ALCO-BEVERAGES IN COVID TIMES

[Dr. Sanjiv Agarwal]

In March 2020, the World Health Organization declared Corona virus (COVID-19) to be a pandemic and consequently on March 24, 2020, the Government of India ordered a nationwide lockdown, which got extended and unlocked in phases. The outbreak of COVID-19 pandemic world over and in India has caused significant disturbance and slowdown of economic activities. The Covid-19 has not yet gone and continues to bother one and all even after one year. The business operations of all companies have been significantly impacted by way of interruption of production, supply chain, etc.

While alcohol beverages industry in India is dominated by spirits, beer is also the preferred alcoholic beverage for Indians, but in the present post Covid scenario, the entire world today is reeling under the threat and aftermath of the unprecedented Corona-virus (COVID) pandemic. This had a huge and significant impact on the global businesses all over the world across sectors and economy including India. COVID has impacted businesses globally by disrupting supply chain, travel, production, consumption and services threatening operations and financial markets. Companies find themselves navigating a new reality, addressing issues from crisis response and business continuity to valuations and financial stress.

Alco-beverage sector has taken various precautionary measures to protect its employees from COVID-19. The businesses have assessed the impact of this pandemic on its business operations and are preparing financial results / statements after determining the recoverability and carrying values of property, plant and equipment, intangible assets, investments, trade and other receivables, inventories and other financial aspects. The impact of COVID-19 pandemic on the overall economic environment being uncertain, may affect the underlying assumptions and estimates used in preparation of these financial results, whereby actual outcome may differ from those assumptions and estimates considered at the date of approval of these financial results. The Companies will have to continue to closely monitor the situation and any material changes to future economic conditions. From Q 2, many companies have resumed its business activities in a phased manner in line with directives issued by the central and state governments.

The rippling effect of lockdown had a key impact on India’s economy as all business sectors got affected resulting in low revenue generation due to an eventual halt/slump on the sale of products and/or services. Alco-beverages is not an exception to this scenario. Given such a scenario, companies will have to operate differently to effectively manage the crisis. COVID has changed the way we live, work, use technology and of course, consume liquor.

In alco-beverage sector, there appears to be sufficient liquidity and demand for the products to continue operations. The impact of Covid-19 remains uncertain and may be different from what companies had estimated but they will have to closely monitor any material changes in future economic conditions.

Q 3 results of many companies have shown a declining trend. One of the market leaders posted over 11 percent decline in net profits in Q3 of FY 2020-21. Lower turnover and profits could be attributed to lower foot-falls, higher state taxes and increased consumer prices. Sales have been adversely affected in price conscious segment of select brands.

In yet another company engaged in manufacture and sale of Indian Made Foreign Liquor (IMFL) and related products, sales have started to stabilize across pan India with certain states showing reasonable to substantial growth and may match the operational performance in terms of market share, sales and margins pre-Covid. Even companies with losses are able to assert that they are a going concern as the economy has started looking up and volumes are growing. The companies also expect to bridge the gap of losses suffered in lock-down. In some cases, companies have been able to negotiate on recovery from banks, gaining in terms of settlement of interest and other costs. A few companies have even declared dividend in the Covid times, of course for last financial year.

The risk management becomes an important management task during and post lock-down compelling the management to work upon and focus on finances, human resource, protecting market share, changes in product mix, supply chain with one thing in mind cost control.

With economy starting looking up now and businesses struggling and trying to turn normal (or new normal) from business point of view amid uncertainty still prevailing, alco-beverage sector also can look for a brighter future with increased operations and margins. If things turnout well, one can hope for improved top lines and bottom lines. Certainly, one can hope for a better future.