the Indian market.

Financial Summary FY'23
Compounded Profit Growth (5 Yr) (%) 37
ROE (3 Yr) (%) 12
Net Cash Flow (Cr) 6
ROCE (%) 20
Sales Growth (TTM) (%) 26
EV/EBITDA (x) 26
D/E (x) 0.43

Sula Vineyards Share Price

2. United Spirits Ltd


I. Positive Growth Outlook: The beverage alcohol industry, particularly spirits, is expected to see robust performance, and USL is anticipated to be a leader in FY24.
II. Continued Expansion: USL's innovative and renovated brands are expected to continue expanding their distribution and penetration in different markets, driving growth.

Financial Summary FY'23
Compounded Profit Growth (5 Yr) (%) 12
ROE (3 Yr) (%) 16
Net Cash Flow (Cr) 61
ROCE (%) 20
Sales Growth (TTM) (%) 4
EV/EBITDA (x) 40
D/E (x) 0.031

United Spirits Share Price

3. Globus Spirits Ltd


I. Continued Revenue Growth: GBSL is expected to maintain healthy revenue growth in the near term, supported by strong volume growth and price hikes across segments.
II. Margin Challenges: Margin pressure is anticipated to persist in Q4FY23 due to higher energy and input prices. However, the management's initiatives are expected to alleviate some cost pressures in the future.

Financial Summary FY'23
Compounded Profit Growth (5 Yr) (%) 77
ROE (3 Yr) (%) 22
Net Cash Flow (Cr) 2
ROCE (%) 19
Sales Growth (TTM) (%) 33
EV/EBITDA (x) 12
D/E (x) 0.331

Globus Spirits Share Price


In conclusion, the alcoholic beverage industry is facing margin contractions in FY24 due to a combination of factors, including costly inputs and government policies. Retail investors should stay informed, diversify their portfolios, and closely monitor industry developments to make informed investment decisions.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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