2nd Covid Wave Flattens The Fizz For Soft-drink Makers: Crisil

India's non-alcoholic beverages industry, led by cola giants Pepsi and Coca-Cola, is unlikely to reclaim pre-pandemic levels this fiscal. Indeed, despite some claw-back after an estimated decline by a fifth last fiscal, revenue will still be 10% short of the fiscal 2020 mark.

According to Crisil, credit profiles of players, however, remains resilient because of their cost-control measures, strong balance sheets and ample liquidity.

An analysis of 13 CRISIL-rated bottlers of Pepsi and Coca-Cola, which account for over 50% of the market, indicates as much. As things stand, Pepsi and Coca-Cola have a combined market share of over 80% in India's non-alcoholic beverages industry. The manufacturing operations are either owned by them or are done through third-party bottlers in different regions of the country.

Last fiscal, a strict nationwide lockdown and subsequent restrictions over April-September severely affected peak season demand as summer months alone account for two-thirds of annual cola sales. A redux looms now.

Says Nitesh Jain, Director, CRISIL Ratings Ltd, "Beverages sales volumes will be adversely impacted in the peak season once again due to localised lockdowns and restrictions on movement to contain the second wave of the pandemic. This will affect out-of-home consumption (hotels, restaurants and café segments, constituting 20-25% of overall sales) of beverages the most in the first quarter. Though these restrictions are staggered across regions and are less stringent this time around, full-year revenue may still be 10% below pre-pandemic levels "

Operating profits may be more resilient, driven by continuation of cost-control measures and improving product mix.

Says Rohan Kulshrestha, Associate Director, CRISIL Ratings Ltd, "Increased proportion of high-margin carbonated soft drinks and cost-cutting measures will restrict the decline in operating profit to only 7% compared with the pre-pandemic level. Additionally, debt reduction in the absence of any large capex would help bottlers support their credit profiles with a comfortable debt-to-Ebitda ratio of 2.4 times and interest cover upwards of 4 times this fiscal".