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The non-alcoholic beverages industry in India, led by cola giants Pepsi and Coca-Cola, is unlikely to reclaim pre-pandemic levels this fiscal owing to the second wave of Covid-19, according to a report by Crisil.
Despite some recovery after an estimated decline by a fifth last fiscal, revenue will still be 10 per cent short of the fiscal 2020 mark.
Credit profiles unaffected
However, the credit profiles of the players are likely to remain resilient because of their cost-control measures, strong balance sheets and ample liquidity.
The report is based on an analysis of 13 CRISIL-rated bottlers of Pepsi and Coca-Cola, which account for over 50 per cent of the market.
The two cola giants currently have a combined market share of over 80 per cent in India’s non-alcoholic beverages industry. The manufacturing operations are either owned by them or are carried out through third-party bottlers in different regions of the country. Demand during peak season was significantly impacted last year amid a strict nationwide lockdown and subsequent restrictions over April-September. This was as summer months alone account for two-thirds of annual cola sales.
Nitesh Jain, Director, CRISIL Ratings Ltd said, “Beverages sales volumes will be adversely impacted in the peak season once again due to localised lockdowns and restrictions on movement to contain the second wave of the pandemic.”
“This will affect out-of-home consumption (hotels, restaurants and café segments, constituting 20-25 per cent of overall sales) of beverages the most in the first quarter. Though these restrictions are staggered across regions and are less stringent this time around, full-year revenue may still be 10 per cent below pre-pandemic levels,” said Jain.
However, operating profits may be more resilient, driven by continuation of cost-control measures and improving product mix.
According to the report, the demand for high-margin carbonated soft drinks (CSD), which forms two-thirds of the beverage portfolio of players, was impacted less during lockdowns compared with juices and bottled water. This is due to higher in-home consumption of CSD, driven by increasing access to refrigeration.
Rohan Kulshrestha, Associate Director, CRISIL Ratings Ltd, CRISIL Ratings said, “Increased proportion of high-margin carbonated soft drinks and cost-cutting measures will restrict the decline in operating profit to only 7 per cent compared with the pre-pandemic level.”
“Additionally, debt reduction in the absence of any large capex would help bottlers support their credit profiles with a comfortable debt-to-Ebitda ratio of 2.4 times and interest cover upwards of four times this fiscal,” added Kulshrestha.
As per the analysis, a decline in demand by a fifth in the first quarter of this fiscal is expected.
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