Radico Khaitan, United Spirits and more: 5 liquor stocks surged 10%-88% in last one year

The Indian liquor industry is thriving post COVID, with premiumisation driving demand and growth. Rising disposable incomes and a youthful demographic contribute to increased volumes and margins, especially in the premium segment.

A Ksheerasagar
First Published18 Jun 2024, 01:06 PM IST
ICRA, a leading credit rating agency, projects a promising outlook for the Indian alcoholic beverages industry in the fiscal year 2025.
ICRA, a leading credit rating agency, projects a promising outlook for the Indian alcoholic beverages industry in the fiscal year 2025.(Bloomberg)

In recent years, India’s liquor industry has experienced significant growth, emerging as one of the fastest-growing beverage markets globally. The industry has not only rebounded to pre-COVID volumes but also surpassed them, with certain companies and brands achieving impressive margins. 

The pandemic accelerated premiumisation in the alcoholic beverage sector, as increased home consumption led consumers to opt for higher-quality products.

Further, rising disposable incomes and a youthful demographic have also contributed to the consumption as disposable incomes have grown, more individuals have the financial capacity to spend on non-essential items, including alcoholic beverages.

Additionally, the younger demographic, characterised by a greater propensity for socialising and consumption, has played a crucial role in driving consumption. This demographic trend, coupled with changing social norms and an expanding urban population, has further accelerated the growth of the liquor industry in India.

Also Read: ‘Economy to grow at 8% in FY25, green shoots visible in rural consumption’

Amid this backdrop, alcohol companies have seen their volumes grow strongly, leading to higher realisations per case. 

Notably, the premium segment continued to see strong positive traction, while the demand trends in the regular category remained below expectations owing to a general up-trending by certain consumers and a slowdown at the lower end. 

As a result, companies experienced a significant surge in their IMFL (Indian-Made Foreign Liquor) sales compared to the non-IMFL segment. Reports indicate that within the IMFL category, whisky holds the largest market share at 66%, followed by brandy at 19% and rum at 13%.

Also Read: Rural consumption improved 40% over a decade, says government survey

Regionally, the South leads as the largest alcohol-consuming area, accounting for nearly 60% of the market, followed by the North, West, and East. Despite rising commodity prices, such as those for grain and glass, companies have maintained their gross margins through ongoing premiumisation and multiple price hikes.

Stellar performance

As companies reported strong growth in volumes and a significant increase in net profit, investor demand for liquor stocks surged, resulting in a stellar performance. Notably, shares of Tilaknagar Industries delivered an impressive return of 88% in a year.

Domestic brokerage firm Systematix has recently initiated coverage on Tilaknagar Industries with a target price of 317 per share. It said that the company is actively pursuing multiple initiatives in premiumisation and geographic expansion. 

Also Read: Investors return to Indian equities with consumption sectors in spotlight

It pointed out that the company has emerged from its challenging past, marked by strategic missteps, and has now outlined a clear growth roadmap for the medium to long term. The company's industry-beating growth strengthened balance sheet (following multiple fund raises), and robust top management team underscore its promising new phase.

Additionally, other stocks, such as Radico Khaitan, United Spirits, Som Distilleries & Breweries, and Sula Vineyards, have also posted gains ranging between 10% and 45% over the past year.

Sustained growth expected

ICRA, a leading credit rating agency, projects a promising outlook for the Indian alcoholic beverages industry in the fiscal year 2025. It expects the revenue for domestic alcohol companies to grow by 8–10%, with Indian-made foreign liquor (IMFL) companies leading the way with an anticipated 11–13% revenue expansion. 

It also projects the revenue of beer companies to see a growth of 9–11%, driven primarily by rising volumes. Despite potential challenges like increased minimum support prices and higher procurement rates, ICRA maintains a stable outlook for barley prices, a key raw material for beer production. 

Also Read: Cooling appliances, beverages fly off the shelf as heatwave scorches

However, grain diversion towards ethanol production could impact the price of extra-neutral alcohol (ENA). On a positive note, the agency observes a slight softening in aluminum and soda ash prices, which could reduce input costs.

ICRA also foresees a moderation in working capital requirements for industry players, supported by lower input prices and reduced funding needs. This trend is expected to sustain strong credit metrics for ICRA's sample set, driven by healthy accruals and limited debt addition amidst minimal capital expenditure plans.

 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:18 Jun 2024, 01:06 PM IST
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