Liquor Stocks: United Spirits, Radico, UBL, others in focus as festive season, winters likely to drive H2 prospects

Stock Market Today: Liquor stocks such as United Breweries, United Spirits, and Radico Khaitan have faced high volatility in the last one month. However, they have gained up to 65% in a year.

Analysts remain optimistic about the prospects of these liquor stocks, including Associated Alcohols, Globus Spirits, and Piccadily Agro.

Analysts said that after a comparatively weaker first half, the second half of the financial year (H2 FY25) may be stronger, led by the festive season, onset of winters, and marriage season. The ethanol production shifting away from sugarcane to grains and other reforms carried by the government are positive for the sector, as per analysts.

Analysts say that Q1 was weaker for liquor stocks impacted by extreme summers (heat wave) and hence Q2 may still be better, though this quarter is historically weaker, due to the impact of monsoon.

Decent Q2 expectations

The alcoholic beverages industry saw a modest start to volume growth in the prestige & above (P&A) vertical this year, said analysts at Elara Securities. Radico Khaitan continues to do well in the P&A segment, said analysts at Elara. They expect the company's P&A segment to see a healthy 14.5% YoY growth in Q2. The brokerage has a positive rating on Radico Khaitan's stock, which is also their top pick in the sector.

United Breweries is set to post 6-7% beer volume growth in Q2 FY25 (5% in Q1FY25) as business revives post general elections restrictions, said Elara Securities.

The festival season sales, favourable weather conditions and favourable base of last year are a few factors that will drive earnings growth in the second half of FY25.

H2 likely to be better than H1

Ajay Thakur, research analyst at Anand Rathi Research, said that the second half of FY25 will be better than the first half. As per Thakur, sequential improvement will be visible in Q2 over Q1.

The reduction in glass prices, barley costs, and other factors are expected to positively impact margins, particularly for United Breweries, according to analysts. Additionally, the impact of backward integration is expected to improve Radico Khaitan's gross margin by 50 basis points sequentially, driven by savings on extra-neutral alcohol (ENA) prices, as noted by Elara.

For Radico Khaitan's share price, expansions at Rampur and Sitapur are expected to bring significant benefits, according to Thakur.

While Thakur remains positive on Radico Khaitan, he prefers United Breweries within the sector. He cites the new management, strong growth potential, and a focus on premiumisation as key reasons for his positive outlook on United Breweries.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.