India: Beer industry to benefit with unlocking - report
Indias beer industry, which is significantly dependent on out-of-home consumption, will see a favourable unlock play, with revival in consumption as offices open up and people migrate back to large metros, analysts at Elara Securities said in a note on the alcoholic beverages market. This, however, is dependent on the third Covid wave being less severe and thus inviting fewer restrictions.
The second wave of Covid-19 infections and subsequent lockdowns are expected to delay recovery for the beer industry till FY23, according to the note released on July 17.
To be sure, beer industry volumes declined 30% year-on-year in FY21, much higher than a 14% dip seen in Indian-made foreign liquor or IMFL segment. This was due to covid-led restrictions, either full or partial, in the months of April through July. These months contribute over 40% of annual volumes registered by beer makers. Beer has also been severely affected due to work from home, which in turn has marred on-premises volumes," the brokerage said in a report. On-premise translates to consumption of liquor in bars and restaurants.
Meanwhile, the spirits segment outperformed beer last fiscal due to affordable pricing in some states, as beer is priced at more premium. This triggered a shift to spirits from beer.
With the ongoing restrictions due to covid-wave 2, we expect this spirits outperformance to continue. Further, the trend may not reverse, unless the excise duty on beer is reduced, as was the case in states such as West Bengal, Uttar Pradesh and Rajasthan," it said.
Meanwhile, relaxation in work from home, migration to metros could help beer consumption rise post the current unlock.
It added that the second wave had significantly dented beer sales. But the recovery could be swifter as vaccination picks pace.
Wave-2 impact cannot be ignored for the beer industry, which is already transiting its peak summer season yet again, pushing recovery towards FY23. On-premises recovery will be a key monitorable for the beer segment, which may take lesser time versus last year due to rapid increase in vaccination pace (may approach 80% of pre-covid levels within six months versus 10 months in Wave 1)," the report added.
The brokerage, however, flagged an impending third wave that, it said, could delay recovery for the beer industry.
If wave three sets in, beer recovery may extend further, thus affecting volumes. On-premise recovery seems delayed to a longer timeframe as many outlets may shut down and even if replacements mushroom, the instituting timeframe may be much longer, the brokerage added.
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