Radico, UBL, United Spirits, Allied Blenders: Will they brew strong returns? Check targets

JM Financial noted that the alcoholic beverage sector showed 3QFY26 sales growth of about 8 per cent year-on-year YoY, down from 11 per cent in the previous quarter. Sector Ebitda rose 21 per cent YoY, exceeding estimates. "Our alcoholic beverage coverage’s 3QFY26 sales growth is largely in-line while Ebitda (21 per cent YoY versus 16 per cent YoY in 2Q) beat our estimate," it said. Revenue growth moderated compared to Q2, as Andhra Pradesh (AP) RTM changes came into the base for spirit players. Regional policy changes also influenced performance, especially for spirits. It noted that spirit players (Radico Khaitan Ltd and United Spirits Ltd) continued to outperform beer players (United Breweries) on volumes, as beer consumption was impacted by extended monsoon and regulatory headwinds in key markets. Besides this, the premiumisation trend remained strong in both beer and spirit segments and healthy YoY improvement in gross margins (GM) across players. JM Financial expects a broadly similar sales and Ebitda growth trend for 4QFY26E. Important variables to monitor include volume trend for spirits in Maharashtra as the full impact of MML introduction is seen in 4Q. Pace of volume recovery for beer, especially in the upcoming summer season and regulatory changes in upcoming state budgets shall also be watched out. Radico remains the preferred sectoral pick, reflecting strong YoY growth. Spirit players have managed to outperform despite challenges: "Operating environment remained challenging, particularly for Beer players with consumption impacted by an extended monsoon and affordability challenges in Karnataka, Telangana and Rajasthan." For spirits, sales growth moderated versus H1 due to the sharp tax hike in Maharashtra and the AP RTM change. Spirit players remain optimistic about demand outside Maharashtra, while beer industry participants see early signs of recovery. Pernod Ricard and United Spirits noted the Maharashtra tax hike could weigh on sales in the near term, but underlying demand remains strong elsewhere. A recent court ruling allows all players to register for the MML category; Radico and ABD have applied and plan to launch MML products once approved. In beer, both UBL and Carlsberg are optimistic about CY26, with UBL noting recovery to mid-single digit growth in January, noted JM Financial. Premiumisation continues to drive growth. The premium portfolio remained strong for both spirits and beer. Radico’s and Allied Blender's P&A segment grew 29 per cent and 15 per cent YoY, followed by 8.3 per cent YoY growth for United Spirits. United Spirits realisation per case was higher than peers due to a better mix. United Breweries premium beer portfolio also grew in double digits. Margin progression was ahead of expectations, with GM expanding 220–350 bps YoY. United Breweries, after prior margin pressure, saw healthy expansion from price hikes and mix improvement. With stable RM prices and strong P&A performance, spirit players also delivered healthy GMs. JM Financial expects mid-high teens’ EBITDA margins for UNSP/Radico to sustain, and ABD’s margins to move toward mid-teens over FY26-28E. For UBL, margins are expected to move toward low double digits, though COGS inflation (barley, aluminium) remains a risk. Estimates for FY27E remain stable for spirits, with a small cut for beer. JM Financial expects Radico to outperform with teens’ sales growth, Allied Blenders sales to revert to low double digits as Telangana normalises and the brandy segment launches in AP. The sector is projected to see high single-digit to low double-digit sales growth and 20 per cent EBITDA growth for FY27E. JM Financial has a 'buy' rating on Radico Khaitan and Allied Blenders & Distillers with a target price of Rs 3,790 and Rs 700, respectively. It has given an 'add' rating on United Spirits and United Breweries with a target price of Rs 1,500 and Rs 1,720, respectively.