Daijiworld Media Network - New Delhi

New Delhi, Oct 1: India’s alcoholic beverage sector is poised for robust growth, with revenues expected to rise by 10-12% year-on-year in FY26, driven by sustained consumer demand, a shift towards premium products, and price hikes imposed by several state governments, according to a recent report by ratings agency ICRA.

While overall volume growth is projected to be modest at 1-2% in FY26, the beer segment is anticipated to outpace spirits, with volume increases of 4-6% as steady demand continues to support its expansion. Conversely, spirits—including Indian-made foreign liquor and country spirits—are likely to see volume declines, pressured by higher taxes and rising retail prices.

Operating profit margins for a sample of companies are forecast to hold steady at around 13-14% in FY26, following a 100 basis point rise to 13.9% in FY25. This stability is attributed to largely unchanged input costs, despite inflationary pressures in some raw materials.

Price increases approved by various states in FY25 helped mitigate the impact of rising non-basmati rice costs, a key ingredient in spirits production. Meanwhile, capital expenditures, which stood at 3-4% of operating income in FY25, are expected to climb to 4-5% over the next two years as companies invest in capacity expansion.

Despite higher capex, leverage and debt metrics are expected to remain solid, with total debt to OPBDITA estimated at 0.5-0.7 times and interest coverage ratios between 19-21 times in FY26, bolstered by strong cash flows.

Though alcoholic beverages themselves remain outside the GST regime, GST 2.0 reforms have impacted related inputs. Packaging components like bottles, caps, labels, and cartons are now taxed at 18%, up from 12-15%, while transportation and logistics services have also been brought under the 18% tax slab.

Overall, the industry outlook remains positive, supported by evolving consumer preferences and regulatory dynamics shaping pricing and cost structures.