A redux looms for India's non-alcoholic beverages industry in the second wave of COVID-19. The industry, led by led by cola giants Pepsi and Coca-Cola, is unlikely to reclaim pre-pandemic levels this fiscal, a CRISIL report has said.

For the beverages industry, the summer months are peak season accounting for two-thirds of annual cola sales. However, last year, a strict nationwide lockdown and subsequent restrictions over April-September severely affected the peak season demand.

Despite some recovery seen after revenues declined by a fifth last fiscal, CRISIL says that sales volumes of beverages 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.

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Out-of-home consumption comprising hotels, restaurants, and café segments, constituting 20-25 percent of overall sales stand affected the most in the first quarter.

"Though these restrictions are staggered across regions and are less stringent this time around, full-year revenue may still be 10 percent below pre-pandemic levels," Says Nitesh Jain, Director, CRISIL Ratings.

Currently, Pepsi and Coca-Cola have a combined market share of over 80 percent in India's non-alcoholic beverages industry.

In the first quarter of 2021, PepsiCo clocked a mid-single-digit growth in the Indian market in the first quarter of 2021, which was slower than the double-digit growth clocked by emerging markets such as China, Brazil and Russia.

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While PepsiCo India and Hindustan Coca Cola Beverages declined to comment on the impact on their sales in the second wave, CRISIL said an analysis of 13 CRISIL-rated bottlers of Pepsi and Coca-Cola, which account for over 50 percent of the market, indicates that credit profiles of players remain resilient because of their cost-control measures, strong balance sheets and ample liquidity.

PepsiCo's prominent bottler Varun Beverages also said in its earnings call earlier this month that while it saw a notable recovery in demand in domestic markets in Q1, the environment has evolved now with the onset of the second wave of COVID infections in the country.

"At the moment, of course, supply has got a bit impacted because of the lockdowns. So, we are only able to supply to a few stores. The scenario is similar to last year, as hotels and restaurants are shut, but unlike last year with a complete nationwide lockdown, this year is much better with local and micro-lockdowns. We also have learned a lot from last year, so we have been able to manage it much better and it is not as bad as last year," Ravi Jaipuria, chairman of Varun Beverages told analysts during the earnings call.

However, he added that business has suffered in some big cities like Mumbai, Jaipur, Rajasthan, or Delhi.

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CRISIL says the demand for high-margin carbonated soft drinks, which forms two-thirds of the beverage portfolio of players, saw a lesser impact during the lockdown as compared to juices and bottled water. This driven by higher in-home consumption of carbonated soft drinks and increasing access to refrigeration.

While CRISIL's analysis assumes a decline in demand by a fifth in the first quarter of this fiscal, it expects recovery from the second quarter with the surge in the 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," CRISIL stated in its report.

(Edited by : Jomy)