India is one of the most attractive and the fastest-growing alcoholic markets in the world, and the third largest after China and the US in volume terms.
Not only has the sector grown in terms of business, but even the share prices.
A majority of stocks in this segment have given positive returns so far in the current financial year, with a few even turning multibaggers.
Som Distilleries & Breweries tops the list, as the stock has given a whopping 108% returns since April. Brandy and whiskey maker Tilaknagar Industries has given 91% returns, while United Spirits has given 34% returns.
After seeing a tough environment in FY23, similar to most other consumer companies, alcoholic beverage makers got some relief in the last quarter from easing raw material prices.
Besides, business events and marriages are back to pre-Covid levels, and analysts believe this will drive a spike in alcohol consumption and push volumes higher.
“On the volume front, we anticipate strong upcoming festive demand further backed by the ICC World Cup to be positive for the sector for the next few quarters,” said Anushi Vakharia, research analyst at StoxBox.
If one evaluates the earnings of the companies on a 4-year basis, then Radico Khaitan posted robust revenue growth of 53%, followed by United Breweries at 11%, Nuvama Institutional Equities pointed out.
On the other hand, United Spirits posted a decline of 2% in the overall revenue due to higher sales of lower-end products.
On the volume front, Radico posted volume growth of 5.6%, compared to the levels in the June quarter of FY20, followed by United Spirits at 2.4%. United Breweries, however, posted a 3.8% decline in volumes.
Premiumisation Play
For liquor companies, premiumisation marks the most important theme as it translates to a more value-led growth in the premium and above (P&A) segment.
On a 4-year basis, Radico has posted a robust 66% growth in revenue and 23% growth in volume in the P&A segment. United Spirits has seen a 32% revenue growth and 12% volume growth in the P&A segment.
Andrew Holland of Avendus Capital believes that premiumisation has started moving in favour of liquor makers.
“It is a long runway at the start of this move. But I think, there is going to be a multi-year benefit for these companies as more people move up the higher value chain,” he said, adding that this is the best theme to play in the consumer sector at the moment.
Stocks worth raising a toast?
With corporate events and marriages making a comeback, the overall outlook for earnings growth has turned positive for the sector.
Further, the industry is witnessing some green shoots in margins after three-quarters of tepid show, and analysts believe that the worst is likely behind on the profitability front.
Vakharia of Stoxbox is bullish on United Spirits from a medium-to-long-term perspective, due to its leadership position with well-established brands such as McDowell’s No.1, Royal Challenge, and Signature, along with Diageo’s iconic brands such as Johnnie Walker, Black & White, and Smirnoff.
“We believe that the company’s pan-India presence along with diversified product portfolio across product categories (Scotch whisky, IMFL whisky, brandy, rum, vodka, gin and wine) and price points makes it a formidable player in the highly fragmented alcohol beverages industry,” Vakharia said.
With the Indian whisky market projected to touch $22 billion by FY25 on the back of demographic trends, new customers and premiumisation, it is set to drive value growth for companies and keep the spirits high for the stocks.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
