May 26, 2021
Crisil Ratings depicts that the second wave of the ongoing pandemic has compressed the fizz for soft-drink makers Coca-Cola and PepsiCo, and profits will be short of the fiscal 2020 mark.
Beverages sales volumes will be unfavorably impacted in the peak season once again due to localized lockdowns and restrictions on movement to contain the second wave of the pandemic. This will affect out-of-home consumption across hotels, restaurants, and cafe segments which constitute 20-25% of overall sales of beverages, the most in the first quarter.
Notwithstanding some claw-back after an estimated decline by a fifth last fiscal, revenue will still be 10% short of the fiscal 2020 mark. The credit profile of players, however, remain resilient because of their cost-control measures, strong balance sheets, and ample liquidity, the report said. An analysis of 13 Crisil-rated bottlers of PepsiCo and Coca-Cola, which account for over 50% of the market, indicates this, the report added.
This is the second year in a row that soft drinks are facing a washout in the peak April-June quarter. In the last fiscal, a strict nationwide lockdown and subsequent restrictions over April-September severely affected peak season demand as summer months alone account for two-thirds of annual cola sales.
Notwithstanding some claw-back after an estimated decline by a fifth last fiscal, revenue will still be 10% short of the fiscal 2020 mark. Credit profiles of players, however, remain resilient because of their cost-control measures, strong balance sheets, and ample liquidity, the report said.
An analysis of 13 Crisil-rated bottlers of PepsiCo and Coca-Cola, which accounts for over 50% of the market, indicates this, the report added.
PepsiCo and Coca-Cola have a combined market share of over 80% in India’s non-alcoholic beverages industry, and manufacturing operations are either owned by them or are done through third-party bottlers.The operating profits, however, may be more resilient, driven by the continuation of cost control measures and improving product mix.
Increased proportion of high-margin carbonated soft drinks and cost-cutting measures will restrict the decline in operating profit to 7% compared with the pre-pandemic level. Additionally, debt reduction in the absence of any large Capex would help bottlers support their credit profiles.
Recovery is expected from the second quarter with the surge in number of cases and consequent lockdowns peaking in June, and the pace of vaccination also picking up. But a major part of peak season volumes would be lost by then, and any subsequent resurgence in infections especially in the rural segment-which was a saviour last fiscal-will be monitorable, the report added.