Liquor stocks surged by up to 62% over the past year: What drove the rally?

Shares of liquor manufacturers have been on a bull run over the past year,  delivering solid returns to investors amid positive market conditions. Leading liquor stocks have surged by up to 61% during the period.

According to BSE data, United Breweries shares rose by more than 42% over the past year, while United Spirits’ shares jumped nearly 54%. Another leading IMFL producer, Radico Khaitan, rallied nearly 62% during the same period.

These are the key factors that aided the rally in Indian liquor stocks:

Demand for premiumisation:

Premiumisation is a key trend in the liquor industry, with manufacturers catering to the demand from the high-end segment of the alcohol market.

This is evident from Radico Khaitan’s recent launch of the limited edition Rampur Signature Reserve Single Malt whisky, which sold out within a week despite its hefty price tag of ₹5 lakh per bottle.

United Spirits is also actively targeting the premium market, with sales of its Prestige brand and similar offerings accounting for up 82% of total sales during the July to March period (FY24).

United Breweries is expanding its presence in the premium alcohol segment through new launches and efforts to enhance the penetration of its beer in urban markets.

Reduction in regulatory intervention:

A stabilisation in tax rates and less regulatory intervention also helped the performance of liquor companies.

Excise rates on gross sales also stabilised, leading to spurt in sales of liquor.

A similar trend is seen in diversified FMCG company ITC’s cigarette sales, where volumes improved due to less regulatory intervention in terms of taxation.

Stable input costs:

Barley, which is a key ingredient for alcohol manufacturers, has seen a price stabilisation, with prices coming down. Extra Neutral Alcohol (ENA) prices are also witnessing less inflation than was estimated, along with reduced prices of glass bottles. All these factors together make the street feel that margins could be up from a year as the input costs for the alcohol industry seem to be stabilising.

Toss-up between FMCG companies and liquor stocks:

It is estimated that alcohol companies are likely to achieve around one and a half to twice the growth seen in fast-manufacturing consumer goods (FMCG) companies. This is likely to boost investor sentiment and aid the rally in liquor stocks.

UK-India FTA Treaty:

The UK-India FTA Treaty could also possibly lower scotch prices and boost volumes for IMFL manufacturers.