Jefferies has started coverage on United Spirits with a ‘Buy’ rating and a price target of ₹1,570. This price target implies a potential upside of about 19%, compared to the stock’s last closing price on Friday.
For Radico Khaitan and Allied Blenders and Distillers as well, Jefferies has initiated coverage with ‘Buy’ ratings and price targets of ₹3,500 and ₹620, respectively. These targets suggest further potential upsides of 25% for Radico Khaitan and 18% for Allied Blenders.
Radico Khaitan, which Jefferies has highlighted as its top pick, is expected to deliver the strongest growth among the three. The brokerage expects the company to achieve earnings per share growth of over 35% on a compounded annual basis during financial years 2025 to 2028, alongside improving return on capital employed (RoCE). These factors are expected to support its premium valuation of 62 times forward earnings per share on a one-year basis.
United Spirits, according to Jefferies, presents a favourable risk-reward balance after a correction of more than 20% in its stock price. While the company faces near-term headwinds due to the recent liquor tax hike in Maharashtra, the brokerage estimates earnings per share growth of around 13% on a compounded annual basis during FY25 to FY28.
Allied Blenders and Distillers has been described as a “dark horse” by Jefferies, with meaningful upside potential. However, its performance will depend majorly on execution. The brokerage has valued the company at 44 times estimated earnings per share for September 2027.
Jefferies said that the spirits category offers strong growth potential led by premiumisation, with all major companies expected to deliver double-digit compounded annual growth in revenue, along with significant scope for margin expansion.
What Jefferies likes about the industry
According to the brokerage, the Indian spirits market is very large and has high entry barriers due to complex state-level regulations, which act as a strong competitive moat for existing players.
While the overall industry growth is modest, typically in the mid-to-high single-digit range, the Prestige and Above (P&A) segment, which is the focus of most listed companies, is expanding at a double-digit pace. Scotch whisky and white spirits in particular are growing faster, with a compounded annual growth rate of 15 to 20%.
Premiumisation is also helping improve profitability. Jefferies pointed out that the regulatory environment has improved across several states, with instances of lower taxation on premium products and even privatisation of retail trade. However, the recent tax hike in Maharashtra was seen as a setback.
Key risks, as per the brokerage, include adverse regulatory changes in key states, a potential weakening of consumer demand, and inflation in major input costs such as extra neutral alcohol (ENA) and glass.
On Friday, shares of Allied Blenders ended 3.54% higher, while United Spirits and Radico Khaitan closed lower by 0.81% and 0.36%, respectively.
