Indian Spirits Sector Poised for Strong Growth as Premiumization Drives Earnings

Jefferies, a major global investment banking and capital markets firm, has initiated coverage on three leading alcohol companies in India, highlighting strong growth prospects driven by premiumization in the spirits sector. The firm’s analysts said that the spirits category is set for robust expansion, with double-digit compound annual growth rates (CAGR) in revenue and significant opportunities to improve profit margins across the industry.

Radico Khaitan, known for its Magic Moments vodka and Rampur single malt whisky, was identified as the fastest-growing company among the three. Jefferies projects that Radico Khaitan will achieve more than 35% earnings per share CAGR between fiscal years 2025 and 2028. This growth is expected to be fueled by rising demand for vodka, a broader presence in Indian single malts, and an aggressive push into luxury spirits. The brokerage named Radico Khaitan as its top pick in the sector, citing both its high earnings growth and improving return on capital employed. Jefferies set a target price of 3,590 rupees for Radico Khaitan’s stock, which is about 25% higher than its current trading price of 2,880 rupees.

United Spirits, which is majority-owned by global beverage giant Diageo, faces short-term challenges after the state of Maharashtra sharply increased excise duties. This tax hike has affected United Spirits’ sales volumes in one of its largest markets. However, Jefferies noted that the company’s stock has already fallen more than 20%, reflecting much of the negative impact from the new taxes. The analysts believe this correction presents a favorable risk-reward scenario for investors. Jefferies forecasts a 13% earnings per share CAGR for United Spirits through fiscal year 2028 and set a price target of 1,570 rupees, representing a potential upside of 19% from its current level of 1,315 rupees.

Allied Blenders & Distillers, which went public in 2024 and is best known for Officer’s Choice whisky, was described by Jefferies as a “dark horse.” The company has been repositioning its product portfolio to include more premium offerings such as ICONiQ White and Sterling Reserve. Allied Blenders is also investing in backward integration to improve profit margins. While acknowledging past challenges at Allied Blenders, Jefferies said the company is on a turnaround path. The brokerage set a target price of 620 rupees for Allied Blenders’ shares, compared to their current price of 525 rupees, indicating an expected upside of 18%.

Jefferies expects all three companies to deliver double-digit revenue growth over the next several years. Radico Khaitan is projected to lead with an 18% CAGR in revenue, followed by Allied Blenders at 12% and United Spirits at 10%. The analysts also anticipate that profit margins will expand as premiumization continues and if the India-UK free trade agreement leads to lower import duties on Scotch whisky.

Despite these positive forecasts, Jefferies cautioned that risks remain for the sector. These include potential regulatory changes in key states, weaker consumer demand, and inflation in essential raw materials such as extra neutral alcohol (ENA) and glass. Nevertheless, the brokerage maintains that India’s spirits industry is well-positioned to outperform most other consumer goods sectors due to ongoing premiumization trends and favorable market dynamics.