Nomura bets on United Spirits as India's alcohol industry turns premium

In a note starting coverage on USL with a 'Buy' rating & target of ₹1,650, Nomura said the sector is seeing a paradigm change as consumers move away from 'drinking more' to 'drinking better'.

India’s alcoholic beverages industry is at the cusp of a structural shift, with premiumisation emerging as the dominant growth driver amid evolving consumer preferences and supportive regulatory tailwinds, according to Nomura research analysts Mihir P Shah and Riya Patni.

 

In a note initiating coverage on United Spirits Ltd (USL) with a ‘Buy’ rating and a target price of ₹1,650, Nomura said the sector is seeing a paradigm change as consumers move away from ‘drinking more’ to ‘drinking better’. This shift, analysts believe, places companies with strong premium and prestige-and-above (P&A) brand portfolios in a sweet spot to capture outsized growth.

 

 

“Consumers are evolving towards premium experiences and are shifting from ‘drinking more’ to ‘drinking better,’ as prestige & above (P&A) brands are growing faster than popular ones. This indicates that the industry is at an inflection point of a premiumisation upcycle,” Nomura research analysts said.

 

Premiumisation at an inflection point

 

Nomura noted that P&A brands are growing faster than mass and popular segments, signalling that premiumisation in Indian AlcoBev has reached an inflection point. Higher-margin categories such as white spirits are also gaining traction, opening up opportunities for category expansion and margin improvement.

 

The analysts believe brands with higher exposure to P&A offerings and white spirits are best placed to benefit from this upcycle, particularly as aspirational consumption rises alongside income growth and urbanisation.  ALSO READ | Q3 Results Today 

Indian single malts gain global recognition

 

A key driver accelerating premium demand has been the global recognition won by Indian single malt whiskies in recent years. Brands such as Indri, Rampur and Godawan have bagged international awards, including top honours and gold medals, putting Indian malts on the global map.

 

Nomura highlighted that this recognition has driven consumer curiosity and demand for better-quality products, resulting in a robust 22 per cent compound annual growth rate (CAGR) for single malt whiskies in India between FY19 and FY24. Encouraged by this success, industry players have stepped up new launches in the P&A segment to capitalise on consumers’ growing willingness to experiment.

 

High entry barriers limit competition

 

Unlike several other fast moving consumer goods (FMCG) categories, the Indian AlcoBev market continues to be shielded by high entry barriers. Nomura pointed out that state-specific regulations governing pricing, taxation and distribution impose heavy compliance costs, acting as a deterrent for new entrants and limiting the ability of smaller or regional players to scale nationally.

 

Additionally, marketing in what remains a largely media-dark industry requires sustained investment to build brand recall and salience. These factors, the analysts said, prevent a proliferation of new players and help keep competition in check, benefiting established incumbents.

 

Regulatory tailwinds outweigh near-term headwinds

 

While the sector has faced intermittent regulatory challenges, Nomura believes the broader policy environment has improved materially over the past few years. Several states have rationalised alcohol distribution systems and tax structures, supporting higher volumes and revenue visibility.

 

The proposed India-UK Free Trade pact is seen as another positive, with the brokerage expecting it to aid premiumisation, enhance sales growth and support margins over the medium term.

 

On-trade focus to lift margins

 

Nomura also flagged the increasing importance of on-trade channels such as hotels, restaurants and caterers (HoReCa) in shaping consumer preferences. As demand for premium experiences rises, companies are sharpening their on-premise strategies to introduce consumers to new tastes and formats.

 

Analysts believe that stronger on-trade presence not only enhances brand visibility but also supports better pricing and margins, reinforcing the premiumisation thesis.

 

Social acceptance widens consumption base

 

Demographic and social trends are further expanding the addressable market. Of the roughly 13 million drinking-age adults added annually, an estimated 3-5 million begin consuming alcohol in some form, according to industry data cited by Nomura.

 

The analysts also pointed to declining social taboos around alcohol, rapid urbanisation, rising disposable incomes and increasing female workforce participation as factors likely to support broader adoption of alcoholic beverages over time.

 

USL valuation and risks

 

Nomura values USL’s core business at 50x March 2028 estimated earnings, a 10 per cent discount  to its five-year average multiple to account for recent headwinds, and assigns ₹150 per share to Royal Challengers Sports. 

 

The brokerage expects USL’s earnings per share (EPS) to grow at a 13 per cent CAGR over FY26-FY28. At current levels, USL trades about one standard deviation below its 10-year average valuation multiple.

 

The key risk, Nomura cautioned, would be a slower-than-expected scale-up of P&A brands, which could temper the premium-led growth trajectory.   

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