Brokerage Sees Premiumisation, Brand Expansion and FTA Benefits Driving the Next Phase of Growth in India's Alcoholic Beverage Industry

Global brokerage Jefferies has initiated coverage on India's alcoholic beverages (alcobev) sector with a constructive long-term outlook, highlighting the country's premiumisation trend as one of the strongest structural growth stories in the consumer space. The brokerage believes rising disposable incomes, changing consumer preferences and expanding premium product portfolios will continue to reshape the industry over the coming years.

Jefferies has initiated coverage with a 'Buy' recommendation on Radico Khaitan and Allied Blenders & Distillers (ABDL), while assigning a 'Hold' rating to United Spirits. The brokerage expects companies with greater exposure to premium and prestige liquor segments to outperform the broader market through stronger earnings growth and improving operating margins.

Jefferies' Investment Recommendations

The brokerage has identified companies with significant premiumisation opportunities as its preferred investment choices.

Target Prices

According to Jefferies, the Indian alcoholic beverages industry is entering a multi-year structural growth phase that should benefit companies capable of strengthening their premium brand portfolios.

Premiumisation Continues to Reshape the Industry

Jefferies believes the most significant long-term trend in India's spirits industry is the ongoing shift from lower-priced liquor to premium brands.

Consumers are increasingly moving away from:

• Country liquor
• Economy Indian Made Foreign Liquor (IMFL)

towards Prestige & Above (P&A) products, which include premium whisky, vodka, gin and luxury spirits.

This transition is improving the industry's profitability as premium products generate higher margins and stronger brand loyalty than entry-level offerings.

What's Driving Premium Consumption?

Several structural changes in India's economy are supporting demand for premium alcoholic beverages.

Key Growth Drivers

• Rising disposable incomes
• Rapid urbanisation
• Growing middle-class population
• Younger demographic profile
• Aspirational consumer behaviour
• Preference for branded products
• Expanding organised retail channels

As purchasing power increases, consumers are becoming more willing to spend on premium experiences, including higher-quality alcoholic beverages.

India Offers Significant Headroom for Growth

Jefferies notes that premium liquor penetration in India remains considerably lower than in developed markets.

This provides a long runway for growth as consumers gradually upgrade to higher-value products.

The brokerage expects premium categories to continue growing at double-digit rates, significantly outpacing the overall industry and contributing an increasing share of sector profits.

UK-India Free Trade Agreement Could Boost Margins

Another important catalyst highlighted by Jefferies is the potential benefit arising from the UK-India Free Trade Agreement (FTA).

The brokerage believes the agreement could contribute to structural margin expansion through:

• Lower import duties on select products
• Improved access to premium international brands
• Better sourcing opportunities
• Enhanced supply chain efficiencies
• Increased product innovation

Over the medium term, these factors are expected to strengthen profitability across the organised alcobev sector.

Radico Khaitan Emerges as Jefferies' Preferred Pick

Among all listed companies, Jefferies identifies Radico Khaitan as its top investment idea.

The brokerage believes Radico has consistently outperformed the industry by focusing on premium product innovation and strong brand development.

The company has successfully expanded its presence in high-growth categories such as:

• Premium Vodka
• Gin
• Indian Single Malt Whisky
• Premium Whisky

Its strategy of introducing niche products while strengthening distribution has helped it emerge as a credible challenger to larger competitors.

Strong Earnings Growth Expected for Radico

Jefferies expects Radico Khaitan to deliver approximately 22% earnings per share (EPS) CAGR between FY26 and FY29.

Key growth drivers include:

• Premium product mix improvement
• Higher operating margins
• Continued brand investments
• Product innovation
• Distribution expansion
• Rising domestic demand

Although the stock trades at relatively rich valuations, the brokerage believes sustained earnings growth justifies the premium.

Allied Blenders Building a Premium Growth Story

Jefferies is equally optimistic about Allied Blenders & Distillers, which has been steadily transforming itself from a mass-market liquor company into a premium-focused player.

The brokerage believes the company is entering a new growth phase supported by:

• Premium product launches
• Better product mix
• Stronger execution
• Backward integration
• Manufacturing efficiencies

As premium brands gain a larger share of revenue, profitability is expected to improve steadily.

Healthy Earnings Outlook for Allied Blenders

Jefferies forecasts:

• Around 30% EPS CAGR between FY26 and FY29.
• Improvement in Return on Capital Employed (RoCE) to nearly 25%.

The brokerage believes these financial improvements support the company's current valuation and future growth prospects.

United Spirits Remains an Industry Leader

Although Jefferies has assigned only a 'Hold' rating, it continues to acknowledge United Spirits' leadership position in India's premium liquor market.

Backed by global spirits giant Diageo, the company enjoys:

• Leadership in premium Scotch whisky
• Strong luxury portfolio
• Extensive distribution network
• Well-established premium brands

However, with approximately 85% of its portfolio already concentrated in premium categories, the brokerage believes there is comparatively less room for further mix improvement than peers such as Radico Khaitan and Allied Blenders.

Premium Portfolio Driving Future Growth

Jefferies expects both Radico Khaitan and Allied Blenders to outperform larger competitors over FY26–FY29 due to their relatively lower premium penetration.

Expected Prestige & Above Volume CAGR

This reflects the greater scope available for premium portfolio expansion at Radico and Allied Blenders.

Industry Outlook Remains Positive

India's alcoholic beverages industry continues to benefit from several favourable long-term trends.

Positive Industry Tailwinds

• Rising disposable incomes
• Premiumisation
• Expanding urban population
• Young consumer base
• Product innovation
• Brand premiumisation
• Organised retail growth
• Potential FTA benefits

These structural drivers are expected to support both revenue growth and margin expansion over the coming years.

Risks Investors Should Consider

Despite the favourable outlook, the sector continues to face several challenges.

Key Risks

• Regulatory changes across states
• Higher excise duties
• Intense competition
• Raw material cost inflation
• Changing consumer preferences
• Advertising restrictions
• Margin pressure in mass-market categories

Companies with diversified premium portfolios and strong execution capabilities are expected to navigate these risks more effectively.

Investment Outlook

Jefferies believes the Indian alcobev sector remains one of the most attractive consumption themes within the broader consumer space.

Companies that continue investing in:

• Brand building
• Premium products
• Distribution expansion
• Manufacturing efficiency
• Product innovation

are expected to deliver superior earnings growth and shareholder returns over the medium term.