Hot summer to boost soft drink bottlers' revenue growth to 15%: Crisil

A hot summer will help soft drink bottlers' revenue rebound to ~15% growth this fiscal, per Crisil. While bottlers are prepared with higher capacity, rising costs and intense competition are expected to squeeze profitability margins.

Revenue Rebound on the Horizon

A hotter-than-usual summer forecast by the India Meteorological Department (IMD) is set to lift revenues for soft drink bottlers this fiscal, even as rising costs and intensifying competition are expected to put pressure on margins, according to Crisil Ratings.

"After subdued sales growth last fiscal, soft drink bottlers are poised to see revenue rebound to their long-term average growth of ~15% this fiscal," the report said. A key driver of this recovery is the expected spike in temperatures. The summer months account for about 40% of annual soft drink sales, and IMD has predicted above-normal temperatures. The possibility of El Nino, which typically prolongs summers, could further boost consumption.

Industry Prepared for Demand Surge

Crisil's analysis of 13 bottlers across carbonated soft drinks (70% of the market), juices (12%), and packaged water (18%) indicates that the industry is well-prepared for the demand surge. "Players have not only increased their bottling capacities by 30-35% over the past two fiscals but also expanded their distribution network and cold chain infrastructure," said Shounak Chakravarty, Director, Crisil Ratings. "This will drive healthy double-digit volume growth. Higher volumes, along with 2-4% price hikes in a competitive environment, will help players revert to their long-term revenue growth trajectory."

Competition and Cost Pressures Mount

Competition, however, is heating up. New entrants are gaining traction with local flavours and low-priced offerings such as Rs 10 and Rs 20 packs, increasing their market share to an estimated 6-7% last fiscal from around 2% in fiscal 2024. In response, established players are ramping up spending on marketing, distribution, and capacity expansion to defend their positions. At the same time, rising crude oil prices linked to the West Asia conflict are pushing up packaging costs, which account for 20-22% of total expenses.

Impact on Profitability

"Intensifying competition, leading to reduced pricing flexibility amid rising crude-linked packaging costs, will cause a moderation in profitability this fiscal," said Rucha Narkar, Associate Director, Crisil Ratings. Crisil expects industry margins to contract by 200-250 basis points to 15-16%. Limited price hikes and a stronger push toward zero-sugar beverages may help cushion the impact.

Advantage for Larger Players

Larger bottlers with pan-India operations are likely to fare better. "Bottlers with pan-India presence are expected to negotiate better pricing terms with suppliers and distributors through bulk raw material purchases and high-volume offtake respectively, thereby partially offsetting the impact on profitability," Narkar added.

Stable Financial Health Despite Pressures

Despite the margin pressure, the sector's financial health remains stable. Strong cash flows are expected to support continued investments in bottling capacity and visi-coolers. While capital expenditure will remain elevated, it is likely to moderate from last year's acquisition-led spike. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)