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Covid-19 second wave taking fizz out of Coca Cola, PepsiCo biz: Crisil

Despite some claw-back after an estimated decline by a fifth last fiscal, the revenue of India's non-alcoholic beverages industry will still be 10% short of the fiscal 2020 mark, Crisil said

Pepsi, Coca-Cola and other soft drink businesses are unlikely to bounce back to pre-pandemic levels in the current financial year with the second wave of the coronavirus infections in the country suppressing their revenue by 10% compared to 2019-20, according to a report by credit ratings agency Crisil released on Friday.

Despite some claw-back after an estimated decline by a fifth last fiscal, the revenue of India's non-alcoholic beverages industry will still be 10% short of the fiscal 2020 mark, the agency said.

It based its comment on an analysis of 13 Crisil-rated bottlers of Pepsi and Coca-Cola, which account for over 50% of the market.

"Beverages sales volumes will be adversely impacted in the peak season once again due to localised lockdowns and restrictions on movement to contain the second wave of the pandemic. This will affect out-of-home consumption (hotels, restaurants and cafe segments, constituting 20-25% of overall sales) of beverages the most in the first quarter," said CRISIL Ratings director Nitesh Jain.

Though these restrictions are staggered across regions and are less stringent this time around, full-year revenue may still be 10% below pre-pandemic levels, he added.

The report pointed out that a strict nationwide lockdown and subsequent restrictions over April-September last year severely affected peak season demand as summer months alone account for two-thirds of annual cola sales. "A redux looms now," it said.

Pepsi and Coca-Cola have a combined market share of over 80% in India's non-alcoholic beverages industry. The manufacturing operations are either owned by them or are done through third-party bottlers in different regions of the country.

Crisil Ratings said the businesses' operating profits may be more resilient, driven by continuation of cost-control measures and improving product mix. Demand for high-margin carbonated soft drinks (CSD), which forms two-thirds of the beverage portfolio of players, was impacted less during lockdowns compared with juices and bottled water. This is due to higher in-home consumption of CSD, driven by increasing access to refrigeration.

"Increased proportion of high-margin carbonated soft drinks and cost-cutting measures will restrict the decline in operating profit to only 7% compared with the pre-pandemic level," said CRISIL Ratings associate director Rohan Kulshrestha.

The analysis assumes decline in demand by a fifth in the first quarter of this financial year. 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 a monitorable, said the Crisil Ratings report.

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