COVID IMPACT ON ALCO BEVERAGES SECTOR

[Dr. Sanjiv Agarwal]

The entire world today is reeling under the threat of the unprecedented 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, production, sales, logistics, consumption and services threatening operations and financial markets. Alco-beverage companies find themselves navigating a new reality and challenge addressing issues from crisis response and business continuity to valuations and financial stress.

We are all in the same storm these days amid Covid -2019 pandemic where everything, everyone and every activity is facing challenges, down side cycle and destruction, first in 2020-21 and now in current fiscal as well. Still there have been pockets in the economy which have fared well despite all odds.

From March, 2020 onwards, all industries including alco-beverages slowed down. However, few months later, businesses gradually opened up but with second wave Q1 of current fiscal has immensely impacted the businesses adversely. Though there is no national level lock down in current year 2021-22, many states had announced total lockdown which is now opening up in phases.

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

Many states introduced higher Covid related taxation which were later fully or partly rolled back. These events adversely hit the alco-beverage industry impacting production, logistics, sales and margins. Lower sales and pressure on margins were directly a result of sluggish demand, alco-beverages being a non-essential items and lock downs.

The financial year 2020-21 has seen unprecedented circumstances due to the impact of COVID. This resulted in adverse circumstances for the Company due to lock downs, introduction by various States of COVID related additional taxation and prolonged closure of trade channels, including various restrictions on opening hours. Throughout the year, managements of  alco companies focused on health and safety of employees and stakeholders, the introduction of socially distanced safe ways of working, reviving demand and keeping consumers engaged, while reducing costs and preserving cash.

Today, while Excise policies across States do not allow online supply or delivery of alcohol, the COVID pandemic has given the alcohol industry an opportunity to pursue home delivery and online sales which is likely to augment easy availability of alco-beverages. Should the Government continue to proactively open-up and regulate online sale of alcohol/home delivery it would be favourable for the industry in the long term. India has all the necessary infrastructure required for the successful e-commerce and online sale.  In Delhi, home delivery has recently started.

With the onset of a second COVID wave at the start of financial year 2021-22 which still continues, the alco-beverage industry is again negatively impacted, and the outlook is volatile.

Few major companies have been able to rebound quickly after lockdown were released. There are companies whose turnover has gone down by 40-50% and so is profit, earnings and even tax. In few companies, sale have gone up by 18-25% resulting in higher operating profits. Interest costs were down, other expenses including logistics costs were also reduced while some companies could distribute dividends to shareholder.

In one of the major brand companies, operational revenue grew by over 30% while expenses were reduced and growth in cost of production was much less than the growth in revenue. Profits have grown in many companies without exception items. If Covid spread is contained to Q1 or Q2 alone, industry may look for ‘Cheers’ again in second half of current fiscal.