Alcoholic beverage companies in India are expected to face pressure on their profitability this financial year, mainly due to rising packaging costs triggered by supply chain disruptions linked to the ongoing conflict in West Asia, according to a report by CRISIL Ratings.
The report, based on companies accounting for nearly 30% of the organised alcobev industry’s revenue, estimates that EBITDA margins could decline by 150–200 basis points in FY27. (EBITDA refers to earnings before interest, taxes, depreciation and amortisation.)
A major concern for the industry is the shortage of glass bottles. The disruption in liquefied natural gas (LNG) supplies—an essential input for glass manufacturing—has reduced bottle production by 30–40%. This has led to shortages across sectors and pushed up the prices of glass bottles.
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Packaging costs form a significant part of expenses, especially for beer makers, where they account for about 35% of net revenue, compared to around 25% for spirits. Glass bottles alone make up nearly two-thirds of total packaging costs.
Due to these challenges, revenue growth for the alcobev sector is expected to slow to 5–7%, compared to an average annual growth of 11% over the past three years.
The report notes that glass bottle prices may rise by around 20% this fiscal. Since the alcobev industry is highly regulated, companies have limited flexibility to pass on these increased costs to consumers. As a result, operating margins are expected to decline by 140–180 basis points in the spirits segment, while the impact on beer could be sharper at 250–300 basis points.
Overall, industry margins are projected to fall to around 15–17% this year. However, a temporary relief may come from reduced inventory levels, which can ease working capital requirements.
Typically, companies maintain packaging inventory for 50–60 days to manage supply disruptions. But due to the ongoing situation, this is expected to drop to 20–30 days. While this may improve short-term liquidity, a prolonged disruption could tighten supplies further and put additional pressure on pricing and procurement.
Despite these challenges, the report highlights that the industry’s balance sheets remain stable, supported by prudent financial management and controlled debt levels in recent years.
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