New Delhi: Alcoholic beverage makers could see some normalcy in operations in FY22-23 and may report a sharp recovery in volumes that were dented significantly in FY21 as covid-led restrictions affected demand for liquor in stores and restaurants, according to a research report by brokerage Anand Rathi.

“After the challenging operating environment of the last 3-4 years, the industry context for the alcoholic beverage (alco-bev) sector is turning favourable, aided by supply-chain normalisation, stable to soft input costs and likely less irrational taxation. We expect normal operations in FY22-23 and factor in a steep volume recovery. This, and easier input costs, leverage benefits and debt reduction would drive healthy, 12-22%, earnings growth over FY20-23,” the brokerage said in a research note on 08 March.

Liquor trade was impacted as covid-related lockdowns led to temporary closure of stores selling alcohol as the product was deemed non-essential; moreover on-trade sales—20-25% of industry volumes—were wiped out temporarily as restaurants and bars worked under restrictions.

The move also prompted in-home consumption of liquor. Several states had permitted at-home delivery of alcoholic beverages. The decline was more severe for beer companies that lost out on peak summer season. “Also, restrictions on number of guests at weddings and lack of corporate conferences further hurt overall outdoor consumption of alco-bevs. However, bars and restaurants were allowed to re-open gradually from the start of H2 FY21, though at 50% capacity and with other social-distancing norms,” it said.

There has been a gradual recovery in out-of-home (OOH) consumption of alcoholic beverages after being considerably affected in the first half of FY21. Estimates by the brokerage suggest that 85-90% of the on-premises channel is now operational, citing data from industry players.

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“As a result, we have started to see a gradual recovery in OOH consumption too, which, along with the continued recovery in the off-premises channel would drive further volume growth in coming quarters, according to the report,” it said.

In fact, it even pointed to sales volumes reaching back to pre-covid levels for several alcoholic beverages, expect United Breweries’ that the report said will reach pre-covid sales levels in Q4 of the current fiscal.

“We expect normal operations for alco-bev producers in FY22 and FY23, and factor in 12% volume CAGRs over FY21-23 for United Spirits (4% volume CAGR over FY20-23) and Radico Khaitan (5% volume CAGR), and approximately 33% for United Breweries over FY21-23 due to a lower base in FY21,” it said.

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