Alcohol stocks set to go 'high on spirits' ahead of new year?

New Delhi: The love of liquor is usually quite evident in the last quarter of the year, when the demand for alcohol is high on the back of festive season followed by the new year celebrations.

However, performance of brewery stocks has not been high on spirits in the long run, but the majority of them have rewarded the investors in the near to medium run.

Among the top eight brewery players on the basis of market capitalisation, with a capping of at least Rs 750 crore, only two players have delivered negative returns in the last six months with one stock turning into a multibagger.

In the last three months, three stocks have failed to deliver positive returns with two counters rallying more than 25 per cent during the period, the data from AceEquity suggest.

In the six months period, Globus Spirits and Associated Alcohols and Breweries have dropped 39% and 2% respectively, whereas Som Distilleries & Breweries jumped 109% and Tilaknagar Industries gained 85% during the period.

In the three months, Radico Khaitan joined Globus Spirits and Associated Alcohols which dropped up to 18%, whereas United Spirits topped among the gainers in the last month.


Analysts tracking the markets believe that the bottom line of the majority of companies have been dented by the steep rise in the raw material prices but margins, however, are largely maintained.

Apurva Sheth, Head of Market Perspectives and Research, Samco Securities said that most of the companies have reported a decline in net profits during the second quarter due to high inflation.

"Despite this the margins have sustained without many dents. This comes as a positive as the financials reflect their operational efficiencies," he added.

However, market analysts believe that peaked prices of commodities, which are used as raw materials and price hikes will support the performance in the times to come and breweries players will be able to maintain the margins.

The companies have taken price hikes to mitigate the raw material pressures, said Sheth. "The costs of key inputs such as sugar, rice, cereals and others have started to soften. This aids in the expansion of margins going forward."

He likes United Spirits which is trading below its 3-year and 5-year median PE. GM Breweries would be another stock on the brokerage's radar.

Abneesh Roy, Executive Director, Institutional Equities, Nuvama Wealth Management said that United Spirits benefitted from good momentum driven by robust demand and improving mix as P&A mix rose

However, Roy has a hold rating on the United Spirits, the only stock under the coverage, as he does not expect strong listing gains in the counter. Other brokerage ICICI Securities has an 'add' rating on the stock with a target of Rs 940.

However, other brokerage firms remain positive on the various other counters including Globus Spirits and Radico Khaitan in the longer run.

Edelweiss Wealth Research has a buy rating on Globus Spirits with a target price of Rs 1,120, suggesting a more than 51% upside in the counter.

It remains positive on Globus Spirits, underpinned by long-term drivers such as benefits of ethanol-blending programme, plans to introduce consumer brands across new markets and increasing share of high-margin products.

Anand Rathi Research has a hold rating on Radico Khaitan with a target price of Rs 1,035, whereas Kotak Securities has suggested to reduce the stock with a target of Rs 950.

"We are optimistic about the consistent premiumisation and better margins, because of this, current valuations are rich. Hence, we await a better entry price," said Anand Rathi in its report.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)