Uttar Pradesh has recently released a new excise policy for FY26, highlighting a series of reforms, which in our view, shall benefit mainstream liquor companies. Radico is likely to be a significant beneficiary, since UP contributes to 25% of its domestic volumes.
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HDFC Securities Institutional Equities
Good times are here to stay; maintain high-conviction Buy on Radico Khaitan Ltd.
Uttar Pradesh has recently released a new excise policy for FY26, highlighting a series of reforms, which in our view, shall benefit mainstream liquor companies. Radico is likely to be a significant beneficiary, since UP contributes to 25% of its domestic volumes.
The following reforms are likely to boost volume growth in the state:
allowing the sale of low unit packs (60 ml and 90 ml) for both the regular and premium segments, which shall drive conversion from country liquor to regular Indian made foreign liquor and encourage trials in the premium segment;
creation of a composite shop distribution network—permitting the sale of beer, liquor and wine from a single store, which will increase the overall distribution reach. Moreover, the existing liquor retailers will have to wind up their business and reapply in the e-lottery system; and
reorganising supply chain of liquor, thereby freeing up working capital for liquor companies.
However, in the near term, liquor companies may witness demand headwinds, as existing retailers de-stock their inventory. Incrementally, we were disappointed via the fact that the anticipated price hikes for UPML (UP manufactured Liquor) did not come through which could further strain profitability (margins in UPML are around 5-6%).
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