Brokerage Expects Premiumisation, Product Innovation and UK-India FTA Benefits to Fuel Long-Term Earnings Growth

Global brokerage Jefferies has initiated coverage on India's alcoholic beverages (alcobev) sector with a positive long-term outlook, identifying Radico Khaitan and Allied Blenders & Distillers as its preferred investment ideas. The brokerage believes India's premium spirits market is entering a multi-year growth cycle, supported by rising disposable incomes, evolving consumer preferences and increasing demand for premium liquor brands.

Jefferies has assigned a 'Buy' rating to Radico Khaitan with a target price of ₹4,500 and Allied Blenders & Distillers with a target of ₹780. Meanwhile, it has maintained a 'Hold' rating on United Spirits, assigning a target price of ₹1,560.

Premiumisation Continues to Reshape the Industry

According to Jefferies, premiumisation remains the most significant structural trend in India's alcoholic beverages industry. Consumers are steadily moving away from country liquor and lower-end Indian Made Foreign Liquor (IMFL) products toward premium and prestige brands, resulting in higher profitability for manufacturers.

The brokerage notes that premium and luxury categories are growing at a much faster pace than the overall spirits market. This trend is being driven by rising incomes, urbanisation, aspirational lifestyles and a younger generation of consumers willing to spend more on branded products.

As premium products command significantly higher margins, companies with a strong presence in this segment are expected to deliver superior earnings growth over the medium term.

India Offers a Long Runway for Premium Growth

Jefferies believes India remains one of the most attractive long-term growth markets for premium alcoholic beverages due to its relatively low premium penetration compared to developed economies.

With rising disposable incomes and changing consumption patterns, the brokerage expects premium brands to continue gaining market share. This shift in product mix is likely to improve average selling prices, expand operating margins and drive sustainable earnings growth for leading liquor companies.

The brokerage also expects premiumisation to remain a key competitive advantage for companies that have invested heavily in brand development and product innovation.

UK-India Free Trade Agreement Could Boost Profitability

Another important positive factor highlighted by Jefferies is the UK-India Free Trade Agreement (FTA).

The brokerage believes the agreement could support structural margin expansion across the alcoholic beverages industry over the medium term by improving access to imported premium spirits and reducing cost pressures.

Combined with increasing backward integration by domestic manufacturers, the agreement is expected to improve operating efficiencies and strengthen profitability for organised players.

Radico Khaitan Remains the Preferred Bet

Jefferies has identified Radico Khaitan as its top pick within the sector.

The brokerage believes the company has consistently strengthened its market position through product innovation and expansion into high-growth premium categories, including premium whisky, vodka, gin and Indian single malts.

Its successful premium brand portfolio has enabled Radico to emerge as a credible challenger to larger industry players while maintaining healthy volume growth.

Jefferies expects the company to deliver nearly 22% compound annual growth in earnings per share (EPS) between FY26 and FY29, supported by continued premiumisation and strong execution.

Allied Blenders Transitioning into a Premium Growth Story

The brokerage is also optimistic about Allied Blenders & Distillers, noting that the company is gradually transforming from a mass-market liquor producer into a premium-focused spirits manufacturer.

The expansion of its premium portfolio, particularly the ICONiQ brand, along with improving product mix and ongoing backward integration initiatives, is expected to drive higher margins in the coming years.

Jefferies forecasts nearly 30% EPS CAGR over FY26-FY29 while expecting a meaningful improvement in return on capital employed (RoCE), making the company an attractive long-term investment.

United Spirits Remains a Quality Business but Limited Upside

While Jefferies remains positive on United Spirits, it believes much of the company's premiumisation opportunity has already been captured.

Premium products already account for nearly 85% of United Spirits' sales, leaving relatively less room for additional product mix improvements compared to peers.

However, the brokerage continues to view the company as India's leading premium spirits player, supported by Diageo's globally recognised portfolio of Scotch whisky and luxury brands.

Future earnings upgrades may depend on the successful turnaround and premium repositioning of legacy brands such as McDowell's.

Strong Growth Expected Through FY29

Jefferies expects both Radico Khaitan and Allied Blenders to outperform the broader spirits industry over the next few years.

The brokerage estimates:

• Radico Khaitan: Around 18% volume CAGR during FY26-FY29.
• Allied Blenders & Distillers: Approximately 14% volume CAGR.
• United Spirits: Around 6% volume CAGR, reflecting its already mature premium portfolio.

The faster growth expected for Radico and Allied Blenders is driven by their lower current premium mix, providing ample scope for future premiumisation-led expansion.

Industry Outlook

India's alcoholic beverages industry is entering a structural growth phase supported by favourable demographics, rising consumer spending and increasing demand for premium products. Organised players are investing aggressively in product innovation, premium branding, manufacturing efficiency and distribution expansion to capture this opportunity.

Jefferies believes companies that combine strong brand portfolios with disciplined execution and premium product strategies are likely to outperform over the long term. While competition within the premium segment is expected to intensify, the brokerage sees significant headroom for growth given India's relatively low premium liquor penetration compared to global markets. As consumer preferences continue to evolve, premiumisation is expected to remain the industry's most powerful earnings driver over the coming decade.