United Spirits, Radico Khaitan, and Allied Blenders were among three spirit stocks that global brokerage firm Jefferies recently gave an optimistic outlook on, citing strong growth in the prestige & above (P&A) category led by the premiumisation trend. The brokerage believes this momentum could continue and expects all three companies to deliver double-digit top-line growth.
In its latest report, the brokerage-initiated coverage on United Spirits, Radico Khaitan, and Allied Blenders, giving a ‘Buy’ rating to all three stocks. Radico stands out as its top pick, as Jefferies projects the company to lead growth with a 35% EPS CAGR (highest) over FY25–28E, along with improving RoCEs, which should sustain premium valuations.
It set a target price of ₹2,800 apiece, indicating an upside potential of 25% from the stock’s latest closing price. For United Spirits, the brokerage set a target price of ₹1,315 apiece, and for Allied Blenders, a target price of ₹620 apiece, signaling an upside of 19% and 18%, respectively.
“For United Spirits, we see a favourable risk-reward – while it faces near-term headwinds due to the Maharashtra tax hike, the >20% stock price correction prices it in. We see a 13% EPS CAGR over FY25–28E and assign a PT of ₹1,570. Allied is a dark horse, in our view, with issues in the past, albeit a turnaround journey is underway. We value it at 44x Sep-27 EPS to arrive at our PT of ₹620,” said the brokerage.
The Indian spirits market has delivered modest mid-to-high-single-digit growth at an aggregate level, led by growth in the legal drinking age population and the upgrade from country liquor. Premiumisation, however, is the key driver, with the industry growing in double digits at prestige & above price points.
The P&A segment accounts for a varying share of revenue across companies (United Spirits: 88%; Radico Khaitan: 69%; Allied Blenders: 47%), but remains the focus for all.
Jefferies expects all three companies to deliver double-digit top-line growth, led by the P&A segment. Growth is projected to be fastest for Radico (18% CAGR), benefiting from strong category growth in vodka and the scale-up of its luxury portfolio.
Allied Blenders is expected to deliver a 12% top-line CAGR, led by newer brands (ICONiQ White, Srishti Whisky), the scale-up of its super-premium portfolio (ABD Maestro), and recovery in legacy brands (Officer’s Choice Blue, Sterling Reserve).
According to the brokerage, United Spirits faces near-term headwinds due to the recent Maharashtra tax hike (highest salience among coverage), but it is still expected to deliver a double-digit CAGR over FY25–28E, given its strong position in the fast-growing luxury and super-premium segments.
Margin Expansion
Unlike FMCG, spirit margins are still below their peaks when adjusted for changes in mix. “We see a meaningful opportunity for margin expansion as inflation stabilizes and premiumisation continues, along with a reduction in import duty on Scotch following the India-UK FTA,” said the brokerage.
Jefferies expects margin uplift to be higher for Indian companies given their low base, compared to UNSP, where Diageo brands are capped at 10%. This, according to Jefferies, would support higher EBITDA growth (20%+ CAGR for Radico/Allied; 13% CAGR for UNSP).
While spirits offer a better growth profile, Jefferies notes that valuations are fairly similar to FMCG and, in their view, should remain sustainable.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
