Buy United Spirits, Radico Khaitan And Allied Blenders, Says Jefferies On Initiating Coverage

Jefferies initiated coverage in the alcoholic beverage space of India. The brokerage has given a 'Buy' rating to United Spirits Ltd., Radico Khatian Ltd., and Allied Blenders & Distillers Ltd. upon coverage initiation. The brokerage notes that "the spirits category offers premiumisation-led strong growth potential, with double-digit top-line compound annual growth rates across companies and meaningful room to expand margins."

Jefferies further added that Indian spirits is a large market with high entry barriers due to complex state-level regulations, a key moat for incumbents. While aggregate growth is modest, prestige & above price points, which is the focus for most listed companies, are growing at double-digits, with Scotch and white spirits doing better.

"Premiumisation also enables better profitability. The regulatory environment has improved across several states, with instances of even reduction in taxation for premium products and privatisation of retail trade. The recent tax hike in Maharashtra, however, was a step backward," the brokerage noted.

Jefferies believes companies like Radico Khaitan have grown strongly in recent years, benefiting from their presence in fast-growing segments (vodka, Indian single malts).

Further, Indian players are now focusing aggressively on new launches, thereby plugging gaps in the portfolio, especially in P&A, where they were traditionally under-indexed. This should enable them to report industry-leading growth in the medium term, the brokerage added.

Jefferies initiated coverage on United Spirits with a 'Buy' rating and target price of Rs 1,570. For Radico Khaitan, the brokerage has given a target price of Rs 3,590 with a 'Buy' rating, and similarly for Allied Blenders, the brokerage has a 'Buy' rating with a target price of Rs 620.

However, Radico Khaitan remains the top pick for brokerage as the company leads on growth, and United Spirits offers favourable risk-reward after the stock correction. However, for Allied Blenders, it said that the company is a dark horse, with meaningful upside, but execution holds the key.