Markets
Top 3 stocks ace investor Madhusudan Kela is high on
Summary
When ace investor Madhusudan Kela says he 'would look to buy every dip' in a sector he doesn't currently own, it's worth paying attention.
Ace investor and well-known stock picker, Madhusudan Kela recently in a media interview spoke about one sector for which he said “I would look to buy every dip".
Madhusudan Kela, who currently holds a portfolio of 11 stocks valued at ₹2,207 crore (as per Trendlyne), and is renowned for his trend-spotting prowess, shared his insights on the alcoholic beverages industry.
Although he doesn’t currently hold any stocks in this sector, his strong interest highlights its growth potential, making it worthwhile to examine the leading stocks and closely monitor the industry in the coming years.
The $ 1 billion export bet
India’s alcoholic beverage sector holds significant untapped potential, with the country currently ranking 40th in global alcohol exports, according to the Agricultural & Processed Food Products Export Development Authority (APEDA), part of the Commerce Ministry.
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Under the 'Make in India' initiative, APEDA is targeting a remarkable $1 billion in export revenue in the coming years, aiming to establish a stronger global presence.
On the domestic front, the outlook is equally promising. A report by the International Spirits & Wines Association of India (ISWAI) forecasts the Indian alcoholic beverage market to surge to $64 billion within the next five years. ICRA (Information and Credit Rating Agency) predicts revenue growth of 8-10% for domestic alcohol companies in FY25, with Indian-made foreign liquor (IMFL) leading the charge at an expected growth rate of 11-13%.
With these promising projections, it’s worth exploring the sector’s top-performing stocks, selected purely based on market capitalisation.
United Spirits Ltd
First up is a country and sector leader with a market cap of ₹111,219 crore, Diageo India which is incorporated in India as United Spirits Ltd (USL). USL boasts of the highest market share of 25% in the Indian spirits industry and the second largest spirits company in the world.
The company has ~45% market share in the Indian whiskey market. Whiskey accounts for over 60% spirits sale in India.
The company’s stock price recently hit its all-time high level of ₹1,648 in the last week of September. However, since then the price has come down to ₹1,529 as of closing on 29 November 2024.
This could be because of the reason that USL saw a big drop in its Ebitda (earnings before interest, taxes, depreciation, and amortisation). From ₹712 crore for the quarter ending June 2024 to ₹500 crore for the quarter ending September, the operating profit saw a drop of 30%.
For a longer term, the stock price grew at a compound annual growth rate (CAGR) of 21% between FY19 and FY24.
Between the same two quarters, the operating profit margin (OPM) declined sharply from 26% to 18%, while profit after tax (PAT) fell to ₹341 crore from ₹485 crore—a first in four quarters.
CEO and MD Hina Nagarajan described it as “a muted quarter amidst a softer-than-expected demand environment." The company attributed the drop to gross margin pressures, normalization of overheads, and elevated staff costs, as mentioned in its exchange filing.
Despite this short-term dip, the company’s long-term financials remain robust. Its Ebitda has grown at a CAGR of 7.5%, rising from ₹1,394 crore in FY19 to ₹2,000 crore in FY24. Sales during the same period increased at a 4% CAGR, from ₹9,341 crore to ₹11,321 crore, while PAT grew at an impressive 16% CAGR.
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Currently, the company’s stock trades at a PE of 77x, the lowest among the three peers being analyzed today. While the industry average PE stands at 43x, the company’s 10-year median PE is 75x, compared to the industry’s 24x median.
United Breweries Ltd
At number two is United Breweries Ltd (UBL), with a market cap of ₹51,571 crore. Renowned for iconic brands like Kingfisher and Heineken, UBL dominates the Indian beer market with a commanding 50% market share.
The stock hit an all-time high of ₹2,205 in late September 2024 before slipping to ₹1,827 by 22 November 2024. It closed at ₹1,950 on November 29, reflecting partial recovery.
The decline aligns with broader trends impacting the sector. UBL’s sales dropped from ₹2,475 crore in June 2024 to ₹2,117 crore in September 2024. Ebitda also declined from ₹285 crore to ₹227 crore during the same period. This underperformance likely stemmed from rising operational costs outpacing revenue growth and perhaps a slight miss in market expectations.
However, UBL has demonstrated consistent long-term growth, with its stock price recording a 9% CAGR over the five years from FY19 to FY24.
The operating profit margin also declined by 1% and PAT from ₹174 crore to ₹132 crore.
It would be more insightful to analyse the company’s long-term performance metrics to determine whether it is well-positioned to capitalise on the growth opportunities anticipated in the sector.
Ebitda has seen a significant decline, dropping 39% from ₹1,138 crore in FY19 to ₹696 crore in FY24. This decline occurred despite sales growing at a CAGR of 5%, rising from ₹5,834 crore to ₹7,443 crore over the same period.
Similarly, the PAT fell from ₹563 crore in FY19 to ₹411 crore in FY24, signalling margin pressures and operational challenges.
For the valuations, UBL’s stock is trading at a PE of 109x, which seems high, while the current industry average is 43x. The 10-year median PE for the company is 103 while the industry median is 24x.
As per the company’s investor presentation that it released in October 2024, the company is “optimistic about the long-term growth potential of the beer category, driven by increasing disposable income, favorable demographics & premiumisation"
Radico Khaitan Ltd
Radico Khaitan, with a market cap of ₹32,883 crore, stands as one of India’s largest IMFL manufacturers.
Its brand Magic Moments leads the vodka Industry in India with over 58% market share and Morphues Brandy leads the premium brandy category with over 56% market share.
As of closing on 29 November 2024, the share price for the company was ₹2,458, which is close to its all time high of ₹2,526 which it hit recently in the last week of November.
This jump is probably due to strong financial performance between the quarters ending June 2024 and September 2024, when the Ebitda grew from ₹149 crore to ₹163 crore and the OPM went from 13% to 15%.
This jump was mainly due to efficient management of costs clubbed with increased demand for their premium alcohol brands, thanks to an extensive premiumisation strategy.
However, with a price-to-earnings ratio (PE) of 114x, Radico’s valuation is the highest among its peers, while the industry average is 43x. Despite this, the company’s long-term growth, strong premiumization focus, and strategic roadmap position it well to benefit from the anticipated growth in the Indian alcobev sector.
For a better perspective, lets look at the last 5 years stock price change, where the stock price of the company grew at a CAGR of 51% between FY19 and FY24.
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This could be attributed to the fact that Radico has a very strong focus on premiumisation, particularly with brands like 'Rampur' single malt whisky, while effectively capitalising on the growing demand for high-end liquor in the Indian market. The company’s premiumisation strategy sets it apart from its peers.
In the recent Investor presentation, the Chairman and MD, Lalit Khaitan said “With the worst of the input cost pressures behind us, we expect to continue delivering consistent and profitable growth. I am highly optimistic about the growth opportunities in the Indian alcobev sector and confident in our strategic roadmap, which will create long-term sustainable value for all our stakeholders"
Bottoms Up?
While the alcoholic beverages industry seems to be on the cusp of a big breakout according to market predictions, the top 3 companies in the sector believe that the worst of inflationary pressures and premiumisation challenges are behind them and they are ready to ride the big wave as it comes.
For more such analysis, read Profit Pulse.
Adding to that the interest of ace investor Madhusudan Kela in the sector, these companies certainly belong on your watchlist. While United Spirits and United Breweries stand out for their almost debt-free status and strong dividend payouts, Radico compensates for its lack of dividends with impressive quarter-on-quarter financial growth, making it a solid contender for long-term investors.
Note: We have relied on data from www.Screener.in, www.trendlyne.com and www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
