Please find key excerpts from excellent webinar by PPFAS on alcoholic beverage industry. Emphasis ours.
One thing is for sure that people will drink no matter what and so the breweries as an industry is here to stay. Before we understand the financial aspects of any brewery company it is important to understand how it works basically.
The above flowchart depicts the various ways in which the raw material is treated and converted into a finished product. Molasses is the key raw material when it comes to the production of liquor. IMFL (Indian Made Foreign Liquor) is the official term used by governments, businesses and media in India to refer to all types of hard liquor manufactured in the country.
The alcoholic industry has grown by leaps and bounds and is already of a significant size. The global alcoholic beverages market was valued at 1.43 trillion dollars in 2017, and is expected to reach 1.68 trillion dollars by 2025, registering a CAGR of 2% from 2018 to 2025.
Here is the list of top companies operating in the alcohol market with their respective market shares.
Indian Alcoholic Beverages Industry
At USD 35 Billion, India’s Alcohol market is the 3rd largest in the world, only behind China and Russia.
India already accounts for nearly half of the world’s whisky consumption, over 3x any other country.
As per the World Health Organisation, close to 30% Indians consume Alcoholic Beverages products out of which 4% to 13% are daily consumers.
Per capita consumption of alcohol per adult has grown at 38% CAGR from 2010-2017 however the absolute amount is still pretty low at 6 litres per adult annually.
Long term growth drivers for Indian Alcoholic Industry
Young population (Between the ages of 18 and 40)
Increasing % of population in legal drinking age and per capita consumption increasing
Rising disposable incomes- shift from liquor to Indian made foreign liquor
Rapid urbanisation of Tier-2 cities
The increasing acceptability for consuming alcohol in social settings
Indian Alcohol Industry (Minus Country Liquor)
Country Liquor & IMFL form 60% of Industry Volumes
Overall Alcohol Beverages Industry Market share
Whisky Market share
The list of Brands under respective companies
Beer Volume Market share – UB (United Breweries) Group Dominates
Brands under Respective Companies
Risks/Regulatory Complexities
Lack of pricing power
Regulated selling price
Increase in excise duties
Increase in raw material prices
Alcohol was kept out of purview of GST but most of its inputs are part of GST.
About USL
United Spirits (Diageo India, a subsidiary of Diageo PLC) is the largest spirit company in India and second largest company in India and second largest in the world by volume
It has a brand portfolio of over 100 brands of scotch whiskey, IMFL whisky, brandy, rum, vodka, gin and wine
The company doesn’t make beer
The company produces and sells around 80 million cases per year. It has 15 brands in its portfolio which sell more than one million cases every year, of which 2 brands sell more than 10 million cases every year.
It has pan India presence with 49 manufacturing facilities and a distribution network covering 80,000 outlets nationally.
USL timeline
Transformation post Diageo Acquisition
Operating margins moved from 10.7% to 17%. EBITDA Margins have increased from low single digit to 16.27%.
PAT (Profit after Tax) Margins increased from 1.16% to 7.1%.
Return Ratios improved from negative to decent levels (ROE (Return on Equity) is currently at 18.3%, ROCE at 22.7%).
Reduced debt from 5300 crore to 2073 crore as of date, Debt to equity has improved from 2.79 to 0.5
Cash conversion cycle has become negative
De-leveraged the balance sheet, improved the interest coverage ratio significantly from 2 times to 6 times
Why Beer?
To read more: https://ppfasfof.com/alcoholic-beverages-industry-in-india/