Alcohol stocks in limelight, jump up to 10%; United Spirits at record high

Pioneer Distilleries, Tilaknagar Industries, IFB Agro Industries, Khoday India, GM Breweries, Som Distilleries and United Breweries were rallied by upto 10% on the BSE in intra-day today.

Shares of breweries & distilleries companies were in demand in an otherwise subdued market with United Spirits at record high on Friday on improved growth outlook. Pioneer Distilleries and Tilaknagar Industries also registered their respective 52-week highs, surging up to 10 per cent on the BSE in intra-day trades.

IFB Agro Industries, Khoday India, GM Breweries, Som Distilleries and United Breweries were trading 2 per cent to 4 per cent higher on the BSE. In comparison, the S&P BSE Sensex was down 0.19 per cent at 59,868 points at 11:57 am.

Among the individual stocks, United Spirits hit a record high of Rs 963, and had rallied 8 per cent on the BSE in intra-day trade today. In past four trading days, the stock soared 17 per cent, after the company posted a strong performance in July-September quarter (Q2FY22).

United Spirits reported over two-fold jump in consolidated net profit at Rs 286 crore in Q2FY22 on back of a double-digit growth in sales. It had posted a net profit of Rs 125 crore in Q2FY21. Revenue from operations was up 9.31 per cent to Rs 8,209 crore during the quarter under review as against Rs 7,509 crore in the year-ago period. Earnings before interest, tax, depreciation and amortization (ebitda) margins increased 483 bps to 17.4 per cent due to gross margin enhancement, lapping a one-off expense in the prior year and a net one-off tax reversal in the current quarter.

United Spirits is India’s leading alcoholic beverage company and subsidiary of global leader Diageo plc. It manufactures, sells premium liquor brands such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff and Captain Morgan.

After the Covid tax reversals, regulatory policies are turning more favorable for the sector, with states improving distribution models and increasing liquor outlets. The change in retail distribution in Delhi from the government-operated outlets to private outlets from mid-November is expected to result in higher sales and market share gains for leading brands. Telangana and AP have announced an increase in the number of liquor licenses, while Rajasthan has made all liquor shops composite shops.

Analyst at Emkay Global Financial Services sees additional growth-catalysts for alcoholic beverages industry in the near-term, such as a reduction in IMFL taxes in WB; and an FTA with the UK that may lead to a reduction in duty on scotch-imports. “Growing use of returnable bottles should offset most of the glass inflation for United Breweries, leading to stable margins. Overall cost savings and operating leverage should still drive EBITDA margin gains across companies, in our view,” the brokerage firm said in sector update.