Georgian Wine Sector research - export countries and risks

TBC Capital issued wine sector research. According to the research wine sector in Georgia is financially healthy. Sector’s stable and low leverage underlines room for further growth. Liabilities accounted for roughly 40% of wine producers’ assets, while the NWC ratio increased from 2.1 to 2.3YoY in 2018. EBITDA/Interest expense and Debt/EBITDA was 6.3 and 2.6 in 2018, respectively, meaning the industry's liquidity risks are low. However, the high concentration of sales on the single market poses the risk for sales and profitability”, - says the research.

According to TBC Capital, the turnover of Georgia’s alcohol industry is on a rise. Total revenues generated by local alcoholic beverage producers increased at an 8-year CAGR of 15.4%, expected to total GEL 1.47bn in 2019 (+15.9% YoY). We expect the formal alcohol market to account for 91% of total turnover in 2019, while informal producers (wine and spirits)to grab 9% of total turnover, approximately the same as in 2018“, - is written in the research.

Besides, TBC Capital paper says that the wine and spirits market is largely fragmented: „The large companies generated 28% of the market turnover in 2018, up from 26.7% in 2017. The reason for such a low concentration level is the current agricultural landownership structure in the country, as mostly small-scale farmers (95.4% of whom owned less than 1 ha as of2014 census) own vineyards. In the past years, wine producers focused on purchasing grapes from locals rather than cultivating. Going forward, we expect the concentration of large companies to increase due to the growing demand for standardized, high-quality products as well as for achieving the economies of scale, needed to push the costs down in the long term.

As for export, research says that Georgia is among the top 20 wine exporting countries globally and foreign demand is the main driver of the sector. Wine exports increased by 13% YoY in 2019 and constituted USD 223mln, capturing 5.9% of Georgia’s total export value. The share of export in wine turnover is estimated at over 80% for 2019.

We see the need and potential in export diversification. Of Georgia’s total wine exports in 2019, 60% of the value (USD 133.3mln) and 62% of volume (43.4mln liters) came from trade with Russia. The rest of CIS and Ukraineaccounted for 19% of generated export revenues. Interconnected economies of these countries and the political risks in the region remain one of the main challenges for the Georgian wine sector, as the economic state and exchange rate dynamics of the trade partners affect the demand and prices of Georgian wine there.

The USA, Germany, China, Japan, the UK, Canada, Poland, Switzerland, the Netherlands, 

Russia, Ukraine, and Kazakhstan are the most attractive countries for Georgian wine export, Total imports of these countries from traditional wine producers equals USD 18bn, whereas imports from niche countries total USD 1bn. These are the two primary segments Georgian wine could compete in”, - says the research.

the presentation of TBC Capital research was held on Monday, 17th of February.

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