Radico, Allied Blenders: Jefferies initiates coverage on India's alcobev sector

Jefferies said that premiumisation is the most important structural trend, with consumers trading up from country liquor and lower-end IMFL to Prestige & Above (P&A) segments.

Brokerage firm Jefferies has initiated coverage on India's alcoholic beverages (alcobev) sector, saying the premium tailwind is intact. The brokerage has recommended 'Buy' rating on Radico Khaitan (top pick) and Allied Blenders & Distillers for targets of ₹4,500, and ₹780, respectively. It has assigned a 'Hold' rating to United Spirits for a target price of ₹1,560. 

Jefferies said that premiumisation is the most important structural trend, with consumers trading up from country liquor and lower-end Indian Made Foreign Liquor (IMFL) to Prestige & Above (P&A) segments. Premium+ categories are growing at strong double-digit rates, significantly outpacing the broader market and driving a disproportionate share of industry profits. The trend is supported by rising incomes, urban aspiration, and a young, brand-conscious consumer base. 

 

The brokerage said that with premium penetration still low vs global markets, India offers a long runway for mix improvement, making premiumisation the key lever for sustainable growth and margin expansion. Also, the benefits of the UK-India FTA will support structural margin expansion across the industry over the medium term. 

"Going forward, premiumisation, backward integration, UK-India FTA benefits should support structural margin expansion. Despite increased competition in premium+, low penetration levels leave ample room for mix & margin-led growth across players," it said. 

Jefferies expects both Radico and Allied Blenders to outperform United Spirits over FY26-29. Over FY22-26, strong execution and product innovation enabled Radico and Allied Blenders to deliver a strong 14-21 per cent Prestige & Above (P&A) volume CAGR, outperforming market leaders. United Spirits and Pernod grew at 2-6 per cent during the same period.  READ | Nifty Pharma index up 2%; Dr Reddy's, Ajanta, Ipca, Cipla surge up to 5% 

"With P&A mix for Radico & ABD still <50 per cent, there is a long runway for premiumisation-led growth, driving 18 per cent and 14 per cent volume CAGR over FY26-29e. In contrast, United Spirits, with already ~85 per cent P&A salience, is expected to deliver 6 per cent CAGR," Jefferies said. 

On Radico Khaitan, the brokerage said that it has been an outperformer in the spirits industry and has become a credible challenger to market leaders, driven by strong innovation in niche - high-growth, high margin categories (vodka, gin, Indian malts). 

According to Jefferies, Radico's superior execution and brand-building capabilities support around 22 per cent EPS CAGR over FY26-29e, "justifying its premium valuation of 62x 1yr forward PE." 

On Allied Blenders, the brokerage said that the company has shown improving execution and is transitioning into a premiumisation-led story from a mass-market base, supported by the scaling of IQ and improving product mix. Ongoing backward integration and a rising premium mix are expected to drive margin expansion. 

The brokerage expects 30 per cent EPS CAGR and also improvement in RoCE to 25 per cent over FY26-29e, supporting its current valuation (48x 1yr forward PE). 

The brokerage views United Spirits as a proxy for the premium and luxury portfolio, with strong leadership in Scotch whisky backed by Diageo's global portfolio. A successful renovation of McDowell’s remains key to earnings upgrades.  ==============================================

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