Liquor stock in focus: Radico, United Spirits down up to 9% from day's high

Share price movement of liquor companies today: Shares of brewery & distillery companies have fallen by up to 5 per cent from their respective intra-day highs as analysts see neural impact of free trade agreement (FTA) signed between India and the UK.

 

Among individual stocks, Radico Khaitan slipped 5 per cent to ₹2,445 on the BSE in Wednesday’s intra-day trade. The stock has fallen 9 per cent from its intra-day high. It has rallied 5 per cent to hit a 52-week high of ₹2,666 in intra-day trade. At 12:22 pm, it was quoting 4 per cent lower at ₹2,439.10.

 

United Spirits (USL), an Indian alcoholic beverages company, and the world's second-largest spirits company by volume, was trading flat at ₹1,576.65, after falling 2 per cent on the BSE. It declined 5 per cent to ₹1,538.60 from intra-day high of ₹1,620. on the BSE. 

 

However, United Breweries (UBL) was 0.51 per cent higher at ₹2,150, trading at its day’s highest level.

 

UK-India free trade deal

 

India and the UK have mutually agreed on an FTA after long bilateral discussions, with broader economic impact on many sectors, including AlcoBev. Per a statement by the UK Department of Business and Trade, in a breakthrough, the steep 150 per cent import duty on Scotch whisky and gin will be halved to 75 per cent immediately and gradually reduced to 40 per cent over 10 years. This would be a game-changer for British spirit makers aiming to expand in India (the latter is the world’s largest whisky-consuming market).

 

“The landmark treaty will enable improved accessibility and choice of scotch for the Indian consumers, the largest and most exciting whisky market”, said Praveen Someshwar, Managing Director & Chief Executive Officer of United Spirits.   

 

Short-term impact on growth

 

Domestic players focused on upper prestige and above (P&A) may see short-term aberration in growth, due to a shift to scotch given the lower prices. Given the distinct brand recall led by innovations and unique tastes, analysts at Elara Capital believe domestic brands will continue to rise with growth prospects being intact, in the medium-to-long term and may even make pricing competitive to help mitigate the negative impact from scotch (BIO).

 

Meanwhile, the management of Radico Khaitan said the first half of the year 2024-25 was marked by industry and regulatory headwinds that impacted volume growth in the regular category. Additionally, rising grain and ENA prices posed further challenges. Looking ahead, the management expects the demand environment in the spirits industry to remain robust, led by continued premiumisation.

 

Elara Capital’s view on United Spirits

 

The India-UK FTA shall aid United Spirits in gaining market share in the Upper Prestige and luxury segments (total volume market of 15mn cases, 5-7 per cent of Indian Made Foreign Liquor (IMFL) whiskey cases). This shall lead to a volume CAGR of 33 per cent in FY25-28E for United Spirit’s Scotch portfolio (BIO). Bottled in India (BII) may not see significant impact due to favorable agreement related to bulk alcohol with the parent.

 

With earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin for Scotch capped at ~10 per cent, rising volumes may compress overall Ebitda margin by 20-40bps, making growth dilutive to profitability. This shall aid growth for P&A volumes and support United Spirits premium valuations (58x PER on core alcobev segment-FY27E).

 

About United Spirits

 

United Spirits, a subsidiary of global alcobev leader Diageo plc, is engaged in the business of manufacture, purchase and sale of beverage alcohol and other allied spirits, including through tie-up manufacturing units and through strategic franchising of some of its brands.

 

About Radico Khaitan

 

Radico Khaitan is among the oldest and one of the largest manufacturers of IMFL in India. The company is also one of the largest providers of branded IMFL to the Canteen Stores Department (CSD), which has significant business barriers to entry.

 

The Company’s brand portfolio includes Rampur Indian Single Malt Whiskies, Sangam World Malt Whisky, Spirit of Victory 1999 Pure Malt Whisky, Jaisalmer Indian Craft Gin, Royal Ranthambore Heritage Collection Royal Crafted Whisky, Magic Moments Vodka, Magic Moments Remix Pink Vodka,  8PM Premium Black Whisky, 8PM Whisky, Contessa Rum and Old Admiral Brandy.