Whalesbook
Analyst Optimism Amidst Rising Costs
JM Financial maintains a positive stance on United Spirits and Allied Blenders and Distillers, raising their price targets even as packaging costs climb. The firm highlighted distinct growth paths for each company and their recent Q4 performance, underscoring the premiumization trend in India's alcohol market. JM Financial kept an 'Add' rating for United Spirits with a 12-month target of ₹1,445, signaling about a 9% potential upside. For Allied Blenders, a 'Buy' rating was issued with a revised target of ₹650, suggesting a potential 17% return.
United Spirits: Premium Sales Drive Profit Growth
United Spirits, part of Diageo, reported a 28% year-on-year increase in net profit to ₹539 crore for Q4 FY26. Net revenue grew modestly by 3.7% to ₹3,054 crore, as volumes dropped 5.6% due to policy changes in Maharashtra and Andhra Pradesh. However, sales in the valuable prestige-and-above (P&A) segment grew 4.9%. Profitability improved significantly, with gross margins expanding by 281 basis points to 47.3% and EBITDA rising 17%. The company is focusing on its premium offerings, expecting double-digit growth in the P&A segment. United Spirits has a P/E ratio of approximately 54.04 and a market cap of around ₹96,694 crore.
Allied Blenders: Full-Year Profit Up, P&A Segment Strong
Allied Blenders and Distillers (ABD) experienced a 52% year-on-year drop in Q4 FY26 net profit to ₹37.62 crore, with revenue nearly flat at ₹1,908.77 crore. For the full fiscal year FY26, however, ABDL's net profit rose 13% to a record ₹220.11 crore. The Prestige & Above (P&A) segment saw more than 20% volume growth in Q4. Allied Blenders' ICONiQ White brand surpassed 10 million cases in FY26 sales. ABDL's P/E ratio is around 70.60x, and its market capitalization is approximately ₹15,541 crore.
Packaging Costs Pose a Threat
A major concern for the alcoholic beverage sector is the sharp increase in packaging costs. Higher crude oil prices, linked to the West Asia conflict, have driven up costs for plastic, glass, and paperboard. Plastic components and PET resins have seen price hikes of 31-40%, glass prices are up 8-20%, and paperboard cartons have nearly doubled. Crisil Ratings anticipates these higher costs could reduce alcobev companies' EBITDA margins by 150–200 basis points. Passing these costs onto consumers is challenging due to potential supply disruptions and the need for state approvals.
Indian Market Growth and Competitive Landscape
Despite cost pressures, the Indian alcoholic beverage market is projected for strong growth, potentially reaching USD 146.61 billion by 2035. Premiumization is a key factor, with consumers increasingly favoring craft, flavored, and imported drinks. United Spirits's P&A focus and Allied Blenders' luxury portfolio expansion align with this trend. Competitively, United Spirits trades at a P/E of about 54, while Allied Blenders trades at a higher P/E of around 70.60. United Spirits is considerably larger by market cap, valued at about ₹96,694 crore compared to Allied Blenders at ₹15,541 crore. JM Financial's target increases suggest sustained confidence in the premiumization strategy despite near-term margin pressures from packaging costs.