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Strong demand and premiumisation are driving revenues of the organised liquor industry higher, and the operating profitability of distillers and brewers is expected to increase amid the softening of input costs, says a report.

According to a Crisil Ratings report, the revenues of the organised liquor industry are expected to rise by 12-13% this fiscal to Rs 4.45 lakh crore, on top of a 15-16% growth last fiscal.

Accordingly, the operating profitability of distillers and brewers is expected to increase by 100-150 bps with softening of input costs.

This will also have a positive reflection on their credit profiles with strong balance sheets on the back of significant deleveraging in the last three fiscals, the report said on Tuesday.

The agency said the report is based on the largest 33 liquor companies, which account for around 15% of the organised liquor segment revenue.

The liquor industry can be broadly segmented into distillers and brewers. Distillers produce Indian-made foreign liquor (IMFL), accounting for 65-70% of the industry’s revenue, while brewers produce beer, which accounts for 25-30% of the industry revenue.

According to Rahul Guha, a director with the agency, higher revenue growth will be driven by a rebound in tourism and hotel industries, rising disposable incomes and premiumisation trends.

The premium segment, which is over Rs 1,000 per 750 ml bottle, is expected to register over 20% growth albeit on a lower base.

On the other hand, the price-sensitive mass consumer segment comprising liquor priced below Rs 700 per 750 ml bottle and contributing to over three-fourths of the industry revenue will see volume growth of 5-7%, as prices in this segment have remained largely unchanged.

According to another director at the agency Jayashree Nandakumar, with favourable input costs coupled with a strong revenue growth, brewers will see profitability expand 250 basis points, while distillers will clock 70-80 bps improvement this fiscal.

Overall, the industry will toast a blended 100-150 bps expansion in operating profitability this fiscal.