Radico Khaitan, one of the largest makers of India-made foreign liquor (IMFL), is expecting to face “some headwinds” in prices of extra neutral alcohol (ENA) if the Centre pushes on its announced target of blending 10 per cent fuel-grade ethanol with petrol by 2022.
The company – as a de-risking initiative and also in line with its premiumisation strategy – is moving towards a grain-based ENA, which is “impacted to a lesser extent” by the ethanol blending policy.
Extra neutral alcohol, like ethanol, is a by-product of the sugar industry formed from molasses. It is a colourless food-grade alcohol that does not have impurities, has a neutral smell and taste, and typically contains over 95 per cent alcohol by volume. It is derived from different sources – sugar cane, molasses and grains – and is used in the production of alcoholic beverages such as whisky, vodka, gin, cane, liqueurs, and alcoholic fruit beverages.
Radico Khaitan – the makers of Rampur Single Malt, Jaisalmer gin, 8PM whiskeys and Magic Moments vodka among others – in its annual report said in FY21 that about 325 crore litre of ethanol is likely to be supplied to the oil marketing companies (OMCs) to achieve 8.5 per cent blending levels.
“Government has fixed a target of 10 per cent blending of fuel grade ethanol with petrol by 2022 and 20 per cent blending by 2025. It is likely that the government will achieve 10 per cent blending target by 2022 with supply of 400 crore litre of ethanol. Given this focus on ethanol blending, there may be some headwinds in the extra neutral alcohol prices,” the annual report said.
With grain production in India being high, there are no such issues over the availability of raw material. New capacities of grain alcohol are coming up too.
“Moreover, with the backward integration into captive ENA production” Radico Khaitan said it is insulated from price fluctuations in ENA to a large extent.
“Furthermore, as the company moves up the premiumisation ladder, its margins are less susceptible to commodity price increases,” the report added.
Abhishek Khaitan, Managing Director, Radico Khaitan, said in an analyst concall post the company’s Q1FY22 earnings that there was some inflationary pressure on dry goods such as packing material towards the end of last fiscal. The ENA prices have been stable during the quarter.
“The company is taking all efforts to optimise cost and mitigate any margin headwinds. With our portfolio premiumisation we expect our operating margins to trend upwards,” he said.
According to the company, the launch of online sales and home delivery of liquor in certain States opened an all-new route to market to consumers but it is still at a “nascent stage” which requires a “lot of efforts” from State governments and brand owners.
“Demand for premium brands is relatively less impacted by the industry slowdown due to Covid-19. Premium brands are likely to show much more resilience and grow. The ready-to-drink alcohol category, which includes hard seltzers, flavoured alcohol beverages, and pre-mixed cocktails, is under rapid transformation across leading global markets with volume growth out-pacing that of other beverage alcohol categories,” the report said.
While the industry lost 1 per cent market share in prestige and above segment – from 19 to 18 – Radico increased its market share points.
“So the brands of Radico are in the premium end of the market and they are buoyant and that is the trend we see in the times ahead,” Amar Sinha, Company COO, said, adding that slowdown in prestige and above sales in FY22 is a temporary phenomenon.
July onwards, the prestige and above segment clocked a growth in the double digits.
The above news was originally posted on www.thehindubusinessline.com