Nuvama upbeat on alco-bev space, bets on United Spirits and ABD; here's why

Nuvama Institutional Equities is positive on the alcohol-beverages space with United Spirits and Allied Blenders & Distillers emerging as its top picks. The brokerage believes strong wedding season in the second half of FY26 is likely to support liquor sales, as weddings and large social gatherings typically drive higher consumption and bulk purchases.

 

Further, raw material costs will remain supportive for spirits players, with prices of ENA (extra neutral alcohol) and glass expected to stay benign, according to the brokerage. However, barley, a key input for beer, is likely to see inflation in H2FY26, putting some pressure on brewers’ margins.

 

Why is Nuvama upbeat on United Spirits and Allied Blenders & Distillers?

Premium portfolios drive growth across United Spirits, Allied Blenders & Distillers:

Premiumisation remains a key theme across the alco-bev space:

• United Spirits reported prestige and above (P&A) revenue growth of 12.4 per cent year-on-year (Y-o-Y), with volumes up 8 per cent.
• United Breweries saw 17 per cent Y-o-Y growth in premium beer volumes, despite unfavourable weather conditions.
• Allied Blenders & Distillers and Radico Khaitan posted strong P&A revenue growth of 31 per cent Y-o-Y and 24 per cent, respectively.

United Spirits widens lead over Pernod in premium segment:

In the September quarter, United Spirits outpaced Pernod India by about 8 percentage points in value growth, after both had grown 9 per cent in the June quarter, indicating share gains at the premium end.  ALSO READ | Nuvama starts coverage on Premier Energies with 'Buy', sees J-curve growth

Allied Blenders & Distillers, United Spirits post strong sales and margin performance

On gross margins in the latest quarter:

• United Spirits was at the top with 47.1 per cent (a five-year high),
• Allied Blenders & Distillers follows at 44.4 per cent (an all-time high), and
• Radico stands at 43.6 per cent.

On Earnings before interest, tax, depreciation and amortisation (Ebitda) margins:

• United Spirits again leads with 21.2 per cent, a multi-decadal high,
• Radico follows at 15.8 per cent, and
• Allied Blenders & Distillers is at 12.7 per cent.

Three-year trends: United Spirits shine

United Spirits' gross margin expanded by 768 basis points (bps) on a three-year basis, while Radico’s gross margin was up 209 bps.

 

In terms of P&A segment growth over three years:

 

Radico has delivered 99 per cent revenue growth and 67 per cent volume growth, and United Spirits has posted 27 per cent revenue growth and 8 per cent volume growth.

 

In the case of United Breweries, revenue fell 3 per cent Y-o-Y, and volumes were also down 3 per cent Y-o-Y, which is slightly better than the industry, where volumes have dropped by mid-single digits.

 

Despite this, United Breweries' premium beer portfolio continues to grow at a healthy clip, cushioning some of the pressure from the broader category slowdown.

 

The beer category has faced a dip in volumes primarily due to extended, severe monsoons and floods in key states, according to analysts.