Premium portfolios to serve neat margin gains for liquor companies

Profits, uncorked: A spirited blend of festivals and weddings to pour strong growth in FY25's second half

The alcoholic beverage (alcobev) segment outperformed its peer categories within the discretionary consumer market in the 2024-25 (FY25) July-September quarter. While demand slowed in sectors like quick-service restaurant (QSR), apparel, and footwear, listed alcobev companies delivered strong performances.

 

QSR players reported same-store sales declines of 2-10 per cent due to subdued demand, and footwear companies posted modest 4 per cent revenue growth. Further, gross margins for major footwear players were lower due to inventory liquidation of non-Bureau of Indian Standards-certified products and increased discounting. Retail and apparel companies also missed Street estimates, with revenue growth marking the lowest in six quarters.

 

In contrast, the top listed alcobev makers reported an average revenue growth of 11 per cent, with a notable 16 per cent growth when excluding United Spirits (USL). Elara Securities projects a resilient outlook for the second half of FY25, bolstered by the festival season, Christmas, New Year, and the ongoing wedding season. 

 

 

The standout performer for the quarter was Radico Khaitan, which posted a 21 per cent growth. The company, known for brands such as 8PM Grain Blended Whisky, Magic Moments (vodka), Contessa Rum, and Old Admiral Brandy, among others, maintained volume growth in the Prestige & Above (P&A) segment, up 13 per cent year-on-year (Y-o-Y), despite weak macro conditions. Gross margins improved by 258 basis points (bps) sequentially, driven by ongoing premiumisation and stable raw material and packaging costs. Glass prices decreased by 4-5 per cent compared to the year-ago quarter.

 

HDFC Securities has raised the company’s earnings estimates by 4-5 per cent for 2025-26 and 2026-27 (FY27), forecasting a 15 per cent revenue growth, a 26 per cent rise in operating profit, and a 35 per cent increase in net profit.

 

Key factors expected to drive growth for the company and the sector include favourable policy interventions in high-salience states like Karnataka and Andhra Pradesh. Karnataka recently reduced excise duties, while Andhra Pradesh is set to benefit from a new liquor policy favouring private players.

 

Other growth drivers, according to Vishal Gutka, a research analyst at the brokerage, include a greater focus on the high-margin luxury/premium segment, with management doubling malt capacity, a moderation in raw material prices, and cost optimisation initiatives led by the company.

 

For USL, the country’s largest spirits maker and owner of brands such as Royal Challenge Whisky, Antiquity Blue, Bagpiper, Signature, and Johnnie Walker, net revenue was slightly lower year-on-year (Y-o-Y) due to a high base and a 4.5 per cent volume decline. However, the company improved its gross margins by 180 basis points (bps) to 45.2 per cent. This, combined with lower other expenses, partially offset higher employee and advertising costs, resulting in a 140 bps Y-o-Y expansion in the operating profit margin to 17.8 per cent.

 

Nirmal Bang Research analysts Krishnan Sambamoorthy and Sunny Bhadra note that alcobev companies have performed well despite a tough operating environment, with a positive outlook for both top-line growth and material cost trends.

 

The brokerage remains optimistic about the structural growth potential, driven by the ongoing premiumisation in the spirits market, with 87-88 per cent of USL’s sales now coming from the P&A category.

 

USL’s recent efforts in innovation and renovation, expanding into new categories like tequila, and investing in local brands and startups further enhance its long-term growth prospects.

 

United Breweries (UBL), the leader in the beer segment, posted a 12 per cent sales growth and a 23 per cent increase in operating profit compared to the same quarter last year. Volumes rose by 5 per cent despite transportation disruptions caused by heavy rainfall in key states.

 

The company’s premium segment saw a 27 per cent rise in volumes, driven by Kingfisher Ultra, Ultra Max, and Heineken Silver. UBL continues to focus on volume-led growth and gaining a share in the premium beer market. To further boost its premium segment, the company launched the Amstel Grande brand in India.

 

Motilal Oswal Research projects a 12 per cent annual revenue growth from 2023-24 through FY27, driven by high single-digit volume growth. The brokerage has upgraded the stock from ‘sell’ to ‘neutral’, citing limited downside risk.