Alcobev Margins in Focus as Glass Bottle Shortage Pressures Costs: Crisil

India’s alcoholic beverage industry is facing cost pressures due to disruptions in packaging supply chains. A recent report by Crisil Ratings highlights that shortages in glass bottles, driven by geopolitical factors, are likely to affect profitability and growth. 

These developments come at a time when the sector has been maintaining steady expansion in recent years.

Margin Pressure Due to Rising Packaging Costs

According to the report, operating margins for alcobev manufacturers are expected to decline by 150 200 basis points this financial year. This is largely attributed to increased packaging costs, particularly glass bottles, which form a significant portion of overall expenses.

The analysis covers 31 companies representing around 30% of the organised industry’s revenue, estimated at ₹3.8 lakh crore.

Glass Bottle Shortage and Supply Constraints

The industry is currently dealing with a shortage of glass bottles, which are essential for both spirits and beer together accounting for over 95% of total market volume.

The shortage is linked to reduced availability of liquefied natural gas (LNG), a key input in glass manufacturing. As a result, glass producers have curtailed output by 35 40%, leading to constrained supply and rising prices.

Cost Structure and Segment Impact

Packaging costs vary across segments. In the beer segment, packaging accounts for approximately 35% of net revenue, compared to around 25% for spirits. A significant share of these costs nearly two thirds is attributed to glass bottles.

The impact on margins is expected to differ by segment. Margins in the spirits category may contract by 140 180 basis points, while the beer segment could see a sharper decline of 250 300 basis points due to its higher packaging intensity.

Slower Revenue Growth Outlook

Revenue growth for the industry is projected to moderate to 5 7% this fiscal, compared to an average annual growth rate of about 11% over the past three years.

Limited availability of bottles may restrict production volumes, thereby affecting sales growth despite steady demand conditions.

Inventory Trends and Working Capital

Alcobev companies typically maintain packaging inventory for 50 60 days to manage supply disruptions. However, this buffer is expected to reduce to 20 30 days due to ongoing constraints.

While lower inventory levels may temporarily ease working capital requirements and improve liquidity, prolonged shortages could create further pressure on supply chains and procurement strategies.

Pricing Constraints and Industry Dynamics

Manufacturers may find it challenging to pass on higher costs to consumers due to regulatory controls in the sector. This limitation could further weigh on profitability, especially if input costs remain elevated.

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Conclusion

The alcobev industry is likely to face near term margin pressure due to rising packaging costs and supply constraints. While temporary relief may come from reduced inventory levels, sustained disruptions could influence profitability, pricing strategies and overall growth momentum in the sector.

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